-----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, Eki0qGwnrTeyN0t7GTMt9pjGKXaDzei2HPxiqaxmhV9uXh53PwSegu1LqOi/3ZHP CVUY0u06+7MzLqPfhbfBLQ== /in/edgar/work/20000804/0001036050-00-001387/0001036050-00-001387.txt : 20000921 0001036050-00-001387.hdr.sgml : 20000921 ACCESSION NUMBER: 0001036050-00-001387 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 19 FILED AS OF DATE: 20000804 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ESPERION THERAPEUTICS INC/MI CENTRAL INDEX KEY: 0001066745 STANDARD INDUSTRIAL CLASSIFICATION: [2834 ] IRS NUMBER: 383419139 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-31032 FILM NUMBER: 686007 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 S-1/A 1 0001.txt AMENDMENT NO. 2 TO FORM S-1 As filed with the Securities and Exchange Commission on August 4, 2000 Registration Statement No. 333-31032 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ AMENDMENT NO. 2 to FORM S-1 REGISTRATION STATEMENT Under The Securities Act of 1933 ------------------ ESPERION THERAPEUTICS, INC. (Exact name of Registrant as specified in its charter) Delaware 2834 38-3419139 (State or other (Primary Standard Industrial (IRS Employer jurisdiction of Classification Code No.) Identification Number) incorporation or organization) 3621 S. State Street, 695 KMS Place Ann Arbor, MI 48108 734/332-0506 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------ ROGER S. NEWTON, PH.D. President and Chief Executive Officer Esperion Therapeutics, Inc. 3621 S. State Street, 695 KMS Place Ann Arbor, MI 48108 (734) 332-0506 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------ Copies to: David R. King Mitchell S. Bloom Morgan, Lewis & Bockius LLP Testa, Hurwitz & Thibeault, LLP 1701 Market Street 125 High Street Philadelphia, PA 19103 Boston, MA 02110 (215) 963-5000 (617) 248-7000 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the Prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXPLANATORY NOTE This registration statement contains two forms of prospectus front cover pages and two underwriting sections: (a) one to be used in connection with an offering in the United States and Canada and (b) one to be used in with a covenant offering outside of the United States and Canada. The US/Canada prospectus and the international prospectus are otherwise identical in all respects. The international versions of the front cover page and the underwriting section are included immediately before Part II of this registration statement. ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We may + +not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This prospectus is not an + +offer to sell securities, and we are not soliciting offers to buy these + +securities, in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED AUGUST 4, 2000 [LOGO OF ESPERION THERAPEUTICS] 6,000,000 Shares Common Stock Esperion is offering 6,000,000 shares of its common stock. This is our initial public offering. We have applied to have our common stock approved for quotation on the Nasdaq National Market under the symbol "ESPR." We anticipate that the initial public offering price will be between $8 and $10 per share. --------------- Investing in our common stock involves risks. See "Risk Factors" beginning on page 5. ---------------
Per Share Total ----- ----- Public Offering Price.............................................. $ $ Underwriting Discounts and Commissions............................. $ $ Proceeds to Esperion............................................... $ $
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Esperion has granted the underwriters a 30-day option to purchase up to an additional 900,000 shares of common stock to cover over-allotments. In addition, this prospectus also covers the 500,000 shares of our common stock which will be made available for sale to our employees pursuant to the employee stock purchase plan which will be established concurrently with our initial public offering. --------------- Robertson Stephens Chase H&Q U.S. Bancorp Piper Jaffray The date of this Prospectus is , 2000 You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus. In this prospectus, the "Company," "Esperion," "Esperion Therapeutics," "we," "us," and "our" refer to Esperion Therapeutics, Inc., a Delaware corporation. Until , 2000, all dealers that effect transactions of these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. --------------------- TABLE OF CONTENTS
Page ---- Summary.................................................................. 1 Risk Factors............................................................. 5 Forward-Looking Statements............................................... 15 Use of Proceeds.......................................................... 16 Dividend Policy.......................................................... 16 Capitalization........................................................... 17 Dilution................................................................. 18 Selected Consolidated Financial Data..................................... 19 Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................... 20 Business................................................................. 25 Management............................................................... 41 Certain Relationships and Related Transactions........................... 54 Principal Stockholders................................................... 56 Description of Capital Stock............................................. 58 Shares Eligible for Future Sale.......................................... 61 Underwriting............................................................. 63 Employee Stock Purchase Plan............................................. 65 Lawyers.................................................................. 65 Experts.................................................................. 65 Additional Esperion Information.......................................... 65 Index to Financial Statements............................................ F-1
SUMMARY This summary highlights information contained in this prospectus. You should read the entire prospectus, especially "Risk Factors" and the consolidated financial statements and notes, before deciding to invest in shares of our common stock. Esperion Therapeutics, Inc. We discover and develop pharmaceutical products for the treatment of cardiovascular disease, which is disease of the heart and the body's blood vessels and related organs. We intend to commercialize a novel class of drugs that focus on a new treatment approach we call "HDL Therapy," which is based on our understanding of high density lipoprotein, or HDL, function. HDL is the primary facilitator of the reverse lipid transport, or RLT, pathway. The RLT pathway is responsible for removing excess cholesterol from arteries and other tissues and for its transport to the liver for elimination from the body. Our goal is to develop drugs that exploit the beneficial functions of HDL within the RLT pathway. We currently have five product candidates under development for the treatment of cardiovascular disease. According to the American Heart Association, or AHA, cardiovascular disease is the largest killer of American men and women. Currently, over $15 billion is spent annually on the drug treatment of cardiovascular disease in the United States, in addition to the costs of surgical treatment and care. Two prominent forms of cardiovascular disease are coronary disease, which involves the heart itself, and atherosclerosis, which is the buildup of fatty deposits on artery walls limiting blood flow to the heart, brain and extremities. These two conditions can result in heart attacks, chest pain, known as angina, and a variety of other complications, and are responsible for over half the deaths from cardiovascular disease. The buildup of fats on artery walls in atherosclerosis is usually caused by an imbalance between the "bad" cholesterol, known as low density lipoprotein, or LDL, and the "good" cholesterol, known as high density lipoprotein, or HDL. The generally accepted medical viewpoint is that low levels of HDL and/or high levels of LDL lead to the progression of atherosclerosis. A current treatment for atherosclerosis is the use of pharmaceutical lipid regulating agents, including statins, which limit the progression of the disease by lowering levels of LDL. In 1999 statin sales totaled approximately $9 billion. Statins generally do not promote the regression of atherosclerosis. As a result, invasive surgical procedures, such as balloon angioplasty (the mechanical reopening of closed vessels) or coronary artery bypass surgery, are often required to increase blood supply to the heart. We are developing our product candidates to complement the use of existing lipid regulating agents and minimize the necessity of invasive procedures. We are developing ApoA-I Milano, or AIM, for the treatment of acute coronary disease and restenosis, which is the reclosure of an artery following surgical procedures. We believe AIM, a natural variant of the protein ApoA-I, facilitates the removal and transport of cholesterol and other lipids from arteries. Published studies suggest that human carriers of this protein are protected against the early onset of atherosclerosis. Third-party preclinical studies conducted to evaluate AIM's therapeutic potential indicate that intravenous infusion of AIM can limit the progression and promote regression of atherosclerosis, as well as inhibit restenosis following balloon angioplasty. We plan to initiate clinical trials with AIM in the second half of 2000. We are developing ProApoA-I, a precursor of ApoA-I, the major protein of HDL, for the treatment of life-threatening acute coronary disease, such as unstable angina and ischemia. Third-party published reports of preliminary human clinical studies of ProApoA-I suggest that when it is infused into people with high blood cholesterol levels elimination of cholesterol from the body is increased. We plan to initiate clinical trials with ProApoA-I in the first half of 2001. 1 We are also developing three other product candidates. The first, an RLT peptide, which is a small protein fragment, has been designed to remove cholesterol from arteries and activate specific steps in the RLT pathway. The second, an HDL elevator, is an orally active, small molecule for the sustained elevation of HDL, which we believe increases the efficiency of the RLT pathway. We are also developing large unilamellar vesicles, or LUVs, for the treatment of acute coronary disease. LUVs are made of naturally occurring lipids and enhance the RLT pathway. When injected into the bloodstream, we believe LUVs will have a high capacity to accept cholesterol and deliver it to the liver for elimination from the body. We are managed by an experienced group of drug developers with significant expertise in cardiovascular research and drug development. Roger S. Newton, Ph.D., our President and Chief Executive Officer, was the co-discoverer and chairman of the discovery team and members of the development team responsible for the introduction of Lipitor at Warner-Lambert. Sales of the statin Lipitor, the most frequently prescribed cholesterol lowering drug, exceeded $3.5 billion in 1999. We have devoted substantially all of our resources since we began our operations in May 1998 to the in-licensing and research and development of pharmaceutical product candidates for the treatment of cardiovascular disease. 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 $17.5 million from inception through March 31, 2000. Additional Information Our principal executive offices are located at 3621 S. State St., 695 KMS Place, Ann Arbor, MI 48108, and our telephone number is (734) 332-0506. We have applied for federally registered trademarks for "Esperion" and "Esperion Therapeutics." Although these applications were inadvertently abandoned, we have filed petitions to revive both of these applications. This prospectus also includes trademarks and tradenames of other parties. Recent Development On July 31, 2000, we agreed to enter into a non-binding letter of intent providing for our acquisition of Talaria Therapeutics, Inc., or Talaria, by way of a merger. We believe the completion of the acquisition should advance our development of LUVs. Under the proposed letter of intent, all of the outstanding shares of stock of Talaria would be exchanged for a number of shares of our common stock equal to $6.0 million divided by the initial public offering price per share discounted by 18%. Assuming an initial offering price of $9.00 per share, we would issue 813,008 shares of our common stock to Talaria. We would also make additional payments to Talaria of up to approximately $6.25 million in cash or common stock upon the achievement of future milestones, of which $750,000 may become payable within the next twelve months, and deferred contingent payments based upon net sales of LUVs in North America. The acquisition is not expected to close until after this offering is completed. The acquisition is subject to the negotiation of a definitive acquisition agreement and related documents, which would include customary closing conditions, including approval by each company's board of directors and Talaria's stockholders. Signing of the definitive agreement must occur by August 17, 2000, unless this deadline is extended. As a result, the acquisition may not close, and investors should not rely on the consummation of the acquisition in purchasing the shares offered hereby. The completion of the acquisition of Talaria would also be subject to approval by the other plaintiff and the defendants other than us in a lawsuit that Talaria filed on March 22, 2000 against various persons including us. In this lawsuit, Talaria alleges, among other things, that a patent application that we sublicense improperly incorporates within it confidential information belonging to the person named as the inventor in certain patents that claim the use of LUVs to treat diseases including atherosclerosis. 2 The Offering Common stock offered by Esperion.................... 6,000,000 shares Common stock to be outstanding after this offering.. 24,024,855 shares Use of proceeds..................................... For further development and commercialization of our product candidates, payments under licensing agreements, ongoing research and development, and general corporate and working capital purposes. Proposed Nasdaq National Market symbol.............. ESPR
The number of shares to be outstanding after this offering excludes, as of July 7, 2000: . 1,274,514 shares of common stock issuable upon the exercise of outstanding stock options under our 1998 Stock Option Plan, consisting of 1,257,812 options granted prior to March 31, 2000 at a weighted average exercise price of $1.86 per share and 16,702 options granted after March 31, 2000 at a weighted average exercise price of $5.64 per share; . the shares of common stock that may be issued if we acquire Talaria, estimated to be 813,008 shares based upon an assumed initial public offering price of $9.00 per share; and . the shares issuable under our Employee Stock Purchase Plan. -------------------- Generally, the information in this prospectus, unless otherwise noted: . assumes that the over-allotment option is not exercised; . reflects a 0.7225-for-one reverse split of our common stock to holders of record as of March 24, 2000; . reflects the conversion of all outstanding shares of preferred stock into an aggregate of 15,814,961 shares of common stock, as adjusted for the reverse stock split, upon the closing of this offering; . does not reflect any purchase of shares of our common stock by our employees under our Employee Stock Purchase Plan, or upon exercise of stock options by them; and . does not give effect to our potential acquisition of Talaria. 3 Summary Financial Data (in thousands except share and per share data) The following table presents summary historical and pro forma consolidated financial information for Esperion. The pro forma consolidated statement of operations and consolidated balance sheet data gives effect to our potential acquisition of Talaria. The pro forma as adjusted balance sheet data excludes the effect of the potential acquisition of Talaria and reflects the sale by Esperion of 6,000,000 shares of common stock in this offering at an assumed public offering price of $9.00 per share less underwriting discounts and estimated offering expenses, and the conversion of all outstanding shares of the convertible preferred stock, as though such events had occurred on March 31, 2000. You should read this data together with the consolidated financial statements and notes and the pro forma combined financial statements and notes included in this prospectus.
Period from Period from Inception Three Months Ended March 31, Inception (May 18, 1998) Year Ended ------------------------------------ (May 18, 1998) Through December 31, 1999 2000 Through December 31, ---------------------- ------------------------ March 31, 1998 Actual Pro Forma 1999 Actual Pro Forma 2000 -------------- --------- ----------- ----------- ----------- ----------- -------------- (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Consolidated Statement of Operations Data: Operating expenses: Research and development........... $ 1,923 $ 8,484 $ 10,431 $ 1,270 $ 4,063 $ 4,678 $ 14,470 General and administrative ....... 464 2,518 2,653 315 1,006 1,161 3,988 Amortization of goodwill and other intangible assets..... -- -- 567 -- -- 142 -- --------- --------- --------- --------- ---------- --------- -------- Operating loss........ (2,387) (11,002) (13,651) (1,585) (5,069) (5,981) (18,458) Net other income........ 244 332 396 135 376 398 952 --------- --------- --------- --------- ---------- --------- -------- Net loss................ (2,143) (10,670) (13,255) (1,450) (4,693) (5,583) (17,506) Beneficial conversion feature(1) ........... -- -- -- -- (22,870) (22,870) (22,870) --------- --------- --------- --------- ---------- --------- -------- Net loss attributable to common stockholders.... $ (2,143) $ (10,670) $ (13,255) $ (1,450) $ (27,563) $ (28,453) $(40,376) ========= ========= ========= ========= ========== ========= ======== Basic and diluted net loss per share......... $ (1.46) $ (5.91) $ (5.06) $ (0.85) $ (13.91) $ (10.18) ========= ========= ========= ========= ========== ========= Shares used in computing basic and diluted net loss per share......... 1,466,615 1,806,255 2,619,263 1,705,099 1,980,933 2,793,941 ========= ========= ========= ========= ========== ========= Pro forma basic and diluted net loss per share (unaudited)...... $ (1.14) $ (1.64) ========= ========== Shares used in computing pro forma basic and diluted net loss per share (unaudited)...... 9,392,499 16,836,802 ========= ==========
March 31, 2000 ----------------------------------- December 31, December 31, Pro Forma 1998 1999 Actual Pro Forma As Adjusted ------------ ------------ ---------- ----------- ----------- (unaudited) (unaudited) (unaudited) Consolidated Balance Sheet Data: Cash and cash equivalents............ $12,541 $ 5,904 $ 27,698 $ 28,894 $ 76,318 Working capital......... 12,390 3,143 24,827 25,307 73,447 Total assets............ 13,414 7,999 30,489 34,529 79,109 Long-term debt, less current portion........ -- 2,284 2,123 2,123 2,123 Convertible preferred stock.................. 105 105 219 219 -- Deficit accumulated during the development stage.................. (2,143) (12,813) (17,506) (21,506) (17,506) Total stockholders' equity................. 13,187 2,815 25,085 28,402 74,605
- ------- (1) We recorded approximately $22.9 million relating to the beneficial conversion feature of the series C and series D preferred stock in the first quarter of fiscal 2000 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. 4 RISK FACTORS You should carefully consider the following risk factors, together with all of the other information contained in this prospectus before purchasing our common stock. If any of the following risks actually occur, our business, financial condition and operating results could be seriously harmed, the trading price of our common stock could decline and you may lose all or part of your investment. Risks Related to Our Business If we fail to obtain the capital necessary to fund our operations, we will be unable to successfully develop our product candidates or retain rights to our product candidates. Significant additional capital will be required in the future to fund our operations. We do not know whether additional financing will be available on acceptable terms when needed. We have consumed substantial amounts of cash resources to date and expect capital outlays and operating expenditures to increase over the next several years as we expand our infrastructure and research and development activities. If adequate funds are unavailable, we may be required to: . delay, reduce the scope of, or eliminate one or more of our research or development programs; . license rights to technologies, product candidates or products on terms that are less favorable to us than might otherwise be available; or . obtain funds through arrangements that may require us to relinquish rights to product candidates or products that we would otherwise seek to develop or commercialize ourselves. If we raise additional funds by issuing equity securities, our existing stockholders will own a smaller percentage of Esperion, and new investors may pay less on average for their securities than, and could have rights superior to, existing stockholders. Even if our product candidates are approved and commercialized, we may never be profitable. We have incurred substantial losses since our inception. As of March 31, 2000, we had a cumulative net loss of approximately $17.5 million. These losses have resulted principally from costs incurred in our research and development programs, and from our general and administrative expenses. To date, we have no revenue from product sales or royalties, and we do not expect to achieve any revenue from product sales or royalties until we receive regulatory approval and begin commercialization of our product candidates. We are not certain of when, if ever, that will occur. We expect to incur additional operating losses in the future and these losses could increase significantly, whether or not we generate revenue, as we expand our development and clinical trial efforts. In the near term, we expect our quarterly and annual operating results to fluctuate significantly, depending primarily on the following factors: . timing of preclinical and clinical trials; . interruption or delays in the supply of our product candidates or components; . timing of payments to licensors and corporate partners; . timing of investments in new technologies; and . other costs, including the Talaria litigation. 5 All of our product candidates are at early stages of product development and may never be commercialized. The progress and results of our preclinical testing and any future clinical trials are uncertain, and if our product candidates do not receive regulatory approvals, we will not be permitted to sell them. Our company is only two years old, and we have no products that have received regulatory approval for commercial sale, and we have not yet initiated clinical testing of any of our product candidates. All of our product candidates are in early stages of development, and we face the risks of failure inherent in developing drugs based on new technologies. In addition, most of our product candidates were recently in-licensed from third parties. As a result, we have limited in-house experience with these product candidates. Our product candidates are not expected to be commercially available for several years, if at all. Our product candidates must satisfy rigorous standards of safety and efficacy before they can be approved by the United States Food and Drug Administration, or FDA, and international regulatory authorities for commercial use. The FDA and foreign regulatory authorities have full discretion over this approval process. We will need to conduct significant additional research, testing involving animals and humans before we can file applications for product approval. Typically, in the pharmaceutical industry there is a high rate of attrition for product candidates in preclinical testing and clinical trials. Also, satisfaction of regulatory requirements typically takes many years, is dependent upon the type, complexity and novelty of the product and requires the expenditure of substantial resources. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful. For example, a number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials and in interim analyses. In addition, delays or rejections may be encountered based upon additional government regulation, including any changes in FDA policy, during the process of product development, clinical trials and regulatory approvals. In order to receive FDA approval or approval from foreign regulatory authorities to market a product, we must demonstrate through human clinical trials that the product candidate is safe and effective for the treatment of a specific condition. We do not know whether planned clinical trials will begin on time or will be completed on schedule or at all. For example, any of our future clinical studies might be delayed or halted because: . the drug is not effective, or physicians think that the drug is not effective; . patients experience severe side effects during treatment; . patients die during a clinical study because their disease is too advanced or because they experience medical problems that are not related to the drug being studied; . patients do not enroll in the studies at the rate we expect; or . drug supplies are not sufficient to treat the patients in the studies. If the delays in testing or approvals we experience are significant, or if we need to perform more or larger clinical trials than planned, our product development costs will increase. If the FDA grants regulatory approval of a product, this approval will be limited to those disease states and conditions for which the product has demonstrated through clinical trials to be safe and effective. Any product approvals we receive in the future could also include significant restrictions on the use or marketing of our products. Product approvals, if granted, can be withdrawn for failure to comply with regulatory requirements or upon the occurrence of adverse events following commercial introduction of the products. Failure to comply with applicable FDA or other applicable regulatory requirements may result in criminal prosecution, civil penalties, recall or seizure of products, total or partial suspension of production or injunction, as well as other regulatory action against our product candidates or us. If approvals are withdrawn for a product, or if a product were seized or recalled, we would be unable to sell that product and our revenues would 6 suffer. In addition, outside the United States, our ability to market any of our potential products is contingent upon receiving market application authorizations from the appropriate regulatory authorities and these foreign regulatory approval processes include all of the risks associated with the FDA approval process described above. Our product candidates may not be commercially successful because physicians, patients, and government agencies and other third-party payors may not accept them. Even if regulatory authorities approve our product candidates, they may not be commercially successful. Third parties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect that most of our product candidates will be very expensive, if approved. Patient acceptance of and demand for any product candidates we obtain regulatory approval for will depend largely on the following factors: . acceptance by physicians and patients of our products as safe and effective therapies; . the extent, if any, of reimbursement of drug and treatment costs by government agencies and other third-party payors; . pricing of alternative products; . acceptance by physicians and patients of intravenous administration for some of our proposed products; and . prevalence and severity of side effects associated with our products. In addition, any of our product candidates could cause adverse events, such as immunologic or allergic reactions. These reactions may not be observed in clinical trials, but may nonetheless occur after commercialization. If any of these reactions occur, they may render our product candidates ineffective in some patients and our sales would suffer. If our current and future manufacturing and supply strategies are unsuccessful, then we may be unable to complete any future clinical trials and/or commercialize our product candidates in a timely manner, if at all. Completion of our future clinical trials and commercialization of our product candidates will require access to, or development of, facilities to manufacture a sufficient supply of our product candidates. We do not have the resources, facilities or experience to manufacture our product candidates on our own and do not intend to develop or acquire facilities for the manufacture of product candidates for clinical trials or commercial purposes in the foreseeable future. We currently rely, and will continue to rely for at least the next few years, on contract manufacturers to produce sufficient quantities of our product candidates. All of our contract manufacturers are sole source and most of them have limited experience at manufacturing, formulating, analyzing, filling and finishing our particular product candidates. Our manufacturing strategy presents the following risks: . we may not be able to locate acceptable manufacturers or enter into favorable long-term agreements with them; . third parties may not be able to successfully manufacture our product candidates and even if they can they may not be able to do so in a cost effective and/or timely manner; . the manufacturing processes for our product candidates have not been tested in quantities needed for clinical trials or commercial sales; . delays in scale-up to commercial quantities could delay clinical studies, regulatory submissions and commercialization of our product candidates; . we may not have intellectual property rights, or may have to share intellectual property rights, to many improvements in the manufacturing processes or new manufacturing processes for our product candidates; 7 . manufacturing and validation of manufacturing processes and materials are complicated and time-consuming; . because many of our current third-party manufacturers are located outside of the U.S., there may be difficulties in importing our product candidates and/or their components into the U.S., as a result of, among other things, FDA import inspections, incomplete or inaccurate import documentation, or defective packaging; and . manufacturers of our product candidates are subject to the FDA's current Good Manufacturing Practices regulations, or cGMPs, the FDA's Good Laboratory Practices, or GLPs and similar foreign standards and we do not have control over compliance with these regulations by our third-party manufacturers. We also rely, and intend to continue to rely, on third parties to supply the components, such as proteins, peptides, phospholipids and bulk chemical materials, that we need to develop and commercialize all of our product candidates. There is currently a limited supply of these components. We have not entered into any agreements that provide us assurance of continued availability of these components from any supplier. Our current and/or future suppliers may not be able to adequately supply us with the components necessary to successfully conduct our clinical trials and to commercialize our product candidates. If we cannot acquire an acceptable supply of components to produce our product candidates, we will not be able to complete clinical trials and will not commercialize our product candidates. If the third-party clinical research organizations we intend to rely on to conduct our future clinical trials do not perform in an acceptable and timely manner, our clinical trials could be delayed or unsuccessful. We do not have the ability to independently conduct clinical trials and obtain regulatory approvals for our product candidates, and we intend to rely on clinical investigators and third-party clinical research organizations to perform these functions. If we cannot locate acceptable contractors to run our clinical trials or enter into favorable agreements with them, or if these third parties do not successfully carry out their contractual duties or meet expected deadlines, we will be unable to obtain required approvals and will be unable to commercialize our product candidates on a timely basis, if at all. If our licensing arrangements and strategic relationships with third parties are breached, terminated or proven to be unsuccessful, we may lose rights with respect to product candidates, and we may not be able to develop and commercialize our product candidates on a timely basis, if at all. We are only two years old and most of our product candidates were recently in-licensed from third parties. We depend, and will continue to depend, on these and other licensing arrangements and other strategic relationships with third parties for the research, development, manufacturing and commercialization of our product candidates. Our rights may be terminated if we do not perform as required under these arrangements. In addition, these third parties may also breach or terminate their agreements with us or otherwise fail to conduct their activities in connection with our relationships in a timely manner. If any of our licenses or relationships are terminated or breached, we may: . lose our rights to develop and market our product candidates; . lose patent and/or trade secret protection for our product candidates; . experience significant delays in the development or commercialization of our product candidates; . not be able to obtain any other licenses on acceptable terms, if at all; and . incur liability for damages. Licensing arrangements and strategic relationships in our industry can be very complex, particularly with respect to intellectual property rights. Disputes may arise in the future regarding ownership rights to 8 technology developed by or with other parties. These and other possible disagreements between us and third parties with respect to our licenses or our strategic relationships could lead to delays in the research, development, manufacture and commercialization of our product candidates. These third parties may also pursue alternative technologies or product candidates either on their own or in strategic relationships with others in direct competition with us. These disputes could also result in litigation or arbitration, both of which are time-consuming and expensive. If we fail to secure and then enforce patents and other intellectual property rights underlying our product candidates and technologies, we may be unable to develop our product candidates or compete effectively. The pharmaceutical industry places considerable importance on obtaining patent and trade secret protection for new technologies, products and processes. Our success will depend, in part, on our ability, and the ability of our licensors, to obtain and to keep protection for our products and technologies under the patent laws of the United States and other countries, so that we can stop others from using our inventions. Our success also will depend on our ability to prevent others from using our trade secrets. In addition, we must operate in a way that does not infringe, or violate, the patent, trade secret, and other intellectual property rights of other parties. The standards which the U.S. Patent and Trademark Office uses to grant patents can change. Consequently, we may be unable to determine the type and extent of patent claims that will be issued to us or to our licensors in the future. Any patents which do issue may not contain claims which will permit us to stop competitors from using the same or similar technology. The standards which courts use to interpret patents can change, particularly as new technologies develop. Consequently, we cannot know how much protection, if any, our patents will provide, if we attempt to enforce them and they are challenged in court. If we choose to go to court to stop someone else from using the inventions claimed in our patents, that individual or company has the right to ask the court to rule that our patents are invalid and should not be enforced against them. This type of lawsuit is expensive and will consume time and other resources, even if we are successful in stopping the violation of our patents. In addition, there is a risk that the court will decide that our patents are not valid and that we do not have the right to stop the other party from using the inventions. There is also the risk that, even if the validity of our patents is upheld, that the court will refuse to stop the other party on the ground that its activities are not covered by, that is, do not infringe, the patent. We may face significant expense and liability as a result of litigation or other proceedings relating to patents and other intellectual property rights of others. Should third parties file patent applications, or be issued patents, claiming technology also claimed by us in pending applications, we may be required to participate in interference proceedings in the United States Patent and Trademark Office to determine priority of invention. We, or our licensors, also could be required to participate in interference proceedings involving our issued patents and pending applications of another entity. An adverse outcome in an interference proceeding could require us to cease using the technology or to license rights from prevailing, third parties. There is no guarantee that any prevailing party would offer us a license or that such a license, if made available to us, could be acquired on commercially-acceptable terms. A third party may claim that we are using inventions claimed by their patents and may go to court to stop us from engaging in our normal operations and activities, such as research and development, and the sale of any future products. Such lawsuits are expensive and would consume time and other resources. There is a risk that the court will decide that we are infringing the third party's patents and will order us to stop the activities claimed by the patents. In addition, there is a risk that a court will order us to pay the other party damages for having infringed their patents. Moreover, there is no guarantee that the prevailing patent owner 9 would offer us a license so that we could continue to engage in activities claimed by the patent, or that such a license, if made available to us, could be acquired on commercially-acceptable terms. In addition, third parties may, in the future, assert other intellectual property infringement claims against us with respect to our product candidates, technologies or other matters. Our success also depends upon the skills, knowledge and experience of our scientific and technical personnel. The confidentiality agreements required of our employees and that we enter into with other parties may not provide adequate protection for our trade secrets, know-how or other confidential information or prevent any unauthorized use or disclosure or the unlawful development by others. If any of our confidential intellectual property is disclosed, our business may suffer. In addition, many of our scientific and management personnel were previously employed by other biotechnology and pharmaceutical companies, where they were conducting research in areas similar to those that we now pursue. As a result, we could be subject to allegations of trade-secret violations and other claims relating to the intellectual property rights of these companies. If we cannot settle the Talaria litigation, we may face significant legal expense and may have to divest or reduce our LUV program. There are issued patents that name Dr. Kevin Williams as an inventor and are assigned to Talaria, that claim use of LUVs to treat diseases including atherosclerosis. We do not believe that the manufacture, use or sale of LUVs by us does or would infringe any valid and enforceable claim of these patents. However, if these patents are found to contain claims infringed by the manufacture, use or sale of LUVs and such claims are ultimately found to be valid and enforceable, we may not be able to obtain a license to the intellectual property in such patents at an acceptable cost, if at all, or develop or obtain alternative technology, which would prevent us from commercializing our LUV technology. On March 22, 2000, Talaria filed a lawsuit against us and Inex Pharmaceuticals Corp., or Inex, the University of British Columbia, or UBC, and the two inventors named on patent applications we sub-licensed from Inex. One of these inventors is now employed by us. One of the allegations in the lawsuit, which was filed in the United States District Court for the Eastern District of Virginia, is the improper incorporation into a UBC patent application of certain confidential information of Dr. Williams. This UBC patent application is exclusively licensed to Inex and sublicensed to us. In addition to seeking damages, Talaria is asking to be named as the owner or co- owner of the UBC patent application. The parties to the lawsuit have agreed that UBC would take appropriate action in the United States Patent and Trademark Office to prevent issuance of the UBC patent application as a patent until the court had an opportunity to decide certain motions. These motions include one filed by Talaria for a preliminary injunction that would have UBC withdraw the UBC patent applications pending a full trial of the lawsuit or prevent UBC from prosecuting the patent applications. We, and the other defendants, after preliminary investigation, believe that the lawsuit is without merit. We also believe that Inex is required to indemnify us against damages or settlement amounts and costs associated with the defense of the lawsuit arising out of the allegations by Talaria and Dr. Williams relating to misuse of confidential information, which indemnification would likely not be broad enough to cover all of our costs and any damages or settlement amounts in connection with this lawsuit. However, an adverse result in the litigation could lead us to discontinue our efforts to commercialize the LUV technology sublicensed by us from Inex. Before the court could rule on the motions filed by Talaria, or those filed by us and Inex in response thereto, we engaged in settlement discussions with Talaria. The settlement discussions have led to a proposed non-binding letter of intent providing for our acquisition of Talaria by way of a merger. Under the proposed letter of intent, all of the outstanding shares of stock of Talaria would be exchanged for a number of shares of our common stock equal to $6.0 million divided by the initial public offering price per share discounted by 18%. Assuming an initial offering price of $9.00 per share, we would issue 813,008 shares of our common stock to Talaria. We would also make additional payments to Talaria of up to approximately $6.25 million in cash or common stock upon the achievement of future milestones, of which $750,000 may become payable within the next twelve months, and deferred contingent payments based upon net sales of LUVs in North America. The acquisition is not expected to close until after this offering is completed. The acquisition is 10 subject to the negotiation of a definitive acquisition agreement and related documents, which would include customary closing conditions, including approval by each company's board of directors and Talaria's stockholders. Signing of the definitive agreement must occur by August 17, 2000, unless this deadline is extended. In addition, the completion of the acquisition of Talaria would also be subject to the approval of the other plaintiff and the defendants other than us in the lawsuit that Talaria filed and the signing of settlement and release documents by all parties to the lawsuit. No assurance can be given that any acquisition of Talaria, or any settlement of litigation, can be negotiated. If we cannot settle the Talaria litigation, we will be required to defend the litigation in court. While, as noted above, we believe that there are valid defenses to Talaria's claims as well as certain indemnification rights against Inex, any such defense would be expensive and would divert management's attention, and there can be no assurances as to the ultimate outcome. If we fail to recruit, retain and motivate skilled personnel our product development programs and our research and development efforts may be delayed. We are a small company with 48 employees, and our success depends on our continued ability to recruit, retain and motivate highly qualified management and scientific personnel, for which competition is intense. In particular, our product development programs depend on our ability to recruit and retain highly skilled chemists and clinical development personnel. Our loss of the services of any key personnel, in particular, Roger S. Newton, Ph.D., our Chief Executive Officer, could significantly impede the achievement of our research and development objectives and could delay our product development programs and approval and commercialization of any of our product candidates. We maintain key man life insurance on Dr. Newton in the amount of $5 million, but do not have similar insurance on any of our other key employees. In addition, we will need to hire additional personnel as we continue to expand our research and development activities. We do not know if we will be able to recruit, retain or motivate personnel. If our competitors develop and commercialize products faster than we do or which are superior to our product candidates, our commercial opportunities will be reduced or eliminated. The extent to which any of our product candidates achieve market acceptance will depend on competitive factors, many of which are beyond our control. Competition in the pharmaceutical industry is intense and has been accentuated by the rapid pace of technology development. Our competitors include large integrated pharmaceutical companies, biotechnology companies that currently have drug and target discovery efforts, universities and public and private research institutions. Almost all of these entities have substantially greater research and development capabilities and financial, scientific, manufacturing, marketing and sales resources than we do, as well as more experience in research and development, clinical trials, regulatory matters, manufacturing, marketing and sales. These organizations also compete with us to: . attract parties for acquisitions, joint ventures or other collaborations; . license the proprietary technology that is competitive with the technology we are practicing; . attract funding; and . attract and hire scientific talent. Our competitors may succeed in developing and commercializing products earlier and obtaining regulatory approvals from the FDA more rapidly than we do. Our competitors may also develop products or technologies that are superior to those we are developing, and render our product candidates or technologies obsolete or non-competitive. If we cannot successfully compete with new or existing products our marketing and sales will suffer and we may not ever be profitable. If we are unable to create sales, marketing and distribution capabilities or enter into agreements with third parties to perform these functions, we will not be able to successfully commercialize any of our product candidates. 11 We currently have no sales, marketing or distribution capability. In order to successfully commercialize any of our product candidates, we must either internally develop sales, marketing and distribution capabilities or make arrangements with third parties to perform these services. If we do not develop a marketing and sales force with technical expertise and supporting distribution capabilities, we will be unable to market any of our products directly. To promote any of our products through third parties, we will have to locate acceptable third parties for these functions and enter into agreements with them on acceptable terms and we may not be able to do so. In addition, any third-party arrangements we are able to enter into may result in lower revenues than we could have achieved by directly marketing and selling our products. If product liability lawsuits are successfully brought against us, we may incur substantial liabilities and may be required to limit commercialization of our products. Our business exposes us to potential product liability risks, which are inherent in the testing, manufacturing, marketing and sale of pharmaceutical products. We may not be able to avoid product liability claims. Product liability insurance for the pharmaceutical industry is generally expensive, if available at all. We do not currently have any product liability insurance. If we are unable to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims, we may be unable to commercialize our product candidates. A successful product liability claim brought against us in excess of our insurance coverage, if any, may cause us to incur substantial liabilities and our business may fail. If we use biological and hazardous materials in a manner that causes injury, we may be liable for damages. Our research and development activities involve the controlled use of potentially harmful biological materials as well as hazardous materials, chemicals and various radioactive compounds. We cannot completely eliminate the risk of accidental contamination or injury from the use, storage, handling or disposal of these materials. In the event of contamination or injury, we could be held liable for damages that result, and any liability could exceed our resources. We are subject to federal, state and local laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. The cost of compliance with these laws and regulations could be significant. Risks Related to the Offering Our stock price is likely to be highly volatile, and if the market price of our common stock after this offering is lower than the price you paid, you will not be able to sell your shares without incurring a loss. Prior to this offering, there has been no public market for our common stock. If you purchase shares of our common stock in this offering, you will not pay a price that was established in a competitive market. Rather, you will pay a price that we negotiated with the representatives of the underwriters. The price of our common stock that will prevail in the market after this offering may be lower than the price you pay. After this offering, an active trading market in our stock might not develop or continue. The market price of our common stock may fluctuate significantly in response to many factors, some of which are beyond our control, including the following: . results of preclinical studies and clinical trials conducted by us or by others; . timing of regulatory approvals; . announcements of technological innovations or new commercial products by us, or by others; . developments or disputes concerning patents or other proprietary rights; 12 . regulatory developments in both the United States and foreign countries; . changes in reimbursement policies; . rate of product acceptance; . fluctuations in our operating results; . failure to meet estimates of or changes in recommendations by securities analysts; . public concern as to the safety and efficacy of product candidates developed by us, or by others; . lack of adequate trading liquidity as a public company; or . general market conditions. In addition, the market price for securities of early-stage drug companies has been particularly volatile. In the past, following periods of volatility in the market price of a particular company's securities, securities class action litigation has often been brought against that company. We may become subject to this type of litigation in the future. Litigation of this type is often extremely expensive and diverts management's attention. You will incur immediate and substantial dilution of the value of your shares. The assumed offering price of our common stock is substantially higher than the net tangible pro forma book value per share of our outstanding common stock. As a result, investors purchasing common stock in this offering will incur immediate and substantial dilution in the net tangible book value of their common stock of $5.89 per share on a pro forma basis at March 31, 2000 based on the assumed public offering price of $9.00 per share. In the past, we issued options to acquire capital stock at prices significantly below the assumed public offering price. There will be further dilution to investors when any of these outstanding options are exercised. If a large number of shares of our common stock are sold after this offering, or if there is the perception that such sales could occur, the market price of our common stock may decline. The market price of our common stock could decline due to sales of a large number of shares in the market after this offering or the perception that such sales could occur, including sales or distributions of shares by our large stockholders. Any such sales could also make it more difficult for us to sell equity securities in the future at a time and price that we deem appropriate to raise funds through future offerings of common stock and could also make it more difficult for us to pay in stock for any acquisitions we decide to pursue in the future. Because our officers, directors and principal stockholders will own over 50% of our outstanding shares of common stock upon the completion of this offering, they could control our actions in a manner that conflicts with the interests of our other stockholders. Our officers, directors and principal stockholders, if they choose to act together, may be able to exert considerable influence over us, including in the election of directors and the approval of actions submitted to our stockholders. In addition, without the consent of these officers, directors and principal stockholders, we may be prevented from entering into transactions that could be beneficial to us, such as a change in control. We may have contingent liability arising out of a possible violation of Section 5 of the Securities Act of 1933 in connection with electronic mail sent to employees in the proposed directed share program. As part of the offering, the underwriters and we had initially determined to make available up to 7% of the common stock to be issued by us and offered for sale in this offering, at the initial public offering price to our directors, officers, employees, business associates and related persons. In March 2000, we sent electronic mail with respect to this proposed directed share program to all of our employees. In addition, company officials responded by electronic mail to follow-up inquiries from employees and other potential participants by providing further information on the logistics and other matters concerning the program. We believe that 20 employees 13 who have expressed an interest in participating in the program received the electronic mail. The electronic mail set forth certain procedural aspects of the proposed directed share program and informed the recipients that they might have an opportunity to participate in the proposed directed share program. We did not deliver a preliminary prospectus for our initial public offering to the employees who received the electronic mail prior to sending the electronic mail, but we later provided a preliminary prospectus to each of our employees who received the electronic mail. We may have contingent liability arising out of a possible violation of Section 5 of the Securities Act of 1933 in connection with the electronic mail sent to employees who participate in the proposed directed share program. Any liability would depend upon the number of shares purchased by the recipients of such electronic mail. If any such liability is asserted, we will contest the matter strenuously. We do not believe that any such liability would be material to our financial condition. 14 FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements under the captions "Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere. When used in this prospectus, the words "aim," "believe," "anticipate," "estimate," "expect," "seek," "intend," "may" and similar expressions are generally intended to identify "forward-looking statements." Our forward- looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors are discussed in more detail elsewhere in this prospectus, including under the captions "Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." Because of these uncertainties, you should not place undue reliance on our forward-looking statements. In addition, the safe harbor for forward-looking statements contained in the Securities Litigation Reform Act of 1995 is not available under the Securities Act of 1933, as amended, for this offering in respect of our forward-looking statements contained in this prospectus. 15 USE OF PROCEEDS We estimate our net proceeds from the sale of 6,000,000 shares of common stock to the public in this offering will be approximately $48.6 million, or approximately $56.2 million if the underwriters' over-allotment option is exercised in full. This is based upon an assumed public offering price of $9.00 per share, less underwriting discounts and estimated offering expenses, and does not reflect the sale of any shares of common stock under our Employee Stock Purchase Plan. We expect to use these proceeds for the following purposes: . approximately $38.0 million for further development and commercialization of our product candidates; . approximately $1.3 million for payments under current licensing agreements; . ongoing research and development activities; and . the balance for general corporate and working capital purposes. In addition, a portion of the net proceeds may be used to acquire businesses, products and technologies that are comparable to ours. Other than the potential acquisition of Talaria, we currently have no agreements with respect to acquisitions. We will retain broad discretion in the allocation of the net proceeds of this offering, and the amounts and timing of our actual expenditures for each purpose may vary significantly depending upon numerous factors, including: . the size, scope and progress of our product candidate development efforts; . regulatory approvals; . competition; . marketing and sales activities; . the market acceptance of any products introduced by us; . future revenue growth, if any; and . the amount of cash, if any, we generate from operations. Pending uses described above, we intend to invest the net proceeds of this offering in short-term, investment-grade, interest-bearing securities. DIVIDEND POLICY We have never declared or paid cash dividends on our capital stock. We do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain any future earnings to fund the continued development of our business. In addition, our existing U.S. credit facility prohibits the payment of dividends. 16 CAPITALIZATION The following table sets forth, as of March 31, 2000, (1) our actual capitalization derived from our unaudited consolidated financial statements, (2) our pro forma capitalization to reflect the conversion of 21,889,242 shares of preferred stock into 15,814,961 shares of common stock upon the closing of this offering, and (3) our pro forma capitalization as adjusted to reflect the sale of 6,000,000 shares of common stock offered hereby at an assumed public offering price of $9.00 per share, less underwriting discounts and estimated offering expenses, and the conversion of all outstanding shares of convertible preferred stock into common stock upon the closing of the offering.
As of March 31, 2000 ------------------------------------ (unaudited) Pro Forma Actual Pro Forma As Adjusted -------- -------------- ----------- (in thousands) Long-term debt, less current portion...... $ 2,123 $ 2,123 $ 2,123 -------- -------- -------- Stockholders' equity: Preferred stock, $0.01 par value, 25,525,251 shares authorized at March 31, 2000: Series A convertible preferred, 500,000 shares issued and outstanding actual, none issued and outstanding pro forma and pro forma as adjusted........................ 5 -- -- Series B convertible preferred, 10,000,000 shares issued and outstanding actual, none issued and outstanding pro forma and pro forma as adjusted........................ 100 -- -- Series C convertible preferred, 10,252,879 shares issued and outstanding actual, none issued and outstanding pro forma and pro forma as adjusted........................ 103 -- -- Series D convertible preferred, 1,136,363 shares issued and outstanding actual, none issued and outstanding pro forma and pro forma as adjusted........................ 11 -- -- -------- -------- -------- Total convertible preferred stock.. 219 -- -- -------- -------- -------- Common stock, $0.001 par value, 30,611,112 shares authorized, 2,202,128 shares issued and outstanding actual, 18,017,089 issued and outstanding pro forma, and 24,017,089 issued and outstanding pro forma as adjusted..................... 2 18 24 Additional paid-in capital.............. 45,960 46,163 95,677 Notes receivable........................ (99) (99) (99) Deferred stock compensation............. (3,487) (3,487) (3,487) Accumulated deficit during the development stage..................... (17,506) (17,506) (17,506) Accumulated other comprehensive loss.... (4) (4) (4) -------- -------- -------- Total stockholders' equity......... 25,085 25,085 74,605 -------- -------- -------- Total capitalization............... $ 27,208 $ 27,208 $75,828 ======== ======== ========
The number of shares of common stock to be outstanding after this offering on a pro forma as adjusted basis as of March 31, 2000, is based on the 2,202,128 shares outstanding as of March 31, 2000 plus 15,814,961 shares issuable upon the conversion of all outstanding shares of convertible preferred stock into common stock upon the closing of this offering, and the 6,000,000 shares offered hereby. The number of shares to be outstanding after this offering excludes, as of March 31, 2000, 1,265,939 shares of common stock issuable upon the exercise of outstanding options under our 1998 Stock Option Plan at a weighted average exercise price of $1.85 per share; 813,008 shares of common stock that may be issued in connection with the closing of our potential acquisition of Talaria based upon an assumed initial public offering price of $9.00 per share; and 500,000 shares issuable under our Employee Stock Purchase Plan. 17 DILUTION As of March 31, 2000, our pro forma, unaudited, net tangible book value was $25,085,131, or $1.39 per share. Pro forma net tangible book value per share is determined by dividing pro forma net tangible book value (total tangible assets less total liabilities) by the pro forma number of shares of common stock after giving effect to the conversion of all outstanding shares of preferred stock into an aggregate of 15,814,961 shares of common stock, upon the closing of this offering. Without taking into effect any changes in pro forma net tangible book value after March 31, 2000, after giving effect to the sale of the 6,000,000 shares of common stock offered hereby at an assumed public offering price of $9.00 per share, the pro forma as adjusted net tangible book value would have been $74,605,131, or $3.11 per share. This represents an immediate increase in pro forma net tangible book value of $1.72 per share to existing stockholders and dilution in pro forma as adjusted net tangible book value of $5.89 per share to new investors who purchase shares in this offering. The following table illustrates this dilution: Assumed offering price per share.................................. $9.00 Pro forma net tangible book value per share at March 31, 2000... $1.39 Increase per share attributable to new investors................ 1.72 ----- Pro forma as adjusted net tangible book value per share after the offering........................................................ 3.11 ----- Dilution in net tangible book value per share to new investors.... $5.89 =====
If the underwriters' over-allotment option were exercised in full, the pro forma as adjusted net tangible book value per share as of March 31, 2000, after giving effect to the offering, would be $3.30 per share, the increase in net tangible book value per share to existing stockholders would be $1.91 per share and the dilution in net tangible book value to new investors would be $5.70 per share. If the proposed acquisition of Talaria occurs, and the estimated 813,008 shares of our common stock are issued, the pro forma as adjusted net tangible book value per share as of March 31, 2000, after giving effect to the offering and excluding the underwriters' over-allotment option would be $3.02 per share. The increase in net tangible book value per share to existing stockholders would be $1.63 per share and the dilution in net tangible book value to new investors would be $5.98 per share. The following table summarizes, on a pro forma as adjusted basis as of March 31, 2000, the differences between the total consideration and the average price per share paid by the existing stockholders and the new investors with respect to the number of shares of common stock purchased from us based on an assumed offering price of $9.00 per share:
Average Shares Total Consideration Price ------------------ ------------------- Per Number Percent Amount Percent Share ---------- ------- ----------- ------- ------- Existing stockholders......... 18,017,089 75.0% $42,822,497 44.2% $2.38 New investors................. 6,000,000 25.0 54,000,000 55.8% 9.00 ---------- ----- ----------- ----- Total.................... 24,017,089 100.0% $96,822,497 100.0% ========== ===== =========== =====
These tables do not assume exercise of stock options outstanding at March 31, 2000, including options for 7,766 shares exercised since such date. As of July 7, 2000 there were 1,274,514 shares issuable upon exercise of outstanding stock options, consisting of 1,257,812 options granted prior to March 31, 2000 at a weighted average exercise price of $1.86 per share and 16,702 options granted after March 31, 2000 at a weighted average exercise price of $5.64 per share. 18 SELECTED CONSOLIDATED FINANCIAL DATA (in thousands except share and per share data) The following historical and pro forma selected consolidated financial data of Esperion should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 20, the consolidated financial statements and notes beginning on page F-3 and the pro forma combined financial information beginning on page F-27. The selected consolidated financial data for the period from inception (May 18, 1998) through December 31, 1998 and the year ended December 31, 1999 are derived from our audited consolidated financial statements. The selected financial data for each of the interim periods ended March 31, 1999 and 2000, and for the period from inception through March 31, 2000 are derived from unaudited consolidated financial statements. We have prepared this unaudited information on the same basis as the audited financial statements and have included all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for such periods. The pro forma consolidated statements of operations data gives effect to our potential acquisition of Talaria as if it occurred at the beginning of the pro forma periods presented. The pro forma consolidated balance sheet data gives effect to our pending acquisition of Talaria as if it occurred as of that date. The completion of this offering is not contingent on the consummation of the acquisition, which is not expected to close until after the completion of this offering and is subject to certain conditions. The pro forma as adjusted balance sheet data reflect the sale by Esperion of 6,000,000 shares of common stock in this offering at an assumed public offering price of $9.00 per share, less underwriting discounts and estimated offering expenses, and the conversion of all outstanding shares of the convertible preferred stock, as though such events had occurred on March 31, 2000 and excludes the issuance of an estimated 813,008 shares in the potential acquisition of Talaria based on an assumed initial public offering price of $9.00 per share.
Period from Period from Inception Year Ended Inception (May 18, 1998) December 31, Three Months Ended March 31, (May 18, 1998) Through 1999 ------------------------------------ Through December 31, ---------------------- 2000 March 31, 1998 Actual Pro Forma 1999 Actual Pro Forma 2000 -------------- --------- ----------- ----------- ----------- ----------- -------------- (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Consolidated Statement of Operations Data: Operating expenses: Research and development........... $ 1,923 $ 8,484 $ 10,431 $ 1,270 $ 4,063 $ 4,678 $ 14,470 General and administrative ....... 464 2,518 2,653 315 1,006 1,161 3,988 Amortization of goodwill and other intangible assets..... -- -- 567 -- -- 142 -- --------- --------- --------- --------- ---------- --------- -------- Operating loss........ (2,387) (11,002) (13,651) (1,585) (5,069) (5,981) (18,458) Net other income........ 244 332 396 135 376 398 952 --------- --------- --------- --------- ---------- --------- -------- Net loss................ (2,143) (10,670) (13,255) (1,450) (4,693) (5,583) (17,506) Beneficial conversion feature(1) ........... -- -- -- -- (22,870) (22,870) (22,870) --------- --------- --------- --------- ---------- --------- -------- Net loss attributable to common stockholders.... $ (2,143) $ (10,670) $ (13,255) $ (1,450) $ (27,563) $ (28,453) $(40,376) ========= ========= ========= ========= ========== ========= ======== Basic and diluted net loss per share......... $ (1.46) $ (5.91) $ (5.06) $ (0.85) $ (13.91) $ (10.18) ========= ========= ========= ========= ========== ========= Shares used in computing basic and diluted net loss per share......... 1,466,615 1,806,255 2,619,263 1,705,099 1,980,933 2,793,941 ========= ========= ========= ========= ========== ========= Pro forma basic and diluted net loss per share (unaudited)...... $ (1.14) $ (1.64) ========= ========== Shares used in computing pro forma basic and diluted net loss per share (unaudited)...... 9,392,499 16,836,802 ========= ==========
March 31, 2000 ----------------------------------- December 31, December 31, Pro Forma 1998 1999 Actual Pro Forma As Adjusted ------------ ------------ ---------- ----------- ----------- (unaudited) (unaudited) (unaudited) Consolidated Balance Sheet Data: Cash and cash equivalents............ $12,541 $ 5,904 $ 27,698 $28,894 $76,318 Working capital......... 12,390 3,143 24,827 25,307 73,447 Total assets............ 13,414 7,999 30,489 34,529 79,109 Long-term debt, less current portion........ -- 2,284 2,123 2,123 2,123 Convertible preferred stock.................. 105 105 219 219 -- Deficit accumulated during the development stage.................. (2,143) (12,813) (17,506) (21,506) (17,506) Total stockholders' equity................. 13,187 2,815 25,085 28,402 74,605
- ------- (1) We recorded approximately $22.9 million relating to the beneficial conversion feature of the series C and series D preferred stock in the first quarter of fiscal 2000 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. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 disease. 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 $17.5 million from inception through March 31, 2000. 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. Research and development costs relating to product candidates will continue to increase. Manufacturing, sales and marketing costs will increase as we prepare for the commercialization of our products. Equity Financings We have financed our operations primarily from the net proceeds generated from the issuance of convertible preferred stock. As of July 7, 2000, we have received total proceeds of approximately $42.4 million from the following sales of preferred stock: . 500,000 shares of series A preferred stock were sold in July 1998 raising total proceeds of approximately $500,000; . 10,000,000 shares of series B preferred stock were sold in August 1998 raising total proceeds of approximately $15.0 million; . 10,252,879 shares of series C preferred stock were sold in January 2000 raising total proceeds of approximately $21.9 million; and . 1,136,363 shares of series D preferred stock were sold in February 2000 raising total proceeds of approximately $5.0 million. Each of such shares will be convertible into 0.7225 shares of common stock upon the closing of this offering. Milestone Payments, Royalties and License Fees In June 1998, we acquired exclusive, worldwide rights to AIM from Pharmacia Corporation. Under our agreement with Pharmacia, we acquired four U.S. patents and four pending U.S. patent applications, and other related foreign patents and patent applications covering various aspects of AIM. Under this agreement, at the completion of Phase II clinical trials, Pharmacia has the exclusive right of election to co-develop and the exclusive right to market AIM in countries outside of the United States and Canada. In addition, if we pursue a co-development and co-promotion arrangement in the United States and Canada with another party, Pharmacia has the right of first negotiation to co- develop and co-promote in the United States and Canada. We paid Pharmacia $750,000 at the time we entered into our agreement for AIM in June 1998. Our agreement with Pharmacia requires us to make payments to Pharmacia as milestones are achieved, and to pay Pharmacia royalties on sales of products that are covered by the Pharmacia patents or developed using the Pharmacia technology. The first milestone payment will be paid in cash or by issuance of a promissory note to Pharmacia if and when we have completed clinical trials showing preliminary safety and initial proof-of-concept (which may include early Phase IIa studies). We believe that this would mean clinical trials which show favorable trends in safety and efficacy, allowing us to better define the details of any Phase III pivotal trials. If Pharmacia exercises its exclusive right to co-develop and market AIM in countries other than the United States and Canada, then we will make additional milestone payments to Pharmacia. If Pharmacia does not exercise its right to co-develop and market AIM in countries other than the United States and Canada, then we will make several milestone payments to Pharmacia starting if and when we enroll the first patient in the first Phase III clinical trial for AIM in the United States. Instead of paying milestones in cash, if the milestone payments are greater than 10% of our cash reserves at the time of payment, we may instead make these payments by issuing Pharmacia a promissory note. This license, unless earlier terminated, will continue until the later of 20 years from the date of the license or the last expiration date of any patent rights covered by this license. 20 In September 1999, we exclusively licensed from a group of inventors, the RLT peptide technology, including one issued United States patent and 13 pending United States patent applications, and certain corresponding foreign patent applications pending. We paid the inventors of our RLT peptide an initial license fee of $50,000 in January 2000. Our license agreement with the inventors requires us to make payments to them as milestones are achieved, and to pay them royalties on sales of products that are covered by the inventors' patents or developed using the inventors' technology. Additional milestone payments will be paid to the inventors if and when we achieve various future development milestones outlined in the agreement with the inventors. This license terminates on the later of ten years from the date of the license execution or the last expiration date of any patent rights covered by this license. In February 2000, we entered into a license agreement with Region Wallonne in which we were granted exclusive worldwide rights to its patents and applications, proprietary information and know-how concerning ProApoA-I. As part of this license, we have also agreed to purchase supplies of ProApoA-I from, and to enter into a research collaboration with, Region Wallonne. We paid Region Wallonne $25,000 at the time we entered into our license agreement in February 2000. Our license agreement with Region Wallonne requires us to pay royalties on sales of products that are covered by the Region Wallonne patents. This license remains in effect, unless earlier terminated, until the later to occur of 20 years from the date of the agreement or the last expiration date of any patent rights covered by the license. In March 1999, we exclusively sub-licensed for Europe and the United States certain LUV technology from Inex Pharmaceuticals Corporation which had licensed the technology from the University of British Columbia. We paid Inex $250,000 at the time we entered into our sub-license agreement for LUVs in March 1999. Our license agreement with Inex requires us to make payments to Inex as milestones are achieved, and to pay Inex royalties on sales of products that are covered by the UBC patents or developed using the licensed technology. A milestone payment will be paid to Inex if and when we enroll our first patient in a Phase II clinical trial. Other milestone payments will be paid to Inex if and when we achieve various future development milestones outlined in the agreement with Inex. This license remains in effect, unless earlier terminated, until the later of ten years from the first commercial sale of a product covered by this license or the last expiration date of any patent rights covered by this license. This license is the subject of litigation. In connection with our license agreements, as discussed above, we may be obligated to make various milestone and future royalty payments as defined in the agreements, up to an aggregate amount of $25.2 million, including up to an aggregate amount of $8.75 million pursuant to the license agreement with Inex Pharmaceuticals Corporation, but not including royalty payments on future sales. Based on our current development timelines, approximately $300,000 of the $25.2 million could become due during the next twelve months. In the near term, these obligations will be funded from our existing cash balance. At the present time, it is uncertain as to whether we will be required to make these additional payments. Recent Development On July 31, 2000, we agreed to enter into a non-binding letter of intent providing for our acquisition of Talaria by way of a merger. Under the proposed letter of intent, all of the outstanding shares of stock of Talaria would be exchanged for a number of shares of our common stock equal to $6.0 million divided by the initial public offering price per share discounted by 18%. Assuming an initial offering price of $9.00 per share, we would issue 813,008 shares of our common stock to Talaria. We would also make additional payments to Talaria of up to approximately $6.25 million in cash or common stock upon the achievement of future milestones, of which $750,000 may become payable within the next twelve months, and deferred contingent payments based on net sales of LUVs in North America. The acquisition, if completed, will be accounted for under the purchase method of accounting. The purchase price will be allocated to both tangible and intangible assets. As a result of this allocation, we expect to write-off approximately $4.0 million of acquired in- process research and development. Any remaining purchase price will be allocated to goodwill and amortized over a five-year period. The final allocation will be based on an independent appraisal of the fair values on the closing date. Our expectation with respect to these amounts, adjustments and periods are preliminary and therefore subject to substantial sequential adjustments. The acquisition is not expected to close until after this offering is completed. 21 The acquisition will result in significant one-time charges, whether completed or not, and, if completed, could substantially increase our operating expenses in future periods. Results of Operations Three Months Ended March 31, 2000 Research and Development Expenses. Research and development expenses increased to approximately $4.1 million for the three months ended March 31, 2000 compared to approximately $1.3 million for the three months ended March 31, 1999. This increase is primarily due to the costs associated with developing our product candidates as well as higher personnel costs. Specifically, during the three months ended March 31, 2000, we incurred costs related to the scale-up of preclinical and clinical testing on the AIM project, including manufacturing of material for these studies. Also, we incurred professional fees to secure certain intellectual property in connection with our RLT peptide program during the three months ended March 31, 2000. General and Administrative Expenses. General and administrative expenses increased to approximately $1.0 million for the three months ended March 31, 2000 compared to approximately $315,000 for the three months ended March 31, 1999. This increase is primarily due to a $413,000 compensation charge related to the issuance of series C preferred stock in exchange for services rendered by an employee and a director. Amortization expense of deferred stock compensation amounted to approximately $251,000 for the three months ended March 31, 2000 compared to approximately $70,000 for the three months ended March 31, 1999. This amortization expense relates to deferred stock compensation of $1.1 million and $2.9 million recorded in 1999 and 2000, respectively. These amounts will be expensed over the four-year vesting periods of the underlying options. In addition, we experienced higher personnel costs and higher facility costs in support of our additional product candidates and technologies. Other Income (Expense). Interest income increased to approximately $351,000 for the three months ended March 31, 2000 compared to approximately $136,000 for the three months ended March 31, 1999. The increase is attributable to higher levels of cash and cash equivalents available for investment in 2000. Interest expense for the same periods was approximately $129,000 and $1,000 and represents interest incurred on an equipment financing facility and a special project loan in 2000. During the three months ended March 31, 2000, we recorded approximately $154,000 of foreign currency transaction gains on transactions denominated in various currencies of European countries. Net Loss. The net loss was approximately $4.7 million for the three months ended March 31, 2000 compared to approximately $1.5 million for the three months ended March 31, 1999. The increase reflects increases in research and development and general and administrative expenses, offset in part by the increase in interest income. Net Loss Attributable to Common Stockholders. The net loss attributable to common stockholders for the three months ended March 31, 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. Year Ended December 31, 1999. Research and Development Expenses. Research and development expenses increased to approximately $8.5 million for the year ended December 31, 1999, compared to approximately $1.9 million for the period from inception (May 18, 1998) to December 31, 1998. This increase is primarily due to the full year 22 period for 1999 as compared with a partial year for 1998 and costs associated with developing AIM and LUVs, and to a lesser extent expanded efforts to develop new product candidates. General and Administrative Expenses. General and administrative expenses increased to approximately $2.5 million for the year ended December 31, 1999 compared to approximately $464,000 for the period from inception to December 31, 1998. This increase is primarily due to the full year period for 1999 as compared with a partial year for 1998, higher personnel costs, higher facility costs and the acquisition of additional product candidates and technologies. Net Interest Income (Expense). Interest income increased to approximately $424,000 for the year ended December 31, 1999, compared to approximately $246,000 for the period from inception to December 31, 1998. The increase is attributable to the full year period for 1999 as compared to a partial year for 1998, offset by lower levels of cash and cash equivalents available for investment in 1999. Interest expense for the same periods was approximately $92,000 and $0 and represents interest incurred on an equipment financing facility and a special project loan in 1999. Net Loss. The net loss was approximately $10.7 million for the year ended December 31, 1999, compared to approximately $2.1 million for the period from inception to December 31, 1998. The increase reflects the full year period for 1999 as compared to a partial year in 1998, increases in research and development and general and administrative expenses, offset in part by the increase in interest income. Liquidity and Capital Resources As of March 31, 2000, the Company had cash and cash equivalents of approximately $27.7 million, an increase of approximately $21.8 million from December 31, 1999 resulting primarily from the issuance of series C and series D preferred stock financings in January 2000 and February 2000, offset by approximately $4.4 million in cash used to fund operations. We believe that our current cash position, available borrowings under our credit facilities and the proceeds of this offering will be sufficient to fund our operations and capital expenditures until at least the end of 2001. During the three months ended March 31, 2000 and the year ended December 31, 1999, net cash used in operating activities was approximately $4.4 and $7.9 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 three months ended March 31, 2000 and the year ended December 31, 1999 was $574,000 and $1.6 million, respectively, primarily the result of the acquisition of laboratory equipment, furniture and fixtures and office equipment. Net cash proceeds from financing activities was $26.8 million for the three months ended March 31, 2000, $2.8 million for the year ended December 31, 1999 and $15.3 million for the period from inception to December 31, 1998. The net cash proceeds from financing activities for the three months ended March 31, 2000 were primarily from the issuance of preferred stock. The net cash proceeds from financing activities during the year ended December 31, 1999 were from borrowings on a special project loan and an equipment loan. The net cash proceeds from financing activities during the period from inception to December 31, 1998 were from the issuance of preferred and common stock. We anticipate that our capital expenditures will be approximately $2.5 million in 2000. These expenditures include an agreement we have entered into with a scientific instrument manufacturer to purchase a specialized piece of equipment for $1.0 million. We expect delivery in the second half of 2000. We have a credit facility with a bank that may be used to finance purchases of equipment. Borrowings under the facility bear interest at the bank's prime rate plus 1.0%. As of March 31, 2000, there was approximately $1.1 million outstanding under the credit facility. We also have a credit facility with a Swedish 23 entity totaling 50 million Swedish kronor (approximately $1.5 million of which was outstanding as of March 31, 2000) 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 loan facility bear interest at 17.0% 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. We made an initial draw on the loan facility of $1.5 million in December 1999. We lease our corporate and research and development facilities under operating leases expiring at various times through June 2002. We may extend these leases for additional periods. Minimum annual payments under these leases are approximately $491,000 as of March 31, 2000. We expect that our operating expenses and capital expenditures will increase in future periods. We also intend 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. Income Taxes As of March 31, 2000, we had net operating loss carryforwards of approximately $14.4 million. These net operating loss carryforwards expire in 2019. 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 as management has determined that it is more likely than not that the deferred tax assets will not be realized. 24 BUSINESS Introduction We discover and develop pharmaceutical products for the treatment of cardiovascular disease. The cardiovascular system is comprised of the heart, brain, blood vessels, kidneys and lungs. Together, the components of the cardiovascular system deliver oxygen and other nutrients to the tissues of the body and remove waste products. The heart propels blood through a network of arteries and veins. The kidneys regulate the blood volume, and the lungs put oxygen in the blood and remove carbon dioxide. To accomplish these tasks, the cardiovascular system must maintain adequate blood flow, or cardiac output, which can be dramatically reduced by the excessive deposit of a fat called "cholesterol" in the arteries. Our focus is on understanding and controlling through drugs the removal of that cholesterol. We believe that the therapies that we are developing could enhance the naturally occurring processes in the body for the removal of excess cholesterol. We intend to commercialize a novel class of drugs that focus on a new treatment approach we call "HDL Therapy," which is based upon our understanding of HDL function. Through HDL Therapy we intend to exploit the beneficial properties of HDL in cardiovascular and metabolic diseases with a portfolio of product candidates. Preclinical studies suggest that our product candidates may either increase HDL levels or its function and may enhance removal of excess cholesterol and lipids from arteries. Third-party published reports of preliminary human clinical studies with respect to some of our product candidates suggest that these compounds may increase elimination of cholesterol from the body by enhancing the efficiency of the RLT pathway. Background General Our bodies are made of building blocks called cells. Cells are primarily made of protein, carbohydrate and fat, or lipid molecules. Cholesterol, a well known lipid, is essential for cells to function normally. Our bodies obtain cholesterol both through the foods we eat and by manufacturing cholesterol inside some of our cells and organs. Cholesterol either remains within the cell or is transported by the blood to various organs. The major carriers for cholesterol in the blood are lipoproteins, which are particles composed of fat and protein, including low density lipoprotein, or LDL, and high density lipoprotein, or HDL. LDL delivers cholesterol to organs where it can be used to produce hormones, maintain healthy cells or be transformed into natural products which assist in the digestion of other lipids. HDL removes excess cholesterol from arteries and tissues to transport it back to the liver for elimination. [Graphic depicting HDL and LDL] The RLT pathway, which is a process comprised of four steps, is responsible for removal of cholesterol from arteries and its transport to the liver for elimination from the body. The first step is the removal of cholesterol from arteries by HDL in a process termed cholesterol removal. In the second step, cholesterol is converted to a new form that is more tightly associated with HDL as it is carried in the blood; this process is called cholesterol conversion. The third step is the transport and delivery of that converted cholesterol to the 25 liver in a process termed cholesterol transport. The final step is the transformation and discarding of cholesterol by the liver in a process termed cholesterol elimination. We believe our product candidates have the potential to affect these four steps to enhance the RLT pathway in humans. [Graphic depicting RLT pathway] In a healthy human body, there is a balance between the delivery and removal of cholesterol. Over time, however, there is often an imbalance that occurs in our bodies in which there is too much cholesterol delivery by LDL and too little removal by HDL. When people have a high level of LDL and low level of HDL, the imbalance results in more cholesterol being deposited in the arteries than that being removed. This imbalance can also be exaggerated by, among other factors, age, gender, high blood pressure, smoking, diabetes, obesity, genetic factors, physical inactivity, disease of the extremities or the brain and consumption of a high-fat diet. The excess cholesterol carried in the blood on LDL particles is deposited throughout the body, but frequently ends up in the lining of arteries, especially those found in the heart. As a consequence, repeated deposits of cholesterol, called plaque, form and narrow or block the arteries. Cardiovascular Disease According to the American Heart Association, cardiovascular disease is the largest killer of American men and women. Currently, over $15 billion is spent annually on the drug treatment of cardiovascular disease in the United States, in addition to the costs of surgical treatment and care. Two prominent forms of cardiovascular disease are coronary disease, which involves the heart itself, and atherosclerosis, which is the buildup of plaque on artery walls limiting blood flow to the heart, brain and extremities. These two conditions can result in heart attacks, chest pain, known as angina, and a variety of other complications, and are responsible for over half of the deaths from cardiovascular disease. Importance of HDL in Cardiovascular Disease Numerous studies involving thousands of people have identified the causes and determined the distribution of cardiovascular disease in different populations around the world. Physicians now recognize high LDL and low HDL levels as risk factors for cardiovascular disease in general, and atherosclerosis in particular. In addition, high HDL levels generally are associated with lower incidence of cardiovascular disease. These studies have suggested that: . Low levels of HDL are a risk factor for cardiovascular disease. The first study suggesting that people with low HDL had increased incidence of cardiovascular disease was reported in 1951. Since that time, a number of studies have confirmed that low HDL levels are a risk factor for cardiovascular disease. . Increasing HDL reduces risk of coronary heart disease. The Helsinki Heart Study, completed in 1987, suggested that increasing HDL levels reduced incidence of coronary heart disease in individuals at risk due to low HDL, high LDL, and high triglycerides, another type of lipid. . Increasing HDL levels reduces the incidence of death from coronary artery disease, heart attack and stroke. The Veterans Affairs Cooperative Studies Program High Density Lipoprotein 26 Cholesterol Intervention Trial, completed in 1999, suggested that men with coronary artery disease who took a lipid regulating drug for five years experienced on average a 6% increase in HDL, resulting in a 24% reduction in death due to coronary artery disease, heart attack and stroke. . Low levels of HDL translate to a low survival rate following coronary bypass surgery. A 20-year study completed in 1999 suggested that people with low HDL levels have a lower survival rate following coronary bypass surgery. This study suggests the importance of HDL in minimizing the necessity of post-operative treatments. There are several risk factors besides low levels of HDL and high levels of LDL that determine the likelihood of a person developing cardiovascular disease. Some examples include age, gender, high blood pressure, smoking, diabetes, obesity, genetic factors, physical inactivity, vascular disease of the extremities or the brain, or a high-fat diet. Unlike many of these risk factors that cannot be altered, such as age, gender, and family history, we believe HDL levels can be beneficially modulated. Clinical evidence suggests that an increase in HDL results in greater protection from cardiovascular disease than a corresponding reduction in LDL. In addition, published studies suggest other protective properties of HDL, such as reducing inflammation in arteries. Current Treatments for Cardiovascular Disease The initial recommendation for a patient with cardiovascular disease is frequently a change in lifestyle involving exercise combined with a low-fat, low-cholesterol diet. If a patient's condition does not improve, then a physician moves to the next level of treatment to achieve acceptable levels of cholesterol in the blood. Following the initial diet/exercise regimen, treatments are either short-term solutions, termed "acute" by physicians, or long-term solutions, termed "chronic." Acute treatments are reserved for more life-threatening cardiovascular conditions, such as ischemia, a condition where there is a shortage of oxygen-rich blood available to the heart. In contrast, chronic treatments are used to prevent cardiovascular disease from growing worse and having to resort to acute treatments. Acute treatments usually involve costly surgical procedures, while chronic treatments are usually in tablet or pill form. Acute Treatments Acute treatments are required when blood flow to the heart is severely restricted and the patient is at immediate risk for further complications. Three common surgical procedures are used to restore blood flow; bypass surgery, balloon angioplasty and atherectomy. In bypass surgery, the cardiologist redirects blood flow around the blocked arteries by grafting a healthy vessel removed from another location in the patient. In balloon angioplasty, a thin flexible tube with an inflatable balloon at its end is positioned in the artery at the point of blockage. During the surgical procedure, the balloon is inflated and this pushes aside the plaque that causes the blockage, resulting in a reopening of the artery to allow greater blood flow. Frequently, a cardiologist reinforces the newly opened artery with a wire-mesh cylinder called a stent. In atherectomy the plaque is removed from the artery using a rotating blade. The primary benefit of acute treatments is the immediate restoration of oxygen-rich blood flow to the heart. However, the major drawbacks are: . Restenosis, or reclosing of the artery, even after stenting, occurs in up to 40% of patients who have had these invasive surgical procedures. This may require an additional surgical procedure within six months. . These treatments are invasive to the patient and involve opening up the chest cavity to expose the heart, as in coronary bypass surgery, or snaking a wire through a leg artery to the heart, as in balloon angioplasty or atherectomy. Invasive procedures by their nature involve a risk of complications, including death. For example, approximately 3.5% of coronary bypass patients die from post-operative complications. 27 . Since acute treatments are invasive procedures by their nature, there is significant recovery time after the surgical procedure. . Many patients are not eligible for invasive procedures due to their anatomy, physical condition, age, or past medical history. . Atherosclerosis affects the entire cardiovascular system. Acute procedures are localized and treat only one segment of a diseased artery at a time. Therefore, many diseased arteries are left untreated using these invasive surgical procedures. In 1997, 607,000 coronary bypass surgeries were performed on 366,000 patients in the United States with an average cost of about $45,000. Almost half of the patients that have a coronary bypass require a repeat coronary bypass because the grafted vessels become blocked again. In the United States, in 1997, approximately 450,000 balloon angioplasty procedures were performed. The average cost of a balloon angioplasty is $20,000 and more when a stent is used. Thirty to forty percent of balloon angioplasty procedures result in reclosing of the diseased artery within the first few months due to restenosis. In 1995, about 50,000 people in the United States underwent atherectomy. The average cost of an atherectomy is approximately $12,000. Chronic Treatments Chronic treatments for cardiovascular disease have the goal of preventing or limiting progression of the disease so that acute treatments will not be required in the near future, if at all. Physicians frequently will prescribe a statin drug that lowers the level of LDL in the blood by inhibiting cholesterol production in the body. These drugs can also lower other lipids and have the ability to slightly raise HDL. Recent studies have shown that the statins reduce the incidence of illness and death from cardiovascular disease by approximately 30%. It usually takes at least two years, if at all, for the drugs to have an effect on death rates. These drugs neither treat the existing atherosclerosis nor reverse the disease in a majority of patients. In addition, in post-operative patients, they have also failed to prevent restenosis, the reclosure of an artery following surgical procedures. Our Products in Development Our initial product development efforts are focused on developing a novel class of drugs designed to treat both acute and chronic atherosclerotic disease using HDL Therapy. Our five product candidates are designed to enhance HDL function and address all four steps of the RLT pathway. Our product development to date has used in vitro assays, testing procedures performed outside the body, or animal models which we believe are appropriate at this stage of development. However, these assays and models are not substitutes for human clinical testing, and we plan to initiate clinical trials with four of our five product candidates within the next six to eighteen months. Our human clinical trials may not commence or proceed as anticipated and we may not be able to demonstrate the same levels of safety and efficacy in clinical trials that have been suggested in preclinical trials. AIM We are developing apolipoprotein A-I Milano, or AIM, for the treatment of restenosis and acute coronary diseases, including angina. AIM is a variant form of the ApoA-I protein lipid complex and is present in a small fraction of the population with low HDL levels. Low HDL levels in this population normally would correlate with high risk for cardiovascular disease. However, those people with the AIM variant show low incidence of cardiovascular disease. We believe infusion of AIM lipid complexes in humans will enhance the RLT pathway at the cholesterol removal step. Published reports in 1994 and 1995 showed that AIM inhibited restenosis following balloon angioplasty in two animal models. Additional published reports in 1998 and 1999 have showed that in 28 animal models, AIM caused reduction in atherosclerotic lesions and prevented inflammation and clotting. A 1999 report of in vitro tests showed that AIM increased cholesterol removal. No adverse effects were reported in any of the preclinical animal studies. The material used in these studies is similar to the AIM that we are currently developing. Additionally, none of these studies noted were conducted for us or on our behalf. Our goal is to establish in human clinical trials that intravenous infusions of AIM are safe and can help open arteries, thus increasing blood flow and reducing the symptoms associated with atherosclerosis. We intend to initiate Phase I clinical trials in Europe with AIM in the second half of 2000. We acquired exclusive worldwide rights for AIM from Pharmacia in July 1998. Under this license agreement, at the completion of Phase II clinical trials, Pharmacia has the exclusive right of election to co-develop and the exclusive right to market AIM in countries outside of United States and Canada. In addition, if we pursue a co-development and co-promotion arrangement in United States and Canada, Pharmacia has the right of first negotiation. ProApoA-I We are developing ProapolipoproteinA-I, or ProApoA-I, as an acute treatment which we believe will improve blood flow to the arteries of the heart, brain and body. ProApoA-I is a naturally occurring protein found in all humans that forms particles with lipids similar to natural HDL. In the blood, ProApoA-I is converted to ApoA-I which is responsible for all four steps of the RLT pathway. A 1995 published report of in vitro tests showed that synthetic ProApoA-I had properties important to the removal of cholesterol from cells. Results from animal studies in several species demonstrated that ProApoA-1 activated the RLT pathway. Recent third-party published reports of preliminary human clinical studies of ProApoA-I showed that when ProApoA-I was infused into people with high cholesterol levels they showed increased elimination of cholesterol from the body by enhancing the RLT pathway. No adverse effects were reported in any of these studies. The material used in these studies is similar to the ProApoA-I that we are currently developing. Additionally, none of the studies noted were conducted for us or on our behalf. Our goal is to initiate human clinical trials to show that intravenous infusions of ProApoA-I can help arteries remain open, thus increasing blood flow and reducing the symptoms associated with atherosclerosis. We intend to initiate Phase II clinical trials in Europe with ProApoA-I in the first half of 2001. RLT Peptide We are developing an RLT peptide as an acute treatment to alleviate ischemia and angina caused by atherosclerosis. Our RLT peptide is a smaller version of ApoA-I which we believe mimics ApoA-I's key biological properties when mixed with lipids. We believe that our RLT peptide removes cholesterol from arteries and activates the second step in the RLT pathway, the conversion of cholesterol into a form which is more tightly associated with HDL. The patent applications that were filed in 1997 for our RLT peptide describe experiments of the compound in human blood samples. These experiments showed that the RLT peptide interacts with and activates important enzymes in the RLT pathway which includes the stimulation of cholesterol removal. The results of a preclinical animal model study described in the patents showed that the administration of an RLT peptide increased HDL levels in the blood. The RLT peptide used in this study is similar to the RLT peptide that we are developing. No adverse effects were reported in this study. This study was not conducted for us or on our behalf. Our goal is to establish in human clinical trials that intravenous infusions of our RLT peptide are safe and can help arteries remain open, thus increasing blood flow and reducing the symptoms associated with atherosclerosis. We intend to initiate Phase I clinical trials with our RLT peptide in the first half of 2001. 29 HDL Elevators We are developing classes of drugs designed to increase HDL levels. We have identified a lead compound from this class. Our goal is to develop an orally active, small molecule designed to elevate HDL levels. We believe that the HDL elevators enhance the synthesis of new HDL to stimulate the entire RLT pathway and promote regression of atherosclerosis. Preclinical studies demonstrated that administration of our compounds may increase HDL cholesterol concentration. Our goal is to establish in human clinical trials that orally administered HDL elevators can be a safe, chronic treatment to enhance the RLT pathway. We intend to initiate Phase I clinical trials in the first half of 2001. LUVs We are developing large unilamellar vesicles, or LUVs, as an acute treatment for ischemia, or reduced blood flow to the heart, caused by atherosclerosis. LUVs are spherical particles made of naturally occurring lipids that can remove cholesterol from cells. LUVs can cycle back through arteries several times to remove more cholesterol. We believe this process will allow the body to significantly increase the amount of cholesterol it is able to remove and improve cardiovascular health and function. We believe that LUVs have a high capacity to transport cholesterol, the third step in the RLT pathway, and deliver it to the liver for elimination from the body. Two preclinical animal studies were published involving administration of LUVs. They showed the removal of cholesterol from arteries and the regression of atherosclerosis, thereby helping arteries regain their flexibility and function. The material used in these studies was similar to the LUVs that we are developing. No adverse effects were reported in these studies of LUVs. None of the studies were conducted by us or on our behalf. Our goal is to establish in a human clinical trial, that intravenous infusion of LUVs is safe and can help arteries remain open, thus increasing blood flow and reducing the symptoms associated with atherosclerosis. Commercialization of LUVs is subject to, among other things, satisfactory resolution of outstanding litigation regarding our rights to the underlying technology in the United States. Research and Development 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 disease. Our research and development expenses were $8.5 million and $1.9 million in 1999 and 1998, and $4.1 million during the three months ended March 31, 2000, respectively. Some of those expenses funded research to study the potential connection between the presence of low HDL levels and the incidence of metabolic disorders such as diabetes and obesity. While all of our current product candidates are for the treatment of cardiovascular disease, we also intend to discover and develop product candidates for the treatment of metabolic disorders such as diabetes and obesity. We have developed proprietary technologies and techniques designed to discover new drug candidates. We intend to capitalize on our knowledge of chemistry, drug action and the RLT pathway to discover and refine new chemical structures that possess beneficial properties for the treatment of diseases and disorders. To accelerate this process, we are employing advanced instrumentation and a number of drug discovery tools, including: . genomics, which is the analysis of genetic material, proteins and metabolites using techniques which catalog various chemical responses in the body to provide an understanding of drug effects; . protein engineering, which focuses on discovering, designing and producing new proteins or peptides to develop novel therapies; 30 . bioinformatics, which is computer storage and analysis of biological information that allows us to perform in-depth analysis of the changes to identify new drug targets, enhance drug discovery, and improve the clinical development process; and . chemical library screening, a laboratory testing process that focuses on identifying new chemicals to develop possible oral therapies. By integrating these drug discovery tools, we believe we can rapidly identify and evaluate drug candidates and improve our prediction of their clinical success. In addition, we have implemented a clinical development strategy with early involvement of regulatory agencies to better define the most appropriate clinical trial development process. This strategy involves defining the best clinical parameters for safety and efficacy in targeted populations. Our Strategy We are taking a product-focused approach towards drug development. The key elements of our business strategy are as follows: . Develop several different drug candidates for HDL Therapy. Based on our understanding of the RLT pathway, we have identified a portfolio of five product candidates we believe could provide a broad spectrum of treatment options for cardiovascular disease. These product candidates are focused on improving HDL function in the RLT pathway and the removal of excess cholesterol from arteries. We do not believe that loss of the LUV program, if we do not acquire Talaria and decide to divest all or a portion of this program because of the Talaria litigation, would materially impact our portfolio strategy. . Leverage experienced scientific and drug development expertise. We are managed by an experienced group of drug developers with significant expertise in cardiovascular research and drug development. Roger S. Newton, Ph.D., President and Chief Executive Officer of Esperion, was the co-discoverer and chairman of the discovery team and a member of the development team of Lipitor. Sales of Lipitor, the most frequently prescribed cholesterol lowering drug, exceeded $3.5 billion in 1999. In addition, we have discovered an HDL elevator and have successfully recruited the inventors of two of our drug candidates. . Optimize clinical and regulatory strategies to shorten time to market. We believe that by initially focusing on acute treatments, we can achieve an abbreviated development time, and faster time to market, which will benefit patients with cardiovascular disease. We intend to perform clinical trials to rapidly assess effectiveness for well-defined cardiovascular endpoints in the treatment of acute coronary syndromes, atherosclerosis and restenosis. . Retain significant marketing rights to our product candidates. Our goal is to retain marketing rights to our product candidates for as long as it is commercially advantageous. By completing as much of the preclinical and clinical development work by ourselves as is feasible, we hope to be able to negotiate more favorable terms for any such marketing arrangements. We believe that the net proceeds from the offering and existing cash and investment securities will be sufficient to support our current operating plan through at least the end of 2001. We anticipate that our most significant expenditures for the remainder of fiscal year 2000 and for the first six months of fiscal year 2001 will be for further development of our product candidates, payments under current licensing agreements, ongoing research and development activities and general corporate and working capital purposes. Clinical Testing We do not have the ability to independently conduct clinical studies and obtain regulatory approvals for our product candidates. We intend to rely on third-party clinical research organizations, or CROs, to 31 perform these functions. However, we have not yet finalized agreements with any CROs to perform these functions. We have entered into an agreement with a CRO, Inveresk Research, for study set up, including protocol preparation, expert toxicology review and ethics submission, for AIM and we have agreed on a price for the study, subject to executing a contract amendment to cover that work. We are also in discussions with other CROs but have not yet negotiated agreements for additional clinical studies. We intend to have contracts in place with CROs at least 1 to 2 months prior to commencement of work under each such contract. Marketing and Sales We currently have no sales, marketing or distribution capabilities. In order to commercialize any of our product candidates, we must either internally develop sales, marketing and distribution capabilities or make arrangements with third parties to perform these services. We intend to sell, market and distribute some products directly and rely on relationships with third parties to sell, market and distribute other products. To market any of our products directly, we must develop a marketing and sales force with technical expertise and with supporting distribution capabilities. Our licensors have granted us exclusive rights to market our product candidates except for AIM. We acquired exclusive worldwide rights for AIM from Pharmacia in July 1998. Under this agreement, at the completion of Phase II clinical trials, Pharmacia has the exclusive right of election to co-develop and the exclusive right to market AIM in countries outside of the United States and Canada. In addition, if we pursue a co-development and co-promotion arrangement in the United States and Canada, Pharmacia has the right of first negotiation. In the United States, we do not intend to enter into co-promotion arrangements or out-license our product candidates until our product candidates are in the later stages of development, but we may promote our product candidates through marketing relationships with one or more companies that have established distribution systems and direct sales forces. In international markets, initially we intend to seek strategic relationships to market, sell and distribute our product candidates, but we may eventually become involved in direct sales and marketing activities in other parts of the world. Manufacturing Manufacturing and Materials Supply We currently rely, and will continue to rely, for at least the next few years on contract manufacturers to produce sufficient quantities of our product candidates for use in our preclinical and anticipated clinical trials. We also rely, and intend to continue to rely, on third parties to provide the components of these product candidates, such as proteins, peptides, phospholipids and bulk chemical materials. There is currently a limited supply of some of these components. Furthermore, the contract manufacturers that we have identified to date only have limited experience at manufacturing, formulating, analyzing, and fill and finishing our product candidates in quantities sufficient for conducting clinical trials or for commercialization. For ProApo-A-I, Eurogentec S.A. manufactures the protein while Nattermann International supplies the lipid for the process. For AIM, Pharmacia manufactures the protein and we expect that BioChemie will manufacture the protein, Genzyme Corporation and/or Chemi SpA supply the lipid and OctoPlus b.v. formulates the product candidate. For LUVs, Applied Analytical Industries, Inc. (AAI) manufactures the product, while Genzyme Corporation supplies the lipid. Neosystem S.A. manufactures the RLT peptide and Avanti Polar Lipids, Inc., and Genzyme Corporation supply the lipid. For HDL Elevator, Alchem Laboratories Incorporated manufactures the HDL Elevator. All contract manufacturers for proteins and peptides are sole source providers except Pharmacia and BioChemie. We have executed agreements with OctoPlus b.v., AAI, Eurogentec S.A. and Neosystem S.A. The OctoPlus b.v. agreement, executed on April 4, 1999, provides for the development and supply of toxicology and clinical supplies of AIM. The OctoPlus b.v. agreement may be terminated at any time by either party upon sixty days notice and remains in effect until terminated. The Eurogentec S.A. agreement, executed on March 7, 2000, provides for the supply of clinical supplies of ProApo A-I. The Eurogentec S.A. agreement 32 lasts for five years or until a specified amount of ProApoA-I has been supplied to us. We also may terminate this agreement for any reason upon thirty days notice. Under the AAI agreement, AAI provides manufacturing services for LUVs. We may terminate this agreement at anytime upon thirty days notice to AAI. The Neosystem S.A. agreement, executed on April 17, 2000, provides for the manufacturing and supply of the RLT peptide. The Neosystem S.A. agreement lasts for sixty months, but is automatically renewed for additional one-year terms thereafter unless either party terminates through written notice given to the other party at least ninety days prior to the end of either the initial term or any renewal term. We are currently negotiating agreements for either provision of materials or formulation of product candidates with other suppliers and manufacturers. The process for manufacturing proteins and formulating them into protein lipid complexes is complicated. We have no experience in commercial-scale manufacture of ProApoA-I, AIM, RLT peptide, HDL elevators and LUVs. Our product candidates will need to be manufactured in facilities and using processes that comply with the FDA's cGMP requirements, GLPs, and other similar regulations, including foreign regulations. It takes a substantial period of time to begin producing proteins, peptides, phospholipids and HDL elevators in compliance with such regulations. If we are unable to establish and maintain relationships with third parties for manufacturing sufficient quantities of our product candidates and their components that meet our planned time and cost parameters, the development and timing of our clinical trials may be adversely affected. Intellectual Property and License Agreements Our ability to protect and use our intellectual property rights in the development and commercialization of our product candidates is crucial to our continued success. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary rights are covered by valid and enforceable patents or are effectively maintained as trade secrets, or other proprietary information or know how. We currently rely on a combination of patents and pending patent applications, some of which we license and some of which have been assigned to us, proprietary information, trade secrets and know how to protect our interests in developing and commercializing our product candidates and technologies. In connection with the license agreements described below, we may be obligated to make various milestone and future royalty payments as defined in the agreements, up to an aggregate amount of $25.2 million. At the present time, it is uncertain as to whether we will be required to make these additional payments. ProApoA-I In February 2000, we entered into a license agreement with Region Wallonne to obtain exclusive, worldwide rights to its patents, proprietary information and know-how concerning a precursor protein known as proapolipoprotein A-I, or ProApoA-I. We have an exclusive license to a United States patent relating to a gene sequence for ProApoA-I; expression vectors, which are the DNA sequences for the purpose of bacterial production; and a process for producing ProApoA-I. This patent expires in 2008. We paid Region Wallonne $25,000 at the time we entered into this license agreement. We are further obligated to pay Region Wallonne royalties on sales of products that are covered by its patents. As part of this license, we have also agreed to purchase supplies of ProApoA-I from, and to enter into a research collaboration with, Region Wallonne. AIM In June 1998, we acquired exclusive, worldwide rights to AIM from Pharmacia, subject to Pharmacia's exclusive right to co-develop and market AIM in countries other than the United States and Canada. Under our license agreement with Pharmacia, subject to Pharmacia's exclusive right to co-develop and market AIM in countries other than the United States and Canada, we acquired four U.S. patents and four pending U.S. patent applications, and other related foreign patents and patent applications covering various aspects of AIM. These patents and patent applications claim methods and materials for producing AIM in bacteria and yeast, methods for purification and methods for treating atherosclerosis and other forms of cardiovascular disease with AIM. Two of the issued U.S. patents expire in 2015 and the other two issued U.S. patents expire in 2016. 33 Corresponding patents are in effect and patent applications are pending in other countries where we believe the market potential for AIM is significant, including most European countries and some Asian countries including Japan. We paid Pharmacia $750,000 at the time we entered into our license agreement in June 1998. Our license agreement with Pharmacia requires us to make payments to Pharmacia as milestones are achieved, and to pay Pharmacia royalties on sales of products that are covered by the Pharmacia patents or developed using the Pharmacia technology. The first milestone payment will be paid in cash or by issuance of a promissory note to Pharmacia if and when we have completed clinical trials showing preliminary safety and initial proof-of- concept (which may include early Phase IIa studies). We believe that this would mean clinical trials which show favorable trends in safety and efficacy, allowing us to better define the details of any potential Phase III pivotal trials. If Pharmacia exercises its exclusive right to co-develop and market AIM in countries other than the United States and Canada, then we will make additional milestone payments to Pharmacia. If Pharmacia does not exercise its right to co-develop and market AIM in countries other than the United States and Canada, then we will make several milestone payments to Pharmacia starting if and when we enroll the first patient in the first Phase III clinical trial for AIM in the United States. Instead of paying milestones in cash, if the milestone payments are greater than 10% of our cash reserves at the time of payment, we may instead make these payments by issuing Pharmacia a promissory note. Under this license agreement, at the completion of Phase II clinical trials, Pharmacia has the exclusive right of election to co-develop and the exclusive right to market AIM in countries outside of the United States and Canada. In addition, if we pursue a co-development and co-promotion arrangement in the United States and Canada with a third party, Pharmacia has the right of first negotiations to co-develop and co-promote in the United States and Canada. This license expires on the latter of 2018 or upon the last of the Pharmacia patents to expire. RLT Peptide Under the agreement entered into in September 1999, we exclusively licensed from a group of inventors, the RLT peptide technology, including three issued United States patents and eleven pending United States, and corresponding foreign pending, patent applications. The RLT peptide technology relates to peptides and proteins that have activity equal to, or greater than, ApoA-I. The issued U.S. patents expire in 2017 and are directed to peptides having ApoA-I activity or pharmaceutical compositions. The pending patent applications are directed to peptides, drug forms containing the peptides, methods of using the peptides, pharmaceutical dosage forms of the peptides and methods for preparing the dosage forms. We paid the inventors of our RLT peptide an initial license fee of $50,000 in January 2000. Our license agreement with the inventors requires us to make payments to them as milestones are achieved, and to pay them royalties on sales of products that are covered by the inventors' patents or developed using the inventors' technology. Additional milestone payments will be paid to the inventors if and when we achieve various future development milestones outlined in the agreement with the inventors. This license continues until 2009 or the last to expire of any of the inventors' patents. HDL Elevators We are also in the process of researching and developing small organic molecules that increase HDL levels and also molecules which possess anti- diabetic and anti-obesity properties. We have filed three United States patent applications and equivalent international applications directed to a class of compounds having this activity, the use of these compounds and compositions containing these compounds and related to their preparation. We are also pursuing, and will continue to pursue, patent protection for other classes of compounds having this activity, which have been or will be identified in our laboratories. LUVs In March 1999, we exclusively licensed certain LUV technology from Inex on a worldwide basis. Inex owns issued patents in 13 European countries covering the LUV technology and exclusively licenses, from the 34 University of British Columbia, two pending U.S. patent applications. The European patents claim methods for treatment of atherosclerosis using liposomes. The U.S. patent applications claim liposome structure and chemical makeup and methods for treatment of disease, including atherosclerosis. The European patents expire in 2011. We paid Inex $250,000 at the time we entered into our license agreement with Inex for LUVs in March 1999. Our license agreement with Inex requires us to make payments to Inex as milestones are achieved, and to pay Inex royalties on sales of products that are covered by the licensed patents or developed using the licensed technology. The first milestone payment will be paid to Inex if and when we enroll our first patient in a Phase II clinical trial. Other milestone payments will be paid to Inex if and when we achieve various future development milestones outlined in the agreement with Inex, which such payments could total up to an aggregate amount of $8.5 million. There are issued patents that name Dr. Kevin Williams as an inventor and are assigned to Talaria that claim use of LUVs to treat diseases including atherosclerosis. We do not believe that the manufacture, use or sale of LUVs by us does or would infringe any valid and enforceable claim of these patents. However, if these patents are found to contain claims infringed by the manufacture, use or sale of LUVs and such claims are ultimately found to be valid and enforceable, we may not be able to obtain a license to the intellectual property in such patents at an acceptable cost, if at all, or develop or obtain alternative technology, which would prevent us from commercializing our LUV technology. On March 22, 2000, Talaria filed a lawsuit against us and Inex, UBC, and the two inventors named on patent applications we sub-licensed from Inex. One of these inventors is now employed by us. One of the allegations in the lawsuit, which was filed in the United States District Court for the Eastern District of Virginia, is the improper incorporation into a UBC patent application of certain confidential information of Dr. Williams. This UBC patent application is exclusively licensed to Inex and sublicensed to us. In addition to seeking damages, Talaria is asking to be named as the owner or co- owner of the UBC patent application. The parties to the lawsuit agreed that UBC would take appropriate action in the United States Patent and Trademark Office to prevent issuance of the UBC patent application as a patent until the court had an opportunity to decide certain motions. These motions include one filed by Talaria for a preliminary injunction that would have UBC withdraw the UBC patent applications pending a full trial of the lawsuit or prevent UBC from prosecuting the patent applications. We, and the other defendants, after preliminary investigation, believe that the lawsuit is without merit. We also believe that Inex is required to indemnify us against damages and costs associated with the defense of the lawsuit arising out of the allegations by Talaria and Dr. Williams relating to misuse of confidential information, which indemnification would likely not be broad enough to cover all of our costs and any damages in connection with this lawsuit. However, an adverse result in the litigation could lead us to discontinue our efforts to commercialize the LUV technology sublicensed by us from Inex. Before the court could rule on the motions filed by Talaria, or those filed by us and Inex in response thereto, we engaged in settlement discussions with Talaria. The settlement discussions have led to a proposed non-binding letter of intent providing for our acquisition of Talaria by way of a merger. Under the proposed letter of intent, all of the outstanding shares of stock of Talaria would be exchanged for a number of shares of our common stock equal to $6.0 million divided by the initial offering price per share discounted by 18%. Assuming an initial offering price of $9.00 per share, we would issue 813,008 shares of our common stock to Talaria. We would also make additional payments to Talaria of up to approximately $6.25 million in cash or common stock upon the achievement of future milestones, of which $750,000 may become payable within the next twelve months, and deferred contingent payments based upon net sales of LUVs in North America. The acquisition is not expected to close until after this offering is completed. The acquisition is subject to the negotiation of a definitive acquisition agreement and related documents, which would include customary closing conditions, including approval by each company's board of directors and Talaria's stockholders. Signing of the definitive agreements must occur by August 17, 2000, unless this deadline is extended. In addition, the completion of the acquisition of Talaria would also be subject to the approval of the other plaintiff and the 35 defendants other than us in the lawsuit that Talaria filed and the signing of settlement and release documents by all parties to the lawsuit. No assurance can be given that any acquisition of Talaria, or any settlement of litigation, can be negotiated. If we cannot settle the Talaria litigation, we will be required to defend the litigation in court. While, as noted above, we believe that there are valid defenses to Talaria's claims as well as certain indemnification rights against Inex, any such defense would be expensive and would divert management's attention, and there can be no assurances as to the ultimate outcome. Government Regulation The U.S. FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial requirements on the clinical development, manufacture and marketing of pharmaceutical product candidates. These agencies and other federal, state and local entities regulate research and development activities and the testing, manufacture, quality control, safety, effectiveness, labeling, storage, record-keeping, approval and promotion of our product candidates. All of our product candidates will require regulatory approval before commercialization. In particular, therapeutic product candidates for human use are subject to rigorous preclinical and clinical testing and other requirements of the Federal Food, Drug, and Cosmetic Act, or FDC Act, implemented by the FDA, as well as similar statutory and regulatory requirements of foreign countries. Obtaining these marketing approvals and subsequently complying with ongoing statutory and regulatory requirements is costly and time-consuming. Any failure by us or our collaborators, licensors or licensees to obtain, or any delay in obtaining regulatory approvals or in complying with other requirements could adversely affect the commercialization of product candidates and our ability to receive product or royalty revenues. The steps required before a new drug product candidate may be distributed commercially in the U.S. generally include: . conducting appropriate preclinical laboratory evaluations of the product candidate's chemistry, formulation and stability, and preclinical studies to assess the potential safety and efficacy of the product candidate; . submitting the results of these evaluations and tests to the FDA, along with manufacturing information and analytical data, in an Investigational New Drug application, or IND; . making the IND effective after the resolution of any safety or regulatory concerns of the FDA; . obtaining approval of Institutional Review Boards, or IRBs, to introduce the drug into humans in clinical studies; . conducting adequate and well-controlled human clinical trials that establish the safety and efficacy of the product candidate for the intended use, typically in the following three sequential, or slightly overlapping, stages: Phase I: The product candidate is initially introduced into healthy human subjects or patients and tested for safety, dose tolerance, absorption, metabolism, distribution and excretion; Phase II: The product candidate is studied in patients to identify possible adverse effects and safety risks, to determine dosage tolerance and the optimal dosage, and to collect some efficacy data; and 36 Phase III: The product candidate is studied in an expanded patient population at multiple clinical study sites, to confirm efficacy and safety at the optimized dose, by measuring a primary endpoint established at the outset of the study; . submitting the results of preliminary research, preclinical studies, and clinical trials as well as chemistry, manufacturing and control information on the product candidate to the FDA in a New Drug Application, or NDA; and . obtaining FDA approval of the NDA and final product labeling prior to any commercial sale or shipment of the product candidate. Each NDA must be accompanied by a user fee, pursuant to the requirements of the Prescription Drug User Fee Act (PDUFA) and its amendments. According to the FDA, in 2000 the user fee for an application requiring clinical data, such as a full NDA, is $235,940. The FDA adjusts the PDUFA user fees on an annual basis. This process can take a number of years and require substantial financial resources. The results of preclinical studies and initial clinical trials are not necessarily predictive of the results from large-scale clinical trials, and clinical trials may be subject to additional costs, delays or modifications due to a number of factors, including the difficulty in obtaining enough patients, clinical investigators, product candidate supply, or financial support. The FDA may also require testing and surveillance programs to monitor the effect of approved product candidates that have been commercialized, and the FDA has the power to prevent or limit further marketing of a product candidate based on the results of these post-marketing programs. Upon approval, a product candidate may be marketed only in those dosage forms and for those indications approved in the NDA. However, pursuant to recent Federal Court decisions concerning commercial free speech, drug marketers are in some limited circumstances permitted to distribute peer-reviewed scientific materials concerning indications outside of the FDA labeling for product candidates. In addition to obtaining FDA approval for each indication to be treated with each product candidate, each domestic product candidate manufacturing establishment must register with the FDA, list its product candidates with the FDA, comply with cGMPs and permit and pass manufacturing plant inspections by the FDA. Moreover, the submission of applications for approval may require additional time to complete manufacturing stability studies. Foreign companies that manufacture product candidates for distribution in the United States also must list their product candidates with the FDA and comply with cGMPs. They are also subject to periodic inspection by the FDA or by local authorities under agreement with the FDA. Under the FDC Act and related statutes, developers of new drugs are afforded certain limited protections against competition from generic drug companies. Under the Drug Price Competition and Patent Term Restoration Act, drug companies can have Medical Product Patents extended to counter balance, in part, the duration of FDA's review of their marketing applications. This Act also provides for defined marketing exclusivity (i.e., protection from generic competition regardless of any available patent protection) which are dependent on the type and scope of clinical investigations a company undertakes in support of a marketing application. Also, the FDA Modernization Act of 1997 permits marketing applications, under certain circumstances, to obtain an additional six months of marketing exclusively if the applicant files reports of investigations studying use of the drugs in the pediatric population. Any product candidates that we manufacture or distribute pursuant to FDA approvals are subject to extensive continuing regulation by the FDA, including record-keeping requirements and reporting of adverse experiences with the product candidate. In addition to continued compliance with standard regulatory requirements, the FDA may also require further studies, including post- marketing studies and surveillance to monitor the safety and efficacy of the marketed product candidate. Results of post-marketing studies may limit or expand the further marketing of the products. Adverse experiences with the product candidate must be reported to the FDA. Product candidate approvals may be withdrawn if compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of the product candidate are discovered following approval. In addition, if we propose any modifications to a product, including changes in indication, manufacturing process, manufacturing facility or labeling, a supplement to our NDA may be required to be submitted to the FDA. 37 The FDC Act also mandates that product candidates be manufactured consistent with cGMPs. In complying with the FDA's regulations on cGMPs, manufacturers must continue to spend time, money and effort in production, recordkeeping, quality control, and auditing to ensure that the marketed product candidate meets applicable specifications and other requirements. The FDA periodically inspects manufacturing facilities to ensure compliance with cGMPs. Failure to comply subjects the manufacturer to possible FDA action, such as Warning Letters, suspension of manufacturing, seizure of the product, voluntary recall of a product or injunctive action, as well as possible civil penalties. We currently rely on, and intend to continue to rely on, third parties to manufacture our compounds and product candidates. These third parties will be required to comply with cGMPs. Because many of our current third-party manufacturers are located outside of the U.S., there may be difficulties in importing our product candidates and/or their components into the U.S., as a result of, among other things, FDA import inspections, incomplete or inaccurate import documentations, or defective packaging. Even after FDA approval has been obtained, further studies, including post-marketing studies, may be required. Products manufactured in the U.S. for distribution abroad will be subject to FDA regulations regarding export, as well as to the requirements of the country to which they are shipped. These latter requirements are likely to cover the conduct of clinical trials, the submission of marketing applications, and all aspects of manufacturing and marketing. Such requirements can vary significantly from country to country. As part of our strategic relationships, our collaborators may be responsible for the foreign regulatory approval process for our product candidates, although we may be legally liable for noncompliance. We are also subject to various federal, state and local laws, rules, regulations and policies relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances used in connection with our research work. Although we believe that our safety procedures for handling and disposing of such materials comply with current federal, state and local laws, rules, regulations and policies, the risk of accidental injury or contamination from these materials cannot be entirely eliminated. The extent of government regulation that might result from future legislation or administrative action cannot be accurately predicted. In this regard, although the FDA Modernization Act of 1997 modified and created requirements and standards under the FDC Act with the intent of facilitating product candidate development and marketing, the FDA is still in the process of developing regulations implementing the FDA Modernization Act of 1997. Consequently, the actual effect of these developments on our business is uncertain and unpredictable. Competition The pharmaceutical and biopharmaceutical industries are intensely competitive and are characterized by rapid and significant technological progress. Our competitors include large integrated pharmaceutical companies and biotechnology companies and universities and public and private research institutions which currently engage in, have engaged in or may engage in efforts related to the discovery and development of new pharmaceuticals and biopharmaceuticals, some of which may be competitive. Almost all of these entities have substantially greater research and development capabilities and financial, scientific, manufacturing, marketing and sales resources than we do, as well as more experience in research and development, clinical trials, regulatory matters, manufacturing, marketing and sales. We are aware of companies that are developing invasive procedures for the acute treatment of cardiovascular disease, such as atherosclerosis, ischemia and restenosis, that may compete with our own acute treatments. In addition, new non-invasive medical procedures and technologies are also under development for the acute treatment of cardiovascular disease. These include potential drugs, such as the LUV compound being 38 developed by Talaria, which may compete with any LUV product that we could develop, or with our other proposed products for acute treatment. In addition, another organization is purifying ApoA-I from outdated human blood, for the treatment of an infectious disease known as septic shock. Other companies with substantially greater research and development resources may attempt to develop products that are competitive with our product candidates for the acute treatment of cardiovascular disease or seek approval for drugs in later stages of development that have similar effects on cardiovascular disease as our acute treatments. We are also aware of companies that are developing products for the chronic treatment of cardiovascular disease that may compete with our own HDL elevating drug candidates. For example, several third parties have HDL elevators under development, which could compete with our HDL elevating drug candidates. Other companies with substantially greater research and development resources may attempt to develop products that are competitive with our product candidates or seek approval for drugs in later stages of development that have similar effects as our product candidates. If regulatory approvals are received, our products may compete with several classes of existing drugs for the treatment of restenosis, atherosclerosis, and ischemia, some of which are available in generic form. For example, drugs available for the treatment of atherosclerosis include fibrates, statins, niacin and hormones, all of which are available in pill or tablet, as opposed to the intravenous administration method we intend to use for most of our product candidates. Such existing drugs were not specifically designed to elevate HDL levels and when administered only raise HDL levels to a limited extent. In addition, administration of our product candidates designed to raise HDL in conjunction with therapeutics designed to lower LDL could reduce the overall market available to us. There are also surgical treatments such as coronary bypass surgery and balloon angioplasty that may be competitive with our products. However, for those patients who do not respond adequately to existing therapies and remain symptomatic despite maximal treatment with existing drugs and who are not candidates for these surgical procedures, there is no currently effective treatment. In certain patients who are candidates for these surgical procedures, there is no effective pharmacologic treatment available. Our products are still under development, and it is not possible to predict our relative competitive position in the future. However, we think that the principal competitive factors in the markets for ProApoA-I, AIM, the RLT peptide, the class of HDL elevators, and the LUVs will likely include: . safety and efficacy profile; . product price; . ease of administration; . duration of treatment; . product supply; . enforceability of patent and other proprietary rights; and . marketing and sales capability. Our competitors also compete with us to: . attract qualified personnel; . attract parties for acquisitions, joint ventures or other collaborations; . license the proprietary technology that is competitive with the technology we are practicing; and . attract funding. Employees As of July 7, 2000, we had 48 employees. Of these employees, 39 were engaged in research, preclinical and clinical development, regulatory affairs, intellectual property activities, and/or manufacturing activities and 9 were engaged in finance and general administrative activities. None of our employees is covered by collective bargaining agreements. We consider relations with our employees to be good. 39 Facilities Our leased principal corporate and research facilities, located in Ann Arbor, Michigan, currently occupy approximately 24,000 square feet. These leases expire at various times starting in December 2000. We also lease research and office space in Solna, Sweden, which currently occupies approximately 4,000 square feet. This lease expires in June 2002. We believe that our existing facilities are adequate for our current needs. When our leases expire, we may look for additional or alternate space for our operations and we believe that suitable additional or alternative space will be available in the future on commercially reasonable terms. Our Solna, Sweden facility is located near the Strangnas, Sweden facility of Pharmacia, at which Pharmacia manufactures supplies of AIM for use in preclinical and clinical trials. Our employees work closely with Pharmacia in the manufacturing of these compounds. Legal Proceedings As described elsewhere in this prospectus, we are involved in litigation relating to our rights to the LUV technology sub-licensed from Inex. 40 MANAGEMENT Executive Officers and Directors The following table presents information about our executive officers and directors. Our board of directors is divided into three classes serving staggered three-year terms.
Name Age Position - ---- --- -------- Roger S. Newton, Ph.D... 50 President, Chief Executive Officer and Director Hans Ageland............ 39 Vice President, Production Jan Johansson, M.D., Ph.D.................. 47 Vice President, Clinical Affairs Timothy M. Mayleben..... 40 Vice President, Finance and Chief Financial Officer David I. Scheer(1)...... 47 Chairman Christopher Moller, Ph.D.(1)(2)........... 46 Director Eileen M. More(1)(2).... 53 Director Seth A. Rudnick, M.D.(2)............... 51 Director Anders Wiklund.......... 59 Director
- -------- (1) Member of Compensation Committee (2) Member of Audit Committee Dr. Newton has served as our President and Chief Executive Officer and as a director of Esperion since July 1998. From August 1981 until May 1998, Dr. Newton was employed at Parke-Davis Pharmaceutical Research, Warner-Lambert Company, as a Distinguished Research Fellow in Vascular and Cardiac Diseases where he was the co-discoverer and chairman of the Lipitor discovery team and a member of the development team. Dr. Newton received an A.B. in biology from Lafayette College, an M.S. in nutritional biochemistry from the University of Connecticut and a Ph.D. in nutrition from the University of California, Davis. He also specialized in atherosclerosis research during a post-doctoral fellowship at the University of California, San Diego. He currently holds a faculty appointment in the Department of Pharmacology at the University of Michigan Medical School. Mr. Ageland has served as our Vice President, Production since February 1999. From 1998 to 1999, Mr. Ageland served as a consultant to Esperion. From 1997 to 1998, Mr. Ageland served as Director of Production at Medivir AB. From 1988 to 1997, Mr. Ageland served as Project Manager at Pharmacia & Upjohn where he was responsible for developing and managing the AIM production process. Mr. Ageland has more than 12 years of experience in recombinant protein production and purification as well as more than a decade of experience in project management. Dr. Ageland received an M.S. in chemical engineering, biochemistry and biotechnology from the Royal Institute of Technology, Stockholm. Dr. Johansson has served as our Vice President, Clinical Affairs, since May 1999. From 1998 to May 1999, he served as a consultant to Esperion. From 1987 to 1998, Dr. Johansson directed research and multinational clinical trials focused on abnormalities in lipid metabolism and atherosclerosis at the Institute of Medicine at the Karolinska Hospital, where he also served as associate professor in the Department of Internal Medicine since 1995. Dr. Johansson served as medical advisor to Pharmacia & Upjohn for the AIM project while working as a consultant with Non Nocere AB from 1995 to 1997. Dr. Johansson received his M.D. and Ph.D. from the Karolinska Institute. Mr. Mayleben has served as our Vice President, Finance and Chief Financial Officer since January 1999. Mr. Mayleben has more than 15 years experience working with high-growth technology companies. Prior to joining Esperion, Mr. Mayleben served as a Director of Business Development for Engineering Animation, Inc., a publicly held company, from September 1999 to December 1999. From July 1997 to September 1999, Mr. Mayleben served as Chief Operating Officer and Chief Financial Officer of Transom Technologies, Inc., a privately held company that was acquired by Engineering Animation, Inc. From November 1994 to July 1997, Mr. Mayleben served as Director of Operations, of Applied Intelligent Systems, Inc., a privately held company. Prior to that, Mr. Mayleben was a manager with the Enterprise Group of Arthur Andersen & Co. Mr. Mayleben received a BBA from the University of Michigan and an MBA from the Northwestern University Kellogg Graduate School of Management. 41 Mr. Scheer, our chairman, has been a director of Esperion since July 1998. He has been President of Scheer & Company, Inc., a firm with activities in venture capital, corporate strategy, and transactional advisory services focused on the life sciences industry since 1981. Scheer & Company, Inc. is the managing member of Scheer Investment Holdings II, LLC, one of our stockholders. Mr. Scheer was involved in the founding of our company, as well as ViroPharma, Inc., OraPharma, Inc. and Achillon Pharmaceuticals, Inc. and is a member of the board of directors of OraPharma, Inc. and Achillon Pharmaceuticals, Inc. Mr. Scheer received his A.B. from Harvard College and his M.S. from Yale University. Dr. Moller has been a director of Esperion since July 1998. Since 1990, he has served as Vice President of TL Ventures, a company which manages a series of private equity funds. Since 1994, Dr. Moller has served as a Managing Director of the following funds managed by TL Ventures; Radnor Venture Partners, Technology Leaders, Technology Leaders II, TL Ventures III and TL Ventures IV. He is principally responsible for the life science portfolio at TL Ventures, specializing in financing and development of early-stage biotechnology, bioinformatics and e-health companies. Dr. Moller also currently serves as a director on the boards of Adolor Corporation, Assurance Medical, OraPharma, Inc., Immunicon Corporation, eMerge Interactive, Inc., ChromaVision Systems, Inc. and Genomics Collaborative. Dr. Moller holds a Ph.D. in immunology from the University of Pennsylvania. Ms. More has been a director of Esperion since September, 1999. She has been associated with Oak Investment Partners, a venture capital firm, since 1978. She is currently a Special Limited Partner and had been a General Partner or Managing Member since 1980. She currently serves as a director of several companies including Halox Technologies, OraPharma, Inc., Psychiatric Solutions and Teloquent Communications Corporation. Ms. More was also a founding investor in Genzyme and has been responsible for early-stage investments in numerous companies including Alkermes, Alexion Pharmaceuticals, Dyax, OraPharma, Inc., Kera Vision, Osteotech, Pharmacopeia, Trophix Pharmaceuticals, Compaq Computer, Network Equipment Technologies, Octel Communications and Stratus Computer. Dr. Rudnick has been a director of Esperion since January 2000. He has been a Venture Partner at Canaan Equity Partners, a venture capital firm, since 1998, and serves as a director of OraPharma, Inc. and NaPro BioTherapeutics, Inc. He was Chairman and Chief Executive Officer of Cytotherapeutics, Inc. from 1995 through 1998. Prior to that, Dr. Rudnick served as Senior Vice President of the R.W. Johnson Pharmaceutical Research Group of Ortho Pharmaceutical Corporation, Senior Vice President of Development with Biogen Research Corporation and Director of Clinical Research with Schering-Plough. Dr. Rudnick has held various faculty appointments with Brown University, the University of North Carolina and Yale University, and received his M.D. from the University of Virginia, with fellowships at Yale in oncology and epidemiology. Mr. Wiklund has been a director of Esperion since July 1998. He has been an advisor to the biotechnology and pharmaceutical industries since January of 1997 when he formed Wiklund International Inc. In 1997 he was appointed Sr. Vice President of Biacore Holding, Inc., a supplier of affinity biosensor systems. Mr. Wiklund served as President of Pharmacia Development Corporation from August 1993 to December 1994, as Executive Vice President of Pharmacia US, Inc. from January 1995 to December 1995 and as Vice President of Pharmacia & Upjohn from January 1995 to December 1996. Between 1984 and 1993, he was President & CEO of Kabi Vitrum, Inc. and Kabi Pharmacia, Inc. Mr. Wiklund serves as a director of InSite Vision, Inc., Medivir AB, Ribozyme Pharmaceuticals, Inc., Bioreason Inc., and Glyco Design, Inc. He has a Master of Pharmacy from the Pharmaceutical Institute in Stockholm and studied business administration at the University of Stockholm. Board of Directors Our board of directors is divided into the following three classes, with the members of the respective classes serving for staggered three-year terms: . Class 1 directors, whose terms expire at the next annual meeting of stockholders which will be held in 2001; 42 . Class 2 directors, whose terms expire at the annual meeting of stockholders to be held in 2002; and . Class 3 directors, whose terms expire at the annual meeting of stockholders to be held in 2003. Anders Wiklund and Seth A. Rudnick, MD. are our Class 1 directors, Christopher Moller, Ph.D. and Eileen M. More are our Class 2 directors, and David I. Scheer and Roger S. Newton, Ph.D. are our Class 3 directors. At each annual meeting of stockholders following this offering, our stockholders will elect the successors to directors whose terms expire to serve from the time of election and qualification until the third annual meeting following election. All directors were nominated and elected as directors by the holders of our common and preferred stock in accordance with provisions of a stockholders agreement that will terminate upon the completion of this offering. Each of the individuals will remain as a director until resignation or until the stockholders elect their replacements in accordance with our certificate of incorporation. Our executive officers are appointed by the board of directors and serve until their successors have been duly elected and qualified. There are no family relationships among any of our executive officers or directors. Audit Committee We have established an audit committee. Our audit committee consists of three independent directors. Our audit committee is responsible for reviewing with management our financial controls and accounting and reporting activities. In addition, our audit committee is also responsible for reviewing the qualifications of our independent auditors, making recommendations to the board of directors regarding the scope, fees and results of any audit and reviewing any non-audit services and related fees. Compensation Committee and Compensation Committee Interlocks and Insider Participation We have established a compensation committee. Our compensation committee is responsible for the evaluation, approval and administration of all salary, incentive compensation, benefit plans and other forms of compensation for our officers, directors and other employees including, bonuses and options granted under our 1998 Stock Option Plan, our 2000 Equity Compensation Plan, and our Employee Stock Purchase Plan. None of the Compensation Committee members has served as an officer or employee of Esperion or its subsidiary, except Roger S. Newton, Ph.D., who has been our President and Chief Executive Officer since our inception in 1998. Effective March 24, 2000, Dr. Newton resigned from the Compensation Committee, which currently consists solely of non-employee directors. 43 Esperion Scientific Advisors We currently retain scientific advisors who advise us concerning long- term scientific planning and research and development, periodically evaluate our research programs and periodically review development plans for our product candidates. Our current scientific advisors are as follows:
Member Professional Affiliation Expertise - ---------------------- ----------------------------- -------------------------------- Prediman K. Shah, M.D. Cedars Sinai Medical Center, Interventional cardiology Director, Department of Cardiology Cesare Sirtori, M.D. University Center E. Grossi Pharmacology of lipid and Paoletti, Institute of lipoprotein metabolism Pharmacological Science, University of Milan, Italy Guido Franceschini, University Center E. Grossi Pharmacology of lipid and Ph.D. Paoletti, Institute of lipoprotein metabolism Pharmacological Science, University of Milan, Italy Daniel Rader, M.D. University of Pennsylvania, Human genetics of lipid Department of Medicine and disorders Experimental Therapeutics Charles Sing, Ph.D. University of Michigan, Human genetics of cardiovascular Department of Human Genetics risk factors
Director and Scientific Advisors Compensation We reimburse each member of our board of directors and each of our scientific advisors for out-of-pocket expenses incurred in connection with attending our meetings. We also pay each of our scientific advisors a fee for each meeting attended. In addition, on July 17, 2000, we granted each outside member of our board of directors options to purchase 15,000 shares of our common stock at an exercise price per share equal to the initial public offering price per share. The options vest in three equal annual installments. 44 Executive Compensation The following table presents information concerning the compensation we paid for the year ended December 31, 1999 to our chief executive officer and the other executive officers who earned over $100,000 in compensation during the year ended December 31, 1999. 1999 Summary Compensation Table
Annual Long-Term Compensation Compensation Awards ---------------- ------------------------ Restricted Securities Name and Principal Stock Underlying All Other Position Salary Bonus Awards(#) Options(#) Compensation(1) - ------------------ -------- ------- ---------- ---------- --------------- Roger S. Newton, Ph.D. ............... $200,000 $60,000 -- -- $717,736 President, Chief Executive Officer Timothy M. Mayleben.... 145,000 32,000 -- 72,250 735 Vice President, Chief Financial Officer Jan Johansson, M.D., Ph.D.(2)............. 177,615 10,000 86,700(/4/) 173,400 60,096 Vice President, Clinical Affairs Hans Ageland(3)........ 164,405 10,000 86,700(/4/) 173,400 5,235 Vice President, Production
- -------- (1) For Dr. Newton, this includes $517,000 as the deemed value of 95,841 shares of series C preferred stock that were issued to Dr. Newton, and $200,000 that was paid to Dr. Newton, in January 1999 to reimburse Dr. Newton for a portion of the tax expense he incurred in connection with the early exercise of stock options from his prior employer in 1998 when he joined Esperion. Includes $4,500 forgiveness of loans to Dr. Johansson and Mr. Ageland and term life insurance premiums in the amount of $735 paid by us for Dr. Newton, Mr. Mayleben, Dr. Johansson and Mr. Ageland during 1999. Includes $54,861 of relocation expenses reimbursement to Dr. Johansson during 1999. (2) Dr. Johansson's employment with Esperion began in May 1999. His salary for 1999 was $106,667. Prior to his employment, Dr. Johansson served as a consultant to us. He was paid $70,948 in 1999 for his services as a consultant. (3) Mr. Ageland's employment with Esperion began in February 1999. His salary for 1999 was $146,667. Prior to his employment, Mr. Ageland served as a consultant to us. He was paid $17,738 in 1999 for his services as a consultant. (4) The fair market value of these shares at the date of grant was deemed by the board at such time to be $18,000, or $0.21 per share. 45 Stock Option Grants The following table contains information concerning options to purchase common stock that we granted in 1999 to each of the executive officers named in the summary compensation table. We generally grant stock options at 100% of the fair market value of the common stock as determined by our board of directors on the date of grant. In reaching the determination of fair market value at the time of each grant, the board of directors considers a range of factors, including the price at which the company was able to raise funds from venture capital investors through the sale of convertible preferred stock in recent transactions and the rights of the common stock compared to this preferred stock, and the illiquidity of an investment in the common stock. Option Grants in 1999
Individual Grants ------------------------------------------ Potential Realizable Value at Assumed Percent of Annual Rates Number of Total of Stock Price Securities Options Appreciation Underlying Granted to Exercise for Option Term Options Employees Price Per Expiration --------------------- Name Granted in 1999 Share Date 5% 10% - ---- ---------- ---------- --------- ---------- ---------- ---------- Roger S. Newton, Ph.D. ................ -- -- -- -- -- -- Jan Johansson M.D., Ph.D. ................ 173,400 31.9% $0.21 06/2008 $2,384,589 $3,643,399 Hans Ageland............ 173,400 31.9 0.21 06/2008 2,384,589 3,643,399 Timothy M. Mayleben..... 72,250 13.3 0.21 01/2008 993,579 1,518,083
The following table contains information covering options to purchase common stock that we granted in 2000 prior to July 7, 2000. The percentage of total options granted is based on a total of 680,840 options granted in 2000 prior to July 7, 2000. Option Grants in 2000
Individual Grants ------------------------------------------ Potential Realizable Value at Assumed Percent of Annual Rates Number of Total of Stock Price Securities Options Appreciation Underlying Granted to Exercise for Option Term Options Employees Price Per Expiration --------------------- Name Granted in 2000 Share Date 5% 10% - ---- ---------- ---------- --------- ---------- ---------- ---------- Roger S. Newton, Ph.D. ................ 126,437 18.6% $2.21 01/2009 $1,485,882 $2,403,761 Jan Johansson M.D., Ph.D. ................ -- -- -- -- -- -- Hans Ageland............ -- -- -- -- -- -- Timothy M. Mayleben..... 90,312 13.3 2.21 01/2009 1,061,342 1,716,969
Amounts reported in the "potential realizable value" tables column above are hypothetical values that may be realized upon exercise of the options immediately prior to the expiration of their term, calculated using an assumed public offering price of $9.00 per share as the base and assuming appreciation at the indicated annual rate compounded annually for the entire term of the option (nine years). The 5% and 10% assumed rates of appreciation are mandated by the rules of the Securities and Exchange Commission and do not represent our estimate or projection of our future common stock price. The gains shown are net of the option exercise price, but do not include deductions for taxes or other expenses associated with the exercise of the option or the sale of the underlying shares. The following table contains information concerning options to purchase common stock held as of December 31, 1999 by each of the executive officers named in the summary compensation table. There was no 46 public trading market for the common stock as of December 31, 1999. Accordingly, these values have been calculated on the basis of an assumed public offering price of $9.00 per share minus the applicable per share exercise price. 1999 Year-End Option Values
Number of Shares Value of Unexercised Underlying Unexercised In-the-Money Options Options at Year End at Year End ------------------------- ------------------------- Name Exercisable Unexercisable Exercisable Unexercisable - ---- ----------- ------------- ----------- ------------- Roger S. Newton, Ph.D... -- -- $ -- $ -- Jan Johansson, M.D, Ph.D.................. 54,187 119,213 476,304 1,047,882 Hans Ageland............ 54,187 119,213 476,304 1,047,882 Timothy M. Mayleben..... 13,546 58,704 119,069 516,008
Employment, Change of Control and Termination of Employment Arrangements Roger S. Newton, Ph.D., holds the position of President and Chief Executive Officer and receives an annual salary of $215,000 per year, and is eligible to receive a bonus of up to 30% of his base salary per year. The amount of his bonus, if any, is dependent upon achievement of a series of performance milestones, set by our board of directors. He has also received 578,000 shares of restricted common stock which are subject to a repurchase right, lapsing over a four-year period, at the original price, exercisable upon the termination of Dr. Newton's employment and options to purchase 126,437 shares of our common stock at $2.21 per share. These options are exercisable for nine years from the grant date and will vest over a four-year period of time from the date of issuance. If we terminate Dr. Newton's employment without cause, he will receive his salary and benefits for six months after his termination, and 25% of his unvested options and unvested restricted stock will automatically vest. Jan Johansson, M.D., holds the position of Vice President, Clinical Affairs and receives an annual salary of $160,000 per year and is eligible to receive a bonus of up to 20% of his base salary per year. The amount of his bonus, if any, is dependent on the achievement of a series of performance milestones set by our board of directors. Dr. Johansson holds options to purchase 173,400 shares of Esperion's common stock at $0.21 per share. These options are exercisable for nine years from the grant date and will vest over a four-year period of time from the date of issuance. We will award to Dr. Johansson options to purchase an additional 18,062 shares of our stock upon the completion of a clinical trial of AIM, indicating proof of concept, if such an event occurs by November 2000. If we terminate Dr. Johansson's employment without cause, he will receive his salary and benefits for nine months after his termination and 25% of his options will automatically vest. In July 1999, Dr. Johansson purchased 86,700 shares of common stock at a purchase price of $0.21 per share, and paid for these shares by delivery of a promissory note. These shares are subject to a repurchase right, lapsing over a three-year period, at the original price, exercisable upon the termination of Dr. Johansson's employment. The note bears interest at the rate of prime plus one percent per year and is due upon the earlier to occur of Dr. Johansson's termination as an employee or August 1, 2003. However, the note is forgiven ratably over a three-year period if Dr. Johansson's employment is terminated without cause by us, and we have elected to forgive this portion of the note so that it will be forgiven in full on August 1, 2002. Hans Ageland holds the position of Vice President, Production and receives an annual salary of $160,000 per year and is eligible to receive a bonus of up to 20% of his base salary per year. The amount of his bonus, if any, is dependent on the achievement of a series of performance milestones set by our board of directors. Mr. Ageland holds options to purchase 173,400 shares of the our common stock at $0.21 per share. These options are exercisable for nine years from the grant date and will vest over a four year period of time from the date of issuance. We will award options to purchase an additional 18,062 shares of our common stock upon the completion of a clinical trial of AIM indicating proof of concept, if such an event occurs by November 2000. If we terminate Mr. Ageland's employment without cause, he will receive his salary and benefits for nine months after his termination and 25% of his options will automatically vest. In July 1999, 47 Mr. Ageland purchased 86,700 shares of common stock at a purchase price of $0.21 per share, and paid for these shares by delivery of a promissory note. These shares are subject to a repurchase right, lapsing over a four-year period, at the original price, exercisable upon Mr. Ageland's termination of employment. The note bears interest at the rate of prime plus one percent per year and is due upon the earlier to occur of Mr. Ageland's termination as an employee or July 1, 2004. However, the note is forgiven ratably over a four- year period if Mr. Ageland's employment is terminated without cause by us, and we have elected to forgive this portion of the note so that it will be forgiven in full on the fourth anniversary of his date of employment. Timothy M. Mayleben holds the position of Vice President, Finance and Chief Financial Officer and receives an annual salary of $175,000 per year and is eligible to receive a bonus of up to 20% of his salary. The amount of his bonus, if any, is dependent upon achievement of performance milestones set by our board of directors. Mr. Mayleben holds options to purchase 72,250 shares of our common stock at $0.21 per share and options to purchase 90,312 shares of common stock at $2.21 per share. These options are exercisable for nine years from the date of grant and will vest quarterly over a four-year period of time from the date of issuance. If we terminate Mr. Mayleben's employment without cause, he will receive his salary and benefits for six months after his termination, and 25% of his unvested options will automatically vest. Equity Compensation Plans 1998 Stock Option Plan We maintain the 1998 Stock Option Plan which has been approved by our board of directors and our stockholders. The 1998 plan provides for grants of incentive stock options and nonqualified stock options to our directors, officers, employees, advisors and consultants. All options granted to date have been granted under the 1998 Stock Option Plan. General. The plan authorizes up to 1,784,575 shares of our common stock for issuance under the plan. As of July 7, 2000, 236,466 of these authorized shares were available for issuance under the plan. If options granted under the plan terminate, expire or are cancelled for any reason without being exercised, the shares of common stock underlying the grants will be available for grant of new options under the plan. As of July 7, 2000, options for 1,274,514 shares of our common stock were outstanding under the plan. Administration of the Plan. The compensation committee of the board of directors administers and makes grants under the plan. Grant of Options. Options granted under the plan shall be designated either as options intended to qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code or as nonqualified stock options intended not to so qualify. Eligibility for Participation. Options may be granted to any of our directors, officers, employees or advisors. Option Price and terms. The committee determines the exercise price of each stock option. The exercise price of an incentive stock option must be at least equal to the market value of the common stock subject to the option at the time of grant. If the committee grants an incentive stock option to an owner of 10 percent or more of the outstanding shares of common stock, the option price must be at least 110 percent of the market value of the stock subject to the option. When granting an option, the committee shall specify one or more of the following forms of payment to be used by the grantee: . in cash; . by delivering shares of common stock owned by the grantee and having a fair market value on the date of exercise equal to the exercise price of the option; or . payment through a broker. 48 Options become exercisable according to the terms determined by the compensation committee and set forth in the option agreement. Generally, options granted to date have vested in 16 equal quarterly installments beginning on the first quarter from the date of grant. The compensation committee may accelerate the exercisability of any or all outstanding options at any time upon its discretion. The term for any stock option may not exceed ten years, and all options granted to date have had a 9 year term. The term of an incentive stock option granted to an employee who owns more than 10% of our stock may not exceed five years from the date of grant. Grants are generally not transferable by the optionee, except in the event of death. Amendment and Termination of the Plan. The board of directors may amend or terminate the plan at any time. However, the board of directors may not make any amendment without stockholder approval if such stockholder approval is required by Section 422 of the Internal Revenue Code or under Rule 16b-3 under the Securities Exchange Act of 1934. The plan will terminate on the earliest to occur of a.) the tenth anniversary of its approval by the board of directors, b.) the tenth anniversary of its approval by the stockholders or c.) the date in which the board of directors terminates the plan. Antidilution. In the event the common stock is changed through a stock split, stock dividend, merger or other transaction identified in the plan, the committee will make appropriate adjustments to outstanding options and to the options authorized for issuance under the plan. Change of Control. In the event of a merger or other transaction in which we are not the surviving entity or all or substantially all of our assets are sold, the committee or the board of directors has the discretion to: . accelerate the exercisability of outstanding stock options; . terminate all outstanding options, if their exercisability has been accelerated; . pay to option holders the difference between the fair market value and the option price of the shares subject to outstanding stock options, in return for the surrender of outstanding options; or . provide for the assumption of outstanding options, or the substitution of new options, by the successor corporation or entity. 2000 Equity Compensation Plan We also maintain the 2000 Equity Compensation Plan which has been approved by our board of directors and our stockholders. The 2000 plan provides for grants of incentive stock options, nonqualified stock options, stock awards and performance units to our employees, advisors, consultants and non-employee directors. General. The 2000 plan authorizes up to 1,000,000 shares of our common stock for issuance under the terms of the plan. No more than 500,000 shares in the aggregate may be granted to any individual in any calendar year. If options granted under the plan expire or are terminated for any reason without being exercised, or if stock awards or performance units are forfeited, the shares of common stock underlying the grants will again be available for purposes of the plan. No options, stock awards or performance units have been granted to date under the 2000 plan. Administration of the Plan. The compensation committee of the board of directors administers and makes grants under the plan. Grants. Grants under the plan may consist of: . options intended to qualify as incentive stock options; . nonqualified stock options; . stock awards; and . performance units. 49 Eligibility for Participation. Grants may be made to any of our employees, members of our board of directors, and consultants and advisors who perform services for us. Options. The exercise price of options will be determined by the compensation committee, and may be equal to or greater than the fair market value of our common stock on the date the option is granted. Participants may pay the exercise price: . in cash; . with the approval of the compensation committee, by delivering shares of common stock owned by the grantee and having a fair market value on the date of exercise equal to the exercise price of the option; . by payment through a broker; or . by such other method as the compensation committee may approve. Options become exercisable according to the terms determined by the compensation committee and specified in the grant instrument. The compensation committee may accelerate the exercisability of any or all outstanding options at any time for any reason. The compensation committee will determine the term of each option, up to a maximum ten-year term. The term of an incentive stock option granted to an employee who owns more than 10% of our stock may not exceed five years from the date of grant. Stock Awards. The compensation committee may issue shares of stock to participants subject to restrictions or no restrictions. Unless the compensation committee determines otherwise, during the restriction period, grantees will have the right to vote shares of stock awards and to receive dividends or other distributions paid on such shares. If a grantee's employment or service terminates during the restriction period or if any other conditions are not met, the stock awards will terminate as to all shares on which restrictions are still applicable, and the shares must be immediately returned to us, unless the compensation committee determines otherwise. Performance Units. The compensation committee may make grants of performance units to employees, consultants and advisors. Performance units may be payable partly in cash or shares of our common stock, provided that the cash portion does not exceed 50% of the amount to be distributed at the end of a specific performance period. Payment will be contingent on achieving performance goals by the end of the performance period. The measure of a performance unit will be equal to the fair market value of a share of our common stock. The compensation committee will determine the performance criteria, the length of the performance period, the maximum payment value of an award, the minimum performance goals required before payment will be made, and any other conditions the compensation committee deems appropriate and consistent with the plan and Section 162(m) of the Internal Revenue Code. Performance-Based Compensation. The compensation committee may grant performance units and stock awards that are intended to be "qualified performance-based compensation" under Section 162(m) of the Internal Revenue Code. In that event, the compensation committee will establish in writing the objective performance goals that must be met and other conditions of the grant at the beginning of the performance period. The performance goals may relate to the employee's business unit or to our performance as a whole, or any combination of the two. The compensation committee will use objectively determinable performance goals based on one or more of the following criteria: stock price, earnings per share, net earnings, operating earnings, return on assets, stockholder return, return on equity, growth in assets, unit volume, sales, market share, scientific goals, preclinical or clinical goals, regulatory approvals, or strategic business criteria consisting of one or more objectives based on meeting specified revenue goals, market penetration goals, geographic business expansion goals, cost targets, goals relating to acquisitions or divestitures, or strategic partnerships. With respect to stock awards or performance units granted as "qualified performance-based compensation," not more than 500,000 shares of stock may be granted to an employee under the performance units or stock awards for any performance period. At the end of each performance period, the compensation committee will certify the 50 results of the performance goals and the extent to which the performance goals have been met. The compensation committee may provide for payment of grants in the event of death or disability of a participant, or a change of control during a performance period. Deferrals. The compensation committee may permit or require that a grantee defer the receipt of cash or the delivery of shares that would otherwise be due to the grantee in connection with any option, stock awards, or performance units. Transferability. Grants are generally not transferable by the participant, except in the event of death. However, the compensation committee may permit participants to transfer nonqualified stock options to family members or related entities on such terms as the compensation committee deems appropriate. Amendment and Termination of the Plan. The board of directors may amend or terminate the plan at any time. However, the board of directors may not make any amendment without stockholder approval if stockholder approval is required by Section 162(m) or Section 422 of the Internal Revenue Code or is required by an applicable stock exchange. The plan will terminate on the day immediately preceding the tenth anniversary of its effective date, unless the board of directors terminates the plan earlier or extends it with approval of the stockholders. Adjustment Provisions. Upon a merger, spin-off, stock split or other transaction identified in the plan, the compensation committee may appropriately adjust: . the maximum number and kind of shares available for grants under the plan and to any individual; . the number and kind of shares covered by outstanding grants; and . the price per share or the applicable market value of grants. Change of Control. Upon a change of control where we are not the surviving entity or where we survive only as a subsidiary of another entity, unless the compensation committee determines otherwise, all outstanding grants will be assumed by or replaced with comparable options or other grants by the surviving corporation. In addition, upon a change of control, the compensation committee may: . accelerate the vesting and exercisability of outstanding stock options and stock awards; . determine that grantees holding performance units will receive a payment in settlement of such performance units; . require that grantees surrender their outstanding options in exchange for payment by us, in cash or common stock, in an amount equal to the amount by which the fair market value of the shares of common stock subject to the options exceeds the exercise price; and . after giving grantees an opportunity to exercise their outstanding options, terminate any and all unexercised options. A "change of control" is defined to occur if: . any person becomes a beneficial owner, directly or indirectly, of stock representing more than 50% of the voting power of the then- outstanding shares of our stock; . the stockholders or the directors, as appropriate, approve: . any merger or consolidation with another corporation where our stockholders, immediately before such transaction, will not beneficially own, immediately after the transaction, shares entitling such stockholders to more than 50% of all votes to which all stockholders of the surviving corporation would be entitled in the election of directors; 51 . a sale or other disposition of all or substantially all our assets; or . a liquidation or dissolution. Foreign Grantees. For grantees who are subject to taxation in countries other than the United States, the compensation committee may make grants on such terms and conditions as the compensation committee deems appropriate to comply the laws of applicable countries. Section 162(m) Under Section 162(m) of the Internal Revenue Code, we may be precluded from claiming a federal income tax deduction for total remuneration in excess of $1,000,000 paid to our chief executive officer or to any of our other four most highly compensated officers in any one year. Total remuneration includes amounts received upon the exercise of stock options granted under the plan and the value of shares or cash paid pursuant to other grants. An exception exists, however, for "qualified performance-based compensation." The compensation committee may make grants under the 1998 plan and the 2000 plan that meet the requirements of "qualified performance-based compensation." Stock options generally will meet the requirements of performance-based compensation. Not all such awards and performance units are considered performance-based compensation under section 162(m). The compensation committee may grant stock awards and performance units under the 2000 plan that are subject to attainment of objective performance goals and are intended to meet the requirements of performance-based compensation under Section 162(m). Employee Stock Purchase Plan Concurrently with our initial public offering, we will establish an employee stock purchase plan under which a total of 500,000 shares of our common stock will be made available for sale to our employees. We intend the purchase plan to qualify as an employee stock purchase plan within the meaning of Section 423 of the Internal Revenue Code. The compensation committee will administer the purchase plan. Employees are eligible to participate in the purchase plan if they are employed by us or a designated subsidiary, work more than 20 hours per week and for more than five months in any calendar year, and do not own five percent or more of our stock. The purchase plan permits eligible employees to purchase stock through after-tax payroll deductions, which may not exceed 15% of an employee's compensation. The maximum number of shares that a participant may purchase during a purchase period is 250,000 shares. The purchase plan will be implemented as a series of consecutive offering periods, each approximately three months long. The first offering period will begin on the effective date of the plan and will end on September 30, 2000. Each subsequent offering period will begin on the first trading day after each October 1, January 1, April 1 and July 1 of every year, and will end on the last trading day in the period three months later. Each participant will be granted an option to purchase stock on the first day of the three-month period and the option will automatically be exercised on the last day of the offering period. The purchase price of each share of stock during the initial purchase period will be the lesser of the fair market value per share of our stock on the effective date of the plan or 85% of the fair market value of our stock on the purchase date. Thereafter, the purchase price of each share of common stock under the purchase plan will be equal to 85% of the lesser of the fair market value per share of our common stock on the start date of the offering period or on the date of purchase. Employees may modify or end their participation in the offering at any time during the offering period. Participation ends automatically upon termination of employment or if the participant ceases to be an eligible employee. The board of directors may amend the purchase plan at any time. However, the board of directors may not amend the plan without stockholder approval if such approval is required by Section 423 of the Internal Revenue Code. The purchase plan will terminate ten years after its effective date, unless it is terminated sooner under the terms of the plan or our board of directors terminates it. 52 401(k) Plan We maintain a tax-qualified employee savings and retirement plan, our 401(k) plan, for our eligible employees. At the discretion of the board of directors, we may make matching contributions on behalf of all participants who have elected to make deferrals to the 401(k) plan. To date, we have not made any matching contributions to the 401(k) plan. Any contributions to the 401(k) plan by us or by our participants are paid to a trustee. The 401(k) plan, and the accompanying trust, are intended to qualify under Section 401(k) of the Internal Revenue Code, as amended, so that contributions and income earned, if any, are not taxable to employees until withdrawn. The contributions made by us vest in increments according to a vesting schedule. At the direction of each participant, the trustee invests the contributions made to the 401(k) plan in any number of investment options. 53 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Previous Capital Stock Financings We sold 500,000 shares of series A preferred stock in July 1998 and 10,000,000 shares of series B preferred stock in August 1998. We sold 10,252,879 shares of series C preferred stock in January 2000 and 1,136,363 shares of series D preferred stock in February 2000. Substantially all of our shares of preferred stock have been sold to venture capital funds. The detailed description of the various venture capital funds that have purchased our preferred stock is contained in the footnotes to the Principal Stockholder's table on page 54. Each share of outstanding preferred stock will convert into 0.7225 shares of common stock upon completion of this offering. Series A Preferred Stock. We sold 500,000 shares of series A preferred stock in July 1998 at a purchase price per share of $1.00 for a total of $500,000. In these transactions, we sold 275,000 shares to Oak Investment Partners, 175,000 shares to TL Ventures III, and 50,000 shares to Scheer Investment Holdings II, L.L.C. Series B Preferred Stock. We sold 10,000,000 shares of series B preferred stock in August 1998 at a purchase price per share of $1.50, for a total of $15 million. In these transactions, we sold 3,750,000 shares of series B preferred stock to each of Oak Investment Partners and TL Ventures III, 2,133,333 shares to HealthCap KB, 33,334 shares to Scheer Investment Holdings II, L.L.C., and 333,333 shares to Dr. Cesare Sirtori. Series C Preferred Stock. We sold 10,125,465 shares of series C preferred stock in January 2000 at a purchase price per share of $2.16 for a total of approximately $21.9 million. In these transactions, we sold: . 2,280,093 shares to Canaan Equity Partners; . 1,851,852 shares to Oak Investment Partners; . 1,851,852 shares to TL Ventures III; . 1,388,889 shares to HealthCap KB; . 1,157,408 shares to Avalon Investments; . 925,926 shares to TL Ventures IV; . 462,963 shares to Serventia SA; . 46,296 shares to Scheer Investment Holdings II, L.L.C.; . 34,722 shares to Seth A. Rudnick; and . 125,464 to other investors. In addition, we issued an aggregate of 127,414 shares of series C preferred stock to Roger S. Newton, Ph.D., our President and Chief Executive Officer, and Anders Wiklund, one of our directors, for services rendered. Series D Preferred Stock. We sold 1,136,363 shares of series D preferred stock in February 2000 at a purchase price per share of $4.40 for a total of approximately $5.0 million to Investor AB. Common Stock At the time of the series A preferred stock transactions, we also sold shares of common stock at a price of $.001 per share. We sold 216,749 shares to Oak Investment Partners and 361,250 shares to Scheer Investment Holdings II, L.L.C. We also sold 578,000 shares to Roger Newton, Ph.D., which shares are subject 54 to a repurchase right, lapsing quarterly over the four-year period after the purchase, at the original purchase price, exercisable upon termination of Dr. Newton's employment. In July 1999, Dr. Johansson, our Vice President, Clinical Affairs, purchased 86,700 shares of common stock at a purchase price of $0.21 per share, and paid for these shares by delivery of a promissory note. These shares are subject to a repurchase right, lapsing over a three-year period, at the original price, exercisable upon Dr. Johansson's termination of employment. The note bears interest at the rate of prime plus one percent per year and is due upon the earlier to occur of Dr. Johansson's termination as an employee or August 1, 2003. However, the note is forgiven ratably over a three-year period if Dr. Johansson's employment is terminated without cause by us, and we have elected to forgive this portion of the note so that it will be forgiven in full on August 1, 2002. In July 1999, Mr. Ageland, our Vice President, Production, purchased 86,700 shares of common stock at a purchase price of $0.21 per share, and paid for these shares by delivery of a promissory note. The shares are subject to a repurchase right, lapsing over a four-year period, at the original price, exercisable upon Mr. Ageland's termination of employment. The note bears interest at the rate of prime plus one percent per year and is due upon the earlier to occur of Mr. Ageland's termination as an employee or July 1, 2004. However, the note is forgiven ratably over a four-year period if Mr. Ageland's employment is terminated without cause by us, and we have elected to forgive this portion of the note so that it will be forgiven in full on the fourth anniversary of his date of employment. In September 1998, Anders Wiklund, one of our directors, purchased 144,500 shares of common stock at a purchase price of $0.21 per share, and paid for such shares by delivery of a promissory note. The note bears interest at the rate of prime plus one percent per year and is due upon the earlier to occur of Mr. Wiklund's termination as a consultant or September 1, 2003. However, the note is forgiven ratably over a four- year period if Mr. Wiklund's engagement as a consultant is terminated without cause by us. Other Transactions with Directors Since our inception, Scheer and Company, Inc., a company owned and controlled by David I. Scheer, our chairman, has provided corporate strategy consulting services and assisted us in our efforts to develop corporate relationships. Scheer and Company, Inc. receives compensation for these services in the amount of $30,000 per quarter plus out-of-pocket expenses. From inception through December 31, 1998, Scheer and Company, Inc. received $10,000 per quarter plus out-of-pocket expenses for these services. Anders Wiklund, one of our directors, provides business consulting services to us which includes assisting in our efforts to secure new product candidates and technologies. Mr. Wiklund was paid $12,000 in 1998 and $27,000 in 1999 for these services plus reimbursement of his out of pocket expenses. He has been paid $3,000 per month to date in 2000, and will be paid $1,500 per month from August 1, 2000. Transactions with Scientific Advisors Dr. Cesare Sirtori provides product candidate research and consulting services to us. For providing these services, we have funded Dr. Sirtori's laboratory at a cost of $50,000 per quarter since January 1999. Dr. Prediman K. Shah provides product candidate development services to us for which we have paid him $5,000 per month, plus out-of-pocket expenses since November 1998. 55 PRINCIPAL STOCKHOLDERS The following table provides information regarding the beneficial ownership of our common stock as of July 7, 2000, and as adjusted to reflect the sale of the shares of our common stock offered hereby, by: . each person or entity who beneficially owns more than 5% of our stock; . each of our directors; . our named executive officers; and . all executive officers and directors as a group. Unless otherwise indicated, the address of each executive officer named in the table below is care of Esperion Therapeutics, Inc., 3621 S. State Street 695 KMS Place, Ann Arbor, MI 48108. The amounts and percentages of common stock beneficially owned are reported on the basis of regulations of the Securities and Exchange Commission governing the determination of beneficial ownership of securities. Under the rules of the Commission, a person is deemed to be a "beneficial owner" of a security if that person has or shares "voting power," which includes the power to vote or to direct the voting of such security, or "investment power," which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed to be the beneficial owner of securities as to which such person has no economic interest.
Percentage of Shares Beneficially Owned ------------------------------ Number of Shares Name of Beneficial Owner Beneficially Owned Before Offering After Offering - ------------------------ ------------------ --------------- -------------- 5% Stockholders - --------------- Oak Investment Partners (1)....................... 4,462,772 24.76% 18.58% Canaan Equity Partners (2).. 1,647,367 9.14 6.86 TL Ventures III (3)......... 4,173,771 23.16 17.37 TL Ventures IV (4).......... 668,980 3.71 2.78 HealthCap KB (5)............ 2,544,804 14.12 10.59 Directors and Executive Officers - ----------------------- Eileen M. More (1).......... 4,462,772 24.76% 18.58% Seth Rudnick (2)............ 1,672,453 9.28 6.96 Christopher Moller (3) (4).. 4,842,751 26.87 20.16 Roger S. Newton (6)......... 662,978 3.67 2.76 David I. Scheer (7)......... 454,906 2.52 1.89 Jan Johansson (8)........... 173,404 * * Hans Ageland (9)............ 173,404 * * Timothy M. Mayleben (10).... 38,386 * * Anders Wiklund (11)......... 185,447 1.03 * ---------- ----- ------ All directors and executive officers as a group (12).. 12,666,501 69.90% 52.52%
- -------- * less than one percent 56 (1) Includes 4,353,436 shares owned by Oak Investment Partners VII, Limited Partnership and 109,336 shares owned by Oak VII Affiliates Fund Limited Partnership. Ms. More is a Special Limited Partner of Oak Associates VII, Limited Partnership and Oak VII Affiliates, Limited Partnership, the general partners of Oak Investment Partners VII, Limited Partnership and Oak VII Affiliates Fund, Limited Partnership, respectively. The General Partners have sole authority and responsibility for all investment, voting and disposition decisions for Oak Investment Partners VII, Limited Partnership and Oak VII Affiliates Fund, Limited Partnership, respectively. Ms. More disclaims beneficial ownership of shares in which she does not have a pecuniary interest. The address of both Oak Investment Partners VII, Limited Partnership and Oak VII Affiliates Limited Partnership is One Gorham Island, Westport, CT 06880. (2) Includes 1,079,029 shares owned by Canaan Equity II L.P., 482,680 shares owned by Canaan Equity II L.P. (QP) and 85,658 shares owned by Canaan Equity II Entrepreneurs LLC. Dr. Rudnick, a venture partner at Canaan Equity Partners, owns 25,086 shares. Dr. Rudnick disclaims ownership of shares in which he does not have a recurring interest. The address of each of the Canaan Equity Partners entities is 105 Rowayton Avenue, Rowayton, CT 06853. (3) Includes 3,360,595 shares owned by TL Ventures III L.P., 703,446 shares owned by TL Ventures III Offshore L.P. and 109,730 shares owned by TL Ventures III Interfund L.P. TL Ventures III L.P., TL Ventures III Offshore L.P., and TL Ventures III Interfund L.P. are referred to as TL Ventures III. TL Ventures III L.P., TL Ventures III Offshore L.P., and TL Ventures III Interfund L.P. are venture capital partnerships that are required by their governing documents to make all investment, voting and disposition actions in tandem. TL Ventures III Management L.P., a limited partnership, is the sole general partner of TL Ventures III L.P. TL Ventures III Offshore Partners L.P. is the sole general partner of TL Ventures III Offshore L.P. TL Ventures III LLC is the sole general partner of TL Ventures III Interfund L.P. The general partners have sole authority and responsibility for all investment, voting and disposition decisions for TL Ventures III. The general partners of TL Ventures III Management L.P., TL Ventures III Offshore Partners L.P. and TL Ventures III LLC are Safeguard Scientifics (Delaware), Inc., Robert E. Keith, Jr., Gary J. Anderson, Mark J. DeNino, Robert A. Fabbio and Christopher Moller, a director of Esperion. Dr. Moller disclaims beneficial ownership of shares in which he does not have a pecuniary interest. The address for each of the TL Ventures investment funds is 700 Building, 435 Devon Park Drive, Wayne, PA 19087. (4) Includes 651,758 shares owned by TL Ventures IV L.P. and 17,222 shares owned by TL Ventures IV Interfund L.P. TL Ventures IV L.P., TL and TL Ventures IV Interfund L.P. are referred to as TL Ventures IV. TL and TL Ventures IV Interfund L.P. are venture capital partnerships that are required by their governing documents to make all investment, voting and disposition actions in tandem. TL Ventures IV Management L.P., a limited partnership, is the sole general partner of TL Ventures IV L.P. TL Ventures IV LLC is the sole general partner of TL Ventures III Interfund L.P. The general partners have sole authority and responsibility for all investment, voting and disposition decisions for TL Ventures IV. The general partners of TL Ventures IV Management L.P., and TL Ventures IV LLC are Safeguard Scientifics (Delaware), Inc. Robert E. Keith, Jr., Gary J. Anderson, Mark J. DeNino, Robert A. Fabbio and Christopher Moller, a director of Esperion. Dr. Moller disclaims beneficial ownership of shares in which he does not have a pecuniary interest. The address for each of the TL Ventures investment funds is 700 Building, 435 Devon Park Drive, Wayne, PA 19087. (5) Includes 1,068,819 shares owned by HealthCap KB and 1,475,985 shares owned by HealthCap CoInvest KB. The address for HealthCap KB and HealthCap CoInvest KB is Sturegatan 34, S-11436 Stockholm, Sweden. HealthCap KB and HealthCap CoInvest KB are Swedish limited partnerships. (6) Includes 15,806 shares of common stock issuable upon the exercise of stock options within sixty days. Includes certain shares subject to repurchase by the Company. (7) Includes 454,906 shares owned by Scheer Investment Holdings II, L.L.C. Mr. Scheer is President of Scheer & Company, Inc., the managing member of Scheer Investment Holdings II, L.L.C. Mr. Scheer disclaims beneficial ownership of any shares in which he does not have a pecuniary interest. (8) Includes 21,679 shares of common stock issuable upon the exercise of stock options within sixty days. Includes certain shares subject to repurchase by the Company. (9) Includes 32,517 shares of common stock issuable upon exercise of stock options within sixty days. Includes certain shares subject to repurchase by the Company. (10) Includes 20,324 shares of common stock issuable upon the exercise of stock options within sixty days. (11) Includes 4,518 shares of common stock issuable upon exercise of stock options within sixty days. (12) Includes 94,844 shares of common stock issuable upon exercise of stock options within sixty days. Includes certain shares subject to repurchase by the Company. 57 DESCRIPTION OF CAPITAL STOCK Our Authorized Capital Stock Upon the Closing of this Offering . 50 million shares of common stock, par value $.001 per share . 5 million shares of preferred stock, par value $.01 per share Immediately after the sale of the shares of common stock in this offering, we will have 24,024,855 shares of common stock outstanding and no shares of preferred stock outstanding (without giving effect to the sale of any shares to employees under our Employee Stock Purchase Plan or upon exercise of any stock options by them). Common Stock Voting: . one vote for each share held of record on all matters submitted to a vote of stockholders . no cumulative voting rights . election of directors by plurality of votes cast . all other matters by majority of votes cast Dividends: . subject to preferential dividend rights of outstanding shares of preferred stock, if any, common stockholders are entitled to receive declared dividends . the board of directors may only declare dividends out of legally available funds Additional Rights: . subject to the preferential liquidation rights of outstanding shares of preferred stock, if any, common stockholders are entitled to receive net assets, available after the payment of all debts and liabilities, upon our liquidation, dissolution or winding up . no preemptive rights . no redemption or sinking fund rights The rights and preferences of common stockholders are subject to the rights of the holders of any series of preferred stock we may issue in the future. Preferred Stock We may, by resolution of our board of directors, and without any further vote or action by our stockholders, authorize and issue, subject to limitations prescribed by law, up to an aggregate of five million shares of preferred stock. The preferred stock may be issued in one or more classes or series of shares. With respect to any classes or series, the board of directors may determine the designation and the number of shares, preferences, limitations and special rights, including dividend rights, conversion rights, voting rights, redemption rights and liquidation preferences. Because of the rights that may be granted, the issuance of preferred stock may delay, defer or prevent a change of control. 58 Prior to this offering, we had 500,000 shares of series A preferred stock, 10,000,000 shares of series B preferred stock, 10,252,879 shares of series C preferred stock and 1,136,363 shares of series D preferred stock issued and outstanding. Upon the completion of this offering, all of our outstanding shares of preferred stock will convert into a total of 15,814,961 shares of common stock. Stockholders' Meeting Our next annual meeting of stockholders will be held in 2001. Limitations on Liability Our certificate of incorporation limits or eliminates the liability of our directors to us or our stockholders for monetary damage to the fullest extent permitted by the Delaware General Corporation Law. As permitted by the Delaware General Corporation Law, our certificate of incorporation provides that our directors shall not be personally liable to us or our stockholders for monetary damages for a breach of fiduciary duty as a director, except for liability: . for any breach of such person's duty of loyalty; . for acts or omissions not in good faith or involving intentional misconduct or a knowing violation of law; . for unlawful payments of dividends or unlawful stock repurchases or redemption; and . for any transaction resulting in receipt by such person of an improper personal benefit. Our certificate of incorporation also contains provisions indemnifying our directors and officers to the fullest extent permitted by the Delaware General Corporation Law. We currently have directors' and officers' liability insurance to provide our directors and officers with insurance coverage for losses arising from claims based on breaches of duty, negligence, errors and other wrongful acts. Anti-Takeover Effects of Provisions of Charter Documents and Delaware Law Upon the closing of this offering our certificate of incorporation will provide for the division of our board of directors into three classes. Each class must be as nearly equal in number as possible. Additionally, each class must serve a three-year term. The terms of each class are staggered so that each term ends in a different year over a three-year period. Our bylaws provide that a director may only be removed for cause and only by the vote of more than 50% of the shares entitled to vote for the election of directors. Our certificate of incorporation prohibits stockholder action by written consent. Our certificate of incorporation also provides that our board of directors may establish the rights of, and cause us to issue, substantial amounts of preferred stock without the need for stockholder approval. Further, our board of directors may determine the terms, conditions, rights, privileges and preferences of the preferred stock. Our board is required to exercise its business judgment when making such determinations. Our board of directors' use of the preferred stock may inhibit the ability of third parties to acquire Esperion. Additionally, our board may use the preferred stock to dilute the common stock of entities seeking to obtain control of Esperion. The rights of the holders of common stock will be subject to, and may be adversely affected by, any preferred stock that may be issued in the future. Our preferred stock provides desirable flexibility in connection with possible acquisitions, financings and other corporate transactions. However, it may have the effect of discouraging, delaying or preventing a change in control of Esperion. We have no present plans to issue any shares of preferred stock. After this offering is completed, Section 203 of the Delaware General Corporation Law will apply to Esperion. Section 203 of the Delaware General Corporation Law generally prohibits certain "business 59 combinations" between a Delaware corporation and an "interested stockholder." An "interested stockholder" is generally defined as a person who, together with any affiliates or associates of such person, beneficially owns, or within three years did own, directly or indirectly, 15% or more of the outstanding voting shares of a Delaware corporation. The statute broadly defines business combinations to include: . mergers; . consolidations; . sales or other dispositions of assets having an aggregate value in excess of 10% of the consolidated assets of the corporation or aggregate market value of all outstanding stock of the corporation; and . certain transactions that would increase the "interested stockholder's" proportionate share ownership in the corporation. The statute prohibits any such business combination for a period of three years commencing on the date the "interested stockholder" becomes an "interested stockholder," unless: . the business combination is approved by the corporation's board of directors prior to the date the "interested stockholder" becomes an "interested stockholder"; . the "interested stockholder" acquired at least 85% of the voting stock of the corporation (other than stock held by directors who are also officers or by certain employee stock plans) in the transaction in which it becomes an "interested stockholder"; and . the business combination is approved by a majority of the board of directors and by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the "interested stockholder." The Delaware General Corporation Law contains provisions enabling a corporation to avoid Section 203's restrictions if stockholders holding a majority of the corporation's voting stock approve an amendment to the corporation's certificate of incorporation or by-laws to avoid the restrictions. In addition, the restrictions contained in Section 203 are not applicable to any of our existing stockholders. We have not and do not currently intend to "elect out" of the application of Section 203 of the Delaware General Corporation Law. The existence of the foregoing provisions of the Delaware General Corporation Law and of our certificate of incorporation and our bylaws could make it more difficult for third parties to acquire or attempt to acquire control of us or substantial amounts of our common stock. Transfer Agent and Registrar The transfer agent and registrar for our common stock is StockTrans, Inc., Ardmore, Pennsylvania. 60 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no public market for our common stock. Future sales of substantial amounts of our common stock in the public market or a distribution of shares by the venture capital funds that hold our shares to their respective investors, could adversely affect prevailing market prices. Furthermore, since no shares will be available for sale shortly after this offering because of the contractual and legal restrictions on resale described below, sales of substantial amounts of common stock in the public market after these restrictions lapse or are waived could adversely affect the prevailing market price and our ability to raise equity capital in the future. Upon completion of this offering, we will have outstanding an aggregate of 24,024,855 shares of common stock, assuming no exercise of the underwriters' over-allotment option, and excluding 1,274,514 shares issuable upon exercise of outstanding options and 500,000 shares that may be sold under our Employee Stock Purchase Plan. All of the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act of 1933, unless such shares are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. The remaining shares of common stock that will be outstanding upon completion of this offering are "restricted securities" as that term is defined in Rule 144 under the Securities Act. Restricted shares may be sold in the public market only if registered or if they qualify for an exemption from registration described below under Rules 144, 144(k) or 701 promulgated under the Securities Act. Beginning 180 days after the date of this prospectus, substantially all restricted shares subject to lock-up agreements between the underwriters and most of our stockholders, including officers and directors, will become eligible for sale in the public market under Rule 144(k), Rule 144 or Rule 701. The lock-up agreements provide that the stockholders will not sell or otherwise dispose of any shares of common stock without the prior written consent of FleetBoston Robertson Stephens Inc. for a period of 180 days from the date of this prospectus. Bona fide gifts or distributions to the stockholders or limited partners of stockholders are excepted from the restrictions of the lock-up agreements, provided the transferee agrees to be bound by similar restrictions. FleetBoston Robertson Stephens may release all or any portion of the securities subject to the lock-up agreements without notice. We intend to file a registration statement under the Securities Act covering 1,784,575 shares of common stock authorized for issuance under our 1998 Stock Option Plan; and 1,000,000 shares of common stock authorized for issuance under our 2000 Equity Compensation Plan. We also intend to file an additional registration statement immediately following completion of this offering pertaining to the sale of up to 500,000 shares of common stock authorized for issuance under our Employee Stock Purchase Plan covered under this registration statement. Thereafter, shares which are issued under these plans will, subject to Rule 144 volume limitations applicable to affiliates, be available for sale in the open market. Rule 144 Under Rule 144, beginning 90 days after the date the registration statement of which this prospectus is a part is declared effective, a person, or persons whose shares are aggregated and who has beneficially owned restricted shares for at least one year, which includes the holding period of any prior owner other than an affiliate, would generally be entitled to sell within any three-month period a number of shares that does not exceed the greater of: . 1% of the outstanding shares of our common stock then outstanding, which will equal approximately 240,249 shares immediately after this offering; or 61 . The average weekly trading volume of our common stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. Sales under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us. Rule 144(k) Under Rule 144(k), a person who was not an affiliate of our's at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, which includes the holding period of any prior owner except an affiliate, is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Rule 701 In general, under Rule 701 of the Securities Act, any of our employees, consultants or advisors, other than affiliates, who purchases or receives shares from us in connection with a compensatory stock purchase plan or option plan or other written agreement will be eligible to resell such shares beginning 90 days after the effective date of the registration statement of which this prospectus is a part, subject only to the manner of sale provisions of Rule 144, and by affiliates under Rule 144 without compliance with its holding period requirements. Registration Rights Following completion of this offering, holders of 15,814,961 shares of common stock will have the right to have their shares registered for resale under the Securities Act of 1933. These rights are provided under the terms of an agreement between us and the holders of such securities. In addition, pursuant to this agreement, the holders of 15,814,961 shares of common stock are entitled to require us to include their registrable securities in future registration statements we file under the Securities Act of 1933. Registration of shares of common stock pursuant to the exercise of these registration rights would result in such shares becoming freely tradable without restriction under the Securities Act of 1933 immediately upon the effectiveness of such registration and may adversely affect our stock price. In addition, if we complete the acquisition of Talaria, the holders of the shares issued pursuant to the acquisition will be entitled to rights with respect to the registration of such shares beginning one year after the completion of this offering. 62 UNDERWRITING The underwriters, acting through their representatives, FleetBoston Robertson Stephens Inc., Chase Securities Inc. and U.S. Bancorp Piper Jaffray Inc., have severally agreed to purchase from us the number of shares of common stock next to their respective names below. The underwriters are committed to purchase and pay for all the shares if any are purchased.
Number Underwriter of Shares ----------- --------- FleetBoston Robertson Stephens Inc............................... Chase Securities Inc............................................. U.S. Bancorp Piper Jaffray Inc................................... --------- Total.......................................................... 6,000,000 =========
The underwriters propose to offer the shares of common stock to the public at the public offering price set forth on the cover page of this prospectus and to specific dealers at that price less a concession of $ per share, of which $ may be reallowed to other dealers. After this offering, the public offering price, concession and reallowance to dealers may be reduced by the representatives. However, no reduction will change the amount of proceeds to be received by us as set forth on the cover page of this prospectus. The common stock is offered by the underwriters subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. The underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. Overallotment Option. We have granted to the underwriters an option, exercisable during the 30-day period after the date of this prospectus, to purchase up to 900,000 additional shares of common stock at the same price per share as we will receive for the shares that the underwriters have agreed to purchase. If the underwriters exercise this option, each of the underwriters will have a firm commitment, subject to limited conditions, to purchase approximately the same percentage of these additional shares that the number of shares of common stock to be purchased by it shown in the above table represents as a percentage of the total shares offered in this offering. If purchased, these additional shares will be sold by the underwriters on the same terms as those on which the shares offered in this offering are being sold. We will be obligated to sell shares to the underwriters to the extent the option is exercised. The underwriters may exercise such option only to cover overallotments made in connection with the sale of the shares of common stock offered in this offering. Indemnity. The underwriting agreement contains covenants of indemnity among the underwriters and us against identified civil liabilities, including liabilities under the Securities Act and liabilities arising from breaches of representations and warranties contained in the underwriting agreement. In addition, the underwriting agreement contains a covenant that the Company shall obtain Directors and Officers liability insurance in the minimum amount of $10 million and cause FleetBoston Robertson Stephens Inc. to be added to such policy such that up to $500,000 of certain of its expenses shall be paid directly by such insurers. Lock-Up Agreements. Each executive officer, director, and substantially all of our stockholders, agreed with the representatives for a period of 180 days after the date of this prospectus, subject to certain exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant any rights with respect to any shares of common stock, any options or warrants to purchase any shares of common stock, or any securities convertible into or exchangeable for shares of common stock, owned as of the date of this prospectus or thereafter acquired directly by such holders or with respect to which they have or hereafter acquire the power of disposition, without the prior written consent of FleetBoston Robertson Stephens Inc. FleetBoston Robertson Stephens Inc. may, in its sole discretion and at any time or from time to time without notice, release all or any portion of the securities subject to the lock-up agreements. There are no agreements between the representatives and any of our stockholders who have executed a lock-up agreement providing consent to the sale of shares prior to the expiration of the lock-up period. 63 Future Sales. In addition, we have agreed that during the 180 days after the date of this prospectus we will not, subject to certain exceptions, without the prior written consent of FleetBoston Robertson Stephens Inc. issue, sell, contract to sell, or otherwise dispose of, any shares of common stock, any options or warrants to purchase any shares of common stock or any securities convertible into, exercisable for or exchangeable for shares of common stock other than the sale of shares in this offering, the issuance of common stock upon the exercise of outstanding options or warrants, the issuance of options or shares under our existing stock option plan, stock purchase plan or other equity compensation plan, the issuance of common stock in connection with a potential acquisition of Talaria, and the issuance of common stock in connection with strategic relationships, so long as the recipient of such shares executes a lock-up. Listing. We have applied to have the common stock approved for quotation on The Nasdaq National Market under the symbol "ESPR." No Prior Public Market. Prior to this offering, there has been no public market for our common stock. Consequently, the initial public offering price for the common stock offered hereby will be determined through negotiations between us and the representatives of the underwriters. Among the factors to be considered in such negotiations are prevailing market conditions, certain of our financial information, market valuations of other companies that we and the representatives, believe to be comparable to us, estimates of our business potential, the present state of our development and other factors deemed relevant. Syndicate Short Sales. The representatives have advised us that, on behalf of the underwriters, they may make short sales of our common stock in connection with this offering, resulting in the sale by the underwriters of a greater number of shares than they are required to purchase pursuant to the underwriting agreement. The short position resulting from those short sales will be deemed a "covered" short position to the extent that it does not exceed the 900,000 shares subject to the underwriters' over-allotment option and will be deemed a "naked" short position to the extent that it exceeds that number. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the trading price of the common stock in the open market that could adversely affect investors who purchased shares in the offering. The underwriters may reduce or close out their covered short positions either by exercising the over-allotment option or by purchasing shares in the open market. In determining which of these alternatives to pursue, the underwriters will consider the price at which shares are available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. Any "naked" short position will be closed out by purchasing shares in the open market. Similar to the other stabilizing transactions described below, open market purchasers made by the underwriters to cover all or a portion of their short position may have the effect of preventing or retarding a decline in the market price of our common stock following this offering. As a result, our common stock may trade at a price that is higher than the price that otherwise might prevail in the open market. Stabilization. The representatives have advised us that, pursuant to Regulation M under the Securities Act of 1934, they may engage in transactions, including stabilizing bids or the imposition of penalty bids, that may have the effect of stabilizing or maintaining the market price of the shares of common stock at a level above that which might otherwise prevail in the open market. A "stabilizing bid" is a bid for or the purchase of shares of common stock on behalf of the underwriters for the purpose of fixing or maintaining the price of the common stock. A "penalty bid" is an arrangement permitting the representatives to claim the selling concession otherwise accruing to an underwriter or syndicate member in connection with the offering if the common stock originally sold by that underwriter or syndicate member is purchased by the representatives in the open market pursuant to a stabilizing bid or to cover all or part of a syndicate short position. The representatives have advised us that stabilizing bids and open market purchases may be effected on the Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time. Directed Share Program. At our request, the underwriters have reserved up to 7% of the common stock to be issued by us and offered for sale in this offering, at the initial public offering price, to our directors, officers, employees, business associates and related persons. The number of shares of common stock available for sale to the general public will be reduced to the extent such individuals purchase such reserved shares. Any reserved shares which are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered in this offering. 64 EMPLOYEE STOCK PURCHASE PLAN Concurrently with this initial public offering, we will establish an employee stock purchase plan under which a total of 500,000 shares of our common stock will be made available for purchase by our employees. For a description of our Employee Stock Purchase Plan, see "Equity Compensation Plans--Employee Stock Purchase Plan." LAWYERS The validity of the shares of common stock offered hereby will be passed upon for Esperion by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania. Certain legal matters will be passed upon for the Underwriters by Testa, Hurwitz and Thibeault, LLP, Boston, Massachusetts. EXPERTS The consolidated financial statements of Esperion Therapeutics, Inc. as of December 31, 1999 and 1998 and for the periods then ended included in this prospectus and elsewhere in the registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. The financial statements of Talaria Therapeutics, Inc. as of December 31, 1999 and 1998 and for the periods then ended included in this prospectus and elsewhere in the registration statement have been audited by Goldenberg Rosenthal, LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. ADDITIONAL ESPERION INFORMATION We have filed with the SEC a registration statement on Form S-1 with respect to the common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules which are part of the registration statement. For further information with respect to Esperion and our common stock, reference is made to the registration statement and the exhibits and schedules thereto. You may read and copy any document we file at the SEC's public reference facilities in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and the SEC's regional offices located at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York 10048. Please call the SEC at 1-800-SEC-0330 for further information about the public reference rooms. Our SEC filings are also available to the public from the SEC's web site at http://www.sec.gov. Upon completion of this offering, we will become subject to the information and periodic reporting requirements of the Securities Exchange Act and, in accordance therewith, will file periodic reports, proxy statements and other information with the SEC. Such periodic reports, proxy statements and other information will be available for inspection and copying at the SEC's public reference rooms and the Web site of the SEC referred to above. 65 INDEX TO FINANCIAL STATEMENTS ESPERION THERAPEUTICS, INC. (A Company in the Development Stage)
Page ---- Report of Arthur Andersen LLP, Independent Public Accountants............ F-2 Consolidated Balance Sheets as of December 31, 1998 and 1999 and March 31, 2000 (unaudited)................................................... F-3 Consolidated Statements of Operations for the periods ended December 31, 1998 and 1999 and the three months ended March 31, 1999 and 2000 (unaudited) and the period from inception to March 31, 2000 (unaudited)............................................................ F-4 Consolidated Statements of Stockholders' Equity for the periods ended December 31, 1998 and 1999 and for the three months ended March 31, 2000 (unaudited)....................................................... F-5 Consolidated Statements of Cash Flows for the periods ended December 31, 1998 and 1999 and the three months ended March 31, 1999 and 2000 (unaudited) and the period from inception to March 31, 2000 (unaudited)............................................................ F-6 Notes to Consolidated Financial Statements............................... F-7 TALARIA THERAPEUTICS, INC. (A Company in the Development Stage) Report of Goldenberg Rosenthal, LLP, Independent Public Accountants...... F-17 Balance Sheets as of December 31, 1998 and 1999 and March 31, 2000 (unaudited)............................................................ F-18 Statements of Operations for the periods ended December 31, 1998 and 1999 and the three months ended March 31, 1999 and 2000 (unaudited) and the period from inception to March 31, 2000 (unaudited).................... F-19 Statements of Stockholders' Equity for the periods ended December 31, 1998 and 1999 and for the three months ended March 31, 2000 (unaudited)............................................................ F-20 Statements of Cash Flows for the periods ended December 31, 1998 and 1999 and the three months ended March 31, 1999 and 2000 (unaudited) and the period from inception to March 31, 2000 (unaudited).................... F-21 Notes to Financial Statements............................................ F-22 PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION Introduction............................................................. F-28 Pro Forma Condensed Combined Balance Sheet as of March 31, 2000.......... F-29 Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 1999...................................................... F-30 Pro Forma Condensed Combined Statement of Operations for the three months ended March 31, 2000................................................... F-31 Notes to Pro Forma Condensed Combined Financial Information.............. F-32
F-1 Report of Independent Public Accountants To Esperion Therapeutics, Inc.: We have audited the accompanying consolidated balance sheets of ESPERION THERAPEUTICS, INC. (a Delaware corporation in the development stage) AND SUBSIDIARY as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity and cash flows for the year ended December 31, 1999, and for the period from inception (May 18, 1998) to December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Esperion Therapeutics, Inc. and subsidiary as of December 31, 1999 and 1998, and the results of their operations and their cash flows for the year ended December 31, 1999, and for the period from inception to December 31, 1998, in conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP Ann Arbor, Michigan, February 17, 2000 (except with respect to the matters discussed in Notes 9 and 10 as to which the date is July 31, 2000). F-2 ESPERION THERAPEUTICS, INC. AND SUBSIDIARY (A Company in the Development Stage) CONSOLIDATED BALANCE SHEETS
December 31, December 31, March 31, 1998 1999 2000 ------------ ------------ ------------ (unaudited) ASSETS Current Assets: Cash and cash equivalents........... $ 12,540,963 $ 5,903,932 $ 27,698,068 Prepaid expenses and other.......... 75,868 139,002 409,148 ------------ ------------ ------------ Total current assets............... 12,616,831 6,042,934 28,107,216 Furniture and equipment, less accumulated depreciation of $67,619, $471,622 and $625,623 at December 31, 1998, 1999 and March 31, 2000, respectively............. 796,877 1,955,932 1,925,495 Deposits and other assets............ -- -- 456,000 ------------ ------------ ------------ $13,413,708 $ 7,998,866 $ 30,488,711 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt... $ -- $ 495,495 $ 495,495 Accounts payable.................... 108,114 1,425,249 1,038,421 Accrued liabilities................. 118,750 979,638 1,746,195 ------------ ------------ ------------ Total current liabilities.......... 226,864 2,900,382 3,280,111 ------------ ------------ ------------ Long-term debt, less current portion above.............................. -- 2,283,781 2,123,469 ------------ ------------ ------------ Commitments and Contingencies (Note 6) Stockholders' Equity: Convertible preferred stock, $0.01 par value; 15,000,000 and 25,525,251 shares authorized at December 31, 1999 and March 31, 2000, respectively, 10,500,000 shares issued and outstanding at December 31, 1998 and 1999, respectively, and 21,889,242 shares issued and outstanding at March 31, 2000; aggregate liquidation preference of $15,500,000 and $42,646,216 at December 31, 1999 and March 31, 2000, respectively................ 105,000 105,000 218,892 Common stock, $0.001 par value; 20,000,000 and 30,611,112 shares authorized at December 31, 1999 and March 31, 2000, respectively, 1,705,099, 1,936,299 and 2,202,128 shares issued and outstanding at December 31, 1998, 1999 and March 31, 2000, respectively............ 1,705 1,936 2,202 Additional paid-in capital.......... 15,302,157 16,466,806 45,960,126 Notes receivable.................... (78,000) (106,500) (98,625) Accumulated deficit during the development stage................. (2,143,063) (12,813,247) (17,506,399) Deferred stock compensation......... -- (837,660) (3,486,605) Accumulated other comprehensive loss.............................. (955) (1,632) (4,460) ------------ ------------ ------------ Total stockholders' equity......... 13,186,844 2,814,703 25,085,131 ------------ ------------ ------------ $ 13,413,708 $ 7,998,866 $ 30,488,711 ============ ============ ============
The accompanying notes are an integral part of these consolidated balance sheets. F-3 ESPERION THERAPEUTICS, INC. AND SUBSIDIARY (A Company in the Development Stage) CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, Inception Year Ended Inception to to December December 31, March 31, 31, 1998 1999 1999 2000 2000 ----------- ------------ ----------- ------------ ------------ (unaudited) (unaudited) Operating expenses: Research and development......... $ 1,923,074 $ 8,484,125 $ 1,270,181 $ 4,063,357 $ 14,470,556 General and administrative...... 463,928 2,517,903 314,559 1,005,715 3,987,546 ----------- ------------ ----------- ------------ ------------ Total operating expenses......... 2,387,002 11,002,028 1,584,740 5,069,072 18,458,102 ----------- ------------ ----------- ------------ ------------ Loss from operations....... (2,387,002) (11,002,028) (1,584,740) (5,069,072) (18,458,102) ----------- ------------ ----------- ------------ ------------ Other income (expense): Interest income....... 245,509 423,801 135,595 350,710 1,020,020 Interest expense...... -- (91,957) (885) (128,582) (220,539) Other................. (1,570) -- -- 153,792 152,222 ----------- ------------ ----------- ------------ ------------ Total other income........... 243,939 331,844 134,710 375,920 951,703 ----------- ------------ ----------- ------------ ------------ Net loss before taxes... (2,143,063) (10,670,184) (1,450,030) (4,693,152) (17,506,399) Provision for income taxes................. -- -- -- -- -- ----------- ------------ ----------- ------------ ------------ Net loss................ (2,143,063) (10,670,184) (1,450,030) (4,693,152) (17,506,399) Beneficial conversion feature upon issuance of preferred stock.... -- -- -- (22,869,760) (22,869,760) ----------- ------------ ----------- ------------ ------------ Net loss attributable to common stockholders... $(2,143,063) $(10,670,184) $(1,450,030) $(27,562,912) $(40,376,159) =========== ============ =========== ============ ============ Basic and diluted net loss per share........ $ (1.46) $ (5.91) $ (0.85) $ (13.91) =========== ============ =========== ============ Shares used in computing basic and diluted net loss per share........ 1,466,615 1,806,255 1,705,099 1,980,933 =========== ============ =========== ============ Pro forma basic and diluted net loss per share (unaudited)..... $ (1.14) $ (1.64) ============ ============ Shares used in computing pro forma basic and diluted net loss per share (unaudited)........... 9,392,499 16,836,802 ============ ============
The accompanying notes are an integral part of these consolidated statements. F-4 ESPERION THERAPEUTICS, INC. AND SUBSIDIARY (A Company in the Development Stage) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated Deficit Accumulated Convertible Additional During the Deferred Other Total Date of Preferred Common Paid-In Notes Development Stock Comprehensive Stockholders' Transaction Stock Stock Capital Receivable Stage Compensation Loss Equity ----------- ----------- ------ ----------- ---------- ------------ ------------ ------------- ------------- Balance-- Inception (May 18, 1998).. $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- Issuance of 1,329,399 shares of common stock for cash....... July 6 -- 1,329 511 -- -- -- -- 1,840 Issuance of 500,000 shares of Series A preferred stock for cash....... July 6 5,000 -- 463,645 -- -- -- -- 468,645 Issuance of 10,000,000 shares of Series B preferred stock for cash....... August 11 100,000 -- 14,760,377 -- -- -- -- 14,860,377 Issuance of 144,500 shares of common stock.......... September 1 -- 145 29,855 (30,000) -- -- -- -- Issuance of 86,700 shares of common stock for note receivable..... November 1 -- 87 17,913 (18,000) -- -- -- -- Issuance of 144,500 shares of common stock for note receivable..... December 11 -- 144 29,856 (30,000) -- -- -- -- Net loss........ -- -- -- -- (2,143,063) -- -- (2,143,063) Foreign currency translation adjustment..... -- -- -- -- -- -- (955) (955) -------- ------ ----------- -------- ------------ ----------- ------- ------------ Comprehensive loss........... Balance-- December 31, 1998............ 105,000 1,705 15,302,157 (78,000) (2,143,063) -- (955) 13,186,844 Issuance of 57,800 shares of common stock for notes receivable..... June 4 -- 58 11,942 (12,000) -- -- -- -- Issuance of 173,400 shares of common stock for notes receivable..... July 1 -- 173 35,827 (36,000) -- -- -- -- Decrease in notes receivables.... -- -- -- 19,500 -- -- -- 19,500 Deferred stock compensation related to stock options.. -- -- 1,116,880 -- -- (1,116,880) -- -- Amortization of deferred stock compensation... -- -- -- -- -- 279,220 -- 279,220 Net loss........ -- -- -- -- (10,670,184) -- -- (10,670,184) Foreign currency translation adjustment..... -- -- -- -- -- -- (677) (677) -------- ------ ----------- -------- ------------ ----------- ------- ------------ Comprehensive loss........... Balance-- December 31, 1999............ 105,000 1,936 16,466,806 (106,500) (12,813,247) (837,660) (1,632) 2,814,703 Issuance of 265,829 shares of common stock upon exercise March 21- of options..... March 28 -- 266 48,175 -- -- -- -- 48,441 Issuance of 10,125,465 shares of Series C preferred stock for cash....... January 7 101,255 -- 21,769,751 -- -- -- -- 21,871,006 Issuance of 127,414 shares of Series C preferred stock for services... January 7 1,274 -- 686,760 -- -- -- -- 688,034 Issuance of 1,136,363 shares of Series D preferred stock for cash....... February 22 11,363 -- 4,988,634 -- -- -- -- 4,999,997 Deferred stock compensation related to stock options.. -- -- 2,900,000 -- -- (2,900,000) -- Amortization of deferred stock compensation... -- -- -- -- -- 251,055 -- 251,055 Costs incurred in connection with assumed initial public offering....... -- -- (900,000) -- -- -- -- (900,000) Decrease in notes receivable..... -- -- -- 7,875 -- -- -- 7,875 Net loss........ -- -- -- -- (4,693,152) -- -- (4,693,152) Foreign currency translation adjustment..... -- -- -- -- -- -- (2,828) (2,828) -------- ------ ----------- -------- ------------ ----------- ------- ------------ Comprehensive loss........... Balance--March 31, 2000 (unaudited)..... $218,892 $2,202 $45,960,126 $(98,625) $(17,506,399) $(3,486,605) $(4,460) $ 25,085,131 ======== ====== =========== ======== ============ =========== ======= ============ Comprehensive Loss -------------- Balance-- Inception (May 18, 1998).. Issuance of 1,329,399 shares of common stock for cash....... Issuance of 500,000 shares of Series A preferred stock for cash....... Issuance of 10,000,000 shares of Series B preferred stock for cash....... Issuance of 144,500 shares of common stock.......... Issuance of 86,700 shares of common stock for note receivable..... Issuance of 144,500 shares of common stock for note receivable..... Net loss........ $ (2,143,063) Foreign currency translation adjustment..... (955) -------------- Comprehensive loss........... $ (2,144,018) ============== Balance-- December 31, 1998............ Issuance of 57,800 shares of common stock for notes receivable..... Issuance of 173,400 shares of common stock for notes receivable..... Decrease in notes receivables.... Deferred stock compensation related to stock options.. Amortization of deferred stock compensation... Net loss........ $(10,670,184) Foreign currency translation adjustment..... (677) -------------- Comprehensive loss........... $(10,670,861) ============== Balance-- December 31, 1999............ Issuance of 265,829 shares of common stock upon exercise of options..... Issuance of 10,125,465 shares of Series C preferred stock for cash....... Issuance of 127,414 shares of Series C preferred stock for services... Issuance of 1,136,363 shares of Series D preferred stock for cash....... Deferred stock compensation related to stock options.. Amortization of deferred stock compensation... Costs incurred in connection with assumed initial public offering....... Decrease in notes receivable..... Net loss........ $ (4,693,152) Foreign currency translation adjustment..... (2,828) -------------- Comprehensive loss........... $ (4,695,980) ============== Balance--March 31, 2000 (unaudited).....
The accompanying notes are an integral part of these consolidated statements. F-5 ESPERION THERAPEUTICS, INC. AND SUBSIDIARY (A Company in the Development Stage) CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended Inception Year Ended March 31, Inception to to December December 31, ------------------------ March 31, 31, 1998 1999 1999 2000 2000 ----------- ------------ ----------- ----------- ------------ (unaudited) (unaudited) Cash Flows from Operating Activities: Net loss.............. $(2,143,063) $(10,670,184) $(1,450,030) $(4,693,152) $(17,506,399) Adjustments to reconcile net loss to net cash used in operating activities-- Depreciation......... 67,619 404,003 61,738 154,001 625,623 Deferred stock compensation amortization....... -- 279,220 69,805 251,055 530,275 Stock based compensation expense............ -- 275,215 -- 412,819 688,034 Decrease in notes receivable......... -- 19,500 -- 7,875 27,375 Increase (decrease) in cash resulting from changes in-- Prepaid expenses and other.............. (75,060) (63,134) 69,243 (276,146) (414,340) Accounts payable..... 78,114 1,317,135 768,446 (386,828) 1,008,421 Accrued liabilities........ 147,850 585,673 (118,750) 141,772 875,295 ----------- ------------ ----------- ----------- ------------ Net cash used in operating activities...... (1,924,540) (7,852,572) (599,548) (4,388,604) (14,165,716) ----------- ------------ ----------- ----------- ------------ Cash Flows from Investing Activities: Purchases of furniture and equipment....... (864,496) (1,563,058) (671,643) (123,564) (2,551,118) Deposit on equipment.. -- -- -- (450,000) (450,000) ----------- ------------ ----------- ----------- ------------ Net cash used in investing activities...... (864,496) (1,563,058) (671,643) (573,564) (3,001,118) ----------- ------------ ----------- ----------- ------------ Cash Flows from Financing Activities: Net proceeds from issuance of convertible preferred stock.... 15,329,022 -- -- 26,871,003 42,200,025 Proceeds from issuance of common stock.............. 1,840 -- -- 48,441 50,281 Proceeds from long- term debt.......... -- 3,027,025 -- -- 3,027,025 Repayments of long- term debt.......... -- (247,749) -- (160,312) (408,061) ----------- ------------ ----------- ----------- ------------ Net cash provided by financing activities...... 15,330,862 2,779,276 -- 26,759,132 44,869,270 ----------- ------------ ----------- ----------- ------------ Effect of Exchange Rate Changes on Cash...... (863) (677) 955 (2,828) (4,368) ----------- ------------ ----------- ----------- ------------ Increase (Decrease) in Cash and Cash Equivalents.......... 12,540,963 (6,637,031) (1,270,236) 21,794,136 27,698,068 Cash and Cash Equivalents-- Beginning of Period.. -- 12,540,963 12,540,963 5,903,932 -- ----------- ------------ ----------- ----------- ------------ Cash and Cash Equivalents--End of Period............... $12,540,963 $ 5,903,932 $11,270,727 $27,698,068 $ 27,698,068 =========== ============ =========== =========== ============
The accompanying notes are an integral part of these consolidated statements. F-6 ESPERION THERAPEUTICS, INC. AND SUBSIDIARY (A Company in the Development Stage) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information for the three months ended March 31, 1999 and 2000 is unaudited) (1) Description of the Business Esperion Therapeutics, Inc. (formerly Metapharma, Inc.) was incorporated on May 18, 1998. Esperion Therapeutics, Inc. and its Swedish subsidiary, Esperion AB (collectively referred to as "the Company"), are devoting substantially all of their efforts towards conducting drug discovery and development, initiating clinical trials, pursuing regulatory approval for products under development, recruiting personnel, raising capital and building infrastructure. The Company's main focus is the research and development of pharmaceutical product candidates for cardiovascular disease. In the course of such activities, the Company has sustained significant operating losses and expects such losses, which will likely increase as the Company expands its research and development activities, to continue for at least the next several years. The Company has not generated any revenues or product sales and has not achieved profitable operations or positive cash flows from operations. The Company's accumulated deficit during the development stage totaled approximately $17.5 million through March 31, 2000. The Company plans to finance its operations with a combination of stock issuances, license payments, payments from strategic research and development arrangements and, in the longer term, revenues from product sales. There are no assurances that the Company will be successful in obtaining an adequate level of financing needed for the long-term development and commercialization of its planned products. In February 2000, the Company's Board of Directors authorized management to file a registration statement with the Securities and Exchange Commission permitting the Company to sell shares of its common stock to the public. If the initial public offering is closed under the terms presently anticipated, all of the Company's convertible preferred stock will convert into shares of common stock (Note 3). (2) Significant Accounting Policies Principles of Consolidation and Translation The accompanying consolidated financial statements include the accounts of Esperion Therapeutics, Inc. and Esperion AB ("Sweden"). All significant intercompany accounts and transactions have been eliminated in consolidation. The financial statements of Sweden are translated using exchange rates in effect at the end of the period for assets and liabilities and at average rates during the period for results of operations. The resulting foreign currency translation adjustment is reflected as a separate component of stockholders' equity. Other foreign currency transaction gains and losses are included in determining net loss. Interim Financial Information The consolidated financial statements as of March 31, 2000, for the three months ended March 31, 1999 and 2000 and for the period from inception to March 31, 2000 are unaudited and have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial position at such date, and the operating results and cash flows for such periods, in accordance with generally accepted accounting principles. Results for the interim period are not necessarily indicative of the results to be expected for any subsequent period. F-7 ESPERION THERAPEUTICS, INC. AND SUBSIDIARY (A Company in the Development Stage) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Information for the three months ended March 31, 1999 and 2000 is unaudited) Research and Development Research and development expenses include all employee payroll and other related costs attributable to research and development activities and are expensed as incurred. Licensed Technology and Patents Costs incurred in obtaining the license rights to certain technology and patents in the development stage are expensed as incurred due to the uncertainty regarding potential alternative future uses and the uncertainty regarding future operating cash flows expected to be derived from the licensed technology and patents. Cash and Cash Equivalents The Company considers all financial instruments purchased with maturities of three months or less to be cash equivalents. Furniture and Equipment Additions to furniture and equipment are recorded at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets ranging from three to seven years. Impairment of Long-Lived Assets In accordance with SFAS No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed of," if indicators of impairment exist, the Company assesses the recoverability of the affected long- lived assets by determining whether the carrying value of such assets can be recovered through undiscounted future operating cash flows. If impairment is indicated, the Company measures the amount of such impairment by comparing the carrying value of the assets to the present value of the expected future cash flows associated with the use of the asset. The Company's long-lived assets consist primarily of computer and lab equipment that are depreciated over short useful lives to prevent impairment issues. The Company believes that the fair value of the assets approximates the assets' carrying value, and accordingly the Company has not recognized any impairment losses through March 31, 2000. Accrued Liabilities Accrued liabilities consist of the following:
December 31, March 31, 1998 1999 2000 -------- -------- ----------- (unaudited) Accrued professional fees......................... $ 70,000 $205,000 $ 737,000 Accrued compensation.............................. -- 434,301 127,936 Accrued manufacturing costs....................... -- 230,706 530,706 Accrued other..................................... 48,750 109,631 350,553 -------- -------- ---------- $118,750 $979,638 $1,746,195 ======== ======== ==========
F-8 ESPERION THERAPEUTICS, INC. AND SUBSIDIARY (A Company in the Development Stage) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Information for the three months ended March 31, 1999 and 2000 is unaudited) Stock-Based Compensation The Company accounts for stock-based compensation to employees using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees", and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the fair value of the Company's common stock at the date of the grant over the amount the employee must pay to acquire the stock. As supplemental information, the Company has provided pro forma disclosures of stock options in Note 4, in accordance with the requirements of Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock- Based Compensation." Supplemental Disclosures of Cash Flow Information The Company paid cash for interest of approximately $0 and $66,000 in 1998 and 1999, respectively. Cash paid for interest for the three months ended March 31, 1999 and March 31, 2000 was $0 and $65,623, respectively. Basic, Diluted and Pro Forma Loss per Share Basic and diluted loss per share amounts have been calculated using the weighted average number of shares of common stock outstanding during the respective period. In 1998 and 1999, options for the purchase of common stock were not included in the calculation of diluted loss per share as doing so would have been anti-dilutive. The following table presents the calculation of pro forma basic and diluted net loss per share:
December 31, March 31, 1999 2000 ------------ ------------ (unaudited) Net loss to common stockholders................... $(10,670,184) $(27,562,912) ============ ============ Shares used in computing basic and diluted net loss per share.................................. 1,806,255 1,980,933 Pro forma adjustment to reflect assumed conversion of Series A and Series B convertible preferred stock (unaudited)............................... 7,586,244 7,586,244 Pro forma adjustment to reflect assumed conversion of Series C and Series D convertible preferred stock (unaudited)............................... -- 7,269,625 ------------ ------------ Shares used in computing pro forma basic and diluted net loss per share (unaudited).......... 9,392,499 16,836,802 ============ ============ Pro forma basic and diluted net loss per share (unaudited) .................................... $ (1.14) $ (1.64) ============ ============
Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain amounts from fiscal 1998 have been reclassified to conform to the fiscal 1999 presentation. F-9 ESPERION THERAPEUTICS, INC. AND SUBSIDIARY (A Company in the Development Stage) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Information for the three months ended March 31, 1999 and 2000 is unaudited) (3) Preferred Stock Series A, Series B, Series C and Series D preferred stock ("Series A", "Series B", "Series C" and "Series D", respectively, together "Preferred Stock") provide the following rights, preferences, privileges and restrictions: Dividends The holders of Preferred Stock are entitled to receive dividends, when and if declared by the Company's Board of Directors on shares of common stock, equal to the dividends declared on the number of shares of common stock into which such preferred stock could then be converted. Conversion The holders of Preferred Stock may, at any time, require the Company to convert each share of Preferred Stock into 0.7225 shares of common stock, subject, to adjustment, as defined in the Company's certificate of incorporation. Each share of the Preferred Stock will automatically be converted into shares of common stock, at the same ratio as determined above: 1) upon written agreement of 51% of the Preferred Stockholders, or 2) the closing of a firm- commitment underwritten public offering, as long as the price per share is at least three times the Series C Original Cost ($2.16 per share), as adjusted for the reverse stock split, and the total Company proceeds are at least $30 million. The Company has reserved for issuance such number of shares of its authorized but unissued common stock necessary to effect conversion of all outstanding Preferred Stock and exercise of all outstanding stock options. Voting Rights The holders of Preferred Stock have the right to one vote for each share of common stock into which such preferred stock could then be converted. Liquidation Preference In the event of any liquidation, dissolution or winding up of the affairs of the Company, either voluntarily or involuntarily, the holders of Preferred Stock are entitled to receive, prior to and in preference to any distributions to the stockholders of common stock or any other security, an amount initially equal to $1.00, $1.50, $2.16 and $4.40 per share, respectively, subject to adjustment for stock splits and similar transactions, plus accrued but unpaid dividends. Upon any sale of the Company, merger or other transaction in which there is a change in control, as defined, the holders of Preferred Stock shall be entitled to the above liquidation preference. Right of First Refusal The Company and its stockholders have entered into various agreements generally providing the Company or other stockholders the first right to purchase any shares of stock offered for sale by a stockholder, under the same terms of a bona fide offer. F-10 ESPERION THERAPEUTICS, INC. AND SUBSIDIARY (A Company in the Development Stage) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Information for the three months ended March 31, 1999 and 2000 is unaudited) Series C and Series D In January and February 2000, the Company issued shares of Series C and Series D. Total cash proceeds to the Company were approximately $21.9 million and $5.0 million relating to the issuance of 10,252,879 shares of Series C and 1,136,363 shares of Series D, respectively. As a part of the Series C, the Company issued 127,414 shares to the chief executive officer and another member of the Board of Directors for services rendered to the Company during 1999. The Company recorded the related expense of $275,215 as an increase to compensation expense during 1999 and recorded the related liability as an increase in accrued liabilities as of December 31, 1999. In accordance with EITF 98-5, the Company recorded approximately $22.9 million relating to the beneficial conversion feature of the Series C and Series D in the first quarter of fiscal 2000 through equal and offsetting adjustments to additional paid-in capital with no net impact on stockholders' equity, as the preferred stock was convertible immediately on the date of issuance. The beneficial conversion feature was considered in the determination of the Company's loss per common share amounts. The Company also recorded an additional $412,819 relating to the Series C shares issued to the chief executive officer and a Board member in the first quarter of fiscal 2000. This non-cash charge was reflected through entries to compensation expense and additional paid-in-capital. F-11 ESPERION THERAPEUTICS, INC. AND SUBSIDIARY (A Company in the Development Stage) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Information for the three months ended March 31, 1999 and 2000 is unaudited) (4) Stock Options In 1998, the Company established a stock option plan to increase its ability to attract and retain key individuals. Options granted may be either incentive stock options, which are granted at the fair market value of the common stock on the date of grant or higher (as determined under the plan), or nonqualified stock options, which may be granted at less than the fair market value of the common stock on the date of grant. Options are granted at the discretion of the Board of Directors. The maximum number of shares that may be granted under the plan is 1,784,575. Options granted generally become exercisable over a period of four years from the date of grant. Outstanding options generally expire nine years after the date of grant. Activity related to stock options is summarized as follows:
Weighted Average Number of Exercise Shares Price --------- -------- Outstanding at inception (May 18, 1998)............... -- Options granted..................................... 324,763 $0.15 Options cancelled................................... -- Options exercised................................... -- --------- Outstanding at December 31, 1998...................... 324,763 $0.15 Options granted..................................... 542,867 $0.29 Options cancelled................................... -- Options exercised................................... -- --------- Outstanding at December 31, 1999...................... 867,630 $0.24 Options granted..................................... 664,138 $3.29 Options cancelled................................... -- Options exercised................................... (265,829) $0.21 --------- Outstanding at March 31, 2000 (unaudited)............. 1,265,939 $1.73 =========
The options outstanding and exercisable at December 31, 1998 are as follows:
Weighted- Weighted- Average Average Price Per Options Remaining Options Exercise Share Outstanding Life Exercisable Price --------- ----------- ----------- ----------- --------- (years) $0.14 260,100 8.5 16,256 $0.14 $0.21 64,663 8.7 3,680 $0.21 ------- ------- 324,763 19,936 ======= ======= The options outstanding and exercisable at December 31, 1999 are as follows: Weighted- Average Weighted- Contractual Average Price Per Options Remaining Options Exercise Share Outstanding Life Exercisable Price --------- ----------- ----------- ----------- --------- (years) $0.14 260,100 7.5 81,281 $0.14 $0.21 586,127 8.3 158,952 $0.21 $0.32 5,057 8.9 -- $0.32 $2.91 16,346 8.7 16,346 $2.91 ------- ------- 867,630 256,579 ======= =======
F-12 ESPERION THERAPEUTICS, INC. AND SUBSIDIARY (A Company in the Development Stage) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Information for the three months ended March 31, 1999 and 2000 is unaudited) The options outstanding and exercisable at March 31, 2000 are as follows (unaudited):
Weighted- Average Weighted- Contractual Average Price Per Options Remaining Options Exercise Share Outstanding Life Exercisable Price --------- ----------- ----------- ----------- --------- $0.14-$0.32 585,809 7.5 27,634 $0.21 $2.21-$2.91 381,378 8.8 28,988 $2.91 $4.57 298,752 8.9 -- --------- ------ 1,265,939 56,622 ========= ======
Using the intrinsic value method under APB 25, no compensation expense has been recognized in the accompanying consolidated statement of operations for options granted to employees at fair value. Had compensation expense been determined based on the fair value at the date of grant consistent with SFAS 123, the reported net loss would have increased to the following pro forma amounts, which may not be representative of that to be expected in future years:
December 31, ------------------------- March 31, 1998 1999 2000 ----------- ------------ ------------ (unaudited) Net loss: As Reported................... $(2,143,063) $(10,670,184) $(27,562,912) Pro Forma..................... $(2,144,354) $(10,687,568) $(27,599,115) Basic and diluted loss per share: As Reported................... $ (1.46) $ (5.91) $ (13.91) Pro Forma..................... $ (1.46) $ (5.92) $ (13.93)
The fair value of options was estimated at the date of grant using the minimum value option valuation method under SFAS 123 with the following assumptions as of December 31, 1998, 1999 and March 31, 2000, respectively: weighted average risk free interest rate of 5.33%, 5.32% and 6.57%; dividend yield of 0%; and expected life of options of five years. The weighted-average fair value of options granted during 1998, 1999 and March 31, 2000 were $0.03, $0.18 and $0.90 per share, respectively. Option valuation models require the input of highly subjective assumptions. Because changes in subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing model does not necessarily provide a reliable single measure of the fair value of the Company's stock options. The Company recorded approximately $1.1 million and $2.9 million of deferred stock compensation in 1999 and 2000, respectively, relating to stock options granted to employees at less than management's estimate of fair value. These amounts are included as a reduction in stockholders' equity and are being amortized straight-line to expense over the related vesting periods. For the year ended December 31, 1999 and the three months ended March 31, 2000, the Company recorded deferred stock compensation amortization of approximately $279,000 and $251,000, respectively, which is included in operating expenses. (5) Income Taxes As of December 31, 1999 and March 31, 2000, the Company had net operating loss carryforwards of approximately $9.8 million and $14.4 million, respectively. These net operating loss carryforwards expire in 2018 and 2019. 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 as management has determined that it is more likely than not that the deferred tax assets will not be realized. F-13 ESPERION THERAPEUTICS, INC. AND SUBSIDIARY (A Company in the Development Stage) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Information for the three months ended March 31, 1999 and 2000 is unaudited) The effective tax rate of zero differs from the statutory rate primarily due to providing a valuation allowance against deferred tax assets. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets for financial reporting and the amount used for income tax purposes. Significant components of the Company's deferred tax assets are as follows:
December 31, ---------------------- March 31, 1998 1999 2000 --------- ----------- ----------- (unaudited) Start-up costs............................. $ 191,000 $ 191,000 $191,000 Net operating loss carryforward............ 527,000 3,317,000 4,902,000 Asset basis differences.................... -- (150,000) (170,000) Less--Valuation allowance.................. (718,000) (3,358,000) (4,923,000) --------- ----------- ----------- $ -- $ -- $ -- ========= =========== ===========
(6) Commitments and Contingencies Lease Commitments The Company leases its office space under operating leases which expire at various dates through January 2001. Total rent expense under all leases was approximately $124,000 in 1998 and $386,000 in 1999, and was approximately $105,000 and $147,000 for the three months ended March 31, 1999 and 2000, respectively. Future minimum payments under noncancellable operating leases at March 31, 2000, are as follows (unaudited): 2000............................................................. $ 391,600 2001............................................................. 66,400 2002............................................................. 33,200 --------- $ 491,200 =========
License Agreements In June 1998 and March 1999, the Company entered into license agreements with separate pharmaceutical companies for different product candidates ("the 1998 Agreement" and "the 1999 Agreement", respectively). The Company paid initial license fees of $750,000 under the 1998 Agreement and $250,000 under the 1999 Agreement and these amounts were charged to operations and included in research and development expense. In September 1999, the Company entered into a license agreement with a group of inventors for a series of product candidates. The initial license fee of $50,000 is included in accrued liabilities as of December 31, 1999 and was charged to research and development expense. In February 2000, the Company entered into a license agreement with a European entity for a new product candidate. The Company made an initial license payment of $25,000 and may be obligated to make royalty payments on future sales. In connection with the above agreements, the Company may be obligated to make various milestone and future royalty payments, as defined per the agreements, up to an aggregate amount of $25.2 million, not F-14 ESPERION THERAPEUTICS, INC. AND SUBSIDIARY (A Company in the Development Stage) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Information for the three months ended March 31, 1999 and 2000 is unaudited) including royalty payments on future sales. At the present time, the Company can give no assurances as to the likelihood that such future milestones will be achieved. Purchase Commitment On November 23, 1999, the Company entered into an agreement with a scientific instrument manufacturer to purchase a specialized piece of equipment. The Company is obligated to pay a total of $1,000,000 for the equipment. As of March 31, 2000 the equipment has not been received, however, a deposit of $450,000 was paid and is included in deposits and other assets in the accompanying consolidated balance sheet. No liability or expense was recorded in 1999 relating to this purchase commitment. Legal Proceeding On March 22, 2000, Talaria Therapeutics, Inc. filed a lawsuit, in which the Company was one of several named defendants, regarding intellectual property and other matters. In this lawsuit, Talaria alleges among other things, that a patent application that the Company sublicenses improperly incorporates within it confidential information belonging to the person named as the investor in certain patents. On July 31, 2000 the Company agreed to enter into a non-binding letter of intent providing for the acquisition of Talaria (see Note 10). The acquisition, if completed, would resolve such litigation and remove the uncertainty about the patent application, that the Company sublicenses. The completion of the acquisition of Talaria is subject to certain closing conditions. If the acquisition is not completed, the Company is prepared to defend this litigation in court. At this time, the Company is not able to determine with any certainty the potential outcome of this action or the potential liability, if any, and as such, no reserve has been recorded in the accompanying consolidated balance sheets at March 31, 2000. (7) Long-Term Debt In April 1999, the Company entered into an equipment loan facility with a bank whereby the Company may borrow up to $1.5 million for equipment purchases. Borrowings under the facility are collateralized by the related equipment, bear interest at the bank's prime rate (8.5% and 9.0% at December 31, 1999 and March 31, 2000, respectively) plus 1%, and are payable in equal monthly principal payments over 36 months. As of December 31, 1999 and March 31, 2000, outstanding borrowings under this facility were $1,238,738 and $1,114,865, respectively. The loan facility subjects the Company to various financial covenants which, among other restrictions, requires the Company to maintain certain minimum levels of tangible net worth and liquidity. Management has determined that the Company is in compliance with these covenants at December 31, 1999. The Company has a credit facility, totalling 50 million Swedish kronor (approximately $5.9 million and $5.8 million at December 31, 1999 and March 31, 2000, respectively), with a Swedish entity, that may only be used to finance the development of a certain product candidate. If a related product is not developed or does not succeed in the market, as defined, the Company's obligation to repay the loan may be forgiven. Borrowings under the loan agreement bear interest at 17.0% of which 9.5% is payable quarterly. The remaining 7.5% of interest along with principal are payable in five equal annual installments starting December 30, 2004. In December 1999, the Company made an initial draw on the loan facility of 13 million Swedish kronor. This outstanding principal balance has been classified as long-term debt. Management has determined that the carrying value of the debt approximates fair value in accordance with SFAS No. 107 "Disclosures about Fair Value of Financial Instruments". Management's estimate of fair value is determined by reference to various market data for comparable financial instruments, requires considerable judgment by management, and is not necessarily indicative of the amounts that could be realized in a current market exchange. F-15 ESPERION THERAPEUTICS, INC. AND SUBSIDIARY (A Company in the Development Stage) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Information for the three months ended March 31, 1999 and 2000 is unaudited) As of December 31, 1999, maturities of long-term debt are as follows: 2000........................................................... $ 495,495 2001........................................................... 495,495 2002........................................................... 247,748 2003........................................................... -- 2004........................................................... 385,135 Thereafter..................................................... 1,155,403 ---------- 2,779,276 Less--current portion.......................................... (495,495) ---------- $2,283,781 ==========
The Company's bank has provided a guarantee on behalf of the Company for $394,000 related to a supply agreement. This amount is held as restricted cash and is included in cash and cash equivalents as of March 31, 2000. The guarantee expires in October 2000. (8) Related Party Transactions Certain stockholders have provided consulting and other professional services to the Company. Total expense for these services was $108,000 in 1998 and $236,000 in 1999, and $17,000 and $132,000 for the three months ended March 31, 1999 and March 31, 2000, respectively. At December 31, 1998 and 1999 and March 31, 2000, amounts due to related parties totaled $30,000, $42,000 and $60,000, respectively, and are classified as accounts payable in the accompanying consolidated balance sheets. (9) Reverse Stock Split The Company effected a 0.7225-for-1 reverse stock split of all outstanding common stock and stock options as of March 24, 2000. The Company also increased its authorized common shares to 30,611,112. All references to the number of shares and per share amounts have been retroactively restated to reflect this reverse stock split. (10) Subsequent Event On July 31, 2000, the Company agreed to enter into a non-binding letter of intent providing for the acquisition of Talaria Therapeutics, Inc. Under the proposed letter of intent, all of the outstanding shares of stock of Talaria would be exchanged for a number of shares of Esperion common stock equal to $6.0 million divided by the initial public offering price per share discounted by 18%. Assuming an initial public offering price of $9.00 per share, Esperion would issue 813,008 shares of its common stock to Talaria. Upon the achievement of certain future milestones, the Company would be required to make additional payments of up to $6.25 million in cash or Esperion stock to Talaria. Talaria would also receive deferred contingent payments based on future net sales of the product in North America. The acquisition is subject to the negotiation of a definitive acquisition agreement and related documents, which would include customary closing conditions, including approval by each company's board of directors and Talaria's stockholders. The acquisition, if completed, will be accounted for under the purchase method of accounting. The purchase price will be allocated to both tangible and intangible assets. As a result of this allocation, the Company expects to write-off approximately $4.0 million of acquired in-process research and development. Any remaining purchase price will be allocated to goodwill and amortized over a period of five years. The final allocation will be based on an independent appraisal of the fair values on the closing date. F-16 Independent Auditor's Report August 1, 2000 Board of Directors Talaria Therapeutics, Inc. (A Development Stage Enterprise) Conshohocken, Pennsylvania We have audited the accompanying balance sheets of TALARIA THERAPEUTICS, INC. (A Development Stage Enterprise) as of December 31, 1999 and 1998 and the related statements of operations, of stockholders' equity and of cash flows for the year ended December 31, 1999, for the period from October 2, 1998 (inception) to December 31, 1998, and for the period from October 2, 1998 (inception) to December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of TALARIA THERAPEUTICS, INC. (A Development Stage Enterprise) as of December 31, 1999 and 1998 and the results of its operations and its cash flows for the year ended December 31, 1999, for the period from October 2, 1998 (inception) to December 31, 1998, and for the period from October 2, 1998 (inception) to December 31, 1999 in conformity with accounting principles generally accepted in the United States. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has not generated any revenues and has not yet achieved profitable operations, nor has it ever generated positive cash flows from operations. These factors raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Goldenberg Rosenthal, LLP Jenkintown, Pennsylvania F-17 TALARIA THERAPEUTICS, INC. (A Development Stage Enterprise) BALANCE SHEETS
December 31, ----------------------- March 31, 1998 1999 2000 ---------- ----------- ----------- (unaudited) ASSETS Current assets Cash and cash equivalents............... $1,040,531 $ 1,816,322 $ 1,195,541 Other current assets.................... -- 7,101 7,410 ---------- ----------- ----------- Total Assets........................... $1,040,531 $ 1,823,423 $ 1,202,951 ========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses... $ 13,277 $ 312,644 $ 440,344 Other current liabilities............... 3,505 -- -- ---------- ----------- ----------- Total current liabilities.............. 16,782 312,644 440,344 ---------- ----------- ----------- Commitments and Contingency Stockholders' equity Preferred stock, $.0001 par value; Authorized, 2,666,666 shares, no shares issued......................... -- -- -- Series A convertible preferred stock, $.0001 par value; Authorized, issued and outstanding 1,500,000 shares...... 150 150 150 Series B convertible preferred stock, $.0001 par value; Authorized 833,334 shares; Issued and outstanding 833,334 shares in 1999 and 2000, no shares in 1998.................................. -- 83 83 Common stock, $.0001 par value; Authorized 9,000,000 shares Issued and outstanding 2,333,000 shares.......... 233 233 233 Additional paid-in capital.............. 2,733,026 5,237,322 5,237,322 Deficit accumulated during the development stage..................... (1,709,660) (3,727,009) (4,475,181) ---------- ----------- ----------- Net stockholders' equity................ 1,023,749 1,510,779 762,607 ---------- ----------- ----------- Total Liabilities and Stockholders' Equity............................... $1,040,531 $ 1,823,423 $ 1,202,951 ========== =========== ===========
See notes to financial statements F-18 TALARIA THERAPEUTICS, INC. (A Development Stage Enterprise) STATEMENTS OF OPERATIONS
October 2, 1998 Three Months Ended (inception) October 2, 1998 Year Ended March 31, to (Inception) to December -------------------- March 31, December 31, 1998 31, 1999 1999 2000 2000 ----------------- ----------- --------- --------- ----------- (unaudited) (unaudited) Operating expenses incurred in the development stage: Research and development......... $ 1,666,464 $ 1,946,436 $ 329,328 $ 615,045 $ 4,227,945 General and administrative...... 43,823 135,513 40,492 154,901 334,237 ----------- ----------- --------- --------- ----------- Total operating expenses............ 1,710,287 2,081,949 369,820 769,946 4,562,182 Interest income......... 627 64,600 11,348 21,774 87,001 ----------- ----------- --------- --------- ----------- Net loss................ $(1,709,660) $(2,017,349) $(358,472) $(748,172) $(4,475,181) =========== =========== ========= ========= =========== Basic and diluted net loss per share........ $ (0.73) $ (0.86) $ (0.15) $ (0.32) =========== =========== ========= ========= Shares used in computing basic and diluted net loss per share........ 2,333,000 2,333,000 2,333,000 2,333,000 =========== =========== ========= ========= Pro forma basic and diluted net loss per share (unaudited)..... $ (0.47) $ (0.16) =========== ========= Shares used in computing pro forma basic and diluted net loss per share (unaudited)..... 4,249,667 4,666,334 =========== =========
See notes to financial statements F-19 TALARIA THERAPEUTICS, INC (A Development Stage Enterprise) STATEMENT OF STOCKHOLDERS' EQUITY OCTOBER 2, 1998 (INCEPTION) TO MARCH 31, 2000
Series A Series B Convertible Convertible Deficit Preferred Stock Preferred Stock Common Stock Accumulated ---------------- ---------------- ---------------- Additional During the Net Number Number Number Paid-in Development Stockholders' of Shares Amount of Shares Amount of Shares Amount Capital Stage Equity --------- ------ --------- ------ --------- ------ ---------- ----------- ------------- Issuance of Series A convertible preferred stock.................. 1,500,000 $150 -- $-- -- $-- $1,499,850 $ -- $1,500,000 Issuance of common stock to founders............ -- -- -- -- 1,090,000 109 109,000 -- 109,109 Issuance of common stock in exchange for a license for a patent and for technology..... -- -- -- -- 1,243,000 124 1,124,176 -- 1,124,300 Net loss for the period ended December 31, 1998................... -- -- -- -- -- -- -- (1,709,660) (1,709,660) --------- ---- ------- ---- --------- ---- ---------- ----------- ---------- Balance, December 31, 1998................... 1,500,000 150 -- -- 2,333,000 233 2,733,026 (1,709,660) 1,023,749 Issuance of Series B convertible preferred stock.................. -- -- 833,334 83 -- -- 2,499,919 -- 2,500,002 Issuance of stock options in exchange for research and development services... -- -- -- -- -- -- 4,377 -- 4,377 Net loss for the year ended December 31, 1999................... -- -- -- -- -- -- -- (2,017,349) (2,017,349) --------- ---- ------- ---- --------- ---- ---------- ----------- ---------- Balance, December 31, 1999................... 1,500,000 150 833,334 83 2,333,000 233 5,237,322 (3,727,009) 1,510,779 Net loss for the three months ended March 31, 2000 (unaudited)....... -- -- -- -- -- -- -- (748,172) (748,172) --------- ---- ------- ---- --------- ---- ---------- ----------- ---------- Balance, March 31, 2000 (unaudited)............ 1,500,000 $150 833,334 $ 83 2,333,000 $233 $5,237,322 $(4,475,181) $ 762,607 ========= ==== ======= ==== ========= ==== ========== =========== ==========
See notes to financial statements. F-20 TALARIA THERAPEUTICS, INC. (A Development Stage Enterprise) STATEMENTS OF CASH FLOWS
October 2, 1998 Year Ended Three Months Ended October 2, (Inception) to December March 31, 1998 December 31, 31, ---------------------- (Inception) to 1998 1999 1999 2000 March 31, 2000 -------------- ----------- ---------- ---------- -------------- (unaudited) (unaudited) Cash flows from operating activities Net loss............... $(1,709,660) $(2,017,349) $ (358,472) $ (748,172) $(4,475,181) Adjustments to reconcile net loss to net cash used in operating activities Noncash research and development and compensation expense.............. 1,233,300 4,377 -- -- 1,237,677 Increase in other current assets...... -- (7,101) (300) (309) (7,410) Increase in accounts payable and accrued expenses............ 13,277 299,367 21,822 127,700 440,344 Increase (decrease) in other current liabilities......... 3,505 (3,505) (3,505) -- -- ----------- ----------- ---------- ---------- ----------- Net cash used in operating activities......... (459,578) (1,724,211) (340,455) (620,781) (2,804,570) ----------- ----------- ---------- ---------- ----------- Cash flows from financing activities Proceeds from the issuance of preferred stock................. 1,500,000 2,500,002 -- -- 4,000,002 Proceeds from the issuance of common stock................. 109 -- -- -- 109 ----------- ----------- ---------- ---------- ----------- Net cash provided by financing activities......... 1,500,109 2,500,002 -- -- 4,000,111 ----------- ----------- ---------- ---------- ----------- Net increase (decrease) in cash and cash equivalents............ 1,040,531 775,791 (340,455) (620,781) 1,195,541 Cash and cash equivalents, beginning of period.............. -- 1,040,531 1,040,531 1,816,322 -- ----------- ----------- ---------- ---------- ----------- Cash and cash equivalents, end of period................. $ 1,040,531 $ 1,816,322 $ 700,076 $1,195,541 $ 1,195,541 =========== =========== ========== ========== =========== SUPPLEMENTAL INFORMATION REGARDING NONCASH ACTIVITIES Exchange of common stock for a patent license and for technology............ $ 1,124,300 -- -- -- $ 1,124,300 Exchange of stock options for research and development services.............. -- $ 4,377 -- -- $ 4,377 Compensation in conjunction with stock issuance.............. $ 109,000 -- -- -- $ 109,000
See notes to financial statements. F-21 TALARIA THERAPEUTICS, INC. (A Development Stage Enterprise) NOTES TO FINANCIAL STATEMENTS (Information for the three months ended March 31, 1999 and 2000 is unaudited) NOTE 1 Nature of Business and Summary of Significant Accounting Policies Nature of Business Talaria Therapeutics, Inc. (the "Company") was incorporated in Delaware on October 2, 1998. The Company is a development stage enterprise engaged in the development of treatments for cardiovascular diseases using therapeutic liposomes. Since inception, the Company has been engaged in organizational activities, including raising capital and research and development activities. The Company has not generated any revenues and has not yet achieved profitable operations, nor has it ever generated positive cash flows from operations. There is no assurance that profitable operations, if achieved, could be sustained on a continuing basis. Further, the Company's future operations are dependent on the success of the Company's efforts to raise additional capital, its research and commercialization efforts, and ultimately, the market acceptance of the Company's products. The accompanying financial statements have been prepared on a going- concern basis which contemplates the continuation of operations, realization of assets and liquidation of liabilities in the ordinary course of business. The Company incurred a net loss of $2,017,349 for the year ended December 31, 1999 and a net loss of $748,172 (unaudited) for the three months ended March 31, 2000. The Company has a deficit accumulated during the development stage of $4,475,181 (unaudited) as of March 31, 2000. The net losses incurred by the Company have consumed working capital. The Company plans to obtain additional financing through joint ventures or the sale of preferred stock. There can be no assurance that these efforts will be successful. The financial statements do not include any adjustments relating to the recoverability and classifications of reported asset amounts or the amounts of liabilities that might result from the outcome of that uncertainty. Use of Estimates The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Research and Development Expense Costs incurred for research and product development, including acquired technology and costs incurred for technology in the development stage, are expensed as incurred. Concentration of Credit Risk Financial instruments which potentially subject the Company to credit risk consist principally of cash and cash equivalents. All cash and cash equivalents are held in United States financial institutions and money market funds. Cash balances as of December 31, 1999 and 1998 and March 31, 2000 (unaudited) were in excess of federally-insured amounts. F-22 TALARIA THERAPEUTICS, INC. (A Development Stage Enterprise) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the three months ended March 31, 1999 and 2000 is unaudited) Tax Status Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are recorded using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. Stock-Based Compensation The Company accounts for its stock-based compensation to non-employees at fair value in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." Equity Securities Transactions Since inception, the Board of Directors has established the fair value of equity securities based upon facts and circumstances existing at the date such equity transactions occurred, including the price at which equity instruments were sold to independent third parties. Interim Financial Information The financial statements as of March 31, 2000, for the three months ended March 31, 1999 and 2000 and for the period from October 2, 1998 (inception) to March 31, 2000 are unaudited and have been prepared on the same basis as the audited financial statements and, in the opinion of management, include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial position at such date, and the operating results and cash flows for such periods, in accordance with generally accepted accounting principles. Results for the interim period are not necessarily indicative of the results to be expected for any subsequent period. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consist of the following:
December 31, ---------------- March 31, 1998 1999 2000 ------- -------- ----------- (unaudited) Accrued professional fees.......................... $ 91 $ 15,050 $143,548 Accrued compensation............................... 3,505 -- -- Accrued manufacturing costs........................ 13,186 282,427 292,054 Accrued other...................................... -- 15,167 4,742 ------- -------- -------- $16,782 $312,644 $440,344 ======= ======== ========
Basic Diluted and Pro Forma Loss per Share Basic and diluted loss per share amounts have been calculated using the weighted average number of shares of common stock outstanding during the respective period. In 1999 and 2000 (unaudited), options for the purchase of common stock were not included in the calculation of diluted loss per share as doing so would have been anti-dilutive. F-23 TALARIA THERAPEUTICS, INC. (A Development Stage Enterprise) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the three months ended March 31, 1999 and 2000 is unaudited) Convertible preferred stock was not included in the calculation of diluted loss per share because doing so would have been antidilutive. However, the convertible preferred stock could potentially be dilutive in the future. The following table presents the calculation of pro forma basic and diluted net loss per share:
Year ended Three Months December ended March 31, 1999 31, 2000 ----------- ------------ Net loss to common stockholders...................... $(2,017,349) $ (748,172) =========== ========== Shares used in computing basic and diluted net loss per share.......................................... 2,333,000 2,333,000 Pro forma adjustment to show assumed conversion of Series A and Series B convertible preferred stock (unaudited)........................................ 1,916,667 2,333,334 ----------- ---------- Shares used in computing pro forma basic and diluted net loss per share (unaudited)..................... 4,249,667 4,666,334 =========== ========== Pro forma basic and diluted net loss per share (unaudited)........................................ $ (0.47) $ (0.16) =========== ==========
NOTE 2 Stockholders' Equity On October 2, 1998, the Company issued 1,090,000 shares of common stock for $109 to three founders. Imputed compensation of $109,000 was recorded in connection with this transaction. On October 2, 1998, the Company completed a private placement of 1,275,000 shares of Series A convertible preferred stock ("Series A") at $1 per share. On October 2, 1998, the Company issued 1,243,000 shares of common stock in exchange for a license for a patent and for certain technology to be utilized in the Company's research and development activities. Accordingly, the estimated fair value of the license and technology of $1,124,300 has been recorded as research and development expense in the accompanying statement of operations during the period ended December 31, 1998. On October 30, 1998, the Company completed a second private placement of 225,000 shares of Series A at $1 per share. On July 1, 1998, the Company completed a private placement of 833,334 shares of Series B convertible preferred stock ("Series B") at $3 per share. In the event of liquidation, dissolution or winding-up of the Company, holders of Series A and Series B shall be entitled to either convert their preferred stock into common stock (see below) or retain their liquidation preference to the common stockholders. In the latter case, the holders of the Series A and Series B shall be entitled to receive the original issuance price ($1 and $3, respectively) plus declared and unpaid dividends from the assets of the Company in preference to the common stockholders. After the Series A and Series B stockholders have been paid in full the original issuance price, the remaining assets of the Company shall be distributed ratably to the Series A, Series B and common stockholders in accordance with their respective shareholdings at the time of distribution. The Series A and Series B stockholders are entitled to receive, in addition to the original issuance price plus declared and unpaid dividends, a maximum return of 40% per year on the original issuance price, prorated for any portion of a year. After the maximum distribution to the Series A and Series B stockholders has been paid, the Series A and Series B stockholders have no further F-24 TALARIA THERAPEUTICS, INC. (A Development Stage Enterprise) NOTES TO FINANCIAL STATEMENTS (Information for the three months ended March 31, 1999 and 2000 is unaudited) participation in the distribution of the assets of the Company. If the assets available for distribution are insufficient to permit the payment of their full preferential amounts, the Series A and Series B stockholders shall share ratably in the distribution of assets. The stockholders have the right to purchase shares in future equity offerings, except in a specified public offering (see below), in proportion to their current ownership, at the offering price. The holders of common and preferred stock are entitled to dividends only if and when declared by the Board of Directors. Holders of the common stock shall not receive dividends in preference to the preferred stockholders. Each share of Series A and Series B preferred stock is convertible into one share of common stock (i) at the option of the holder thereof at any time or, (ii) automatically at the closing of a registration statement under the Securities Act of 1933 covering the offer and sale of the Company's common stock with a gross offering price of at least $10 million and a per share price of at least $6.50, subject to adjustment. In the event of a stock split or stock dividend or other dividend or other adjustment to the capital structure of the Company, including any adjustments to the common stock, the preferred stock will be adjusted proportionately. The Series A and Series B stockholders are entitled to vote based on the number of shares of common stock to which their holdings could be converted. Common stockholders are entitled to one vote for each share of common stock. NOTE 3 Equity Incentive Plan In October, 1998, the Company adopted an Equity Incentive Plan (the "Plan") which provides for the granting of incentive and nonstatutory options to consultants and key employees to purchase up to 100,000 shares of the Company's common stock. Such options are exercisable for a period of 10 years and generally vest over a four-year period. As of December 31, 1999, there were 30,000 shares available for grant under the Plan. A summary of activity under the Plan is as follows:
Weighted Number average of Exercise Shares Price ------ -------- Outstanding at inception (October 2, 1998)................... -- -- Outstanding at December 31, 1998............................. -- -- Options Granted............................................ 70,000 $0.10 ------ ----- Outstanding at December 31, 1999............................. 70,000 $0.10 ------ ----- Outstanding at March 31, 2000 (unaudited).................... 70,000 $0.10 ====== ===== Options exercisable as of December 31, 1999.................. -- -- ====== =====
In 1999, the Company granted options to two non-employees to purchase 35,000 shares each of common stock at an exercise price of $0.10 per share. The Company recorded compensation expense of $4,377 in 1999, based on the fair market value at the grant date as determined using a Black-Scholes option pricing model. As of December 31, 1999 and March 31, 2000 (unaudited) the exercise price per share, weighted-average exercise price per share and weighted-average remaining contractual life of outstanding options were $0.10, $0.10 and 9 years, respectively. F-25 TALARIA THERAPEUTICS, INC. (A Development Stage Enterprise) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the three months ended March 31, 1999 and 2000 is unaudited) The options granted become exercisable over four years beginning in 2000. As of December 31, 1999, no options were exercisable and as of March 31, 2000, 17,500 options (unaudited) were exercisable. The stock option agreement provides that all options granted shall vest in full and become immediately exercisable upon a change in control of the Company. See footnote No. 7. The per share weighted-average fair value of stock options granted during 1999 was $0.06, on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: expected dividend yield of 0%, risk-free interest rate of 6%, volatility of 80% and an expected life of 4 years. NOTE 4 Income Taxes As of December 31, 1999, the Company had available net operating loss carryforwards ("NOL") of approximately $3,711,000 for federal and state income tax reporting purposes which are available to offset future federal and state taxable income, if any, through 2019 and 2009, respectively. The Company also has research and development tax credit carryforwards of approximately $107,000 for federal income tax reporting purposes which are available to reduce federal income taxes, if any, through 2019. As of March 31, 2000, the Company had available net operating loss carryforwards of approximately $4,459,000 (unaudited) for federal and state income tax reporting purposes which are available to offset future federal and state taxable income, if any, through 2020 and 2010, respectively. The Company also has research and development tax credit carryforwards of approximately $130,000 (unaudited) for federal income tax reporting purposes which are available to reduce federal income taxes, if any, through 2020. The Tax Reform Act of 1986 (the "Act") provides for a limitation on the annual use of NOL and research and development tax credit carryforwards (following certain ownership changes, as defined by the Act) that could significantly limit the Company's ability to utilize these carryforwards. The Company has experienced and expects in the foreseeable future to experience additional ownership changes, as defined by the Act, as a result of past and anticipated future financings. Accordingly, the Company's ability to utilize the aforementioned carryforwards may be limited. Additionally, because tax laws limit the time during which these carryforwards may be applied against future taxes, the Company may not be able to take full advantage of these attributes for federal and state income tax purposes. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets are presented below:
December 31 March 31, 2000 ------------------- -------------- 1998 1999 -------- ---------- (unaudited) Deferred tax assets Net operating loss carryforwards..... $676,000 $1,485,000 $1,784,000 Stock-based compensation............. -- 2,000 2,000 Research credit carryforward......... 14,000 107,000 130,000 Organizational costs................. 8,000 8,000 8,000 -------- ---------- ---------- Total gross deferred tax assets..... 698,000 1,602,000 1,924,000 Less valuation allowance.............. 698,000 1,602,000 1,924,000 -------- ---------- ---------- Net deferred taxes.................. $ -- $ -- $ -- ======== ========== ==========
F-26 TALARIA THERAPEUTICS, INC. (A Development Stage Enterprise) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the three months ended March 31, 1999 and 2000 is unaudited) The gross deferred tax assets and the valuation allowance shown above represent the items which reduce the income tax benefit which would result from applying the federal statutory tax rate to the pre-tax loss and cause no income tax expense or benefit to be recorded for the periods ended December 31, 1998 and 1999 and March 31, 2000 (unaudited). The net change in the valuation allowance for the periods ended December 31, 1998 and 1999 and March 31, 2000 was an increase of $698,000, $904,000 and $322,000 (unaudited), respectively, related primarily to net operating losses incurred by the Company which are not currently deductible. The effective tax rate of zero differs from the statutory rate primarily due to the provision of an allowance against deferred tax assets. NOTE 5 Management Agreement On October 2, 1998, the Company entered into a management agreement with a company (the "Management Company") to provide strategic guidance to the Company, as well as day-to-day management of the business, administrative and financial aspects of the Company, including payroll, personnel, insurance, employee benefits, accounting and tax matters. An officer of the Company serves as an executive of the Management Company and the Management Company is affiliated with certain Series A and Series B investors. The management agreement has an initial one-year term and is automatically renewed for successive one-year terms unless either party gives written notice 60 days prior to the expiration of a term. Under terms of the agreement, the Management Company is paid a management fee of $6,250 per month and an administrative support fee of $1,000 per month. Costs incurred for the periods ended December 31, 1998 and 1999 and March 31, 2000 totalled $21,750, $87,000 and $21,750 (unaudited), respectively, and are included in general and administrative expenses in the accompanying statement of operations. In August 1999, the Company entered into another management agreement related to certain technical aspects of the Company's operations. The agreement was for a one year term with annual renewals. Initial fees were $30,000 per month through August 2000, with escalation terms for subsequent renewals. The agreement will terminate immediately upon a change of control of the Company. See footnote No. 7. Costs incurred under this agreement for the periods ended December 31, 1999 and March 31, 2000 were $124,378 and $90,000 (unaudited), respectively. Note 6 Contingency The Company has entered into an indemnification agreement with two other plaintiffs in the patent infringement lawsuit filed by the Company. The Company has agreed to indemnify those two other parties against any loss they incur from actions against them arising from the patent infringement litigation. Note 7 Subsequent Event On July 31, 2000, the Company agreed to enter into a non-binding letter of intent providing for the purchase of the Company by Esperion Therapeutics, Inc. ("Esperion"). Pursuant to the proposed letter of intent, all of the outstanding shares of stock of the Company would be exchanged for Esperion common stock. Upon the achievement of certain future milestones, Esperion would make additional payments in cash or Esperion stock to the Company. The Company would also receive deferred contingent payments based on future net sales of the product in North America. F-27 PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION The unaudited pro forma condensed combined financial information for Esperion set forth below gives effect to the acquisition of Talaria Therapeutics, Inc. ("Talaria") using the purchase method of accounting, after giving effect to the adjustments described in the accompanying notes. The historical financial information set forth below has been derived from, and is qualified by reference to, the consolidated financial information of Esperion and Talaria and should be read in conjunction with those financial statements and the notes thereto included elsewhere in this prospectus. Based on the timing of the closing of the transaction, the final purchase adjustments may differ materially from those presented in the pro forma financial information. A final appraisal of the net assets will be performed as of the closing date and the allocation adjusted accordingly. The effect of these adjustments on the results of operations will depend on the nature and amount of the assets or liabilities adjusted. The pro forma condensed combined financial information does not purport to represent what the consolidated results of operations or financial condition of Esperion would actually have been if the Talaria acquisition, in fact, had occurred on March 31, 2000 or at the beginning of the periods presented or to project the consolidated financial position or results of operations as of any future date or any future period. The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes of Esperion and Talaria included elsewhere in this prospectus. F-28 ESPERION THERAPEUTICS, INC. AND SUBSIDIARY (A Company in the Development Stage) PRO FORMA CONDENSED COMBINED BALANCE SHEET March 31, 2000 (unaudited)
Pro forma Esperion Talaria adjustments Pro forma ------------ ----------- ----------- ------------ ASSETS Current Assets: Cash and cash equivalents.......... $ 27,698,068 $ 1,195,541 $ -- $ 28,893,609 Prepaid expenses and other................ 409,148 7,410 -- 416,558 ------------ ----------- ----------- ------------ Total current assets.. 28,107,216 1,202,951 -- 29,310,167 Furniture and equipment, net................... 1,925,495 -- -- 1,925,495 Deposits and other assets................ 456,000 -- -- 456,000 Goodwill and other intangible assets..... -- -- 2,837,393 (A) 2,837,393 ------------ ----------- ----------- ------------ $ 30,488,711 $ 1,202,951 $ 2,837,393 $ 34,529,055 ============ =========== =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt....... $ 495,495 $ -- $ -- $ 495,495 Accounts payable....... 1,038,421 440,344 -- 1,478,765 Accrued liabilities.... 1,746,195 -- 282,928 (B) 2,029,123 ------------ ----------- ----------- ------------ Total current liabilities......... 3,280,111 440,344 282,928 4,003,383 Long-term debt, less current portion above................. 2,123,469 -- -- 2,123,469 Stockholders' Equity: Convertible preferred stock................ 218,892 233 (233)(E) 218,892 Common stock........... 2,202 233 580 (E) 3,015 Additional paid-in- capital.............. 45,960,126 5,237,322 2,078,937 (E) 53,276,385 Notes receivable....... (98,625) -- -- (98,625) Accumulated deficit during the development stage.... (17,506,399) (4,475,181) 4,475,181 (21,506,399) (4,000,000)(C) Deferred stock compensation......... (3,486,605) -- -- (3,486,605) Accumulated other comprehensive loss... (4,460) -- -- (4,460) ------------ ----------- ----------- ------------ Total stockholder's equity.............. 25,085,131 762,607 2,554,465 28,402,203 ------------ ----------- ----------- ------------ $ 30,488,711 $ 1,202,951 $ 2,837,393 $ 34,529,055 ============ =========== =========== ============
The accompanying notes are an integral part of this balance sheet. F-29 ESPERION THERAPEUTICS, INC. AND SUBSIDIARY (A Company in the Development Stage) PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS Year ended December 31, 1999 (unaudited)
Pro forma Esperion Talaria adjustments Pro forma ------------ ----------- ----------- ------------ Operating expenses: Research and development......... $ 8,484,125 $ 1,946,436 $ -- $ 10,430,561 General and administrative...... 2,517,903 135,513 -- 2,653,416 Amortization of goodwill and other intangible assets... -- -- 567,479(D) 567,479 ------------ ----------- --------- ------------ Total operating expenses........... 11,002,028 2,081,949 567,479 13,651,456 ------------ ----------- --------- ------------ Loss from operations......... (11,002,028) (2,081,949) (567,479) (13,651,456) Total other income... 331,844 64,600 -- 396,444 ------------ ----------- --------- ------------ Net loss................ $(10,670,184) $(2,017,349) $(567,479) $(13,255,012) ============ =========== ========= ============ Basic and diluted net loss per share........ $ (5.91) $ (5.06) ============ ============ Shares used in computing basic and diluted net loss per share........ 1,806,255 2,619,263(F) ============ ============
The accompanying notes are an integral part of this statement. F-30 ESPERION THERAPEUTICS, INC. AND SUBSIDIARY (A Company in the Development Stage) PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS Three months ended March 31, 2000 (unaudited)
Pro forma Esperion Talaria adjustments Pro forma ------------ --------- ----------- ------------ Operating expenses: Research and development......... $ 4,063,357 $ 615,045 $ -- $ 4,678,402 General and administrative...... 1,005,715 154,901 -- 1,160,616 Amortization of goodwill and other intangible assets... -- -- 141,870(D) 141,870 ------------ --------- --------- ------------ Total operating expenses.......... 5,069,072 769,946 141,870 5,980,888 ------------ --------- --------- ------------ Loss from operations........ (5,069,072) (769,946) (141,870) (5,980,888) Total other income.. 375,920 21,774 -- 397,694 ------------ --------- --------- ------------ Net loss................ (4,693,152) (748,172) (141,870) (5,583,194) Beneficial conversion feature upon issuance of preferred stock ... (22,869,760) -- -- (22,869,760) ------------ --------- --------- ------------ Net loss attributable to common stockholders... $(27,562,912) $(748,172) $(141,870) $(28,452,954) ============ ========= ========= ============ Basic and diluted net loss per share........ $ (13.91) $ (10.18) ============ ============ Shares used in computing basic and diluted net loss per share........ 1,980,933 2,793,941(F) ============ ============
The accompanying notes are an integral part of this statement. F-31 ESPERION THERAPEUTICS, INC. AND SUBSIDIARY (A Company in the Development Stage) NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (1) Description of the Proposed Acquisition On July 31, 2000, the Company agreed to enter into a non-binding letter of intent providing for the acquisition of Talaria Therapeutics, Inc. Under the proposed letter of intent, all of the outstanding shares of stock of Talaria would be exchanged for the number of shares of Esperion common stock equal to $6.0 million divided by the initial public offering price per share discounted by 18%. Assuming an initial offering price of $9.00 per share, Esperion would issue 813,008 shares of its common stock to Talaria. Upon the achievement of certain future milestones, Esperion would make additional payments in cash or Esperion stock to Talaria. Talaria would also receive deferred contingent payments based on future net sales of the product in North America. The acquisition, if completed, would be accounted for under the purchase method of accounting. If the acquisition is consummated, the purchase price would be allocated to both tangible and intangible assets. As a result of this allocation, the Company expects to write-off approximately $4.0 million of acquired in-process research and development. Any remaining purchase price will be allocated to goodwill and amortized over a period of five years. The final allocation will be based on an independent appraisal of the fair values on the closing date. (2) Basis of Presentation The unaudited pro forma condensed combined balance sheet as of March 31, 2000 gives effect to the acquisition of Talaria as if it occurred on that date. The unaudited pro forma condensed combined statements of operations data for the year ended December 31, 1999 and the three months ended March 31, 2000 give effect to the acquisition as if it occurred on the first day of each of those periods under the purchase method of accounting by combining the results for the year ended December 31, 1999 of Esperion with the results for the same period of Talaria, and combining the results for the three months ended March 31, 2000 of Esperion with the same period of Talaria. As required by Article 11 of Regulation S-X the unaudited pro forma condensed statements of operations for the year ended December 31, 1999 and the three months ended March 31, 2000, exclude material non-recurring charges which result directly from the merger and which will be recorded within the twelve months following the merger. The selected unaudited pro forma combined financial information reflects certain adjustments, including adjustments to reflect the amortization of goodwill resulting from the acquisition. The total estimated purchase price for the acquisition has been allocated on a preliminary basis to assets and liabilities based on management's best estimates of their fair values with the excess purchase price over the net assets acquired allocated to goodwill, which is being amortized over a period of five years. The estimated purchase price includes estimated merger expenses of approximately $283,000. This allocation is subject to change pending a final analysis of the value of the assets acquired and liabilities assumed. The estimated purchase price is as follows: Tangible net assets............................................ $ 762,607 In-process research and development............................ 4,000,000 Goodwill and other intangible assets........................... 2,837,393 ---------- $7,600,000 ==========
F-32 ESPERION THERAPEUTICS, INC. AND SUBSIDIARY (A Company in the Development Stage) NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION--(Continued) (3) Pro Forma Adjustments Pro forma adjustments for the unaudited pro forma condensed combined balance sheet as of March 31, 2000 and statements of operations for the year ended December 31, 1999 and the three months ended March 31, 2000 are as follows: (A.) To reflect the identifiable intangible assets and the excess purchase price over the fair value of the net assets acquired. (B.) To accrue the estimated merger costs. (C.) To reflect the write-off of acquired in-process research and development. (D.) To reflect amortization of goodwill and other intangible assets resulting from the acquisition. (E.) To reflect the acquisition of all of the outstanding stock of Talaria and the issuance of 813,008 shares of Esperion common stock. (F.) Basic and diluted net loss per share has been adjusted to reflect the issuance of 813,008 shares of the Company's common stock, as if these shares had been outstanding for the entire period. (4) Acquired In-Process Research and Development Acquired in-process research and development ("IPR&D") consists of development work on the project in process at Talaria as of the date the Company agreed to enter into a non-binding letter of intent for the proposed acquisition. The development of this project has not yet reached technological feasibility and is not expected to reach technological feasibility until 2004. Under the terms of SFAS No. 2, the IPR&D offers no alternative future use. After a preliminary assessment, the Company has allocated $4.0 million of the estimated purchase price to the IPR&D project. The allocation was determined by estimating the costs to develop the acquired technology into a commercially viable product, estimating the resulting net cash flows from the project and discounting the resulting net cash flows to their present value. A discount rate of 35% was used to discount the cash flows. All costs related to the IPR&D will be expensed at the closing date of the acquisition. The allocation of the purchase price among the identifiable tangible and intangible assets and IPR&D is based on preliminary estimates of the fair market value of those assets. Final determination of the allocation of the purchase price will be based on independent appraisals that we expect to have completed upon the closing of the acquisition. F-33 [LOGO OF ESPERION THERAPEUTICS] Until , 2000 (25 days after the date of this prospectus), all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We may + +not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This prospectus is not an + +offer to sell securities, and we are not soliciting offers to buy these + +securities, in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED AUGUST 4, 2000 [LOGO OF ESPERION THERAPEUTICS] 6,000,000 Shares Common Stock Esperion is offering 6,000,000 shares of its common stock. This is our initial public offering. We have applied to have our common stock approved for quotation on the Nasdaq National Market under the symbol "ESPR." We anticipate that the initial public offering price will be between $8 and $10 per share. --------------- Investing in our common stock involves risks. See "Risk Factors" beginning on page 5. ---------------
Per Share Total ----- ----- Public Offering Price.............................................. $ $ Underwriting Discounts and Commissions............................. $ $ Proceeds to Esperion............................................... $ $
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Esperion has granted the underwriters a 30-day option to purchase up to an additional 900,000 shares of common stock to cover over-allotments. In addition, this prospectus also covers the 500,000 shares of our common stock which will be made available for sale to our employees pursuant to the employee stock purchase plan which will be established concurrently with our initial public offering. --------------- Robertson Stephens International Chase H&Q U.S. Bancorp Piper Jaffray The date of this Prospectus is , 2000 UNDERWRITING The underwriters, acting through their representatives, FleetBoston Robertson Stephens Inc., Chase Securities Inc. and U.S. Bancorp Piper Jaffray Inc., have severally agreed to purchase from us the number of shares of common stock next to their respective names below. The underwriters are committed to purchase and pay for all the shares if any are purchased.
Number Underwriter of Shares ----------- --------- FleetBoston Robertson Stephens Inc................................ Chase Securities Inc.............................................. U.S. Bancorp Piper Jaffray Inc.................................... International Underwriter ------------------------- FleetBoston Robertson Stephens International Limited.............. --------- Total........................................................... 6,000,000 =========
The underwriters propose to offer the shares of common stock to the public at the public offering price set forth on the cover page of this prospectus and to specific dealers at that price less a concession of $ per share, of which $ may be reallowed to other dealers. After this offering, the public offering price, concession and reallowance to dealers may be reduced by the representatives. However, no reduction will change the amount of proceeds to be received by us as set forth on the cover page of this prospectus. The common stock is offered by the underwriters subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. The underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. Overallotment Option. We have granted to the underwriters an option, exercisable during the 30-day period after the date of this prospectus, to purchase up to 900,000 additional shares of common stock at the same price per share as we will receive for the shares that the underwriters have agreed to purchase. If the underwriters exercise this option, each of the underwriters will have a firm commitment, subject to limited conditions, to purchase approximately the same percentage of these additional shares that the number of shares of common stock to be purchased by it shown in the above table represents as a percentage of the total shares offered in this offering. If purchased, these additional shares will be sold by the underwriters on the same terms as those on which the shares offered in this offering are being sold. We will be obligated to sell shares to the underwriters to the extent the option is exercised. The underwriters may exercise such option only to cover overallotments made in connection with the sale of the shares of common stock offered in this offering. Indemnity. The underwriting agreement contains covenants of indemnity among the underwriters and us against identified civil liabilities, including liabilities under the Securities Act and liabilities arising from breaches of representations and warranties contained in the underwriting agreement. In addition, the underwriting agreement contains a covenant that the Company shall obtain Directors and Officers liability insurance in the minimum amount of $10 million and cause FleetBoston Robertson Stephens Inc. to be added to such policy such that up to $500,000 of certain of its expenses shall be paid directly by such insurers. Lock-Up Agreements. Each executive officer, director, and substantially all of our stockholders, agreed with the representatives for a period of 180 days after the date of this prospectus, subject to certain exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant any rights with respect to any shares of common stock, any options or warrants to purchase any shares of common stock, or any securities convertible into or exchangeable for shares of common stock, owned as of the date of this prospectus or thereafter acquired directly by such holders or with respect to which they have or hereafter acquire the power of disposition, without the prior written consent of FleetBoston Robertson Stephens Inc. FleetBoston Robertson Stephens Inc. may, in its sole discretion and at any time or from time to time without notice, release all or any portion of the securities subject to the lock-up agreements. There are no agreements between the representatives and any of our stockholders who have executed a lock-up agreement providing consent to the sale of shares prior to the expiration of the lock-up period. 61 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution The expenses (other than underwriting discounts and commissions and the underwriter's non-accountable expense allowance) payable in connection with this offering of the rights and the sale of the Common Stock offered hereby are as follows:
Securities and Exchange Commission registration fee............ $ 36,432 NASD filing fee................................................ 14,300 Nasdaq filing fee.............................................. 100,000 Printing and engraving expenses................................ 400,000 Legal fees and expenses........................................ 550,000 Accounting fees and expenses................................... 300,000 Blue Sky fees and expenses (including legal fees).............. 10,000 Transfer agent and rights agent and registrar fees and expenses..................................................... 25,000 Miscellaneous.................................................. 164,268 ---------- Total........................................................ $1,600,000 ==========
All expenses are estimated except for the SEC fee and the NASD fee. Item 14. Indemnification of Directors and Officers The Registrant's Certificate of Incorporation permits indemnification to the fullest extent permitted by Delaware law. The Registrant's By-laws require the Registrant to indemnify any person who was or is an authorized representative of the Registrant, and who was or is a party or is threatened to be made a party to any corporate proceeding, by reason of the fact that such person was or is an authorized representative of the Registrant, against expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such third party proceeding if such person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interests of the Registrant and, with respect to any criminal third party proceeding (including any action or investigation which could or does lead to a criminal third party proceedings had no reasonable cause to believe such conduct was unlawful. The Registrant shall also indemnify any person who was or is an authorized representative of the Registrant and who was or is a party or is threatened to be made a party to any corporate proceeding by reason of the fact that such person was or is an authorized representative of the Registrant, against expenses actually and reasonably incurred by such person in connection with the defense or settlement of such corporate action if such person acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Registrant, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Registrant unless and only to the extent that the Delaware Court of Chancery or the court in which such corporate proceeding was pending shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such authorized representative is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Such indemnification is mandatory under the Registrant's Bylaws as to expenses actually and reasonably incurred to the extent that an authorized representative of the Registrant had been successful on the merits or otherwise in defense of any third party or corporate proceeding or in defense of any claim, issue or matter therein. The determination of whether an individual is entitled to indemnification may be made by a majority of disinterested directors, independent legal counsel in a written legal opinion or the stockholders. Delaware law also permits indemnification in connection with a proceeding brought by or in the right of the Registrant to procure a judgment in its favor. Insofar as indemnification for II-1 liabilities arising under the Securities Act of 1933, as amended (the "Act") may be permitted to directors, officers or persons controlling the Registrant pursuant to the foregoing provisions, the Registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in that Act and is therefore unenforceable. The Registrant expects to obtain a directors and officers liability insurance policy prior to the effective date of this Registration Statement. The Underwriting Agreement provides that the underwriter is obligated, under certain circumstances, to indemnify directors, officers, and controlling persons of the Registrant against certain liabilities, including liabilities under the Act. Reference is made to the form of Underwriting Agreement which will be filed by amendment as Exhibit 1.1 hereto. Item 15. Recent Sales of Unregistered Securities In the preceding three years, the Registrant has issued the following securities that were not registered under the Act: Since our inception, we have issued an aggregate of 2,202,128 shares of common stock, par value $0.001 per share. These shares include: (i) 1,329,399 shares of common stock issued on July 6, 1998 at a purchase price per share of $0.001, for a total of $1,840 in cash; (ii) 144,500 shares of common stock issued on September 1, 1998 at a purchase price per share of $0.21, for a total of $30,000 paid with a note receivable to Esperion; (iii) 86,700 shares of common stock issued on November 1, 1998 at a purchase price per share of $0.21, for a total of $18,000 paid with a note receivable to Esperion; (iv) 144,500 shares of common stock issued on December 11, 1998 at a purchase price per share of $0.21 per share, for a total of $30,000 paid with a note receivable to Esperion; (v) 57,800 shares of common stock issued on June 4, 1999 at a purchase price per share of $0.21 per share, for a total of $12,000 paid with a note receivable to Esperion; (vi) 173,400 shares of common stock issued on July 1, 1999 at a purchase price per share of $0.21 per share, for a total of $36,000 paid with a note receivable to Esperion; and (vii) 265,829 shares of common stock issued upon the exercise of stock options at an average exercise price of $0.18 per share for a total of $48,441 in cash. All such sales and issuances were deemed to be exempt from registration under Section 4(2) of the Act, or Regulation D or Regulation S promulgated under the Act. Since our inception, we have also issued an aggregate of 21,889,242 shares of preferred stock, par value $0.01 per share. These shares include (i) 500,000 shares of series A preferred stock issued in July 1998 at a purchase price per share of $1.00, for a total of $500,000; (ii) 10,000,000 shares of series B preferred stock issued in August 1998 at a purchase price per share of $1.50, for a total of approximately $15 million; (iii) 10,252,879 shares of series C preferred stock issued in January 2000 at a purchase price per share of $2.16 for a total of approximately $22.1 million, and 1,136,363 shares of series D preferred stock issued in February 2000 at a purchase price per share of $4.40 for a total of approximately $5.0 million. All such sales and issuances were deemed to be exempt from registration under the Securities Act by virtue of Section 4(2) or Regulation D or Regulation S promulgated under the Act. Pursuant to our 1998 Stock Option Plan, since our inception, we have granted options to purchase a total of 1,548,470 shares of common stock, consisting of 1,531,768 options granted prior to March 31, 2000 at a weighted average exercise price of $1.56 per share and 16,702 options granted after March 31, 2000 at a weighted average exercise price of $5.64 per share. For a more detailed description of our 1998 Stock Option Plan, see "Equity Compensation Plans--1998 Stock Option Plan." In granting the options and selling the underlying securities upon exercises of the options, we are relying upon exemptions from registration set forth in Section 4(2) of the Act and/or Rule 701, Regulation D or Regulation S promulgated under the Act. Common stock issuances and option grants reflect our 0.7225-for-one reverse stock split of our common stock to holders of record as of March 24, 2000. Preferred stock issuances have not been adjusted for the common stock split. II-2 Item 16. Exhibits and Financial Statement Schedules (a) Exhibits:
Exhibit Number Description ------- ----------- 1.1 Form of Underwriting Agreement.* 3.1 Fourth Amended and Restated Certificate of Incorporation of the Company, which is currently in effect.* 3.2 Bylaws of the Company, which are currently in effect.* 3.3 Form of Fifth Amended and Restated Certificate of Incorporation of the Company, to become effective upon the closing of this offering.* 3.4 Form of Amended and Restated Bylaws of the Company, to become effective upon the closing of this offering.* 4.1 Form of Common Stock Certificate of the Company.* 5.1 Opinion of Morgan, Lewis & Bockius LLP.* 10.1 Esperion Therapeutics, Inc. 1998 Stock Option Plan.! 10.2 Collaboration and License Agreement between Esperion Therapeutics, Inc. and Pharmacia & Upjohn AB dated June 24, 1998.*@ 10.3 License Agreement among Esperion Therapeutics, Inc., Jean-Louis Dasseux as the Inventors' Representative and the Inventors named therein dated September 15, 1999.*@ 10.4 License Agreement between Inex Pharmaceuticals Corporation and Esperion Therapeutics, Inc. dated March 16, 1999.*@ 10.5 Letter Agreement among Esperion Therapeutics, Inc., Inex Pharmaceuticals Corporation and the University of British Columbia dated March 12, 1999.! 10.6 License Agreement between Esperion Therapeutics, Inc. and Region Wallonne dated February 17, 2000.! 10.7 Lease between Esperion Therapeutics, Inc. and State-94 Limited Partnership dated November 30, 1998, as amended.! 10.8 Lease between Esperion Therapeutics, Inc. and Maxey, LLC dated January 4, 1999.! 10.9 Loan and Security Agreement between Silicon Valley Bank, doing business as Silicon Valley East, and Esperion Therapeutics, Inc., dated March 31, 1999.! 10.10 2000 Equity Compensation Plan.! 10.11 Employee Stock Purchase Plan.! Loan Agreement between Stiftelson Industrifonden and Esperion 10.12 Therapeutics, Inc. dated May 19, 1999.! 10.13 Investors' Rights Agreement among Esperion Therapeutics, Inc. and the parties set forth therein dated July 6, 1998! 10.14 Amendment No. 1 to the Investors' Rights Agreement among Esperion Therapeutics, Inc. and the parties set forth therein dated August 11, 1998! 10.15 Amendment No. 2 to the Investors' Rights Agreement among Esperion Therapeutics, Inc. and the parties set forth therein dated January 7, 2000! 10.16 Amendment No. 3 to the Investors' Rights Agreement among Esperion Therapeutics, Inc. and the parties set forth therein dated February 22, 2000! 10.17 Restricted Stock Purchase Agreement between Esperion Therpeutics, Inc. and Roger S. Newton dated July 6, 1998.! 10.18 Advisory Relationship letter between Scheer & Company, Inc. and Esperion Therapeutics, Inc. dated March 31, 1999.! 10.19 Consulting Agreement between Anders Wiklund and Esperion Therapeutics, Inc. dated August 12, 1998.! 10.20 Development Agreement between Esperion AB and OctoPlus b.v. dated April 5, 1999.* 10.21 Production Agreement between Esperion Therapeutics, Inc. and Eurogentec S.A. dated March 7, 2000.* 10.22 Service Agreement between Esperion Therapeutics, Inc. and Applied Analytical Industries, Inc. dated February 4, 2000.*
II-3
Exhibit Number Description ------- ----------- 10.23 Form of Restricted Stock Purchase Agreement.* 10.24 Form of Promissory Note.* 10.25 Form of Stock Pledge Agreement.! 10.26 Peptide Supply Agreement between Esperion Therapeutics, Inc. and Neosystem S.A. dated April 17, 2000.* 21.1 Subsidiary of Esperion Therapeutics, Inc.! 23.1 Consent of Arthur Andersen LLP.! 23.2 Consent of Morgan, Lewis & Bockius LLP (to be included in Exhibit 5.1).* 23.3 Consent of Goldenberg Rosenthal, LLP.* 24.1 Power of Attorney (included on signature page).* 27.1 Financial Data Schedule.! 27.2 Financial Data Schedule.!
- -------- *Filed herewith. #To be filed by amendment. !Filed previously. @Confidential Treatment Requested. (b) Financial Statement Schedules All information for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission is either included in the financial statements or is not required under the related instructions or is inapplicable, and therefore has been omitted. Item 17. Undertakings. The undersigned Registrant hereby undertakes to provide the underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnified for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b) (1) or (4) or 497 (h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has duly reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Ann Arbor, Michigan, on August 4, 2000. Esperion Therapeutics, Inc. /s/ Roger S. Newton By: _________________________________ Roger S. Newton President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Roger S. Newton President, Chief Executive August 4, 2000 ______________________________________ Officer and Director Roger S. Newton (Principal Executive Officer) /s/ Timothy M. Mayleben Vice President and Chief August 4, 2000 ______________________________________ Financial Officer Timothy M. Mayleben (Principal Financial Officer and Principal Accounting Officer) * Chairman August 4, 2000 ______________________________________ David I. Scheer * Director August 4, 2000 ______________________________________ Anders Wiklund * Director August 4, 2000 ______________________________________ Christopher Moller * Director August 4, 2000 ______________________________________ Eileen M. More * Director August 4, 2000 ______________________________________ Seth A. Rudnick /s/ Timothy M. Mayleben *By: _________________________________ Timothy M. Mayleben Attorney-in-Fact
II-5 EXHIBIT INDEX
Exhibit Number Description ------- ----------- 1.1 Form of Underwriting Agreement.* 3.1 Fourth Amended and Restated Certificate of Incorporation of the Company, which is currently in effect.* 3.2 Bylaws of the Company, which are currently in effect.* 3.3 Form of Fifth Amended and Restated Certificate of Incorporation of the Company, to become effective upon the closing of this offering.* 3.4 Form of Amended and Restated Bylaws of the Company, to become effective upon the closing of this offering.* 4.1 Form of Common Stock Certificate of the Company.* 5.1 Opinion of Morgan, Lewis & Bockius LLP.* 10.1 Esperion Therapeutics, Inc. 1998 Stock Option Plan.! 10.2 Collaboration and License Agreement between Esperion Therapeutics, Inc. and Pharmacia & Upjohn AB dated June 24, 1998.*@ 10.3 License Agreement among Esperion Therapeutics, Inc., Jean-Louis Dasseux as the Inventors' Representative and the Inventors named therein dated September 15, 1999.*@ 10.4 License Agreement between Inex Pharmaceuticals Corporation and Esperion Therapeutics, Inc. dated March 16, 1999.*@ 10.5 Letter Agreement among Esperion Therapeutics, Inc., Inex Pharmaceuticals Corporation and the University of British Columbia dated March 12, 1999.! 10.6 License Agreement between Esperion Therapeutics, Inc. and Region Wallonne dated February 17, 2000.! 10.7 Lease between Esperion Therapeutics, Inc. and State-94 Limited Partnership dated November 30, 1998, as amended.! 10.8 Lease between Esperion Therapeutics, Inc. and Maxey, LLC dated January 4, 1999.! 10.9 Loan and Security Agreement between Silicon Valley Bank, doing business as Silicon Valley East, and Esperion Therapeutics, Inc., dated March 31, 1999.! 10.10 2000 Equity Compensation Plan.! 10.11 Employee Stock Purchase Plan.! 10.12 Loan Agreement between Stiftelson Industrifonden and Esperion Therapeutics, Inc. dated May 19, 1999.! 10.13 Investors' Rights Agreement among Esperion Therapeutics, Inc. and the parties set forth therein dated July 6, 1998! 10.14 Amendment No. 1 to the Investors' Rights Agreement among Esperion Therapeutics, Inc. and the parties set forth therein dated August 11, 1998! 10.15 Amendment No. 2 to the Investors' Rights Agreement among Esperion Therapeutics, Inc. and the parties set forth therein dated January 7, 2000! 10.16 Amendment No. 3 to the Investors' Rights Agreement among Esperion Therapeutics, Inc. and the parties set forth therein dated February 22, 2000! 10.17 Restricted Stock Purchase Agreement between Esperion Therapeutics, Inc. and Roger S. Newton dated July 6, 1998.!
Exhibit Number Description ------- ----------- 10.18 Advisory Relationship letter between Scheer & Company, Inc. and Esperion Therapeutics, Inc. dated March 31, 1999.! 10.19 Consulting Agreement between Anders Wiklund and Esperion Therapeutics, Inc. dated August 12, 1998.! 10.20 Development Agreement between Esperion AB and OctoPlus b.v. dated April 5, 1999.* 10.21 Production Agreement between Esperion Therapeutics, Inc. and Eurogentec S.A. dated March 7, 2000.* 10.22 Service Agreement between Esperion Therapeutics, Inc. and Applied Analytical Industries, Inc. dated February 4, 2000.* 10.23 Form of Restricted Stock Purchase Agreement.* 10.24 Form of Promissory Note.* 10.25 Form of Stock Pledge Agreement.! 10.26 Peptide Supply Agreement between Esperion Therapeutics, Inc. and Neosystem S.A. dated April 17, 2000.* 21.1 Subsidiary of Esperion Therapeutics, Inc.! 23.1 Consent of Arthur Andersen LLP.* 23.2 Consent of Morgan, Lewis & Bockius LLP (to be included in Exhibit 5.1).* 23.3 Consent of Goldenberg Rosenthal, LLP.* 24.1 Power of Attorney (included on signature page).! 27.1 Financial Data Schedule.! 27.2 Financial Data Schedule.!
- -------- *Filed herewith. #To be filed by amendment. !Filed previously. @Confidential Treatment Requested. EX-1.1 2 0002.txt FORM OF UNDERWRITING AGREEMENT EXHIBIT 1.1 Form of Underwriting Agreement August __, 2000 FleetBoston Robertson Stephens Inc. U.S. Bancorp Piper Jaffray Inc. Chase Securities Inc. As Representatives of the several Underwriters c/o FleetBoston Robertson Stephens Inc. 555 California Street, Suite 2600 San Francisco, CA 94104 Ladies and Gentlemen: Introductory. Esperion Therapeutics, Inc. a Delaware corporation (the "Company"), proposes to issue and sell to the several underwriters named in Schedule A (the "Underwriters") an aggregate of 6,000,000 shares (the "Firm - ---------- Shares") of its Common Stock, par value $.001 per share (the "Common Shares"). In addition, the Company has granted to the Underwriters an option to purchase up to an additional 900,000 Common Shares (the "Option Shares") as provided in Section 2. The Firm Shares and, if and to the extent such option is exercised, the Option Shares are collectively called the "Shares." FleetBoston Robertson Stephens Inc. ("Robertson Stephens") U.S. Bancorp Piper Jaffray, Inc. ("Piper Jaffray") and Chase H&Q ("H&Q") have agreed to act as representatives of the several Underwriters (in such capacity, the "Representatives") in connection with the offering and sale of the Shares. As a part of the offering contemplated by this Agreement, Robertson Stephens has agreed to reserve out of the Shares set forth opposite its name on Schedule A to this Agreement, up to 7% of the Firm Shares, for sale to the Company's employees, officers, and directors and other parties associated with the Company (collectively, "Participants"), as set forth in the Prospectus under the heading "Underwriting" (the "Directed Share Program"). The Shares to be sold by Robertson Stephens pursuant to the Directed Share Program (the "Directed Shares") will be sold by Robertson Stephens pursuant to this Agreement at the public offering price set forth on the cover page of the Prospectus (as defined). Any Directed Shares not orally confirmed for purchase by any Participants as of 7:00 a.m. New York time on the first day trading of the shares commences will be offered to the public by Robertson Stephens as set forth in the Prospectus. The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-1 (File No. 333-31032), which contains a form of prospectus, subject to completion, to be used in connection with the public offering and sale of the Shares. Each such prospectus, subject to completion, used in connection with such public offering is called a "preliminary prospectus". Such registration statement, as amended, including the financial statements, exhibits and schedules thereto, in the form in which it was declared effective by the Commission under the Securities Act of 1933 and the rules and regulations promulgated thereunder (collectively, the "Securities Act"), including any information deemed to be a part thereof at the time of effectiveness pursuant to Rule 430A under the Securities Act, is called the "Registration Statement". Any registration statement filed by the Company pursuant to Rule 462(b) under the Securities Act is called the "Rule 462(b) Registration Statement", and from and after the date and time of filing of the Rule 462(b) Registration Statement the term "Registration Statement" shall include the Rule 462(b) Registration Statement. Such prospectus, in the form first used by the Underwriters to confirm sales of the Shares, is called the "Prospectus". All references in this Agreement to the Registration Statement, the Rule 462(b) Registration Statement, a preliminary prospectus, the Prospectus or any amendments or supplements to any of the foregoing, shall include any copy thereof filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"). The Company hereby confirms its agreements with the Underwriters as follows: Section 1. Representations and Warranties of the Company. The Company hereby represents, warrants and covenants to each Underwriter as follows: (a) Compliance with Registration Requirements. The Registration Statement and any Rule 462(b) Registration Statement have been declared effective by the Commission under the Securities Act. The Company has complied to the Commission's satisfaction with all requests of the Commission for additional or supplemental information. No stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement is in effect and no proceedings for such purpose have been instituted or are pending or, to the best knowledge of the Company, are contemplated or threatened by the Commission. Each preliminary prospectus and the Prospectus when filed complied in all material respects with the Securities Act and, if filed by electronic transmission pursuant to EDGAR (except as may be permitted by Regulation S-T under the Securities Act), was identical in all material respects to the copy thereof delivered to the Underwriters for use in connection with the offer and sale of the Shares. Each of the Registration Statement, any Rule 462(b) Registration Statement and any post-effective amendment thereto, at the time it became effective and at all subsequent times, complied and will comply in all material respects with the Securities Act and did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. Each preliminary prospectus, as of its date, and the Prospectus, as amended or supplemented, as of its date and at all subsequent times through the 30/th/ day of the date hereof, did not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The representations and warranties set forth in the two immediately preceding sentences do not apply to statements in or omissions from the Registration Statement, any Rule 462(b) Registration Statement, or any post- effective amendment thereto, or the Prospectus, or any amendments or supplements thereto, made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by the Representatives expressly for use therein. There are no contracts or 2 other documents required to be described in the Prospectus or to be filed as exhibits to the Registration Statement which have not been described or filed as required. (b) Offering Materials Furnished to Underwriters. The Company has delivered to the Representatives one complete conformed copy of the Registration Statement and of each consent and certificate of experts filed as a part thereof, and conformed copies of the Registration Statement (without exhibits) and preliminary prospectuses and the Prospectus, as amended or supplemented, in such quantities and at such places as the Representatives have reasonably requested for each of the Underwriters. (c) Distribution of Offering Material By the Company. The Company has not distributed and will not distribute, prior to the later of the Second Closing Date (as defined below) and the completion of the Underwriters' distribution of the Shares, any offering material in connection with the offering and sale of the Shares other than a preliminary prospectus, the Prospectus or the Registration Statement. (d) The Underwriting Agreement. This Agreement has been duly authorized, executed and delivered by, and is a valid and binding agreement of, the Company, enforceable in accordance with its terms, except as rights to indemnification and contribution hereunder may be limited by applicable law and except as the enforcement hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors or by general equitable principles. (e) Authorization of the Shares. The Shares have been duly authorized for issuance and sale pursuant to this Agreement and, when issued and delivered by the Company pursuant to this Agreement, will be validly issued, fully paid and nonassessable. (f) No Applicable Registration or Other Similar Rights. There are no persons with registration or other similar rights to have any equity or debt securities registered for sale under the Registration Statement or included in the offering contemplated by this Agreement with respect to the Shares included in the Registration Statement, except for such rights as have been duly waived. (g) No Material Adverse Change. Subsequent to the respective dates as of which information is given in the Prospectus: (i) other than continuing operating losses in such amounts and resulting from such factors as are consistent with past periods, there has been no material adverse change, or any development that could reasonably be expected to result in a material adverse change, in the condition, financial or otherwise, or in the earnings, business, operations or prospects, whether or not arising from transactions in the ordinary course of business, of the Company and its subsidiaries, considered as one entity (any such change or effect, where the context so requires, is called a "Material Adverse Change" or a "Material Adverse Effect"); (ii) except as disclosed in the Prospectus, the Company and its subsidiaries, considered as one entity, have not incurred any material liability or obligation, indirect, direct or contingent, not in the ordinary course of business nor entered into any material transaction or agreement not in the ordinary course of business; and (iii) there has been no dividend or distribution of any kind declared, paid or made by the Company or, except for dividends paid to the Company or other 3 subsidiaries, any of its subsidiaries on any class of capital stock or repurchase or redemption by the Company or any of its subsidiaries of any class of capital stock. (h) Independent Accountants. Arthur Andersen L.L.P. ("Arthur Andersen"), who have expressed their opinion with respect to the financial statements (which term as used in this Agreement includes the related notes thereto) and supporting schedules filed with the Commission as a part of the Registration Statement and included in the Prospectus, are independent public or certified public accountants as required by the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (i) Preparation of the Financial Statements. The financial statements filed with the Commission as a part of the Registration Statement and included in the Prospectus present fairly the consolidated financial position of the Company and its subsidiaries as of and at the dates indicated and the results of their operations and cash flows for the periods specified. The supporting schedules included in the Registration Statement present fairly the information required to be stated therein. Such financial statements and supporting schedules have been prepared in conformity with generally accepted accounting principles as applied in the United States applied on a consistent basis throughout the periods involved, except as may be expressly stated in the related notes thereto and except for the omission of certain footnote data from the financial statements for the periods ended March 31, 1999 and March 31, 2000. No other financial statements or supporting schedules are required to be included in the Registration Statement. The financial data set forth in the Prospectus under the captions "Summary--Summary Financial Data", "Selected Consolidated Financial Data" and "Capitalization" fairly present the information set forth therein on a basis consistent with that of the audited financial statements contained in the Registration Statement. (j) Company's Accounting System. The Company and each of its subsidiaries maintain a system of accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles as applied in the United States and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (k) Subsidiaries of the Company. The Company does not own or control, directly or indirectly, any corporation, association or other entity other than the subsidiaries listed in Exhibit 21 to the Registration Statement. (l) Incorporation and Good Standing of the Company and its Subsidiaries. Each of the Company and its subsidiaries has been duly organized and is validly existing as a corporation or limited liability company, as the case may be, in good standing under the laws of the jurisdiction in which it is organized with full corporate power and authority to own its properties and conduct its business as described in the prospectus, and is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction which requires such qualification, except where the failure to do so would not have a Material Adverse Effect. 4 (m) Capitalization of the Subsidiaries. All the outstanding shares of capital stock of each subsidiary have been duly and validly authorized and issued and are fully paid and nonassessable, and, except as otherwise set forth in the Prospectus, all outstanding shares of capital stock of the subsidiaries are owned directly by the Company free and clear of any security interests, claims, liens or encumbrances. (n) No Prohibition on Subsidiaries from Paying Dividends or Making Other Distributions. No subsidiary of the Company is currently prohibited, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such subsidiary's capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiary's property or assets to the Company or any other subsidiary of the Company, except as described in or contemplated by the Prospectus, or as provided under the corporate laws of the Kingdom of Sweden. (o) Capitalization and Other Capital Stock Matters. The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus under the caption "Capitalization" (other than for subsequent issuances, if any, pursuant to employee benefit plans described in the Prospectus or upon exercise of outstanding options described in the Prospectus). The Common Shares (including the Shares) conform in all material respects to the description thereof contained in the Prospectus. All of the issued and outstanding Common Shares have been duly authorized and validly issued, are fully paid and nonassessable and have been issued in compliance with federal and state securities laws. None of the outstanding Common Shares were issued in violation of any preemptive rights, rights of first refusal or other similar rights to subscribe for or purchase securities of the Company. There are no authorized or outstanding options, warrants, preemptive rights, rights of first refusal or other rights to purchase, or equity or debt securities convertible into or exchangeable or exercisable for, any capital stock of the Company or any of its subsidiaries other than those accurately described in the Prospectus. The description of the Company's stock option, stock bonus and other stock plans or arrangements, and the options or other rights granted thereunder, set forth in the Prospectus accurately and fairly presents the information required to be shown with respect to such plans, arrangements, options and rights. (p) Stock Exchange Listing. The Shares have been approved for listing on the Nasdaq National Market, subject only to official notice of issuance. (q) No Consents, Approvals or Authorizations Required. No consent, approval, authorization, filing with or order of any court or governmental agency or regulatory body is required in connection with the transactions contemplated herein, except such as have been obtained or made under the Securities Act and such as may be required (i) under the blue sky laws of any jurisdiction in connection with the purchase and distribution of the Shares by the Underwriters in the manner contemplated here and in the Prospectus, (ii) by the National Association of Securities Dealers, LLC and (iii) by the federal and provincial laws of Canada. (r) Non-Contravention of Existing Instruments Agreements. Neither the issue and sale of the Shares nor the consummation of any other of the transactions herein contemplated nor the fulfillment of the terms hereof will conflict with, result in a breach or violation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its 5 subsidiaries pursuant to, (i) the charter or by-laws of the Company or any of its subsidiaries, (ii) the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which the Company or any of its subsidiaries is a party or bound or to which its or their property is subject or (iii) any statute, law, rule, regulation, judgment, order or decree applicable to the Company or any of its subsidiaries of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over the Company or any of its subsidiaries or any of its or their properties. (s) No Defaults or Violations. Except in respect of any violation or default which would not, singly or in the aggregate, result in a Material Adverse Change, or as otherwise disclosed in the Prospectus, neither the Company nor any subsidiary is in violation or default of (i) any provision of its charter or by-laws, (ii) the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which it is a party or bound or to which its property is subject or (iii) any statute, law, rule, regulation, judgment, order or decree of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over the Company or such subsidiary or any of its properties, as applicable. (t) No Actions, Suits or Proceedings. Except as otherwise disclosed in the Prospectus, no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries or its or their property is pending or, to the best knowledge of the Company, threatened that (i) could reasonably be expected to have a Material Adverse Effect on the performance of this Agreement or the consummation of any of the transactions contemplated hereby or (ii) could reasonably be expected to result in a Material Adverse Effect. (u) All Necessary Permits, Etc. Except as otherwise disclosed in the Prospectus, and except to the extent that failure to do so would not have a Material Adverse Effect, the Company and each subsidiary possess such valid and current certificates, authorizations or permits issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to conduct their respective businesses, and neither the Company nor any subsidiary has received any notice of proceedings relating to the revocation or modification of, or non- compliance with, any such certificate, authorization or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, could result in a Material Adverse Change. (v) Title to Properties. Except as otherwise disclosed in the Prospectus, the Company and each of its subsidiaries has good and marketable title to all the properties and assets reflected as owned in the financial statements referred to in Section 1(i) above (or elsewhere in the Prospectus), in each case free and clear of any security interests, mortgages, liens, encumbrances, equities, claims and other defects, other than liens granted to Silicon Valley Bank, doing business as Silicon Valley East pursuant to the Company's credit facility dated March 31, 1999, except such as do not materially and adversely affect the value of such property and do not materially interfere with the use made or proposed to be made of such property by the Company or such subsidiary. The real property, improvements, equipment and personal property held under lease by the Company or any subsidiary are held under valid and enforceable leases, with such exceptions as are not material and do not materially interfere with the use made or proposed 6 to be made of such real property, improvements, equipment or personal property by the Company or such subsidiary. (w) Tax Law Compliance. To the Company's knowledge, the Company and its consolidated subsidiaries have filed all necessary federal, state and foreign income and franchise tax returns and have paid all taxes required to be paid by any of them and, if due and payable, any related or similar assessment, fine or penalty levied against any of them. The Company has made adequate charges, accruals and reserves in the applicable financial statements referred to in Section 1(i) above in respect of all federal, state and foreign income and franchise taxes for all periods as to which the tax liability of the Company or any of its consolidated subsidiaries has not been finally determined. The Company is not aware of any tax deficiency that has been or might be asserted or threatened against the Company that could result in a Material Adverse Change. (x) Intellectual Property Rights. Each of the Company and its subsidiaries owns or possesses adequate rights to use all patents, patent rights or licenses, inventions, collaborative research agreements, trade secrets, know-how, trademarks, service marks, trade names and copyrights which are necessary to conduct its businesses as described in the Registration Statement and Prospectus. Except as disclosed in the Prospectus, the Company has not received any notice of, nor is the Company aware of any facts that would form a reasonable basis for any such claim of, any infringement of or conflict with asserted rights of the Company by others with respect to any patent, patent rights, inventions, trade secrets, know-how, trademarks, service marks, trade names or copyrights; and except as disclosed in the Prospectus, the Company has not received any notice of, and has no knowledge of, any infringement of or conflict with asserted rights of others with respect to any patent, patent rights, inventions, trade secrets, know-how, trademarks, service marks, trade names or copyrights which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, might, in the reasonable belief of the Company's management, have a Material Adverse Change. Except as disclosed in the Prospectus, there is no claim being made against the Company regarding patents, patent rights or licenses, inventions, collaborative research, trade secrets, know-how, trademarks, service marks, trade names or copyrights. Except as disclosed in the Prospectus, the Company and its subsidiaries do not in the conduct of their business as described in the Prospectus infringe or conflict with any right or patent of any third party, or any discovery, invention, product or process which is the subject of a patent application filed by any third party, known to the Company or any of its subsidiaries, which such infringement or conflict is reasonably likely to result in a Material Adverse Change. (y) Y2K. There are no Y2K issues related to the Company, or any of its subsidiaries, that (i) are of a character required to be described or referred to in the Registration Statement or Prospectus by the Securities Act which have not been accurately described in the Registration Statement or Prospectus or (ii) might reasonably be expected to result in any Material Adverse Change or that might materially affect their properties, assets or rights. (z) No Transfer Taxes or Other Fees. There are no transfer taxes or other similar fees or charges under Federal law or the laws of any state, or any political subdivision thereof, required to be paid in connection with the execution and delivery of this Agreement or the issuance and sale by the Company of the Shares. 7 (aa) Company Not an "Investment Company". The Company has been advised of the rules and requirements under the Investment Company Act of 1940, as amended (the "Investment Company Act"). The Company is not, and after receipt of payment for the Shares will not be, an "investment company" or an entity "controlled" by an "investment company" within the meaning of the Investment Company Act and will conduct its business in a manner so that it will not become subject to the Investment Company Act. (bb) Insurance. Except as otherwise disclosed in the Prospectus, each of the Company and its subsidiaries are insured by recognized, financially sound and reputable institutions with general liability and property damage policies in such amounts and with such deductibles and covering such risks as are generally deemed adequate and customary for their businesses including, but not limited to, policies covering real and personal property owned or leased by the Company and its subsidiaries against theft, damage, destruction, acts of vandalism, general liability and Directors and Officers liability. The Company has no reason to believe that it or any subsidiary will not be able (i) to renew its existing insurance coverage as and when such policies expire or (ii) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not result in a Material Adverse Change. Neither of the Company nor any subsidiary has been denied any insurance coverage which it has sought or for which it has applied. (cc) Labor Matters. To the Company's knowledge, no labor disturbance by the employees of the Company or any of its subsidiaries exists or is imminent; and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its principal suppliers, including without limitation, subcontractors and third party manufacturers that might be expected to result in a Material Adverse Change. (dd) No Price Stabilization or Manipulation. The Company has not taken and will not take, directly or indirectly, any action designed to or that might be reasonably expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares. (ee) Lock-Up Agreements. Each officer and director of the company and each beneficial owner of one or more percent of the outstanding issued share capital of the Company has agreed to sign an agreement substantially in the form attached hereto as Exhibit A (the "Lock-up Agreements"). The Company has --------- provided to counsel for the Underwriters a complete and accurate list of all securityholders of the Company and the number and type of securities held by each securityholder. The Company has provided to counsel for the Underwriters true, accurate and complete copies of all of the Lock-up Agreements presently in effect or effected hereby. The Company hereby represents and warrants that it will not release any of its officers, directors or other stockholders from any Lock-up Agreements currently existing or hereafter effected without the prior written consent of Robertson Stephens. (ff) Related Party Transactions. There are no business relationships or related-party transactions involving the Company or any subsidiary or any other person required to be described in the Prospectus which have not been described as required. 8 (gg) No Unlawful Contributions or Other Payments. Except as otherwise disclosed in the Prospectus, neither the Company nor any of its subsidiaries nor, to the best of the Company's knowledge, any employee or agent of the Company or any subsidiary, has made any contribution or other payment to any official of, or candidate for, any federal, state or foreign office in violation of any law or of the character required to be disclosed in the Prospectus. (hh) Environmental Laws. Except as otherwise disclosed in the Prospectus, (i) the Company is in compliance with all rules, laws and regulations relating to the use, treatment, storage and disposal of toxic substances and protection of health or the environment ("Environmental Laws") which are applicable to its business, except where the failure to comply would not result in a Material Adverse Change, (ii) the Company has received no notice from any governmental authority or third party of an asserted claim under Environmental Laws, which claim is required to be disclosed in the Registration Statement and the Prospectus, (iii) the Company is not currently aware that it will be required to make future material capital expenditures to comply with Environmental Laws and (iv) no property which is owned, leased or occupied by the Company has been designated as a Superfund site pursuant to the Comprehensive Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. (S) 9601, et -- seq.), or otherwise designated as a contaminated site under applicable state or - --- local law. (ii) ERISA Compliance. Except as otherwise disclosed in the Prospectus, the Company and its subsidiaries and any "employee benefit plan" (as defined under the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations thereunder (collectively, "ERISA")) established or maintained by the Company, its subsidiaries or their "ERISA Affiliates" (as defined below) are in compliance in all material respects with ERISA. "ERISA Affiliate" means, with respect to the Company or a subsidiary, any member of any group of organizations described in Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of 1986, as amended, and the regulations and published interpretations thereunder (the "Code") of which the Company or such subsidiary is a member. No "reportable event" (as defined under ERISA) has occurred or is reasonably expected to occur with respect to any "employee benefit plan" established or maintained by the Company, its subsidiaries or any of their ERISA Affiliates. No "employee benefit plan" established or maintained by the Company, its subsidiaries or any of their ERISA Affiliates, if such "employee benefit plan" were terminated, would have any "amount of unfunded benefit liabilities" (as defined under ERISA). Neither the Company, its subsidiaries nor any of their ERISA Affiliates has incurred or reasonably expects to incur any liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "employee benefit plan" or (ii) Sections 412, 4971, 4975 or 4980B of the Code. Each "employee benefit plan" established or maintained by the Company, its subsidiaries or any of their ERISA Affiliates that is intended to be qualified under Section 401(a) of the Code is so qualified and nothing has occurred, whether by action or failure to act, which would cause the loss of such qualification. (jj) Consents Required in Connection with the Directed Share Program. No consent, approval, authorization or order of, or qualification with, any governmental body or agency, other than those obtained, is required in connection with the offering of the Directed Shares in any jurisdiction where the Directed Shares are being offered. 9 (kk) No Improper Influence in Connection with the Directed Share Program. The Company has not offered, or caused Robertson Stephens to offer, Shares to any person pursuant to the Directed Share Program with the specific intent to unlawfully influence (i) a customer or supplier of the Company to alter the customer's or supplier's level or type of business with the Company or (ii) a trade journalist or publication to write or publish favorable information about the Company or its products. Any certificate signed by an officer of the Company and delivered to the Representatives or to counsel for the Underwriters shall be deemed to be a representation and warranty by the Company to each Underwriter as to the matters set forth therein. Section 2. Purchase, Sale and Delivery of the Shares. (a) The Firm Shares. The Company agrees to issue and sell to the several Underwriters the Firm Shares upon the terms herein set forth. On the basis of the representations, warranties and agreements herein contained, and upon the terms but subject to the conditions herein set forth, the Underwriters agree, severally and not jointly, to purchase from the Company the respective number of Firm Shares set forth opposite their names on Schedule A. The purchase price ---------- per Firm Share to be paid by the several Underwriters to the Company shall be $[___] per share. (b) The First Closing Date. Delivery of the Firm Shares to be purchased by the Underwriters and payment therefor shall be made by the Company and the Representatives at 6:00 a.m. San Francisco time, at the offices of Morgan, Lewis & Bockius LLP, 1701 Market Square, Philadelphia, PA 19103-2921 (or at such other place as may be agreed upon among the Representatives and the Company), (i) on the third (3/rd/) full business day following the first day that Shares are traded, (ii) if this Agreement is executed and delivered after 1:30 P.M., San Francisco time, the fourth (4/th/) full business day following the day that this Agreement is executed and delivered or (iii) at such other time and date not later that seven (7) full business days following the first day that Shares are traded as the Representatives and the Company may determine (or at such time and date to which payment and delivery shall have been postponed pursuant to Section 8 hereof), such time and date of payment and delivery being herein called the "Closing Date;" provided, however, that if the Company has not made available to the Representatives copies of the Prospectus within the time provided in Section 2(g) and 3(e) hereof, the Representatives may, in their sole discretion, postpone the Closing Date until no later that two (2) full business days following delivery of copies of the Prospectus to the Representatives. (c) The Option Shares; the Second Closing Date. In addition, on the basis of the representations, warranties and agreements herein contained, and upon the terms but subject to the conditions herein set forth, the Company hereby grants an option to the several Underwriters to purchase, severally and not jointly, up to an aggregate of 900,000 Option Shares from the Company at the purchase price per share to be paid by the Underwriters for the Firm Shares. The option granted hereunder is for use by the Underwriters solely in covering any over- allotments in connection with the sale and distribution of the Firm Shares. The option granted hereunder may be exercised at any time upon notice by the Representatives to the Company, which notice may be given at any time within 30 days from the date of this Agreement. The time 10 and date of delivery of the Option Shares, if subsequent to the First Closing Date, is called the "Second Closing Date" and shall be determined by the Representatives and shall not be earlier than three nor later than five full business days after delivery of such notice of exercise. If any Option Shares are to be purchased, each Underwriter agrees, severally and not jointly, to purchase the number of Option Shares (subject to such adjustments to eliminate fractional shares as the Representatives may determine) that bears the same proportion to the total number of Option Shares to be purchased as the number of Firm Shares set forth on Schedule A opposite the name of such Underwriter bears ---------- to the total number of Firm Shares. The Representatives may cancel the option at any time prior to its expiration by giving written notice of such cancellation to the Company. (d) Public Offering of the Shares. The Representatives hereby advise the Company that the Underwriters intend to offer for sale to the public, as described in the Prospectus, their respective portions of the Shares as soon after this Agreement has been executed and the Registration Statement has been declared effective as the Representatives, in their sole judgment, have determined is advisable and practicable. (e) Payment for the Shares. Payment for the Shares shall be made at the First Closing Date (and, if applicable, at the Second Closing Date) by wire transfer in immediately available-funds to the order of the Company. It is understood that the Representatives have been authorized, for their own account and the accounts of the several Underwriters, to accept delivery of and receipt for, and make payment of the purchase price for, the Firm Shares and any Option Shares the Underwriters have agreed to purchase. Robertson Stephens, individually and not as the Representative of the Underwriters, may (but shall not be obligated to) make payment for any Shares to be purchased by any Underwriter whose funds shall not have been received by the Representatives by the First Closing Date or the Second Closing Date, as the case may be, for the account of such Underwriter, but any such payment shall not relieve such Underwriter from any of its obligations under this Agreement. (f) Delivery of the Shares. The Company shall deliver, or cause to be delivered, a credit representing the Firm Shares to an account or accounts at The Depository Trust Company, as designated by the Representatives for the accounts of the Representatives and the several Underwriters at the First Closing Date, against the irrevocable release of a wire transfer of immediately available funds for the amount of the purchase price therefor. The Company shall also deliver, or cause to be delivered, a credit representing the Option Shares the Underwriters have agreed to purchase at the First Closing Date (or the Second Closing Date, as the case may be), to an account or accounts at The Depository Trust Company as designated by the Representatives for the accounts of the Representatives and the several Underwriters, against the irrevocable release of a wire transfer of immediately available funds for the amount of the purchase price therefor. Time shall be of the essence, and delivery at the time and place specified in this Agreement is a further condition to the obligations of the Underwriters. (g) Delivery of Prospectus to the Underwriters. Not later than 12:00 noon New York time on the second business day following the date the Shares are released by the Underwriters 11 for sale to the public, the Company shall deliver or cause to be delivered copies of the Prospectus in such quantities and at such places as the Representatives shall request. Section 3. Covenants of the Company. The Company further covenants and agrees with each Underwriter as follows: (a) Registration Statement Matters. The Company will (i) use its best efforts to cause a registration statement on Form 8-A (the "Form 8-A Registration Statement") as required by the Securities Exchange Act of 1934 (the "Exchange Act") to become effective simultaneously with the Registration Statement, (ii) use its best efforts to cause the Registration Statement to become effective or, if the procedure in Rule 430A of the Securities Act is followed, to prepare and timely file with the Commission under Rule 424(b) under the Securities Act a Prospectus in a form approved by the Representatives containing information previously omitted at the time of effectiveness of the Registration Statement in reliance on Rule 430A of the Securities Act and (iii) not file any amendment to the Registration Statement or supplement to the Prospectus of which the Representatives shall not previously have been advised and furnished with a copy or to which the Representatives shall have reasonably objected in writing or which is not in compliance with the Securities Act. If the Company elects to rely on Rule 462(b) under the Securities Act, the Company shall file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) under the Securities Act prior to the time confirmations are sent or given, as specified by Rule 462(b)(2) under the Securities Act, and shall pay the applicable fees in accordance with Rule 111 under the Securities Act. (b) Securities Act Compliance. The Company will advise the Representatives promptly (i) when the Registration Statement or any post-effective amendment thereto shall have become effective, (ii) of receipt of any comments from the Commission, (iii) of any request of the Commission for amendment of the Registration Statement or for supplement to the Prospectus or for any additional information and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the use of the Prospectus or of the institution of any proceedings for that purpose. The Company will use its best efforts to prevent the issuance of any such stop order preventing or suspending the use of the Prospectus and to obtain as soon as possible the lifting thereof, if issued. (c) Blue Sky Compliance. The Company will cooperate with the Representatives and counsel for the Underwriters in endeavoring to qualify the Shares for sale under the securities laws of such jurisdictions (both national and foreign) as the Representatives may reasonably have designated in writing and will make such applications, file such documents, and furnish such information as may be reasonably required for that purpose, provided the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction where it is not now so qualified or required to file such a consent. The Company will, from time to time, prepare and file such statements, reports and other documents, as are or may be required to continue such qualifications in effect for so long a period as the Representatives may reasonably request for distribution of the Shares. (d) Amendments and Supplements to the Prospectus and Other Securities Act Matters. The Company will comply with the Securities Act and the Exchange Act, and the rules 12 and regulations of the Commission thereunder, so as to permit the completion of the distribution of the Shares as contemplated in this Agreement and the Prospectus. If during the period in which a prospectus is required by law to be delivered by an Underwriter or dealer, any event shall occur as a result of which, in the judgment of the Company or in the reasonable opinion of the Representatives or counsel for the Underwriters, it becomes necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances existing at the time the Prospectus is delivered to a purchaser, not misleading, or, if it is necessary at any time to amend or supplement the Prospectus to comply with any law, the Company promptly will prepare and file with the Commission, and furnish at its own expense to the Underwriters and to dealers, an appropriate amendment to the Registration Statement or supplement to the Prospectus so that the Prospectus as so amended or supplemented will not, in the light of the circumstances when it is so delivered, be misleading, or so that the Prospectus will comply with the law. (e) Copies of any Amendments and Supplements to the Prospectus. The Company agrees to furnish the Representatives, without charge, during the period beginning on the date hereof and ending on the later of the First Closing Date or such date, as in the opinion of counsel for the Underwriters, the Prospectus is no longer required by law to be delivered in connection with sales by an Underwriter or dealer (the "Prospectus Delivery Period"), as many copies of the Prospectus and any amendments and supplements thereto as the Representatives may request. (f) Insurance. The Company shall (i) obtain Directors and Officers liability insurance in the minimum amount of $10 million which shall apply to the offering contemplated hereby and (ii) cause Robertson Stephens to be added to such policy such that up to $500,000 of its expenses pursuant to section 7(a) shall be paid directly by such insurer. (g) Notice of Subsequent Events. If at any time during the ninety (90) day period after the Registration Statement becomes effective, any rumor, publication or event relating to or affecting the Company shall occur as a result of which, in your opinion, the market price of the Company Shares has been or is likely to be materially affected (regardless of whether such rumor, publication or event necessitates a supplement to or amendment of the Prospectus), the Company will, after written notice from you advising the Company to the effect set forth above, forthwith prepare, consult with you concerning the substance of and disseminate a press release or other public statement, reasonably satisfactory to you, responding to or commenting on such rumor, publication or event. (h) Use of Proceeds. The Company shall apply the net proceeds from the sale of the Shares sold by it in the manner described under the caption "Use of Proceeds" in the Prospectus. (i) Transfer Agent. The Company shall engage and maintain, at its expense, a registrar and transfer agent for the Company Shares. (j) Earnings Statement. As soon as practicable, the Company will make generally available to its security holders and to the Representatives an earnings statement (which need not be audited) covering the twelve-month period ending September 30, 2001 that satisfies the provisions of Section 11(a) of the Securities Act. 13 (k) Periodic Reporting Obligations. During the Prospectus Delivery Period the Company shall file, on a timely basis, with the Commission and the Nasdaq National Market all reports and documents required to be filed under the Exchange Act. (l) Agreement Not to Offer or Sell Additional Securities. Without the consent of Robertson Stephens, the Company will not offer, sell or contract to sell, or otherwise dispose of or enter into any transaction which is designed to, or could be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise by the Company or any affiliate of the Company or any person in privity with the Company or any affiliate of the Company) directly or indirectly, or announce the offering of, any other Common Shares or any securities convertible into, or exchangeable for, Common Shares; provided, however, that the Company may (i) issue and sell Common Shares (and options and other rights to acquire Common Shares) pursuant to any stock option plan, stock purchase plan or other equity compensation plan of the Company in effect at the date of the Prospectus and described in the Prospectus; (ii) issue Common Shares issuable upon the conversion of securities or the exercise of options or warrants outstanding at the date of the Prospectus and described in the Prospectus; (iii) issue Common Shares in connection with the potential acquisition of Talaria Therapeutics, Inc. and (iv) issue Common Shares in connection with a strategic relationship, so long as the recipient of any such shares issued pursuant to (iii) or (iv) hereof shall be subject to the provisions of a Lock-Up Agreement. These restrictions terminate after the close of trading of the Shares on the 180/th/ day of (and including) the day the Shares commenced trading on the Nasdaq National Market (the "Lock-Up Period"). (m) Future Reports to the Representatives. During the period of five years hereafter the Company will furnish or make available to the Representatives (i) as soon as practicable after the end of each fiscal year, copies of the Annual Report of the Company containing the balance sheet of the Company as of the close of such fiscal year and statements of income, stockholders' equity and cash flows for the year then ended and the opinion thereon of the Company's independent public or certified public accountants; (ii) as soon as practicable after the filing thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other report filed by the Company with the Commission, the National Association of Securities Dealers, LLC or any securities exchange; and (iii) as soon as available, copies of any report or communication of the Company mailed generally to holders of its capital stock. Directed Share Program. The Company (i) will indemnify Robertson Stephens for any losses incurred in connection with the Directed Share Program, (ii) will comply with all applicable securities and other applicable laws, rules and regulations in each jurisdiction in which the Directed Shares are offered in connection with the Directed Share Program and (iii) will pay all reasonable fees and disbursements of counsel incurred by the Underwriters in connection with the Directed Share Program and any stamp duties, similar taxes or duties or other taxes, if any, incurred by the underwriters in connection with the Directed Share Program. Section 4. Conditions of the Obligations of the Underwriters. The obligations of the several Underwriters to purchase and pay for the Shares as provided herein on the First Closing Date and, with respect to the Option Shares, the Second Closing Date, shall be subject to the accuracy of the representations and warranties on the part of the Company set forth in 14 Section 1 hereof as of the date hereof and as of the First Closing Date as though then made and, with respect to the Option Shares, as of the Second Closing Date as though then made, to the timely performance by the Company of its covenants and other obligations hereunder, and to each of the following additional conditions: (a) Compliance with Registration Requirements; No Stop Order; No Objection from the National Association of Securities Dealers, Inc. The Registration Statement shall have become effective prior to the execution of this Agreement, or at such later date as shall be consented to in writing by you; and no stop order suspending the effectiveness thereof shall have been issued and no proceedings for that purpose shall have been initiated or, to the knowledge of the Company or any Underwriter, threatened by the Commission, and any request of the Commission for additional information (to be included in the Registration Statement or the Prospectus or otherwise) shall have been complied with to the satisfaction of Underwriters' Counsel; and the National Association of Securities Dealers, Inc. shall have raised no objection to the fairness and reasonableness of the underwriting terms and arrangements. (b) Corporate Proceedings. All corporate proceedings and other legal matters in connection with this Agreement, the form of Registration Statement and the Prospectus, and the registration, authorization, issue, sale and delivery of the Shares, shall have been reasonably satisfactory to Underwriters' Counsel, and such counsel shall have been furnished with such papers and information as they may reasonably have requested to enable them to pass upon the matters referred to in this Section. (c) No Material Adverse Change. Subsequent to the execution and delivery of this Agreement and prior to the First Closing Date, or the Second Closing Date, as the case may be, other than continuing operating losses in such amounts and resulting from such factors as are consistent with past periods, there shall not have been any Material Adverse Change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise from that set forth in the Registration Statement or Prospectus, which, in your sole judgment, is material and adverse and that makes it, in your sole judgment, impracticable or inadvisable to proceed with the public offering of the Shares as contemplated by the Prospectus. (d) Opinion of Counsel for the Company. You shall have received on the First Closing Date, or the Second Closing Date, as the case may be, an opinion of Morgan, Lewis & Bockius LLP, counsel for the Company substantially in the form previously agreed upon dated the First Closing Date, or the Second Closing Date, addressed to the Underwriters and with reproduced copies or signed counterparts thereof for each of the Underwriters. (e) Opinion of Intellectual property Counsel for the Company. You shall have received on the First Closing Date, or the Second Closing Date, as the case may be, opinions of Pennie & Edmonds LLP and Arnall Golden & Gregory, intellectual property counsel for the Company substantially in the form previously agreed upon. (f) Opinion of Counsel for the Underwriters. You shall have received on the First Closing Date or the Second Closing Date, as the case may be, an opinion of Testa, Hurwitz & Thibeault, LLP, substantially in the form previously agreed upon. The Company shall have 15 furnished to such counsel such documents as they may have requested for the purpose of enabling them to pass upon such matters. (g) Accountants' Comfort Letter. You shall have received on the First Closing Date and on the Second Closing Date, as the case may be, a letter from Arthur Andersen addressed to the Underwriters, dated the First Closing Date or the Second Closing Date, as the case may be, confirming that they are independent certified public accountants with respect to the Company within the meaning of the Securities Act and the applicable published Rules and Regulations and based upon the procedures described in such letter delivered to you concurrently with the execution of this Agreement (herein called the "Original Letter"), but carried out to a date not more than four (4) business days prior to the First Closing Date or the Second Closing Date, as the case may be, (i) confirming, to the extent true, that the statements and conclusions set forth in the Original Letter are accurate as of the First Closing Date or the Second Closing Date, as the case may be, and (ii) setting forth any revisions and additions to the statements and conclusions set forth in the Original Letter which are necessary to reflect any changes in the facts described in the Original Letter since the date of such letter, or to reflect the availability of more recent financial statements, data or information. The letter shall disclose any change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise from that set forth in the Registration Statement or Prospectus, which, in your sole judgment, is material and adverse and that makes it, in your sole judgment, impracticable or inadvisable to proceed with the public offering of the Shares as contemplated by the Prospectus. The Original Letter from Arthur Andersen shall be addressed to or for the use of the Underwriters in form and substance satisfactory to the Underwriters and shall (i) represent, to the extent true, that they are independent certified public accountants with respect to the Company within the meaning of the Securities Act and the applicable published Rules and Regulations, (ii) set forth their opinion with respect to their examination of the consolidated balance sheet of the Company as of December 31, 1999 and related consolidated statements of operations, shareholders' equity, and cash flows for the twelve (12) months ended December 31, 1999;(iii) state that Arthur Andersen has performed the procedures set out in Statement on Auditing Standards No. 71 ("SAS 71") for a review of interim financial information and providing the report of Arthur Andersen as described in SAS 71 on the financial statements for the one-quarter period ended March 31, 2000 (the "Quarterly Financial Statements"), (iv) state that in the course of such review, nothing came to their attention that leads them to believe that any material modifications need to be made to any of the financial statements in order for them to be in compliance with generally accepted accounting principles consistently applied across the periods presented, and address other matters agreed upon by Arthur Andersen and you. In addition, you shall have received from Arthur Andersen a letter addressed to the Company and made available to you for the use of the Underwriters stating that their review of the Company's system of internal accounting controls, to the extent they deemed necessary in establishing the scope of their examination of the Company's consolidated financial statements as of December 31, 1999, did not disclose any weaknesses in internal controls that they considered to be material weaknesses. (h) Officers' Certificate. You shall have received on the First Closing Date and the Second Closing Date, as the case may be, a certificate of the Company, dated the First Closing Date or the Second Closing Date, as the case may be, signed by the Chief Executive Officer and Chief Financial Officer of the Company, to the effect that, and you shall be satisfied that: 16 (i) The representations and warranties of the Company in this Agreement are true and correct, as if made on and as of the First Closing Date or the Second Closing Date, as the case may be, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the First Closing Date or the Second Closing Date, as the case may be; (ii) No stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or threatened under the Securities Act; (iii) When the Registration Statement became effective and at all times subsequent thereto up to the delivery of such certificate, the Registration Statement and the Prospectus, and any amendments or supplements thereto, contained all material information required to be included therein by the Securities Act or the Exchange Act and the applicable rules and regulations of the Commission thereunder, as the case may be, and in all material respects conformed to the requirements of the Securities Act or the Exchange Act and the applicable rules and regulations of the Commission thereunder, as the case may be, the Registration Statement and the Prospectus, and any amendments or supplements thereto, did not and does not include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and, since the effective date of the Registration Statement, there has occurred no event required to be set forth in an amended or supplemented Prospectus which has not been so set forth; and (iv) Subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus, except as specifically addressed in the Prospectus, there has not been (a) other than continuing operating losses in such amounts and resulting from such factors as are consistent with past periods, any material adverse change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise, (b) any transaction that is material to the Company and its subsidiaries considered as one enterprise, except transactions entered into in the ordinary course of business, (c) any obligation, direct or contingent, that is material to the Company and its subsidiaries considered as one enterprise, incurred by the Company or its subsidiaries, except obligations incurred in the ordinary course of business, (d) any change in the capital stock or outstanding indebtedness of the Company or any of its subsidiaries that is material to the Company and its subsidiaries considered as one enterprise, (e) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company or any of its subsidiaries, except a dividend paid to the Company by any of its subsidiaries, or (f) any loss or damage (whether or not insured) to the property of the Company or any of its subsidiaries which has been sustained or will have been sustained which has a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiaries considered as one enterprise. (i) Lock-up Agreement from Certain Stockholders of the Company. The Company shall have obtained and delivered to you an agreement substantially in the form of Exhibit A --------- 17 attached hereto from each officer and director of the Company, and each beneficial owner of one or more percent of the outstanding issued share capital of the Company. (j) Stock Market Listing. The Shares shall have been approved for listing on the Nasdaq National Market, subject only to official notice of issuance. (k) Compliance with Prospectus Delivery Requirements. The Company shall have complied with the provisions of Sections 2(g) and 3(e) hereof with respect to the furnishing of Prospectuses. (l) Additional Documents. On or before each of the First Closing Date and the Second Closing Date, as the case may be, the Representatives and counsel for the Underwriters shall have received such information, documents and opinions as they may reasonably require for the purposes of enabling them to pass upon the issuance and sale of the Shares as contemplated herein, or in order to evidence the accuracy of any of the representations and warranties, or the satisfaction of any of the conditions or agreements, herein contained. If any condition specified in this Section 4 is not satisfied when and as required to be satisfied, this Agreement may be terminated by the Representatives by notice to the Company at any time on or prior to the First Closing Date and, with respect to the Option Shares, at any time prior to the Second Closing Date, which termination shall be without liability on the part of any party to any other party, except that Section 5 (Payment of Expenses), Section 6 (Reimbursement of Underwriters' Expenses), Section 7 (Indemnification and Contribution) and Section 10 (Representations and Indemnities to Survive Delivery) shall at all times be effective and shall survive such termination. Section 5. Payment of Expenses. The Company agrees to pay all costs, fees and expenses incurred in connection with the performance of its obligations hereunder and in connection with the transactions contemplated hereby, including without limitation (i) all expenses incident to the issuance and delivery of the Common Shares (including all printing and engraving costs), (ii) all fees and expenses of the registrar and transfer agent of the Common Stock, (iii) all necessary issue, transfer and other stamp taxes in connection with the issuance and sale of the Shares to the Underwriters, (iv) all fees and expenses of the Company's counsel, independent public or certified public accountants and other advisors, (v) all reasonable costs and expenses incurred in connection with the preparation, printing, filing, shipping and distribution of the Registration Statement (including financial statements, exhibits, schedules, consents and certificates of experts), each preliminary prospectus and the Prospectus, and all amendments and supplements thereto, and this Agreement, (vi) all costs and expenses incurred by Underwriters counsel in connection with the Directed Share Program, (vii) all filing fees, reasonable attorneys' fees and expenses incurred by the Company or the Underwriters in connection with qualifying or registering (or obtaining exemptions from the qualification or registration of) all or any part of the Shares for offer and sale under the state securities or blue sky laws or the provincial securities laws of Canada or any other country, and, if requested by the Representatives, preparing and printing a "Blue Sky Survey", an "International Blue Sky Survey" or other memorandum, and any supplements thereto, advising the Underwriters of such qualifications, registrations and exemptions, (viii) the filing fees incident to, and the reasonable fees and expenses of counsel for the Underwriters in connection with, the National Association of 18 Securities Dealers, Inc. review and approval of the Underwriters' participation in the offering and distribution of the Common Shares, (ix) the fees and expenses associated with listing the Common Shares on the Nasdaq National Market, (x) all costs and expenses incident to the travel and accommodation of the Company's employees on the "roadshow", and (xi) all other fees, costs and expenses referred to in Item 13 of Part II of the Registration Statement. Except as provided in this Section 5 and Sections 6 and 7 hereof, the Underwriters shall pay their own expenses, including the fees and disbursements of their counsel. Section 6. Reimbursement of Underwriters' Expenses. If this Agreement is terminated by the Representatives pursuant to Section 4, Section 8 or Section 9, or if the sale to the Underwriters of the Shares on the First Closing Date is not consummated because of any refusal, inability or failure on the part of the Company to perform any agreement herein or to comply with any provision hereof, the Company agrees to reimburse the Representatives and the other Underwriters (or such Underwriters as have terminated this Agreement with respect to themselves), severally, upon demand for all out-of-pocket expenses that shall have been reasonably incurred by the Representatives and the Underwriters in connection with the proposed purchase and the offering and sale of the Shares, including but not limited to fees and disbursements of counsel, printing expenses, travel and accommodation expenses, postage, facsimile and telephone charges. Section 7. Indemnification and Contribution. (a) Indemnification of the Underwriters. The Company agrees to indemnify and hold harmless each Underwriter, its officers and employees, and each person, if any, who controls any Underwriter within the meaning of the Securities Act and the Exchange Act against any loss, claim, damage, liability or expense, as incurred, to which such Underwriter or such controlling person may become subject, under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of the Company, which consent shall not be unreasonably withheld), insofar as such loss, claim, damage, liability or expense (or actions in respect thereof as contemplated below) arises out of or is based (i) upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, or any amendment thereto, including any information deemed to be a part thereof pursuant to Rule 430A under the Securities Act, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading; or (ii) upon any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; or (iii) in whole or in part upon any inaccuracy in the representations and warranties of the Company contained herein; or (iv) in whole or in part upon any failure of the Company to perform its obligations hereunder or under law; or (v) any untrue statement or alleged untrue statement of any material fact contained in any audio or visual materials provided by the Company or based upon written information furnished by or on behalf of the Company including, without limitation, slides, videos, films or tape recordings, used in connection with the marketing of the Shares, including without limitation, statements communicated by the Company, or statements consistent with those communicated by the Company, to securities 19 analysts employed by the Underwriters; or (vi) in whole or in part upon any act or failure to act or any alleged act or failure to act by any Underwriter in connection with, or relating in any manner to, the Shares or the offering contemplated hereby, and which is included as part of or referred to in any loss, claim, damage, liability or action arising out of or based upon any matter covered by clause (i), (ii), (iii), (iv) or (v) above, provided that the Company shall not be liable under this clause (vi) to the extent that a court of competent jurisdiction shall have determined by a judgment that such loss, claim, damage, liability or action resulted directly from any such acts or failures to act undertaken or omitted to be taken by such Underwriter through its bad faith or willful misconduct; and to reimburse each Underwriter and each such controlling person for any and all expenses (including the fees and disbursements of counsel chosen by Robertson Stephens) as such expenses are reasonably incurred by such Underwriter or such controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action; provided, however, that the foregoing indemnity agreement shall not apply to any loss, claim, damage, liability or expense to the extent, but only to the extent, arising out of or based upon any untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company by the Representatives expressly for use in the Registration Statement, any preliminary prospectus or the Prospectus (or any amendment or supplement thereto); and provided, further, that with respect to any preliminary prospectus, the foregoing indemnity agreement shall not inure to the benefit of any Underwriter from whom the person asserting any loss, claim, damage, liability or expense purchased Shares, or any person controlling such Underwriter, if copies of the Prospectus were timely delivered to the Underwriter pursuant to Section 2 and a copy of the Prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Underwriter to such person, if required by law so to have been delivered, and if the Prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage, liability or expense. The indemnity agreement set forth in this Section 7(a) shall be in addition to any liabilities that the Company may otherwise have. (b) Indemnification of the Company and its Directors, Officers. Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, each of its directors, each of its officers who signed the Registration Statement and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act, against any loss, claim, damage, liability or expense, as incurred, to which the Company, or any such director, officer or controlling person may become subject, under the Securities Act, the Exchange Act, or other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of such Underwriter), insofar as such loss, claim, damage, liability or expense (or actions in respect thereof as contemplated below) arises out of or is based upon any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or arises out of or is based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any preliminary prospectus, the Prospectus (or any amendment or supplement thereto), in reliance upon and in conformity with written information furnished to the Company by the Representatives expressly for use therein; and to 20 reimburse the Company, or any such director, officer or controlling person for any legal and other expense reasonably incurred by the Company, or any such director, officer or controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action. The indemnity agreement set forth in this Section 7(b) shall be in addition to any liabilities that each Underwriter may otherwise have. (c) Information Provided by the Underwriters. The Company and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act, hereby acknowledges that the only information that the Underwriters have furnished to the Company expressly for use in the Registration Statement, any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) are the statements set forth in the second, third and tenth paragraphs and the table following the first paragraph, each under the caption "Underwriting" in the Prospectus; and the Underwriters confirm that such statements are correct. (d) Notifications and Other Indemnification Procedures. Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 7, notify the indemnifying party in writing of the commencement thereof, but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party for contribution or otherwise than under the indemnity agreement contained in this Section 7 or to the extent it is not prejudiced as a proximate result of such failure. In case any such action is brought against any indemnified party and such indemnified party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be entitled to participate in, and, to the extent that it shall elect, jointly with all other indemnifying parties similarly notified, by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that a conflict may arise between the positions of the indemnifying party and the indemnified party in conducting the defense of any such action or that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of such indemnifying party's election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 7 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel (together with local counsel), approved by the indemnifying party (Robertson Stephens in the case of Section 7(b) and Section 8), representing the indemnified parties who are parties to such action), (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action, or (iii) the indemnifying party has authorized the employment of counsel for the 21 indemnified party at the expense of the indemnifying party, in each of which cases the fees and expenses of counsel shall be at the expense of the indemnifying party. (e) Settlements. The indemnifying party under this Section 7 shall not be liable for any settlement of any proceeding effected without its written consent, which consent shall not be unreasonably withheld, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party against any loss, claim, damage, liability or expense by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by Section 7(d) hereof, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 60 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement, compromise or consent to the entry of judgment in any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity was or could have been sought hereunder by such indemnified party, unless such settlement, compromise or consent includes (i) an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (f) Contribution. If the indemnification provided for in this Section 7 is applicable by its terms but unavailable to or insufficient to hold harmless an indemnified party under Section 7(a) or (b) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) then each indemnifying party shall contribute to the aggregate amount paid or payable by such indemnified party in such proportion as is appropriate to reflect the relative benefits received by such party on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the such party on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, (or actions or proceedings in respect thereof), as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 7(f) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 7(f). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or 22 liabilities (or actions or proceedings in respect thereof) referred to above in this Section 7(f) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (f), (i) no Underwriter shall be required to contribute any amount in excess of the underwriting discounts and commissions applicable to the Shares purchased by such Underwriter and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this Section 7(f) to contribute are several in proportion to their respective underwriting obligations and not joint. (g) Timing of Any Payments of Indemnification. Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 7 shall be paid by the indemnifying party to the indemnified party as such losses, claims, damages, liabilities or expenses are incurred, but in all cases, no later than forty-five (45) days of invoice to the indemnifying party. (h) Survival. The indemnity and contribution agreements contained in this Section 7 and the representation and warranties set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter, the Company, its directors or officers or any persons controlling the Company, (ii) acceptance of any Shares and payment therefor hereunder, and (iii) any termination of this Agreement. A successor to any Underwriter, or to the Company, its directors or officers, or any person controlling the Company, shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 7. (i) Acknowledgements of Parties. The parties to this Agreement hereby acknowledge that they are sophisticated business persons who were represented by counsel during the negotiations regarding the provisions hereof including, without limitation, the provisions of this Section 7, and are fully informed regarding said provisions. They further acknowledge that the provisions of this Section 7 fairly allocate the risks in light of the ability of the parties to investigate the Company and its business in order to assure that adequate disclosure is made in the Registration Statement and Prospectus as required by the Securities Act and the Exchange Act. Indemnification for Directed Share Program. The Company agrees to indemnify and hold harmless Robertson Stephens and its affiliates and each person, if any, who controls Robertson Stephens or its affiliates within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act ("Robertson Stephens Entities"), from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) (i) caused by any untrue statement or alleged untrue statement of a material fact contained in any material prepared by or with the consent of the Company for distribution to participants in connection with the Directed Share Program, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) the failure of any participant to pay for and accept delivery of Directed Shares that the participant has agreed to purchase; or (iii) related to, arising out of, or in 23 connection with the Directed Share Program other than losses, claims, damages or liabilities (or expenses relating thereto) that are judicially determined to have resulted from the bad faith or gross negligence of Robertson Stephens Entities. Section 8. Default of One or More of the Several Underwriters. If, on the First Closing Date or the Second Closing Date, as the case may be, any one or more of the several Underwriters shall fail or refuse to purchase Shares that it or they have agreed to purchase hereunder on such date, and the aggregate number of Common Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase does not exceed 10% of the aggregate number of the Shares to be purchased on such date, the other Underwriters shall be obligated, severally, in the proportions that the number of Firm Common Shares set forth opposite their respective names on Schedule A bears to the aggregate number of ---------- Firm Shares set forth opposite the names of all such non-defaulting Underwriters, or in such other proportions as may be specified by the Representatives with the consent of the non-defaulting Underwriters, to purchase the Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date. If, on the First Closing Date or the Second Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase Shares and the aggregate number of Shares with respect to which such default occurs exceeds 10% of the aggregate number of Shares to be purchased on such date, and arrangements satisfactory to the Representatives and the Company for the purchase of such Shares are not made within 48 hours after such default, this Agreement shall terminate without liability of any party to any other party except that the provisions of Section 5, and Section 7 shall at all times be effective and shall survive such termination. In any such case either the Representatives or the Company shall have the right to postpone the First Closing Date or the Second Closing Date, as the case may be, but in no event for longer than seven days in order that the required changes, if any, to the Registration Statement and the Prospectus or any other documents or arrangements may be effected. As used in this Agreement, the term "Underwriter" shall be deemed to include any person substituted for a defaulting Underwriter under this Section 8. Any action taken under this Section 8 shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. Section 9. Termination of this Agreement. This Agreement may be terminated by the Representatives by notice given to the Company if (a) at any time after the execution and delivery of this Agreement and prior to the First Closing Date (i) trading or quotation in any of the Company's securities shall have been suspended or limited by the Commission or by the Nasdaq Stock Market, or trading in securities generally on either the Nasdaq Stock Market or the New York Stock Exchange shall have been suspended or limited, or minimum or maximum prices shall have been generally established on any of such stock exchanges by the Commission or the National Association of Securities Dealers, LLC; (ii) a general banking moratorium shall have been declared by any of federal, New York, Delaware or California authorities; (iii) there shall have occurred any outbreak or escalation of national or international hostilities or any crisis or calamity, or any change in the United States or international financial markets, or any substantial change or development involving a prospective change in United States' or international political, financial or economic conditions, as in the judgment of the Representatives is material and adverse and makes it impracticable or inadvisable to market the 24 Common Shares in the manner and on the terms contemplated in the Prospectus or to enforce contracts for the sale of securities; (iv) in the judgment of the Representatives there shall have occurred any Material Adverse Change; or (v) the Company shall have sustained a loss by strike, fire, flood, earthquake, accident or other calamity of such character as in the judgment of the Representatives may interfere materially with the conduct of the business and operations of the Company regardless of whether or not such loss shall have been insured or (b) in the case of any of the events specified in 9(a)(i)-(v), such event singly or together with any other event, makes it, in your judgement, impracticable or inadvisable to market the Common Shares in the manner and on the terms contemplated in the Prospectus. Any termination pursuant to this Section 9 shall be without liability on the part of (x) the Company to any Underwriter, except that the Company shall be obligated to reimburse the expenses of the Representatives and the Underwriters pursuant to Sections 5 and 6 hereof, (y) any Underwriter to the Company or any person controlling the Company, or (z) of any party hereto to any other party except that the provisions of Section 7 shall at all times be effective and shall survive such termination. Section 10. Representations and Indemnities to Survive Delivery. The respective indemnities, agreements, representations, warranties and other statements of the Company or any person controlling the company, of its officers, and of the several Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or the Company or any of its or their partners, officers or directors or any controlling person, as the case may be, and will survive delivery of and payment for the Shares sold hereunder and any termination of this Agreement. Section 11. Notices. All communications hereunder shall be in writing and shall be mailed, hand delivered or telecopied and confirmed to the parties hereto as follows: If to the Representatives: FLEETBOSTON ROBERTSON STEPHENS INC. 555 California Street San Francisco, California 94104 Facsimile: (415) 676-2675 Attention: General Counsel If to the Company: Esperion Therapeutics, Inc. 3621 S. State Street 695 KMS Place Ann Arbor, MI 48108 Facsimile: 734-622-8333 Attention: Chief Executive Officer Any party hereto may change the address for receipt of communications by giving written notice to the others. Section 12. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto, including any substitute Underwriters pursuant to Section 8 hereof, and 25 to the benefit of the employees, officers and directors and controlling persons referred to in Section 7, and to their respective successors, and no other person will have any right or obligation hereunder. The term "successors" shall not include any purchaser of the Shares as such from any of the Underwriters merely by reason of such purchase. Section 13. Partial Unenforceability. The invalidity or unenforceability of any Section, paragraph or provision of this Agreement shall not affect the validity or enforceability of any other Section, paragraph or provision hereof. If any Section, paragraph or provision of this Agreement is for any reason determined to be invalid or unenforceable, there shall be deemed to be made such minor changes (and only such minor changes) as are necessary to make it valid and enforceable. Section 14. Governing Law Provisions. (a) Governing Law. This agreement shall be governed by and construed in accordance with the internal laws of the state of New York applicable to agreements made and to be performed in such state. (b) Consent to Jurisdiction. Any legal suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated hereby ("Related Proceedings") may be instituted in the federal courts of the United States of America located in the City and County of San Francisco or the courts of the State of California in each case located in the City and County of San Francisco (collectively, the "Specified Courts"), and each party irrevocably submits to the exclusive jurisdiction (except for proceedings instituted in regard to the enforcement of a judgment of any such court (a "Related Judgment"), as to which such jurisdiction is non-exclusive) of such courts in any such suit, action or proceeding. Service of any process, summons, notice or document by mail to such party's address set forth above shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or other proceeding in the Specified Courts and irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such suit, action or other proceeding brought in any such court has been brought in an inconvenient forum. Each party not located in the United States irrevocably appoints CT Corporation System, which currently maintains a San Francisco office at 49 Stevenson Street, San Francisco, California 94105, United States of America, as its agent to receive service of process or other legal summons for purposes of any such suit, action or proceeding that may be instituted in any state or federal court in the City and County of San Francisco. Section 15. General Provisions. This Agreement constitutes the entire agreement of the parties to this Agreement and supersedes all prior written or oral and all contemporaneous oral agreements, understandings and negotiations with respect to the subject matter hereof. This Agreement may be executed in two or more counterparts, each one of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement may not be amended or modified unless in writing by all of the parties hereto, and no condition herein (express or implied) may be waived unless waived in writing by each party whom the condition is meant to benefit. Section headings herein are for the convenience of the parties only and shall not affect the construction or interpretation of this Agreement. 26 [The remainder of this page has been intentionally left blank.] 27 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company the enclosed copies hereof, whereupon this instrument, along with all counterparts hereof, shall become a binding agreement in accordance with its terms. Very truly yours, ESPERION THERAPEUTICS, INC. By: ________________________________________ Name: Title: The foregoing Underwriting Agreement is hereby confirmed and accepted by the Representatives as of the date first above written. FLEETBOSTON ROBERTSON STEPHENS INC./32/ U.S. BANCORP PIPER JAFFRAY INC. CHASE SECURITIES INC. On their behalf and on behalf of each of the several underwriters named in Schedule A hereto. - ---------- By FLEETBOSTON ROBERTSON STEPHENS INC. By: ______________________________________ Mitch Whiteford ______________________ /32/ Add "and FleetBoston Robertson Stephens International Limited" in any transaction where there will be sales to European accounts. The banker on the deal should check with the Syndicate department to find out if there will be sales to European accounts. 28 SCHEDULE A Number of Firm Common Underwriters Shares To be Purchased - ------------------------------------------------------- ---------------------- FleetBoston Robertson Stephens Inc............................ [___] U.S. Bancorp Piper Jaffray Inc................................ [___] Chase Securities Inc.......................................... [___] [___]......................................................... [___] [___]......................................................... [___] Total.................................................... [___] S-A Exhibit A Lock-Up Agreement FleetBoston Robertson Stephens Inc. U.S. Bancorp Piper Jaffray Inc. Chase Securities Inc. As Representatives of the Several Underwriters c/o FleetBoston Robertson Stephens Inc. 555 California Street, Suite 2600 San Francisco, California 94104 RE: Esperion Therapeutics, Inc. (the "Company") Ladies & Gentlemen: The undersigned is an owner of record or beneficially of certain shares of Common Stock of the Company ("Common Stock") or securities convertible into or exchangeable or exercisable for Common Stock. The Company proposes to carry out a public offering of Common Stock (the "Offering") for which you will act as the representatives (the "Representatives") of the underwriters. The undersigned recognizes that the Offering will be of benefit to the undersigned and will benefit the Company by, among other things, raising additional capital for its operations. The undersigned acknowledges that you and the other underwriters are relying on the representations and agreements of the undersigned contained in this letter in carrying out the Offering and in entering into underwriting arrangements with the Company with respect to the Offering. In consideration of the foregoing, the undersigned hereby agrees that the undersigned will not offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant any rights with respect to (collectively, a "Disposition") any shares of Common Stock, any options or warrants to purchase any shares of Common Stock or any securities convertible into or exchangeable for shares of Common Stock (collectively, "Securities") now owned or hereafter acquired directly by such person or with respect to which such person has or hereafter acquires the power of disposition, otherwise than (i) as a bona fide gift or gifts, provided the donee or donees thereof agree in writing to be bound by this restriction, (ii) as a distribution to partners or shareholders of such person, provided that the distributees thereof agree in writing to be bound by the terms of this restriction, (iii) with respect to sales or purchases of Common Stock acquired on the open market or (iv) with the prior written consent of FleetBoston Robertson Stephens Inc. The foregoing restrictions will terminate after the close of trading of the Common Stock on the 180/th/ day of (and including) the day the Common Stock commenced trading on the Nasdaq National Market (the "Lock-Up" Period). The foregoing restriction has been expressly agreed to preclude the holder of the Securities from engaging in any hedging or other transaction which is designed to or reasonably expected to lead to or result in a Disposition of Securities during the Lock-up Period, even if such Securities would be disposed of by someone other than such holder. Such prohibited hedging or other transactions would include, without limitation, any short sale (whether or not against the box) or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any Securities or with respect to any security (other than a broad-based market basket or index) that included, relates to or derives any significant part of its value from Securities. The undersigned also agrees and consents to the entry of stop transfer instructions with the Company's transfer agent and registrar against the transfer of shares of Common Stock or Securities held by the undersigned except in compliance with the foregoing restrictions. This agreement is irrevocable and will be binding on the undersigned and the respective successors, heirs, personal representatives, and assigns of the undersigned. In the event the Offering has not occurred on or before September 30, 2000, this Lock-Up Agreement shall be of no further force or effect. Dated ___________________________________ _________________________________________ Printed Name of Holder By: _____________________________________ Signature _________________________________________ Printed Name of Person Signing (and indicate capacity of person signing if signing as custodian, trustee, or on behalf of an entity) EX-3.1 3 0003.txt CERTIFICATE OF INCORPORATION Exhibit 3.1 FOURTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF ESPERION THERAPEUTICS, INC. ESPERION THERAPEUTICS, INC. (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "General Corporation Law"), hereby certifies as follows: FIRST: The name of the Corporation is Esperion Therapeutics, Inc. The Certificate of Incorporation of the Corporation was originally filed with the Secretary of State of the State of Delaware on May 18, 1998. A Certificate of Correction was filed with the Secretary of State of the State of Delaware on May 22, 1998. A Certificate of Amendment to the Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on June 23, 1998. An Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on July 6, 1998. A Second Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on January 7, 2000. A Third Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on February 18, 2000. Two Certificates of Correction were filed with the Secretary of State of the State of Delaware on May 9, 2000 concurrently with the filing of this Fourth Restated Certificate of Incorporation. SECOND: This Fourth Restated Certificate of Incorporation (the "Certificate of Incorporation") restates and integrates and further amends the Certificate of Incorporation of the Corporation. This Certificate of Incorporation was duly adopted in accordance with the provisions of Sections 242 and 245 and was approved by written consent of the stockholders of the Corporation given in accordance with the provisions of Section 228 of the General Corporation Law (prompt notice of such action having been given to those stockholders who did not consent in writing). THIRD: The text of the Certificate of Incorporation of the Corporation is hereby restated and amended to read in its entirety as follows: ARTICLE I --------- NAME ---- The name of the Corporation is Esperion Therapeutics, Inc. ARTICLE II ---------- REGISTERED AGENT ---------------- The address of the Corporation's registered office in the State of Delaware is 1013 Centre Road, Wilmington, New Castle County, Delaware 19805. The name of its registered agent at such address is Corporation Service Company. ARTICLE III ----------- PURPOSE ------- The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware. ARTICLE IV ---------- CAPITAL STOCK ------------- A. The Corporation is authorized to issue two (2) classes of capital stock, to be designated, respectively, Preferred Stock ("Preferred Stock") and Common Stock ("Common Stock"). The total number of shares of capital stock which the Corporation is authorized to issue is 56,136,363. The total number of shares of Preferred Stock which the Corporation shall have the authority to issue is 25,525,251. The total number of shares of Common Stock which the Corporation shall have the authority to issue is 30,611,112. The Preferred Stock shall have a par value of $0.01 per share and the Common Stock shall have a par value of $0.001 per share. Each share of Common Stock shall be identical in all respects and for all purposes and entitled to: one vote in all proceedings in which action may or is required to be taken by shareholders of the Corporation; participate equally in all dividends payable with respect to the Common Stock, as, if and when declared by the Board of Directors of the Corporation (the "Board"), subject to any dividend preference in favor of Preferred Stock; and share ratably in all distributions of assets of the Corporation in the event of any voluntary or involuntary liquidation, or winding up of the affairs of the Corporation, subject to any liquidation rights and preferences in favor of Preferred Stock. The Preferred Stock shall be divided into series. The first series shall consist of 500,000 shares and is designated "Series A Convertible Preferred Stock" (the "Series A Preferred Stock"). The second series shall consist of 10,000,000 shares and is designated "Series B Convertible Preferred Stock" (the "Series B Preferred Stock"). The third series shall consist of 13,888,888 shares and is designated "Series C Convertible Preferred Stock" (the "Series C Preferred Stock"). The fourth series shall consist of 1,136,363 shares and is designated "Series D Convertible 2 Preferred Stock" (the "Series D Preferred Stock"; the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock, collectively, the "Preferred Stock"). The remaining shares of Preferred Stock may be issued from time to time in one or more series. The Board is authorized, subject to limitations prescribed by law and the provisions of this Article IV, to provide for the issuance of all or any of the remaining shares of Preferred Stock in one or more series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. The Board is also expressly authorized to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series other than the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock subsequent to the issue of shares of that series. In case the number of shares of any such series shall be so decreased, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. The authority of the Board with respect to each series shall include, but not be limited to, determination as to the following: (a) The number of shares constituting that series and the distinctive designation of that series; (b) The dividend rate on the shares of that series, if any, whether dividends shall be cumulative, and if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series; (c) Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (d) Whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board shall determine; (e) Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (f) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; (g) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series; and (h) Any other relative rights, preferences and limitations of that series. 3 B. Effective as of the date of the filing of this Fourth Amended and Restated Certificate each share of Common Stock of the Company: (i) issued and outstanding immediately prior to 5:00 p.m. on March 24, 2000 (the "Effective Time"), or (ii) issuable upon the exercise of options outstanding at the Effective Time, shall be automatically, without further action by the Company or any holder or any person having the right to acquire such shares, be reclassified into 0.7225 shares of Common Stock of the Company (the "Reverse Stock Split"). For each share issuable upon the exercise of options outstanding at the Effective Time, the exercise price for such reclassified share shall be correspondingly adjusted by increasing the respective price per share in effect immediately prior to such reclassification in inverse proportion to such reclassification. No fractional shares of Common Stock shall be issued or issuable in connection with the Common Reverse Stock Split and any interest in a fraction of a share issuable: (i) to holders of record at the Effective Time of Common Stock, or (ii) upon exercise of options outstanding at the Effective Time, shall be converted into the right to receive, upon the surrender of the instruments formerly representing the right to shares of Common Stock, an amount in cash equal to the current fair market value as determined by the Board of Directors in good faith, at the Effective Time, of the interest in such fraction of a share. Notwithstanding the Reverse Stock Split (as hereinafter defined), the total number of shares of Common Stock, par value $.001 per share, that the Company is authorized to issue shall remain at 30,611,112 shares, and the 2000 Equity Compensation Plan and the 2000 Employee Stock Purchase Plan (collectively the "Plans") and the shares to be issued under such Plans shall be unaffected by the Reverse Stock Split and shall remain as described in such Plans. C. PREFERRED STOCK The following is a statement of the powers, designations, preferences, privileges, rights, qualifications, limitations and restrictions of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock of the Corporation: 1. Dividends; Other Distributions. ------------------------------ (a) No dividends or other distributions shall be declared or paid on any Common Stock unless a dividend or distribution is declared and paid (i) with respect to all outstanding shares of Series A Preferred Stock at the same time as such dividends or distributions are paid on the Common Stock in an amount for each such share of Series A Preferred Stock equal to the amount of such dividends or distributions that would be payable on such number of shares of Common Stock into which such shares of Series A Preferred Stock are convertible on the record date fixed for such dividends or distributions, (ii) with respect to all outstanding shares of Series B Preferred Stock at the same time as such dividends or distributions are paid on the Common 4 Stock in an amount for each such share of Series B Preferred Stock equal to the amount of such dividends or distributions that would be payable on such number of shares of Common Stock into which such shares of Series B Preferred Stock are convertible on the record date fixed for such dividends or distributions, (iii) with respect to all outstanding shares of Series C Preferred Stock at the same time as such dividends or distributions are paid on the Common Stock in an amount for each such share of Series C Preferred Stock equal to the amount of such dividends or distributions that would be payable on such number of shares of Common Stock into which such shares of Series C Preferred Stock are convertible on the record date fixed for such dividends or distributions, and (iv) with respect to all outstanding shares of Series D Preferred Stock at the same time as such dividends or distributions are paid on the Common Stock in an amount for each such share of Series D Preferred Stock equal to the amount of such dividends or distributions that would be payable on such number of shares of Common Stock into which such shares of Series D Preferred Stock are convertible on the record date fixed for such dividends or distributions; and no dividends or distributions shall be declared or paid on any Series A Preferred Stock and/or Series B Preferred Stock unless a dividend or distribution is declared and paid with respect to all outstanding shares of Series C Preferred Stock and Series D Preferred Stock at the same time as such dividends or distributions are paid on the Series A Preferred Stock and/or Series B Preferred Stock equal to the amount of such dividends or distributions that would be payable on such number of shares of Series A Preferred Stock and/or Series B Preferred Stock, in proportion to such number of shares of Common Stock into which such shares of Series A Preferred Stock and/or Series B Preferred Stock and such shares of Series C Preferred Stock and Series D Preferred Stock are convertible on the record date fixed for such dividends or distributions, as the case may be. (b) In the event the Corporation shall declare a distribution (other than any distribution described in Section C.2 of this Article IV) payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights to purchase any such securities or evidences of indebtedness, then, in each case the holders of the Preferred Stock shall be entitled to a proportionate share of any such distribution as though the holders of the Preferred Stock were the holders of the number of shares of Common Stock of the Corporation into which their shares of Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution. 2. Liquidation Preference. In the event of any liquidation, dissolution, ---------------------- or winding up of the Corporation, either voluntary or involuntary, distributions to the shareholders of the Corporation shall be made in the following manner: (a) The holders of the Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation available for distribution, whether from capital, surplus, earnings, or otherwise to the holders of the Common Stock or any other equity security of the Corporation, by reason of their ownership of such with respect to each share of Preferred Stock, an amount equal to $1 for each share of Series A Preferred Stock (the "Series A Original Cost") plus all accrued but unpaid dividends on such share (the "Series A Liquidation Value"); $1.50 for each share of Series B Preferred Stock (the "Series B Original Cost") plus all accrued but unpaid dividends on such share (the "Series B 5 Liquidation Value"); $2.16 for each share of Series C Preferred Stock (the "Series C Original Cost") plus all accrued but unpaid dividends on such share (the "Series C Liquidation Value"); $4.40 for each share of Series D Preferred Stock (the "Series D Original Cost") plus all accrued but unpaid dividends on such share (the "Series D Liquidation Value" and, together with the Series A Liquidation Value, Series B Liquidation Value and Series C Liquidation Value, the "Liquidation Value"), in each case, adjusted for any combinations, consolidations, stock splits, or stock distributions or dividends with respect to such shares. The assets and funds thus distributed among the holders of the Preferred Stock shall be distributed among the holders of the Preferred Stock in proportion to the full Liquidation Value each such holder is otherwise entitled to receive in accordance with the preceding sentence. If, upon any liquidation, the assets and funds of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of the Preferred Stock and any other series then ranking in parity with the Preferred Stock the full amounts to which they shall be entitled pursuant to Section C.2(a), the holders of the Series C Preferred Stock and the Series D Preferred Stock shall be entitled to receive first the Series C Liquidation Value and the Series D Liquidation Value, respectively, and then the other holders of the Preferred Stock and the holders of any other series then ranking in parity with the Preferred Stock shall share ratably in any distribution of assets and funds in proportion to the respective amounts which would be payable to them in respect of the shares held upon such distribution if all amounts payable on or with respect to such shares were paid in full pursuant to Section C.2(a). (b) If, upon the completion of the distributions contemplated by Section C.2(a) of this Article IV, assets and funds remain available for distribution by the Corporation, the entire remaining assets and funds of the Corporation legally available for distribution, if any, shall be distributed among the holders of the Common Stock in proportion to the shares of the Common Stock then held by them. (c) For purposes of this Section C.2, unless otherwise determined by the holders of at least 51% of the then outstanding Preferred Stock voting together as a class prior to the effective time of any such Transaction (as defined below), (i) any acquisition of the Corporation by means of merger or other form of corporate reorganization in which the outstanding shares of the Corporation are exchanged for securities or other consideration issued, or caused to be issued, by the acquiring corporation or its subsidiary (other than a mere reincorporation transaction), under circumstances in which the holders of a majority in voting power of the outstanding capital stock of the Corporation, immediately prior to the Transaction (as defined below) own less than a majority in voting power of the outstanding capital stock of the Corporation or the surviving or resulting corporation or acquired, as the case may be, immediately following such Transaction (a "Change in Control"), or (ii) a sale or other disposition of all or substantially all of the assets of the Corporation (each, a "Transaction"), or (iii) any other transaction which results in such a Change in Control, shall be treated as a liquidation, dissolution or winding up of the Corporation and shall entitle the holders of Preferred Stock to receive at closing, in cash, securities or other property (valued as provided in Section C.2(d)) in amounts as specified in Section C.2(a) of this Article IV. (d) Whenever the distribution provided for in this Section C.2 shall be payable (i) in securities, such securities shall be valued as follows: 6 (x) securities not subject to investment letter or other similar restrictions on free marketability: (1) if traded on a securities exchange, the value shall be deemed to be the average of the security's closing prices on such exchange over the 30-day period ending three (3) days prior to the closing of the liquidation; (2) if actively traded over-the-counter, the value shall be deemed to be the average of the closing bid prices over the 30-day period ending three (3) days prior to the closing of the liquidation; and (3) if there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board; and (y) securities subject to investment letter or other restrictions shall be valued at the fair market value, as determined in good faith by the Board, or (ii) in property other than securities or cash, the "fair value" of the assets or property to be distributed in such event shall be determined in good faith by the Board; provided that in the event the fair market value per share of such -------- securities is not specifically set forth in the documents relating to any such Transaction entered into by the Company and approved by the holders of the Preferred Stock as provided herein and the holders of at least 51% of either of the then outstanding Series C Preferred Stock or the then outstanding Series D Preferred Stock object in good faith to such determination by the Board and give written notice of such objection to the Company within 10 days after the notice described in subsection (e) is provided to the holders of the Series C Preferred Stock or the Series D Preferred Stock, the fair market value of such securities shall be determined by an independent appraiser selected in good faith by the Board and reasonably acceptable to such holders at the Company's expense. (e) Written notice of liquidation stating a payment date and the amount of the Series A Liquidation Value, the Series B Liquidation Value, the Series C Liquidation Value and the Series D Liquidation Value shall be provided by mail, postage prepaid, or by facsimile, not less than 20 days prior to the payment date stated therein, to the record holders of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock, such notice to be addressed to each such holder at its address as shown in the records of the Corporation. 3. Voting Rights. Except as otherwise provided herein and in Section C.6 ------------- of this Article IV, and except as otherwise required by law, the holder of each share of Common Stock issued and outstanding shall have one vote per share and the holder of each share of Preferred Stock shall be entitled to the number of votes as is equal to the number of shares of Common Stock into which such holder's shares of Preferred Stock could be converted at the record date for determination of the shareholders entitled to vote on such matters, or, if no such record date is established, at the date such vote is taken or any written consent of shareholders is solicited, and shall have voting rights and powers equal to the voting rights and powers of the Common Stock (except as otherwise expressly provided herein or required by law), such votes to be counted together with all other shares of stock of the Corporation having general voting power and not separately as a class. Holders of Common Stock and Preferred Stock shall be entitled to 7 notice of any shareholders' meeting in accordance with the By-laws of the Corporation. Fractional votes by the holders of Preferred Stock shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) shall be rounded to the nearest lower whole number. 4. Conversion. The holders of the Preferred Stock shall have conversion ---------- rights as follows (the "Conversion Rights"): (a) Right to Convert. Each share of Preferred Stock shall be convertible, ---------------- at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for the Preferred Stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the initial Conversion Price for such share of Preferred Stock by the Conversion Price for such share of Preferred Stock then in effect. The "Conversion Price" for the Series A Preferred Stock shall initially be the Series A Original Cost (as defined in Section 2(a) of this Article IV), "Conversion Price" for the Series B Preferred Stock shall initially be the Series B Original Cost (as defined in Section 2(a) of this Article IV), "Conversion Price" for the Series C Preferred Stock shall initially be the Series C Original Cost (as defined in Section 2(a) of this Article IV) and the "Conversion Price" for the Series D Preferred Stock shall initially be the Series D Original Cost (as defined in Section 2(a) of this Article IV). The Conversion Price shall be subject to adjustment as hereinafter provided. No amount shall be payable by a shareholder in respect of the conversion of any share of Preferred Stock. (b) Automatic Conversion. Each share of Preferred Stock shall -------------------- automatically be converted into one or more share(s) of Common Stock at the then-effective Conversion Price for such share of Preferred Stock, upon the earlier of (i) the date specified by vote or written consent or agreement of holders of at least 51% of the shares of Preferred Stock then outstanding, voting together as a class, or (ii) immediately prior to the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of shares of the Corporation's Common Stock for the account of the Corporation to the public at a price per share of not less than three times the Series C Original Cost (adjusted for any combinations, consolidations, stock splits, or stock distributions or dividends with respect to such shares) and resulting in aggregate gross proceeds to the Corporation of not less than $30,000,000 (a "Qualified Offering"). (c) Mechanics of Conversion. No fractional shares of Common Stock shall be ----------------------- issued upon conversion of Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock, the Corporation shall, in lieu of issuing any fractional shares to which the holder would be otherwise entitled, pay cash equal to the fair market value of such fractional share on the date of conversion, which fair market value shall be determined in good faith by the Board. Before any holder of Preferred Stock shall be entitled to convert the same into full shares of Common Stock and to receive certificates therefor, such 8 holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Preferred Stock, and shall give written notice to the Corporation at such office that such holder elects to convert the same. The Corporation shall, as soon as practicable thereafter, issue and deliver at the office of the Corporation or at such transfer agent's office to such holder of Preferred Stock, (i) a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid, and (ii) cash or a check payable to the holder of such Preferred Stock in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the Preferred Stock to be converted, or, in the case of a conversion pursuant to Section C.4.(b)(ii), immediately prior to the closing of the Qualified Offering, and the person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Common Stock on the date of such conversion. If the conversion is in connection with a Qualified Offering, the conversion shall be conditioned upon the closing with the underwriter of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock issuable upon such conversion of the Preferred Stock shall not be deemed to have converted such Preferred Stock, until immediately prior to the closing of such sale of securities. (d) Adjustment of Conversion Price. The Conversion Price shall be ------------------------------ subject to adjustment from time to time as follows: (i) Special Definitions. For purposes of this Section C.4, the ------------------- following definitions shall apply: (1) "Options" shall mean rights, options or warrants to subscribe ------- for, purchase or otherwise acquire either Common Stock or Convertible Securities. (2) "Original Issue Date" shall mean the date on which the first ------------------- share of Series A Preferred Stock is issued. (3) "Series C Issue Date" shall mean the date on which the first ------------------- share of Series C Preferred Stock is issued. (4) "Convertible Securities" shall mean any evidence of ---------------------- indebtedness, shares (other than the shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock authorized herein) or other securities by their terms convertible into or exchangeable for Common Stock. (5) "Additional Common Shares" shall mean all Common Stock issued ------------------------ (or, pursuant to Section C.4(d)(iii), deemed to be issued) by the Corporation after the Series C Issue Date other than Common Stock issued or issuable at any time (collectively, "Excluded Stock"): (A) upon conversion of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock or the Series D Preferred Stock; 9 (B) pursuant to the acquisition of another corporation by the Corporation or issued in connection with any merger, consolidation, combination, or purchase of all or substantially all of the assets or other reorganization which shall be approved in accordance with this Amended and Restated Certificate of Incorporation and Delaware Statute; (C) as a dividend or distribution on Series A Preferred Stock, Series B Preferred Stock, the Series C Preferred Stock or the Series D Preferred Stock; (D) to employees, consultants, officers or directors of the Corporation pursuant to any stock options which are outstanding on the date hereof, but which in no event exceeds 940,000 shares of Common Stock; (E) to employees, consultants, officers or directors of the Corporation pursuant to any stock option, stock purchase or stock bonus plan, agreement or arrangement for the primary purpose of soliciting or retaining such employees, consultants, officers or directors services and which are approved by the Compensation Committee of the Board of Directors (provided such committee includes at least one Purchaser Director (as such term is defined in the Stockholders' Agreement dated as of July 6, 1998, as amended, among the Corporation, the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock and certain other stockholders of the Corporation) and does not include any director who is an officer of the Corporation) or the Board of Directors of the Corporation, but which in no event exceeds 680,000 shares of Common Stock; (F) directly or upon exercise of options, warrants, or rights, or upon conversion of convertible securities issued pursuant to any equipment leasing arrangement or debt financing from a bank or similar leasing company or financial institution, which arrangement or financing, and the issuance of shares therein, have been approved by the Board; or (G) in a transaction which is approved by the holders of (I) not less than 51% of the holders of the then outstanding Series A Preferred Stock and Series B Preferred Stock, voting together on an as converted basis and (II) not less than 51% of the holders of the then outstanding Series C Preferred Stock and Series D Preferred Stock, voting together on an as converted basis. (ii) No Adjustment of Conversion Price. No adjustment in the Conversion --------------------------------- Price of any share of Preferred Stock shall be made in respect of the issuance or deemed issuance of Additional Common Shares unless the consideration per share (determined in accordance with Section C.4(d)(v)) for an Additional Common Share issued or deemed to be issued by the Corporation is less than the Conversion Price for such share in effect on the date of, and immediately prior to such issue or deemed issue. (iii) Deemed Issue of Additional Common Shares. (1) Option and Convertible Securities. In the event the --------------------------------- Corporation, at any time or from time to time after the Original Issue Date, shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities 10 entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Common Shares issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that in any such case in which Additional Common Shares are deemed to be issued: (A) no further adjustment in the Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (B) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the Corporation, or in the number of shares of Common Stock issuable upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; (C) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if: (I) in the case of Convertible Securities or Options for Common Stock, the only Additional Common Shares issued were Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange, and (II) in the case of Options for Convertible Securities, the only Convertible Securities issued were Convertible Securities, if any, actually issued upon the exercise of such Options, and the consideration received by the Corporation for the Additional Common Shares deemed to have been issued was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon the issue of the Convertible Securities with respect to which such Options were actually exercised; (D) no readjustment pursuant to clause (B) or (C) above shall have the effect of increasing the Conversion Price for any share of Preferred Stock to an amount which 11 exceeds the lower of (i) the Conversion Price for such share on the original adjustment date, or (ii) the Conversion Price for such share that would have resulted from any issuance of Additional Common Shares between the original adjustment date and the date of such readjustment for which no adjustment to the Conversion Price for such share was made; and (E) in the case of any Options which expire by their terms not more than 60 days after the date of issue thereof, no adjustment of the Conversion Price shall be made until the expiration or exercise of all such Options. (2) Stock Dividends. In the event the Corporation, at any time or --------------- from time to time after the Original Issue Date, shall declare or pay any dividend or other distribution on the Common Stock payable in shares of Common Stock, then and in any such event, Additional Common Shares shall be deemed to have been issued immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend or other distribution for purposes of adjusting the Conversion Price; provided, however, that if such record date is fixed and such dividend or other distribution is not fully paid, the only Additional Common Shares deemed to have been issued shall be the number of shares of Common Stock actually issued as of the close of business on such record date, and such Conversion Price shall be recomputed accordingly. (iv) Adjustment of Conversion Price Upon Issuance of Additional Common ----------------------------------------------------------------- Shares. In the event the Corporation, at any time after the Original Issue - ------ Date, shall issue Additional Common Shares (including Additional Common Shares deemed to be issued pursuant to Section C.4(d)(iii)) without consideration or for a consideration per share less than the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price, as the case may be, in each case, in effect on the date of and immediately prior to such issue, then and in such event, the Conversion Price for such series of Preferred Stock shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying the applicable Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Common Shares so issued would purchase at the applicable Conversion Price and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Common Shares so issued; provided that, for the purposes of this Section C.4(d)(iv), all shares of Common Stock issuable upon exercise of outstanding Options, and on conversion of outstanding Convertible Securities and Preferred Stock shall be deemed to be outstanding. With respect to any such issuance, the foregoing sentence shall only apply to shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock held by a holder who purchases at least the full number of shares of capital stock of the Corporation which such holder has a right to purchase pursuant to Section 3 of the Investors' Rights Agreement dated as of July 6, 1998, as amended from time to time, entered into between the Corporation and certain other parties. 12 (v) Determination of Consideration. For purposes of this Section ------------------------------ C.4(d), the consideration received by the Corporation for the issue of any Additional Common Shares shall be computed as follows: (1) Cash and Property. Such consideration shall: ----------------- (A) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation excluding amounts paid or payable for accrued interest or accrued dividends; (B) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board; and (C) in the event Additional Common Shares are issued together with other shares or securities or other assets of the Corporation for consideration so received, be computed as provided in clause (A) and (B) above, as determined in good faith by the Board. (2) Options and Convertible Securities. The consideration per share ---------------------------------- received by the Corporation for Additional Common Shares deemed to have been issued pursuant to Section C.4(d)(iii)(1), relating to Options and Convertible Securities, shall be determined by dividing: (x) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (y) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein or a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (3) Stock Dividends. Any Additional Common Shares deemed to have --------------- been issued relating to stock dividends or distributions shall be deemed to have been issued for no consideration. (vi) Adjustments for Subdivisions, Combinations or Consolidation of -------------------------------------------------------------- Common Stock. In the event the outstanding Common Stock shall be subdivided (by - ------------ split or otherwise), into a greater number of shares of Common Stock, the Conversion Price then in effect shall, concurrently with the effectiveness of such subdivision, be proportionately adjusted. In the event the outstanding Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Conversion Price then in effect 13 shall, concurrently with the effectiveness of such combination or consolidation, be proportionately adjusted. (vii) Adjustments for Other Distributions. In the event the Corporation ----------------------------------- at any time or from time to time makes, or fixes a record date for the determination of holders of Common Stock entitled to receive any distribution payable in securities or other property of the Corporation other than Common Stock and other than as otherwise adjusted in this Section C.4, then and in each such event provision shall be made so that the holders of Preferred Stock shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable thereupon, the amount of securities and other property of the Corporation which they would have received had their shares of Preferred Stock been converted into Common Stock on the date of such event and had they thereafter, during the period from the date of such event to and including the date of conversion, retained such securities and other property receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section C.4 with respect to the rights of the holders of the Preferred Stock. (viii) Adjustments for Reclassification, Exchange and Substitution. If ----------------------------------------------------------- the Common Stock issuable upon conversion of the Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than as defined in Section C.2(c) of this Article IV or a subdivision or combination of shares provided for above), the Conversion Price then in effect shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted such that the Preferred Stock shall be convertible into, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive, that number of shares of such other class or classes of stock equal to the number of shares of Common Stock issuable upon conversion of the Preferred Stock (adjusted for any combinations, consolidations, stock splits, or stock distributions or dividends with respect to such shares) immediately prior to such capital reorganization or reclassification as would have been subject to receipt by the holders upon conversion of the Preferred Stock immediately before that change. (ix) Reorganizations, Mergers, Consolidations or Sales of Assets. If at ----------------------------------------------------------- any time or from time to time, there is a capital reorganization of the Common Stock (other than as defined in Section C.2(c) of this Article IV or a recapitalization, subdivision, combination, reclassification, exchange or substitution of shares provided for elsewhere in this Section C.4(d), as a part of such capital reorganization, provision shall be made so that the holders of the Preferred Stock shall thereafter be entitled to receive upon conversion of the Preferred Stock the number of shares of stock or other securities or property of the Corporation to which a holder of the number of shares of Common Stock deliverable upon conversion of the Preferred Stock, would have been entitled on such capital reorganization, subject to adjustment in respect of such stock or securities by the terms thereof. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section C.4(d) with respect to the rights of the holders of Preferred Stock after the capital reorganization to the end that the provisions of this Section C.4 of this Article IV and the Conversion Price then in effect and the number of shares issuable upon conversion of the Preferred Stock) shall be applicable after that event and be as nearly equivalent as practicable. 14 (e) No Impairment. The Corporation shall not, by amendment of its ------------- Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but shall at all times in good faith assist in the carrying out of all the provisions of this Section C.4 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Preferred Stock against impairment. (f) Certificate as to Adjustments. Upon the occurrence of each adjustment ----------------------------- or readjustment of the Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price or the Series D Conversion Price, as the case may be, pursuant to this Section C.4, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, as the case may be, a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Preferred Stock furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the conversion price at the time in effect with respect to such series of Preferred Stock, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of shares of such series of Preferred Stock. (g) Notices of Record Date. In the event that the Corporation shall ---------------------- propose at any time: (i) to declare any dividend or distribution upon its Common Stock, whether or not a regular cash dividend or a dividend payable in shares of Common Stock, and whether or not out of earnings or earned surplus; (ii) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (iii) to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or (iv) to merge or consolidate with or into any other corporation, or sell, lease or convey all or substantially all its property or business, or to liquidate, dissolve or wind up or to enter into any other transaction contemplated by Section C.2(c); then, in connection with each such event, the Corporation shall send to the holders of the Preferred Stock: (1) at least 20 days' prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote in respect of the matters referred to in (iii) and (iv) above; and (2) in the case of the matters referred to in (iii) and (iv) above, in the event a record date is taken with respect to any such matter, at least 20 days' prior written notice of such 15 record date or, if no such record date is taken, at least 20 days' prior written notice of the date when such matters shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon the occurrence of such event). Each such written notice shall be delivered personally or sent by first class mail, postage prepaid, addressed to the holders of the Preferred Stock at the address for each such holder as shown on the books of the Corporation. (h) Issue Taxes. The Corporation shall pay any and all issue and other ----------- similar taxes that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of Preferred Stock pursuant hereto; provided, however, that the Corporation shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion. (i) Reservation of Stock Issuable Upon Conversion. The Corporation shall --------------------------------------------- at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all of the then outstanding shares of the Preferred Stock, the Corporation shall take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, utilizing its best efforts to obtain the requisite shareholder approval of any necessary amendment to the Certificate of Incorporation. (j) Waiver of Adjustment of the Series A, Series B, Series C and Series D --------------------------------------------------------------------- Conversion Price. Notwithstanding anything contained in this Third Amended - ---------------- and Restated Certificate of Incorporation to the contrary, the operation of, and any adjustment of the Conversion Price with respect to the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock pursuant to this Section C.4 of this Article IV, other than adjustments pursuant to Sections C.4(d)(vi), (vii), (viii) and (ix) hereof (A) may be waived with respect to any specific share or shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and/or Series D Preferred Stock either prospectively or retroactively and either generally or in a particular instance, by a writing executed by the registered holder of such share or shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and/or Series D Preferred Stock and (B) shall be waived as to a particular holder's shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and/or Series D Preferred Stock as and when deemed waived with respect to such holder's shares pursuant to Section 3.6 of that certain Investors' Rights Agreement dated as of July 6, 1998, as amended, among the Corporation and the Purchasers named therein. Any waiver pursuant to this Section C.4(j) of this Article IV shall bind all future holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and/or Series D Preferred Stock for which such rights have been waived. In the event that a waiver of adjustment of less than all of the Series B Preferred Stock under this Section C.4(j) of this Article IV results 16 in different Conversion Prices among the shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, as the case may be, the Secretary of the Corporation shall maintain a written ledger identifying each Conversion Price for each share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock. Such information shall be made available to any person upon request. 5. Protective Provisions. In addition to any other rights provided by law, --------------------- so long as at least twenty percent (20%) of the shares of Preferred Stock which have been issued hereunder shall be outstanding, the Corporation shall not, nor shall any subsidiary of the Corporation, without first obtaining the affirmative vote or written consent of the holders of not less than 51% of such outstanding shares of Preferred Stock, voting together as a class on an as converted basis: (i) redeem, purchase or otherwise acquire for value (or pay into or set aside for a sinking fund for such purpose) any share or shares of the Corporation's Common Stock, or any equity securities of the Corporation, or apply any of the Corporation's assets to the redemption, retirement, purchase or acquisition, directly or indirectly, through subsidiaries or otherwise, of any of the Corporation's Common Stock, or other equity securities of the Corporation, except repurchases from employees, or consultants or directors of this Corporation upon termination of employment or services pursuant to the terms of option agreements or restrictive stock agreements approved by the Board and entered into with such employees, consultants or directors; (ii) authorize or approve any transaction or series of transactions contemplated by Section C.2(c) of this Article IV; (iii) sell, dispose of or exchange all or substantially all of the Corporation's assets; (iv) amend or repeal any provision of, add any provision to, or waive any provision (including any of these protective provisions) of the Corporation's Certificate of Incorporation or By-laws or alter or change the rights, preferences, privileges or powers of, or the restrictions provided for the benefit of, the Preferred Stock; (v) reclassify any shares of Common Stock or any other shares of this Corporation (other than the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock or the Series D Preferred Stock) into shares having any preference or priority as to dividends or assets superior to or on a parity with any such preference or priority of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock or the Series D Preferred Stock; (vi) issue any new shares (or securities convertible into shares) of any class of capital stock of the Corporation having liquidation, redemption or dividend rights which are senior to or pari passu with Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock or the Series D Preferred Stock; (vii) authorize or approve an increase in the number of directors on the Corporation's Board of Directors; 17 (viii) make any material change in the nature of the business conducted by the Corporation; (ix) declare or pay any dividend or distributions on the Corporation's Common Stock or other equity securities of the Corporation; (x) in any manner authorize, create, designate, issue or sell any class or series of capital stock of the Corporation (including any shares of treasury stock) or rights, options, warrants or other securities convertible into or exercisable or exchangeable for capital stock or any debt security which by its terms is convertible into or exchangeable for any equity security; or (xi) issue any securities to employees, consultants, officers or directors of the Corporation except (A) up to 940,000 shares of Common Stock issued pursuant to stock options outstanding on the date hereof and (B) up to 680,000 shares of Common Stock issued pursuant to a stock option, stock purchase or stock bonus plan, agreement or arrangement for the primary purpose of soliciting or retaining such employees, consultants, officers or directors services and which are approved by the Compensation Committee of the Board of Directors (provided such committee includes at least one Purchaser Director and does not include any director who is an officer of the Corporation) or the Board of Directors of the Corporation. (a) In addition to any other rights provided by law, so long as at least twenty percent (20%) of the shares of Series C Preferred Stock and the Series D Preferred Stock, respectively, which have been issued hereunder shall be outstanding, the Corporation shall not without first obtaining the affirmative vote or written consent of the holders of at least 51% of such outstanding shares of Series C Preferred Stock and Series D Preferred Stock, voting together on an as converted basis: (A) amend, alter or repeal the rights, preferences and privileges of the Series C Preferred Stock or of the Series D Preferred Stock; (B) issue any shares of capital stock of the Corporation (other than Excluded Stock) or any security convertible into or exchangeable for capital stock of the Corporation (other than Excluded Stock) at a price per share of capital stock equal to or less than 80% of the Series C Preferred Conversion Price (as last adjusted and then in effect) or of the Series D Preferred Conversion Price (as last adjusted and then in effect); or (C) authorize, issue or reclassify any shares of the Corporation's capital stock as shares ranking senior to or on parity with the Series C Preferred Stock or the Series D Preferred Stock with respect to rights on liquidation, redemption or for the payment of any dividend or distribution other than in liquidation. 6. Increasing Common Stock. The number of authorized shares of Common ----------------------- Stock may be increased or decreased (but not below the number of shares of Common Stock then outstanding) by an affirmative vote of the holders of a majority of the stock of the Corporation. 18 7. No Reissuance of Preferred Stock. No shares of Preferred Stock -------------------------------- acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and any such shares shall be canceled, retired, and eliminated from the shares which the Corporation shall be authorized to issue; provided, however, that any such redeemed or purchased shares of Preferred Stock shall be eliminated from the shares which the Corporation shall be authorized to issue only upon the filing with the Secretary of State of the State of Delaware a certificate of amendment of this Restated Certificate of Incorporation in compliance with the General Corporation Law of the State of Delaware. ARTICLE V --------- LIMITATION OF LIABILITY ----------------------- A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware Statute, or (iv) for any transaction from which the director derived any improper personal benefit. If the Delaware Statute is amended after the date of incorporation of the Corporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware Statute, as so amended. Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. ARTICLE VI ---------- BYLAWS ------ In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, subject to the provisions of Section C.5 of Article IV, the Board is expressly authorized and empowered to make, alter, amend or repeal the By-laws in any manner not inconsistent with the laws of the State of Delaware or this Certificate of Incorporation. ARTICLE VII ----------- Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of Section 291 of the Delaware Statute or on the application of trustees in dissolution or of any receiver or 19 receivers appointed for the Corporation under the provisions of Section 279 of the Delaware Statute, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree on any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation. 20 IN WITNESS WHEREOF, Esperion Therapeutics, Inc. has caused this Fourth Amended and Restated Certificate of Incorporation to be signed by its President and Chief Executive Officer this ____ day of ______, 2000. ESPERION THERAPEUTICS, INC. By: /s/ Roger S. Newton -------------------------------- Roger S. Newton, Ph.D. President and Chief Executive Officer 21 EX-3.2 4 0004.txt BYLAWS EXHIBIT 3.2 ___________________________ BY-LAWS OF METAPHARMA, INC. (A Delaware Corporation) ___________________________ BY-LAWS OF METAPHARMA, INC. ADOPTED: as of May 19, 1998 ARTICLE I - STOCKHOLDERS ------------------------ Section 1. Place of Meeting: Notice. All meetings of stockholders shall be held - ----------------------------------- at the principal office of the Corporation or at such other place, either within or outside of Delaware, as shall be specified in the notice of meeting. Written or printed notice stating the place, date and hour of the meeting shall be given not less than ten nor more than thirty days before the date of the meeting, either personally or by mail, to each stockholder of record entitled to vote at the meeting. Section 2. Annual Meeting: The annual meeting of stockholders shall be held on - ------------------------- the first business day of September of each year for the purpose of electing directors and for the transaction of such other business as may come before the meeting. Section 3. Special Meetings: Special meetings of stockholders, for any purpose - --------------------------- or purposes, may be called by the President or by the Board of Directors or by the holders of a majority of the shares entitled to cast votes at a meeting of stockholders by notice given to the stockholders as provided in Section 1 above. Section 4. Action by Stockholders Without a Meeting. Any action required or - --------------------------------------------------- permitted to be taken at a meeting of stockholders may be taken without a meeting upon the written consent of stockholders who would have been entitled to cast the minimum number of votes which would be necessary to authorize such action at a meeting at which all stockholders entitled to vote thereon were present and voting. The written consent of such stockholders, which may be executed in counterparts, shall be filed with the minutes of the Corporation. Section 5. Quorum. The holders of a majority of the shares entitled to cast - ----------------- votes at a meeting of stockholders, represented in person or by proxy, shall constitute a quorum at such meeting. Section 6. Method of Voting. The stockholders shall vote by voice on all matters - --------------------------- including the election of directors, unless any stockholder demands voting by written ballot prior to the vote. In the event a written ballot is demanded, the person presiding at the meeting shall designate one person as inspector to tally the ballots and report the results of the voting. Section 7. Presiding Officers at Meeting. The President and the Secretary of the - ---------------------------------------- Corporation shall act as President and Secretary of each stockholders' meeting unless the holders of a majority of the shares entitled to cast votes present at the meeting shall decide otherwise. ARTICLE II - DIRECTORS ---------------------- Section 1. Number: Term of Office. The initial number of directors shall be - --------------------------------- such as shall be determined by the Incorporator and, thereafter, the number of directors shall be provided for from time to time by resolution of the Board of Directors but shall be not more than five and may be one. Subject to the provisions of the Certificate of Incorporation and any removal of directors with or without cause by vote of the stockholders, (a) each director named by the Incorporator of the Corporation shall hold office until the initial meeting of stockholders next succeeding the filing of the Certificate of Incorporation and until his or her successors are elected and qualify or until his or her earlier death, resignation or removal; and (b) each director elected at the initial meeting of stockholders and at each annual meeting thereafter shall hold office for one year and until their successors are elected and qualified or until his or her earlier death, resignation or removal. The initial board of directors shall be elected by the Incorporator. Section 2. Regular Meetings. A regular meeting of the Board of Directors for - --------------------------- the purpose of electing officers and transacting such other business as may come before the meeting shall be held without notice immediately following and at the same place as the annual stockholders' meeting. The Board of Directors may provide, by resolution, the place, date and hour for additional regular meetings which may be held without notice. Section 3. Special Meetings. Special meetings of the Board of Directors may be - --------------------------- called by the President or any director upon two days written notice. Section 4. Place of Meeting: Waiver. Meetings of the Board of Directors shall - ----------------------------------- be held at such place as shall be designated in the notice of the meeting. Notice of any meeting need not be given to any director who signs a waiver of notice before or after the meeting. Section 5. Action Without a Meeting. Any action required or permitted to be - ----------------------------------- taken pursuant to authorization voted at a meeting of the Board of Directors may be taken without a meeting if, prior or subsequent to such action, all of the directors consent thereto in writing. Such written consent shall be filed with the minutes of the Corporation. Section 6. Quorum. A majority of the Directors shall constitute (and be - ----------------- necessary to constitute) a quorum for the transaction of business at any meeting of the Board of Directors. Section 7. Manner of Acting. The act of a majority of the directors shall be - --------------------------- the act of the Board of Directors. Section 8. Resignation and Removal. Any director may resign at any time upon - ---------------------------------- written notice to the remaining directors, the President or Secretary. Any director may be removed by the stockholders holding a majority of the shares entitled to cast votes at a meeting of stockholders with or without cause, at a meeting of stockholders or pursuant to Section 4 of Article I hereof. The resignation of any director shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 9. Vacancies. Any vacancy in the Board of Directors, including a - -------------------- vacancy caused by an increase in the number of directors, shall be filled by the affirmative vote of the stockholders holding a majority of the shares entitled to cast votes at a meeting of stockholders. Subject to removal with or without cause, each director chosen to fill a vacancy on the Board of Directors shall hold office until the next annual elections of the Board of Directors and until his or her successor shall be elected and qualify. If by reason of death, resignation or other cause, the Corporation has no directors in office, any stockholder or the executor or 2 administrator of a deceased stockholder, may call a special meeting of stockholders for the election of directors and, over his or her own signature, shall give notice of said meeting in accordance with these by-laws. Section 10. Duties. In general, the Board of Directors shall manage the business - ------------------ and the affairs of the Corporation, shall determine all questions of policy and shall supervise the business of the Corporation. Section 11. Executive and Other Committees. The Board of Directors, by - ------------------------------------------ resolution, may designate from among its members an executive committee and other committees. Each such committee shall serve at the pleasure of the Board of Directors. Section 12. Compensation. No compensation shall be paid to directors, as such, - ------------------------ for their services, but by resolution of the Board of Directors a fixed sum and expenses for actual attendance at each regular or special meeting of the Board of Directors may be authorized. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. ARTICLE III - OFFICERS ---------------------- Section 1. Offices, Election and Salary. At its regular meeting following the - --------------------------------------- annual meeting of stockholders, the Board of Directors shall elect a President, a Treasurer, and a Secretary; and it may elect such other officers, including one or more Vice Presidents, or agents as it shall deem necessary or desirable. One person may hold two or more offices, and the term of office for those elected shall be one year. Failure to elect any officer annually shall not dissolve the Corporation, and the individual holding a particular office may continue to act until his or her successor is elected or until his or her earlier death, resignation or removal. The salaries of all officers shall be fixed by the Board of Directors. Section 2. Vacancies. Any vacancy occurring among the officers, however caused, - -------------------- may be filled by the Board of Directors for the unexpired portion of the term. Section 3. Resignation and Removal. An officer may resign by written notice to - ---------------------------------- the Corporation. The resignation shall be effective upon receipt thereof by the Corporation or at such subsequent time as shall be specified in the notice of resignation. Any officer of the Corporation may be removed with or without cause by resolution adopted by the directors at any regular or special meeting of the Board of Directors or by a written consent executed by all of the directors. Section 4. President. The President shall be chief executive officer of the - -------------------- Corporation and, subject to the control of the Board of Directors, shall in general supervise and control all of the business and affairs of the Corporation. Unless otherwise directed by the Board of Directors, all other officers shall be subject to the authority and supervision of the President. The President may enter into and execute in the name of the Corporation contracts or other instruments in the regular course of business or, contracts or other instruments not in the regular course of business which are authorized, either generally or specifically, by the Board or Directors. He or she shall have power to sign certificates of stock, to sign checks, drafts, notes and orders for the payment of money, and to discharge agents and employees, subject to the approval of the Board of Directors. He or she shall have the general powers and duties of management usually vested in the office of president of a corporation. He or she shall preside at and act as Chairman of all meetings of the stockholders and of the Board of Directors. 3 Section 5. Vice President. In the event of the death of the President, the Vice - ------------------------- President, or if there are more than one, the Vice Presidents in the order designated by the Board of Directors, shall perform the duties and be vested with the authority of President. The Vice President shall perform such duties and have such authority as may be delegated to him or her from time to time by the President or by the Board of Directors. Section 6. Treasurer. The Treasurer shall have charge and custody of and be - -------------------- responsible for all funds and securities of the Corporation, shall keep or cause to be kept regular books of account for the Corporation and shall perform such other duties and possess such other powers as are incident to the office of treasurer or as shall be assigned to him or her by the President or by the Board of Directors. Section 7. Secretary. The Secretary shall cause notices of all meetings to be - -------------------- served as prescribed in these by-laws or by statute, shall keep or cause to be kept the minutes of all meetings of the stockholders and of the Board of Directors, shall have charge of the corporate records and seal of the Corporation and shall keep a register of the post office address of each stockholder which shall be furnished to him or her by such stockholder. He or she shall perform such other duties and possess such other power as are incident to the office of secretary or as are assigned by the President or by the Board of Directors. Section 8. Delegation of Duties. In case of the absence of any officer of the - ------------------------------- Corporation, or for any other reason that is sufficient to the Board of Directors, the Board of Directors may delegate the powers and duties of such officer, for the time being, to any other officer. ARTICLE IV - EXECUTION OF DOCUMENTS ----------------------------------- Section 1. Commercial Paper. All checks, notes, drafts and other commercial - --------------------------- paper of the Corporation shall be signed by the President or Treasurer or by such other person or persons as the Board of Directors may from time to time specifically designate in writing Section 2. Other Instruments. All deeds, mortgages and other instruments shall - ---------------------------- be executed by the President of the Corporation or Treasurer or by such other person or persons as the Board of Directors may from time to time specifically designate in writing. ARTICLE V - FISCAL YEAR ----------------------- The fiscal year of the Corporation shall begin on the first day of January of each year unless the Board of Directors shall direct otherwise. ARTICLE VI - CERTIFICATES FOR AND TRANSFERS OF SHARES ----------------------------------------------------- Section 1. Execution. Certificates representing shares of the Corporation shall - -------------------- be in such form as shall be determined by the Board of Directors and shall be executed by the President, the Vice President or Treasurer and the Secretary or any Assistant Secretary. Section 2. Issuance of Certificates for Stock. Each stockholder of the - --------------------------------------------- Corporation shall be entitled to a certificate or certificates in such form as shall be approved by the Board of Directors, certifying the number of shares of capital stock of the Corporation owned by such stockholder. 4 Section 3. Fixing Record Date. For the purpose of determining the stockholders - ----------------------------- entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to or dissent from any proposal without any meeting or for the purpose of determining stockholders entitled to receive payment of any dividend or allotment or any right, or in order to make a determination of stockholders for any other purpose, the Board of Directors may fix, in advance, a date as the record date for any such determination of stockholders. Such date shall not be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. Section 4. Transfer of Shares. (a) Upon surrender to the Corporation or the - ----------------------------- transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidences of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, and cancel the old certificate; every such transfer shall be entered on the transfer book of the Corporation which shall be kept at its principal office. (b) The Corporation shall be entitled to treat the holder of record of any share as the holder in fact thereof and, accordingly, shall not be bound to recognized any equitable or other claim to or interest in such share on the part of any other person whether or not it shall have express or other notice thereof, except as expressly provided by Delaware statutes. ARTICLE VII - DIVIDENDS ----------------------- The Board of Directors may from time to time declare, and the Corporation may pay, dividends or make other distributions on its outstanding shares, subject to the provisions of the General Corporation Law of the State of Delaware. ARTICLE VIII - AMENDMENTS TO AND EFFECT OF BY-LAWS -------------------------------------------------- Section 1. Force and Effect of By-Laws. These by-laws are subject to the - -------------------------------------- provisions of the General Corporation Law of the State of Delaware which cannot be altered by by-laws and the Corporation's Certificate of Incorporation, as it may be amended from time to time. If any provision in these by-laws is inconsistent with a provision in that Act which cannot be altered by by-laws or the Certificate of Incorporation, the provision of that Act or the Certificate of Incorporation shall govern. Section 2. Amendments to By-Laws. These by-laws may be altered, amended or - -------------------------------- repealed by the stockholders or the Board of Directors. Any by-law adopted, amended or repealed by the stockholders may be amended or repealed by the Board of Directors, unless the resolution of the stockholders adopting such by-law expressly reserves to the stockholders the right to amend or repeal it. ARTICLE IX - SINGLE DIRECTOR OR STOCKHOLDER ------------------------------------------- Wherever in these by-laws references are made to more than one director or stockholder, they shall, if there shall be a sole director or stockholder, be construed to mean the solitary person and all provisions dealing with the quantum of majorities or quorums shall be deemed to mean the action by such sole person. 5 GENERAL AUTHORIZATION - --------------------- RESOLVED, that the proper corporate officers of the Corporation be, and each of them hereby is, authorized to execute, acknowledge and deliver in the name and on behalf of the Corporation, and under its corporate seal or otherwise, all other documents and instruments, and to do and perform any and all such further acts and deeds, as they or any of them may deem necessary or advisable to carry out the intent and to accomplish the purpose of the foregoing resolutions and the transactions contemplated thereby. -4- ACTION OF SOLE INCORPORATOR MetaPharma Inc. ______________________________________ The undersigned, without a meeting, being the sole incorporator of the Corporation, does hereby elect the persons listed below to serve as directors of the corporation until the first annual meeting of shareholders and until their successors are elected and qualify: DAVID SCHEER /s/ Dolores Cleaver ---------------------- Dolores Cleaver Incorporator Dated: May 18, 1998 METAPHARMA, INC. - -------------------------------------------------------------------------------- ORGANIZATIONAL MEETING OF THE SOLE DIRECTOR - -------------------------------------------------------------------------------- The undersigned, being the sole director of MetaPharma, Inc., a Delaware corporation (the "Corporation"), hereby consents, pursuant to Section 141 of the Delaware General Corporation Law, to the adoption of the actions and resolutions hereinafter set forth. 1. Confirmation of Incorporation. ----------------------------- RESOLVED, that as the Certificate of Incorporation of the Corporation has been filed and recorded by the Secretary of State of Delaware on May 18, 1998, a receipt thereof has been issued acknowledging the same, a certified copy of the Certificate of Incorporation and the receipt be filed in the minute book of the Corporation; and further 2. Ratification of By-Laws. ----------------------- RESOLVED, that the by-laws in the form annexed hereto as Exhibit A, be ratified as the by-laws of the Corporation; and further 3. Election of Officers. -------------------- RESOLVED, that the following persons are elected to the offices set forth opposite their respective names set forth below, each to serve in accordance with the By-laws until the next annual election of officers and until their successors shall be elected and shall qualify or until their earlier death, resignation or removal: Name Office ---- ------ Roger Newton President and Chief Executive Officer David I. Scheer Treasurer and Secretary and further 4. Corporate Seal Adopted. ---------------------- RESOLVED, that the seal containing the name, State and year of incorporation of the Corporation, namely, "MetaPharma, Inc. - CORPORATE SEAL - 1998 DELAWARE," an impression of which has been made in the margin hereof, is approved and adopted as the corporate seal of the Corporation; and further 5. Principal Office Established. ---------------------------- RESOLVED, that the principal office of the Corporation be established at such place as the Board of Directors shall from time to time order; and that the proper officers be authorized and directed: (a) to pay the formation expenses of the Corporation; (b) to execute and file all necessary certificates or reports required by domestic corporations to be filed with the Secretary of State of the State of Delaware; and (c) to execute and file all necessary certificates or reports required to be filed with any state in which the Board of Directors deems it to be in the best interest of the Corporation that the Corporation qualify to do business; and further 6. Filing of Tax Certificate Authorized. ------------------------------------ RESOLVED, that the President, Secretary or Assistant Secretary of the Corporation is authorized to prepare, execute, and file on behalf of the Corporation the tax registration certificates required by the State of Delaware and any other applicable state; and further 7. Fiscal Year Adopted. ------------------- RESOLVED, that the fiscal year of the Corporation shall end on December 31 in each year and the Corporation shall remain an accrual basis taxpayer for purposes of the Internal Revenue Code, as amended, until changed by the Board of Directors. IN WITNESS WHEREOF, the undersigned has executed these minutes as of the 19/th/ day of May, 1998. /s/ David I. Scheer ------------------------------------ David I. Scheer -2- EXHIBIT A --------- BY-LAWS EX-3.3 5 0005.txt CERTIFICATE OF INCORPORATION EXHIBIT 3.3 FORM OF FIFTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF ESPERION THERAPEUTICS, INC. ESPERION THERAPEUTICS, INC. (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "General Corporation Law"), hereby certifies as follows: FIRST: The name of the Corporation is Esperion Therapeutics, Inc. The Certificate of Incorporation of the Corporation was originally filed with the Secretary of State of the State of Delaware on May 18, 1998. A Certificate of Correction was filed with the Secretary of State of the State of Delaware on May 22, 1998. A Certificate of Amendment to the Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on June 23, 1998. An Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on July 6, 1998. A Second Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on January 7, 2000. A Third Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on February 17, 2000. Two Certificates of Correction were filed with the Secretary of State of the State of Delaware on March __, 2000. A Fourth Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on _____________. SECOND: This Fifth Amended and Restated Certificate of Incorporation (the "Certificate of Incorporation") restates and integrates and further amends the Fourth Amended and Restated Certificate of Incorporation of the Corporation. This Certificate of Incorporation was duly adopted in accordance with the provisions of Sections 242 and 245 and was approved by written consent of the stockholders of the Corporation given in accordance with the provisions of Section 228 of the General Corporation Law (prompt notice of such action having been given to those stockholders who did not consent in writing). THIRD: The text of the Certificate of Incorporation of the Corporation is hereby restated and amended to read in its entirety as follows: ARTICLE I --------- NAME ---- The name of the Corporation is Esperion Therapeutics, Inc. ARTICLE II ---------- REGISTERED AGENT ---------------- The address of the Corporation's registered office in the State of Delaware is 1013 Center Road, Wilmington, Delaware 19805. The name of its registered agent at such address is Corporation Service Company. ARTICLE III ----------- PURPOSE ------- The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware. ARTICLE IV ---------- CAPITAL STOCK ------------- The Corporation shall have the authority to issue 55,000,000 shares of all classes of stock, consisting of (a) 50,000,000 shares of common stock, par value $.001 per share ("Common Stock"), and (b) 5,000,000 shares of undesignated preferred stock, par value $.01 per share (the "Undesignated Preferred Stock"). The Board of Directors is authorized, subject to limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, voting, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the outstanding shares of Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the certificate or certificates establishing any series of Preferred Stock. ARTICLE V --------- BYLAWS ------ In furtherance and not in limitation of the powers conferred upon the Board of Directors by statute, the Board of Directors is expressly authorized to make, alter or repeal the Bylaws of 2 the Corporation, subject to the power of the stockholders to adopt any Bylaws or to amend or repeal any Bylaws adopted, amended or repealed by the Board of Directors. ARTICLE VI ---------- NO ACTION WITHOUT ANNUAL OR SPECIAL MEETING ------------------------------------------- Any action required or permitted to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of stockholders of the Corporation and may not be affected by any consent in writing by such stockholders. ARTICLE VII CLASSES OF DIRECTORS -------------------- The Board of Directors shall be and is divided into three classes: Class I, Class II and Class III. Each class of directors shall be as nearly equal in number as possible. Each Director shall serve for a term ending on the date of the third annual meeting following the annual meeting at which such Director was elected; provided, that each initial Director in Class I shall serve for a term ending on the date of the annual meeting in 2001; each initial Director in Class II shall serve for a term ending on the date of the annual meeting in 2002; and each initial Director in Class III shall serve for a term ending on the date of the annual meeting in 2003; and provided further, that the term of each Director shall be subject to the election and qualification of his successor and to his earlier death, resignation or removal. The number of directors which shall constitute the whole Board of Directors shall be fixed by, or in the manner provided in, the Bylaws. ARTICLE VI ---------- LIMITATION OF LIABILITY ----------------------- No person who is or was a director of this Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for the breach of any fiduciary duty as a director, unless, and only to the extent that, such director is liable (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law is amended to authorize corporate action further limiting or eliminating the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law, as so amended. No amendment to, repeal or adoption of any provision of this Certificate of Incorporation inconsistent with this ARTICLE VII shall apply to or have any effect on the liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment, repeal or adoption of an inconsistent provision. 3 ARTICLE VIII ------------ INDEMNIFICATION --------------- The Corporation shall indemnify each person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, to the fullest extent permitted by Section 145 of the General Corporation Law, as amended. The indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, and such indemnification shall continue as to a person who has ceased to be such a person and shall inure to the benefit of the heirs, executors and administrators of such a person. 4 IN WITNESS WHEREOF, Esperion Therapeutics, Inc. has caused this Fifth Amended and Restated Certificate of Incorporation to be signed by its President and Chief Executive Officer this ____ day of _______, 2000. ESPERION THERAPEUTICS, INC. By:________________________________________ Roger S. Newton, Ph.D. President and Chief Executive Officer 5 EX-3.4 6 0006.txt BYLAWS Exhibit 3.4 AMENDED AND RESTATED BYLAWS OF ESPERION THERAPEUTICS, INC. Incorporated under the Laws of the State of Delaware ARTICLE I OFFICERS AND RECORDS SECTION 1.01 Delaware Office. The Corporation shall maintain a registered --------------- office and registered agent within the State of Delaware, which may be changed by the Board of Directors from time to time. The address of the Corporation's principal office in Delaware is: 1013 Centre Road, Wilmington, New Castle County. The name of the registered agent is: Corporation Service Company, Inc. SECTION 1.02 Other Offices. The Corporation may have such other offices, ------------- either within or without the State of Delaware, as the Board of Directors may designate or as the business of the Corporation may from time to time require. SECTION 1.03 Books and Records. The books and records of the Corporation may ----------------- be kept outside the State of Delaware at such place or places as may from time to time be designated by the Board of Directors. ARTICLE II STOCKHOLDERS SECTION 2.01 Annual Meeting. The annual meeting of the stockholders of the -------------- Corporation shall be held on such date and at such place and time as may be fixed by resolution of the Board of Directors. SECTION 2.02 Special Meeting. Subject to the rights of the holders of any --------------- series of stock having a preference over the Common Stock of the Corporation as to dividends or upon liquidation ("Preferred Stock") with respect to such series of Preferred Stock, special meetings of the stockholders may be called only by the Chairman of the Board or by the Board of Directors pursuant to a resolution adopted by a majority of the total number of directors which the Corporation would have if there were no vacancies (the "Whole Board"). SECTION 2.03 Place of Meeting. The Board of Directors or the Chairman of the ---------------- Board, as the case may be, may designate the place of meeting for any annual meeting or for any special meeting of the stockholders called by the Board of Directors or the Chairman of the Board. If no designation is so made, the place of meeting shall be the principal office of the Corporation. SECTION 2.04 Notice of Meeting. Written or printed notice, stating the place, ----------------- day and hour of the meeting and the purpose or purposes for which the meeting is called, shall be delivered by the Corporation not less than ten (10) days nor more than sixty (60) days before the date of the meeting, either personally or by mail, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail with postage thereon prepaid, addressed to the stockholder at his address as it appears on the stock transfer books of the Corporation. Such further notice shall be given as may be required by law. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Meetings may be held without notice if all stockholders entitled to vote are present, or if notice is waived by those not present in accordance with Section 6.04 of these Bylaws. Any previously scheduled meeting of the stockholders may be postponed, and (unless the Certificate of Incorporation otherwise provides) any special meeting of the stockholders may be cancelled, by resolution of the Board of Directors upon public notice given prior to the date previously scheduled for such meeting of stockholders. SECTION 2.05 Quorum and Adjournment. Except as otherwise provided by law or by ---------------------- the Certificate of Incorporation, the holders of a majority of the outstanding shares of the Corporation entitled to vote generally in the election of directors (the "Voting Stock"), represented in person or by proxy, shall constitute a quorum at a meeting of stockholders, except that when specified business is to be voted on by a class or series of stock voting as a class, the holders of a majority of the shares of such class or series shall constitute a quorum of such class or series for the transaction of such business. The Chairman of the meeting or a majority of the shares so represented may adjourn the meeting from time to time, whether or not there is such a quorum. No notice of the time and place of adjourned meetings need be given except as required by law. The stockholders present at a duly called meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. SECTION 2.06 Proxies. At all meetings of stockholders, a stockholder may vote ------- by proxy executed in writing (or in such manner prescribed by the General Corporation Law of the State of Delaware) by the stockholder, or by his duly authorized attorney in fact. SECTION 2.07 Notice of Stockholder Business and Nominations. ---------------------------------------------- (A) Annual Meetings of Stockholders. (1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the stockholders may 2 be made at an annual meeting of stockholders (a) pursuant to the Corporation's notice of meeting, (b) by or at the direction of the Board of Directors or (c) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this Bylaw, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Bylaw. (2) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of paragraph (A) (1) of this Bylaw, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner and (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner. (3) Notwithstanding anything in the second sentence of paragraph (A) (2) of this Bylaw to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least 70 days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Bylaw shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive 3 offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. (B) Special Meetings of Stockholders. Only such business shall be -------------------------------- conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Bylaw, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Bylaw. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation's notice of meeting, if the stockholder's notice required by paragraph (A) (2) of this Bylaw shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a stockholder's notice as described above. (C) General. (1) Only such persons who are nominated in accordance with the procedures set forth in this Bylaw shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Bylaw. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Bylaw and, if any proposed nomination or business is not in compliance with this Bylaw, to declare that such defective proposal or nomination shall be disregarded. (2) For purposes of this Bylaw, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. 4 (3) Notwithstanding the foregoing provisions of this Bylaw, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights (i) of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of Preferred Stock to elect directors under specified circumstances. SECTION 2.08 Procedure for Election of Directors; Required Vote. Election of -------------------------------------------------- directors at all meetings of the stockholders at which directors are to be elected shall be by ballot, and, subject to the rights of the holders of any series of Preferred Stock to elect directors under specified circumstances, a plurality of the votes cast thereat shall elect directors. Except as otherwise provided by law, the Certificate of Incorporation, or these Bylaws, in all matters other than the election of directors, the affirmative vote of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the matter shall be the act of the stockholders. SECTION 2.09 Inspectors of Elections; Opening and Closing the Polls. The Board ------------------------------------------------------ of Directors by resolution shall appoint one or more inspectors, which inspector or inspectors may include individuals who serve the Corporation in other capacities, including, without limitation, as officers, employees, agents or representatives, to act at the meetings of stockholders and make a written report thereof. One or more persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed to act or is able to act at a meeting of stockholders, the Chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall have the duties prescribed by law. The Chairman of the meeting shall fix and announce at the meeting the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting. SECTION 2.10 No Stockholder Action by Written Consent. Subject to the rights ---------------------------------------- of the holders of any series of Preferred Stock with respect to such series of Preferred Stock, any action required or permitted to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of stockholders of the Corporation and may not be affected by any consent in writing by such stockholders. ARTICLE III BOARD OF DIRECTORS SECTION 3.01 General Powers. The business and affairs of the Corporation shall -------------- be managed under the direction of the Board of Directors. In addition to the powers and 5 authorities by these Bylaws expressly conferred upon them, the Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws required to be exercised or done by the stockholders. SECTION 3.02 Number, Tenure and Qualifications. Subject to the rights of the --------------------------------- holders of any series of Preferred Stock to elect directors under specified circumstances, the number of directors shall be fixed from time to time exclusively pursuant to a resolution adopted by a majority of the Whole Board. The Board of Directors shall be and is divided into three classes: Class I, Class II and Class III. Each class of directors shall be as nearly equal in number as possible. Each Director shall serve for a term ending on the date of the third annual meeting following the annual meeting at which such Director was elected; provided, that each initial Director in Class I shall serve for a term ending on the date of the annual meeting in 2001; each initial Director in Class II shall serve for a term ending on the date of the annual meeting in 2002; and each initial Director in Class III shall serve for a term ending on the date of the annual meeting in 2003; and provided further, that the term of each Director shall be subject to the election and qualification of his successor and to his earlier death, resignation or removal. SECTION 3.03 Regular Meetings. A regular meeting of the Board of Directors ---------------- shall be held without other notice than this Bylaw immediately after, and at the same place as, the Annual Meeting of Stockholders. The Board of Directors may, by resolution, provide the time and place for the holding of additional regular meetings without other notice than such resolution. SECTION 3.04 Special Meetings. Special meetings of the Board of Directors ---------------- shall be called at the request of the Chairman of the Board, the President or a majority of the Board of Directors then in office. The person or persons authorized to call special meetings of the Board of Directors may fix the place and time of the meetings. SECTION 3.05 Notice. Notice of any special meeting of directors shall be given ------ to each director at his business or residence in writing by hand delivery, first-class or overnight mail or courier service, telegram or facsimile transmission, or orally by telephone. If mailed by first-class mail, such notice shall be deemed adequately delivered when deposited in the United States mails so addressed, with postage thereon prepaid, at least five (5) days before such meeting. If by telegram, overnight mail or courier service, such notice shall be deemed adequately delivered when the telegram is delivered to the telegraph company or the notice is delivered to the overnight mail or courier service company at least twenty-four (24) hours before such meeting. If by facsimile transmission, such notice shall be deemed adequately delivered when the notice is transmitted at least twelve (12) hours before such meeting. If by telephone or by hand delivery, the notice shall be given at least twelve (12) hours prior to the time set for the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice of such meeting, except for amendments to these Bylaws, as provided under Section 8.1. A meeting may 6 be held at any time without notice if all the directors are present or if those not present waive notice of the meeting in accordance with Section 6.4 of these Bylaws. SECTION 3.06 Action by Consent of Board of Directors. Any action required or --------------------------------------- permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. SECTION 3.07 Conference Telephone Meetings. Members of the Board of Directors, ----------------------------- or any committee thereof, may participate in a meeting of the Board of Directors or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting. SECTION 3.08 Quorum. Subject to Section 3.9, a whole number of directors equal ------ to at least a majority of the Whole Board shall constitute a quorum for the transaction of business, but if at any meeting of the Board of Directors there shall be less than a quorum present, a majority of the directors present may adjourn the meeting from time to time without further notice. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. The directors present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough directors to leave less than a quorum. SECTION 3.09 Vacancies. Subject to applicable law and the rights of the --------- holders of any series of Preferred Stock with respect to such series of Preferred Stock, and unless the Board of Directors otherwise determines, vacancies resulting from death, resignation, retirement, disqualification, removal from office or other cause, and newly created directorships resulting from any increase in the authorized number of directors, may be filled only by the affirmative vote of a majority of the remaining directors, though less than a quorum of the Board of Directors, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires and until such director's successor shall have been duly elected and qualified. No decrease in the number of authorized directors constituting the Whole Board shall shorten the term of any incumbent director. SECTION 3.10 Executive and Other Committees. The Board of Directors may, by ------------------------------ resolution adopted by a majority of the Whole Board, designate an Executive Committee to exercise, subject to applicable provisions of law, all the powers of the Board in the management of the business and affairs of the Corporation when the Board is not in session, including without limitation the power to declare dividends, to authorize the issuance of the Corporation's capital stock and to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of the State of Delaware, and may, by resolution similarly adopted, designate one or more other committees. The 7 Executive Committee and each such other committee shall consist of two or more directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, other than the Executive Committee (the powers of which are expressly provided for herein), may to the extent permitted by law exercise such powers and shall have such responsibilities as shall be specified in the designating resolution. In the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Each committee shall keep written minutes of its proceedings and shall report such proceedings to the Board when required. A majority of any committee may determine its action and fix the time and place of its meetings, unless the Board shall otherwise provide. Notice of such meetings shall be given to each member of the committee in the manner provided for in Section 3.5 of these Bylaws. The Board shall have power at any time to fill vacancies in, to change the membership of, or to dissolve any such committee. Nothing herein shall be deemed to prevent the Board from appointing one or more committees consisting in whole or in part of persons who are not directors of the Corporation; provided, however, that no such committee shall have or may exercise any authority of the Board. SECTION 3.11 Removal. Subject to the rights of the holders of any series of ------- Preferred Stock with respect to such series of Preferred Stock, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least 66 2/3 percent of the voting power of all of the then-outstanding shares of Voting Stock, voting together as a single class. SECTION 3.12 Records. The Board of Directors shall cause to be kept a record ------- containing the minutes of the proceedings of the meetings of the Board and of the stockholders, appropriate stock books and registers and such books of records and accounts as may be necessary for the proper conduct of the business of the Corporation. ARTICLE IV OFFICERS 8 SECTION 4.01 Elected Officers. The elected officers of the Corporation shall ---------------- be a Chairman of the Board of Directors, a Chief Executive Officer, a President, a Secretary, and such other officers (including, without limitation, a Chief Financial Officer) as the Board of Directors from time to time may deem proper. The Chairman of the Board shall be chosen from among the directors. All officers elected by the Board of Directors shall each have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this ARTICLE IV. Such officers shall also have such powers and duties as from time to time may be conferred by the Board of Directors or by any committee thereof. The Board or any committee thereof may from time to time elect, or the Chairman of the Board or President may appoint, such other officers (including one or more Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers, and Assistant Controllers) and such agents, as may be necessary or desirable for the conduct of the business of the Corporation. Such other officers and agents shall have such duties and shall hold their offices for such terms as shall be provided in these Bylaws or as may be prescribed by the Board or such committee or by the Chairman of the Board or President, as the case may be. SECTION 4.02 Election and Term of Office. The elected officers of the --------------------------- Corporation shall be elected annually by the Board of Directors at the regular meeting of the Board of Directors held after the annual meeting of the stockholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as convenient. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign, but any officer may be removed from office at any time by the affirmative vote of a majority of the Whole Board or, except in the case of an officer or agent elected by the Board, by the Chairman of the Board or President. Such removal shall be without prejudice to the contractual rights, if any, of the person so removed. SECTION 4.03 Chairman of the Board. The Chairman of the Board shall preside at --------------------- all meetings of the stockholders and of the Board of Directors. The Chairman of the Board shall be responsible for the general management of the affairs of the Corporation and shall perform all duties incidental to his office which may be required by law and all such other duties as are properly required of him by the Board of Directors. He shall make reports to the Board of Directors and the stockholders, and shall see that all orders and resolutions of the Board of Directors and of any committee thereof are carried into effect. The Chairman of the Board may also serve as President, if so elected by the Board. SECTION 4.04 Chief Executive Officer. The Chief Executive Officer shall be the ----------------------- head of the corporation and in the recess of the Board of Directors and the executive committee shall have the general control and management of all the business and affairs of the corporation. He shall also exercise such further powers and perform such other duties as may from time to time be conferred upon or assigned by these Bylaws, the Board of Directors or the executive committee. He shall make annual reports and submit the same to the Board of Directors and also to the shareholders at their annual meeting, showing the condition and the affairs of the corporation. He shall from time to time 9 make such recommendations to the Board of Directors, the executive committee and any other committee as he thinks proper and shall bring before the Board of Directors, the executive committee and any other committee such information as may be required, relating to the business and property of the corporation. SECTION 4.05 President. The President shall act in a general executive --------- capacity and shall assist the Chairman of the Board in the administration and operation of the Corporation's business and general supervision of its policies and affairs. The President shall, in the absence of or because of the inability to act of the Chairman of the Board, perform all duties of the Chairman of the Board and preside at all meetings of stockholders and of the Board of Directors. SECTION 4.06 Vice-Presidents. Each Vice President shall have such powers and --------------- shall perform such duties as shall be assigned to him by the Board of Directors. SECTION 4.07 Secretary. The Secretary shall keep or cause to be kept in one --------- or more books provided for that purpose, the minutes of all meetings of the Board, the committees of the Board and the stockholders; he shall see that all notices are duly given in accordance with the provisions of these Bylaws and as required by law; he shall be custodian of the records and the seal of the Corporation and affix and attest the seal to all stock certificates of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal; and he shall see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and in general, he shall perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board, the Chairman of the Board or the President. SECTION 4.08 Removal. Any officer elected, or agent appointed, by the Board of ------- Directors may be removed by the affirmative vote of a majority of the Whole Board whenever, in their judgment, the best interests of the Corporation would be served thereby. Any officer or agent appointed by the Chairman of the Board or the President may be removed by him whenever, in his judgment, the best interests of the Corporation would be served thereby. No elected officer shall have any contractual rights against the Corporation for compensation by virtue of such election beyond the date of the election of his successor, his death, his resignation or his removal, whichever event shall first occur, except as otherwise provided in an employment contract or under an employee deferred compensation plan. 10 SECTION 4.09 Vacancies. A newly created elected office and a vacancy in any --------- elected office because of death, resignation, or removal may be filled by the Board of Directors for the unexpired portion of the term at any meeting of the Board of Directors. Any vacancy in an office appointed by the Chairman of the Board or the President because of death, resignation, or removal may be filled by the Chairman of the Board or the President. ARTICLE V STOCK CERTIFICATES AND TRANSFERS SECTION 5.01 Stock Certificates and Transfers. The interest of each -------------------------------- stockholder of the Corporation shall be evidenced by certificates for shares of stock in such form as the appropriate officers of the Corporation may from time to time prescribe. The shares of the stock of the Corporation shall be transferred on the books of the Corporation by the holder thereof in person or by his attorney, upon surrender for cancellation of certificates for at least the same number of shares, with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require. The certificates of stock shall be signed, countersigned and registered in such manner as the Board of Directors may by resolution prescribe, which resolution may permit all or any of the signatures on such certificates to be in facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. SECTION 5.02 Lost, Stolen or Destroyed Certificates. No certificate for shares -------------------------------------- of stock in the Corporation shall be issued in place of any certificate alleged to have been lost, destroyed or stolen, except on production of such evidence of such loss, destruction or theft and on delivery to the Corporation of a bond of indemnity in such amount, upon such terms and secured by such surety, as the Board of Directors or any financial officer may in its or his discretion require. ARTICLE VI MISCELLANEOUS PROVISIONS SECTION 6.01 Fiscal Year. The fiscal year of the Corporation shall begin on ----------- the first day of January and end on the thirty-first day of December of each year. 11 SECTION 6.02 Dividends. The Board of Directors may from time to time declare, --------- and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and the Certificate of Incorporation. SECTION 6.03 Seal. The corporate seal shall have inscribed thereon the words ---- "Corporate Seal," the year of incorporation and around the margin thereof the words "Esperion Therapeutics, Inc. - Delaware." SECTION 6.04 Waiver of Notice. Whenever any notice is required to be given to ---------------- any stockholder or director of the Corporation under the provisions of the General Corporation Law of the State of Delaware or these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any annual or special meeting of the stockholders or the Board of Directors or committee thereof need be specified in any waiver of notice of such meeting. SECTION 6.05 Audits. The accounts, books and records of the Corporation shall ------ be audited upon the conclusion of each fiscal year by an independent certified public accountant selected by the Board of Directors, and it shall be the duty of the Board of Directors to cause such audit to be done annually. SECTION 6.06 Resignations. Any director or any officer, whether elected or ------------ appointed, may resign at any time by giving written notice of such resignation to the Chairman of the Board, the President, or the Secretary, and such resignation shall be deemed to be effective as of the close of business on the date said notice is received by the Chairman of the Board, the President, or the Secretary, or at such later time as is specified therein. No formal action shall be required of the Board of Directors or the stockholders to make any such resignation effective. SECTION 6.07 Indemnification and Insurance. ----------------------------- (A) Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit, or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she or a person of whom he or she is the legal representative is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans maintained or sponsored by the Corporation, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said 12 law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that except as provided in paragraph (C) of this Bylaw, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors. The right to indemnification conferred in this Bylaw shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition, such advances to be paid by the Corporation within 20 days after the receipt by the Corporation of a statement or statements from the claimant requesting such advance or advances from time to time; provided, however, that if the General Corporation Law of the State of Delaware requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Bylaw or otherwise. (B) To obtain indemnification under this Bylaw, a claimant shall submit to the Corporation a written request, including therein or therewith such documentation and information as is reasonably available to the claimant and is reasonably necessary to determine whether and to what extent the claimant is entitled to indemnification. Upon written request by a claimant for indemnification pursuant to the first sentence of this paragraph (B), a determination, if required by applicable law, with respect to the claimant's entitlement thereto shall be made as follows: (1) if requested by the claimant, by Independent Counsel (as hereinafter defined), or (2) if no request is made by the claimant for a determination by Independent Counsel, (i) by the Board of Directors by a majority vote of a quorum consisting of Disinterested Directors (as hereinafter defined), or (ii) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to the claimant, or (iii) if a quorum of Disinterested directors so directs, by the stockholders of the Corporation. In the event the determination of entitlement to indemnification is to be made by Independent Counsel at the request of the claimant, the Independent Counsel shall be selected by the Board of Directors unless there shall have occurred within two years prior to the date of the commencement of the action, suit or proceeding for which indemnification is claimed a "Change of Control" as defined in the Corporation's 2000 Equity Compensation Plan, in which case the Independent Counsel shall be selected by the claimant unless the claimant shall request that such selection be made by the Board of Directors. If it is so determined 13 that the claimant is entitled to indemnification, payment to the claimant shall be made within 10 days after such determination. (C) If a claim under paragraph (A) of this Bylaw is not paid in full by the Corporation within thirty days after a written claim pursuant to paragraph (B) of this Bylaw has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standard of conduct which makes it permissible under the General Corporation Law of the State of Delaware for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, Independent Counsel or stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the Corporation (including its Board of Directors, Independent Counsel or stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. (D) If a determination shall have been made pursuant to paragraph (B) of this Bylaw that the claimant is entitled to indemnification, the Corporation shall be bound by such determination in any judicial proceeding commenced pursuant to paragraph (C) of this Bylaw. (E) The Corporation shall be precluded from asserting in any judicial proceeding commenced pursuant to paragraph (C) of this Bylaw that the procedures and presumptions of this Bylaw are not valid, binding and enforceable and shall stipulate in such proceeding that the Corporation is bound by all the provisions of this Bylaw. (F) The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Bylaw shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or Disinterested Directors or otherwise. No repeal or modification of this Bylaw shall in any way diminish or adversely affect the rights of any director, officer, employee or agent of the Corporation hereunder in respect of any occurrence or matter arising prior to any such repeal or modification. (G) The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, 14 liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware. To the extent that the Corporation maintains any policy or policies providing such insurance, each such director or officer, and each such agent or employee to which rights to indemnification have been granted as provided in paragraph (H) of this Bylaw, shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage thereunder for any such director, officer, employee or agent. (H) The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and rights to be paid by the Corporation the expenses incurred in defending any proceeding in advance of its final disposition, to any employee or agent of the Corporation to the fullest extent of the provisions of this Bylaw with respect to the indemnification and advancement of expenses of directors and officers of the Corporation. (I) If any provision or provisions of this Bylaw shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (1) the validity, legality and enforceability of the remaining provisions of this Bylaw (including, without limitation, each portion of any paragraph of this Bylaw containing any such provision held to be invalid, illegal or unenforceable, that is not itself held to be invalid, illegal or unenforceable, that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (2) to the fullest extent possible, the provisions of this Bylaw (including, without limitation, each such portion of any paragraph of this Bylaw containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. (J) For purposes of this Bylaw: (1) "Disinterested Director" means a director of the Corporation who is not and was not a party to the matter in respect of which indemnification is sought by the claimant. (2) "Independent Counsel" means a law firm, a member of a law firm, or an independent practitioner, that is experienced in matters of corporation law and shall include any person who, under the applicable standards of professional conduct then prevailing, would not have a conflict of interest in representing either the Corporation or the claimant in an action to determine the claimant's rights under this Bylaw. 15 (K) Any notice, request or other communication required or permitted to be given to the Corporation under this Bylaw shall be in writing and either delivered in person or sent by telecopy, telex, telegram, overnight mail or courier service, or certified or registered mail, postage prepaid, return receipt requested, to the Secretary of the Corporation and shall be effective only upon receipt by the Secretary. ARTICLE VII CONTRACTS, PROXIES, ETC. SECTION 7.01 Contracts. Except as otherwise required by law, the Certificate --------- of Incorporation or these Bylaws, any contracts or other instruments may be executed and delivered in the name and on the behalf of the Corporation by such officer or officers of the Corporation as the Board of Directors may from time to time direct. Such authority may be general or confined to specific instances as the Board may determine. The Chairman of the Board, the President or any Vice President may execute bonds, contracts, deeds, leases and other instruments to be made or executed for or on behalf of the Corporation. Subject to any restrictions imposed by the Board of Directors or the Chairman of the Board, the President or any Vice President of the Corporation may delegate contractual powers to others under his jurisdiction, it being understood, however, that any such delegation of power shall not relieve such officer of responsibility with respect to the exercise of such delegated power. SECTION 7.02 Proxies. Unless otherwise provided by resolution adopted by the ------- Board of Directors, the Chairman of the Board, the President or any Vice President may from time to time appoint an attorney or attorneys or agent or agents of the Corporation, in the name and on behalf of the Corporation, to cast the votes which the Corporation may be entitled to cast as the holder of stock or other securities in any other corporation, any of whose stock or other securities may be held by the Corporation, at meetings of the holders of the stock or other securities of such other corporation, or to consent in writing, in the name of the Corporation as such holder, to any action by such other corporation, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal or otherwise, all such written proxies or other instruments as he may deem necessary or proper in the premises. 16 ARTICLE VIII AMENDMENTS SECTION 8.01 Amendments. These Bylaws may be altered, amended, or repealed at ---------- any meeting of the Board of Directors or of the stockholders, provided notice of the proposed change was given in the notice of the meeting and, in the case of a meeting of the Board of Directors, in a notice given not less than two days prior to the meeting. 17 EX-4.1 7 0007.txt COMMON STOCK CERTIFICATE Exhibit 4.1 Form of Common Stock Certificate [ESPERION LOGO] ESPERION THERAPEUTICS, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE COMMON STOCK CUSIP 29664R 10 6 SEE REVERSE FOR CERTAIN DEFINITIONS THIS CERTIFIES THAT is the owner of FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK $0.001 PAR VALUE OF ESPERION THERAPEUTICS, INC. (hereinafter called the "Corporation"), transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney, upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby are issued and shall be held subject to all the provisions of the Certificate of Incorporation, as amended, and the Bylaws of the Corporation, as amended (copies of which are on file at the office of the Transfer Agent), to all of which the holder of this Certificate by acceptance hereof assents. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Date: Secretary Chief Executive Officer [ESPERION THERAPEUTICS, INC. SEAL] COUNTERSIGNED AND REGISTERED: STOCKTRANS (ARDMORE, PA) TRANSFER AGENT AND REGISTRAR BY AUTHORIZED SIGNATURE A FULL STATEMENT OF THE RELATIVE RIGHTS, INTERESTS, PREFERENCES AND RESTRICTIONS OF EACH CLASS OF STOCK WILL BE FURNISHED BY THE CORPORATION TO ANY STOCKHOLDER UPON WRITTEN REQUEST, WITHOUT CHARGE. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common UNIF GIFT MIN ACT -- __________ Custodian________ TEN ENT -- as tenants by the entireties (Cust) (Minor) JT TEN -- as joint tenants with right under Uniform Gifts to Minors of survivorship and not as tenants Act________________________ in common (State)
Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, _____________hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - - ------------------------------------- ________________________________________________________________________________ PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE ________________________________________________________________________________ __________________________________________________________________________Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ________________________________________________________________________Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated________________________ ________________________________________________ NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed______________________________________ THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM). KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE. EX-5.1 8 0008.txt OPINION OF MORGAN LEWIS & BOCKIUS LLP Exhibit 5.1 July 31, 2000 Esperion Therapeutics, Inc. 3621 S. State Street, 695 KMS Place Ann Arbor, MI 48108 Re: Public Offering of 6,900,000 Shares of Common Stock, $0.001 Par Value Per Share, of Esperion Therapeutics, Inc. ---------------------------------------------------------- Ladies and Gentlemen: We have acted as counsel to Esperion Therapeutics, Inc., a Delaware corporation (the "Company"), in connection with the preparation of the subject registration statement on Form S-1 (as such may be amended or supplemented, the "Registration Statement"), filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "Act"), to register up to 6,900,000 shares (the "Shares") of Common Stock, par value $0.001 per share (the "Common Stock") to be sold in a public offering (the "Offering"), including 900,000 shares of Common Stock issuable pursuant to an over-allotment option granted to the Underwriters, all of which shares are authorized but heretofore unissued. In rendering the opinion set forth below, we have reviewed (a) the Registration Statement; (b) the Company's Certificate of Incorporation, as amended to date; (c) the Company's Bylaws, as amended to date; (d) certain records of the Company's corporate proceedings as reflected in its minute and stock books; (e) the Form of Underwriting Agreement filed as Exhibit 1.1 to the Registration Statement (the "Underwriting Agreement"), to be executed by the Company and FleetBoston Robertson Stephens Inc., Chase Securities Inc. and U.S. Bancorp Piper Jaffray Inc. as representatives of the underwriters for the Offering (the "Underwriters"); and (f) such records, documents, statutes and decisions as we have deemed relevant. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity with the original of all documents submitted to us as copies thereof. Based upon the foregoing, and in reliance thereon, we are of the opinion that the Shares to be sold by the Company as described in the Registration Statement, upon approval by the pricing committee duly authorized by the Company's Board of Directors, when and to the extent purchased by the Underwriters in accordance with the Underwriting Agreement, will be validly issued, fully paid and nonassessable. We hereby consent to the use of this opinion as Exhibit 5.1 to the Registration Statement and further consent to the use of our name wherever appearing in the Registration Statement, including the prospectus constituting a part thereof, and any amendment thereto. In giving such opinion and consent, we do not thereby admit that we are acting within the category of persons whose consent is required under Section 7 of the Act or the rules or regulations of the Securities and Exchange Commission promulgated thereunder. Very truly yours, /s/ Morgan, Lewis & Bockius LLP EX-10.2 9 0009.txt COLLABORATION AND LICENSE AGREEMENT Collaboration and License Agreement Between Esperion Therapeutics, Inc. and Pharmacia & Upjohn AB dated June 24, 1998. Confidential treatment requested for portions of this document. EXHIBIT 10.2 COLLABORATION AND LICENSE AGREEMENT COLLABORATION AND LICENSE AGREEMENT (this "Agreement") dated as of the 24th --------- day of June, 1998, by and between Pharmacia & Upjohn AB, a Swedish corporation with a principal place of business at Lindhagensgatan 133, S-112 87, Stockholm, Sweden ("PNU"), and Esperion Therapeutics, Inc., a Delaware corporation with a --- principal place of business at 690 KMS Place, Ann Arbor, Michigan 48108, U.S.A. (the "Company"). ------- W I T N E S S E T H: - - - - - - - - - - WHEREAS, PNU has been engaged in the development of the Compound (as defined below) as a therapeutic for cardiovascular market, and owns certain patent rights and know-how with respect thereto; and WHEREAS, PNU has decided for strategic reasons to divest such project from its portfolio; and WHEREAS, the Company has as its principal business objective the development of novel anti-atherogenic therapies, and has an interest in acquiring exclusive rights to the project from PNU and continuing the development of the Compound and pursuing the commercialization thereof; and WHEREAS, the parties desire to enter into an agreement pursuant to which (i) PNU shall transfer and assign to the Company the project and certain patent rights, know-how and technology relating thereto, (ii) the Company will pursue the continued development of the Compound and ultimately the commercialization thereof and (iii) PNU shall have certain options to participate in the development and marketing of the Compound. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows: SECTION 1. DEFINITIONS For the purpose of this Agreement, the following words and phrases shall have shall have the meanings set forth below: 1.1 "Affiliate" means, with respect to any Person, any other Person that --------- directly, or indirectly through one or more intermediaries, controls or is controlled by or is under control with such Person. For purposes hereof, the term "control" (including, with its correlative meanings, the terms "controlled ------- ---------- by" and "under common control with"), with respect to any Person, means the - -- ------------------------- possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person (whether through the ownership of voting securities, by contract or otherwise); provided, that in -------- each event in which any Person owns directly or indirectly more than fifty percent (50%) of the securities having ordinary voting power for the election of directors or other governing body of a corporation or more than 50% of the securities having ordinary **Certain portions of this Exhibit have been omitted based upon a request for confidential treatment that has been filed with the Commission. The omitted portions have been filed separately with the Commission. voting power for the election of directors or other governing body of a corporation or more than fifty percent (50%) of the ownership interest of any other Person, such Person shall be deemed to control such corporation or other Person. 1.2 "Aggregate Cash Reserves" means cash and marketable securities. ----------------------- 1.3 "Assigned Contracts" means the contracts specified in Appendix A hereto. ------------------ 1.4 "Assigned PNU Patent Rights" means all Patents owned by PNU or its -------------------------- Affiliates as of the date of this Agreement and listed in Appendix B hereto. The Patents listed in Appendix B hereto include Patents (a) which have issued as of the date of this Agreement, and (b) which issue at any time from applications (i) pending as of the date of this Agreement or (ii) subsequently filed worldwide. 1.5 "Company Know-How" means any and all technology, manufacturing and other ---------------- know-how, technical information, inventions, discoveries, methods, specifications and trade secrets owned or Controlled by the Company relating to the development, manufacture, use, marketing or sale of Licensed Products or any Improvements with respect thereto. 1.6 "Company Patent Rights" means any and all Patents owned or Controlled by --------------------- the Company claiming inventions necessary or useful to the development, manufacture, use, marketing or sale of Licensed Products or any Improvements with respect thereto, including the Assigned PNU Patent Rights. 1.7 "Compound" means the Milano variant of Apolipoprotein A-I. -------- 1.8 "Confidential Information" means any and all information (in any and every ------------------------ form and media) not generally known in the relevant trade or industry, which was obtained from any party or any Affiliate thereof in connection with this Agreement or the respective rights and obligations of the parties hereunder, including, without limitation, (a) information relating to trade secrets of such party or any Affiliate thereof, (b) information relating to existing or contemplated products, services, technology, designs, processes, formulae, research and development (in any and all stages) of such party or any Affiliate thereof, (c) information relating to the Compound or the Licensed Products, and (d) information relating to business plans, methods of doing business, sales or marketing methods, customer lists, customer usages and/or requirements and supplier information of such party or any Affiliate thereof, except that ------ "Confidential Information" shall not include any information which (i) at the - ------------------------- time of disclosure, is generally known to the public, (ii) after disclosure, becomes part of the public knowledge (by publication or otherwise) other than by breach of this Agreement by the receiving party, (iii) the receiving party can verify by written documentation was in its possession at the time of disclosure and which was not obtained, directly or indirectly, from the other party or any Affiliate thereof, (iv) the receiving party can verify by written documentation results from research and development by the receiving party or any Affiliate thereof independent of disclosures by the other party or any Affiliate thereof or (v) the receiving party can prove was obtained from any Person who had the legal right to disclose such 2 information, provided that such information was not obtained to the knowledge -------- of the receiving party or any Affiliate thereof by such Person, directly or indirectly, from the other party or any Affiliate thereof on a confidential basis. 1.9 "Control" means, with respect to any Licensed PNU Patent Rights or PNU ------- Know-How, or any Company Patent Rights Company Know-How, the possession of the ability to grant a license or sublicense with respect thereto as provided for herein without violating the terms of any agreement with, or the rights of, any third Person. 1.10 "FDA" means the United States Food and Drug Administration or any --- successor agency thereof. 1.11 "Governmental Approval" means any and all approvals, licenses, --------------------- registrations or authorizations, including pricing approval and reimbursement, if required, of any Federal, State or local agency, department, bureau or other governmental entity, foreign or domestic, necessary for the manufacture, use, storage, import, transport and sale of the Licensed Products in any regulatory jurisdiction. 1.12 "Improvements" means any invention, discovery or improvement to the PNU ------------ Patent Rights, the PNU Know-How, the Company Patent Rights or the Company Know- How made, discovered, developed, acquired or Controlled by either party after the date hereof, whether or not patentable or patented. For purposes of this Agreement, "Improvements" shall not include any novel technology, uses, techniques or methods (whether or not incorporated into or used in connection with the Licensed Products). 1.13 "Licensed PNU Patent Rights" means all Patents (other than Assigned PNU -------------------------- Patent Rights) (i) which have issued as of the date of this Agreement, a list of which is attached hereto as Appendix C hereto, or (ii) which issue at any time from applications pending as of the date of this Agreement or subsequently filed worldwide and claiming priority from such pending application, now owned or Controlled during the term of this Agreement, by or on behalf of PNU or any of its successors or Affiliates, claiming inventions necessary or useful to the development, manufacture, purification, formulation, use, marketing or sale of the Compound and/or the Licensed Products or any Improvements with respect thereto. 1.14 "Licensed Product" means any pharmaceutical product including the Compound ---------------- as its active ingredient the manufacture, use or sale of which (i) would infringe one of the issued, valid unexpired claims or one of the pending claims contained in the PNU Patent Rights in any country or (ii) involves use of the PNU Know-How. 1.15 "NDA" means a complete New Drug Application and all supplements thereto --- filed with the FDA, including all documents, data and other information concerning a Licensed Product which are necessary for, or included in, FDA approval to market such Licensed Product as more fully defined in 21 C.F.R. (S)314.5 et seq. ------ 1.16 "Net Sales" means gross receipts received by any party and/or such party's --------- Affiliates for sale of the Licensed Products, less the sum of the following (collectively, "Permitted Deductions"): -------------------- 3 (i) discounts and rebates allowed in amounts customary in the trade; (ii) sales taxes, customs and tariff duties and/or use taxes directly imposed and with reference to particular sales; (iii) outbound transportation and delivery charges (including insurance premiums related to transportation and delivery), prepaid or allowed; (iv) amounts repaid, allowed or credited on returns; and (v) commissions paid or allowed to distributors, dealers and agents which are not Affiliates of such party. In the event of any sale of the Licensed Products by any party to any Affiliate thereof for resale to its customers, "Net Sales" shall be based on the --------- greater of the amount actually received by such party from its Affiliate or the amount actually received by such Affiliate from its customers for the sale of the Licensed Products, less (in either such case) the Permitted Deductions. ---- If any party or any of its Affiliates sells any Licensed Products in combination with other items which are not Licensed Products such as other active compounds or convenience systems ("Other Items") at a single invoice ----------- price, "Net Sales" for purposes of computing royalty payments on the combination --------- shall be determined as follows: (a) if all Licensed Products and Other Items contained in the combination are available separately, "Net Sales" for purposes of --------- computing royalty payments shall be determined by multiplying Net Sales of the combination by the fraction A/(A+B), where A is the selling price of all Licensed Products at comparable doses and strengths in the combination and B is the selling price of all Other Items in the combination; (b) if the combination includes Other Items which are not sold separately (but all Licensed Products contained in the combination are available separately), "Net Sales" for purposes of computing royalty payments shall be determined by multiplying Net Sales of the combination by A/C, where A is as defined above and C is the selling price of the combination; and (c) if neither the Licensed Products nor the Other Items contained in the combination are sold separately, "Net Sales" for purposes of --------- computing royalty payments shall be determined by multiplying Net Sales of the combination by the fraction D/(D+E), where D is the cost of manufacture of all Licensed Products in the combination and E is the cost of manufacture of all Licensed Products in the combination, all as reasonably determined by the parties or, if the parties are unable to agree, by an independent third party mutually agreed upon by the parties or, if the parties are unable to agree upon such third party within fifteen (15) days after either party requests that such third party make such determination, by arbitration as provided in Section 14.2 hereof (which determination shall be conclusive). 4 1.17 "Patent" means (i) unexpired letters patent (including inventor's ------ certificates) which have not been held invalid or unenforceable by a court of competent jurisdiction from which no appeal can be taken or has been taken within the required time period, including, without limitation, any substitution, extension (such as supplementary protection certificates), registration, confirmation, reissue, re-examination, renewal or any like filing thereof, and (ii) pending applications for letters patent, including without limitation any continuation, division or continuation-in-part thereof and any provisional applications, and any foreign counterparts and all patents that issue therefrom. 1.18 "Person" means any individual, estate, trust, partnership, joint venture, ------ association, firm, corporation or company, or governmental body, agency or official. 1.19 "PNU Patent Rights" means, collectively, the Assigned PNU Patent Rights ----------------- and the Licensed Patent Rights. 1.20 "PNU Know-How" means any and all technology, manufacturing and other know- ------------ how, technical information, inventions, discoveries, methods, specifications and trade secrets owned or Controlled by PNU as of the date hereof relating to the Compound or the Licensed Products (the nature of which is described in the internal reports of PNU listed or referred to in Appendix D hereto), and any Improvements with respect thereto. 1.21 "U.S. Dollars" and the sign "$" each means lawful currency of the United ------------ States of America. SECTION 2. GRANT 2.1 Transfer of Rights. Upon the terms and subject to the conditions herein ------------------ stated, PNU hereby sells, assigns, transfers, conveys and delivers to the Company, and the Company hereby purchases and accepts from PNU, good and valid title to all of the Assigned PNU Patent Rights, free and clear of all liens and other defects in title. On the date hereof, or from time to time hereafter in and to the extent the Company shall so request in order to give effect to this Agreement, PNU shall, and shall cause its Affiliates to, deliver to the Company (I) such specific assignments, bills of sale, endorsements and other good and sufficient instruments of conveyance and transfer, in form and substance and reasonably satisfactory to the Company, as shall be effective to assign and vest in the Company good and valid title to all of the Assigned PNU Patent Rights, free and clear of all liens and other defects in title, and (ii) originals or copies of all records relating to the Assigned PNU Patent Rights, including originals of any certificates of registration of any Assigned PNU Patent Rights or renewals thereof. 2.2 Grant of License. Upon the terms and subject to the conditions herein ---------------- stated, PNU hereby grants the Company an exclusive, worldwide license under the Licensed PNU patent Rights and PNU Know-How to develop, make, use, import, export, offer for sale and sell, and to have developed, made, used, imported, exported, offered for sale and sold, the Licensed Products, with the right to grant sublicenses. The grant of any 5 sublicense shall not exceed the scope of the license granted to the Company pursuant to this Agreement. 2.3 Delivery of PNU Know-How. PNU shall deliver to the Company as soon as ------------------------ reasonably practicable after the date hereof copies of all of its records, data and documentation relating to the PNU Know-How, including, without limitation, scientific data and regulatory submissions and documentation, manufacturing process, reagents, expression systems, formulations and other information relevant to the Compound and/or the development, manufacture, purification, formulation, use or marketing of any Licensed Products. In addition, PNU shall make available to the Company the necessary and appropriate PNU personnel who are familiar with the PNU Know-How for a reasonable period of consultation at no cost to the Company, in order to effect the transfer of the PNU Know-How to the Company. 2.4 Delivery of Improvements. To provide an ongoing procedure for the transfer ------------------------ of Improvements, PNU and the Company shall meet on a periodic basis (but not less frequently than annually) to discuss Improvements to which either party may wish to have access and obtain rights thereto in accordance with the provisions of this Agreement. 2.5 Patent Assignment Procedure. PNU shall execute and deliver to the Company --------------------------- such patent assignments and such other instruments of transfer and conveyance, in form and substance satisfactory to the requirements of each patent office, as shall be effective to vest and/or confirm in the Company good and marketable title to all of the Assigned PNU Patent Rights. The Company shall perform and accomplish all the other procedures for transfer and conveyance of the Assigned Patent Rights required by applicable laws, decrees and regulations. The expenses incurred hereunder for transfer and conveyance of the Assigned PNU Patent Rights, including reasonable attorneys' fees and expenses, shall be shared equally by PNU and the Company. The Company shall be responsible for all costs relating to maintenance of the Assigned Patent Rights. 2.6 Assigned Contracts. PNU hereby assigns and transfers to the Company and ------------------ the Company hereby accepts from PNU all PNU's rights and obligations under the Assigned Contracts. The transfer of each of the Assigned Contracts to the Company is conditional upon consent to the assignment and transfer, where so required, being obtained by PNU from the other party to the Assigned Contract, and nothing in this Agreement shall be deemed to constitute an assignment or an attempt to any Assigned Contract with any third party if the attempted assignment thereof, without the consent of any such third party, would constitute a breach thereof or adversely affect in any way the rights of PNU thereunder. If, after PNU has used reasonable efforts to obtain such consent from any such third party, any such consent shall not have been obtained, PNU shall cooperate with the Company, at the Company's expense, in any reasonable arrangement designed to provide for the Company the benefits of such Assigned Contract, provided that the Company also undertakes to perform and discharge the -------- outstanding obligations and liabilities of PNU under such Assigned Contract. 6 SECTION 3. DEVELOPMENT 3.1 Development Effort. The Company shall use its reasonable good faith ------------------ efforts to pursue the development of the Compound, including the necessary manufacturing, process development, preclinical and clinical trials and preparation and prosecution of regulatory submissions, and ultimately shall use its reasonable good faith efforts to pursue commercialization of the Compound, either on its own or in conjunction with one or more other Persons, as determined by the Company. 3.2 Transfer of Materials. PNU shall transfer and as soon as practicably --------------------- possible deliver to the Company, at the location(s) specified by the Company, all of its existing supplies and materials relating to the Compound and/or any Licensed Products, including, without limitation, the Compound, finished product, intermediates and formulation materials, master cell lines, antibodies and any available custom-designed reagents, at no cost to the Company. 3.3 Rights of Election. Upon completion of the Company's data analysis of ------------------ Phase IIb trials in the United States for the initial indication of the Compound, the Company shall furnish written notice of such completion to PNU, together with a written summary of the results thereof and, upon PNU's written request, all written documentation reasonably necessary for PNU to review and evaluate such data analysis and the results thereof. PNU shall have the right to elect, within ninety (90) days after receipt of such notice and summary (or, if requested by PNU, the receipt by PNU of the written documentation), to participate in the further development and/or marketing of the Compound pursuant to one of the following two options: (i) PNU may elect to have the exclusive right to co-develop and the exclusive right to market the Licensed Products in countries other than the United States and Canada, with the right to grant sublicenses in such countries (i.e., other than in the United --- States and Canada) and, if the Company chooses to pursue a co- development and co-promotion arrangement in the United States and Canada and with a third Person such as PNU, the right of first negotiation to co-develop and co-promote the Licensed Products in the United States and Canada. In the event that PNU makes such election and desires to exercise its right of first negotiation with respect to such rights for the United States and Canada, it shall give written notice thereof to the Company and, if the Company chooses to pursue such arrangement with another Person for co-development and co-production in the United States and Canada, the Company shall first offer such rights to PNU, and the Company and PNU shall enter into good faith negotiations for such rights. If the parties have been unable to enter into a mutually acceptable binding Heads of Agreement containing the basic terms of such a transaction within four months after such notice is given by PNU, then the Company may offer such rights to a third Person without further obligation to PNU; provided that the financial terms of -------- such 7 transaction, when taken in their entirety, are not more favorable to the third Person than the terms offered by PNU. In no event shall the Company pursue any discussions with a third Person without having first responded to a proposal made by PNU during such four month period. (ii) PNU may elect not to participate in the development or marketing of the Licensed Products. In the event that PNU does not deliver to the Company a written notice of its election pursuant to the foregoing clause (i) or (ii) within ninety (90) days after receipt of the notice and summary described in the firs sentence of this Section 3.3, then PNU shall be deemed to have elected the option provided in the foregoing clause (ii) of this Section 3.3. In the event that PNU makes the election provided in clause (i) of this Section 3.3, PNU shall use its reasonable good faith efforts to commit the resources necessary to develop and market the Licensed Products in the countries in which PNU has exclusive marketing rights, including a collaborative global strategy wherein studies conducted in the respective countries of the Company and PNU will be, wherever possible, useful in submissions to regulatory authorities in their respective countries. In the event that PNU makes the election provided in clause (i) of this Section 3.3, then resource allocation, development and commercialization strategies shall be discussed jointly by the parties in order to coordinate their respective activities for such countries in which they have marketing rights, such discussions to be conducted through a joint steering committee, to consist of an equal number of designees from each of the Company and PNU, with disputes relating thereto to be resolved in accordance with the provisions of this Agreement. 3.4 Development Charges. All costs incurred by the Company in the development ------------------- of the Licensed Products, including, without limitation, payments for clinical trials and other studies, tests and all filings and applications and other actions necessary for achieving Governmental Approval of the Licensed Product, shall be the sole responsibility of the Company, unless PNU elects the option provided in clause (i) of Section 3.3 and pursuant to the provisions thereof the Company grants co-development and marketing rights to PNU in the United States, in which case the costs incurred by either party after completion of the Phase IIb clinical trials in the United States shall be shared as mutually agreed upon by the parties. 3.5 Manufacturing. In the event that PNU elects the option provided in clause ------------- (i) of Section 3.3 and the parties enter into a marketing or co-promotion agreement as the result of which PNU has certain rights to market and sell the Licensed Products, the Company shall be and become the exclusive supplier to PNU, its Affiliates and sublicensees of the Licensed Products for those countries in which PNU has such marketing rights. The supply of clinical trial materials and commercial product shall be a follows: 8 3.5.1 Clinical Trial Materials. The Company shall provide to PNU clinical ------------------------ trial materials in accordance with the specifications of PNU, and will be invoiced at the Company's fully burdened costs. 3.5.2 Commercial Product. The Company and PNU shall enter into a separate ------------------ supply agreement incorporating a transfer price (including royalties) for finished product equal to [**] of the Net Sales of the Licensed Products by PNU and its Affiliates up to the first [**] in any given annual period and [**] of the portion of Net Sales of the Licensed Products by PNU and its Affiliates which is in excess of [**] in such annual period. The Company shall have both primary and secondary sources for its production of commercial quantities of the Licensed Product, and PNU shall be given the option of serving as a primary or secondary vendor of manufacturing services. SECTION 4. ROYALTIES AND OTHER PAYMENTS 4.1 Initial License Fee. The Company shall pay to PNU an initial license fee - --- ------------------- of 750,000 in cash, which initial license fee shall be paid within ninety (90) days after the execution of this Agreement. 4.2 Milestone, Development and Royalty Obligations. 4.2.1 For the rights, privileges and licenses granted hereunder, the parties shall pay the following amounts to each other in the manner hereinafter provided during the term of this Agreement: 4.2.1.1 Upon completion of clinical studies showing preliminary safety and initial proof-of-concept (which may include early Phase IIa studies), the Company shall pay to PNU [**] in cash or by issuance of a promissory note, with the form of payment to be at the exclusive option of the Company. In the event that such payment is made by promissory note, the terms thereof shall be as described in Section 4.2.2. 4.2.1.2 In the event that PNU elects the option provided in clause (i) of Section 3.3, the parties shall make the payments to each other provided in this Section 4.2.1.2. In the case of milestone payments made by the Company to PNU, such payments ,may be in the form of cash or a promissory note, as determined by the Company, except that a milestone payment in cash if the amount thereof is less than ten percent (10%) of the then Aggregate Cash Reserve of the Company. The Company shall notify PNU whether it is obligated to pay the milestone payment in cash, based upon its Aggregate Cash Reserves, and provide financial documentation related thereto. Upon PNU's written request, PNU shall have the right to arrange for an independent third party audit to verify whether the Company shall be obligated to pay a milestone payment in cash, and the Company will cooperate in such audit making available its financial books and records to such auditor during normal business hours. If there is a discrepancy of greater than five percent (5%) in PNU's favor, PNU shall be entitled to reimbursement of **Certain portions of this Exhibit have been omitted based upon a request for confidential treatment that has been filed with the Commission. The omitted portions have been filed separately with the Commission. 9 the reasonable cost of such audit and, if such audit discloses that PNU shall have been entitled to receive a milestone payment in cash that the Company paid in the form of a promissory note shall be returned to the Company for cancellation. If such payment is made by promissory note, the terms thereof shall be as described in Section 4.2.2. The payments to be made pursuant to this Section 4.2.1.2 are as follows: (i) a milestone payment in the amount of [**] shall be made by the Company to PNU upon the granting of Governmental Approval for marketing of the initial Licensed Product in the United States; (ii) the Company shall pay to PNU royalties in the amount of [**] of the Net Sales of the Licensed Product by the Company and its Affiliates up to the first [**] of Net Sales in any annual period and [**] of the Net Sales of the Licensed Product by the Company and its Affiliates in excess of [**] in such annual period, except that the Company shall pay PNU [**] of the royalties received by the Company based on the Net Sales of the Licensed Products by its sublicensees (other than PNU, its Affiliates and sublicensees) and [**] of any and all license fees and milestone payments received by the Company (other than from PNU, its Affiliates and sublicensees) or [**] of the Net Sales of its sublicensees (other than PNU, its Affiliates and sublicenses), whichever is greater; (iii) PNU shall pay to the Company royalties in the amount of [**] of the Net Sales of the Licensed Products by PNU and its Affiliates up to the first [**] of Net Sales in any annual period and [**] of the portion of Net Sales of the Licensed Products by PNU and its Affiliates which is in excess of [**] in such annual period; and (iv) in the event that PNU has granted sublicensees to any Person other than the Company or any Affiliate thereof, PNU shall pay the Company [**] of any and all payments received by PNU and/or any of is Affiliates from such sublicensees (including, without limitation, any royalties, sublicense issue fees, lump sum payments, technology transfer payments or other similar fees and payments) or [**] of the Net Sales of PNU's sublicensees, whichever is greater. If PNU and the Company enter into a definitive co-development and co- promotion agreement with respect to the United States and Canada pursuant to clause (i) of this Section 3.3, [**] of the amount of the milestone payment payable by the Company pursuant to clause (i) of this Section 4.2.1.2. shall be credited against future royalties owned by the Company to PNU hereunder. **Certain portions of this Exhibit have been omitted based upon a request for confidential treatment that has been filed with the Commission. The omitted portions have been filed separately with the Commission. 10 4.2.1.3 In the event that PNU elects the option provided in clause (ii) of Section 3.3, the Company shall make the payments to PNU provided in this Section 4.2.1.3. In the case of milestone payments made by the Company to PNU, such payments may be in the form of cash or a promissory note, as determined by the Company, except that a milestone payment will be made in cash if the amount thereof is less than ten percent (10%) of the then aggregate cash reserves of the Company. If such payment is made by promissory note, the terms thereof shall be as provided in Section 4.2.2. The payments to be made pursuant to this Section 4.2.1.3 are as follows: (i) a milestone payment in the amount of [**] shall be made by the Company to PNU upon the enrollment of the first patient in the first Phase III trial for the initial Licensed Product in the United States; (ii) a milestone payment in the amount of [**] shall be made by the Company to PNU upon the filing of the first NDA with respect to marketing of the initial Licensed Product in the United States; (iii) a milestone payment in the amount of [**] shall be made by the Company to PNU upon the filing of the first application with the applicable regulatory authorities for Governmental Approval of the marketing of the initial Licensed Product in any two of the following countries: France, Italy, Germany and the United Kingdom; (iv) a milestone payment in the amount of [**] shall be made by the Company to PNU upon the final approval by the FDA of the first NDA with respect to the marketing of the initial Licensed Product in the United States; (v) a milestone payment in the amount of [**] shall be made by the Company to PNU upon final Governmental Approval of the first application to market the initial Licensed Product in any two of the following countries: France, Italy, Germany and the United Kingdom; and (vi) the Company shall pay to PNU royalties in the amount of [**] of the Net Sales of the Licensed Products by the Company and its Affiliates up to the first [**] of Net Sales in any annual period and [**] of the Net Sales of the Licensed Products by the Company and its Affiliates in excess of [**] in such annual period, except that the Company shall pay PNU [**] of the royalties received by the Company based on the Net Sales of the Licensed Products by its sublicensees (other than PNU, its Affiliates and sublicensees) and [**] of any and all license fees and milestone payments received by the Company **Certain portions of this Exhibit have been omitted based upon a request for confidential treatment that has been filed with the Commission. The omitted portions have been filed separately with the Commission. 11 (other than from PNU, its Affiliates and sublicensees) or [**] of the Net Sales of its sublicensees (other than PNU, its Affiliates and sublicensees), whichever is greater. The Company shall be entitled to a credit against future royalties otherwise payable by the Company to PNU hereunder in an amount equal to [**] of the amount of the milestone payments paid by the Company pursuant to clause (i, (ii) and (iii) of this Section 4.2.1.3 and [**] of the amount of the milestone payments paid by the Company pursuant to clauses (iv) and (v) of this Section 4.2.1.3. In no event shall the Company be entitled to use such credits to offset than [**] of the royalties otherwise payable to PNU with respect to any calendar year, and any unused credits shall be carried over and used by the Company in subsequent years. 4.2.2 Each promissory note, if any, delivered by the Company to PNU as a milestone payment pursuant to this Section 4 shall (i) be issued by the Company to PNU and be dated the date such milestone payment is due, (ii) be assignable by the holder thereof, (iii) bear interest at the prime rate per annum plus [**] using the prime rate as quoted in The Wall Street Journal on the date such milestone payment ----------------------- is due and (iv) provide for the payment of the principal amount thereof, together with interest thereon to the date of payment, on the first to occur of (a) the fifth anniversary of the date on which such milestone payment is due or (b) the closing date of the first public offering of securities of the Company which results in receipt by the Company of net proceeds of at least [**]. Each such note shall also provide that it may be prepaid in full at any time without penalty. 4.3 Limitation on Royalties. Notwithstanding anything to the contrary - --- ----------------------- contained herein, (a) no royalties shall be payable by any party hereunder with respect to the Net Sales of the Licensed Products to any of its Affiliates or by any of such party's Affiliates to any other Affiliate thereof, and (b) no multiple royalties shall be payable in the event that any of the Licensed Products or the manufacture, use or sale thereof is covered by more than one percent included in the PNU Patent Rights. 4.4 Royalties to Third Persons. The parties recognize that acquisition of - --- -------------------------- various technologies in the future development work on the Compound or the Licensed Product by the Company may require the Company to undertake royalty obligations to third parties. The parties further recognize that such royalty obligations may render the project financially unacceptable. Therefore, if the Company contemplates the acquisition of new valuable technologies for the development of the Compound or the Licensed Product prior to the Company's notice of completion to PNU pursuant to Section 3.3, and which acquisition includes royalty obligations that may render the project financially unacceptable, the parties agree to discuss suitable arrangements to accommodate for such acquisition of technology, which may include the absorption by PNU of part of such third party royalty (and PNU agrees to consider any reasonable such arrangements in good faith). **Certain portions of this Exhibit have been omitted based upon a request for confidential treatment that has been filed with the Commission. The omitted portions have been filed separately with the Commission. 12 4.5 Withholding Taxes. The parties acknowledge and agree that there may be deducted from any payments or royalties otherwise due and payable hereunder any taxes or other payments required to be withheld under applicable law with respect to such payments or royalties or otherwise relating to the Licensed Product. SECTION 5. PAYMENT OF ROYALTIES, ACCOUNTING FOR ROYALTIES, RECORDS, ETC. 5.1 Payment. Royalties payable hereunder shall be paid within 30 days after - --- ------- the end of each calendar quarter, based on the Net Sales of the Licensed Products by the parties and their respective Affiliates during the preceding calendar quarter. Such payments shall be accompanied by a statement setting forth the Net Sales of the Licensed Products. 5.2 Accounting; Foreign Currency. The aggregate amount of the Net Sales of the - --- ---------------------------- Licensed Products used for computing the royalties payable hereunder shall be computed in U.S. Dollars, and all payments of such royalties shall be made in U.S. Dollars. For purposes of determining the amount of royalties due, the amount of the Net Sales of the Licensed Products in any foreign currency shall be computed by converting such amounts into U.S. Dollars at the prevailing commercial rate of exchange for purchasing U.S. Dollars, as quoted in The Wall Street Journal, on the last business day of the calendar quarter with respect to which such royalty payment is payable hereunder. 5.3 Records. Each party hereto shall keep for five (5) years complete and - --- ------- accurate records of the Net Sales of the Licensed Products sold by such party and its Affiliates in sufficient detail to allow the royalties payable by such party hereunder to be accurately determined. Each party hereto shall have the right for a period of five (5) years after receiving any report or statement with respect to royalties due and payable hereunder by the other party hereto to appoint an independent accounting firm to inspect and audit the relevant records of the party furnishing such report or statement and its Affiliates to verify such report or statement. Each party hereto and its Affiliates shall make their records available for inspection and audit by such independent accounting firm during regular business hours at such place or places where such records are customarily kept, upon reasonable notice of the other party hereto, to the extent reasonably necessary to verify the accuracy of the reports and payments required hereunder. The cost of any such inspection and audit shall be paid by the party conducting such inspection and audit, unless such inspection and audit discloses for any calendar quarter examined that there shall have been a negative discrepancy of greater than five percent (5%) between the royalties payable hereunder by the relevant party and the royalties actually paid by the relevant party with respect to such calendar quarter, in which case the party paying such royalties shall be responsible for the payment of the entire cost of such inspection and audit. SECTION 6. PATENT PROSECUTION 6.1 Prosecution Obligation. The Company shall, at its sole cost and expense, - --- ---------------------- maintain during the term of this Agreement any and all Assigned PNU Patent Rights. 13 PNU shall, at its sole cost and expense, apply for, and use its reasonable good faith efforts to seek issuance of, and maintain during the term of this Agreement any and all Licensed PNU Patent Rights, in a timely and reasonably prudent business manner. SECTION 7. REPRESENTATIONS AND WARRANTIES. 7.1 By the Company. The Company hereby represents and warrants to PNU that (a) -------------- the Company has full legal right, power and authority to execute, deliver and perform its obligations under this Agreement, (b) the execution, delivery and performance by the Company of this Agreement do not contravene or constitute a default under any provision of applicable law or its articles or by-laws (or equivalent documents) or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Company, (c) all licenses, consents, authorizations and approvals, if any, required for the execution, delivery and performance by the Company of this Agreement have been obtained and are in full force and effect and all conditions thereof have been complied with, and no other action by or with respect to, or filing with, any governmental authority or any other Person is required in connection with this execution, delivery and performance by the Company of this Agreement, (d) this Agreement constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms. 7.2 By PNU. PNU hereby represents and warrants to the Company that (a) PNU has ------ full legal right, power and authority to execute, deliver and perform its obligations under this Agreement, (b) the execution, delivery and performance by PNU of this Agreement do not contravene or constitute a default under any provision of applicable law or of its articles of incorporation or by-laws (or equivalent documents) or of any agreement, judgment, injunction, order, decree or other instrument binding upon PNU or otherwise relating to the Compound, the PNU Patent Rights or the PNU Know-How, (c) all licenses, consents, authorizations and approvals, if any, required for the execution, delivery and performance by PNU of this Agreement have been obtained and are in full force and effect and all conditions thereof have been complied with, and no other action by or with respect to, or filing with, any governmental authority or any other Person is required in connection with the execution, delivery and performance by PNU of this Agreement, (d) PNU is the exclusive owner of all legal and beneficial right, title and interest in and to the PNU Assigned Patent Rights, free and clear of any lien, claim or encumbrance or rights of any other Person, and PNU owns or Controls sufficient legal rights to the PNU Licensed Patent Rights and the PNU Know-How to grant to the Company the exclusive licenses and rights contemplated hereby, (e) except as set forth in Schedule 7.2 attached hereto, to the best knowledge of PNU, the practice of the PNU Patent Rights and/or the PNU Know-How as contemplated by Section 2.2 hereof does not infringe or violate any patent or other right of any Person, (f) Appendix B hereto contains a complete and correct list of all Patents owned by PNU or its Affiliates as of the date hereof claiming inventions relating solely to the development, manufacture, purification, formulation, use or sale of the Compound, and (g) this Agreement constitutes a valid and binding agreement of PNU, enforceable against PNU, in accordance with its terms. 14 7.3 Due Diligence. The Company and its consultants have, prior to the ------------- execution of this Agreement, conducted a due diligence of the PNU Patent Rights and the PNU Know-How. The parties agree that the Company shall not entitled to raise any claims for compensation for Losses (as defined in Section 8.2.1) against PNU or its Affiliates insofar as such claims relate to circumstances that PNU can prove were evidence from the information made available to the Company and its consultants in the above-mentioned due diligence. The liability of PNU under Sections 7.2(d) and (e) hereof shall remain valid for eighteen (18) months from the effective date of this Agreement, prior to which date the Company must notify PNU in writing of any claim specifying the exact nature and the Losses relating to such claim, and after said eighteen (18) month period the Company shall be precluded from raising claims for compensation for such Losses against PNU or its Affiliates. 7.4 Survival of Representations and Warrants. The representations and ---------------------------------------- warranties contained herein shall survive the execution, delivery and performance of this Agreement by the parties, notwithstanding any investigation at any time on or prior to the date hereof made by or on behalf of any party or parties. SECTION 8. INFRINGEMENT AND INDEMNIFICATION 8.1 Infringement Claims. ------------------- 8.1.1 Third Party Infringement. Each party shall promptly notify the other ------------------------ party of its knowledge of any potential or actual infringement of the PNU Patent Rights or the Company Patent Rights. The party having the exclusive marketing rights to Licensed Products in the territory where the infringement takes place shall have the first option to take such action against infringers as such party, using prudent business judgment, deems appropriate. For the purpose of this Section 8.1, the Company shall be deemed to have the exclusive marketing rights for U.S. and Canada, even if PNU and the Company conclude a co-promotion agreement for said countries. If the party having the exclusive marketing rights fails to take appropriate action against any infringer within six (6) months from written notice requesting such action from the other party, then such other party shall have the right to take action against such infringer. The party taking action to enforce any of the PNU Patent Rights or the Company Patent Rights shall do so at its own expense and for its own benefit, except that if a party with exclusive marketing rights is awarded damages by any court of under any settlement, it shall report such amounts, less out-of-pocket expenses, as Net Sales for royalty-related purposes insofar as such amounts relate to damages for lost sales of Licensed Products. In the event that any such infringement shall not have terminated in any country within one (1) year after the receipt of notice thereof to the party entitled to receive royalties hereunder with respect to Net Sales of the Licensed Products in such country, then the party having the marketing rights in such country shall be entitled to a royalty reduction, on a country-by-country basis, as follows: if sales of the product(s) sold by or on behalf of the infringer exceed ten percent (10%) of the 15 combined sales of such product(s) sold by or on behalf of the infringer exceed ten percent (10%) of the combined sales of such product(s) and the Licensed Products, the royalty rate otherwise applicable shall be reduced by twenty-five percent (25%) of the combined sales, the royalty rate otherwise applicable shall be reduced by fifty percent (50%). 8.1.2 Third Party Claims. Except to the extent arising out of a breach of such ------------------ party's representations and warranties set forth in Section 7 hereof, each party shall defend at its own expense any actions brought against it, its Affiliates or sublicensees alleging that the development, manufacture, marketing, use or sale of any Licensed Products infringes any claim of any third party Patent in any country of the world and such party shall pay all damages and costs payable by such party in such actions. If any claim or proceeding is made or brought (or, in the reasonable opinion of such party's outside patent counsel (which patent counsel must be reasonably acceptable to the other party) set forth in writing and delivered to the other party, is likely to be made or brought) against a party, its Affiliates or sublicensees, based on any claim of infringement or alleged infringement of any third party's patent or other proprietary rights necessary for the practice of the intellectual property rights licensed or acquired by either party under this Agreement, then such party may, in its sole judgment but after consultation with the other party, settle such claim or proceeding (or potential claim or proceeding) by acquiring or obtaining a license under such third party patent or other proprietary rights. In such case, the party acquiring or obtaining a license may offset one hundred percent (100%) of the costs of such acquisition or license against any royalties otherwise payable to the other party up to one percent (1%) of Net Sales and fifty percent (50%) of such costs exceeding one percent (1%) of Net Sales, provided that such party may not exercise such right of offset for an -------- aggregate amount in excess of fifty percent (50%) of the royalty payments and other amounts otherwise payable to the other party hereunder. 8.1.3 Revocation or Invalidity Actions. Each party shall have the right to -------------------------------- defend at its own expense all suits or proceedings seeking to have any of its Patents licensed to the other party hereunder revoked or declared invalid. If such party fails to take action in either case at least thirty (30) days prior to the time that such party is obliged to respond to such suit or proceeding, the other party shall have the right to take whatever action it deems appropriate to defend such suit or proceeding. All costs and expenses (including attorney's fees) incurred by such party in such action may be deducted from royalties and/or other amounts otherwise payable to the other party hereunder from the sale of the Licensed Products in the country where such revocation or invalidity suit or proceeding is pending, up to a maximum of fifty percent (50%) of such royalties and/or other payments. 8.1.4 Competing Products. If, as a result of revocation or invalidation of one ------------------ or more of the Patents or unlicensed competition under the PNU Patent Rights, one or more third Persons begins to sell a product competing with the Licensed Product (a "Competing Product") in any country of the world, then the party ----------------- having the marketing rights in such country shall be entitled to a royalty 16 reduction, on a country-by-country basis, as follows: if the sales of the Competing Product in such country exceed ten percent (10%) of the combined sales of the Competing Product and the Licensed Products, the royalty rate otherwise applicable shall be reduced by twenty-five percent (25%), and if sales of such Competing Product exceed twenty-five percent (25%) of such combined sales, the royalty rate otherwise applicable shall be reduced by fifty percent (50%). 8.2 Indemnification. --------------- 8.2.1 Indemnification by the Company. The Company hereby agrees that it shall ------------------------------ be responsible for, indemnify, hold harmless and defend PNU and PNU Affiliates, and their respective directors, officers, managing members, shareholders, partners, attorneys, accountants, agents, employees and consultants, and their respective heirs, successors and assigns (collectively, the "PNU Indemnities"), --------------- from and against any and all claims, demands, losses, liabilities, damages, costs and expenses (including the cost of settlement, reasonable legal and accounting fees and any other expenses for investigating or defending any actions or threatened actions) (collectively, "Losses") suffered or incurred by ------ any PNU Indemnitee arising out of, relating to, resulting from or in connection with (a) any actual or alleged injury or death of any Person or damage to any property caused or claimed to be caused by any Licensed Product marketed or sold by the Company, but only to the extent the Company has insurance coverage therefor, (b) the breach of any representation or warranty made by the Company herein, (c) the default by the Company in the performance or observance of any of its obligations to be performed or observed hereunder, and (d) any action, suit or other proceeding, or compromise, settlement or judgment, relating to any of the foregoing matters with respect to which PNU Indemnitees are entitled to indemnification hereunder. The foregoing shall not apply to the extent that such Losses are due to the willful misconduct or gross negligence of any of the PNU Indemnitees. 8.2.2 Indemnification by PNU. PNU hereby agrees that it shall be responsible ---------------------- for, responsible for, indemnify, hold harmless and defend the Company and the Company's Affiliates, and their respective directors, officers, managing members, shareholders, partners, attorneys, accountants, agents, employees and consultants, and their respective heirs, successors and assigns (collectively, the "Company Indemnities"), from and against any and all Losses suffered or ------------------- incurred by any of the Company Indemnitees arising out of, relating to, resulting from or in connection with (a) the breach of any representation or warranty made by PNU herein, (b) the default by PNU in the performance or observance of any of its obligations to be performed or observed hereunder, and (c) any action, suit or other proceeding, or compromise, settlement or judgment, relating to any of the foregoing matters with respect to which the Company Indemnitees are entitled to indemnification hereunder. The foregoing shall not apply to the extent that such Losses are due to the willful misconduct or gross negligence of any of the PNU Indemnitees. 17 8.2.3 Notice of Claims. In the event that a claim is made pursuant to Section ---------------- 8.2.1 and 8.2.2 above against any party which seeks indemnification hereunder (the "Indemnitee"), the Indemnitee agrees to promptly notify the other party ---------- (the "Indemnitor") of such claim or action and, in the case of any claim by a ---------- third Person against the Indemnitee, the Indemnitor may, at its option, elect to assume control of the defense of such claim or action; provided, however, that -------- ------- (a) the Indemnitee shall be entitled to participate therein (through counsel of its own choosing) at the Indemnitee's sole cost and expense, and (b) the Indemnitor shall not settle or compromise any such claim or action without the prior written consent of the Indemnitee, unless such settlement or compromise includes a general release of the Indemnitee and all of the other PNU Indemnities or the Company Indemnities, as the case may be, from any and all liability with respect thereto. SECTION 9. CONFIDENTIALITY The parties each recognize that the Confidential Information of the other party and any and all Affiliates thereof constitutes valuable confidential and proprietary information. Accordingly, the parties each agree that they and their respective Affiliates 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 not use the same for any purpose other than as set forth in this Agreement nor disclose the same to any other Person 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 any stock exchange upon which such party's shares or other equity securities may be traded); provided, however, if any party shall -------- ------- be required by law to disclose any such Confidential Information to any other Person, such party shall give prompt 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 an obligation of confidentiality to such party, (b) to such party's banks or other financial institutions or venture capital sources for the purpose of raising capital or borrowing money or maintaining compliance with agreements, arrangements and understandings relating thereto, and (c) 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 this Agreement, if such Person agrees to maintain the confidentiality of such Confidential Information pursuant to a written agreement in form and substance reasonably satisfactory to the parties. The standard of care required to be observed hereunder shall be not less than the degree of care which each party or Affiliate thereof uses to protect its own information of a confidential nature. SECTION 10. INTELLECTUAL PROPERTY; IMPROVEMENTS 10.1 Rights to Propriety Technology. Neither party shall through this ------------------------------ Agreement obtain any rights to the other party's proprietary technology except for such rights as are expressly granted or allocated under this Agreement. 18 10.2 Improvements and Filing, Prosecution and Maintenance of Patents. --------------------------------------------------------------- 10.2.1 Any Improvement to the Compound or any Licensed Product made, discovered or developed by any party during the term of this Agreement shall be owned solely by such party, provided that the Company is hereby granted a license upon -------- the terms set forth in Section 2.2 hereof to any such Improvement and under any PNU Patent Rights and PNU Know-How and under any other intellectual property rights of PNU relating thereto owned or Controlled by PNU, to the extent that such Improvement is used solely for the development, manufacture, use, importation, marketing, offer for sale or sale of any Licensed Product. If PNU elects to co-develop and market the Licensed Products, then PNU shall have a license upon the same terms as granted to the Company with respect to any Improvements, and under any Company Patent Rights and Company Know-How and under any other intellectual property rights of the Company relating thereto owned or Controlled by the Company, to the extent that such Improvement is used solely for the development, manufacture, use, importation, marketing, offer for sale or sale of any Licensed Product in the countries in which PNU has marketing rights. Each party agrees to give the other Party prompt written notice of any Improvement to the Compound or any Licensed Product discovered or developed by such party during the term of this Agreement. Improvements to the Company Patent Rights and the Company Know-How made, discovered or acquired by the Company during the term of this Agreement shall be owned by the Company, provided that with respect to any such Improvement to the Assigned Patents made - -------- or developed by the Company in the nature of a patentable manufacturing process or technique, PNU shall have the option to acquire, for such consideration as may be mutually agreed upon by the parties after negotiation in good faith, a non-exclusive, worldwide license under any intellectual property rights owned or Controlled by the Company relating to such Improvement, with the right to sublicense upon obtaining the Company's prior written consent thereto (which consent shall not be unreasonably withheld), to use such Improvement for purposes other than (i) to develop, manufacture, use, market or sell the Licensed Products or any other pharmaceutical products or compounds containing an apolipoprotein as an active ingredient for medical treatment in the field of atherosclerosis, or (ii) any such purpose that may be adverse to or in competition with the interests of the Company. Improvements to the PNU Patents and the PNU Know-How made, discovered or acquired by the Company during the term of this Agreement shall be owned by the Company, provided that PNU shall be -------- granted a non-exclusive, free-of-charge, worldwide license under any intellectual property rights owned or Controlled by the Company relating to such Improvement, with the right to sublicense, to use such Improvements for purposes other than to develop, manufacture, use, market or sell pharmaceutical products or compounds containing an apolipoprotein as an active ingredient for medical treatment in the field of atherosclerosis. 10.2.2 In the event that any Improvements owned by either party are deemed patentable, such party shall be entitled to file and prosecute patent applications related thereto and maintain patents issued thereon, at its own cost 19 and expense. The other party shall render reasonable assistance to such party in filing such applications whenever requested to do so, at such party's sole cost and expense. The Company and PNU agree to sign and execute such forms and documents as may be reasonably requested by the other party as being necessary or desirable to vest or confirm in such other party title to all such improvements owned by such other party. SECTION 11. LIMITATIONS ON LIABILITY 11.1 No Warranties. Except as expressly set forth in Section 7 hereof, neither ------------- party makes any representations or warranties as to any matter whatsoever. EACH PARTY HEREBY DISCLAIMS ANY AND ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. 11.2 Limitations of Liability. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE ------------------------ LIABLE TO THE OTHER PARTY OR ANY OTHER PERSON FOR ANY SPECIAL, CONSEQUENTIAL OR INDIRECT DAMAGES OF ANY KIND WHATSOEVER. 11.3 Force Majeure. No party shall be liable for failure or delay in ------------- performing any of its obligations hereunder if such failure or delay is occasioned by compliance with any governmental regulation, request or order, or by circumstances beyond the reasonable control of the party so failing or delaying, including, without limitation, Acts of God, war, insurrection, fire, flood, accident, labor strikes, work stoppage or slowdown (whether or not such labor event is within the reasonable control of the parties), or inability to obtain raw materials, supplies, power or equipment necessary to enable such party to perform its obligations hereunder. Each party shall (a) promptly notify the other party in writing of any such event of force majeure, the expected duration thereof and its anticipated effect on the ability of such party to perform its obligations hereunder, and (b) make reasonable efforts to remedy any such event of force majeure. SECTION 12. NON-USE OF NAMES 12.1 Non-use of Names. Neither party shall use the name of the other party nor ---------------- the name of any of Affiliates or employees of such other party, nor any adaptation thereof, in any advertising, promotional or sales literature without prior written consent obtained from such other party in each case (which consent shall not be unreasonably withheld or delayed). 12.2 Insurance. The Company agrees to obtain and maintain in effect, from and --------- after the first commercial sale of the Licensed Products, appropriate insurance coverage for the Company's potential liability relating to the marketing and sale of the Licensed Products consistent with industry standards for similar companies. 20 SECTION 13. TERM AND TERMINATION 13.1 Term. This Agreement shall be effective from the date of its execution by ---- the parties and, unless sooner terminated in accordance with the provisions of this Section 13, shall continue until the later to occur of (i) 20 years from the date of this Agreement, or (ii) the last to expire of any Patent included within the PNU Patent Rights. 13.2 Events of Default. Each party shall have the right to terminate this ----------------- Agreement upon the occurrence of any of the following events (each, an "Event of -------- Default") with respect to the other party (the "Defaulting Party"): (a) a - ------- ---------------- decree or order shall have been entered by a court of competent jurisdiction adjudging the Defaulting Party bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, readjustment, arrangement, composition or similar relief for the Defaulting Party under any bankruptcy law or any other similar applicable statute, law or regulation, or a decree or order of a court of competent jurisdiction shall have been entered for the appointment of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency of the Defaulting Party or a substantial part of its property, or for the winding up or liquidation of its affairs; and (b) the Defaulting Party shall institute proceedings to be adjudicated a voluntary bankrupt, or shall consent to the filing of a bankruptcy petition against it, or shall file a petition or answer or consent seeking reorganization, readjustment, arrangement, composition, liquidation or similar relief under any bankruptcy or insolvency of it or of a substantial part of its property, or shall make an assignment for the benefit of creditors, or shall be unable to pay its debts generally as they become due; or (c) the Defaulting Party shall commit a material breach of the terms of this Agreement and the same and all of its effects shall be remedied within 60 days after written notice thereof is given by the other party to the Defaulting Party. The failure by either party to pay the other party any royalties or other payments when due and payable in accordance with the provisions of Section 5 hereof shall be deemed a material breach of this Agreement. 13.3 Termination. Each party may terminate this Agreement upon the occurrence ----------- of an Event of Default by giving written notice thereof to the other party, which notice shall specifically identify the reason(s) for such termination. In addition, (i) the Company may terminate this Agreement and, PNU, if the option set forth in Section3.3(i) hereof is elected by PNU, may terminate its co- development and marketing rights hereunder at any time upon not less than ninety (90) days' prior written notice to the other party, if the Board of Directors of such party determines in good faith that the development, manufacture, marketing or sale of the Licensed Product is not technically or commercially feasible and such circumstances cannot be overcome by exerting reasonable good faith efforts as provided in Sections 3.1 and 3.3, provided; that the other party shall have -------- the right to propose amended terms of this Agreement in order the improve the technical or commercial feasibility for such party, which proposal such party agrees to consider in good faith. Such proposal shall be made in writing within thirty (30) days following receipt of notice of termination and the party receiving the proposal shall respond in writing within thirty (30) days following receipt of such proposal. (ii) PNU may terminate this Agreement by giving at least 30 days' prior written notice to the Company in the event that the Company has not obtained, in the aggregate, at least 21 $8,000,000 in equity financing within 12 months after the date of execution of this Agreement. 13.4 Consequences of Termination. Upon the termination of this Agreement, all --------------------------- rights, privileges and licenses granted by PNU to the Company hereunder, including the Assigned PNU Patent Rights (by reassignment), shall revert to PNU, and the Company agrees thereupon to negotiate in good faith with PNU the terms and conditions under which the Company would be willing to grant PNU a license under the Company Patent Rights and the Company Know-How to make, use and sell the Licensed Products, unless this Agreement has been terminated by PNU by reason of a material breach or default by the Company with respect to its obligations hereunder that shall not have been cured by the Company within one hundred twenty (120) days following its receipt of written notice thereof from PNU specifically describing such breach of default, in which case the Company shall, without charge to PNU, (i) assign to PNU all of the Company Patent Rights and the Company Know-How relating solely to the Licensed Products and (ii) grant to PNU, free of charge, a license under any other Company Patent Rights and Company Know-How, but only to the extent necessary to permit PNU to make, use and sell the Licensed Products (with the right to grant sublicenses). The termination of this Agreement for any reason shall be without prejudice to (i) the right of each party to receive all amounts accrued under Section 5 hereof prior to the effective date of such termination, (ii) the rights and obligations of the parties pursuant to Sections 6, 8 and 9 hereof, and (iii) any other remedies as may now or hereafter be available to any party, whether under this Agreement or otherwise. Upon the termination of this Agreement (a) the Company and its Affiliates and sublicensees shall immediately discontinue the manufacture, use and sale of the Licensed Products, and (b) each party and its Affiliates shall immediately discontinue the manufacture, use and sale of the Licensed Products, and (b) each party and its Affiliates shall immediately cease the use of all Confidential Information obtained from the other party or any Affiliate thereof. SECTION 14. MISCELLANEOUS 14.1 Notices. All payments in the form of a promissory note, notices, reports ------- and/or other communications made in accordance with this Agreement, shall be deemed to be duly made or given (i) when delivered by hand, (ii) three days after being mailed by registered or certified mail (air mail if mailed overseas), return receipt requested, or (iii) when received by the addressee, if sent by facsimile transmission or by Express Mail, Federal Express or other express delivery service (receipt requested), in each case addressed to such party at its address set forth below (or to such other address as such party may hereafter designate as to itself by notice to the other party hereto): 22 In the case of the Company: Esperion Therapeutics, Inc. 690 KMS Place Ann Arbor, MI 48108 Attention: President Telecopier: (734) 332-0516 with a copy to: Sills Cummis Radin Tischman Epstein & Gross, P.A. One Riverfront Plaza Newark, New Jersey 07102 U.S.A. Attention: Ira A. Rosenberg, Esq. Telecopier: (973) 643-6500 In the case of PNU: Pharmacia & Upjohn AB Lindhagensgatan 133 S-112 87, Stockholm SWEDEN Attention: President Telecopier: 011-46-8-618-2668 with a copy to: Pharmacia & Upjohn AB Legal Department Lindhagensgatan 133 S-112 87, Stockhold SWEDEN Telecopier: 011-46-8-695-4708 14.2 Amendment, etc. This Agreement may not be amended or modified, nor may --------------- any right or remedy of any party be waived, unless the same is in writing and signed by such party or a duly authorized representative of such party. The waiver by any party of the breach of any term or provision hereof by any other party shall not be construed as a waiver of any other subsequent breach. 14.3 No Waiver; Remedies. No failure or delay by any party in exercising any ------------------- of its rights or remedies hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy. The rights and remedies of the 23 parties provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law. 14.4 Successors and Assigns. This Agreement shall be binding upon and inure to ---------------------- the benefit of the parties and their respective heirs, legal representatives, successors and permitted assigns; provided that, except as expressly provided -------- herein, neither party may assign or otherwise transfer this Agreement or any of its rights, duties or obligations hereunder without the prior written consent of the other party (which consent shall not be unreasonably withheld or delayed); except that no such consent shall be required for any assignment or transfer of this Agreement by either party to an Affiliate thereof (in which case the party shall give prompt notice of such assignment or transfer to the other party unless such assignment or transfer is to a wholly-owned subsidiary of such party in which event no such notice shall be required). 14.5 Relationship of Parties. The Company and the PNU, are not (and nothing in ----------------------- this Agreement shall be construed to constitute them) partners, joint venturers, agents, representatives or employees of the other party, nor to create any relationships between them other than that of an independent contractor. Neither party shall have any responsibility of liability for the actions of the other party except as specifically provided herein. Neither party shall have any right or authority to bind or obligate the other party in any manner or make any representation or warranty on behalf of the other. 14.6 Expenses. Unless otherwise provided herein, all costs and expenses -------- incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party which shall have incurred the same and the other party shall have no liability relating thereto. 14.7 Entire Agreement. This Agreement constitutes the entire agreement between ---------------- the parties and supersedes all prior proposals, communications, representations and agreements, whether oral or written, with respect to the subject matter hereof. 14.8 Severability. Any term or provision of this Agreement which is invalid or ------------ unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions hereof in any other jurisdiction. 14.9 Counterparts. This Agreement may be signed in any number of counterparts, ------------ each of which shall be deemed an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 14.10 Headings. The headings used in this Agreement are for convenience of -------- reference only and shall not affect the meaning or construction of this Agreement. 14.11 Governing Law. This Agreement, including the performance and ------------- enforceability hereof, shall be governed by and construed in accordance with the laws of the State of New York, without reference to choice of law doctrine. For purposes of any legal proceedings described in the last sentence of Section 14.12, each party hereby 24 submits itself for the sole purpose of this Agreement and any controversy arising hereunder to the jurisdiction of the courts located in the State of New York and any courts of appeal therefrom, and waives any objection (on the grounds of lack of jurisdiction, or forum non conveniens or otherwise) to the exercise of such jurisdiction over it by any such courts. 14.12 Arbitration. Except as expressly provided herein, any dispute, ----------- controversy, or claim arising out of or relating to this Agreement, its validity, construction or enforceability or the breach of any of the terms or provisions hereof shall be settled by arbitration under the American Arbitration Association by a panel of three arbitrators, one selected by each party and the third selected by the other two arbitrators. Any arbitration proceeding commenced by either party shall be held in the New York City, New York metropolitan area (including Northern New Jersey). The decision of the arbitrators shall be final and binding upon the parties and judgment upon the decision by the arbitrators may be entered in any court of competent jurisdiction, and execution may be had thereon. The expense of such arbitration, including attorneys' fees, shall be allocated between the parties as the arbitrators may decide and as the claims and interests of each party may prevail. Notwithstanding anything to the contrary contained in this Section 14.12, any dispute, controversy or claim relating to actual or threatened unauthorized use or disclosure of any Confidential Information, or the validity, applicability, enforceability or infringement of any patent rights, shall not be required to be submitted to arbitration hereunder and may be resolved by a court of competent jurisdiction. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written below. PHARMACIA & UPJOHN AB By: /s/ Hans Sievertsson ----------------------------- ESPERION THERAPEUTICS, INC. By: /s/ Roger S. Newton ----------------------------- 25 EX-10.3 10 0010.txt LICENSE AGREEMENT Exhibit 10.3 "LICENSE AGREEMENT" Confidential treatment requested for portions of this document LICENSE AGREEMENT (this "Agreement") dated as of the day of , 1999, (the "Effective Date") by and among Jean-Louis Dasseux, with an address at 7898 Huron Oaks Drive, Brighton, Michigan 48116, Renate Sekul with an address at Wichernstrasse 13, D-68526 Ladenburg, Germany, Klaus Buttner with an address at Eichendorffstrasse 6, D-74925 Epfenbach, Germany, Isabelle Cornut with an address at Meisenweg 10, D-68535 Edingen-Neckarhausen, Germany, Guenther Metz with an address at Schenkendorfstrasse 1, D-53173 Bonn, Germany, and Jean Dufourcq with an address at Avenue Schweizer, F-33600 Pessac, France (individually an "Inventor" and collectively the "Inventors"), and Esperion -------- --------- Therapeutics, Inc., a Delaware corporation with a principal place of business at 3621 S. State Street, 695 KMS Place, Ann Arbor, Michigan 48108 (the "Company"). W I T N E S S E T H : - - - - - - - - - - - WHEREAS, the Inventors own or have exclusive rights to certain patent rights, proprietary information and know-how with respect to compositions and uses of peptide mimetics of Apoprotein A-I; and WHEREAS, the Company has an interest in acquiring exclusive rights to the Licensed Patents (as defined below) and non-exclusive rights to the Know-How (as defined below) from the Inventors and continuing the development thereof and products based thereon; and WHEREAS, the parties desire to enter into an agreement pursuant to which (i) the Inventors shall license to the Company the Licensed Patents and Know-How, and (ii) the Company will pursue the continued development of the Licensed Patents and Know-How and ultimately the commercialization of products based thereon. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows: SECTION 1. DEF1NITIONS For the purpose of this Agreement, the following words and phrases shall have the meanings set forth below: 1.1 "Affiliate" means, with respect to Company, any other Person that --------- directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the Company. For purposes hereof, the term "control" (including, with its correlative meanings, the terms ------- "controlled by" and "under common control with", with respect to the Company, ------------- ------------------------- means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the **Certain portions of this Exhibit have been omitted based upon a request for confidential treatment that has been filed with the Commission. The omitted portions have been filed separately with the Commission. Company (whether through the ownership of voting securities, by contract or otherwise); provided that in each event in which any Person owns directly or indirectly more than 50% of the securities having ordinary voting power for the election of directors or other governing body of a corporation or more than 50% of the ownership interest of any other Person, such Person shall be deemed to control such corporation or other Person. 1.2 "Confidential Information" means any and all information (in any and ------------------------ every form and media) not generally known in the relevant trade or industry, which was obtained from any party or any Affiliate thereof in connection with this Agreement or the respective rights and obligations of the parties hereunder, including, without limitation, (a) information on trade secrets of such party or any Affiliate thereof, (b) information relating to existing or contemplated products, services, technology, designs, processes, formulae, research and development (in any and all stages) of such party or any Affiliate thereof, (c) information relating to the Licensed Patents, the Know-How or the Licensed Products, and (d) information relating to business plans, methods of doing business, sales or marketing methods, customer lists, customer usages and/or requirements and supplier information of such party or any Affiliate thereof, except that "Confidential Information" shall not include any information which (i) at the time of disclosure, is generally known to the public, (ii) after disclosure, becomes' part of the public knowledge (by publication or otherwise) other than by breach of this Agreement by the receiving party, (iii) the receiving party can verify by contemporaneous written documentation was in its possession at the time of disclosure and which was not obtained, directly or indirectly, from the other parry or any Affiliate thereof, (iv) the receiving party can verify by contemporaneous written documentation results from research and development by the receiving party or any Affiliate thereof independent of disclosures by the other party or any Affiliate thereof or (v) the receiving party can prove was obtained from any Person who had the legal right to disclose such information, provided that such information was not obtained to the knowledge of the receiving party or any Affiliate thereof by such Person, directly or indirectly, from the other party or any Affiliate thereof on a confidential basis. 1.3 "Control" (i) means with respect to any Licensed Patents, excluding ------- Improvement(s), the possession of the ability to grant a license or sublicense with respect thereto as provided for herein without violating the terms of any agreement with, or the rights of, any third Person and, (ii) means with respect to any Know-How and Improvement(s), that such Know-How or Improvement is known to, in the custody of and owned solely by one or more of the Inventors, and such Inventors are free to grant a license or sublicense hereunder without violating the terms of any agreement with, or rights of, any third Person. 1.4 "FDA" means the United States Food and Drug Administration or any --- successor agency thereof, or equivalent thereof in any country other than the United States. 1.5 "Field" means Apoprotein A-I mimetics as described in the Licensed ----- Patents for the diagnosis and/or treatment of atherosclerosis and related metabolic diseases. -2- 1.6 "Governmental Approval" means any and all approvals, licenses, --------------------- registrations or authorizations, including pricing approval, of any Federal, State or local agency, department, bureau or other governmental entity, foreign or domestic, necessary for the manufacture, use, storage, import, transport and sale of the Licensed Products in any regulatory jurisdiction. 1.7 "Improvement" means any modification of a Licensed Product which is ----------- conceived by one or more of the Inventors during the term of this Agreement, provided that, such modification (i) if unlicensed, would infringe one or more claims of any Patent included within the Licensed Patents, and (ii) is Controlled by, such Inventor(s). 1.8 "Licensed Product" means any product the manufacture, use or sale of ---------------- which would infringe at least one claim of any of the Licensed Patents. 1.9 "Know-How" means any and all non-patented proprietary technology and -------- information necessary for the practice of the Licensed Patents, that is Controlled by one or more of the Inventors. 1.10 "Licensed Patents" means all Patents(i) which have issued as of the ---------------- date of this Agreement, a list of which is attached hereto as Appendix A, (ii) which consist of applications pending as of the date of this Agreement, a list of which is attached hereto as Appendix B, and all patents issuing thereon, and (iii) which consist of any improvement, and in each case described in clauses (i) through (iii) hereof including any reissue, extension, substitution, continuation-in-part thereof and any provisional applications and any foreign counterparts and all patents that issue therefrom Controlled by one or more of the Inventors. 1.11 "NDA" means a complete New Drug Application and all supplements --- thereto filed with the FDA, including all documents, data and other information concerning a Licensed Product which are necessary for, or included in, FDA approval to market such Licensed Product as more fully defined in 21 C.F.R. (Sec.)314.5 et seq. For purposes of this Agreement, "NDA" shall also include any ------- analogous foreign applications f6r governmental and/or regulatory approval. 1.12 "Net Sales" means gross receipts received by the Company, whether or --------- not invoiced, and/or its Affiliates for the sale or other disposition of the Licensed Products, less the sum of the following (collectively, "Permitted --------- Deductions"): - ---------- (1) discounts and rebates actually allowed in amounts customary in the trade; (2) ales taxes, customs and tariff duties and/or use taxes directly imposed and with reference to particular sales; (3) transportation and delivery charges (including insurance premiums related to transportation and delivery) prepaid or allowed; and -3- (4) amounts actually repaid, allowed or credited on returns. In the event of any sale of the Licensed Products by the Company to any Affiliate for resale to its customers, "Net Sales" shall be based on the greater --------- of the amount actually received by the Company from its Affiliate or the amount actually received by such Affiliate from its customers for the sale of the Licensed Products, less (in either such case) the Permitted Deductions. Where Licensed Products are not sold, but are otherwise disposed of, the Net Sales of such products for the purpose of computing royalties shall be the selling price at which such products or products of a similar kind and quality, sold in similar quantities, are currently being offered for sale by Company, its sublicensees and/or Affiliates. Where such products are not currently being offered for sale by Company, the Net Sales of products otherwise disposed of, for purpose of computing royalties, shall be the average selling price at which products of similar kind and quality, sold in similar quantities, are then currently being offered for sale by other manufacturers. Where such products are not currently sold or offered for sale by Company or others, then the Net Sales, for the purpose of computing royalties, shall be the Company's cost of manufacture, determined by Company's accounting procedures, plus fifty percent (50%). If the Company, its sublicensees, or any of its Affiliates sells any Licensed Products in combination with other items which are not Licensed Products ("Other Items") at a single invoice price "Net Sales" for purposes ----------- --------- computing royalty payments on the combination shall be determined as follows: (1) if all Licensed Products and Other Items contained in the combination are available separately, "Net Sales" for purposes of computing royalty payments shall be determined by multiplying Net Sales of the combination of the fraction A/A + B, where A is the selling price of all Licensed Products in the combination and B is the selling price of all Other Items in the combination; (2) if the combination includes Other Items which are not sold separately (but all Licensed Products contained in the combination are available separately), "Net Sales" for purposes of computing royalty --------- payments shall be determined by multiplying Net Sales of the combination by A/C, where A is as defined above and C is the selling price of the combination; and (3) if neither the Licensed Products nor the Other Items contained in the combination are sold separately, "Net Sales" for purposes of computing royalty payments shall be determined by multiplying Net Sales of the combination by the fraction D/D + E, where D is the cost of manufacture of all Licensed Products in the combination and E is the cost of manufacture of all Other Items in the combination, all as reasonably determined by the Company (which determination shall be conclusive). -4- 1.13 "Patent" means (i) unexpired letters patent (including inventor's ------ certificates) which have not been held invalid or unenforceable by a court of competent jurisdiction from which no appeal can be taken or has been taken within the required time period, including, without limitation, any substitution, extension, registration, confirmation, reissued, reexamination, renewal or any like filing thereof, and (ii) pending applications for letters patent. 1.14 "Person" means any individual, estate, trust, partnership, joint ------ venture, association, firm, corporation or company, or governmental body, agency or official, or any other entity. 1.15 "U.S. Dollars" and the sign "$" each means lawful currency of the ------------ - United States of America. SECTION 2. GRANT 2.1 Grant of License. Upon the terms and subject to the conditions herein ---------------- stated, the Inventors hereby grant the Company (a) an exclusive, worldwide license, with the right to grant sublicenses, under the Licensed Patents to make, have made, use, import, offer for sale, sell and otherwise dispose of the Licensed Products in the Field, and (b) subject to any pre-existing rights of third Persons, a non-exclusive worldwide license, with the right to grant sublicenses, under the Know-How to make, have made, use, import, offer for sale, sell and otherwise dispose of the Licensed Products in the Field. 2.2 Delivery of Know-How. Pursuant to the license granted in Section 2.1 -------------------- hereof, the Inventors shall promptly deliver to the Company originals or copies of all of their records, data and documentation relating to the Know-How, not already known to and/or in the possession of the Company as of the Effective Date. SECTION 3. DEVELOPMENT 3.1 Development Effort. The Company shall use commercially reasonable ------------------ efforts to develop and commercialize the Licensed Products. 3.2 Development Review. The Company will make available to the Inventors an ------------------ annual summary of the Company's development efforts hereunder as follows: The Inventors hereby designate Dr. Jean-Louis Dasseux as their representative to receive such annual summaries, which summaries will disclose, in detail appropriate to the intent of the review, the activities undertaken pursuant to Section 3.1 hereof and any significant developments during the preceding year. The Inventors may change their representative on written notice to the Company, but only to another of the Inventors who is not involved in any competitive activities in drug discovery or development, or a consultant to or employed by any third party so engaged. Such annual summaries will be held by -5- the Inventors' representative in confidence. The Inventors may elect at any time (but not more than once each year) to designate an independent consultant who is acceptable to both the Company and the Inventors, for the purpose of determining compliance by the Company with its diligence obligations under Section 3.1 hereof. Such consultant shall enter into a written confidentiality agreement satisfactory to the Company, and shall disclose to the Inventors only whether the Company, in the opinion of such consultant, is in compliance with its diligence obligations under Section 3.1 hereof. The Company will provide such consultant with commercially reasonable access to information. The consultant shall conduct his/her review during normal business hours, and in a manner that does not interfere with the Company's business, and will complete his/her review within a reasonable time (not to exceed two weeks). The cost of such consultant, which will be borne solely by the Company, shall not exceed $1500 for each review plus reasonable out-of-pocket expenses. In the event that the Inventors' representative or consultant believes that the Company has not made a commercially reasonable effort pursuant to Section 3.1 hereof, then the parties shall enter into good faith discussions to resolve the issue(s) raised, including a cure for the potential breach in diligence, and allowing for a reasonable period of time within which the breach can be resolved. If the parties, however, are unable to agree on whether there has, in fact, been a breach of the Company's diligence obligations under Section 3.1 hereof, then the dispute will be resolved by binding arbitration, provided that, if the arbitrator determines that the Company s diligence obligations have not been satisfied, the Inventors shall have the right to terminate this Agreement and the Company's rights hereunder. 3.3 Development Charges. All costs incurred by the Company in the ------------------- development of the Licensed Products, including, without limitation, payments for clinical trials and other studies, tests and all filings and applications and other actions necessary for achieving Governmental Approval of the Licensed Products, shall be the sole responsibility of the Company. SECTION 4. ROYALTIES AND OTHER PAYMENTS 4.1 License Fees. The Company shall pay to the Inventors an initial license ------------ fee of $50,000 in cash, which initial license fee shall be paid on the Effective Date. 4.2 Milestone and Royalty Obligations. --------------------------------- 4.2.1. For the rights, privileges and licenses granted hereunder, the Company shall pay the amounts set forth in this Section to the Inventors in the manner hereinafter provided during the term of this Agreement as follows: (1) a milestone payment in the amount of $50,000 in cash shall be made by the Company to the Inventors within fifteen (15) business days after the identification of the first lead candidate, which the Company decides to advance into pre-phase I evaluation, as a potential Licensed Product; -6- (2) a milestone payment in the amount of [**] in cash shall be made by the Company to the Inventors within fifteen (15) business days after the enrollment of the first patient in a Phase HI clinical trial for the first Licensed Product after generation of data in a Phase H trial of data satisfactory to the Company supporting a clinical indication for which the Company is seeking approval; (3) a milestone payment in the amount of [**] in cash shall be made by the Company to the Inventors within fifteen (15) business days after submission of the first NDA in the United States or Europe for the first Licensed Product; (4) a milestone payment in the amount of [**] in cash shall be made by the Company to the Inventors within fifteen (15) business days after submission of the first NDA in the United States or Europe for the second and third Licensed Products; (5) a milestone payment in the amount of [**] in cash shall be made by the Company to the Inventors within fifteen (15) business days after approval of the first NDA in the United States or Europe for the first Licensed Product; and (6) a milestone payment in the amount of [**] in cash shall be made by the Company to the Inventors within fifteen (15) business days after approval of the first NDA in the United State s or Europe for the second and third Licensed Products. [**] of the milestone payments made pursuant to clauses (iii) through (vi) of this Section 4.2.1 shall be creditable against future royalties owed by the Company to the Inventors pursuant to Section 4.2.2 hereof. **Certain portions of this Exhibit have been omitted based upon a request for confidential treatment that has been filed with the Commission. The omitted portions have been filed separately with the Commission. -7- 4.2.2. The Company shall pay to the Inventors royalties in the amount of [**] of the Net Sales of the Licensed Products by the Company and its Affiliates, and the Company shall pay the Inventors [**] of the royalties received by the Company based on the sales of the Licensed Products by its sublicensees and [**] of all other cash payments received by the Company from its sublicenses, excluding equity and research payments. In the event that the Company licenses additional patents from third parties which are required to practice the Licensed Patents, the Company shall be entitled to reduce Company's royalty payments to the Inventors hereunder by the amount of such royalty payments paid by the Company to such third parties; provided that the reduction for any given year does not reduce the royalties paid to the Inventors for such year to an amount less than [**] of Net Sales. In the event that no valid current claims of any Licensed Patent (including any claims of any patent application included therein) exist in a country with respect to a Licensed Product, then the royalties otherwise payable by the Company to the Inventors with respect to such Licensed Product in such country will be reduced by [**]. 4.3 Limitation on Royalties. Notwithstanding anything to the contrary ----------------------- contained herein, (a) no royalties shall be payable by the Company with respect to the Net Sales of the Licensed Products to any of its Affiliates thereof (although such sales may be used as the basis for calculating Net Sales pursuant to Section 1. 12 hereof and the royalties payable to the Inventors based upon such Affiliates' Net Sales), and (b) no multiple royalties shall be payable in the event that any of the Licensed Products or the manufacture, use or sale thereof is covered by more than one patent included in the Licensed Patents. 4.4 Unlicensed Competition. The Company shall promptly notify the ---------------------- Inventors, in writing, of any substantial unlicensed competition by any Person making, using, selling or importing a product in any geographic area which product infringes one or more claims of any Licensed Patent. If, one (1) year after such notice by Company, Company, after diligent efforts, has not abated such infringement (e.g., by sublicense or legal action), Inventors shall ---- negotiate with Company in good faith in an attempt to adjust the royalty provided in Section 4.2.2 hereof, provided that, Company presents Inventors with evidence, satisfactory to Inventors, that such unlicensed competition, and not other market factors, is materially adversely affecting Net Sales. 4.5 Withholding Taxes. The parties acknowledge and agree that there may be ----------------- deducted from any payments or royalties otherwise due and payable hereunder any taxes or other payments required to be paid by Inventors under applicable law with respect to such payments or royalties or otherwise relating to the Licensed Products. 4.6 Payments to Inventors. All payments to be made by the Company to the --------------------- Inventors under this Agreement shall be made by the Company to Jean-Louis Dasseux, and the Company shall have no responsibility whatsoever with respect to the division of any such payment among Inventors or the receipt by any particular Inventor of any particular portion of any such payment. **Certain portions of this Exhibit have been omitted based upon a request for confidential treatment that has been filed with the Commission. The omitted portions have been filed separately with the Commission. -8- SECTION 5. PAYMEENT OF ROYALTIES, ACCOUNTING FOR ROYALTIES, RECORDS, ETC. 5.1 Payment. Royalties payable hereunder shall be paid within 60 days after ------- the end of each calendar quarter, based on the Net Sales of the Licensed Products by the Company and its sublicensees and Affiliates during the preceding calendar quarter. 5.2 Accounting Reports. With each quarterly payment, the Company shall ------------------ deliver to Jean-Louis Dasseux, on behalf of the Inventors, a full and accurate accounting that sets forth the following information: (a) total receipts for each Licensed Product sold or otherwise disposed of by Company and/or its Affiliates subject to royalty, by country, and, to the extent used in any royalty calculations during such quarter, the exchange rate set forth in Section 5.3 of this Agreement; (b) Royalties and other payments received by Company in connection with any sublicense of Company's rights under this Agreement, and compensation due to Inventors on sales or other disposition of Licensed Products by sublicensees and other cash payments pursuant to such sublicense; and (c) total royalties and/or compensation payable to the Inventors. 5.3 Accounting: Foreign Currency. The aggregate amount of the Net Sales of ---------------------------- the Licensed Products used for computing the royalties payable hereunder shall be computed in U.S. Dollars, and all payments of such royalties shall be made in U.S. Dollars. For purposes of determining the amount of royalties due, the amount of the Net Sales of the Licensed Products in any foreign currency shall be computed by converting such amounts into U.S. Dollars at the prevailing commercial rate of exchange for purchasing U.S. Dollars, as quoted in The Wall Street Journal, on the last business day of the calendar quarter with respect to which such royalty payment is payable hereunder. 5.4 Records. The Company shall keep, and shall cause each of its Affiliates ------- and sublicensees to keep, for five (5) years, complete and accurate records of the Net Sales of the Licensed Products sold in sufficient detail to allow the royalties payable by the Company to be accurately determined. The Inventors shall have the right for a period of five (5) years after receiving any report or statement with respect to royalties due and payable hereunder by the Company to appoint an independent accounting firm to inspect and audit the relevant records of the Company and its Affiliates to verify such report or statement. The Company and its Affiliates shall make their records available for inspection and audit by such independent accounting firm during regular business hours at such place or places where such records are customarily kept, upon reasonable notice to the Company, to the extent reasonably necessary to verify the accuracy of the reports and payments required hereunder. The cost of any such inspection and audit shall be paid by the Inventors unless such inspection and audit discloses for any calendar quarter examined that there shall have been a discrepancy of greater than seven and one-half -9- percent (7-1/2%) between the royalties payable hereunder by the Company and the royalties actually paid by the Company with respect to such calendar quarter, in which case the Company shall be responsible for the payment of the entire cost of such inspection and audit. In all cases, the Company shall pay to the Inventors any underpaid royalties promptly and with interest at the prime rate quoted by Citibank, N.A. on the date such payment was due. SECTION 6. PATENT PROSECUTION 6.1 Prosecution Obligation. The Company shall apply for, and maintain ---------------------- during the term of this Agreement any and all Licensed Patents in the European Patent Community, Japan, the United States of America and Canada and such other countries in which the Company desires in its sole discretion to commercialize the Licensed Products. All reasonable costs and expenses of the prosecution and maintenance of the Licensed Patents in such countries (including all governmental filing fees) shall be paid by the Company. The Inventors shall render reasonable assistance to the Company in filing and prosecuting such applications and maintaining the Licensed Patents in such countries whenever requested to do so, at the Company's expense. SECTION 7. REPRESENTATIONS AND WARRANTIES. 7.1 By the Company. The Company hereby represents and warrants to the -------------- Inventors that (a) the Company has full legal right, power and authority to execute, deliver and perform its obligations under this Agreement, (b) the execution, delivery and performance by the Company of this Agreement do not contravene or constitute a default under any provision of applicable law or its articles or by-laws (or equivalent documents) or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Company, (c) all licenses, consents, authorizations and approvals, if any, required for the execution, delivery and performance by the Company of this Agreement have been obtained and are in full force and effect and all conditions thereof have been complied with, and no other action by or with respect to, or filing with, any governmental authority or any other Person is required in connection with this execution, delivery and performance by the Company of this Agreement, (d) this Agreement constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, and (e) Company's patent counsel, Patrea Pabst, Esq. has had full access to and has reviewed to her satisfaction the complete and correct files relating to the prosecution of the Licensed Patents. 7.2 By The Inventors. The Inventors hereby jointly and severally represent ---------------- and warrant to the Company that (a) the Inventors have full legal right, power and authority to execute, deliver and perform their obligations under this Agreement, (b) the execution, delivery and performance by the Inventors of this Agreement do not contravene or constitute a default under any provision of applicable law or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Inventors, (c) all licenses, consents, authorizations and approvals, if any, required for the -10- execution, delivery and performance by the Inventors of this Agreement have been obtained and are in full force and effect and all conditions thereof have been complied with, and no other action by or with respect to, or filing with, any governmental authority or any other Person is required in connection with the execution, delivery and performance by the Inventors of this Agreement, (d) to the best knowledge of the Inventors, the Inventors are the exclusive owners of all legal and beneficial right, title and interest in and to the Licensed Patents, (e) as of the Effective Date (and without undertaking any independent investigation), the Inventors are not aware of any patent or other right of any third Person that would be infringed or violated by the practice of the Licensed Patents as contemplated by Section 2.1 hereof, (f) the Inventors have caused to be made available to the Company complete and correct files of their patent counsel relating to the prosecution of the Licensed Patents, and (g) this Agreement constitutes a valid and binding agreement of the Inventors, enforceable against the Inventors, in accordance with its terms. 7.3 Survival of Representations and Warrants. The representations and ---------------------------------------- warranties contained herein shall survive the execution, delivery and performance of this Agreement by the parties, notwithstanding any investigation at any time on or prior to the date hereof made by or on behalf of any party or parties. SECTION 8. THIRD PARTY INFRINGEMENT 8.1 Third Party Infringement. 8.1.1. Notice. In the event that either party becomes aware of any ------ substantial infringement of the Licensed Patents, such party shall notify the other party of the substantial infringement in writing and must provide a summary of the relevant facts and circumstances known to such party relating to such infringement. Neither party will notify a third Person of the substantial agreement of any of the Licensed Patents without first obtaining consent of the other party, which consent shall not be unreasonably withheld or delayed. The parties agree to consult with each other, prior to the commencement of any legal or patent office proceedings, as to the most effective way of pursuing such matter. 8.1.2. Company Options. During the term of this Agreement, the Company --------------- shall have the right, but shall not be obligated, to prosecute, at its own expense, any infringements of the Licensed Patents, to defend the Licensed Patents and to recover, for its own account, any damages, awards or settlements resulting therefrom. The Inventors hereby agree that the Company may join one or more of the Inventors as a party plaintiff in any such suit, without expense to the Inventors. The Company shall hold harmless and indemnify the Inventors from and against any order for costs arising without fault of the Inventors that may be made against the Inventors by reason of being named a party plaintiff in such proceedings. The Company shall have sole control of any such suit and all negotiations for its settlement or compromise, provided that, the Company shall not settle or compromise any such suit or enter into any consent order for the settlement or compromise thereof that adversely affects the Licensed Patents without -11- the prior written consent of a majority of the Inventors, or Jean-Louis Dasseux (on behalf of the Inventors), which consent shall not be unreasonably withheld or delayed. The total cost of any infringement action commenced or defended solely by the Company shall be borne by the Company. 8.1.3. Investors' Options. If, within one (1) year after having been ------------------ notified of any, potential infringement subject to the provisions of Sections 8.1.2, the Company shall have been unsuccessful in causing the alleged infringer to desist and shall not have brought and shall not be diligently prosecuting an infringement action, or if the Company notifies the Inventors at any time prior thereto of its intention not to bring suit against any alleged infringer, then, in those events only, the Inventors shall have the right, but shall not be obligated, to prosecute, at their own expense, any infringements of the Licensed Patents, to defend the Licensed Patents and to recover, for their own account, any damages, awards or settlements resulting therefrom. The Company hereby agrees that the Inventors may join the Company as a party plaintiff in any such suit, without expense to the Company. The Inventors shall hold harmless and indemnify the Company from and against any order for costs arising without fault of the Company that may be made against the Company by reason of being named a party plaintiff in such proceedings. The Inventors shall have sole control of any such suit and all negotiations for its settlement or compromise, provided that the Inventors shall not settle or compromise any such suit or enter into any consent order for the settlement or compromise thereof that adversely affects the Licensed Patents or any of the licenses or rights of the Company hereunder, without the prior written consent of the Company which consent shall not be unreasonably withheld or delayed. The total cost of any infringement action commenced or defended solely by the Inventors shall be borne by the Inventors. 8.2 Infringement Charges Against the Company. In the event that any action, ---------------------------------------- suit or proceeding is brought against, or written notice or threat thereof is provided to, the Company alleging infringement of any patent or unauthorized use or misappropriation of technology arising out of or in connection with the Company's practice of Licensed Patents, the Company shall defend at its own expense such action, suit or proceeding and, in futherance of such rights, the Inventors hereby agree that the Company may join one or more of the Inventors as a party in such suit, without expense to the Inventors. The Company shall hold harmless and indemnify the Inventors from and against any order for costs arising without fault of the Inventors that may be made against the Inventors in such proceedings. The Inventors agree to cooperate with the Company, at the Company's expense, in connection with the Company's response to or defense of such action, suit or proceeding, or notice or threat thereof 8.3 Cooperation. In the event that a party shall undertake the enforcement ----------- and/or defense of the Licensed Patents by legal or patent office proceedings pursuant to this Agreement, the other party shall, at the request and expense of the party undertaking such enforcement and/or defense, cooperate in all reasonable respects and, to the extent possible, have its employees testify when requested and make available relevant records, papers, information, samples and the like. -12- 8.4 Company Rights. The Company shall have the sole right in accordance -------------- with the terms and conditions hereof to sublicense any alleged infringer for future use of the Licensed Patents to which it has exclusive rights under Section 2.1 of this Agreement. SECTION 9. INDEMNIFICATION 9.1 Indemnification. The Company hereby agrees that it shall be responsible --------------- for, indemnify, hold harmless and defend the Inventors and their Affiliates and heirs, successors and assigns (collectively, the "Indemnities"), from and against any and all claims, demands, losses, liabilities, damages, costs and expenses (including the cost of settlement, reasonable legal and accounting fees and any other expenses for investigating or defending any actions or threatened actions) (collectively, "Losses") suffered or incurred by any Indemnitee arising out of, relating to, resulting from or in connection with (a) a claim brought by a third Person of personal injury (including death) or property damage caused by a Licensed Product manufactured by or for the Company its Affiliates or sublicensees, (b) the exercise of any of the rights and/or licenses granted herein to Company, its Affiliates, or any sublicensee, and (c) any action, suit or other proceeding, or compromise, settlement or judgment, relating to any of the foregoing matters described in subparagraph (a) hereof with respect to which the Indemnitees are entitled to indemnification hereunder. The foregoing shall not apply to the extent that such Losses are due to the willful misconduct or gross negligence of any of the Indemnitees. 9.2 Notice of Claims. In the event that a claim is made pursuant to Section ---------------- 9.1 above against any Indemnitee, the Indemnitee agrees to promptly notify the Company of such claim or action and, in any such case the Company shall assume control of the defense of such claim or action; provided, however, that (a) all Indemnitees shall be entitled to participate therein (through a single counsel of their own choosing) at the Indemnitees' sole cost and expense, (b) the Indemnitees shall fully cooperate with the Company in all reasonable respects, and (c) the Company shall not settle or compromise any such claim or action without the prior written consent of the Indemnitees, unless such settlement or compromise includes a general release of the Indemnities from any and all liability with respect thereto and does not include an admission of liability on the part of any Indemnitee, and does not impose any restriction on the conduct by such Indemnitee of any of its activities. SECTION 10. CONFIDENTIALITY 10.1 Confidentiality. The parties each recognize that the Confidential --------------- Information of the other party and any and all Affiliates and sublicensees thereof constitute valuable confidential and proprietary information. Accordingly, the parties each agree that they and any Affiliates 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 not use the same for any purpose other dm as set forth in this Agreement or disclose the same to any other Person except to the extent that it is necessary for such -13- party to enforce its rights under this Agreement or if required by law or any governmental authority (including, without limitation, any stock exchange upon which such party's shares or other equity securities may be traded); provided, however' if any party shall be required by law to disclose any such Confidential Information to any other Person, such party shall give prompt 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 an obligation of confidentiality to such party, (b) to such party's banks or other financial institutions or venture capital sources for the purpose of raising capital or borrowing money or maintaining compliance with agreements, arrangements and understandings relating thereto, and (c) 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 this Agreement, if such Person identified in subparagraphs (b) and (c) of this Section IO. I agrees to maintain the confidentiality of such Confidential Information pursuant to a written agreement in form and substance reasonably satisfactory to the parties. The standard of care required to be observed hereunder shall be not less than the degree of care which each party uses to protect its own information of a confidential nature. The Company agrees that any and all Affiliates and sublicensees thereof shall enter into and maintain appropriate confidentiality agreements prior to receiving Confidential Information belonging to the Inventors and/or relating to the subject matter of this Agreement. SECTION 11. INTELLECTUAL PROPERTY; IMPROVEMENTS 11.1 Rights to Propriety Technology. Neither party shall through this ------------------------------ Agreement obtain any rights to the other party's proprietary technology except for such rights as are expressly granted or allocated under this Agreement. 11.2 Improvements and Filing, Prosecution and Maintenance of Patents. --------------------------------------------------------------- 11.2.1. Any improvement to the Licensed Patents, the Know-How or any Licensed Product discovered or developed by any party during the term of this Agreement shall be owned solely by such party, provided that, any Improvement shall be subject to the license granted to Company under Section 2. 1(c) hereof. 11.2.2. Subject to Company'sobligationsetforthinSection6.lhereofifany improvements owned by either party are deemed patentable, such party shall be entitled to file and prosecute patent applications related thereto and maintain patents issued thereon, in its own name and, at its own cost. The other party shall render reasonable assistance to such party in filing such applications whenever requested to do so, at such party's sole cost and expense. The Company and the Inventors agree to sign and execute such forms and documents as may be reasonably requested by the other party as being necessary or desirable to vest or confirm in such other party title to all such improvements owned by such other party. -14- SECTION 12. LIMITATIONS ON LIABILITY 12.1 No Warranties. Except as expressly set forth in Section 7 hereof, ------------- neither party makes any representations or warranties as to any matter whatsoever. EACH PARTY HEREBY DISCLAIMS ANY AND ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE LICENSED PATENTS, THE KNOW-HOW AND THE LICENSED PRODUCTS, INCLUDING, WITHOUT LMTATION, ANY WARRANTIES OF MERCHANTABI]LITY OR FITNESS FOR ANY PARTICULAR PURPOSE. 12.2 Limitations of Liability. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE ------------------------ LIABLE TO THE OTHER PARTY OR ANY OTHER PERSON FOR ANY SPECIAL, CONSEQUENTIAL OR INDIRECT DAMAGES OF ANY KIND WHATSOEVER. 12.3 Force Majeure. No party shall be liable for failure or delay in ------------- performing any of its obligations hereunder if such failure or delay is occasioned by compliance with any governmental regulation, request or order, or by circumstances beyond the reasonable control of the party so failing or delaying, including, without limitation, Acts of God, war, insurrection, fire, flood, accident, labor strikes, work stoppage or slowdown (whether or not such labor event is within the reasonable control of the parties), or inability to obtain raw materials, supplies, power or equipment necessary to enable such party to perform its obligations hereunder. Each party shall (a) promptly notify the other party in writing of any such event of force majeure, the expected duration thereof and its anticipated effect on the ability of such party to perform its obligations hereunder, and (b) make reasonable efforts to remedy any such event of force majeure. SECTION 13. NON-USE OF NAMES Neither party shall use the name of the other party nor the name of any of Affiliates or employees of such other party, nor any adaptation thereof, in any advertising, promotional or sales literature without prior written consent obtained from such other party in each case (which consent shall not be unreasonably withheld or delayed). SECTION 14. PATENT MARKING The Company shall mark all Licensed Products made, used, offered for sale, sold or imported under this Agreement, or their containers, in accordance with the applicable patent marking laws. -15- SECTION 15. TERM AND TERMINATION 15.1 Term. This Agreement shall be effective from the date of its execution ---- by the parties and, unless sooner terminated in accordance with the provisions of this Section 15, shall continue until the later to occur of (i) 10 years from the date of this Agreement, or (ii) the last to expire of any Patent included within the Licensed Patents. 15.2 Events of Default. Each party shall have the right to terminate this ----------------- Agreement upon the occurrence of any of the following events (each, an "Event of -------- Default") with respect to the other party (the "Defaulting Party"): (a) to the - ------- ---------------- extent permitted by law, the Inventors may terminate this Agreement if a decree or order shall have been entered by a court of competent jurisdiction adjudging the Company bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, readjustment, arrangement, composition or similar relief for the Company under any bankruptcy law or any other similar applicable statute, law or regulation, or a decree or order of a court of competent jurisdiction shall have been entered for the appointment of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency of the Company or a substantial part of its property, or for the winding up or liquidation of its affairs; and (b) to the extent permitted by law, the Inventors may terminate this Agreement if the Company shall institute proceedings to be adjudicated a voluntary bankrupt, or shall consent to the filing of a bankruptcy petition against it, or shall file a petition or answer or consent seeking reorganization, readjustment, arrangement, composition, liquidation or similar relief under any bankruptcy law or any other similar applicable statute, law or regulation, or shall consent to the appointment of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency of it or of a substantial part of its property, or shall make an assignment for the benefit of creditors, or shall be unable to pay its debts generally as they become due. 15.3 Termination. Each party may terminate this Agreement upon the ----------- occurrence of an Event of Default specified in Section 15.2 by giving written notice thereof to the other party, which notice shall specifically identify the reason(s) for such termination. In addition, (i) the Company may terminate this Agreement at any time by giving at least ninety (90) days' prior written notice to the Inventors; and (ii) this Agreement shall terminate upon written notice of a material breach of the terms of this Agreement to a Defaulting Party unless the same and all of its effects are remedied within thirty (30) days after such written notice thereof is given by the other party to the Defaulting Party. The failure by the Company substantially to comply with the diligence obligations set forth in Section 3.1 of this Agreement, or to pay the Inventors any royalties or other payments when due and payable in accordance with the provisions of Section 4 hereof shall be deemed a material breach of this Agreement. 15.4 Consequences of Termination. Upon the termination of this Agreement by --------------------------- the Company for any reason other than an Event of Default on the part of the Inventors, all rights and obligations of the Company hereunder shall revert to the Inventors. The termination of this Agreement for any reason shall be without prejudice to (i) the right of the Inventors to receive all amounts accrued under Section 4 hereof prior to the effective date of such termination, (ii) the rights and obligations of the parties -16- pursuant to Sections 6, 8 and 9 hereof, and (iii) any other remedies as may now or hereafter be available to any party, whether under this Agreement or otherwise. Upon any termination of this Agreement which results in the reversion to the Inventors of the rights and obligations of the Company hereunder pursuant to the first sentence of this Section 15.4 (a) the Company and its Affiliates and sublicensees shall immediately discontinue the manufacture, use and sale of the Licensed Products, and (b) each party and its Affiliates shall immediately cease the use of all Confidential Information obtained from the other party or any Affiliate thereof, provided that, upon termination of this Agreement by the Company, the Inventors may, in their sole discretion, ratify and maintain in full force and effect any sublicense(s) of the rights granted under this Agreement. SECTION 16. EXPORT CONTROLS All obligations to furnish goods, technology, or software under this Agreement are subject to U.S. Export Control Laws and Regulations. Company agrees to comply fully with all applicable laws and regulations before exporting any goods, technology, or software to any Person. Company recognizes and agrees that its obligations to comply with U.S. export control laws and regulations survive the termination or expiration of this Agreement. SECTION 17. MISCELLANEOUS 17.1 Notices. All notices, reports and/or other communications made in ------- accordance with this Agreement, shall be deemed to be duly made or given (i) when delivered by hand, (ii) three days after being mailed by registered or certified mail (air mail if mailed overseas), return receipt requested, or (iii) when received by the addressee, if sent by facsimile transmission or by Express Mail, Federal Express or other express delivery service (receipt requested), in each case addressed to such party at its address set forth below (or to such other address as such party may hereafter designate as to itself by notice to the other party hereto): In the case of the Company: Esperion Therapeutics, Inc. 3621 S. State Street 695 KMS Place Ann Arbor, MI 48108 Attention: President Telecopier: (734) 332-0516 -17- with a copy to: Sills Cummis Radin Tischman Epstein & Gross, P.A. One Riverfront Plaza Newark, New Jersey 07102 Attention: Ira A. Rosenberg, Esq. Telecopier: (973) 643-6500 In the case of the Inventors: To his or her address set forth at the beginning of this Agreement with a copy to: Ann L. Gisolfi, Esq. Pennie & Edmonds LLP 1155 Avenue of the Americas New York, New York 10036 Telecopier: (212) 869-9741 17.2 Amendment, etc. This Agreement may not be amended or modified, nor may -------------- any right or remedy of any party be waived, unless the same is in writing and signed by such party or a duly authorized representative of such party. The waiver by any party of the breach of any term or provision hereof by any other party shall not be construed as a waiver of any other subsequent breach. 17.3 No Waiver: Remedies. No failure or delay by any party in exercising ------------------- any of its rights or remedies hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy. The rights and remedies of the parties provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law. 17.4 Assignment. Neither party may assign or otherwise transfer this ---------- Agreement or any -of its rights, duties or obligations hereunder without the prior written consent of the other party. 17.5 Sublicense of Rights by the Company. If the Company sublicenses any of ----------------------------------- its rights under this Agreement to a sublicensee, such sublicensee shall be bound by the terms and conditions of this Agreement. The Company shall advise the Inventors in writing of any such sublicense and provide the Inventors with a copy of any sublicense within thirty (30) days of execution of such sublicense; provided that, the Company may redact such copy to delete any financial provisions. 17.6 The Company as Guarantor. The Company shall guarantee and be ------------------------ responsible for the payment of all royalties due and the making of reports under this -18- Agreement by reason of the development and sales of any Licensed Products by the Company, its Affiliates and sublicensees and their compliance with all applicable terms of this Agreement. The performance or satisfaction of any obligations of the Company under this Agreement by any of its Affiliates or sublicensees shall be deemed performance or satisfaction of such obligation by the Company. 17.7 Relationship of Parties. The Company, on the one hand, and the ----------------------- Inventors, on the other hand, are not (and nothing in this Agreement shall be construed to constitute them) partners, joint venturers, agents, representatives or employees of each other (except that Jean-Louis Dasseux is an employee of the Company), nor to create any relationships between them other than that of an independent contractor. Neither the Company, on one hand, nor the Inventors, on the other hand, shall have any responsibility or liability for the actions of the other party except as specifically provided herein. Neither the Company, on one hand, nor the Inventors, on the other hand, shall have any right or authority to bind or obligate the other in any manner or make any representation or warranty on behalf of the other. The foregoing provisions of this Section 17.7 relate solely to the relationship between the Company, on the one hand, and the Inventors, on the other hand. All covenants, representations and warranties of the Inventors hereunder are joint and several obligations of the Inventors to the Company hereunder and one or more Inventors may act as agent or representative of the other Inventors hereunder to the extent expressly provided herein. 17.8 Expenses. Unless otherwise provided herein, all costs and expenses -------- incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party which shall have incurred the same and the other party shall have no liability relating thereto. 17.9 Entire Agreement. This Agreement constitutes the entire agreement ---------------- between the parties and supersedes all prior proposals, communications, representations and agreements, whether oral or written, with respect to the subject matter hereof. 17.10 Severability. Any term or provision of this Agreement which is ------------ invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions hereof in any other jurisdiction. 17.11 Counterparts. This Agreement may be signed in any number of ------------ counterparts,each of which shall be deemed an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 17.12 Headings. The headings used in this Agreement are for convenience of -------- reference only and shall not affect the meaning or construction of this Agreement. 17.13 Governing Law. This Agreement, including the performance and ------------- enforceability hereof, shall be governed by and construed in accordance with the laws of the State of Michigan, without reference to choice of law doctrine. Each party hereby -19- submits itself for the sole purpose of this Agreement and any controversy arising hereunder to the jurisdiction of the courts located in the State of Michigan and any courts of appeal therefrom, and waives any objection (on the grounds of lack of jurisdiction, or forum non conveniens or otherwise) to the --- ---------- exercise of such jurisdiction over it by any such courts. 17.14 Arbitration. Except as expressly provided herein, any dispute, ----------- controversy, or claim arising out of or relating to this Agreement, its validity, construction or enforceability or the breach of any of the terms or provisions hereof shall be settled by arbitration under the Commercial Arbitration Rules of the American Arbitration Association by a panel of three arbitrators, one selected by each party and the third selected by the other two arbitrators. Any arbitration proceeding commenced by either party shall be held in the New York City, New York. The decision of the arbitrators shall be final and binding upon the parties and judgment upon the decision by the arbitrators may be entered in any court of competent jurisdiction, and execution may be had thereon. The expense of such arbitration, including attorneys' fees, shall be allocated between the parties as the arbitrators may decide and as the claims and interests of each party may prevail. Notwithstanding anything to the contrary contained in this Section 17.14, any dispute, controversy or claim relating to actual or threatened unauthorized use or disclosure of any Confidential Information, or the validity, applicability, enforceability or infringement of any patent rights, shall not be required to be submitted to arbitration hereunder and may be resolved by a court of competent jurisdiction. 17.15 Representative of Inventors. Each of Inventors, by executing this --------------------------- Agreement, irrevocably appoints Jean-Louis Dasseux (the "Inventors' Representative") as his agent and true and lawful attorney-in-fact, with full power of substitution, with full capacity and authority and in his sole discretion, to act in the name of and for and on behalf of each of them in connection with all matters arising out of, resulting from, contemplated by or related or incident to this Agreement. Without limiting the generality of the foregoing, the powers of the Inventors' Representative shall include the power to represent each of the Inventors with respect to all aspects of this Agreement, which power shall include, without limitation, the power to (i) receive any payment or transfer to be made pursuant to this Agreement, (ii) waive any and all conditions of this Agreement, (iii) amend this Agreement and any agreement executed in connection herewith in any respect, (iv) settle claims for indemnity pursuant to Section 9.1 hereof, (v) retain legal counsel and be reimbursed by Inventors for all fees, expenses and other charges of such legal counsel, (vi) receive notices or other communications, (vii) deliver any notices, certificates or other documents required, and (viii) take all such other action and to do all such other things as the Inventors' Representative deems necessary or advisable with respect to this Agreement. The Company shall have the absolute right and authority to rely upon the acts taken or omitted to be taken by the Inventors' Representative on behalf of the Inventors and the Company shall have no duty to inquire as to the acts and omissions of Inventors' Representative. Each of the Inventors acknowledge and agree that (i) all deliveries by the Company to Inventors Representative shall be deemed deliveries to each of the Inventors, (ii) the Company shall not have any liability with respect to any aspect of the distribution or communication of such deliveries -20- between the Inventors' Representative and any of the Inventors or among any thereof, and (iii) any disclosure made to the Inventors Representative by or on behalf of the Company shall be deemed to be disclosure made to each. In the event the Inventors' Representative refuses to, or is no longer capable of, serving as Inventors' Representative hereunder, each of the Inventors shall promptly appoint a successor Inventors' Representative who shall thereafter by a successor Inventors' Representative hereunder. [SIGNATURE PAGE FOLLOWS] -21- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written below. EXPERION THERAPEUTICS, INC. By: /s/ Roger S. Newton ---------------------------------- Roger S. Newton, President & CEO /s/ Jean-Louis Dasseux ---------------------------------- Jean-Louis Dasseux /s/ Renate Sekul ---------------------------------- Renate Sekul /s/ Klaus Buttner ---------------------------------- Klaus Buttner /s/ Isabelle Cornut ---------------------------------- Isabelle Cornut /s/ Guenther Metz ---------------------------------- Guenther Metz /s/ Jean Defourcq ---------------------------------- Jean Dufourcq -22- APPENDIX A ---------- Amended as of February 22, 2000 - -------------------------------------------------------------------------------- Title Patent No. Issue Date ----- ---------- ----------- - -------------------------------------------------------------------------------- APOLIPOPROTEIN AI US 6,004,925 12/21/99 AGONISTS AND THEIR USE TO TREAT DYSLIPIDEMIC DISORDERS (10001) - --------------------------------------------------------------------------------
APPENDIX B ---------- Amended as of February 22, 2000 - --------------------------------------------------------------------------------------------------------------------------- Title Serial No. Filing Date ----- ---------- ----------- - --------------------------------------------------------------------------------------------------------------------------- APOLIPOPROTEIN AI AGONISTS AND THEIR USE TO TREAT PCT/US98/20327 09/28/98 DYSLIPIDEMIC DISORDERS (10001) - ------------------------------------------------------------------------------- APOLIPOPROTEIN AI AGONISTS AND THEIR USE TO TREAT 08/940,096 09/28/97 DYSLIPIDEMIC DISORDERS (5005) - --------------------------------------------------------------------------------------------------------------------------- APOLIPOPROTEIN AI AGONISTS AND THEIR USE TO TREAT PCT/US98/20326 09/28/98 DYSLIPIDEMIC DISORDERS (50051) - ------------------------------------------------------------------------------- APOLIPOPROTEIN AI AGONISTS AND THEIR USE TO TREAT 08/940,093 09/28/97 DYSLIPIDEMIC DISORDERS (18-mer) - ------------------------------------------------------------------------------- APOLIPOPROTEIN AI AGONISTS AND THEIR USE TO TREAT PCT/US98/20328 09/28/81 DYSLIPIDEMIC DISORDERS (18-mer) - --------------------------------------------------------------------------------------------------------------------------- GENE THERAPY APPROACHES TO SUPPLY APOLIPOPROTEIN 08/940,136 09/29/97 A-I AGONISTS AND THEIR USE TO TREAT DYSLIPIDEMIC DISORDERS - ------------------------------------------------------------------------------- GENE THERAPY APPROACHES TO SUPPLY APOLIPOPROTEIN PCT/US98/20329 09/28/98 A-I AGONISTS AND THEIR USE TO TREAT DYSLIPIDEMIC DISORDERS - --------------------------------------------------------------------------------------------------------------------------- PEPTIDE/LIPID COMPLEX FORMATION BY CO- 08/942,597 10/02/97 LYOPHILIZATION - --------------------------------------------------------------------------------------------------------------------------- PEPTIDE/LIPID COMPLEX FORMATION BY CO- PCT/US98/20330 09/28/98 LYOPHILIZATION - --------------------------------------------------------------------------------------------------------------------------- MULTIMERIC APO AI AGONIST COMPOUNDS 09/453,841 12/01/99 - --------------------------------------------------------------------------------------------------------------------------- MULTIMERIC APO AI AGONIST COMPOUNDS 09/453,840 12/01/99 - --------------------------------------------------------------------------------------------------------------------------- BRANCHED APO AI AGONIST COMPOUNDS 09/453,833 12/01/99 - --------------------------------------------------------------------------------------------------------------------------- LIPID COMPLEXES OF APO AI AGONIST COMPOUNDS 09/453,838 12/01/99 - --------------------------------------------------------------------------------------------------------------------------- METHOD OF TREATING DYSLIPIDEMIA 09/453,826 12/01/99 - --------------------------------------------------------------------------------------------------------------------------- METHOD OF TREATING SEPTIC SHOCK 09/453,605 12/01/99 - --------------------------------------------------------------------------------------------------------------------------- APOLIPOPROTEIN AI AGONISTS AND THEIR USE TO TREAT 09/453,834 12/01/99 DYSLIPIDEMIC DISORDERS (10001) - --------------------------------------------------------------------------------------------------------------------------- APOLIPOPROTEIN AI AGONISTS AND THEIR USE TO TREAT 09/465,719 12/17/99 DYSLIPIDEMIC DISORDERS (5005) - --------------------------------------------------------------------------------------------------------------------------- APOLIPOPROTEIN AI AGONISTS AND THEIR USE TO TREAT 09/465,718 12/17/99 DYSLIPIDEMIC DISORDERS (18-mer) - ---------------------------------------------------------------------------------------------------------------------------
The foregoing Amended Appendices A and B to the License Agreement entered into between Esperion Therapeutics, Inc. and the Inventors on August 23, 1999 are hereby Acknowledged and Agreed to: /s/ Roger S. Newton 2/22/00 - -------------------------------- --------------------------- By Esperion Therapeutics, Inc. Date /s/ Jean-Louis Dasseux February 22, 2000 - --------------------------------- --------------------------- By the Inventors, as represented by Jean-Louis Dasseux EX-10.4 11 0011.txt LICENSE AGREEMENT BETWEEN INEX AND EXPERION Confidential treatment requested for portions of this document. Exhibit 10.4 LICENSE AGREEMENT between INEX PHARMACEUTICALS CORPORATION and ESPERION THERAPEUTICS, INC. **Certain portions of this Exhibit have been omitted based upon a request for confidential treatment that has been filed with the Commission. The omitted portions have been filed separately with the Commission. LICENSE AGREEMENT ----------------- LICENSE AGREEMENT dated as of the ___ 16th ___ day of March, 1999 between INEX PHARMACEUTICALS CORPORATION, a British Columbia corporation, having its principal place of business at 100 - 8900 Glenlyon Parkway, Burnaby, B.C. Canada V5J 5J8 (hereinafter referred to as "INEX"), and ESPERION THERAPEUTICS, INC., a Delaware corporation having its principal place of business at 3621 S. State Street, 695 KMS Place, Ann Arbor, MI, 48108, USA (hereinafter referred to as "ESPERION"). INTRODUCTION 1. INEX has research and development facilities and experienced scientists, technical associates and assistants and other personnel which enable it to conduct research and development activities in the area of biotechnology and the application thereof to the development, production and manufacture of pharmaceutical products using that technology. 2. ESPERION is in the business of the research and development of pharmaceutical products. 3. INEX is the assignee of European Patent serial number EP 0461559 Bl entitled "Wirkstofffreie Liposomen zur Behandlung von Atherosklerose," granted and registered in various states of the European Union (herein sometimes called "Braun"). 4. The University of British Columbia, Vancouver, B.C. Canada ("UBC") is the assignee of US Patent Application S.N. 08/507,170 entitled "Liposome Compositions and Methods for the Treatment of Atherosclerosis" (herein sometimes called "Hope/Rodrigueza"). 5. INEX has by license agreement with UBC the right to sublicense Hope/Rodrigueza, on terms and conditions set out therein, and subject to the prior written consent of UBC. 6. ESPERION desires to license from INEX the exclusive right to develop, make, have made, use, import and sell products subject to Hope/Rodrigueza, Braun and certain improvements to these patents. 7. INEX is willing, for the consideration and on the terms set forth herein, to license ESPERION for such purposes. In consideration of the mutual covenants and promises contained in this Agreement and other good and valuable consideration, INEX and ESPERION agree as follows: **Certain portions of this Exhibit have been omitted based upon a request for confidential treatment that has been filed with the Commission. The omitted portions have been filed separately with the Commission. 2 ARTICLE I. DEFINITIONS As used in this Agreement, the following terms, whether used in the singular or plural, shall have the following meanings: 1.1 "Affiliate" means any corporation, company, partnership, joint --------- venture or other person or entity which controls, is controlled by or is under common control with a Party. For purposes of this Section 1. 1, "control" shall mean (a) in the case of corporate entities, direct or indirect ownership of at least 50% of the stock or shares entitled to vote for the election of directors; and (b) in the case of non-corporate entities, direct or indirect ownership of at least 50% of the equity interest or the power to direct the management and policies of such noncorporate entities. 1.2 "Combination Product(s)" means a product that includes a Licensed --------------------- Product sold in combination with another component(s) whose manufacture, use or sale by an unlicensed party would not constitute an infringement of the Licensed Patents or Know-How. 1.3 "Confidential Information" means (a) all proprietary information and ------------------------ materials, patentable or otherwise, of a Party which is disclosed in writing by or on behalf of such Party to the other Party, including DNA sequences, vectors, cells, substances, formulations, techniques, methodology, equipment, data, reports, know-how, preclinical and clinical trials and the results thereof, sources of supply, patent positioning and business plans, including any negative developments, and (b) any other information, oral or written, designated in writing by the disclosing Party to the other Party as confidential or proprietary within ten (IO) days of such disclosure, whether or not related to the making, use, importing or selling of Licensed Products. 1.4 "Distributor" means a third party which is not an Affiliate or ----------- Sublicensee of ESPERION and which is a distributor, wholesaler or other entity purchasing Licensed Products from ESPERION or an Affiliate or Sublicensee for resale. 1.5 "Enhancements" means any information, patentable or otherwise, ------------ developed or acquired by ESPERION (other than information licensed from INEX pursuant to the terms of Section 2.1 of this Agreement) during the term of this Agreement which is required to develop, use or manufacture Licensed Products and which is related solely to compositions and uses of Large Unilammelar Vesicles (LUVS) and is otherwise not associated with any therapeutic agent other than an apoprotein or other cholesterol lowering drug. 1.6 "Field" means ----- For the Hope/Rodrigueza and Braun patents, human and veterinary therapeutics (the "Basic Field"); 3 For Improvements, human and veterinary therapeutics, but limited to products that use or include Large Unilammelar Vesicles (LUVS) as a therapeutic agent which are not associated with any other therapeutic agent other than an apoprotein (the "Improvements Field"); For Know-How, human and veterinary therapeutics, but limited to products that use or include Large Unilammelar Vesicles (LUVS) as a therapeutic agent which are not associated with any other therapeutic agent other than an apoprotein (the "Know-How Field"); Together, the Basic Field, Improvements Field and Know-How Field comprise the Field. 1.7 "Future INEX Technology" means future inventions conceived, acquired ---------------------- or reduced to practice by INEX outside the scope of a development and supply agreement between the parties as contemplated in Article VII after the date of this Agreement. 1.8 "Improvements" means any inventions or improvements conceived, ------------ reduced to practice, developed, acquired or controlled by INEX or any of its Affiliates at any time after the date hereof under a development and commercial supply agreement between the Parties as contemplated in Article VII. For greater clarity, "Improvements" does not include Future INEX Technology. 1.9 "IND" means an Investigational New Drug application or its equivalent or any corresponding foreign application or registration. 1.10 "Know-How" means all trade secret and/or confidential and proprietary information, without regard to form, including but not limited to, technical or non-technical data, formulas, patterns, compilations, programs, devices, methods, techniques, drawings, discoveries and/or inventions which have been developed, acquired, or are controlled by INEX or any of its Affiliates as of the date of this Agreement, for use in connection with the development or uses of methods or compositions which are disclosed by INEX to ESPERION. Such "Know-How" must not be generally known by, or readily ascertainable by proper means by others and must have been the subject of reasonable efforts to maintain its secrecy. Information shall no longer be considered to be Know-How, should the information become publicly known through no fault of ESPERION or should it be disclosed to ESPERION by a person under no obligation of confidentiality. 1.11 "Licensed Patents" means Hope/Rodrigueza - United States patent application serial number --------------- 08/507,170 entitled "Liposome Compositions and Methods for the Treatment of Atherosclerosis", and any patent claims issued therefrom and patent claims issued from any corresponding continuations, continuations-in-part, divisions, re-exams, or foreign applications claiming priority from such application; 4 Braun - European Patent serial number EP 04615 59 B 1 entitled ----- "Wirkstofffreie Liposomen zur Behandlung von Atherosklerose," registered in Switzerland, Sweden, Spain, Austria, Netherlands, Luxembourg, Italy, United Kingdom, Greece, France, Denmark, Belgium, Germany and any patent claims issued from any corresponding continuations, continuations-in-part, divisions, reissues and foreign applications claiming priority from such patent; Improvements shall be included as invented pursuant to a development and commercial supply agreement as contemplated in Article VII; and Future INEX Technology in the Improvements Field may be included upon written agreement signed by the Parties pursuant to Section 2.2 hereof For greater clarity, Licensed Patents excludes other currently existing intellectual property of INEX, except those required to practice the inventions defined by the Hope/Rodrigueza and Braun patents. "Required to practice" as used in this definition means necessary, not just useful or useable. INEX represents and warrants that it has no knowledge of any such other currently existing intellectual property of INEX which is required to practice the inventions defined by the Hope/Rodrigueza and Braun patents. 1.12 "Licensed Products" means human and veterinary therapeutic ----------------- compositions and methods which, but for an immunity from suit under the Licensed Patents or Know-How, would infringe one or more of the Licensed Patents or Know- How. 1.13 "NDA" means a New Drug Application or its equivalent or any --- corresponding foreign application or registration. 1.14 "Net Annual Sales" means the aggregate United States dollar ---------------- equivalent of gross revenues derived by or payable to ESPERION or its Affiliates from or on account of the sale of Licensed Products to third parties, in any given calendar year, less (a) reasonable credits or allowances, if any, actually granted on account of price adjustments, recalls, rejection or return of items previously sold, (b) excise taxes, sales taxes, value added taxes, consumption taxes, customs and other duties or other taxes imposed upon and paid with respect to such sales (excluding income or franchise taxes of any kind), (c) separately itemized insurance and transportation costs incurred in shipping Licensed Products to such third parties and (d) fees paid to Distributors, dealers and other persons or entities which are not Affiliates of ESPERION but which purchase Licensed Products from Esperion or its Affiliates for resale (collectively, the "Permitted Deductions"). No deduction shall be made for any item of cost incurred by ESPERION, its Affiliates, or Distributors in preparing, manufacturing, shipping or selling Licensed Products except as permitted pursuant to clauses (a), (b), (c) and (d) of the foregoing sentence. Net Annual Sales shall not include any transfer between any of ESPERION and any of its Affiliates for resale. Fair market value shall be assigned to any and all non- cash consideration such as but not limited to any credit, barter, benefit, advantage or concession received by 5 ESPERION or its Affiliates in payment for Licensed Products. As used in this definition, a "sale" shall have occurred when Licensed Products are billed out or invoiced. Notwithstanding anything herein to the contrary, the following shall not be considered a sale of a Licensed Product under this Agreement: (i) the transfer of a Licensed Product to a third party without consideration to ESPERION in connection with the development or testing of a Licensed Product; or (ii) the transfer of a Licensed Product to a third party without consideration in connection with the marketing or promotion of the Licensed Product (e.g., --- pharmaceutical samples). 1.15 "Party" means INEX or ESPERION; "Parties" means INEX and ESPERION. ----- 1.16 "Sublicensee" means a third party which is not an Affiliate of ----------- ESPERION and to whom ESPERION has granted a sublicense to make, have made, use, import or sell Licensed Products. Without limiting the generality of the foregoing, a Sublicensee shall be deemed to include any third party who is granted a sublicense hereunder by ESPERION pursuant to the terms of the outcome or settlement of any infringement or threatened infringement action. 1.17 "Sublicensing Royalties" means all royalties, revenues, receipts, ---------------------- monies and the fair market value of all non-cash consideration such as but not limited to any credit, barter, benefit, advantage or concession payable to ESPERION by a Sublicensee which is, or may be reasonably construed as being calculated on or based on the making, using or selling of Licensed Products by the Sublicensee. For the avoidance of doubt, Sublicensing Royalties shall not include payments which are reasonably construed as initial or periodic sub- licensing fees, funds for research and development, milestone payments or equity investments. 1.18 "Territory" means worldwide. --------- 1.19 "UBC License Agreement" means the License Agreement dated July 1, --------------------- 1998 by and between INEX and UBC. 1.20 "Valid Claim" means a claim of an unexpired issued patent which ----------- shall not have been withdrawn, canceled or disclaimed, nor held invalid by a court of competent jurisdiction in an unappealed or unappealable decision. ARTICLE II. PATENT AND KNOW-HOW LICENSES 2.1 Licenses. Subject to the payment of the Milestone Payments provided -------- for in Article III of this Agreement, the royalties provided for in Article IV or this Agreement 6 and the fulfillment of the other terms and conditions of this Agreement, and subject to the reservation set forth in Section 2.3 hereof, INEX hereby grants to ESPERION: (a) an exclusive license for the Field in the Territory under the Licensed Patents; and (b) an exclusive license for the Field to use the Know-How in the Territory; for the sole and exclusive purpose of developing, making, having made, importing, using and selling Licensed Products in the Territory, including the right to grant sublicenses under these rights as set out in Section 2.4 hereof. The licenses granted pursuant to Section 2. 1 (a) shall continue in effect until the expiration of the last patent licensed to ESPERION hereunder, or until otherwise terminated according to this Agreement. The licenses granted pursuant to Section 2.1 (b) shall continue in effect as provided in Section 4. 1 (b) of this Agreement. 2.1.1. Exclusivity. In order to establish exclusivity for ESPERION, ----------- INEX hereby agrees that it shall not, without ESPERION's prior written consent, grant to any other person or entity a license or other right, under the Licensed Patents or Know-How, to develop, make, have made, import, use, lease and/or sell Licensed Products in the Field during the period of time in which this Agreement is in effect. 2.2. Further Right. ESPERION shall have the first right to ------------- negotiate an exclusive license in the Improvements Field to any Future INEX Technology. If the Parties are unable to agree on the terms of such exclusive license, INEX will not license such Future INEX Technology to a third party on more favourable financial terms than those first offered to ESPERION. This fight shall be exhausted as to any specific item of Future INEX Technology upon ESPERION's failure to initiate negotiations within thirty (30) days of receiving terms for such exclusive license for such specific item of Future INEX Technology, or having initiated negotiations, upon the Parties' failure to execute such exclusive license within a reasonable period but in any event not less than ninety (90) days. 2.3. Reservation of Rights. INEX retains the non-exclusive right --------------------- under the Licensed Patents and the Know-How to practice the inventions solely for internal research purposes in the Field, which right shall not be assigned, sublicensed or delegated without ESPERION's consent. ESPERION and INEX acknowledge and agree that UBC may use Hope/Rodrigueza without charge in any manner whatsoever for research, scholarly publication, educational or other non- commercial use. INEX may not use Hope/Rodrigueza for any commercial purpose in the Field. 2.4. Sublicenses. ESPERION shall have the right to sublicense ----------- rights granted in Section 2. 1, subject to MX's right to review and comment on the proposed sublicense as provided below. ESPERION shall provide a brief summary of the nature of the proposed sublicense and the name of such proposed sublicensee, except to the extent prohibited by the terms of any confidentiality agreement between ESPERION and such proposed sublicensee, and sufficient portions of the proposed sublicensing agreement to 7 permit RNEX to evaluate whether the agreement contains covenants by the Sublicensee to observe and perform similar terms and conditions to those in the UBC License Agreement and in this Agreement. If INEX does not provide ESPERION with its comments within ten (IO) calendar days after such request is given by ESPERION, INEX shall be deemed to have waived its right to review and comment. Within ten (IO) calendar days after execution of a sublicensing agreement, ESPERION shall provide INEX with a copy thereof. Within thirty (30) calendar days after receiving such copy, INEX shall notify ESPERION, in express terms, of any deficiency or failure of the sublicensing agreement to satisfy the terms and conditions of the UBC License Agreement and this Agreement. The consent of UBC shall not be required. All sublicenses granted by ESPERION shall be personal to the sublicensee and shall not be assignable without the prior written consent of INEX, except as provided by this Section 2.4. Such sublicenses shall terminate upon the termination of ESPERION's rights granted herein unless events of default are cured by ESPERION or Sublicensee within sixty (60) days of notification by INEX of default and/or as provided by the terms of this Agreement. Each sublicense shall contain covenants by the Sublicensee to observe and perform similar terms and conditions to those in the UBC License Agreement and in this Agreement. INEX agrees that if ESPERION has provided to INEX notice that ESPERION has granted a sublicense to a Sublicensee under this Agreement, then in the event INEX terminates this Agreement for any reason provided hereafter, INEX shall provide to such Sublicensee written notice of such termination no less than sixty (60) days prior to the effective date of such termination. The Sublicensee may during such sixty (60) day period provide to INEX notice wherein the Sublicensee: (a) reaffirms the terms and conditions of this Agreement as it relates to the rights the Sublicensee has been granted under the sublicense; (b) agrees to abide by all of the terms and conditions of this Agreement applicable to Sublicensees and to discharge directly all pertinent obligations of ESPERION which ESPERION is obligated hereunder to discharge with respect to such sublicense; and (c) acknowledges that INEX shall have no obligations to the Sublicensee other than its obligations set forth in this Agreement with regard to ESPERION. INEX agrees that upon such Sublicensee's notice and provided such Sublicensee is not in material breach of its sublicense, INEX shall grant to such Sublicensee license rights and terms equivalent to the sublicense rights and terms which ESPERION shall have granted to such Sublicensee. 2.5. Delivery of Know-How. Upon execution and delivery by the parties -------------------- of this Agreement, INEX shall make available to ESPERION originals or copies of all of its records, data and documentation relating to the Licensed Patents and Know-How, including, without limitation, scientific data and regulatory submissions and documentation, manufacturing process, reagents, formulations and other information relevant to the development, manufacture, purification, formulation, use, importation or sale of any Licensed Products. 8 ARTICLE III. MILESTONE PAYMENTS AND SUBLICENSE FEES 3.1 Milestone Payments. In consideration of the licenses granted by INEX ------------------ to ESPERION under this Agreement, ESPERION shall make the following milestone payments to INEX: Milestone Amount --------- ------ 1. Execution of this Agreement US$250,000 2. Upon the enrollment of the first US[** ] patient in a Phase II Clinic Trial 3. Upon the enrollment of the first US[** ] patient in a Phase III Clinic Trial 4. Upon submission of first NDA in US[** ] U.S. or Europe 5. Upon approval of first NDA in US[** ] U.S. or Europe Total US$8.75 Million =============== ESPERION shall make the milestone payments to INEX whether the milestone is achieved by ESPERION itself, or by an Affiliate or a Sublicensee. For the purposes of this Section 3. 1, "Phase II Clinical Trial" shall mean a clinical trial for which an efficacy endpoint is defined in the clinical protocol and for which data are collected and "Phase III Clinical Trial" shall mean a clinical trial which is sized to enable measurement of statistically significant efficacy for the purposes of filing for approval with regulatory authorities. 3.2. Independent Consideration. Subject to the credits described in ------------------------- Section 4.2 of this Agreement, the amounts payable to INEX pursuant to Section 3.1 hereof shall be in addition to, and not in lieu of, the royalties payable to INEX pursuant to Article IV of this Agreement. **Certain portions of this Exhibit have been omitted based upon a request for confidential treatment that has been filed with the Commission. The omitted portions have been filed separately with the Commission. 9 ARTICLE IV. PATENT AND KNOW-HOW ROYALTIES 4.1 Royalties. --------- (a) ESPERION shall pay to INEX during the term of the licenses granted in Section 2.1 of this Agreement earned royalties at the rate set forth on Schedule A hereto on all Net Annual Sales in the Territory of Licensed Products by ESPERION, its Affiliates, and Distributors. If a Licensed Product is made, used or sold by a Sublicensee in any part of the Territory, ESPERION shall pay to INEX the earned royalties on all Sublicensing Royalties as set out in Schedule A hereto. One royalty on either Licensed Patents or Know-How shall be due with respect to each sale of a Licensed Product; and under no circumstance shall ESPERION be obligated to pay both royalties. (b) Royalties based upon Licensed Products solely involving Know-How and not involving Licensed Patents shall be payable for a period of ten (10) years after the first sale in each such country in the Territory of Licensed Products. Upon the expiration of the royalty obligations set forth in subsection (a) above with respect to any Know-How in any country in the Territory, the licenses granted under Section 2. 1 (b) of this Agreement with respect to such Know-How in such country in the Territory shall become fully paid licenses. ESPERION may, upon such expiration, elect to continue in effect the exclusive nature of the license of any Know-How in any country in the Territory by continuing to pay to INEX fifty percent (50%) of the earned royalty specified on Schedule A hereto. Such exclusive license shall remain in effect so long as ESPERION pays such royalty; if and when such royalty payments are terminated, the license shall become a fully paid, non-exclusive license with respect to such Know-How in such country in the Territory. All royalty obligations under this paragraph 4. 1 (b) shall cease should information cease to be Know-How under the circumstances provided in Section 1.10. (c) For purposes of calculating royalties, in the event that a Licensed Product which is approved for commercial sale by an applicable regulatory authority includes both component(s) covered by a Valid Claim of a Licensed Patent (a "Patented Component") and a component which is diagnostically useable or therapeutically active alone or in a combination which does not require the Patented Component, and such component is not covered by a Valid Claim of a Licensed Patent (an "Unpatented Component"), then Net Annual Sales of the Combination Product shall be calculated using one of the following methods: (i) By multiplying the Net Annual Sales of the Combination Product during the applicable royalty accounting period ("accounting period") by a fraction, the numerator of which is the aggregate gross selling price of the Patented Component(s) contained in the Combination Product if sold 10 separately, and the denominator of which is the sum of the gross selling price of both the Patented Component(s) and the Unpatented Component(s) contained in the Combination Product if sold separately; or (ii) In the event that no such separate sales are made of the Patented Component(s) or the Unpatented Component(s) during the applicable accounting period, or in the event that either the Patented Component(s) or the Unpatented Component(s) have not been sold separately for at least one (1) year, Net Annual Sales for purposes of determining royalties payable hereunder shall be calculated by multiplying the Net Sales of the Combination Product by a fraction, the numerator of which is the fully allocated production cost of the Patented Component(s) and the denominator of which is the sum of the fully allocated production costs of the Patented Component(s) and the Unpatented Component(s) contained in the Combination Product; provided, however, that Net Annual Sales for purposes of determining such royalties shall not be less than fifty percent (50%) of the Net Annual Sales of the Combination Product for the accounting period, The fully allocated production costs shall be determined by using ESPERION's accounting procedures, which procedures must conform to generally accepted accounting procedures (GAAP). 4.2 Creditability of Milestone Payments. [**] of each of the fourth and ----------------------------------- fifth milestone payments will be creditable towards royalties owed to INEX, except that in a given year, INEX's royalties will not be reduced below fifty per cent (50%) of royalties owed in that year. Remaining credits will be carried forward until exhausted. 4.3 Third Party Royalties. For any Licensed Product which is not a --------------------- Combination Product or for any Patented Component of a Combination Product, if ESPERION, its Affiliates or Distributors, in order to operate under or exploit the licenses granted under Article II of this Agreement in any country in the Territory, must pay royalties to one or more third parties to obtain a license or similar right in the absence of which the Licensed Products could not legally be made, used, imported or sold in any country in the Territory, and such royalties are, in fact, paid ESPERION, may deduct from royalties thereafter payable to INEX on Net Annual Sales in such country in the Territory an amount equal to up to fifty percent (50%) of such third party royalty payments, provided that the total royalties otherwise due to INEX on Net Annual Sales in such country in the Territory in any calendar year shall not be reduced by more than fifty percent (50%) as a result of such deduction. **Certain portions of this Exhibit have been omitted based upon a request for confidential treatment that has been filed with the Commission. The omitted portions have been filed separately with the Commission. 11 4.3.1 In this Section 4.3.1., "Unlicensed Competitive Product" means any product which is commercially competitive with a Licensed Product, and which is reasonably construed as infringing a Licensed Patent. In the event that an Unlicensed Competitive Product is reducing the market share of any Licensed Product, INEX and ESPERION agree to enter good faith negotiations for a reduction in royalties payable on Net Annual Sales, such reduction in royalties to be not more that 50% of the royalties otherwise payable, if such reduction is required for ESPERION to make a Licensed Product competitive in the marketplace, provided that any such reduction shall be effective no earlier than twelve (12) months after the first commercial sale of the Unlicensed Competitive Product. 4.4 Reports and Payment. ESPERION shall deliver to INEX within thirty ------------------- (30) days after the end of each calendar quarter a written report showing its computation of royalties due under this Agreement upon Net Annual Sales by ESPERION and its Affiliates and upon Sublicensing Royalties received from Sublicensees, during such calendar quarter. All Net Annual Sales and Sublicensing Royalties shall be segmented in each such report according to sales by ESPERION, each Affiliate and each Sublicensee, as well as on a country-by- country basis, including the rates of exchange used to convert such royalties to United States dollars from the currency in which such sales were made. For the purposes hereof, the rates of exchange to be used for converting royalties hereunder to United States dollars shall be those in effect for the purchase of dollars at CitiBank, New York, New York, on the last business day of the quarter with respect to which the payment is due. ESPERION, simultaneously with the delivery of each such report, shall tender payment in United States dollars of all royalties shown to be due thereon. 4.5 Foreign Royalties. Where royalties are due INEX hereunder for sales ----------------- of Licensed Products in a country in the Territory where, by reason of currency regulations or taxes of any kind, it is impossible or illegal for ESPERION, any Affiliate or Sublicensee to transfer royalty payments to INEX for Net Annual Sales in that country in the Territory, such royalties shall be deposited in whatever currency is allowable by the person or entity not able to make the transfer for the benefit or credit of INEX in an accredited bank in that country in the Territory that is reasonably acceptable to INEX. 4.6 Records. ESPERION shall keep, and shall require all Affiliates and ------- Sublicensees to keep, full, true and accurate books of accounts and other records containing all information and data which may be necessary to ascertain and verify the royalties payable hereunder for a period of five (5) years after the date such royalties became payable. After the first commercial sale of Licensed Products and for a period of one (1) year following termination of this Agreement, INEX shall have the right from time to time (not to exceed twice during each calendar year) to have an independent firm of accountants inspect such books, records and supporting data. Such independent firm of accountants shall perform these audits at INEX's expense upon reasonable prior notice and during ESPERION's regular business hours, and shall agree as a condition to such audit to maintain the confidentiality of all information of ESPERION disclosed or observed in connection with such audit and to disclose to INEX only whether 12 ESPERION has complied with its obligations under this Agreement. If the result of such audit demonstrates an underpayment to INEX of 5% or more, ESPERION shall pay for the reasonable costs of such audit. ARTICLE V. DUE DILIGENCE AND ANNUAL REPORTS 5.1 Due Diligence. ESPERION shall use commercially reasonable ------------- efforts in such portions of the Territory as is commercially reasonable but at a minimum in the United States, and three countries of the European Community to: (a) conduct all necessary and appropriate preclinical and clinical trials and control the manner and extent of such trials in order to file IND's and NDA's which it believes will be sufficient to obtain approval to sell Licensed Products; (b) prepare, file and diligently prosecute all governmental applications necessary to obtain approvals to sell Licensed Products; and (c) diligently market Licensed Products. 5.2 Annual Reports. ESPERION shall make annual reports, due on each -------------- anniversary of this Agreement, to INEX setting forth in general terms, sufficient for evaluation by INEX of the diligence obligations contained herein, the efforts it made to develop Licensed Products during the previous year, including pre-clinical and clinical efforts and all submissions to regulatory bodies, and the efforts it intends to make in the upcoming year on these matters. ARTICLE VI. REPRESENTATIONS AND WARRANTIES 6.1 By ESPERION. ESPERION hereby represents and warrants to INEX ----------- that (a) ESPERION has full legal right, power and authority to execute, deliver and perform its obligations under this Agreement, (b) the execution, delivery and performance by ESPERION of this Agreement do not contravene or constitute a default under any provision of applicable law or its articles or by-laws (or equivalent documents) or of any agreement, judgment, injunction, order, decree or other instrument binding upon ESPERION, (c) all licenses, consents, authorizations and approvals, if any, required for the execution and delivery by ESPERION of this Agreement have been obtained and are in full force and effect and all conditions thereof have been complied with, and no other action by or with respect to, or filing with, any governmental authority or any other person or entity is required in connection with the execution, delivery and performance by ESPERION of this Agreement, and (d) this Agreement constitutes a valid and binding agreement of ESPERION, enforceable against ESPERION in accordance with its terms, 13 except as such enforceability may be limited by bankruptcy, insolvency, moratorium or creditors' rights generally. 6.2 By INEX. INEX hereby represents and warrants to ESPERION that ------- (a) INEX has full legal right, power and authority to execute, deliver and perform its obligations under this Agreement, (b) the execution, delivery and performance by INEX of this Agreement do not contravene or constitute a default under any provision of applicable law or of any agreement, judgment, injunction, order, decree or other instrument binding upon INEX or otherwise relating to the Licensed Patents or the Know-How, (c) all licenses, consents, authorizations and approvals, if any, required for the execution, delivery and performance by INEX of this Agreement have been obtained and are in full force and effect and all conditions thereof have been complied with, and no other action by or with respect to, or filing with, any governmental authority or any other person or entity is required in connection with the execution, delivery and performance by FNEX of this Agreement as of the date of this Agreement, (d) INEX is the exclusive owner of all legal and beneficial right, title and interest in and to the Braun Patent; (e) INEX is the sole and exclusive owner of the Know-How, free and clear of any lien, claim or encumbrance or rights of any other person or entity, except with respect to such Know-How of which FNEX is the sole and exclusive licensee pursuant to the UBC License Agreement, (f) INEX is the sole and exclusive licensee of Hope/Rodrigueza other than in favor of UBC pursuant to the UBC License Agreement, (g) the UBC License Agreement and Research Agreement effective February 1, 1993 are the only agreements between INEX and UBC or otherwise relating to Hope/Rodrigueza, (h) the UBC License Agreement is in full force and effect and has not been breached by INEX or, to the best knowledge of INEX, UBC, and the representations and warranties made by FNEX and, to the best of INEX's knowledge, UBC in the UBC License Agreement are sufficient to permit the granting by FNEX of the license in Article II hereof on the date hereof, (i) to the best knowledge of INEX, the practice of the Licensed Patents and/or the Know-How, as embodied in the methods and compositions of the Hope/Rodrigueza and Braun patents, and the development, manufacture, use, importation, offer for sale, sale or commercialization of any method or composition described therein can be enjoyed without infringing or violating any patent right of any person or entity except that INEX provides no opinion, legal or otherwise, with respect to certain patents set forth on Schedule B and 0) this Agreement constitutes a valid and binding agreement of INEX, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or creditors' rights generally. 6.3 Survival of Representations and Warranties. The representations and ------------------------------------------ warranties contained herein shall survive the execution, delivery and performance of this Agreement by the parties, notwithstanding any investigation at any time made by or on behalf of any Party or Parties, subject to any necessary changes which do not affect the employment by the Parties of the rights granted in this Agreement. 14 ARTICLE VII. FUTURE AGREEMENTS: INTELLECTUAL PROPERTY RIGHTS 7.1 Future Agreements. While not being bound to reach any further ----------------- agreement, the Parties acknowledge that development and commercial supply agreements may arise between the Parties in the future. It is the non-binding proposal of the Parties that ESPERION and INEX will negotiate contracts for the supply of materials, as well as services, which would support pre-clinical development, clinical development, and regulatory submissions. The contracts will be negotiated in good faith, but costs of such materials and services will not exceed INEX's reasonable fully burdened costs plus twenty percent (20%) profit. INEX will have the right of first offer for commercial supply of bulk drug product, with terms to be negotiated in good faith; however such terms will not exceed INEX's reasonable fully burdened costs plus twenty percent (20%) profit. 7.2 Prosecution and Maintenance of Licensed Patents. ----------------------------------------------- (a) ESPERION shall be responsible for and pay all future costs of prosecuting and maintaining the Hope/Rodrigueza and Braun patents. ESPERION shall advise INEX in writing of all significant actions which it undertakes concerning the prosecution and maintenance of Hope/Rodrigueza and Braun, and shall, except to the extent protected by attorney-client privilege between ESPERION and its attorneys, provide copies of the substantive correspondence and documents which it sends or receives in connection therewith to INEX and, in the case of Hope/Rodrigueza, also to UBC. ESPERION shall diligently prosecute and maintain the Hope/Rodrigueza and Braun patents, and ESPERION shall not irrevocably alter the scope of patent coverage of such patents without prior review by INEX and consideration of the opinion of INEX's patent advisor(s). Should ESPERION seek to discontinue or not pursue Hope/Rodrigueza and/or Braun in any specific jurisdiction, then ESPERION shall provide INEX, and in the case of Hope/Rodrigueza, also UBC, with notice of its decision to discontinue or not to pursue such patent in sufficient time, not to be less than forty-five (45) days, whereupon INEX shall become entitled to continue or pursue such patent in such jurisdiction at its own expense. Failure of ESPERION to maintain a granted or issued patent in a jurisdiction does not relieve ESPERION of the increased earned royalty obligation for that jurisdiction set out in Schedule A. ---------- (b) INEX and ESPERION shall each make available to the other Party or such other Party's authorized attorneys, agents or representatives, such of its employees whom the other Party in its reasonable judgment deems necessary in order to assist it in obtaining patent protection of the Hope/Rodrigueza and/or Braun patents. INEX and ESPERION shall each execute all legal documents reasonably necessary to support the filing, maintenance and prosecution of said patent applications. ESPERION shall, at the request of INEX and, in the case of Hope/Rodrigueza, UBC, enter into such 15 further agreements and execute any and all documents as may reasonably be required to ensure that ownership of the Licensed Patents remains with the legal owner. 7.3 Improvements and Future INEX Technology. INEX shall have the right and responsibility to decide whether or not to seek or continue to seek or maintain patent protection on any Improvement or Future INEX Technology in any country, and shall have the right to file for, procure and maintain patents on any Improvement or Future INEX Technology in any country. Obligations of ESPERION regarding patent prosecution or costs for Improvements or Future INEX Technology, if any, shall be determined by written agreement of the Parties. 7.4 Infringement. This Section 7.4 is subject to the rights of UBC in Section 11.1(a). (a) Each Party shall promptly report in writing to the other Party during the term of this Agreement any (i) known infringement or suspected infringement of any of the Licensed Patents in the Territory, or (ii) unauthorized use or misappropriation of Know-How or Confidential Information by a third party in the Territory of which it becomes aware, and shall provide the other Party with all available evidence supporting said infringement, suspected infringement or unauthorized use or misappropriation. (b) Except as provided in subsection (c) below, ESPERION shall have, upon receiving the prior written consent of INEX, not to be unreasonably withheld, the right anywhere in the Territory to defend an allegation of invalidity of one or more Licensed Patents, and to initiate an infringement or other appropriate suit against any third party who at any time has infringed, or is suspected of infringing, or is anticipated to infringe any of the Licensed Patents or of using without proper authorization all or any portion of the Confidential Information and/or Know-How. Provided that it has first granted its prior written consent, not to be unreasonably withheld, INEX agrees to co- operate to the extent of executing all necessary documents and to vest in ESPERION the right to institute any such suits, in the name of ESPERION or INEX or both, so long as all the direct or indirect costs and expenses of bringing and conducting any such litigation or settlement shall be borne by ESPERION and in such event all recoveries shall inure to ESPERION. For purposes of this Agreement, if ESPERION requests in writing INEX's prior written consent to any matter, as required hereby, and INEX does not either grant or deny such consent within ten (10) days of receiving such request from ESPERION, INEX shall be deemed to have granted the requested consent. In the event of any litigation: (b.i) Each Party shall keep the other fully informed of the actions and positions taken or proposed to be taken by such Party and actions and positions taken by all other parties to such litigation; (b.ii) No decision or action concerning or governing any final disposition of the litigation shall be taken without five (5) days prior notification thereof to INEX; 16 (b.iii) INEX may elect to participate formally in the litigation to the extent that the court may permit, but any additional expenses generated by such formal participation shall be paid by INEX (subject to the possibility of recovery of some or all of such additional expenses from such other parties to the litigation); (b.iv) If a Party to a litigation is willing to make or accept an offer of settlement and the other is not, then the unwilling party shall conduct all further proceedings at its own expense, and shall be responsible to account to the willing party for any deficiency in litigated or settled result from that which it would have been entitled to in the offer, but shall be entitled to retain unto itself the benefit of any litigated or settled result entailing a greater payment of costs, damages, accounting of profits and settlement costs than that provided in such offer; (c) In the event that ESPERION elects not to initiate an infringement or other appropriate suit pursuant to subsection (b) above, ESPERION shall promptly advise INEX of its intent not to initiate such suit, and INEX shall have the right, in INEX's sole discretion, and at the expense of INEX, of initiating an infringement suit, a defense of patent validity, or other appropriate suit against any third party who at any time has infringed, or is suspected of infringing, or is anticipated to infringe any of the Licensed Patents or of using without proper authorization all or any portion of the Confidential Information and Know-How. At INEX's request, ESPERION shall offer reasonable assistance to INEX in connection with such litigation at no charge to INEX except for reimbursement of reasonable out-of-pocket expenses, including salaries of ESPERION personnel, incurred in rendering such assistance. 7.5 Claimed Infringement. In the event that a third party at any -------------------- time provides written notice of a claim to, or brings an action, suit or proceeding against, either Party or any of their respective Affiliates or Sublicensees, claiming infringement of such third party's patent rights or unauthorized use or misappropriation of its know-how, based upon an assertion or claim arising out of the development, use, manufacture, distribution, importation or sale of Licensed Products, such Party shall promptly notify the other Party, and if Hope/Rodrigueza is involved, UBC, of the claim or the commencement of such action, suit or proceeding, enclosing a copy of the claim and/or all papers served. INEX agrees to make available to ESPERION its advice and counsel regarding the technical merits of any such claim at no cost to ESPERION. THE ENTIRE RESPONSIBILITY OF INEX IN THE CASE OF ANY CLAIMED INFRINGEMENT OR VIOLATION OF ANY THIRD PARTY'S RIGHTS OR UNAUTHORIZED USE OR MISAPPROPRIATION OF ANY THIRD PARTY'S KNOW-HOW IS SET OUT IN THIS AGREEMENT. 7.6 Williams Claim. -------------- In this Agreement, "Williams Claim" means any and all legal claims against INEX, INEX' Affiliates and/or INEX Indemnitees (as defined in Section 10.1) based on the allegation that INEX misappropriated confidential information and inventions which form the basis of Hope/Rodrigueza including, without limitation, the [**] a copy of which has been provide to ESPERION. Except to the extent provided in the immediately preceding sentence, the "Williams Claim" shall not include the claim of Mr. Williams that he is a co-inventor of Hope/Rodrigueza, of which ESPERION acknowledges it was informed by INEX prior to the date of said letter. 7.6.1. INEX shall provide an adequate defense, at its own cost and expense, to any claim related to the Williams Claim. INEX shall give five (5) days' prior written notice to ESPERION prior to taking any material action with respect to such defense. INEX further agrees that it shall not settle or compromise any claim or action related in any way to the Williams Claim unless it receives the prior written consent of ESPERION, provided, however, that INEX shall not be required to receive such prior written consent if, and only if, (i) the settlement or compromise of the claim or action does not reduce, diminish or otherwise limit the license or other rights granted to ESPERION herein; and (ii) a general release to the Williams Claim is obtained by the INEX Indemnitees and the ESPERION Indemnitees (each as defined in Article X below). 7.6.1.1 In the event any claim or action related in any way to the Williams Claim is asserted against ESPERION and/or any ESPERION Indemnitees, INEX shall be responsible for the defense thereof and shall pay all damages awarded, all amounts paid in settlement or compromise thereof, and all legal costs and other losses, as provided in Section 10.2 of this Agreement. The obligations of INEX under this Section 7.6.1.1 shall not be subject to the limitation on INEX's liability set forth in Section 10.6 of this Agreement. 7.6.2 If INEX settles or compromises any claim or action related in any way to the Williams Claim (which settlement or compromise shall be subject to the prior written consent of ESPERION, except as provided in Section 7.6.1), and the effect of such settlement or compromise is to reduce, diminish or otherwise limit the license or other rights granted to ESPERION herein, this Agreement shall be deemed amended at the time of such settlement or compromise to provide that (i) a further [**] of all subsequent milestone payment obligations of ESPERION pursuant to Article III hereof shall also become creditable as provided in Section 4.2, and where payments under Article III hereof shall also become creditable as provided in Section 4.2, and where payments under Article III have been previously made, [**] of such payments shall also become creditable as provided in Section 4.2; and (ii) in each country where a competing product licensed under Hope/Rodrigueza or Braun is introduced, all royalty obligations of ESPERION to INEX hereunder resulting from sales of Licensed Products such countries shall be reduced by [**]. 7.6.3 INEX shall provide ESPERION with reasonable assistance in the event that ESPERION seeks to rely on the facts relating to the Williams Claim in a claim or action against Mr. Williams, his heirs and assigns, or any organization or corporation representing the rights of Mr. Williams or any Affiliate of Mr. Williams (collectively, the "Williams Parties"). If under applicable law INEX is a necessary party to any claim or action brought by or against ESPERION involving any of the Williams Parties, at ESPERION's request INEX shall become a nominal party to such claim or action at ESPERION's expense. ESPERION shall indemnity INEX for Losses incurred by INEX in connection with such claim or action, to the extent set forth in Section 10.1 below. Where INEX is not a necessary party to such claim or action, INEX' consent to joining such action may be withheld by INEX in its sole discretion. **Certain portions of this Exhibit have been omitted based upon a request for confidential treatment that has been filed with the Commission. The omitted portions have been filed separately with the Commission. 17 ARTICLE VIII. CONFIDENTIAL INFORMATION 8.1 Treatment of Confidential Information. Each Party hereto shall ------------------------------------- maintain the Confidential Information of the other Party in confidence, and shall not disclose, divulge or otherwise communicate such Confidential Information to others, or use it for any purpose, except pursuant to, and in order to carry out, the terms and objectives of this Agreement, and hereby agrees to exercise every reasonable precaution to prevent and restrain the unauthorized disclosure of such Confidential Information by any of its directors, officers, employees, consultants, subcontractors, sublicensees or agents. 8.2 Release from Restrictions. The provisions of Section 8.1 shall ------------------------- not apply to any Confidential Information disclosed hereunder which: (a) was known or used by the receiving Party or its Affiliates prior to its date of disclosure to the receiving Party, as evidenced by the prior written records of the receiving Party or its Affiliates; or (b) either before or after the date of the disclosure to the receiving Party is lawfully disclosed to the receiving Party or its Affiliates by an independent, unaffiliated third party rightfully in possession of the Confidential Information; or (c) either before or after the date of the disclosure to the receiving Party becomes published or generally known to the public through no fault or omission on the part of the receiving Party or its Affiliates; or (d) the Party can verify by written documentation results from research and development by the receiving Party or any of its Affiliates independent and in advance of disclosure by the other Party thereof, or (e) is disclosed by the receiving party to its attorneys, accountants or other advisors, actual or potential lenders, investors or purchasers, each of whom shall be subject to a confidentiality restriction; or (f) is required to be disclosed by the receiving Party to comply with applicable laws, to defend or prosecute litigation or to comply with governmental regulations, provided that the receiving Party provides prior written notice of such **Certain portions of this Exhibit have been omitted based upon a request for confidential treatment that has been filed with the Commission. The omitted portions have been filed separately with the Commission. 18 disclosure to the other Party and takes reasonable and lawful actions to avoid and/or minimize the degree of such disclosure. 8.3 Publications. The following restrictions shall apply with ------------ respect to the disclosure in scientific journals or publications by any Party or any employee or consultant of any Party relating to the inventions contained in the Licensed Patents and the Know-How: (a) a Party (the "publishing Party") shall provide the other Party with an advance copy of any proposed publication which may be in draft form) and such other Party shall have a reasonable opportunity to recommend any changes it reasonably believes are necessary to preserve patent rights or know how belonging in whole or in part to INEX or E8PERION, and the incorporation of such recommended changes shall not be unreasonably refused; and (b) if such other Party informs the publishing Party, within thirty (30) days of receipt of an advance copy of a proposed publication, that such publication in its reasonable judgment could be expected to have a material adverse effect on any patent rights or know how belonging in whole or in part to INEX or ESPERION, the publishing Party shall, to the extent permitted by its agreements with its employees and consultants, delay or prevent such publication as proposed. In the case of inventions, the delay shall be sufficiently long to permit the timely preparation and filing of a patent application(s) or application(s) for a certificate of invention on the information involved but not less than sixty (60) days. ARTICLE IX. TERMINATION 9.1 Term. This Agreement shall remain in effect for ten (IO) years ---- from the first commercial sale of a Licensed Product or until the last to expire of the Licensed Patents, or until the last to expire of the licenses granted pursuant to Article II, above, whichever is longer, on a country-by-country basis. 9.2 Voluntary Termination. ESPERION may terminate the licenses --------------------- under this Agreement at any time by providing ninety (90) days prior written notice to INEX. 9.3 Termination for Breach. Each Party shall be entitled to ---------------------- terminate this Agreement and the licenses granted hereunder to the other Party by written notice to the other Party in the event that the other Party shall be in default of any of its obligations hereunder, and shall fail to remedy any such default within sixty (60) days after notice thereof by the non-breaching Party. Any such notice shall specifically state that the non-breaching Party intends to terminate this Agreement in the event that the breaching Party shall fail to remedy the default. Any such notice shall set out expressly the actions 19 required of the breaching Party to remedy the default. Where the alleged default identified is of an obligation to maintain insurance (as in Sections 10.4 or 11.1(b)) or an obligation of indemnity in Article X, the termination date shall be the effective date of the written notice provided (which effective date shall take into account the sixty (60) day cure period described above). If the alleged default relates to an obligation other than in Section 10.4, Section 11.1(b) or Article X, and if the existence of said breach is in dispute, the license and all rights granted to ESPERION pursuant to this Agreement and all obligations and commitments of ESPERION to INEX and/or to UBC shall continue until finallydeterminedbyarbitrationorotherjudicialprocessasprovidedherein. In the event a breach is finally determined, the remedy for such breach may take effect from the date of first occurrence of such breach. 9.4 Termination upon Bankruptcy. This Agreement shall automatically --------------------------- and immediately terminate without notice to ESPERION upon (a) the bankruptcy, insolvency, liquidation or dissolution of ESPERION; (b) the filing of any voluntary petition for bankruptcy, dissolution, liquidation or winding-up of the affairs of ESPERION; or (c) the filing of any involuntary petition for bankruptcy, dissolution, liquidation or winding-up of the affairs of ESPERION which is not dismissed within one hundred twenty (I 20) days of the date on which it is filed or commenced. 9.5 Continuing Obligations. Upon any termination of this Agreement ---------------------- to this Article IX, neither Party shall be relieved of any obligations incurred prior to such termination. 9.6 Disposition of Licensed Products. Upon any termination of this -------------------------------- Agreement pursuant to Sections 9.2, 9.3 or 9.4 hereof, ESPERION shall within thirty (30) days of the effective date of such termination notify INEX in writing of the amount of Licensed Products which ESPERION, its Affiliates and Sublicensees then have completed on hand, the sale of which would, but for the termination, be subject to royalty, and ESPERION, its Affiliates and Sublicensees shall thereupon be permitted during the one (1) year following such termination to sell that amount of Licensed Products, provided that ESPERION shall pay the aggregate royalty thereon at the conclusion of the earlier of the last such sale or such one (1) year period. Except as provided in this Agreement, all sublicenses granted by ESPERION shall forthwith terminate upon the termination of this Agreement. 9.7 Survival of Obligations; Return of Confidential Information. ----------------------------------------------------------- (a) Notwithstanding any termination of this Agreement, the obligations of the Parties under Section 7.5 and Article VIII and Article X hereof, as well as under any other provisions which by their nature are intended to survive any such termination, shall survive and continue to be enforceable. Upon any termination of this Agreement pursuant to Section 9.2, 9.3 or 9.4 hereof, each Party shall promptly return to the other Party all written Confidential Information, and all copies thereof (except for one archival copy to be retained by a person designated by such Party (who shall not make 20 such Confidential Information generally available to employees or other representatives of such Party) for the purpose of confirming which information to hold in confidence hereunder), of the other Party which is not covered by a license surviving such termination; (b) Upon termination, ESPERION shall promptly deliver to INEX, at no cost to INEX, all animal and human data and such other information, materials (including biological materials) and documents in ESPERION's possession that INEX may require in order to obtain approval of applicable government regulatory agencies to market Licensed Products. Upon termination, ESPERION shall also promptly deliver to INEX, at no cost to INEX, all Licensed Patents, patent prosecution records and, Know-How in its possession or control, and shall destroy any copies of such materials (except for one archival copy to be retained by a person designated by such Party (who shall not make such Confidential Information generally available to employees or other representatives of such Party) for the purpose of confirming which information to hold in confidence hereunder); and (c) Termination shall give effect to a non-exclusive, royalty- free license from ESPERION to INEX, to make, have made, use or sell, any and all Enhancements to Licensed Products in the Territory. 9.8 Arbitration. In the event of any unresolvable dispute, difference, ----------- or question arising between the Parties in connection with this Agreement or any clause or the construction thereof, or the rights, duties or liabilities of either Party, or the scope or validity of any patent licensed hereunder, the matter shall be submitted for arbitration in accordance with the rules of the American Arbitration Association. Arbitration shall take place in continental North America or as otherwise agreed by the Parties. A single arbitrator shall be appointed by agreement of the Parties to resolve all such disputes, differences or questions. The arbitrator shall be guided by the contents of this Agreement in arriving at a decision to resolve the dispute, but may rely on extrinsic evidence where appropriate and/or necessary. The Parties shall share the cost of the arbitration unless, in the arbitrator's opinion, the position advanced by one of the Parties, or the nature or manner of presenting it, is such that it would be unfair to so apportion such expenses, in which case the arbitrator may apportion such expenses differently. In cases where validity or scope of a patent is in issue, either party shall have the right to elect to have the arbitration conducted by three arbitrators, each party selecting one and those arbitrators selecting the third. ARTICLE X. INDEMNIFICATION AND LIABILITY LIMITATIONS 10.1 Indemnification by ESPERION. ESPERION hereby agrees that it shall --------------------------- be responsible for, indemnify, hold harmless and defend INEX and its Affiliates, and their respective Board of Governors, directors, officers, employees, faculty, students, invitees, managing members, shareholders, partners, attorneys, accountants, consultants and 21 agents, and their respective heirs, successors and assigns (collectively, the "INEX Indemnities"), and UBC and its Affiliates and their respective directors, officers, Board of Governors, employees, faculty, students, invitees, managing members, shareholders, partners, attorneys, accountants, consultants and agents and their respective heirs, successors and assigns (collectively, the "UBC Indemnities") from and against any and all claims, demands, losses, liabilities, damages, costs and expenses (including the cost of settlement, reasonable legal and accounting fees and any other expenses for investigating or defending any actions or threatened actions) (collectively, "Losses") suffered or incurred by any INEX Indefinite or UBC Indemnity arising out of, relating to, resulting from or in connection with (a) any third party claims arising out of or relating to the breach of any representation or warranty made by ESPERION herein, (b) any third party claims arising out of or relating to the default by ESPERION in the performance or observance of any of its obligations to be performed or observed hereunder, (c) any third party claims arising out of or relating to any injury or death to any person or damage to any property caused by any Licensed Product, whether claimed by reason of breach of warranty, negligence, product defect or otherwise, and regardless of the form in which any such claim is made except to the extent that such injury, death or damage is caused by the negligence or willful misconduct of any INEX Indemnity or UBC Indemnity, and (d) any claim or action which INEX is made a party at the request of ESPERION pursuant to Section 7.6.3 above. The foregoing shall not apply to the extent that such Losses are due to the negligence or willful misconduct of any of the INEX Indemnities or the gross negligence or willful misconduct of any of the UBC Indemnities or are on account of or arising out of the Williams Claim. 10.2 Indemnification by INEX. INEX hereby agrees that it shall be ----------------------- responsible for, indemnify, hold harmless and defend ESPERION and ESPERION's Affiliates, and their respective Board of Governors, directors, officers, employees, faculty, students, invitees, managing members, shareholders, partners, attorneys, accountants, consultants and agents and their respective heirs, successors and assigns (collectively, the "ESPERION Indemnities"), from and against any and all Losses suffered or incurred by any ESPERION Indemnity arising out of, relating to, resulting from or in connection with (a) any third party claims arising out of or relating to the breach of any representation or warranty made by INEX herein, and (b) any third party claims arising out of or relating to the default by INEX in the performance or observance of any of its obligations to be performed or observed hereunder, and (c) losses relating to the Williams Claim that are (i) damages, costs, and expenses awarded against any ESPERION Indemnity relating to the Williams Claim, (ii) any amounts payable in connection with the settlement or compromise of any claims relating to the Williams Claim, and (iii) any legal expenses, such as but not limited to, reasonable legal fees, and any other expenses for investigating or defending any actions or threatened actions. Reasonable legal fees, in this section, means legal fees paid to attorneys appointed by FNEX to defend ESPERION against the Williams Claim, or should ESPERION select its own attorneys to make such defense, reasonable legal fees that explicitly distinguish legal expenses relating to the Williams Claim from all other business between ESPERION and its own attorneys. The foregoing shall not apply to the extent that such Losses are due to the negligence or willful misconduct of any of ESPERION Indemnities. 22 10.3 Notice of Claims. In the event that a claim is made pursuant to ---------------- Section IO. I or 10.2 above against any person or entity which seeks indemnification hereunder (the "Indemnity"), the Ingenuity agrees to promptly notify the indemnifying Party (the "Indemnity") of such claim or action and, in the case of any claim by a third Person against the Indemnity, the Indemnity may, at its option, elect to assume control of the defense of such claim or action; provided, however, that (a) the Indemnity shall be entitled to participate therein (through counsel of its own choosing) at the Indemnity's sole cost and expense, and (b) the Indemnitor shall not settle or compromise any such claim or action without the prior written consent of the Indemnity, unless such settlement or compromise includes a general release of the Indemnity and all of the other INEX Indemnities or ESPERION Indemnities, as the case may be, from any and all liability with respect thereto. 10.4 Liability. No Party shall be liable for special, incidental or --------- consequential damages or for loss of profit or lost revenue, even if such Party has been advised of the possibility of such damage. 10.5 Insurance. If available on commercially reasonable terms (as --------- determined in good faith by the Board of Directors of ESPERION), ESPERION shall obtain product liability insurance in an amount not less than US Five Million Dollars (US$5,000,000) per occurrence, and US Five Million Dollars (US$5,000,000) annual aggregate, naming INEX and UBC as a named-insured. This provision shall take effect at the time a Licensed Product is being commercially sold (other than for the purpose of obtaining regulatory approval) by ESPERION, an Affiliate, Sublicensee or Distributor. 10.6 Limitation on Liability. INEX's liability for damages under this ----------------------- Agreement (regardless of form of action, whether in contract, tort or warranty) shall not exceed the aggregate milestone payments and royalties paid to INEX. 10.7 Actions Between the Parties. For the avoidance of doubt, in --------------------------- connection with actions brought by one party hereto against the other (whether for breach of any provisions hereof, any representation or warranty made herein or otherwise), each party expressly reserves all of its rights and remedies under applicable law, including, without limitation, the right to sue for breach of contract. 23 ARTICLE XI. UBC PROVISIONS 11.1 Limitations to License. ESPERION and INEX agree to the following ---------------------- additional limitations, terms and conditions to the licenses granted herein, in relation to Hope/Rodrigueza, expressly for the benefit of UBC: (a) In the event a suit under Section 7.4 involves Hope/Rodrigueza, the rights of INEX shall be transferred to UBC. (b) One month prior to the first sale of a Licensed Product, ESPERION will give notice to UBC of the terms and amount of the public liability, product liability and errors and omissions insurance which it has placed in respect of the same, which in no case shall be less than the insurance which a reasonable and prudent businessman carrying on a similar line of business would acquire. This insurance shall be placed with a reputable and financially secure insurance carrier, and where available on commercially reasonable terms, shall include UBC, its Board of Governors, faculty, officers, employees, students and agents as additional insureds, and shall provide primary coverage with respect to the activities contemplated by this Agreement. Such policy shall include severability of interest and cross-liability clauses and shall provide that the policy shall not be canceled or materially altered except upon at least thirty (30) days written notice to UBC. UBC shall have the right to propose reasonable amendments to the terms or the amount of coverage contained in the policy. Failing the parties agreeing on the appropriate terms or the amount of coverage, then the matter shall be determined by arbitration as provided for herein. ESPERION shall provide UBC with certificates of insurance evidencing such coverage seven (7) days before commencement of sales of any Licensed Product and ESPERION covenants not to sell any Licensed Product before such certificate is provided and approved by UBC. ESPERION shall require that each Sublicensee under this Agreement shall procure and maintain, during the term of the sublicense, public liability, product liability and efforts and omissions insurance consistent with the terms of this section. ESPERION shall use commercially reasonable efforts to ensure that any and all such policies of insurance required pursuant to this clause shall contain a waiver of subrogation against UBC, its Board of Governors, faculty, officers, employees, students and agents. (c) UBC shall not be restricted from presenting at symposia, national or regional professional meetings, or from publishing in journals or other publications accounts of its research relating to Hope/Rodrigueza, provided, however, that ESPERION shall have the same right to review such publication as it has with respect to publications made by INEX pursuant to Section 8.3 above. For practical application of this provision, INEX agrees to provide to ESPERION any and all publication(s) INEX receives from UBC relating to the inventions contained in the Licensed Patents and the Know- How to ESPERION within ten (IO) business days of such receipt. 24 (d) ESPERION shall not use any of the UBC's registered trade- marks or make reference to UBC or its name in any advertising or publicity whatsoever, without the prior written consent of UBC, except as required by law. Nothing herein shall prevent ESPERION from making or issuing factual statements to the public regarding its business or use of Hope/Rodrigueza. If ESPERION is required by law to act in contravention of this provisions, ESPERION shall provide UBC with sufficient advance notice in writing to permit UBC to bring an application or other proceeding to contest the requirement. (e) UBC's total liability, whether under the express or implied terms of this Agreement, in tort (including negligence), or at common law, for any loss or damage suffered by ESPERION, whether direct, indirect, special, or any other similar or like damage that may arise or does arise from any action by UBC, its Board of Governors, officers, employees, faulty, students, or agents shall be limited to the sum of Cdn$l0,000. In no event shall UBC be liable for consequential or incidental damages arising from actions related to this Agreement. 11.2 The Parties acknowledge and confirm that in relation to Hope/Rodrigueza: (a) UBC makes no representations, conditions, or warranties, either express or implied, with respect to Licensed Products. Without limiting the generality of the foregoing, UBC specifically disclaims any implied warranty, condition or representation that the Licensed Products (i) shall correspond with a particular description; (ii) are of merchantable quality; (iii) are fit for a particular purpose; or (iv) are durable for a reasonable period of time. UBC shall not be liable for any loss, whether direct, consequential, incidental, or special which ESPERION suffers arising from any defect, error, fault or failure to perform with respect to the Licensed Products, even if UBC has been advised of the possibility of such defect, error, fault, or failure. ESPERION acknowledges that it has been advised by UBC to undertake its own due diligence with respect to the Licensed Products. (b) Nothing in this Agreement shall be construed as: 25 (i) a warranty or representation by UBC as to title to Hope/Rodrigueza or that anything made, used, sold or otherwise disposed of under the license granted in this Agreement is or will be free from infringement of patents, copyrights, trademarks, industrial design or other intellectual property rights, (ii) an obligation by UBC to bring or prosecute or defend actions or suits against third parties for infringement of patents, copyrights, trade-marks, industrial designs or other intellectual property or contractual rights, or (iii) the conferring by UBC of the right to use in advertising or publicity the name of UBC or UBC Trade-marks. ARTICLE XII. MISCELLANEOUS 12.1 Publicity. Neither Party, nor any of its Affiliates, shall --------- originate any publicity, news release or other public announcement, written or oral, relating to this Agreement or the existence of an arrangement between the Parties, without the prior written approval of the other Party, which approval shall not be unreasonably withheld, except as otherwise required by law. 12.2 Non-Use of Names. Neither Party shall use the name of the other ---------------- Party, nor any adaptation thereof, in any advertising, promotional or sales literature without prior written consent obtained from such other Party in each case (which consent shall not be unreasonably withheld or delayed). 12.3 Assignment. Except as otherwise provided in this Agreement, neither ---------- this Agreement nor any of the rights or obligations hereunder may be assigned by either Party without the prior written consent of the other Party, except either to an Affiliate or to a third-party who acquires all or substantially all of the business of the assigning Party by merger, sale of assets or otherwise. 12.4 Governing Law. This Agreement shall be governed by and interpreted ------------- in accordance with the laws of the State of Michigan, without regard to conflicts of law principles. 12.5 Force Majeure. In the event that either Party is prevented from ------------- performing or is unable to perform any of its obligations under this Agreement due to any act of God; fire; casualty; flood; war; strike; lockout; failure of public utilities; injunction or any act, 26 exercise, assertion or requirement of governmental authority; epidemic; destruction of production facilities; riots; insurrection; inability to procure or use materials, labor, equipment, transportation or energy; or any other cause beyond the reasonable control of the Party invoking this Section 12.5 if such Party shall have used its reasonable efforts to avoid such occurrence, such Party shall give notice to the other Party in writing promptly, and thereupon the affected Party's performance shall be excused and the time for performance shall be extended for the period of delay or inability to perform due to such occurrence. 12.6 Waiver. The waiver by either Party of a breach or a default of any ------ provision of this Agreement by the other Party shall not be construed as a waiver of any succeeding breach of the same or any other provision, nor shall any delay or omission on the part of either Party to exercise or avail itself of any right, power or privilege that it has or may have hereunder operate as a waiver of any right, power or privilege by such Party. 12.7 Notices. Any notice or other communication in connection with this ------- Agreement must be in writing and if by mail, by registered mail, return receipt requested, and shall be effective when delivered to the addressee at the address listed below or such other address as the addressee shall have specified in a notice actually received by the addressor. If to INEX: Inex Pharmaceuticals Corporation 100-8900 Glenlyon Parkway Burnaby, B.C. Canada V5J 5J8 Telecopier No.: (604) 419-3 202 Attention: Vice-President, Corporate Development If to ESPERION: Esperion Therapeutics, Inc. 3621 S. State Street 695 KMS Place Ann Arbor, MI 48108 USA Telecopier No.: Attention: President With a copy to: Sills Cummis Radin Tischman Epstein & Gross One Riverfront Plaza 27 Newark, New Jersey 07102 USA Telecopier No.: (973) 643-6500 Attention: Ira A. Rosenberg, Esq. If to UBC: The Director University - Industry Liaison Office University of British Columbia IRC 331 - 2194 Health Sciences Mail Vancouver, B.C. Canada V6T I Z3 Telephone: (604) 822-8580 Facsimile: (604) 822-8589 12.8 No Agency. Nothing herein shall be deemed to constitute either --------- Party as the agent or representative of the other Party, or both Parties as joint ventures or partners for any purpose. INEX shall be an independent contractor, not an employee or partner of ESPERION, and the manner in which INEX renders its services under this Agreement shall be within INEX's sole discretion. Neither Party shall be responsible for the acts or omissions of the other Party, and neither Party will have authority to speak for, represent or obligate the other Party in any way without prior written authority from the other Party. 12.9 Entire Agreement. This Agreement and the Schedule hereto (which ---------------- Schedule is deemed to be a part of this Agreement for all purposes) contain the full understanding of the Parties with respect to the subject matter hereof and supersede all prior understandings and writings relating thereto. No waiver, alteration or modification of any of the provisions hereof shall be binding unless made in writing and signed by the Parties by their respective officers thereunto duly authorized. 12.10 Headings. The headings contained in this Agreement are for -------- convenience of reference only and shall not be considered in construing this Agreement. 12.11 Severability. In the event that any provision of this Agreement is ------------ held by a court of competent jurisdiction to be unenforceable because it is invalid or in conflict with any law of any relevant jurisdiction, the validity of the remaining provisions shall not be affected, and the rights and obligations of the Parties shall be construed and enforced as if the Agreement did not contain the particular provisions held to be unenforceable. 12.12 Successors and Assigns. This Agreement shall be binding upon and ---------------------- inure to the benefit of the Parties hereto and their successors and permitted assigns. 28 12.13 Third Parties. None of the provisions of this Agreement shall be ------------- for the benefit of or enforceable by any third party. 12.14 Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 12.15 Further Assurances. Each party hereto agrees to execute, ------------------ acknowledge and deliver such further instruments and do all such further acts as may be necessary or appropriate to carry out the purposes and intent of this Agreement. IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as a sealed instrument in their names by their properly and duly authorized officers or representatives as of the date first above written. INEX PHARMACEUTICALS CORPORATION /s/ David J. Main - ----------------------------- David J. Main Executive Vice President ESPERION THERAPEUTICS, INC. /s/ Roger Newton - ----------------------------- Roger Newton President & C.E.O. 29 SCHEDULE A EARNED ROYALTIES ---------------- 1. Earned Royalties Payable for each Licensed Product -------------------------------------------------- (a) For Sales by ESPERION and Affiliates (a.1) In each jurisdiction in the Territory where a Valid Claim under a Licensed Patent covers a Licensed Product: [**] on Net Annual Sales from [**] [**] on Net Annual Sales above [**] (a.2) In remainder of Territory [**] on Net Annual Sales from [**] [**] on Net Annual Sales above [**] Where Licensed Products are sold both in jurisdictions (a.1) and (a.2), the [**] of Net Annual Sales shall be allocated to the [**] royalty under (a.1) and to the [**] royalty under (a.2) according to the relative proportions of total Net Annual Sales made in each portion of the territory. The amount of Net Annual Sales over [**] shall be allocated to the [**] royalty under (a.1) and the [**] royalty under (a.2) according to where such Net Annual Sales occurred. (b) For Sales by Sublicensees [**] on Sublicensing Royalties received by ESPERION SCHEDULE A Acknowledgment and Acceptance INEX DJM March 16, 1999 ------------------------------- Initials Date ESPERION RSN March 18, 1999 ---------------------------- Initials Date **Certain portions of this Exhibit have been omitted based upon a request for confidential treatment that has been filed with the Commission. The omitted portions have been filed separately with the Commission. 30 SCHEDULE B ---------- INEX PROVIDES NO OPINION REGARDING ---------------------------------- THE FOLLOWFNG PATENTS --------------------- US 5746223 WO 9713501 AU 9675956 US 5736157 31 EX-10.20 12 0012.txt DEVELOPMENT AGREEMENT EXHIBIT 10.20 DEVELOPMENT AGREEMENT THIS AGREEMENT, effective as of April 5, 1999 ("Effective Date") by and among Esperion AB, a corporation organized under the laws of Sweden having a principal place of business at Ekensbergsvagen 115, 17141 Solna, Sweden ("ESPERION") AND OctoPlus b.v., a company organized under the laws of The Netherlands having a principal place of business at Niels Bohrweg 11-13, 2333 CA Leiden, The Netherlands ("OCTOPLUS"). Background ESPERION's parent company, Esperion Therapeutics Inc., has granted ESPERION a right to use all the rights acquired from Pharmacia AB of Active Ingredient (as hereinafter defined) and the rights to use compound for the Project (as hereinafter defined). ESPERION and Esperion Therapeutics Inc. have successfully conducted first development studies on Active Ingredient (as hereinafter defined) based on a lipid formulation, the results of which shall be a basis for further development. OCTOPLUS has experience in the development of pharmaceutical products containing compounds of biotechnological origin such as peptides, proteins and genes, including but not limited to formulation development, analytical services and stability testing.. OCTOPLUS and ESPERION wish to undertake a cooperative program aimed at developing a parenteral formulation with Active Ingredient (as hereinafter defined) which shall result in the supply of toxicology and clinical samples to be investigated for cholesterol removal therapy. NOW THEREFORE, in consideration of the premises and mutual covenants and conditions set forth herein, the Parties agree as follows: ARTICLE I Definitions 1.01 When used in this Agreement, each of the following terms shall have the meanings set out in this Article I. 1 1.02 "Active Ingredient" means the recombinant Apo-Al Milano protein in bulk ----------------- ready to be used for the manufacturing of the Formulation (as hereinafter defined). 1.03 "Affiliate" means any entity, which controls, is controlled by, or is --------- under common control of a Party. 1.03.1 For purposes of this definition, a Party shall be deemed to control another entity 1.03.1.1. If it owns or controls, directly or indirectly, at least fifty percent (50%) of the voting equity of such other entity (or other comparable ownership interest for an entity other than a corporation) or 1.03.1.2. if it has management control of the other entity. 1.03.1.2. Any reference in this Agreement to either Party shall include its Affiliates (unless the context requires otherwise). 1.04 "ESPERION Patent" means, collectively, any Patents and patent applications --------------- owned or controlled by ESPERION, and any international counterparts thereof, covering Active Ingredient its production and/or its pharmaceutical use, which can be used to develop and produce parenteral formulation of Formulation and which legally are at the disposal of ESPERION. 1.05 "Calendar Quarter" shall mean the Calendar Quarters of the year beginning ---------------- first of January, April, July and October. 1.06 "Clinical Samples" mean any parenteral formulation made by OCTOPLUS ------------------ according to GMP and supplied to ESPERION, or a sublicensee thereof, which meet the clinical Specifications mutually agreed upon by the Parties prior to release to ESPERION and/or such licensee for purpose of evaluation by ESPERION or its sublicensee in a clinical study. ESPERION shall be responsible for the release of Clinical Samples according to the Quality Assurance Functions (ANNEX E). 1.07 "Commercially Reasonable Best Efforts" means those efforts employed by the ------------------------------------ Parties, equivalent to that level of attention and care and providing of funding and manpower that they devote to their other businesses and products which will at least reach a standard normal for comparable businesses/research entities. 1.08 "Development Work" means the services carried out by OCTOPLUS to result in ------------------ the manufacturing and supply of Clinical Samples according to the Specifications. 2 1.09 "ESPERION Know how" means information of ESPERION regarding the research ----------------- and development of the Active Ingredient. 1.10 "Formulation" means a parenteral formulation with Active Ingredient. ----------- 1.11 "Indication" means the treatment of hypercholesterol blood levels in ---------- humans. 1.12 "Know How" means all information concerning Active Ingredient and -------- parenteral formulation developed under this Agreement. 1.13 "OCTOPLUS Know How" means information of OCTOPLUS regarding the general ----------------- development and manufacture of parenteral formulations and related technologies. 1.14 "Party" shall mean a Party of this Agreement. ----- 1.15 "Project" means a development program to be conducted by ESPERLON and ------- OCTOPLUS according to the Project Plan aimed at developing and manufacturing parenteral formulations for clinical trials. 1.16 "Project Group". The Project Group shall mean the committee to be formed ------------- pursuant to Article IV. 1.17 "Project Plan" shall be a cooperative undertaking for conducting the ------------ development of the Formulation and manufacturing and supply of Clinical Samples. The framework of the Project Plan is described in ANNEX A and it may be supplemented or amended from time to time by mutual agreement. 1.18 "Quality Assurance Functions" means a list of functions which shall apply --------------------------- in the case Clinical Samples are manufactured by OCTOPLUS and supplied to ESPERION, attached hereto as an ANNEX E. 1.19 "Report" means the final report to ESPERJON containing OCTOPLUS' results ------ of OCTOPLUS' Development Work for a parenteral formulation which can be utilized to set up a program for a manufacturing dossier necessary for the registration dossier in the EEC. 1.20 "Specifications" means the written specifications developed by the Project -------------- Group for the raw materials and for the manufacturing and quality control of the parenteral formulation, and any and all additions and amendments to the same made by the written agreement of the Parties during the term of this Agreement. The Specifications of the parenteral formulation will be attached to and made a part of this Agreement as ANNEX C. 1.21 "Sublicensee" means a Party whom ESPERION has sublicensed its license(s) ----------- granted hereunder. 3 1.22 "Time Period" means the time within which OCTOPLUS shall finalize the ----------- Project as described in ANNEX B. . 1.23 "Toxicology Samples" means any parenteral formulation made by OCTOPLUS -------------------- according to GMP and supplied to ESPERION, or a sublicensee thereof, which meet the Specifications mutually agreed upon by the Parties prior to release to ESPERION and/or such licensee for purpose of evaluation by ESPERION or its sublicensee in a toxicology study. ESPERION shall be responsible for the release of Toxicology Samples according to the Quality Assurance Functions (ANNEX E). ARTICLE II Contribution of OCTOPLUS 2.01 OCTOPLUS Services. OCTOPLUS shall conduct certain studies and tasks as ----------------- set forth in the Project Plan. OCTOPLUS shall use its Commercially Reasonable Best Efforts to provide the services necessary to fulfil the Project within the Time Period. In case of additional work which could not be foreseen in the Project Plan and which has been approved by the Project Group OCTOPLUS shall be entitled to perform and request a remuneration of such additional work according to Article V. 2.02 Report. The Development Work shall culminate in the Report as a summary ------ and documentation of the Development Work. 2.02.1. OCTOPLUS shall use Commercially Reasonable Best Efforts to present the Report to ESPERION within two months after the Formulation has been delivered to ESPERION. 2.02.2. If OCTOPLUS determines at any time during the term of this Agreement that the Report cannot be delivered on schedule due to whatever reasons, OCTOPLUS shall promptly notify ESPERION. 2.02.3. OCTOPLUS shall use its Commercially Reasonable Best Efforts to deliver the Report after an extension period of not more than two months. 2.02.4. In the event that Report cannot be delivered after the extension period has elapsed, ESPERION may terminate this Agreement within a period of 14 (fourteen) calendar days after the extended deadline has passed. The foregoing shall not apply if 1) ESPERION has agreed to a revised date or 2) if the delay is caused on events outside the control of OCTOPLUS; in this case, the period will be extended accordingly 4 2.03 Samples of Formulation. OCTOPLUS shall supply ESPERION with ---------------------- investigational samples and clinical samples and prototypes developed under this Agreement at no cost other than the compensation as provided for in Article V. 2.03.1. OCTOPLUS' S Compliance with Specifications. OCTOPLUS warrants that all ------------------------------------------ OCTOPLUS'S Toxicology and Clinical Samples delivered under this Agreement shall conform to the Specifications. 2.03.2. GMP for Clinical Samples. In the event that Clinical Samples will be ------------------------ used by ESPERION trials in humans, OCTOPLUS shall employ current Good Manufacturing Practices (GMP) in the production of such Clinical Samples, including additions and amendments to such GMP regulations during the term of this Agreement, and shall comply with all other statutes and regulations applicable to it. 2.04 Quality Control. Each shipment of OCTOPLUS's clinical samples shall be --------------- accompanied by quality control certificates for each batch as described in the Specifications. If not set forth explicitly otherwise, OCTOPLUS shall not be obliged to provide any additional quality control with regard to OCTOPLUS's clinical samples. 2.05 Audit at OCTOPLUS. OCTOPLUS will permit an authorized representative of ----------------- ESPERION or its Affiliates to inspect at all reasonable times the process of manufacture and storage of the Clinical Samples under such conditions as OCTOPLUS may reasonably require in order to protect the confidentiality of its and its other customer's proprietary and confidential information. ESPERION shall announce such audit at least one month in advance to OCTOPLUS. ARTICLE III Contributions of ESPERION 3.01 ESPERION Cooperation. ESPERION shall use its best efforts to duly -------------------- cooperate during the entire course of the Project. 3.02 Active Ingredients Supply. ESPERION shall supply OCTOPLUS with such ------------------------- quantities of Active Ingredients at such times as OCTOPLUS reasonably, at its discretion, needs for the Project at no-cost to OCTOPLUS. Each shipment of Active Ingredients shall be accompanied by quality control certificates and safety data sheets for each batch. All Active Ingredients supplied hereunder shall be utilized by OCTOPLUS solely for conducting work on the Project. 3.03 ESPERION'S Sole Liability for ESPERION'S Active Ingredients. ESPERION ----------------------------------------------------------- shall, provided that the damage is not caused or under the control of OCTOPLUS, solely be liable for any damages caused by 5 ESPERION Active Ingredients including damages of any raw materials, any materials used for production and Clinical Samples. 3.04 ESPERION'S Compliance with Specifications. ESPERION warrants that all ----------------------------------------- ESPERION'S Active Ingredients delivered under this Agreement shall conform to the Specifications as the Parties have agreed upon. 3.05 GMP for Active Ingredients. In the event that ESPERION Active Ingredients -------------------------- are used by OCTOPLUS in order to produce Clinical Samples for use in humans, ESPERION shall employ current Good Manufacturing Practices (GMP) in the production of Active Ingredients, including additions and amendments to such GMP regulations during the term of this Agreement, and ESPERION shall comply with all other statutes and regulations applicable to it and to the manufacture of Active Ingredients. 3.06 Quality Control. Each shipment of ESPERION'S Active Ingredients shall be --------------- accompanied by necessary quality control certificates for each batch as described in the Specifications. If not explicitly set, forth otherwise, OCTOPLUS shall not be obliged to provide any additional quality control with regard to ESPERION'S Active Ingredients. 3.07 Active Ingredients Data of ESPERION. ----------------------------------- ESPERION shall supply OCTOPLUS with relevant data related to the Project as set forth in ANNEX D and all other information OCTOPLUS might additionally require in good faith to fulfil the Project. 3.08 Evaluating Results. ESPERION shall duly evaluate the results in the ------------------ Report in order to promote the Project as much as practical. If ESPERION does not reprove such results in writing in detail within a definite period of forty five (45) calendar days after presentation, the same shall be irrevocably deemed to be finally approved. 3.09 Clinical Trials. ESPERION shall in its sole discretion be responsible for --------------- planning and carrying out all clinical trials of Formulations, and for preparing the portions of the applicable regulatory documents which deal with the Active Ingredients, and with the clinical trial reports. ESPERION will own the results of all clinical trials and all regulatory documents that ESPERION files for registration and approval of Formulations. ARTICLE IV Project Group 4.01 Control over Project. The Project Group shall have the primary control -------------------- over the direction and the course of the Project. The Project Group shall modify the Project Plan, and/or the Specifications as appropriate. In this sense "Project Group" means a group composed of one representative appointed by ESPERION and one appointed by OCTOPLUS which shall 6 be responsible for planning and monitoring the Project to ensure diligent completion thereof. The persons now appointed by the respective Party are: OCTOPLUS b.v. ESPERIONAB Dr Ewoud van Winden Dr. Hans Ageland Scientist Formulation Research VP of Operations and Projects Niels Bohr Weg 11 - 13 Svartviksslingan 114 2300 AS Leiden 16739 Bromma The Netherlands Sweden 4.02 Responsibility of the Project Group. The Parties have expressed their ----------------------------------- mutual intention that the Project be promptly completed, and, to that end, it is the responsibility of the Project Group to ensure that the Parties use their reasonable best efforts, equivalent to the same level of attention and care they devote to their other businesses and products. 4.03 Meetings. The Project Group shall meet at least quarterly, as appropriate -------- also by teleconference or videoconference, to review the progress of the Project, to establish the program for the next quarter and to confirm that the Milestones, Project Plan and/or time schedule are correct and, if not, determine what modifications to same are required. 4.04 Decisions. All decisions, including consents, approvals, authorizations, --------- directions or recommendations of the Project Group, shall be made by consensus of the Project Group arrived at in meetings, including those held by teleconference or videoconference method. If consensus cannot be reached , the representative of ESPERION shall have the casting voted In no case shall ESPERION misuse its position to request additional Development Work from OCTOPLUS which from technical and other, in the sole discretion of OCTOPLUS, internal reasons are not possible to perform. ARTICLE V Funding of Project 5.01 ESPERION Funding. ---------------- It shall be paid for as follows: 5.01.1. Hourly Payment. ESPERION shall compensate OCTOPLUS for all employee- -------------- hours, which OCTOPLUS spends on the Project at the rate of Dfl 250,- (two hundred twenty-five Dutch Gulders) or correspondingly in Euro, plus VAT, if applicable. 7 5.01.2. OCTOPLUS shall verify and document the time devoted by OCTOPLUS's employees to the Project, and will submit an accounting each quarter. 5.01.3. OCTOPLUS will allocate employee-hours consistently with its historical allocation practice. 5.02 Additional Payments. ESPERION shall compensate the costs at cost price ------------------- and to a fair market price for manufacturing of Clinical and Toxicology Samples. 5.03 Payment Schedule. ESPERION shall pay OCTOPLUS the amount provided for in ---------------- Section 5.01 in installments, each Installment to be paid quarterly in advance. 5.04 Installments. The first installment will be paid 30 days after this ------------ Agreement is executed and shall be pro-rated to represent the portion of the preceding quarter covered by the Agreement. 5.04.1. Initially, each installment will be either Dfl 250,000.-- (two hundred fifty thousand Dutch Guilders) or correspondingly in Euro, plus VAT, if applicable. 5.04.2. At the end of the second quarter after execution of this Agreement, and at the end of alternate quarters thereafter, the accountings presented by OCTOPLUS will be compared with ESPERION's payments. If the payments are in excess, the excess will be credited to future expenses. If OCTOPLUS's accountings are in excess, ESPERION shall pay the excess amount to OCTOPLUS within 60 (sixty) days of the determination. 5.04.3. ESPERION may have OCTOPLUS's records of man-hours and their allocation to the Project audited by an independent Certified Public Accountant or chartered accountant reasonably acceptable to OCTOPLUS acting in confidence, at reasonable intervals to audit same. 5.05 Invoices. Invoices will be as mentioned above either in Dutch Guilders or -------- Euro and all payments to OCTOPLUS shall be made either in Dutch Guilders or Euro. Invoices will cover specific line items to identify individual costs. ESPERION will have the right to audit any. necessary documents associated with such invoices. 5.06 Increase of Remuneration. Prices will be updated on an annual basis ------------------------ beginning January 1, 2000. The adjustment factor will be the official National Price Index Factor, as published by the Government of the Netherlands in the month of December prior to the calendar year during which the price adjustment will become effective, however, for the first update the index for April 1999 shall be the basis for the update. 8 5.07 Overdue payments. Overdue payments and excess payments according to ---------------- Section 5.04.2 above shall accrue interest at the rate of 4 (four) per cent above EURIBOR - European Interbank Offered Rate (three months) - as reported in Het Financieel Dagblad on the first business day that any payments becomes overdue, until made. 5.08 No Setoff. ESPERION shall not be entitled to exercise any right of --------- setoff, net-out or deduction, take any credit, or assert any other defense arising out of any transaction unless and until ESPERION has obtained a final and non-appealable judgement against OCTOPLUS in the amount asserted by ESPERION. However, ESPERION shall, if ESPERION has justifiable claim instead of paying such an amount to OCTOPLUS transfer the amount to an escrow account. The amount put in escrow shall be paid to the Party entitled to the payment according to a final and non-appealable judgement or by mutual agreement between the Parties. 5.09 Expenses. Each Party shall bear all of the expenses of its own -------- participation or related to its contribution or the performance of its obligations under this Agreement unless provided for in this Agreement. In the event of unforeseen or extraordinary expenses OCTOPLUS shall be entitled to request an equitable allocation after such allocation is approved by the Project Group. ARTICLE VI Inventions 6.01 Classification. Any inventions developed under this Agreement, or any -------------- subsequently signed Agreement, shall be classified as ESPERION Know-How or OCTOPLUS Know-How, or if patentable and patented, shall be classified as ESPERION Patents or OCTOPLUS patents, or joint patents depending upon the employer of the person(s) making the invention. 6.02 Sole Inventions. Each Party may file for and own patents and patent --------------- application covering inventions made by its respective employees, and any compensation to an inventor under provisions of labor law shall be paid by the employer of that inventor. 6.03 Joint Inventions. Inventions made jointly by employees of ESPERION and ---------------- OCTOPLUS shall be owned jointly by ESPERION and OCTOPLUS. However, if patent applications on such inventions may be filed and only one Party requests such filing, the invention and Know How should be owned solely by such Party. In such case the patent shall be regarded as sole invention, according to Section 6.02., of the Party filing such patent. 6.04 Expenses. If the Parties agree to file for and obtain patents on such -------- joint inventions, all expenses incurred therein shall be shared equally, except that the employer of each inventor will pay the inventor's compensation. 9 6.05 Transfer. If a patent is obtained on such a joint invention, by both -------- Parties, the Parties are, after giving the other Party a four weeks notice, entitled to transfer its interest in such patent to a third party. Within the notice period the non-transfering Party shall have a veto right against such transfer that should not be unreasonably used. Such reasons include, but are not limited to transfer of such patent rights to a competitor of the other Party. 6.06 Use of Joint Inventions. ----------------------- 6.06.1. In the event that ESPERION wants to use, develop, license or transfer a joint invention held by both Parties within the field of the ESPERION Know How, ESPERION shall be free to do so, without having to get the approval from OCTOPLUS and without any obligation to pay any remuneration. 6.06.2. In the event that OCTOPLUS wants to use, develop, license or transfer a joint invention held by both Parties within the field of the OCTOPLUS Know How, OCTOPLUS shall be free to do so, without having to get the approval from ESPERION and without any obligation to pay any remuneration. 6.07 Other Formulations. Notwithstanding the foregoing, OCTOPLUS may ------------------ exclusively use inventions and Know-how outside the ESPERION Know-How for projects and for other formulations concerning any active ingredients for any indication and for toll manufacturing, including any formulations for parties who are entitled to have same produced. 6.08 Specific OCTOPLUS Know-How. In no case ESPERION shall be entitled to -------------------------- request any of OCTOPLUS' information concerning specific OCTOPLUS Know How unless required for registration purposes. OCTOPLUS will be entitled to communicate such information directly to the authorities without disclosing it to ESPERION. 6.09 Needed License from OCTOPLUS. OCTOPLUS also hereby grants to ESPERION an ---------------------------- additional non-exclusive royalty-free license under such OCTOPLUS Know How as ESPERION needs and OCTOPLUS has the power to grant, in research, to develop, sale, manufacture, transfer or license the Active Ingredient in the Formulation.. 6.10 Assignments and Sublicenses. The licenses based on instructions and Know --------------------------- How belonging to OCTOPLUS and granted pursuant to this Article if not specially regulated above 6.10.1. to ESPERION by OCTOPLUS may be transferred, assigned or licensed by ESPERION for research, development, sale manufacture, marketing or license of the Active Ingredient in the Formulation. 10 6.10.2. ESPERION shall inform OCTQPLUS of any such license or transfer and if OCTOPLUS so requests the party that ESPERION do transfer and sublicense to shall enter into a confidentiality agreement reasonably and acceptable to both Parties. 6.11 Assignment of this Agreement. This Agreement is personal to the Parties ---------------------------- and except as expressively stated herein cannot be sublicensed or assigned by a Party without the prior written authorization of the other Party. ARTICLE VII Clinical Samples 7.01 Manufacturing of Clinical Samples. OCTOPLUS may commission the --------------------------------- manufacturing of Clinical Samples to. a third party approved by ESPERION. 7.02 Confidentiality. OCTOPLUS has an obligation to secure that such a third --------------- party will sign an undertaking of confidentiality in accordance with Article 8 below. 7.03 Audit at the Third Party. OCTOPLUS shall also secure that ESPERION will ------------------------ be permitted by an authorized representative of ESPERION or its Affiliates to inspect at all reasonable times the process or manufacture and storage of the Clinical Samples under such conditions as the third party may reasonably require in order to protect the confidentiality of ESPERION's proprietary and confidential information. These audits should be announced at least two months in advance in order to allow the third party to plan its internal capacities to such audit. The costs and time devoted by third parties and OCTOPLUS personnel for such audit shall be remunerated by separate invoice. ARTICLE VIII Confidentiality 8.01 Confidentiality of Information. No Party to this Agreement, or any ------------------------------ subsequently signed Manufacturing Agreement, shall disclose to any third party nor use for any purpose, other than the purpose of this Agreement, or any subsequently signed Manufacturing Agreement, information or data received from a Party under this Agreement, or any subsequently signed Manufacturing Agreement, without prior written approval from the Party from whom the information or data was received. 8.02 Exceptions. The obligations of non-disclosure and non-use shall apply for ---------- a period often (10) years following the expiration or termination of this Agreement, or any subsequently signed Manufacturing Agreement, but shall not apply to any information or data which receiving Party can show by competent proof: 11 (a) is known to the public prior to disclosure hereunder; (b) becomes known to the public through no fault of the receiving Party; (c) was known to the receiving Party prior to disclosure under this Agreement, or any subsequently signed Manufacturing Agreement by the disclosing Party; (d) is disclosed to the receiving Party by a third party having a legal right to make such disclosure; (e) is reasonably required to be disclosed to further the purposes of this Agreement, or any subsequently signed Manufacturing Agreement, including to file for registration, to file patent applications, and to contract with third parties under an obligation of confidentiality to further the development of the Formulations; (f) in the case of OCTOPLUS, is related to the general field of preparation of formulations, as distinguished from the preparation of the Formulations; (g) in the event that OCTOPLUS, fails to supply ESPERION's requirements under the Manufacturing Agreement, is reasonably required to be disclosed to a third party in order to secure the manufacture of ESPERION's requirements provided that such third party shall have executed an appropriate confidentiality and non-use agreement; or, (h) is required to be disclosed to a regulatory agency of competent jurisdiction consistent with the receiving Party's past practice, provided that if such agency is not required by law to maintain the confidentiality of such information, then the disclosing Party shall first be given the opportunity to intervene and contest the disclosure or seek appropriate protection. ARTICLE IX Warranties and Liability 9.01 Success of Development. OCTOPLUS does not make and shall not be deemed to ---------------------- make any representation that OCTOPLUS will successfully and/or timely develop a Formulation which can commercially be sold. 9.02 Liability. OCTOPLUS shall be liable solely within the scope of its --------- liability insurance cover of 2.5 Million Dfl, if such insurance does cover the liability at all, arising from this Development Agreement, except for willful misconduct. Any exceeding and further liability - including for patent infringement - shall be excluded. In case Clinical Samples or products for human application will be prepared, except for gross negligence and willful misconduct caused during performance of the Project by OCTOPLUS, ESPERION shall be fully liable for all risks connected thereto and shall indemnify and hold OCTOPLUS harmless accordingly. 12 9.03 Warranties. OCTOPLUS warrants that it will use its reasonable best ---------- efforts to perform its duties as specified in this Agreement and the agreed Annexes. OCTOPLUS does not guarantee that the Development Work, will be acceptable to any regulatory agency or will be successful in whole or part. OCTOPLUS will meet the standards of ICH and Regulatory authorities in Europe, USA and Japan that apply at commencement of each stage of the work. To the extent that OCTOPLUS has used its reasonable best efforts hereunder the failure to meet development requirements or the failure of OCTOPLUS to successfully perform any analytical or development work shall not constitute a breach by OCTOPLUS in the performance of its obligations under this Agreement. ARTICLE X Term and Termination 10.01 Term. This Agreement shall remain in effect until terminated in ---- accordance with Sections 10.03 or 10.04. 10.02 Project On Hold. ESPERION shall be entitled to put the Development Work --------------- on hold with a notice period of 2 (two) months for a maximum period not exceeding single or accumulative six months in total. In this event, the Report delivery period shall be extended accordingly. 10.03 Termination by ESPERION. ----------------------- 10.03.1. If ESPERION, in good faith, determines that it is not feasible to jointly develop a Formulation with OCTOPLUS which meets the Specifications, or that such Formulations cannot be developed in a manner which meets the milestones, ESPERION shall inform OCTOPLUS of its decision and provide reasons for same and may, at its option, terminate this Agreement. 10.03.2. ESPERION may terminate this Agreement for any reason other than as set forth in Section 10.03.1, above, on sixty (60) days notice at any time. 10.04 Termination by OCTOPLUS. If OCTOPLUS, in good faith, determines that it ----------------------- is not feasible to jointly develop a Formulation with ESPERION that meets the Specifications, OCTOPLUS can terminate this Agreement on sixty (60) days notice. 10.05 Termination for Default. If either Party shall be in default of any of ----------------------- its material obligations under this Agreement, the non-defaulting Party shall give the defaulting Party written notice of such default, upon which the defaulting Party shall have forty five (45) days to cure such default or establish that no default has occurred. In the event that a default remains uncured after forty five (45) days have elapsed, the non-defaulting Party 13 may declare this Agreement terminated, by written notice to the defaulting Party. 10.06 Surviving Rights. Neither cancellation or termination of this Agreement ---------------- nor the execution of a Manufacturing Agreement, shall relieve the Parties of their obligations of confidentiality under Article VIII, their obligations as to inventions under Article VI, or their obligations regarding patent infringements. 10.07 Effect of Termination. Should a Party elect to terminate this Agreement --------------------- pursuant to the provisions of this Agreement, neither Party shall thereafter have any rights to the technology owned by the other Party except if provided other herein. ARTICLE XI Patent Infringements. OCTOPLUS and ESPERION shall each promptly notify the other upon learning of any infringement of an ESPERION Patent, an OCTOPLUS patent or a jointly owned patent. Each Party will then cooperate with the other in determining the course of action to pursue to stop the infringement, with each Party paying its own expenses involved in any litigation or other actions to stop such infringement. ARTICLE XII Miscellaneous Provisions 12.01 Reasonable Best Efforts. The Parties shall both use their reasonable ----------------------- best efforts and shall work in good faith and fair dealings to reach agreement within the Project Group, to achieve the Specifications, complete the Project, develop Formulations and reach agreement with regard to manufacturing in the manner described in this Agreement. Each Party agrees to carry out its assigned tasks in the Project with reasonable best efforts. 12.02 Manufacturing of Commercial Product. In case that Project will result in ----------------------------------- a product, which can commercially be sold, and if it can be foreseen that OCTOPLUS will be able to manufacture the commercial product according to ESPERION's requirements, ESPERION and OCTOPLUS shall then negotiate in good faith a manufacturing and supply agreement. 12.03 No Guarantee. The Parties acknowledge that there can be no guarantee ------------ that Formulations will within a certain time period be successfully developed with regard to fitness for a particular use, feasibility of manufacturing, marketability and all technical, legal and commercial aspects connected thereto. 12.04 Force Majeure. Neither party shall be responsible or liable to the other ------------- party for, nor shall this Agreement be terminated as a result of, any failure 14 to perform any of its obligations hereunder, if such failure results from circumstances beyond the control of such party, including, without limitation, requisition by any government authority, the effect of any statute, ordinance or governmental order or regulation, wars, strikes, lockouts, riots, epidemic, disease, an act of God, civil commotion, fire, earthquake, storm, failure of public utilities, common carriers or supplies, or any other circumstances, whether or not similar to the above causes and whether or not foreseeable. The parties shall use their Commercially Reasonable Best Efforts to avoid or remove any such cause and shall resume performance under this Agreement as soon as feasible whenever such cause is removed; provided, however, that the foregoing shall not be construed to require either party to settle any dispute with any third party, to commence, continue or settle any litigation, or to incur any unusual or extraordinary expenses. 12.05 No Indirect, Punitive or Exemplary Damages. Under no circumstances shall ------------------------------------------ any Party be liable to the other for damages not specified in this Agreement, whether direct, indirect, special or consequential, lost profits and/or punitive damages, provided, that this exclusion of liability does not apply if such agreement would be invalidated by law (i.e., in the case of intentional misconduct). 12.06 Settlement of Disputes. The Project Group shall attempt to amicably ---------------------- resolve any dispute concerning any rights or obligations of either Party under this Agreement. If the Project Group is unable to resolve any such dispute, the matter shall be referred to the President of OCTOPLUS and the President of ESPERION for resolution. 12.07 Choice of Law and Jurisdiction. This Agreement shall be construed and ------------------------------ the rights of the Parties determined in accordance with the laws of The Netherlands, if ESPERION is the plaintiff and the law of The Netherlands, if OCTOPLUS is the plaintiff, but regardless of the laws that might otherwise govern under applicable principles of laws thereof. In no event shall choice of law analysis lead to the application of other than Dutch or Swedish law. The Parties hereto unconditionally and irrevocably agree and consent to personal jurisdiction and service of process and venue in any court within the city of The Hague that has jurisdiction, and waive any objection with respect thereto, for the purpose of any such action, suit or proceeding except in any such court. 12.08 No Jury Trial. In the event that any dispute or claim of any sort ------------- arising out of this Agreement or any subsequent agreement concerning the subject matter and or any dispute or claim concerning competent court and/or jurisdiction and/or execution of any award granted by a foreign court or arbitration panel should be filed, each of the Parties waives irrevocably any right that such Party may have to demand or request a trial by jury. 15 12.09 Notices. Any notice required or permitted to be given under this ------- Agreement shall be in writing and shall be deemed to have been sufficiently given for all purposes if mailed by first class certified or registered mail, or commercial delivery service, postage prepaid. Unless otherwise specified in writing, the mailing addresses of the Parties shall be as described above. 12.10 Titles. The titles of the Articles and Sections of this Agreement are ------ for general information and reference only, and this Agreement shall not be construed by reference to the titles. 12.11 Severability. If any provision of this Agreement or the application ------------ thereof is adjudicated to be invalid or unenforceable, such invalidity or unenforceability shall not affect other provisions or applications of this Agreement which can be given effect without the invalid and unenforceable provision or application, and to this end, the provisions or applications of this Agreement shall be severable. Should any problems in this regard occur or be threatened, the Parties will inform each other as soon as practical and renegotiate the relevant provision in good faith but in any event neither Party shall be obligated to abide by any exclusivity term that is in breach of such applicable law. 12.12 Amendment. This Agreement may not be amended, supplemented or otherwise --------- modified except by an instrument in writing signed by both Parties. 12.13 Entire Agreement. This Agreement, including the Appendices attached ---------------- hereto, constitutes and contains the complete, final and exclusive undertaking and agreement of OCTOPLUS and ESPERION hereto, and cancels and supersedes any and all prior negotiations, correspondence, understandings and agreements whether oral or written, between the Parties respecting the subject matter hereof. 16 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement by their respective officer's thereunto duly authorized. Esperion AB Octo Plus b.v. /s/ Hans Ageland /s/ Dr. Henrik Luessen - ------------------------------ ------------------------------------ Name: Hans Agelan Name: Dr. Henrik Luessen Title: CEO Title: Head of Business Development Date: 05/04/99 Date: 03/26/99 -------------------------- ------------------------------- ANNEX A Project Plan ANNEX B Time Period ANNEX C Specifications ANNEX D ESPERION Data ANNEX E Quality Assurance Functions 17 OctoPlus BV. Niels Bohrweg 11-13, 2333 CA Leiden The Netherlands Tel. +31(0)71-5680268 Fax. +31(0)71-5234144 E-Mail pharmdev@octoplus.nl Internet www.octoplus.nl QUALITY ASSURANCE AGREEMENT on the development and manufacture of pharmaceutical products between Esperion AB and OctoPlus B.V. Between: Esperion AB Ekensbergsvagen 115 17141 Solna Sweden - hereinafter referred to as ESPERION and OctoPlus B.V. Niels Bohrweg 11-13 2333 CA Leiden The Netherlands - hereinafter referred to as OCTOPLUS - an agreement is made as follows: 1. BASIS OF AGREEMENT 1.1 This Quality Assurance Agreement is based on the Development Agreement (Legal contract) between ESPERION and OCTOPLUS entered into as of . . . . . This Agreement Is appended to the Legal contracts between ESPERION and OCTOPLUS which covers the commercial and other aspects including the costs for special activities and secrecy agreements. 1.2 OCTOPLUS is a developer manufacturer of pharmaceutical products, applying for a manufacturing authorization in accordance with the Dutch Drug Law and being subject to monitoring by the competent authorities. OCTOPLUS complies with the current recognized ruls such as "RuIes governing medicinal products in the European Community", Vol. IV, "Guide to Good Manufacturing Practice", for medicinal products Including relevant annexes. 1.3 ESPERION is a developer of pharmaceutical products. ESPERION complies with the current recognized rules such as "Rules governing medicinal products in the European Community" , Vol. IV, "Guide to Good Manufacturing Practice", for medicinal products including relevant annexes. 2 2. SUBJECT MATTER OF AGREEMENT --------------------------- All alterations of the appendices must be agreed upon by both parties. OCTOPLUS shall develop and manufacture for ESPERION clinical samples containing Apo-A1 Milano protein for clinical trials. The overview of functions and responsibilities is annexed as appendix I. 3. STARTING MATERIALS ------------------ 3.1 Starting materials are defined as: 3.1.1 Raw materials: a. active and inactive Ingredients necessary for the production of the products; b. materials that will not remain in the products but which were used for the manufacture of the products (e.g. water, organic solvents); 3.1.2 Packaging materials. All starting materials are listed In appendix II. 3.2 Purchase The responsibility for the purchase of the starting materials is given in appendix I. 3.3 Quality control and test records for the starting materials 3.3.1 OCTOPLUS Is responsible for the quality of the starting materials purchased by him. These materials shall be analysed with regard to the specification and methods (defined in the Development Agreement or in the Pharmacopoeia). 3.3.2 For the starting materials made available by ESPERION the quality shall be certified by ESPERION in form of a Certificate of Analysis which accompanies the shipment of each batch of starting material. The Specifications and methods are defined in a Development Agreement. OCTOPLUS shall at least check the following upon receipt of the starting material: a. Intactness of the container and closure 3 b. Congruence of the labeling with the delivery notes 3.4 Storage OCTOPLUS stores all starting materials in a way that no interference as to their quality may occur. 3.5 Retain samples OCTOPLUS is responsible for keeping retain samples of each batch of raw materials purchased by him. These samples shall be kept for at least 2 years after the end of the trail and after this period they will destroyed after written authorization by ESPERION. The size of the samples must be such that it is possible to perform 2 full quality control analyses (without microbiological testing). 4 4. PRODUCTION ---------- The production of the products shall be performed according to the Current Production Formulae and Instructions (appendix III). All alterations of the Current Production Formulae and Instructions must be agreed upon by both parties in any case. changes can only be done In written consent. 5. QUALITY CONTROL --------------- 5.1 The Products delivered by OCTOPLUS shall comply with the Specifications agreed upon by both parties. 5.2 For the Judgment of compliance with the specifications the results obtained with the test methods listed In appendix IV are relevant. 6. BATCH RECORDS ------------- 6.1 Production and control records OCTOPLUS commits himself to keep a record of the production and control of each batch for at least 10 years. After this period they will destroyed after written authorization by ESPERION. ESPERION has the right to view the records during agreed audits. 6.2 The batch production and control records shall agreed by the partners and include at least the following: a. Name and form of product; b. Batch number of product being manufactured; c. Dates and times of commencements of significant intermediate stages and of completion of production d. Batch number or test number and amounts of each starting material used; e. Equipment used including cleaning confirmation f. Any relevant processing operation or event and Its confirmation by signing of the responsible operators; g. Theoretical and actual yields of major steps In the processing detailed information on deviations, exceptional 5 occurrences, e.g. defects and their repairs, signed by and authorized person. h. Results of In-process controls and laboratory testing and decisions following these results; 6.3 The packaging and labeling records shall agreed by the partners and Include at least the following: a. Name and form of product; b. The date(s) and times of the packaging (labeling) operations c. The name of the responsible person carrying out the packaging (labeling) operations d. The Initials of the operators of the different significant steps; e. Records of checks for identity and conformity with the packaging (labeling) instructions including the results of in process controls; f. Details of the packaging (labeling) carried out. Including references to equipment; g. Samples of the printed packaging materials (labeling) used including specimens of the batch coding, expiry dating, study no. If possible and any additional overprinting. Signature of the responsible production manager and the manager analytical chemistry; 7. BATCH ACCOMPANYING DOCUMENTS ---------------------------- OCTOPLUS commits himself to deliver with every batch a certificate of compliance (appendix V) according to the a.m. Specifications. 8. RETAIN SAMPLES OF THE PRODUCTS ------------------------------ OCTOPLUS Is responsible for keeping retain samples of each batch of product of this agreement. These samples shall be kept for at least 2 years after the end of the trial and after this period they will destroyed after written authorization by ESPERION. The size of the samples must be such that it is possible to perform 2 full quality control analyses (without microbiological testing). 6 9. RELEASE ------- The release of the Products for shipment is In the responsibility of OCTOPLUS. Final release of the product is in the responsibility of OCTOPLUS. ESPERION reserves the right to reject batches in case of noncompliance with this agreement. However, the parties shall attempt in good faith to settle the controversies and to agree in writing on the action to be taken. 10. STORAGE, PACKAGING, SHIPMENTS ----------------------------- Storage conditions and packaging instructions for the shipment of the products are laid down In appendix VII of this agreement 11. THIRD PARTIES ------------- OCTOPLUS may employ third parties with the execution of the tasks given to him by ESPERION. These third parties and their duties have to be listed In the Overview of Functions and Responsibilities indicating the name of the third party (appendix I). The responsibility regarding the quality of the Product and all legal requirements therewith connected rests with OCTOPLUS and cannot be transferred to a third party. Any change with regards to this matter Is subject to a mutual agreement between ESPERION and OCTOPLUS and is required to be approved by both parties in a written form. 7 12. AUDITS ------ OCTOPLUS agrees that ESPERION have the right to audit the premises where the products are manufactured, including packaging, storage, quality control and distribution. - These audits will be scheduled to be mutually convenient to both parties referable when the product is produced. Mutually agreed corrective actions resulting from the observations during the Inspection have to be performed in the soonest possible way. OCTOPLUS will report to ESPERION about his efforts in the carrying out of the corrective actions within a laid down time frame. ESPERION shall announce such audit within a reasonable time but at least one-month in advance to OCTOPLUS. 13. QUALITY DEFECTS --------------- Both parties agree to contact each other immediately as soon as they become aware of quality defects. The quality defects and the communication should be well documented. 14. RETURNS ------- Products should be returned to OCTOPLUS instructions for the shipment of the products are laid down in appendix VII of this agreement. These products shall be kept for at least 2 years after the end of the trail and after this period they will destroyed after written authorization by ESPERION. 15. PERSONS TO CONTACT ------------------ The relevant persons which should be contacted in case of questions that may arise concerning all pharmaceutical/technical matters which are objects of this agreement are listed in appendix II. 16. CONFIDENTIALITY --------------- OCTOPLUS and ESPERION undertake to apply strict confidentiality with regard to their know how and in particular their manufacturing Instructions. None of the contracting parties shall be entitled to use the know how of the other party made known within the framework of this agreement after termination of this agreement without the consent of the other party. 8 17. FINAL PROVSIONS --------------- a. This agreement shall become effective upon its signature by the parties b. Any alteration or amendments of this agreements and its appendices requires the written consent of both parties. c. Supplementary agreements are listed - if necessary - in appendix VII. d. Upon request parts of this agreement may be forwarded to the competent authorities. e. If individual provisions of this agreement are invalid, they shall be replaced by provisions which come as dose to the intended provisions as is admissible. Signatures: ESPERION OCTOPLUS B.V. Stockholm June 7, 1999 Leiden, 16 June 1999 - ------------------------- ------------------------------- (place, date) /s/ Hans Ageland /s/ - ------------------------- ------------------------------- (responsible person) - ------------------------- ------------------------------- (responsible person) - ------------------------- ------------------------------- (responsible person) 9 EX-10.21 13 0013.txt PRODUCTION AGREEMENT EXHIBIT 10.21 Production Agreement Project: This Production Agreement (hereinafter the "Agreement") is entered into the 7th day of March, 2000 by and between ESPERION THERAPEUTICS, INC., a Delaware corporation located at 3621 S. State Street, 695 KMS Place, Ann Arbor, Michigan 48108, USA, hereinafter referred to as "ESPERION", and EUROGENTEC S.A., a Belgian corporation located at Parc Scientifique du Sart Tilman, B-4102 Seraing, Belgium, hereinafter referred to as "EUROGENTEC", hereinafter referred to individually as "a Party" or collectively as "the Parties", Whereas the Parties wish to set forth in writing the terms and conditions under which EUROGENTEC will produce and supply to ESPERION, and ESPERION will purchase from EUROGENTEC, batches intended to be used in research, research (phamacokinetics, toxicology, stability, scale-up processes, production consistency, etc.), clinical development, scaling up of process, and production of consistency of ESPERION's compound Pro-Apolipoprotein A-I, in EUROGENTEC's production facilities at Seraing. The number of weeks required for of usage of EUROGENTEC's production facility is defined in Annex 3. Now it is hereby agreed as follows: Article 1 : Definitions 1.1 "Cell Bank" shall mean Master Cell Bank or derived Cell Bank including GMP, GLP and Working Cell Banks. 1.2 "Current Pharmaceutical Guidelines" shall refer to guidelines described in US 21 Part. 210 and 211 CFR cGMP regulation, US 21 Part. 600 CFR (additional regulation for Biologicals) and EC Guide to Good Manufacturing Practices. 1.3 "Clinical Batch" shall mean the fermentation of a strain of Escherichia coli (hereafter referred to as the "Strain") expressing the compound Pro- Apolipoprotein Al (hereinafter referred to as the "Product") and the purification of the Product in EUROGENTEC's pharmaceutical Production Unit, as hereinafter defined, applying Current Pharmaceutical Guidelines, with the intention to use the Product for research, preclinical research (phamacokinetics, toxicology, stability, scale-up processes, production consistency, etc.), and clinical development. 1.4 GMP shall mean the current rules for "Good Manufacturing Practice" as defined and published by the US Food and Drug Administration and the European Union equivalent administration for the manufacture of pharmaceutical products. 1.5 "Product" shall mean human recombinant proapoplipoprotein A-I. 1.6 "Specification documents" shall mean the preparation and production instructions for each Clinical Batch, including batch protocols and records, identification of raw materials and specific instrumentation, the specifications for the Product, the identification of critical steps, the quality control methods and all information necessary to carry out the production and quality control operations. Article 2 : The Production of Clinical Batches 2.1 EUROGENTEC shall diligently manufacture in its Production Unit Clinical Batches of the Product as ordered by ESPERION in accordance with the Current Pharmaceutical Guidelines and Specification documents (as defined in Annex 1) to be supplied by ESPERION before each Clinical Batch production. 2.2 The general responsibilities of EUROGENTEC and ESPERION for the preparation of Clinical Batches and/or Cell Banks are defined in Annex 1, which forms an integral part of this Agreement. 2.3 The products resulting from Clinical Batches produced by EUROGENTEC are bulk proapolipoprotein A-I for injection to be used in research, preclinical research (phamacokinetics, toxicology, stability, scale-up processes, production consistency, etc.), and clinical development to be conducted on a world-wide basis under the responsibility of ESPERION. 2.4 The production planning of Clinical Batches will be jointly defined by the Parties. The Specification documents will be made available to EUROGENTEC by ESPERION in due time to allow EUROGENTEC to produce in accordance with the Current Pharmaceutical Guidelines. 2.5 EUROGENTEC shall diligently assure the consistency of manufactured batches. Article 3 : EUROGENTEC Production Unit, Equipment & Personnel 3.1 The preparation of Clinical Batches or Cell Banks will take place in the pharmaceutical multipurpose production unit of EUROGENTEC located at Parc Scientifique du Sart Tilman, B- 4102 Seraing, Belgium (phone 32.4.366.01.50 & fax 32.4.365.16.04) (the "Production Unit"). The Production Unit will be maintained, cleaned and operated by EUROGENTEC in compliance with Current Pharmaceutical Guidelines. 3.2 A currently registered (in Belgium) pharmacist, with knowledge of cGMP requirements, on EUROGENTEC's payroll will control the production of Clinical Batches. 3.3 ESPERION reserves the right to use some areas of the Production Unit (as such use is defined in Annex 3) for the period defined in Annex 3. 2 Article 4 :Auditing 4.1 ESPERION, or a party designated by ESPERION, shall be permitted to audit the Production Unit of EUROGENTEC from time to time upon reasonable prior notice to EUROGENTEC. 4.2 The responsibilities for Quality Control sampling will be defined in the Process Document (as defined in Annexes 1 and 2 attached hereto). Samples from each Clinical Batch shall be kept at EUROGENTEC and shall be transferred to a location designated by ESPERION within two weeks upon the later of(a) one (1) year after the concerned Clinical Batch expiry date, or (b) two (2) years after the end of clinical studies upon ESPERION's request. Article 5 :Compliance with Legal Requirements 5.1 All activities to be performed by EUROGENTEC under this Agreement and in the Production Unit shall comply with requirements enacted by the Belgian Ministry of Health, the U.S. Food and Drug Administration and any other relevant authority and shall be in compliance with Current Pharmaceuticals Guidelines and all applicable legal requirements. EUROGENTEC shall obtain and maintain any required authorization for the performance of this Agreement. 5.2 In particular, EUROGENTEC warrants to ESPERION that the Production Area dedicated to the performance of this Agreement as defined in Annex 3 will be independent from any other activity and that all precautions shall be taken by EUROGENTEC in order to avoid any cross contamination. 5.3 EUROGENTEC and ESPERION shall cooperate and be diligent in responding to all requests for information from, and in making all required filings with, regulatory authorities having jurisdiction to make such requests or require such filings. EUROGENTEC shall obtain and comply with all current licenses, consents, permits and regulations which may from time to time be required by appropriate legal and regulatory authorities with respect the performance of its obligations hereunder. Article 6 :Price and Payment Conditions 6.1 All prices hereunder are in BEF and are exclusive of VAT. The prices to be paid by ESPERION for the performance of this Agreement are set forth in Annex 4 attached hereto, which forms an integral part of this Agreement. The total cost for technology transfer is defined in Annex 4. The total cost for production is defined in Annex 4. 6.2 The exchange rate for conversion of BEF to US dollars shall be equal to a rolling three (3) month average exchange rate, calculated during the period covered by the services provided and starting with the month in which services commenced.. 6.3 Raw materials, including entry QC and specific consumables, needed for the production of Clinical Batches or Cell Banks under this Agreement, other than chemical materials used by EUROGENTEC in quality control activities, are not included in the price referred to in Article 3 6.1. and will be supplied and invoiced separately by EUROGENTEC. The total costs for raw materials is defined in Annex 4. 6.4 ESPERION shall pay upon signature of this Agreement an advance payment of 30% of the estimated price defined in Annex 4 attached hereto. This advance payment shall be deducted proportionally from each invoice due to EUROGENTEC under Article 6.1. In the event that ESPERION terminates or cancels this Agreement for any reason whatsoever, except for negligence, misconduct or default of EUROGENTEC, Esperion shall pay only for costs incurred as of the time of termination. All materials produced as of the time of termination shall be returned to ESPERION or destroyed at ESPERION's discretion. 6.5 EUROGENTEC shall send monthly invoices to ESPERION together with supporting documentation, and payment will be made by ESPERION within thirty (30) days from date of receipt of such invoice. Article 7 : Liabilities of EUROGENTEC 7.1 EUROGENTEC warrants that the Clinical Batches manufactured and supplied hereunder to ESPERION shall be manufactured in accordance with Current Pharmaceutical Guidelines and shall conform to the Specification documents. The foregoing is the exclusive warranty of ESPERION for defects in the Clinical Batches manufactured by EUROGENTEC under this Agreement and is in lieu of any other warranty, express or implied, including but not limited to, implied warranty of merchantability or fitness for a particular purpose. EUROGENTEC shall have no liability hereunder for incidental or consequential damages, including lost profits. 7.2 ESPERION shall have the right to give EUROGENTEC written notice of rejection of any shipment of Clinical Batch that in whole or in part breaches EUROGENTEC's warranties, covenants and obligations under this Agreement, which notice shall be given within thirty (30) days after discovery of such breach however not later than 90 days after receipt of shipment. If there is disagreement between the parties as to whether the Clinical Batch meets Specification documents, the parties shall have such Clinical Batch tested by a mutually agreed upon third party and such party's determination as to whether such Clinical Batch meets Specification documents shall be binding on the parties hereto. The expense for such testing and for any costs associated with the destruction of such Clinical Batch shall be borne by EUROGENTEC except to the extent it is determined that EUROGENTEC is not responsible for such failure or breach. At ESPERION's option, EUROGENTEC shall promptly replace any Clinical Batch which does not conform with EUROGENTEC's warranties under this Agreement. ESPERION shall have the right to setoff any refund due ESPERION on account of any rejected Clinical Batch against invoices otherwise due or which become due to EUROGENTEC. The provisions of this Article 7.2 shall survive termination of this Agreement. 7.3 EUROGENTEC shall indemnify, defend and hold ESPERION, each affiliate of ESPERION and the officers, directors, stockholders and employees thereof (each an "ESPERION indemnified party") harmless from and against any and all losses, liabilities, damages, claims, expenses, suits, recoveries, judgments and fines (including reasonable attorneys' fees and expenses) (collectively "Losses") that may be incurred by any ESPERION 4 indemnified party or any third party arising out of any (a) actual or alleged damage to property or injury or death occurring to any person arising out of possession, use or consumption by any person of the Clinical Batches to the extent that such damage, injury or death was caused by the failure of such Clinical Batches to meet Specification documents; (b) claim, action or proceeding brought by any governmental or regulatory authority arising out of or resulting from any breach of EUROGENTEC under this Agreement; or (c) breach by EUROGENTEC of any of its obligations, representations or warranties under this Agreement. 7.4 If the first 300 grams of Product is not delivered by EUROGENTEC in accordance with the time schedule set forth in Annex 3, EUROGENTEC shall pay to ESPERION, as liquidated damages for such delay and not as a penalty, an amount equal to 5% of the aggregate price hereunder for such undelivered quantity for each week (or part thereof) of delay beyond the scheduled delivery date up to a maximum of US$350,000. If any quantity of Product after of such first 300 grams is not delivered by EUROGENTEC in accordance with the time schedule set forth in Annex 3, EUROGENTEC shall pay to ESPERION, as liquidated damages for such delay and not as a penalty, an amount equal to 10% of the aggregate price hereunder for such undelivered quantity for each week (or part thereof) of delay beyond the scheduled delivery date. Such liquidated damages shall be payable by EUROGENTEC to ESPERION on demand or, at the option of ESPERION, may be offset by ESPERION against any amount owed by ESPERION to EUROGENTEC under this Agreement. Such liquidated damages cover only damages resulting from such delay in delivery and shall not limit or affect any other claims or rights which ESPERION may have hereunder or under applicable law. For delivery of future batches, EUROGENTEC shall pay to ESPERION the liquidated damages for delay and not as a penalty, an amount equal to 5% of the aggregate price hereunder for such undelivered quantity for each week (or part thereof) of delay beyond the scheduled delivery date up to a maximum of 35% of the aggregated price not to exceed US$1,000,000. 7.5 EUROGENTEC shall have no liability hereunder for incidental or consequential damages, including lost profits. Article 8 : Liability of ESPERION 8.1 ESPERION warrants to EUROGENTEC that the use of the Strain will not involve a risk for the human beings, the animals and the environment that would require more than a containment level 2 as defined in directive 98/81/EC. In case of recombinant microorganisms, ESPERION and EUROGENTEC shall agree upon an appropriately validated procedure for the inactivation of the Strain. 8.2 ESPERION shall indemnify and hold EUROGENTEC harmless from and against any and all Losses asserted by any third party arising out of or in connection with the use of the Strain by EUROGENTEC or its employees if the Strain supplied by ESPERION does not conform to the specifications described in this Agreement and its Annexes, in particular in Article 8.1., or with the use of any products derived from the Clinical Batches delivered by EUROGENTEC to ESPERION in accordance with this Agreement, except if such damages were caused by negligence, misconduct or breach of this Agreement on the part of EUROGENTEC or its employees, subject to the terms and conditions provided for in Article 7. 5 8.3 ESPERION shall have no liability hereunder for incidental or consequential damages, including lost profits. Article 9 : Intellectual Property Rights 9.1 ESPERION agrees to indemnify and hold EUROGENTEC harmless from and against any and all claims, demands, causes of action, actions or suits, arising out or related to any intellectual property rights whatsoever owned by any third parties on techniques, know-how or materials used by EUROGENTEC in the performance of EUROGENTEC activities covered by this Agreement, which either are supplied by ESPERION or are acquired by EUROGENTEC on behalf of ESPERION at ESPERION's request. 9.2 ESPERION shall grant to EUROGENTEC a non-exclusive license for use of its necessary proprietary technologies, know-how and materials for the sole purpose of EUROGENTEC' s performance under this Agreement. EUROGENTEC warrants that any of its employees having access to such ESPERION's proprietary technologies, know-how and materials : (i) shall be made aware of the confidentiality of such technologies, know-how and materials; (ii) shall be bound by confidentiality agreements in place; (iii) will keep such technologies, know-how and materials in strict confidence; and (iv) will not disclose same to any third party. 9.3 Any proprietary technologies, information, know-how and materials owned by ESPERION or provided by ESPERION to EUROGENTEC in connection with this Agreement shall not be used by EUROGENTEC in the manufacture of any products or batches (other than the Clinical Batches manufactured for ESPERION) or disclosed or made available to any customers of EUROGENTEC or other third parties. All such information shall be deemed confidential information subject to the provisions of Article 10. 9.4 EUROGENTEC shall not enter into any agreement to manufacture any product with the same properties as Proapolipoprotein A-I. 9.5 (a) If any improvements or modifications to the Product are developed by ESPERION or EUROGENTEC, either jointly or severally, such improvements or modifications shall be the exclusive property of ESPERION and shall be held in confidence by EUROGENTEC for ESPERION's sole benefit in the development and/or the operation of manufacturing processes with respect to the Product. EUROGENTEC shall disclose to ESPERION and receive the approval of ESPERION with respect to all such improvements or modifications relating to the manufacturing, and/or packaging process of the Products or use of the Products developed by EUROGENTEC. Any trademarks, trade names, brand names, patents, slogans, logos, copyrights, trade dress, know-how and goodwill associated with the Product shall be the sole and exclusive property of ESPERION. EUROGENTEC shall have no right or license to use any such rights at any time before, during or after the term of this Agreement, except as necessary for the manufacture, processing, packaging and supply of Clinical Batches to ESPERION hereunder. 6 (b) It is agreed that ESPERION is the sole owner of any and all Specification documents supplied or paid for by ESPERION, and EUROGENTEC shall not use any such Specification documents except in connection with its performance under this Agreement. (c) The provisions of this Article 9.4 shall survive the termination or expiration of this Agreement. Article 10 : Confidentiality 10.1 Inasmuch as some of the information and data intended to be exchanged between the parties may be confidential and proprietary to a party hereto, each of the parties hereto agrees with the other that the party receiving the confidential information (hereinafter the "Recipient Party") will maintain as secret and confidential and will not disclose to third parties without written permission from the Party disclosing the information (hereinafter the "Disclosing Party") any trade secrets and other confidential information gained from discussions, or in any other way, including but not limited to, formulae, descriptions, specifications and the like disclosed by or obtained from the Disclosing Party. The provisions contained in this Article 10.1 shall survive the termination or expiration of this Agreement. 10.2 The Recipient Party and its representatives will not practice any of the trade secrets and other confidential information of the Disclosing Party without first obtaining a license from the Disclosing Party to do so. 10.3 For purposes of this Agreement, the term "trade secrets and other confidential information" shall include and be limited to, information disclosed by the Disclosing Party to the Recipient Party that: (i) was not known to the Recipient Party at the time of such disclosure; (ii) at the time of disclosure was not or did not later on become known to or available to the public; or (iii) was not disclosed to the Recipient Party by any other Party legally entitled to disclose such information who did not, in turn, require the Recipient Party to keep the information confidential. Article 11 : Duration and Termination 11.1 This Agreement shall become effective as of March 7, 2000 and shall remain in full force and effect until the delivery of all of the Clinical Batches or -- for a period of 5 years, unless extended or renewed by mutual agreement in writing. 11.2 Either party may forthwith terminate this Agreement by giving a written notice to the other if the other party commits any material breach of this Agreement and, if the breach is capable of remedy, fails to remedy it within 30 days of receipt of a written notice specifying such breach. 11.3 ESPERION may terminate this Agreement at any time upon 30 days prior written notice to EUROGENTEC. 11.4 The provisions of articles 7, 8, 9 and 10 shall continue in force in accordance with their terms, notwithstanding expiry or termination of this Agreement for any reason. 7 Article 12 : GMP Requirements 12.1 Documents to be submitted by both parties before and after a Clinical Batch production and approval procedures of such documents are detailed in Annex 1 attached hereto. 12.2 EUROGENTEC shall issue to ESPERION monthly written reports detailing its activities for each Clinical Batch. 12.3 EUROGENTEC agrees to have the production facility and records for Product inspected and/or audited by relevant regulatory agencies of any country and shall provide a copy of requested documents to authorities. 12.4 EUROGENTEC shall provide for technology transfer to any institutions upon the request of ESPERION and at ESPERION's expense based on a daily rate. Article 13 : Miscellaneous 13.1 If any party hereto is delayed or prohibited from fulfilling its obligation or obligations under this Agreement for any reason beyond its reasonable control, including without limitation, reason of fire, war, embargoes, acts of God, unavailability of raw materials, breakdown of or damage to machinery, or equipment, strike, lock out or other labor dispute, any rule, order or regulation of any governmental authority, domestic or foreign, or any other cause or occurrence beyond the reasonable control of such party, and, if prompt written notice of said delay or prohibition shall be given to the other party, then performance of said obligation or obligations shall be excused for the period of time during which the cause of such delay or prohibition shall continue, provided that the party so impeded shall have made reasonable efforts to minimize any such delay. 13.2 All notices which are required to be given under this Agreement shall be deemed to have been sufficiently given if in writing and sent by registered mail or express courier with the requisite postage affixed, or if by fax, confirmed by registered mail or expressed courier addressed to the party notified, at the address set forth in the preamble above, or such other address as may hereinafter be given by such party to the other for notice purpose. The date of such delivery, or five (5) days after the date of such mailing, shall be the date of service of such notice. 13.3 This Agreement, together with all annexes thereto which form an integral part thereof, supersedes any previous agreements and understandings and constitutes the entire agreement between the parties hereto relating to the subject matter hereof. Any amendments, modifications, variations, or waivers, including amendments and modifications to the various annexes must be in writing and signed by both parties hereto. 13.4 This Agreement shall not be construed to make either party a legal representative of the other party or to give either party any right or power to bind the other party to any contract or the performance of any obligation to or with any third party. 8 13.5 Each party shall conduct its operations as an independent contractor and no claims for taxes of any kind, nor claims arising out of labor laws, nor any other claims asserted against one party may be asserted against the other as a consequence of this Agreement. 13.6 (a) Any dispute, controversy or claim arising out of, relating to, or in connection with, this Agreement, or the breach, termination or validity thereof, shall be governed by and construed in accordance with the laws of the State of New York, without reference to choice of law doctrine, and shall be finally settled by arbitration. (b) The arbitration shall be conducted in accordance with the World Intellectual Property Organization Arbitration Rules in effect at the time of the arbitration (the "WIPO Rules"), except as they may be modified herein or by mutual agreement of the parties. (c) The seat of the arbitration shall be in Geneva, Switzerland, and the arbitration shall be conducted in the English language, provided, however, that either party may submit testimony or documentary evidence in French but shall, on the request of the other party, furnish a translation or interpretation into English of any such testimony or documentary evidence. (d) The arbitral tribunal shall consist of a sole arbitrator who shall be selected as provided for in the WIPO Rules, except that such arbitrator must be free of any potential for bias or conflict of interest with respect to any of the parties to the dispute, whether directly or indirectly; be in a position to hear the dispute immediately and thereafter render a decision within the time specified, and be a party who is familiar with the biotechnology field. (e) At the request of a party, the arbitrator may take such interim measures as he deems necessary in respect of the subject matter of the dispute. In addition to the authority conferred on the arbitrator by the WIPO Rules specified above, the arbitrator shall have the authority to order reasonable discovery and production of documents. (f) The arbitral award shall be in writing, decided in accordance with law, state the reasons for the award, and be final and binding on the parties. The award may include an award of costs, including reasonable attorneys' fees and disbursements. Judgment upon the award may be entered by any court having jurisdiction thereof or having jurisdiction over the parties or their assets. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their duly authorized officers on the date first above written. EUROGENTEC S.A. ESPERION THERAPEUTICS, INC. By: /s/ Dr. Michel Thiry By: /s/ Dr. Roger Newton ------------------------------ --------------------------------------------- Dr. Michel Thiry Dr. Roger Newton Biopharmaceutical B.U. Manager Esperion Therpeutics Inc., President and CEO By: /s/ Jean Pierre Delwart By: ------------------------------ --------------------------------------------- Jean Pierre Delwart Administrateur-Delegue
9 Annex 1 Production of Clinical Batch and Master Cell Bank ARTICLE 1 : Definitions 1.1 "Product" shall mean the properly packed amount of bulk of human proapolipoprotein A-I resulting from the Clinical Batch or, in case of master cell banks, the properly packed amount of viable Strain with its buffer, bottle caps and labels. 1.2 The "Specification Document" shall include the manufacturing instructions, including the identification of raw materials ("Bill of Material") and specific instrumentation, the specifications for the Product (including in case of master cell bank preparations, type and number of vials), the identification of critical steps and the QC methodologies ("Product Control Specification"). 1.3 The "Process Document" shall include the procedures established by EUROGENTEC to adapt the manufacturing and QC operations defined in the Specification Document to a pharmaceutical production into its facilities applying the Current Pharmaceutical Guidelines. It shall also include general requirement under the Current Pharmaceutical Guidelines related to the use of EUROGENTEC' personnel, equipment and Production Unit, and to the preparation of documentation pertaining to the Clinical Batch operations. 1.4 The "Manufacturing Batch Record" is the collection of all manufacturing and control documentation regarding each single batch of the Product. 1.5 All other capitalized terms not defined in this Annex I shall have the meaning as described to such terms in the Production Agreement of which this Annex 1 forms an integral part. ARTICLE 2 General responsibilities of ESPERION 2.1 For each Clinical Batch it orders and in due time before the starting of the production, ESPERION will provide EUROGENTEC with the Specification Document necessary to carry out the manufacturing and QC operations. 2.2 ESPERION will provide EUROGENTEC with the initial Strain as a glycerol suspension to be stored at - 70(degrees)C with the GMP certificate joined. Shipment of the Strain is under ESPERION's responsibility. Identity of the Strain after shipment is under ESPERION's responsibility, provided EUROGENTEC properly stores the Strain at - 70(degrees). 2.3 ESPERION will promptly communicate to EUROGENTEC any change related to the Specification Document. 2.4 ESPERION will promptly approve the Process Document prepared by EUROGENTEC before implementation of the production by EUROGENTEC. EUROGENTEC shall ensure that the manufacture of Pro-Apolipoprotein A-I shall take place in strict accordance with the Process Document (defined after discussion with EUROGENTEC and after feasibility study). 2.5 EUROGENTEC does not warrant that modifications to the Specification Document introduced by ESPERION after approval of the Process Document by ESPERION will be included in the manufacturing process. 2.6 EUROGENTEC will be responsible for batch numbering of the Product. ARTICLE 3 : General responsibilities of EUROGENTEC 3.1 EUROGENTEC commits to accomplish its contracting work according to the Current Pharmaceutical Guidelines. 3.2 EUROGENTEC will be responsible for carrying out validation and control in the following areas: . HVAC and room classification, . Purification water system, . Calibration of EUROGENTEC equipment, . Sterilisation and decontamination equipment, . Cleaning procedures. 3.3 EUROGENTEC will perform environment monitoring (Air, Surfaces) and water testing. 3.4 EUROGENTEC will prepare the Process Document and will request ESPERION's approval thereon before implementation. 3.5 EUROGENTEC will make no changes to the Process Document without formal approval of ESPERION. However, changes referring to the document lay-out or internal procedures are not subject to formal ESPERION's approval. 3.6 EUROGENTEC will prepare the Manufacturing Batch Record. The original Manufacturing Batch Record will be kept at EUROGENTEC and will be archived for a period of 2 years after the clinical trials. A copy will be delivered to ESPERION with the Product ESPERION. 3.7 EUROGENTEC will not subcontract any work without the prior written consent of ESPERION. ARTICLE 4 Raw material 4.1 All raw materials will be QC controlled wider the responsibility of EUROGENTEC and released by EUROGENTEC in due time before production of each Clinical Batch. ARTICLE 5 : Manufacturing 2 5.1 Division of responsibilities between the parties concerning the manufacturing operations is specified in Annex 2 which is considered to be part of the Agreement. 5.2 Modification to the Process Document may be required if a conflict between a specific process contained in the Process Document and the spirit of the Current Pharmaceutical Guidelines is observed during the manufacturing operations. Such modification will be subject to approval by ESPERION before EUROGENTEC can continue the manufacturing process. ESPERION's failure to approve or reject the modification in due time will free the responsibility of EUROGENTEC concerning the failure to manufacture the Product. ARTICLE 6 Release of Product 6.1 The Qualified Person of EUROGENTEC will review each single Manufacturing Batch Record for compliance with the Process Document. EUROGENTEC will release each single batch for shipment to ESPERION only after full compliance of the batch documentation with the Process Document. He will notify ESPERION of any significant deviation prior to release and shipment. 6.2 The Qualified Person of EUROGENTEC will notify the release of each single batch to ESPERION by means of a product specific release certificate limited to the manufacturing specifications and the specifications of the controls being performed by EUROGENTEC or by an external contractor under its responsibility. 6.3 An appropriate number of samples of Product or amount of intermediate active ingredient, as specified in the Specification Document, will be conserved by EUROGENTEC for retesting in case of disagreement between EUROGENTEC and ESPERION about EUROGENTEC' responsibility in Product failure to conform to the product specifications. ARTICLE 7 Storage and transport 7.1 The transport of the Product will be organized by ESPERION and will be done under its own responsibility and at its own expenses. 7.2 If physically possible, EUROGENTEC may store the Product for a short period of time upon ESPERION's prior agreement. 3 Annex 2 Clinical Batch: Responsibilities for Manufacturing
- ----------------------------------------------------------------------------------------------------------------------------------- Responsibilities Area Activity or event ----------------------- Comment EUROGENTEC Contracting Partner - ------------------------------------------------------------------------------------------------------------------------------------ Initiate Obtain batch order X Inspect and release facilities and equipment for use X - ------------------------------------------------------------------------------------------------------------------------------------ Raw Materials Purchase of raw materials X Release of raw materials X Manufacture Manufacture X Fermentation, downstream & Establishing sample procedures X harvesting Perform sampling X ----------------------------- Perform in-process testing X Perform release testing on intermediaries Decide rework on intermediates X If acceptable according to GMP - ------------------------------------------------------------------------------------------------------------------------------------ Manufacture Manufacture X (purification) Establish sampling procedures X Perform Sampling X Perform in-process testing (IPC) X Perform release testing on intermediates X Decide work on intermediates X If acceptable according to GMP - ------------------------------------------------------------------------------------------------------------------------------------ Quality assurance Perform environmental testing X Copies of all records shall Maintain test records X be provided to Esperion File batch record X Audit bulk operations X X - ------------------------------------------------------------------------------- Release/Reject/Rework Review and release batch record X ------------------------------------ Release/reject batch X Contacting Partner may reject a batch released by EUROGENTEC Resolved and document any manufacturing problems X not implying rework Dispose of rejected material X Maintain reject records X
4
- ----------------------------------------------------------------------------------------------------------------------------------- Responsibilities Area Activity or event ----------------------- Comment EUROGENTEC Contracting Partner - ---------------------------------------------------------------------------------------------------------------------------------- Store release bulk X Reconcile material usage X QC Take and store retention samples X Take and store stability samples X Operate bioburden program for facilities and X equipment Perform release testing on purified bulk X X Provide process analytical guide X - ----------------------------------------------------------------------------------------------------------------------------------- Cleaning Dispose of unused materials X Clean facilities and equipment X Establish and update cleaning procedures X - -----------------------------------------------------------------------------------------------------------------------------------
5 Annex 3 The Project ARTICLE 1 : Definitions (A listing of the various steps required to achieve the project) ARTICLE 2 : Schedule (A precise table of succession of the various steps and their duration) ARTICLE 3 : Resources implications - ------------------------------------------------------------------------------- ACTIVITIES % of implication for the DURATION project - ------------------------------------------------------------------------------- FERMENTATION Production Team - ------------------------------------------------------------------------------- DOWN-STREAM Production Team - ------------------------------------------------------------------------------- FERMENTATION Development Team - ------------------------------------------------------------------------------- DOWN-STREAM Development Team - ------------------------------------------------------------------------------- QC Team - ------------------------------------------------------------------------------- AQ Team - ------------------------------------------------------------------------------- Management, maintenance & logistics - ------------------------------------------------------------------------------- Annex 4 The Price ARTICLE 1 : Definitions All prices are in BEF and are exclusive of VAT. ARTICLE 2 Article 2 : Price list - ------------------------------------------------------------------------------ ACTIVITIES PRICE PER WEEK (MONTH) - ------------------------------------------------------------------------------ FERMENTATION Production Team - ------------------------------------------------------------------------------ DOWN-STREAM Production Team - ------------------------------------------------------------------------------ FERMENTATION Development Team - ------------------------------------------------------------------------------ DOWN-STREAM Development Team - ------------------------------------------------------------------------------ QC Team - ------------------------------------------------------------------------------ AQ Team - ------------------------------------------------------------------------------ Management, maintenance & Logistics - ------------------------------------------------------------------------------ ARTICLE 3 : Price estimation for the Project ACTIVITIES % of implication for DURATION PRICE the project ESTIMATION - -------------------------------------------------------------------------------- FERMENTATION Production Team - -------------------------------------------------------------------------------- DOWN-STREAM Production Team - -------------------------------------------------------------------------------- FERMENTATION Development Team - -------------------------------------------------------------------------------- DOWN-STREAM Development Team - -------------------------------------------------------------------------------- QC Team - -------------------------------------------------------------------------------- AQ Team - -------------------------------------------------------------------------------- Management, maintenance & Logistics - -------------------------------------------------------------------------------- TOTAL: - -------------------------------------------------------------------------------- Annex 3 The Project ARTICLE 1 : Definitions The work programme is defined in the attached document ----------------------------------------------------------- Pro-APO Al Project -- Work Programme -3 ----------------------------------------------------------- The allocation of the rooms in the GMP production facility of Eurogentec is described in the attached document ----------------------------------------------------------- (Room allocation - Proapolipoprotein Al (ApoAl project) ----------------------------------------------------------- ARTICLE 2 : Schedule The schedule is defined by the gantt charts ----------------------------------------------------------- Pro-ApoAl total 06 March 2000 ----------------------------------------------------------- and ----------------------------------------------------------- Pro-ApoAl DSP ----------------------------------------------------------- --------------------------------------------------------------- [Pro-APO A1 Project - Work Programme - 3 --------------------------------------------------------------- Final work programme revised as March 6, 2000. 1 Introduction Following the visit of 19 January 2000 of Mrs Rea and Dasseux who presented the pro-APO Al project, there have been two technical meetings with Mrs Simon to study in depth the production process. The objective of this analysis was to answer two questions. First can Eurogentec perform the production process and his largest scale (300 litres), and second, is it possible to deliver 300 g of pro-APO Al for end of June. It came to the conclusion that providing some moderate scaling up, Eurogentec should be capable of performing the production up to the delivery of purified pro-APO A1 ready for fomulation. To say, down to point V of the pro-APO A1Rec flow sheet provided by Mr Simon in the February 3 meeting. Providing the very tight timing and the necessity to provide 300 g of product, it is impossible to accommodate the formulation of the pro-APO Al. Moreover, Eurogentec has no experience in such formulation, hence it is probably more efficient that Esperion takes care of the formulation or outsource it to a specialised contractor. Regarding the delivery of 300 g of purified pro-APO Al this target can be achieved providing that the announced yield of 200 mg of purified protein per litre of culture broth is observed and that the purification process can be performed at the 3001 scale. 2 Technology transfer A technology transfer phase has been designed. It has been much compressed to meet the June dead line. 2.1 Fermentation The fermentation in the R&D laboratory will be performed at the 20 litres scale that is directly scalable to 300 litres owing to our extensive experience of E. coli processes. The purpose of the fermentation will be (1) to master the process developed by Dr. Simon and (ii) to provide material for the down stream processing (DSP). Two fermentations have been programmed with the process of Dr Simon. The protocol will be superstitiously reproduced in every details. A third one will be done if the parameterisation of the fed batch flow is more difficult than expected. As soon as the DSP has reproduced the process and the QC as established the necessary assays to qualify the protein, a fermentation will be performed according to our standard fermentation formula. It has been improved for years and has always been superior to what our sponsors have provided. During our meetings, we have expressed some concerns on the fermentation protocol used so far which appears to us to be outdated and not usefully complex, hence with some consistency issue. If our standard formula yields similar amount of best quality protein, we will propose to you to change for our simpler and more efficient protocol. If not, we will continue with the current method. As soon as the fermentation protocol is implemented in the laboratory, it will be transferred to the production unit. Two fermentations are planned to first confirm the scalability of the process second, to set the harvest parameters. So far the bacterial cells were harvested as a solid paste, this is impossible with our equipment at the 300 litres scale. The continuous centrifuge yields highly enriched cell suspension in buffer. Will this buffer exchange in the centrifuge be sufficient to go on with the process and how many cycles will be necessary to achieve sufficient medium removal. The cells harvested at this stage will be directly transferred to the R&D DSP laboratory for further processing and assessment of quality. The first step of full-scale liquid-liquid extraction and filtrabiity of the pro-APO Al fraction will be tested at this stage. The purchase of two large volume centrifuge will be necessary to run the process at the 300 litres scale. Two more 300 litres fermentations are planned for further consistency and to provide adequate material for the first full-scale purification, see annexed Gantt chart (Esperion total). At the completion of these assays, the fermentation process, harvest and extraction will be ready for true GMP operations. 2.2 Downstream processing Starting from the cells harvested from the first fermentation, the exact process described will be repeated at the 1 litre scale. The columns will be scaled for a 1 litre process as a 100 x scale down from the described process. The flows will be reduced accordingly. In order to optimise the flows, a second purification will be performed at the 1 litre scale. The flow will be increased to the usual value for the said' chromatographic resin. This step is crucial to be able to perform the complete DSP within one working week. A third purification will be performed on the same columns, possibly with the increased flows, but at the 3 litres scale. Dr Simon told us that the capacity of the columns was largely superior to what was needed for his scale of operation. The aim of this step is to investigate the possibility of running the GMP process at the 300 litres scale instead of 100 litres. The final size of the column will be set according to the result obtained at this stage. Of course in process control will be implemented in order to document possible overloading of the columns. The most delicate step of the current process is the final SP chromatography with a pH gradient. We could obtain only fragmentary data on that part of the process. So two kinds of gradient durations will be tested, 4 or 16 hours. The impact of the result on the duration of the DSP is pivotal. If necessary any of these experiments will be repeated in order to obtain consistent results. Eurogentec can provide the material obtained during these early development stages.. It will be appreciate that Esperion can run some testing on the purified protein and confirms our QC results. At this stage, the fermentation team will be growing the strain in the 300 litres fermentor and will investigate the harvest procedure. The complete DSP will be performed at small scale on the material fermented and harvested at large scale in order to verify that the full scale harvest and liquid-liquid extraction perform according to the expectation. The sterile filtration of the PEG fraction following the liquid-liquid extraction will be developed at this stage in close collaboration between the fermentation and DSP teams. Finally, two full-scale purifications will be performed in the GMP production unit in order to validate the flow rates and column load before entering true GMP operations. At this stage it will be possible to give a forecast of the production yield. The product obtained can be used for formulation or animal studies. A second industrial chromatograph will be purchased to achieve the highest consistency level. 2.3 Quality Control The QC and IPC tests will be developed concomitantly with the development of femientation and DSP. The GMP QC team will be in charge of this development. One supplementary technician will be engaged. There is a trained person on the waiting list so that this hiring should cause no hurdle. 2.3.1 QC on raw materials The listing of the raw material currently used in the process shows that 13 compounds are not yet in our warehouse. The testing of those for which pharmacopoeia monographs are available will be outsourced to a licensed laboratory. These controls will be outsourced in order to allow the QC team to properly adapt or develop the pro-APO Al specific controls. We will set the specifications and QC procedures for then 5 compounds that don't have monographs (Dextran T500, Hepes, Mops, ammonium sulfate & IPTG). The controls will be performed in house. 2.3.2 Fermentation IPC These tests such as purity, identification, plasmid retention, dry weight are adaptation of the current tests and should not cause any hurdles. However, we would appreciate to have an end of femientation test that measures the level of expression of the pro-APO Al. This test will be transferred from the laboratoiy of Dr Simon. 2.3.3 Purification IPC Specific procedures need to be adapted for the protein assay, SDS-PAGE and IEF. 2.3.4 Quality Control on purified bulk The following test has been planned and will be adapted or transferred from laboratory of Dr Simon. 1. Protein quantification 2. Purity by SDS-PAGE 3. Identity of pro-APO Al by Western blot / ELISA 4. Activity of pro-APO Al by RIA (availability of reagent is still questionable) 5. IEF 6. Endotoxins (gel clot following pre-treatment of the sample) 7. Residual DNA (quantitative PCR) possibly outsourced 8. Sterility 9. Purity of bulk by measurement of E. coli contaminant (ELISA/WB) Since the final bulk and most of the chromatographic process is performed in urea, a specific urea removal method has to be defined. Gel filtration on disposable columns or dialysis will be evaluated. 3 Seeds Due to the heavy workload caused by the transfer and adaptation of the process, Eurogentec will probably not be capable of constructing the Master Cell Bank and Working Cell Bank of the strain. It is suggested that Esperion outsources these tasks to a specialised company such as Q-one Biotech in England. 4 GMP manufacturing The GMP manufacturing will be performed according to rules described in the provisional "quality package" that has been given to Esperion during our first meeting. The annexed Gantt chart (Esperion DSP) shows the detail of the operation for one week. Two distinct series of operation are presented, first, the fermentation and DSP operation performed in the fermentation hail down to the freezing of the disrupted cells and second, the DSP operations starting from the liquid-liquid extraction down to the sterile filtration of the bulk. In the example shown, the DSP operation would use material produced on the week before. On the Monday there will be two distinct operations in the fermentation hall, the conditioning of the fermentor for the next run and the extraction-maturation procedure on the broken cells produced in a previous run. To reduce the risks of fermentor breakdown, both fennentors will undergo complete service before the campaign. The downstream processing equipment should be trouble free. The buffers and media will be prepared daily and used immediately. One additional staff will be engaged for buffer preparation and environmental control. The additional staff engagement was planned a few weeks later to service the second production unit. The construction of this unit is planned to start by June, but at this period only external embankment works are scheduled, they should not impact on the GMP operations. Each batch will undergo full QC testing and will be released for use in human by our QA officer. The main criteria for release will be purity, endotoxins, residual DNA and sterility. The batches will be stored on site or forwarded to you or to the company performing the formulation and freeze drying as you will instruct us. To produce 300 g of purified proApo Al protein with an announced yield of 200 mg per litre of culture broth, 1500 litres are necessary. Thus 5 runs should be sufficient. 2 more runs have been planned as back up. If all the runs perform according to the' specifications, more protein, possibly 420 g will be delivered. The product will be released as discrete batches of expectedly 60 g. A full batch record will accompany each batch. The batches will be sterile filtered and stored at --20(degrees)C until delivery. We will agree on the type of containers. The shipment will be organised in dry ice with temperature record if you wish. 5 Project Management Mr Alain Lamproye, director of the production unit, will be the project manager. Upon reception of your order and signature of the contract, he will organise a Product Development Committee (PDC) in charge of the coordination of the project. The team leaders from R&D fermentation, R&D DSP, GMP fermentation, GMP DSP, QC and QA are statutory members of the PDC. At the beginning of the project they will meet on a weekly basis. Additional technical meetings can be organised to address specific issues. Mr Simon might be invited to these meetings. Eurogentec will appreciate that Esperion also nominates a project manager to whom it will refer on a regular basis. This person will be welcome to assist to the PDC's and to stay in our facility for any period of time. Phone conferences can also be organised. Due to the very compact development scheme, the division of the project into phases and milestone might be detrimental to a fast execution. We would rather propose to establish immediately the closest relationship with your project manager so that we can together adapt the course of the programme to the reality of the experimental facts. Nevertheless, two important milestones can be identified, one at the end of the small scale DSP operation with 300 litres fermentor material, the other at the end of the full scale feasibility. At this stage the expected production rate will be ascertained. 6 Budget 6.1 Technology transfer The cost of the technology transfer as displayed in the Esperion total Gantt chart will be BEF 7,765,000. This price is all-inclusive. 6.2 GMP operation The cost of the GMP operation as described here above and in the Esperion total and Esperion GMP Gantt chart will be BEF 29,250,000. This price excludes the raw materials and chromatographic media costs, those cost will not exceed USD 40,000. Those will be invoiced separately. Michel Thiry 6 March 2000 Proapolipoprotein A1 (ApoA1 project) Esperion Therapeutics ---------------------
Step Equipment Preculture Conical flask Fermentation (350L) : E coli Fermentor IF-500 (New Brunswick Cell concentration Continue centrifuge (Westfalia CSA119 Cell storage (-20(degrees)C) Freezer - 20(degrees)C Cell breakage DynoMil D20 (glass bead miller) Liquid/liquid extraction Nalgene tank Centrifugation Centrifuge (Beckman Avanti-J20) Filtration, 0,22 um - ------------------------------------------------------------------------------------------------ 1/st/ chromatographic step: Q Sepharose FF BioProcess (Pharmacia) nr1 (ion exchange) Column : Modulne 180 (degrees) 250 2/nd/ chromatographic step: Q Sepharose FF BioProcess (Pharmacia) nr2 (ion exchange) Column : Vantage 250 (degrees) 500 3/rd/ chromatographic step: Sepharose Phenyl CL4B BioProcess (Pharmacia) nr1 (hydrophobic) Column : Modulne 350 (degrees) 500 4/th/ chromatographic step: Q Sepharose FF BioProcess (Pharmacia) nr2 (ion exchange) Column : Vantage 90 (degrees) 500 5/th/ chromatographic step: Chelating Sepharose FF BioProcess (Pharmacia) nr1 (affinity) Column : Modulne 90 (degrees) 500 6/th/ chromatographic step: SP Sepharose FF BioProcess (Pharmacia) nr2 (ion exchange) Column : Vantage 90 (degrees) 500 - ------------------------------------------------------------------------------------------------ Sterile filtration Purified bulk aliquoting - ------------------------------------------------------------------------------------------------ Purified bulk storage (-20(degrees)C) Freezer -20(degrees)C Step Operations Class Room Preculture 10000 A01-D-05 Fermentation (350L) : E coli Culture: Fed-batch mode 10000 A01-D-04 (ApoA1 soluble expression Cell concentration Buffer exchange 10000 A01-D-04 Cell storage (-20(degrees)C) 10000 A01-D-04 Cell breakage 10000 A01-D-04 Liquid/liquid extraction PEG / Dextran extraction (16 hours at 4(degrees)C, stirring 10000 A01-D-04 Centrifugation Centrifugation: 8000 rpm, 15 minutes -->supernatant Supernatant 10000 A01-D-04 recovery Filtration, 0,22 um Supernatant clarification between chromatography 10000 A01-D-04 - ------------------------------------------------------------------------------------------------------------------------------------ 1/st/ chromatographic step: Q Sepharose FF Negative mode (flowthrough collection) 10000 A02-C-05 (ion exchange) Protease removal 2/nd/ chromatographic step: Q Sepharose FF Positive mode 10000 A02-C-05 (ion exchange) 3/rd/ chromatographic step: Sepharose Phenyl CL4B Elution : urea 6M 10000 A02-C-05 (hydrophobic) 4/th/ chromatographic step: Q Sepharose FF Positive Mode 10000 A02-C-05 (ion exchange) 5/th/ chromatographic step: Chelating Sepharose FF Metal : Cu 10000 A02-C-05 (affinity) Two columns used in series The second one is not saturated with metal (Cu removal during elution) 6/th/ chromatographic step: SP Sepharose FF Deamidated forms removal 10000 A02-C-05 (ion exchange) Gradient elution IEF analysis of eluted fractions - fractions pooling ---------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ Sterile filtration 100 A03-B-5 Purified bulk aliquoting 100 A03-B-5 - ------------------------------------------------------------------------------------------------------------------------------------ Purified bulk storage (-20(degrees)C)
Nom de la tache Duree - ------------------------------------------------------------------------------------------------------------------------------- Fermentation 38 jours - ---------------------------------------------------- Fermentation 20 | 1 2 jours - ---------------------------------------------------- Fermentation 20 | 2 2 jours - ---------------------------------------------------- Fermentation20 | 3 2 jours - ---------------------------------------------------- Fermentation300 | 1 3 jours - ---------------------------------------------------- Fermentation300 | 2 3 jours GRAPHICS OMITTED - ---------------------------------------------------- Fermentation300 | 3 3 jour - ---------------------------------------------------- Fermentation 300 | 4 3 jours - ---------------------------------------------------- Down stream processing 44 jours - ---------------------------------------------------- repeatability 1| 2,8 sms - ---------------------------------------------------- optimisation 1| 1 sm - ---------------------------------------------------- process 3| + gradient (1/100) 1 sm - ---------------------------------------------------- process 31 with 300 | material I sm - ---------------------------------------------------- Decision point 0 jour - ---------------------------------------------------- full scale feasibility 14 jours - ---------------------------------------------------- Decision point 0 jour - ---------------------------------------------------- GMP production 45 jours - ---------------------------------------------------- run 1 2 sms - ---------------------------------------------------- run 2 2 sms - ---------------------------------------------------- run 3 2 sms - ---------------------------------------------------- run 4 2 sms - ---------------------------------------------------- run 5 2 sms - ---------------------------------------------------- backup run 1 2 sms - ---------------------------------------------------- release of the last batch jour - ---------------------------------------------------- Outsourced Cell Banking 4 sms - ---------------------------------------------------- QC operations 89jours - ---------------------------------------------------- Raw materials controls 40 jours - ---------------------------------------------------- Development of IPC 40 jours - ---------------------------------------------------- Development of QC on bulk 45 jours - ---------------------------------------------------- Environmental controls (GMP) jours - ---------------------------------------------------- QC on bulks 59 jours - ---------------------------------------------------- QA operations 112 jours - ---------------------------------------------------- Raw material specifications 29jours - ----------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------- Nom de la tache Duree - ---------------------------------------------------- Review RM SOP 17 jours - ---------------------------------------------------- Review of QC & IPC SOP 27jours - ---------------------------------------------------- Set product specifications 7 jours - ---------------------------------------------------- Review process document 8 jours - ---------------------------------------------------- Notification to MH 0 jour - ---------------------------------------------------- Obtain clearance from MH 0 jour - ---------------------------------------------------- Review batch records 39 jours - ---------------------------------------------------- Releases of bulks 36 jours - -------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------- A1 project Fermentation steps - ---------------------------------------- Fermentation - ---------------------------------------- Fermentator set-up - ---------------------------------------- Preculture inoculation - ---------------------------------------- SIP Filter skid - ---------------------------------------- Fermentator aviation - ---------------------------------------- Fermentation (cell growth) - ---------------------------------------- Induction GRAPHICS OMITTED - ---------------------------------------- Cellular concentration - ---------------------------------------- Cell breakage - ---------------------------------------- Cell freezing - ---------------------------------------- CIP fermentor - ---------------------------------------- SIP fermentor - ---------------------------------------- CIP CU1 - ---------------------------------------- SIP CU1 - ---------------------------------------- CIP centrifuge Westfalia - ---------------------------------------- SIP centrifuge Wesfalia - ---------------------------------------- CIP CU2 - ---------------------------------------- SIP CU2 - ---------------------------------------- Al project: purification steps - ---------------------------------------- Downstream 100.000 - ---------------------------------------- Cell thawing - ---------------------------------------- Liquid: Liquid extraction - ---------------------------------------- 1/st/ Centrifugation - ---------------------------------------- Maturation - ---------------------------------------- 2/nd/ Centrifugation - ---------------------------------------- Sterile filtration - ---------------------------------------- Downstream 10.000 - ---------------------------------------- First column (QAE (-)) - ---------------------------------------- QAE (-) equilibration. - ---------------------------------------- QAE (-) load - ----------------------------------------
- ---------------------------------------- QAE (-) elution - ---------------------------------------- QAE (-) regeneration - ---------------------------------------- Second column (QAE (+) - ---------------------------------------- QAE (+) equilibration. - ---------------------------------------- QAE (+) load - ---------------------------------------- QAE (+) elution - ---------------------------------------- QAE (+) regeneration - ---------------------------------------- Third column (HIC - ---------------------------------------- HIC Phenyl equilibration - ---------------------------------------- HIC Phenyl load - ---------------------------------------- HIC Phenyl elution - ---------------------------------------- HIC Phenyl regeneration - ---------------------------------------- Fourth column (QAE (+)) - ---------------------------------------- QAE (+) equilibration. - ---------------------------------------- QAE (+) load - ---------------------------------------- QAE (+) washing - ---------------------------------------- QAE (+) elution - ---------------------------------------- QAE (+) regeneration - ---------------------------------------- Fifth column (Chelate FF) - ---------------------------------------- Chelate FF equilibration. - ---------------------------------------- Chelate FF load - ---------------------------------------- Chelate FF elution - ---------------------------------------- Chelate FF regeneration - ---------------------------------------- Sixth column (SP Sepharose) - ---------------------------------------- SPFF equilibration. - ---------------------------------------- SPFF load - ---------------------------------------- SPFF washing - ---------------------------------------- SPFF elution - ---------------------------------------- SPFF regeneration - ---------------------------------------- Fraction pooling - ---------------------------------------- Sterile filtration - ---------------------------------------- Class 100 operations - ---------------------------------------- - ---------------------------------------- Quality Control - ---------------------------------------- IPC analysis (IEF) - -------------------------------------------------------------------------------------------------------------------------------
Annex 4 The Price ARTICLE 1: Definitions All prices are in BEF or in USD as specified and are exclusive of VAT. ARTICLE 2: Prices The price of the technology transfer phase is BEF 7,765,000. The price of the GMP manufacturing phase is BEF 29,250,000. The cost of the raw materials shall not exceed USD 40,000. EX-10.22 14 0014.txt SERVICE AGREEMENT EXHIBIT 10.22 February 4, 2000 Wendi V. Rodrigueza, Ph.D. Esperion Therapeutics, Inc, 3621 South State St. 695 KMS Place Ann Arbor, MI 48108 Tel.: (734) 332-0506 ext. 213 Fax- (734) 332-0516 ESTH1000C: Service Agreement Valid for Thirty days Service Agreement ______________________________________________________________________________ Formulation Transfer and Manufacturing of Phospholipid LUV for Injection for Aseptically Manufactured Toxlcological Supplies Background: Esperion Therapeutics, Inc. ("Esperion") has requested that AAI perform a review of their formulation and manufacturing process for phospholipid large unilamellar vesicles (LUV) for injection. Upon completion of the review, AAI will prepare aseptically manufactured toxicological supplies. AAI will deliver to Esperion specifications for the product and the raw materials, development reports (including weekly summaries), technical transfer document, manufacturing support, product, batch records. Per the attached timeline, AAI estimates delivery of the aseptically manufactured supplies 8 weeks after execution of the contract and receipt of materials, methods and equipment. Revision History: Revision C Changes document to a Service Agreement, corrects typographical error in terms section, provides table of activities and costs to the terms section based on a go/no go decision after review of particle size and sterility data from the lab scale up batch (section II.B.), adds milestone payment schedule. Revision B Incorporates changes requested by Esperion in e-mail from Esperion on January 24 and 25 and additional environmental monitoring and clarification of text requested by AAI. Revision A Includes changes requested by Esperion in e-mail dated 1/19/2000 and additions following review by Dr. Toney-Parker. ESTH1000C February 4, 2000 Page 2 Proposal: AAI proposes to perform the following activities: I. Definition A. AAI WILL REVIEW PERTINENT INFORMATION SUPPLIED BY ESPERION SUCH AS PREFORMULATION, FORMULATION AND METHOD OF MANUFACTURE. B. ESPERION WILL PROVIDE PHOSPHOLIPID MATERIAL ALONG WITH MSDS AND CERTIFICATE OF ANALYSIS. C. ESPERION WILL PROVIDE TO AAJ, FOR USE IN THE ACTIVITIES OUTLINED BELOW, AN AVESTIN EXTRUDER. AAI WILL ORDER ALL SPARE PARTS AND ASSOCIATED COSTS WILL BE PASSED THROUGH TO ESPERION. THE EXTRUDER AND ALL SPARE PARTS WILL BE RETURNED TO ESPERION UPON COMPLETION OF THE PROJECT OR UPON ESPERION'S REQUEST. D. ESPERION WILL PROVIDE A NICOMP FOR PARTICLE SIZE ANALYSIS. AAL WILL ORDER ALL SPARE PARTS AND ASSOCIATED COSTS WILL BE PAID THROUGH TO ESPERION. THE NICOMP AND ALL SPARE PARTS WILL BE PASSED THROUGH TO ESPERION UPON COMPLETION OF THE PROJECT OR UPON ESPERIONS REQUEST. E. AAI WILL SOURCE OTHER MATERIALS REQUIRED TO PERFORM THE ACTIVITIES OUTLINED HEREIN. F. AAI WILL SOURCE PACKAGE COMPONENTS TAKING IN TO CONSIDERATION WHAT HAS BEEN PREVIOUSLY VALIDATED AT THE TRANSFER SITE FOR THE GMP SUPPLIES AND WHAT IS CURRENTLY USED IN PHOSPHOLIPID PRODUCTS CURRENTLY ON THE MARKET. Estimated Cost (Section I.).......................................... No Charge II. Formula Transfer A. AAI WILL PREPARE UP TO 3 BATCHES OF THE PHOSPHOLIPID LUV FORMULATION BASED ON THE FORMULA AND METHOD OF MANUFACTURE PROVIDED BY ESPERION. EMPHASIS WILL BE ON FORMULA AND PROCESS OPTIMIZATION REQUIRED FOR TRANSFER TO A GMP MANUFACTURING SITE. SEVERAL BATCHES WILL BE RUN TO DETERMINE AND OPTIMIZE PROCESS PARAMETERS REQUIRED ACHIEVING A LUV PARTICLE SIZE DISTRIBUTION OF 80 - 140 NM (DIAMETER). PREPARATION OF THE BATCH WILL INCLUDE ESTH1000C February 4, 2000 Page 3 EVALUATION OF 2 VENDORS OF THE MILLIPORE PORETICS MEMBRANES, SEVERAL PORE SIZES, STACKED, ETC. AAI WILL SELECT THE OPTIMAL MEMBRANE(S) TO OBTAIN A PARTICLE SIZE X\\90\\ = 100 - 130 NM. THE BATCH WILL BE OVERLAYED WITH ARGON. TESTING OF THIS BATCH WILL INCLUDE: 1. APPEARANCE 2. ETLC FOR POPC 3. VISCOSITY 4. PH 5. PARTICLE SIZE BY NICOMP 6. OSMOLARITY 7. CONCENTRATION B. LABORATORY SCALE-UP BATCH MANUFACTURE AAI will manufacture a laboratory scale-up batch to establish processing and parameters, and specifications for in process and finished product testing. This batch will be conducted as a trial batch for the batches to be used in Esperion's toxicology studies. Flow decay/bubble point will be conducted as a part of this batch or as a part of the batches prepared in section II.A. The following tests will be conducted on this batch: 1. APPEARANCE 2. HPLC FOR POPC 3. LHP 4. LAL 5. FILL VOLUME 6. VISCOSITY 7. PH 8. PARTICLE SIZE 9. PARTICULAR MATTER (MICROSCOPIC LIGHT OBSTRUCTION OR VISUAL) 10. STERILITY Note: AAI will review all data, including 14 day sterility data, prior to beginning activities described in section VLD. C. ENVIRONMENTAL MONITORING FOR VIABLE PARTICULATES AAI will perform one (1) evaluation for viable (RCS) and -non viable particulates in the environment before manufacturing in the clean environment, and perform 1 - 2 evaluations for viable particulates (settling plates and RCS) during processing ESTH1000C February 4, 2000 Page 4 (2 to 3 total) of the laboratory scale batch. AAI will also verify sterility of the argon gas. D. ACCELERATED STABILITY PROGRAM - THE BATCH IN SECTION II.B. WILL BE PLACED ON A SHORT-TERM ACCELERATED STABILITY PROGRAM, WITH TWO CONTAINER ORIENTATIONS -UPRIGHT AND INVERTED: Condition Timepoint 25(degree)C/60%RH Initial, 0.5 1, 2 and 3 months 40(degree)C/75%RH 0.5, 1, 2, and 3 months 30(degree)C/60%RH Test only if a problem arises at 40(degree)C/75%RH 5(degree) Control Note: If testing of the 5(degree) or 30(degree)C/60%RH is deemed necessary, it will be covered under a separate document. The following tests may be conducted at each timepoint: 1. BPLC FOR POPC 2. LHP 3. PARTICLE SIZE 4. APPEARANCE 5. PH 6. VISCOSITY 7. PARTICULATE MATTER (MICROSCOPIC LIGHT OBSTRUCTION OR VISUAL) E. MATERIAL CONTRACT STUDIES These studies will be outlined and conducted under the most recent signed revision of ESTH1003. In addition, Esperion has stated that the material should be filtered using a polyethersulfone filter, that the stopper used should be the same (if possible) as used for Intralipid and that vials should be those validated by the manufacturer that will be used for the GMP batches described in ESTH1001. F. OXYGEN SENSITIVITY STUDY These studies will be outlined and conducted under the most recent signed revision of ESTH1003. G. REPORT PREPARATION 1. AAI WILL PROVIDE WEEKLY SUMMARIES, IN THE FORM OF MEETING MINUTES, FOLLOWING CONFERENCE CALLS. ESTH1000C February 4, 2000 Page 5 2. AAI WILL PREPARE A SUMMARY REPORT OF THE RESULTS AND STUDIES CONDUCTED HEREIN. A SUMMARY REPORT CONSISTS OF A SUMMARY, IN TABULAR FORMAT WITH A SUCCINCT DISCUSSION OF THE EXPERIMENTAL AND RESULTS. IF REQUESTED, AAI CAN SUPPLY A DETAILED SCIENTIFIC REPORT OF STUDIES CONDUCTED. ACTIVITIES TOWARDS THE PREPARATION OF A SCIENTIFIC REPORT WILL BE CONDUCTED IN A SEPARATE DOCUMENT. Estimated Cost (Section II.)........................................... $87,100 III. ANALYTICAL SUPPORT OF THE PRODUCT A. AAI WILL PROVIDE FULL RELEASE TESTING OF THE BULK PHOSPHOLIPID PER SPECIFICATIONS PROVIDED BY ESPERION. Note: Should method development work be required for the use of any of the methods required for release of the phospholipid, a description of activities and associated costs will be covered under a separate document. B. ESPERION WILL TRANSFER THE FOLLOWING METHODS TO AAL PROTOCOLS WILL BE GENERATED AND APPROVED BY ESPERION PRIOR TO TRANSFER OF EACH METHOD. TRANSFER WILL CONSIST OF FIVE SAMPLE PREPARATIONS FROM A SINGLE AMPLE AND ONE ANALYST ON THE SAME DAY. 1. IPLC FOR POPC 2. SPERTOPHOTOMETRIC FOR LIPID HYDROPEROXIDE ("LHP") Note: Transfer and validation of the HPLC analytical methods is based on looking at different classes of phospholipids, not fatty acids. AAI will use HPLC with ELSD and is based on the method analyzing one or two phospholipids. In addition, AAI will reevaluate testing prices upon completion of the method transfers. C. AAI WILL DEVELOP/VALIDATE THE FOLLOWING MICROBIOLOGICAL METHODS: 1. LAL 2. STERILITY VALIDATION D. ANALYTICAL METHOD VALIDATION 1. AAI WILL PERFORM LIMITED VALIDATION (LINEARITY, ACCURACY, RECOVERY AND PRECISION) IN SUPPORT OF THE HPLC FOR POPC METHOD. ESTH1000C February 4, 2000 Page 6 2. AAI WILL PERFORM LIMITED VALIDATION (LINEARITY, ACCURACY, RECOVERY AND PRECISION) IN SUPPORT OF THE SPECTROPHOTOMETRIC ASSAY FOR LIPID HYDROPEROXIDE. E. CLEANING VERIFICATION SUPPORT At this than AAI anticipates the use of dedicated equipment and hand filling of the aseptically manufactured toxicological supplies. Based on this, the need for analytical methodology for a direct sampling technique for use in a cleaning validation program is not required. F. RELEASE OF PACKAGE COMPONENTS AAL will fully release test all package components required for the project as described including those required for the fill of the toxicology supplies. Esperion will provide AAI with label copy for the toxicology supplies. Estimated Cost (Section III.A - F.)..................................... $46,635 G. RELEASE TESTING OF THE PRODUCT - 4 LOTS: 1. APPEARANCE 2. HPLC FOR POPC 3. LHP 4. LAL 5. FILL VOLUME 6. VISCOSITY 7. PH 8. PARTICLE SIZE 9. PARTICULAR MATTER (MICROSCOPIC LIGHT OBSTRUCTION OR VISUAL) 10. STERILITY Estimated Cost (Section III.G).......................................... $16,980 IV. PROJECT MANAGEMENT The project team will consist of a team leader from AAI's Formulation Development Laboratory (FDL), and appropriate representatives from other disciplines involved in project execution. A. AAI WILL PROVIDE A MANAGEMENT TEAM TO COMMUNICATE PROJECT PROGRESS AND REVIEW ALL WORK FOR SCIENTIFIC INTEGRITY ACCORDING TO TIMELINES MUTUALLY AGREED UPON BY AAI AND ESPERION. ESTH1000C February 4, 2000 Page 7 B. TELECONFERENCES WILL BE HELD, AT REGULAR INTERVALS, BETWEEN THE PARTIES THAT ESPERION IDENTIFIES AND AAI. V. CONSULATIVE PROJECT MANAGEMENT AAI will provide on with a technical contact person for project discussions and consultation in addition to up to six hours of weekly conference calls. The time spent consulting with Esperion and providing technical support (including regulatory support) will be invoiced to Esperion at $165/hour. AAI estimates that this additional consultative support may range from 2 to 4 hours per week. Estimated Cost (Section V.)............................................ As Used VI. ASEPTICALLY MANUFACTURED TOXICOLOGICAL SUPPLIES A. PRODUCT TRANSFER Activities that may be included as part of product technology transfer are: 1. PREPARATION OF A MASTER BATCH RECORD 2. RAW MATERIAL, IN-PROCESS AND FINAL PRODUCT SPECIFICATIONS 3. BATCH RECORD REVIEW AND SIGN-OFF BY AAI AND ESPERION B. RAW MATERIALS AAI will release test all raw materials for use in the preparation of the aseptically manufactured toxicological supplies. C. ENVIRONMENTAL MONITORING FOR VIABLE PARTICULATES AAI will perform one (1) evaluation for viable (RCS) and non viable particulates in the environment before manufacturing in the clean environment, and perform 1 -2 evaluations for viable particulates (settling plates and RCS) during processing. (2 to 3 total). D. MANUFACTURE OF LUV FOR INJECTION WITH THE FOLLOWING ASSUMPTIONS: Manufacture of up to four lots of 25 -L batch size to provide 4 kg of material following samples being removed for release testing, retains and stability. Sampling of package components during manufacture to be used as controls. Filling of finished product into 50ml glass bottles Labeling for both stability and toxicology studies ESTH1000C February 4, 2000 Page 8 Estimated Cost (Section VI.)........................................... $47,900 Note: The aseptic fill process has not validated. VII. Storage and Testing of the Aseptically Manufactured Toxicology Supplies AAI will piece one of the four aseptically manufactured batches on the following accelerated stability program. Materials will be set in both the upright and inverted configurations, only one configuration will be tested. Condition Timepoint 23(degree)C/60%*RH Initial, 3, 6, 9, 12, 18, 24 and 36 months 40(degree)C/750% 1, 3 and 6 months 30(degree)C/60%RH Test only if a problem arises at 40(degree)C/75%RH 5(degree)C Control Note: If testing of the 5(degree)C or 30(degree)C/60%RH is deemed necessary, it will be covered under a separate document. The following tests will be conducted at each timepoint: A. HPLC for POPC B. LHP C. Particle size D. Appearance E. Viscosity F. Particulate matter (microscopic light obstruction or visual) G. LAL (6 months at 40(degree)C/75%RH and 12, 24 and 36 months at 25(degree)C/60%RH) H. Sterility (6 months at 40(degree)/75%RH and 12, 24 and 36 months at 25(degree)C/60%RH) Note: Esperion may elect to not conduct a stability study on the aseptically manufactured batch. If Experion elects not to conduct this stability study, there will be no charges for activities not conducted. Estimated Cost (Section VII.)................................... $39,015 VIII. Regulatory Support Esperion may elect to utilize AAI's regulatory affairs group during the development of their product. Should Esperion elect to do so, AAI's regulatory consulting services will be charged at a rate of $165 per hour. Services would not be conducted without prior authorization from Esperion. Estimated Cost (Section VIII.).............................Hourly, if requested ESTH1000C February 4, 2000 Page 9 Terms and Conditions: At this time, it is estimated that all activities outlined above will cost $237,720. Should Esperion elect to terminate the program following completion of testing of the lab scale up batch described in section II.B. the following schedule describes activities and costs that will have been completed by that date. Early Termination Schedule for decision to terminate the project following receipt of results from Section II.B.
- ---------------------------------------------------------------------------------------------------------- Service Estimate Description Completion date Estimated Cost Section (assumes 2/8/00 signature date) - ---------------------------------------------------------------------------------------------------------- I Project Definition February 11, 2000 No Charge - ---------------------------------------------------------------------------------------------------------- II.A., B., C., G.1. Formula Transfer March 22, 2000 $51,155 (thru termination) including testing in section II.B. - ---------------------------------------------------------------------------------------------------------- III.A., B., C., D., F. Analytical Support March 24, 2000 $46,635 - ---------------------------------------------------------------------------------------------------------- V. Consultative Project N/A As described, if used Management - ----------------------------------------------------------------------------------------------------------
Based on a decision to proceed:
- ---------------------------------------------------------------------------------------------------- Service Estimate Description Completion date Estimated Cost Section (assumes 2/8/00 signature date) - ---------------------------------------------------------------------------------------------------- II.D., G.1., G.2. Stability, weekly and June 5, 2000 $35,945 final report - ---------------------------------------------------------------------------------------------------- III.G. Release of up to 4 lots April 24, 2000 $16,980 - ---------------------------------------------------------------------------------------------------- V. Consultative Project N/A As described, if used Management - ---------------------------------------------------------------------------------------------------- VI. Aseptically April 25, 2000 $47,990 manufactured Supplies - ---------------------------------------------------------------------------------------------------- VII. Stability April 28, 2003 $39,015 - ----------------------------------------------------------------------------------------------------
The project will be initiated upon Esperion acceptance of this proposal, assignment of a purchase order number, and prepayment in the amount of $32, 500. Prepayments shall be credited against the first two invoices until the prepayment is exhausted Unless otherwise agreed, according to the following milestone schedule: ESTH1000C February 4, 2000 Page 10 Milestone Schedule
- ----------------------------------------------------------------------------------------------------------- Milestone Deliverable Estimated Invoice Date Milestone Payment - ----------------------------------------------------------------------------------------------------------- 1 Up front payment With signature $32,600 - ----------------------------------------------------------------------------------------------------------- 2 Test report for laboratory scale April 1, 2000 $34,855 batch as described in section II.B. - ---------------------------------------------------------------------------------------------------------- 3 Method Validation reports, test April 1, 2000 $30,335 reports - ----------------------------------------------------------------------------------------------------------
Remaining schedule with decision to proceed:
- -------------------------------------------------------------------------------------------------- Milestone Deliverable Estimated Invoice Date Milestone Payment - -------------------------------------------------------------------------------------------------- 4 Up front payment With decision to proceed $ 33,600 - -------------------------------------------------------------------------------------------------- 5 Stability data and final summary Upon delivery of final $ 24,745 report report - -------------------------------------------------------------------------------------------------- 6 Release test report (CofA's for 4 May 1, 2000 $ 5,780 batches) - -------------------------------------------------------------------------------------------------- 7 Aseptic batches submitted for final April 5, 2000 $ 36,790 testing - -------------------------------------------------------------------------------------------------- 8 Initiation of stability, 1 month Upon completion of testing $ 10,945 pull - -------------------------------------------------------------------------------------------------- 9 Following each stability pull - Upon completion of testing $4,010 per pull delivery of data - -------------------------------------------------------------------------------------------------- $237,720 - ---------------------------------------------------------------------------------------------------
This cost estimate is based on the information available and AAIs experience with the procedures involved. AM reserves the right to review this estimate should the scope of the project change or should unforeseen difficulties arise. Any changes in the scope or the nature of the work covered by this Service Agreement must be mutually agreed to and confirmed by a written "Change Order". In addition, Esperion will be charged for all out-of-pocket costs and/or expenses associated with the activities outlined herein. Such costs and expenses shall include required materials, travel and shipping expenses, and lab supplies such as columns, standards and chemicals unavailable from Esperion. AAI shall notify Esperion prior to incurring any unusual cost or expense exceeding $1,500. Stability setup and storage charges are due i id payable upon Initiation of the study. Any revisions to the stability protocol made after the initiation of the stability study will be billed at $125 per hour for changing the protocol. Esperion shall be entitled to terminate the project at any time on thirty (30) days' prior written notice. In the event of cancellation, Esperion will be obligated to pay only the cost of work, materials and services (exclusive of stability setup and storage charges) used for the February 4, 2000 Page 11 project through the effective date of the cancellation, as well as AAI's cost of all materials and services previously acquired or contracted for and which cannot be utilized in other day-to-day AA1 Proprietary Technology: Esperion recognizes that in conducting the feasibility study described in this Service Agreement, AM may utilize fonnulation technology that is proprietary to AAI ("AAI Proprietary Technology"). Notwithstanding anything contained herein to the contrary, Esperion shall own all inventions, discoveries, improvements on data (collectively, "Inventions") reduced to practice by AAI or Esperion in connection with this Service Agreement, including data resulting from AAI conducting such feasibility study. AAI shall fully cooperate with Esperion in obtaining, at Esperion's sole costs and expense, any patent and/or other protection as may be available with respect to such Inventions and shall execute all documents deemed reasonably necessary by Esperion for purposes of procuring such patent and/or other protection. AAI agrees that it shall contractually ensure the prompt disclosure to Esperion by any employee of any Inventions arising hereunder, as well as their cooperation in securing patent and/or other protection as set forth herein. No right, title or interest to any such AAI Proprietary Technology is granted to Esperion under this Service Agreement except as otherwise provided herein. For the avoidance of doubt, the Inventions shall not be deemed AAI Proprietary Information. In the event Esperion chooses to further develop and/or commercialize a formulation comprising, in part or in whole, AAI Proprietary Technology, Esperion will obtain a license from AAI to use such AAI Proprietary Technology, in thc form of a license agreement, such agreement which shall be memorialized in a separate writing and negotiated in good faith by AAI and Esperion. Such agreement should provide the right to Esperion to make, use, sell, and import a pharmaceutical product using AAI Proprietary Technology with a right to sublicense, in a territory, and with financial terms, to be mutually agreed upon, but AAI shall retain all right, title, and interest to any and all United States and/or international patent applications and/or issued patents claiming such AAI Proprietary Technology. Indemnification: Esperion shall indemnify and hold AAI and AAI's affiliates harmless against any claims asserted or suits brought against AAI or AAIs affiliates arising out of; or connected with, materials provided to AAI by Esperion except where such claim or suit is a direct result of AAI or AAI's affiliates gross negligence in the performance of any obligation imposed hereunder. Provided, however, that AAI or AAI's affiliates will promptly notify Esperion of any such claim or suit, and at Esperion's discretion and cost, permit Esperion's attorneys to handle and control such claims or suits exclusively so long as Esperion's attorneys actively pursue the defense of the same. AAI shall indemnify and hold Esperion and Esperion's affiliates harmless against any claims asserted or suits brought against Esperion or Esperion's affiliates arising out of, or connected with the gross negligence of AAI in the performance of any obligation imposed hereunder. Provided, however, that Esperion or Esperion's affiliates will promptly notify AAI of any such claim or suit, and at AAI's discretion and cost, permit AAI's attorneys to handle arid February 4, 2000 Page 12 control such claims or suits exclusively so long as AAI's attorneys actively pursue the defense of the same. In no event shall either party be liable to the other for any special, indirect or consequential damages, including lost profit. Nondisclosure: AAI agrees that it will not itself use, or provide to, disclose to, or permit any third party to use any Esperion Confidential Information (as defined below). Except as otherwise provided herein, AAI shall retain all right, title and interest to its proprietary trade secrets, know-how, inventions, whether patentable or not, and other intellectual property ("AAI Technology"). All Esperion Confidential Information will be maintained in secrecy by AAI, and AAI will use all reasonable diligence to prevent use or disclosure of any such information for a period of five (5) years from the date hereof. This obligation of confidentiality will survive termination of this estimate. As used herein, "Esperion Confidential Information" means any and all trade secrets and proprietary information (in any and every form and media) of Esperion or any of its Affiliates, including, without limitation, (a) information, data, documents, or other items which were developed or generated by AAI pursuant to this Agreement, (b) information relating to existing or contemplated products, services, technology, designs, processes, formulae, research and development (in any and all stages) of Esperion or any of its Affiliates, and (c) information relating to business plans, methods of doing business, sales or marketing methods, customer lists, customer usage's and/or requirements and supplier information of Esperion or any of its Affiliates. As used herein, "Affiliate" means any person or entity that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with Esperion. Excluded Materials: Notwithstanding the nondisclosure section set forth above, information, data, or documents developed or generated by AAI solely for its internal use or for persons other than Esperion is not restricted by the ownership rights to be transferred to Esperion herein. Compliance with Laws: AAI hereby covenants and agrees to perform all of its obligations pursuant hereto in compliance with (a) all applicable laws, rules and regulations, including standards of Good Manufacturing Practices, (b) all standards and practice generally accepted in the industry, and (c) protocols provided by Esperion to AAI from time to time. Return of Material: Upon termination of this Agreement by Esperion (which termination may be effected by Esperion upon thirty days written notice at AAI), AA shall return to Esperion all Esperion Confidential Information and all other property provided by Esperion to AAI pursuant hereto. February 4, 2000 Page 13 Insurance: AAI agrees to maintain and name Esperion as an additional insured under such insurance policies and in such amounts as Esperion shall reasonably request from time to time. FDA Inspection: In the event that AAI receives a Notice of Inspection (hereinafter "Notice") from the U.S. Food and Drug Administration (the "FDA") which relates in any way to this Service Agreement, AAI shall (a) promptly notify Esperion in writing of the Notice, (b) keep Esperion informed of the progress of the inspection, and (c) provide a copy to Esperion of any documents produced to the FDA pursuant to the Notice. Announcements: No announcement, oral presentation or publication relating to any matter described herein shall be made without the prior written approval of Esperion, which approval may be granted or withheld by Esperion in its discretion. Non Debarment: AAI warrants and represents that AAI has never been and is not currently (a) debarred by the FDA, or an employer, partner, shareholder, member, subsidiary or affiliate of any person or entity debarred by the FDA, from providing services in any capacity to a person or entity that has an approved or pending drug product application; or (b) a person or entity that has been debarred by the FDA from submitting or assisting in the submission of an abbreviated new drug application (a Debarred Entity") or an employer, partner, shareholder, member, subsidiary or affiliate of a Debarred Entity. AAI further represents and warrants to Esperion that AAI has no knowledge of any circumstances which may affect the accuracy of foregoing representations and warranties, including, but not limited to, FDA investigations of, or debarment proceedings against, AAI or any person or entity performing services or rendering assistance relating to activities taken pursuant hereto. Reports: AAI shall provide Esperion with weekly written reports describing with specificity AAI's performance of its obligations hereunder. Entire Agreement: This Service Agreement constitutes the entire agreement between Esperion and AAI and shall supersede all previous communications, representations, agreements or understandings, whether oral or written, between Esperion and AAI with respect to the subject matter hereof. February 4, 2000 Page 14 Assignment: This Service Agreement shall not be assigned (whether by sale, stock transfer, merger or otherwise) by either party without the prior written consent of the other party. Notwithstanding anything herein to the contrary, in the event Esperion merges with another entity, is acquired by another entity, or sells all or substantially all of its assets to another entity, Esperion may assign its rights and ob1i~ations hereunder to, in the event of a merger or acquisition, the surviving entity, and in the event of a sale, the acquiring entity, without AAI's consent so long as: (a) Esperion is not then in material breach of this Agreement; and (b) AAI receives from the proposed assignee, in writing, (i) reaffirmation of the terms of this Agreement; (ii) an agreement to be bound by the terms of this agreement; and (iii) an agreement to perform the obligations of Esperion under this Agreement. February 4, 2000 Page 15 AGREED AND ACCEPTED: AIA: ESPERION /s/ Lizbeth B. Sherman /s/ Roger S. Newton - ------------------------------------ ------------------------------------- Lizbeth B. Sherman Signature Manager, Technical Marketing Group 2-8-00 President/CEO - ------------------------------------ ------------------------------------- Date Title /s/ David A. Straight 2/8/00 - ------------------------------------ ------------------------------------- David Straight Date Global Contracts Director 2/8/00 - ------------------------------------ ------------------------------------- Date Purchase Order Number For questions concerning this document, please contact: Lizbeth B. Sherman, Manager Technical Marketing Group AAI 1206 North 23/rd/ Street Wilmington, NC 28405 Phone (910) 254-7247 Fax (910) 815-2300 March 31, 2000 Wendi V. Rodrigueza, Ph.D. Esperion Therapeutics, Inc. 3621 South State St. 695 KMS Place Ann Arbor, MI 48108 Tel.: (734) 332-0506 ext. 213 Fax: (734) 332-0516 ESTH1000C.lb Change Order ________________________________________________________________________________ Formulation Transfer and Manufacturing of Phospholipid for Aseptically Manufactured Supplies Changes to Scope Background: Esperion Therapeutics, Inc. ("Esperion") has requested that AAI perform a review of their formulation and manufacturing process for phospholipid large unilamellar vesicles (LUV) for injection. Upon completion of the review, AAI will prepare aseptically manufactured toxicological supplies. AAI will deliver to Esperion specifications for the product and the raw materials, development reports (including weekly summaries), technical transfer document, manufacturing support, product, batch records. This document includes additional activities either completed, in progress or planned based on the information and process provided by Esperion. Revision History: Revision b Removes LAL testing of 3 lots of material supplied by Esperion, redistributes milestone payments. Revision a Includes clarification of activities and associated costs. March 31, 2000 Page 2 Changes in Scope by Service Estimate Section:
- ------------------------------------------------------------------------------------------------ Activities: Section Changed: Estimated Cost - ------------------------------------------------------------------------------------------------ 7 TOC samples of the pressure vessels II. $ 455 - ------------------------------------------------------------------------------------------------ Media run of the aseptic fill process including sterility II. $ 5,300 testing of the media - ------------------------------------------------------------------------------------------------ Hydration evaluation at RT and 37(degrees)C evaluation of II.A. $ 14,790 up front homogenization, filter evaluation, flow decay conducted at 3 pressures using a 0.22 filter, flow decay conducted at 3 pressures using a 0.45 and 0.22 filter stacked, bubble point on the argon gas, LHP testing and fill volume. Testing not conducted includes HPLC for POPC. - ------------------------------------------------------------------------------------------------ Additions to testing on scale up batch include: II.B. $ 4,150 concentration (3), TLC, osmolality, headspace GC, MLT (2). Deletions to testing include: RPLC for POPC and viscosity. - ------------------------------------------------------------------------------------------------ 3 month scale up batch stability II.D. ($21,305) - ------------------------------------------------------------------------------------------------ Identification, LAL and appearance of three lots of POPC III.A. $ 5,735 API, including LAL validation of API - ------------------------------------------------------------------------------------------------ Full release of one lot of POPC API III.A. ($3,800) - ------------------------------------------------------------------------------------------------ TLC identification method transfer, including translation III.B. $ 3,500 of the method provided by Esperion - ------------------------------------------------------------------------------------------------ Transfer of the concentration method III.B. $ 2,500 - ------------------------------------------------------------------------------------------------ Transfer of HPLC for POPC method III.B. ($2,000) - ------------------------------------------------------------------------------------------------ Partial validation of the TLC identification test III.D. $ 10,000 - ------------------------------------------------------------------------------------------------ Partial validation of the concentration test III.D. $ 10,000 - ------------------------------------------------------------------------------------------------ Partial validation of the HPLC for POPC method ffl.D. ($16,800) - ------------------------------------------------------------------------------------------------ Additions to release testing include: concentration, TLC, III.G. $ 2,540 osmolality, headspace GC, deletions include HPLC for POPC, viscosity. - ------------------------------------------------------------------------------------------------ Charges associated with increased batch size (double) for VI.D. $ 27,400 the aseptically manufactured batches. - ------------------------------------------------------------------------------------------------ Changes to stability of aseptically manufactured VII. ($1,180) supplies, per protocol approved by Esperion - ------------------------------------------------------------------------------------------------ $ 40,655 - ------------------------------------------------------------------------------------------------
Terms and Conditions: The additional cost for the activities described above are $40,655 plus $120/organism identification conducted by microbiology. Unless otherwise agreed, AAI will invoice Esperion according to the following milestone schedule: March 31, 2000 Page 3 Milestone Schedule
Milestone Deliverable Estimated Invoice Date Milestone Payment - -------------------------------------------------------------------------------------------------- 1 Up front payment With signature $ 32,600 - -------------------------------------------------------------------------------------------------- 2 Test report for laboratory April 17, 2000 $ 40,655 scale batch as described in section II.B. - -------------------------------------------------------------------------------------------------- 3 Method validation reports June 1, 2000. $ 34,765 - -------------------------------------------------------------------------------------------------- 4 Batch record April 10, 2000 $ 8,815 - -------------------------------------------------------------------------------------------------- 5 Release test report (CofA's May 8, 2000 $ 50,975 for 4 batches) - -------------------------------------------------------------------------------------------------- 6 Aseptic batches submitted for April 17, 2000 $ 67,360 final testing - -------------------------------------------------------------------------------------------------- 7 Initiation of stability, 1 Upon completion of testing $ 22,486 month pull - -------------------------------------------------------------------------------------------------- 8 Following each stability pull Upon completion of testing per $4,143.80 per pull -- delivery of data stability pull (5 pulls) - -------------------------------------------------------------------------------------------------- $ 278,375 - --------------------------------------------------------------------------------------------------
This cost estimate is based on the information available and AAI's experience with the procedures involved. AAI reserves the right to revise this estimate should the scope of the project change or should unforeseen difficulties arise. Any changes in the scope or the nature of the work covered by this Service Agreement must be mutually agreed to and confirmed by a written "Change Order". In addition, Esperion will be charged for all out-of-pocket costs and/or expenses associated with the activities outlined herein. Such costs and expenses shall include required materials, travel and shipping expenses, and lab supplies such as columns, standards and chemicals unavailable from Esperion. AAI shall notify Esperion prior to incurring any unusual cost or expense exceeding $1,500. Stability setup and storage charges are due and payable upon initiation of the study. Any revisions to the stability protocol made after the initiation of the stability study will be billed at $125 per hour for changing the protocol. Esperion shall be entitled to terminate the project at any time on thirty (30) days' prior written notice. In the event of cancellation, Esperion will be obligated to pay only the cost of work, materials and services (exclusive of stability setup and storage charges) used for the project through the effective date of the cancellation, as well as AAI's cost of all materials and services previously acquired or contracted for and which cannot be utilized in other day- to-day operations. All activities will be conducted as described in the terms and conditions in ESTH1000C. March 31, 2000 Page 4 AGREED AND ACCEPTED: AIA: ESPERION /s/ Lizbeth B. Sherman /s/ Roger S. Newton - ---------------------------------- ------------------------------------ Lizbeth B. Sherman Signature Manager, Technical Marketing Group 3-31-00 President/CEO - ---------------------------------- ------------------------------------ Date Title /s/ Ashley De Stefano March 31, 2000 - ---------------------------------- ------------------------------------ Ashley De Stefano Date Global Contracts Director 3-31-00 - ---------------------------------- ------------------------------------ Date Purchase Order Number For questions concerning this document, please contact: Lizbeth B. Sherman, Manager Technical Marketing Group AAI 1206 North 23/rd/ Street Wilmington, NC 28405 Phone (910) 254-7247 Fax (910) 815-2300 EX-10.23 15 0015.txt FORM OF RESTRICTED STOCK PURCHASE AGREEMENT Exhibit 10.23 FORM OF RESTRICTED STOCK PURCHASE AGREEMENT THIS RESTRICTED STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of the ___ day of __________, _____, by and between Esperion Therapeutics, Inc., a Delaware corporation (the "Corporation"), and __________________________ ----------- ("Purchaser"). --------- SECTION 1. Definitions. ----------- As used in this Agreement, the following terms shall have the following respective meanings: "Persons" shall mean and include a natural person, a corporation, a ------- limited liability company, a partnership, a trust, an unincorporated organization and a government or any department, agency or political subdivision thereof. "Securities Act" shall mean the Securities Act of 1933, as amended, -------------- and any successor statute and the rules and regulations of the Securities and Exchange Commission thereunder, as shall be in effect as the applicable time. "Shares" shall mean the shares of Common Stock purchased by Purchaser ------ hereunder. "Transfers" shall include any direct or indirect sale, assignment, --------- transfer, pledge (but not including a pledge in favor of the Corporation), hypothecation or other disposition of any Shares or of any legal or beneficial interest therein. SECTION 2. Sale to Purchaser of Common Stock. Subject to the terms --------------------------------- and conditions contained herein, the Corporation hereby sells, transfers and assigns to Purchaser, and Purchaser hereby purchases from the corporation, the Shares. The Corporation hereby acknowledges receipt from Purchaser of payment of the Original Cost Per Share (or US$_____ in the aggregate). SECTION 3. Legend on Shares. ---------------- 3.1. Restrictive Legends. -------------------- (a) Each certificate evidencing Shares, and each certificate evidencing Shares held by subsequent transferees of any such certificate, shall (unless otherwise permitted by the provisions of Section 3.2 hereof) be stamped or otherwise imprinted with a legend in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW, THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR ANY EXEMPTION THEREFROM UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW. (b) Each certificate evidencing Shares, and each certificate evidencing Shares held by subsequent transferees of any such certificate, shall (unless otherwise permitted by the provisions of Section 3.2 hereof) also be stamped or otherwise imprinted with a legend in substantially the following form: ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE TERMS AND CONDITIONS OF A RESTRICTED STOCK PURCHASE AGREEMENT DATED AS OF ____________________________, AMONG ESPERION THERAPEUTICS, INC. AND THE HOLDER OF RECORD OF THIS CERTIFICATE AND NO SALE, ASSIGNMENT, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF SUCH SECURITIES SHALL BE VALID OR EFFECTIVE EXCEPT IN ACCORDANCE WITH SUCH AGREEMENT AND UNTIL SUCH TERMS AND CONDITIONS HAVE BEEN FULFILLED. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFIATE TO THE SECRETARY OF ESPERION THERAPEUTICS, INC. SECTION 4. Covenants of Purchaser. Purchaser agrees that he or she ---------------------- shall not Transfer any of his or her Shares except as permitted (i) in that certain Stockholders' Agreement dated as of ______________, by and among the Corporation, the Purchaser, and the other parties thereto and (ii) in that certain Investors' Rights Agreement dated as of __________________, by and among the Corporation and the parties thereto. SECTION 5. Representations. --------------- 5.1. Representations of Purchaser. In connection with Purchaser's ---------------------------- purchase of the Shares, Purchaser hereby represents and warrants to the Corporation as follows: (a) Investment Intent; Capacity to Protect Interests. Purchaser ------------------------------------------------ is purchasing the Shares solely for his or her own account for investment and not with a view to or for sale in connection with any distribution of the Shares or any portion thereof and not with any present intention of selling, offering to sell or otherwise disposing of or distributing the Shares or any portion thereof in any transaction other than a transaction exempt from registration under the Securities Act. Purchaser also represents that the entire legal and beneficial interest of the Shares is being purchased, and will be held, for his or her account only, and neither in whole or in part for any other person. 2 (b) Restricted Securities. Purchaser understands and --------------------- acknowledges that the Shares have not been registered under the Securities Act; that the Shares must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available; and that the corporation is under no obligation to register the Shares. (c) Disposition under Rule 144. Purchaser understands that the -------------------------- Shares are restricted securities within the meaning of Rule 144 promulgated under the Securities Act; that the exemption from registration under Rule 144 will not be available in any event for at least two years from the date of purchase of any payment for the Shares, and even then will not be available unless (i) a public trading market then exists for the Shares, (ii) adequate information concerning the Corporation is then available to the public, and (iii) other terms and conditions of Rule 144 are complied with; and that any sale of the Shares may be made only in limited amounts in accordance with such terms and conditions. 5.2. Representations of the Corporation. The Corporation represents to ---------------------------------- Purchaser that: (a) The execution, delivery and performance by the Corporation of this Agreement and all transactions contemplated by this Agreement have been duly authorized by all action required by law, its Certificate of Incorporation, its Bylaws or otherwise. (b) This Agreement has been duly executed and delivered by the Corporation and constitutes the legal, valid and binding obligation of the Corporation enforceable against it in accordance with its terms. SECTION 6. Withholding. Upon the request of the Corporation, ----------- Purchaser shall promptly pay to the Corporation, or make arrangements satisfactory to the Corporation regarding payment of, any Federal, state or local taxes of any kind required by law to be withheld with respect to the Shares (or any distributions of other securities or property (including cash) thereon or issued in replacement thereof). SECTION 7. Remedies. In case any one or more of the covenants and/or -------- agreements set forth in this Agreement shall have been breached by any party hereto, the party entitled to the benefit of such covenants or agreements may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including, but not limited to, (a) an action for damages as a result of any such breach, (b) an action for specific performance of any such covenant or agreement contained in this Agreement, and/or (c) a temporary or permanent injunction, in any case without showing any actual damage. The rights, power and remedies of the parties under this Agreement are cumulative and not exclusive of any other agreement or law. No single or partial assertion or exercise of any right, power or remedy of a party hereunder shall preclude any other or further assertion or exercise thereof. Any purported Transfer in violation of the provisions of this Agreement shall be null and void ab initio. -- ------ SECTION 8. Successors and Assigns. Except as otherwise expressly ---------------------- provided herein, this Agreement shall bind and inure to the benefit of the Corporation, Purchaser, the 3 respective successors or heirs, distributees and personal representatives and permitted assigns of the Corporation and Purchaser, and each other person who shall properly become a registered holder of any Shares that have not theretofore been sold to the public pursuant to a registration statement under the Securities Act or Rule 144 or Rule 144A (or any similar or successor rule). SECTION 9. Entire Agreement. This Agreement contains the entire ---------------- agreement among the parties with respect to the subject matter hereof and supersedes other prior and contemporaneous arrangements or understandings with respect thereto. SECTION 10. Notices. All notices, consents and other communications ------- under this Agreement shall be in writing and shall be deemed to have been duly given (a) when delivered by hand, (b) one (1) business day after the business day of transmission, if sent by telex or telecopier (with receipt confirmed), provided that a copy is mailed by registered mail, return receipt requested, or - -------- (c) one (1) business day after the business day of deposit with the carrier, if sent by Express Mail, Federal Express or other express delivery service (receipt requested), in each case to the appropriate addresses, telex numbers and telecopier numbers set forth below (or to such other addresses or telecopy numbers as a party may designate as to itself by notice to the other parties): (a) If to Purchaser: (b) If to Corporation: Esperion Therapeutics, Inc. 3621 S. State Street, 695 KMS Place Ann Arbor, Michigan 48108 Telecopier No.: (734) 332-0516 Attention: Roger Newton, Ph.D. With a copy to: Sills Cummis Zuckerman Radin Tischman Epstein & Gross, P.A. One Riverfront Plaza Newark, New Jersey 07101 Telecopier No.: (973) 643-6500 Attention: Ira A. Rosenberg, Esq. 4 SECTION 11. Changes. The terms and provisions of this Agreement may ------- not be modified or amended, or any of the provisions hereof waived, temporarily or permanently, without the prior written consent of each of the parties hereto. SECTION 12. Counterparts. This Agreement may be executed in any ------------ number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. SECTION 13. Headings. The benefits of the various sections of this -------- Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement. SECTION 14. Nouns and Pronouns. Whenever the context may require, any ------------------ pronouns used herein shall include the corresponding masculine feminine or neuter forms, and the singular form of names and pronouns shall include the plural and vice-versa. SECTION 15. Severability. Any provision of this Agreement that is ------------ prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability. Such prohibition or unenforceability in any one jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 16. Governing Law. This Agreement and (unless otherwise ------------- provided) all amendments hereof and waivers and consents hereunder shall be governed by the internal law of the State of Delaware, without regard to the conflicts of law principles thereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and your first written above. ESPERION THERAPEUTICS, INC. By:___________________________ Name: Title: ______________________________ By:___________________________ Name: Title: 5 EX-10.24 16 0016.txt FORM OF PROMISSORY NOTE Exhibit 10.24 FORM OF PROMISSORY NOTE US $ ____________ as of _________ __, ______ Ann Arbor, Michigan FOR VALUE RECEIVED, the undersigned, ________________, residing at ______________________________, ("Obligor"), hereby absolutely and ------- unconditionally promises to pay to the order of ESPERION THERAPEUTICS, INC., a Delaware corporation (the "Company"), at its office located at 3621 S. State ------- Street - 695 KMS Place, Ann Arbor, Michigan 48108 (or such other place as the Company may designate by written notice to Obligor from time to time), the principal amount of _______________________________________ (US$______________), together with simple interest on the principal amount hereof from time to time outstanding at a fixed rate equal to ___%, all payable upon the earlier to occur of (a) the termination of Obligor's employment by the Company for any reason (with or without Cause), or (b) the fifth (5/th/) anniversary of the Measurement Date (as defined below). 1. Allocation of Payments; Prepayments. All payments made in respect of ----------------------------------- this Note shall first be allocated to accrued but unpaid interest and then to unpaid principal. Payments of principal and interest due under this Note shall be made in lawful money of the United States of America and in immediately available funds. The principal of this Note (together with all accrued interest thereon) may be prepaid, without premium, penalty or discount, in whole or in part (but in amounts of principal of not less than $500), at any time and from time to time. Amounts prepaid hereunder are not available to be reborrowed. 2. Acceleration Upon Default. The entire unpaid principal amount of this ------------------------- Note, together with all accrued and unpaid interest, shall be immediately due and payable without written demand, upon the occurrence of any one or more of the following events (each, an "Event of Default"): ---------------- a. Failure to Make Payment. Obligor shall fail to make any payment ----------------------- of principal or interest hereunder on the date any such payment is due and payable; b. Employment. The employment relationship between the Obligor and ---------- the Company terminates for any reason (with or without Cause). For purposes hereof, "Cause" shall mean any reason materially and adversely affecting the ----- best interests of the Company or any of its affiliates or such as to make it unreasonable to expect the Company to continue to employ the Obligor, including, without limitation, the conviction of any crime, the commission or attempted commission of any act of willful misconduct or dishonesty, malfeasance or negligence, the failure or neglect by the Obligor to perform his or her duties hereunder or under any other agreement with the Company or the violation or attempted violation of any provision hereof or thereof; c. Death or Disability of Obligor. The death or permanent disability ------------------------------ of Obligor; 1 d. Bankruptcy, etc. of Obligor. (I) Obligor shall voluntarily --------------------------- commence, or there shall be commenced against Obligor, any case, proceeding or other action under any existing or future law of any jurisdiction, domestic or foreign , relating to bankruptcy, insolvency, reorganization, relief of debtors or the like, or (ii) Obligor shall generally not be able to, or shall expressly admit in writing his inability to, pay his debts as they become due; e. Breach of Representations and Warranties. Any representation or ---------------------------------------- warranty contained herein or in the Pledge Agreement executed by Obligor and dated as of the date hereof (the "Pledge Agreement") shall be false or ---------------- misleading in any material respect; or f. Breach of Agreements. Obligor shall commit a material breach of -------------------- any of the terms of the Pledge Agreement or any other agreement between Obligor and the company, and shall not cure any such breach within any applicable notice or cure period provided thereunder. 3. Cancellation of Indebtedness. Notwithstanding anything contained ---------------------------- herein to the contrary (including, without limitation, Section 2(b) above), if Obligor's employment with the Company is terminated without Cause during the time periods specified below, all or a portion of the principal amount owed by Obligor to the Company hereunder, together with the simple interest thereon, shall be canceled, as follows:
- ----------------------------------------------------------------------------------------------------- If the Termination of Employment Occurs on or Prior Percentage of Principal Amount and to the Following Dates: Related Interest Canceled: ===================================================================================================== _________________ ___, ______ 18.75% - ------------------------------------------------------------------------------------------------ End of 1/st/ quarter year 1 from Measurement Date 25% - ------------------------------------------------------------------------------------------------ End of 2/nd/ quarter year 1 from Measurement Date 31.25% - ------------------------------------------------------------------------------------------------ End of 3/rd/ quarter year 1 from Measurement Date 37.5% - ------------------------------------------------------------------------------------------------ End of 4th quarter year 1 from Measurement Date 43.75% - ------------------------------------------------------------------------------------------------ End of 1st quarter year 2 from Measurement Date 50% - ------------------------------------------------------------------------------------------------ End of 2/nd/ quarter year 2 from Measurement Date 56.25% - ------------------------------------------------------------------------------------------------ End of 3rd quarter year 2 from Measurement Date 62.5% - ------------------------------------------------------------------------------------------------ End of 4th quarter year 2 from Measurement Date 68.75% - ------------------------------------------------------------------------------------------------ End of 1st quarter year 3 from Measurement Date 75% - ------------------------------------------------------------------------------------------------ End of 2/nd/ quarter year 3 from Measurement Date 81.25% - ------------------------------------------------------------------------------------------------ End of 3rd quarter year 3 from Measurement Date 87.5% - ------------------------------------------------------------------------------------------------ End of 4th quarter year 3 from Measurement Date 93.75% ================================================================================================ After end of 4/th/ quarter year 3 from Measurement 100% Date - ------------------------------------------------------------------------------------------------
2 Notwithstanding the foregoing, in the event the employment of Obligor by the Company is terminated by the Company for any reason other than Cause, twenty-five percent (25%) of the then remaining principal and interest thereon (after taking into account the cancellation of principal and related interest provided for above) shall be canceled. Upon cancellation of all or a portion of the principal amount and related interest thereon owed by Obligor to the Company hereunder, Obligor shall have no further obligation or liability to the Company with respect to payment of such principal amount and related interest thereon. For purposes hereof, the term "Measurement Date" shall mean _____________. ---------------- 4. Costs and Expenses; No Set-Off by Obligor; Set-Off by the Company. ----------------------------------------------------------------- a. Costs and Expenses. Obligor agrees to pay all costs and expenses ------------------ (including, without limitation, reasonable attorneys' fees) incurred or payable by the Company in enforcing this Note including, without limitation, respecting the collection of any and all amounts payable under this Note. b. No Set-Off by Obligor. Obligor acknowledges that his obligations --------------------- to make payments hereunder are absolute and unconditional, and agrees that such payments shall not be requested to be, and shall not be, subject to any defense, set-off or counterclaim of any kind or nature, or any other action similar to the foregoing, provided that nothing contained herein shall preclude any separate proceeding by Obligor against the Company so long as such proceeding does not in any manner relate to or otherwise impair the payment or the collection of any amounts due hereunder in accordance with the terms of this Note. c. Set-off by the Company. The Company shall have the absolute right ---------------------- to apply and set-off any and all amounts payable by the Company to Obligor, whether pursuant to any written agreement or otherwise, against any and all amounts payable by the Obligor to the Company under this Note or that Obligor may otherwise owe or be obligated to pay or reimburse to the Company. 5. Miscellaneous. ------------- a. Rights and Remedies. The Company shall have all rights and ------------------- remedies provided for by any law of any kind (including all forms of legal and equitable relief) with respect to any acceleration or any other breach or default hereunder and the Company shall in addition have any other rights and remedies provided for in this Note and the Pledge Agreement. All rights and remedies contemplated in the preceding sentence shall be independent and cumulative, and may, to the extent permitted by law, be exercised concurrently or separately, and the exercise of any one right or remedy shall not be deemed to be an election of such right or remedy or to preclude or waive the exercise of any other right or remedy. b. Severability. If any provision of this Note or the application ------------ thereof to any person(s) or circumstance(s) shall be invalid or unenforceable to any extent, (i) the remainder of this Note and the application of such provision to other persons or circumstance(s) shall not be affected thereby; and (ii) each such provision shall, as to such person or circumstances as to which it is not enforceable in full, by enforced to the greatest extent permitted by law. 3 c. Amendments; No Waiver; Successors and Assigns. No amendment, --------------------------------------------- modification, recission, waiver, forbearance or release of any provision of this Note shall be valid or binding unless made in writing and executed by Obligor and a duly authorized representative of the Company. No consent or waiver, express or implied, by the Company to or of any breach by Obligor in the performance by him of any of his obligations hereunder shall be deemed or construed to be a consent to or waiver of the breach in the performance of the same or any other obligation of Obligor hereunder. Failure on the part of the Company to complain of any act or failure to act by Obligor or to declare Obligor in breach irrespective of how long such failure continues, shall not constitute a waiver by the Company of any of its rights hereunder. All consents and waivers shall be in writing. All of the terms, covenants and conditions contained in this Note shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, personal representatives, estates, successors and assigns, provided that Obligor may not assign this Note or assign or delegate any of his obligations hereunder to any other person or entity without the prior consent of the Company and any such attempted assignment or delegation without such consent shall be void. d. Governing Law; Waiver of Jury Trial; Jurisdiction; Notices. This ---------------------------------------------------------- Note, including the performance and enforceability hereof, shall be governed by and construed in accordance with the laws of the State of Michigan, without regard to the principles of conflicts of law. Obligor waives any right to trial by jury. For the purpose of this Note and any controversy arising hereunder, Obligor expressly and irrevocably submits and consents in advance to the exclusive jurisdiction of the courts located in the State of Michigan and waives any objection (on the grounds of lack of jurisdiction or forum non conveniens, or otherwise) to the exercise of such jurisdiction over him by any such court located in the State of Michigan. Any notice, demand or other written document in connection with this Note shall be in writing signed by the party giving such notice and delivered in the manner set forth in the Pledge Agreement. IN WITNESS WHEREOF, the undersigned has executed and delivered this Note as of the day and year first above written. WITNESS: OBLIGOR _________________________________ _________________________________ 4 EX-10.26 17 0017.txt PEPTIDE SUPPLY AGREEMENT EXHIBIT 10.26 PEPTIDE SUPPLY AGREEMENT Between ESPERION THERAPEUTICS, INC. And NEOSYSTEM S.A. TABLE OF CONTENTS
Page ARTICLE I: BACKGROUND............................................................. 1 ARTICLE II: DEFINITIONS............................................................ 1 ARTICLE III: PROVISION OF SERVICES & SUPPLY OF PRODUCTS............................. 4 ARTICLE IV: TERM AND TERMINATION................................................... 6 ARTICLE V: INTELLECTUAL PROPERTY.................................................. 7 ARTICLE VI: PATENT PREPARATION, PROSECUTION & ENFORCEMENT.......................... 9 ARTICLE VII: LICENSE................................................................ 10 ARTICLE VIII: PROJECT COMMERCIALIZATION.............................................. 10 ARTICLE IX: CHARGES AND INVOICING.................................................. 10 ARTICLE X: DELIVERABLES........................................................... 11 ARTICLE XI: PUBLICITY.............................................................. 14 ARTICLE XII: CONFIDENTIALITY........................................................ 14 ARTICLE XIII: REPRESENTATIONS AND WARRANTIES......................................... 16 ARTICLE XIV: INDEMNIFICATION........................................................ 20 ARTICLE XV: ENVIRONMENTAL MATTERS.................................................. 22 ARTICLE XVI: INSURANCE.............................................................. 23 ARTICLE XVII: MISCELLANEOUS.......................................................... 23
PEPTIDE SUPPLY AGREEMENT This PEPTIDE SUPPLY AGREEMENT ("AGREEMENT") is made and entered into on ______________________, 2000 by and between ESPERION THERAPEUTICS, INC., a Delaware corporation having an address at 3621 S. State Street, 695 KMS Place, Ann Arbor, Michigan 48108, U.S.A. (hereinafter "ESPERION"), and NEOSYSTEM S.A., having an address at 7 rue de Boulogne, 67100 Strasbourg, France (hereinafter "SYSTEM"). ESPERION and NEOSYSTEM agree as follows: ARTICLE I: BACKGROUND 1.1 ESPERION is a corporation engaged in the discovery, development, and commercialization of therapeutic products. ESPERION wishes to have certain peptide compounds manufactured by NEOSYSTEM under the conditions set forth herein. 1.2 NEOSYSTEM is a company in the business of manufacturing custom peptide sequences for research and development for clinical and commercial use according to cGMP(as hereinafter defined). NEOSYSTEM has the capability and wishes to supply certain peptide compounds for ESPERION and to perform stability studies in accordance with the terms and conditions set forth herein. 1.3 ESPERION and NEOSYSTEM wish to undertake a manufacturing project described in Exhibit A, the purpose of which is to manufacture the product(s) listed in Exhibit A using NEOSYSTEM'S TECHNOLOGY, ESPERIONS TECHNOLOGY, or --------- PROJECT INTELLECTUAL PROPERTY, as defined below. ARTICLE II: DEFINITIONS 2.1 AFFILIATE - Means, with respect to any Person, any other Person controlling, controlled by or under direct or indirect common control with such Person. A Person shall be deemed to control a corporation (or other entity) if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation (or other entity), whether through the ownership of voting securities, by contract or otherwise. AFFILIATE shall also mean any entity, or organization that controls, is controlled by, or is under common control with a party. For this purpose, "control" shall mean the ownership (whether directly or indirectly) of more than fifty percent (50%) of the voting stock or other entity interest or the ability (whether directly or indirectly) to determine the policy or actions of any entity on account of contract or other relationships. 2.2 cGMP - Means current Good Manufacturing Practices ("cGMT") as determined by the Food and Drug Administration ("FDA"), and includes the current Good Manufacturing Practices and General Biological Product Standards as described by U.S. Code of Federal Regulations, 21 CFR (Chapters 210, 211, 600), and all equivalent standards in the European Union and Japan, as the same may be amended or re-enacted from time to time. 2.3 ESPERION TECHNOLOGY - Means any and all chemical structures including computer-generated structures and molecule libraries, analogues, scaffolds, intermediates, byproducts, chemical synthesis routes, analytical data, technical information, formulations, processes, know-how, data, specifications, test results, therapeutic applications, and other information relating to custom synthetic peptide production and/or custom synthetic organic production, including trade secrets, trademarks and copyrights, manufacturing procedures, manufacturing equipment, plant layouts, the identity of raw materials, manufacturing capacities, product volumes, customer lists, market data, marketing plans, pricing information, quality control procedures, quality control standards, and suggestions for improvements, whether or not patented or patentable, owned at least in part by ESPERION or known by ESPERION to be in the public domain prior to the date of this AGREEMENT. 2.4 FACILITY - Means NEOSYSTEM's manufacturing facility located at Strasbourg, France and, subject to ESPERION's prior written approval, such other facilities to be used by N'EOSYSTEM in the development, manufacture and storage of PRODUCTS or materials utilized in the development and manufacture of PRODUCTS hereunder. 2.5 HAZARDOUS MATERIALS - Means any pollutant, contaminant, hazardous or toxic substance, constituent or material and other wastes or other substances regulated under any applicable federal, state, provincial or local laws, rules or regulations and shall include PRODUCTS properly rejected by ESPERION pursuant hereto. 2.6 HAZARDOUS WASTE - Means waste arising from the development manufacture and packaging of the PRODUCTS that is defined as "Hazardous" by applicable federal, state, provincial or local laws, rules or regulations and shall include PRODUCTS properly rejected by ESPERION pursuant hereto. 2.7 NEOSYSTEM TECHNOLOGY - Means any and all chemical structures, including computer-generated structures and molecule libraries, analogues, scaffolds, intermediates, byproducts, chemical synthesis routes, analytical data, technical information, formulations, processes, know-how, data, specifications, test results, therapeutic applications, and other information relating to custom synthetic peptide production and/or custom synthetic organic production, including trade secrets, trademarks and copyrights, manufacturing procedures, manufacturing equipment, plant layouts, the identity of raw materials, manufacturing capacities, product volumes, customer lists, market data, marketing plans, pricing information, quality control procedures, quality control standards, and suggestions for improvements, whether 2 or not patented or patentable, that are 100% owned by NEOSYSTEM prior to the date of this AGREEMENT, as clearly documented in admissible form by company records. 2.8 PERSON - Means any individual or corporation, company, partnership, trust, incorporated or unincorporated association, joint venture or other entity of any kind. 2.9 PRODUCT - Means the product(s) including intermediates, scaffolds, analogues, byproducts, chemical synthesis routes and analytical data developed, manufactured and/or supplied under this AGREEMENT, as further specified in Exhibit A. 2.10 PROJECT - Means the manufacturing and supply project described herein and further defined in Exhibit A to develop the PRODUCT. 2.11 PROJECT INTELLECTUAL PROPERTY - Means any and all chemical structures including computer-generated structures and molecule libraries, analogues, scaffolds, intermediates, byproducts, chemical synthesis routes, analytical data, technical information, formulations, processes, know-how, data, specifications, test results, therapeutic applications, and other information relating to custom synthetic peptide production and/or custom synthetic organic production, including trade secrets, trademarks and copyrights, manufacturing procedures, manufacturing equipment, plant layouts, the identity of raw materials, manufacturing capacities, product volumes, customer lists, market data, marketing plans, pricing information, quality control procedures, quality control standards, and suggestions for improvements, whether or not patented or patentable, developed or discovered during tile term of this AGREEMENT by ESPERION or NEOSYSTEM and related to the PROJECT or PRODUCT. 2.12 RELEASE - Means any release, spill, emission, leaking, pumping, injection deposit, disposal, discharge, leaching or migration into the indoor or outdoor environment, including, without limitation, the movement of Hazardous Materials through the ambient air, soil, subsurface water, groundwater, wetlands, lands or subsurface strata. 2.13 SPECIAL WASTE - Means waste arising from the manufacture and packaging of the PRODUCTS hereunder, including labeling that contains, or has come into contact with, the PRODUCTS or raw materials, including PRODUCTS properly rejected under this AGREEMENT, rejected or unusable raw materials, disposable manufacturing equipment (including filters used in manufacturing and packaging), wash rinse and previously used or discarded protective clothing. 2.14 SPECIFICATIONS - Means the specifications for the raw materials and packaging materials used in the development, manufacture and/or packaging of the PRODUCTS and the specifications for the manufacture, processing and packaging of the PRODUCTS, including all formulae, know-how, materials requirements, standards of quality control, quality 3 assurance and sanitation, as mutually agreed upon in writing by ESPERION and NEOSYSTEM and specified in the order for the applicable PRODUCTS pursuant to Section 3.6(b) hereof, and as the same may be modified pursuant to Section 10.3 hereof NEOSYSTEM shall have no obligation with regard to any PRODUCT(S) until corresponding specifications for such PRODUCT(S) have been finalized and agreed upon in writing by the parties. 2.15 WASTE - Means all wastes which arising from the manufacture and packaging of PRODUCTS hereunder including Hazardous Waste and Special Waste. ARTICLE III: PROVISION OF SERVICES & SUPPLY OF PRODUCTS 3.1 Agreement to Perform. During the term of this AGREEMENT, NEOSYSTEM -------------------- will undertake the PROJECT exclusively for ESPERION. NEOSYSTEM will not produce the PRODUCT for a third party if the PRODUCT would compete with an ESPERION product or harm the commercial interests of ESPERION. In no event will NEOSYSTEM disclose to a party that NEOSYSTEM will make or has made the PRODUCT for ESPERION. NEOSYSTEM shall perform all of its obligations pursuant to this AGREEMENT at its FACILITY. 3.2 Time Being of the Essence. NEOSYSTEM shall provide the services and ------------------------- develop, manufacture and supply the PRODUCTS in accordance with the timetable attached hereto as Exhibit A. Time is of the essence with respect to all --------- timetables set forth in Exhibit A. 3.3 Supply of Esperion Technology. ESPERION agrees to provide NEOSYSTEM, ----------------------------- solely for its use in connection with NEOSYSTEM's performance under this AGREEMENT, such quantities of the ESPERION TECHNOLOGY as NEOSYSTEM may from time-to-time reasonably require. Title to and ownership of the ESPERION TECHNOLOGY shall at all times remain with ESPERION. 3.4 Preferred Supplier. (a) During the term of this AGREEMENT, ESPERION shall not purchase any quantity of PRODUCT from any third party unless (i) NEOSYSTEM is unable or notifies ESPERION that it will be unable to manufacture and supply such quantity of PRODUCT to ESPERION; (ii) NEOSYSTEM has breached any warranty contained herein with respect to any PRODUCT or otherwise defaulted in the performance of its obligations hereunder or (iii) ESPERION is entitled to purchase PRODUCTS from a third party pursuant to Section 3.4(b) hereof. (b) If ESPERION receives a good faith written firm quote from a third party supplier (a "Competing Supplier") to supply ESPERION with PRODUCTS at a ------------------ price which is less than ninety percent (90%) of NEOSYSTEM's then current price charged to ESPERION for such PRODUCTS, ESPERION shall send written notice to NEOSYSTEM, identifying the Competing Supplier for such PRODUCTS and setting forth the price proposed to be charged by such Competing Supplier (including evidence substantiating the same). NEOSYSTEM shall then 4 have two (2) business days from receipt of the notice described herein to match the price of the Competing Supplier. If NEOSYSTEM does not match the price of the Competing Supplier within such two (2) business day period, ESPERION shall be entitled to purchase PRODUCTS from the Competing Supplier at the price set forth in the notice described herein. 3.5 Contact Persons. Subject to approval by ESPERION, NEOSYSTEM shall --------------- appoint one of its employees and an alternate to serve as its primary contact with ESPERION regarding this 3.6 Specifications, Orders, Ownership of Project Intellectual Property. ------------------------------------------------------------------ (a) The PROJECT is described in Exhibit A, including the name and structure of the PRODUCT, the estimated quantity of PRODUCT required, the acceptable range of quality of PRODUCT (and assay means, if known), acceptable timing for delivery to ESPERION of initial batches of the PRODUCT (of the acceptable quality) and for subsequent quantities of PRODUCT required (of the acceptable quality), the method NEOSYSTEM will use to prepare the PRODUCT, if known or available, also indicating whether the method uses ESPERIONS or NEOSYSTEM'S TECHNOLOGY or PROJECT INTELLECTUAL TECHNOLOGY, and the total amount payable for the PROJECT. Additionally, ESPERION may request NEOSYSTEM to perform stability studies. (b) The quantities of PRODUCT set forth in Exhibit A are estimates only. From time to time, ESPERION may place orders with NEOSYSTEM for PRODUCT, which orders shall specify the quantity ordered, the SPECIFICATIONS therefor and the delivery schedule therefor. In the event that the quantity ordered exceeds the estimated quantities set forth in Exhibit A, NEOSYSTEM shall use commercially reasonable efforts to manufacture and supply such excess quantity but shall notify ESPERION within two (2) business days after receipt of such order if NEOSYSTEM will be unable to manufacture and supply such excess quantity and, upon the giving of such notice, such excess quantity shall be deleted from such order and ESPERION shall be entitled to purchase such excess quantity from a third party pursuant to Section 3.4(a). In the event that ESPERION cancels any order placed with NEOSYSTEM for reasons other than the default of NEOSYSTEM, ESPERION shall reimburse NEOSYSTEM for all costs theretofore actually incurred by NEOSYSTEM for materials and labor (excluding overhead) in filling such order up to a maximum amount of the total price which would have been payable for such order, such reimbursement to be made as provided in Section 9.4 hereof upon receipt of an invoice from NEOSYSTEM accompanied by supporting documentation. (c) All PROJECT INTELLECTUAL PROPERTY developed during the course of the PROJECT will belong to and is hereby assigned in its entirety exclusively to ESPERION. 3.7 Overage. ESPERION shall receive all overage from the PROJECT. ------- 5 3.8 NEOSYSTEM's Duties. NEOSYSTEM shall be responsible, at its own cost and expense, for purchasing, installing, qualifying and maintaining at its FACILITY any and all new or used equipment, molds, tooling and/or modifications to existing equipment, molds and/or tooling necessary for its performance of its obligations pursuant to this AGREEMENT. The installation, qualification and maintenance of all equipment, molds and tooling shall be conducted in accordance with the specifications, cGMP and all applicable legal requirements. NEOSYSTEM shall provide, at its own cost and expense, all necessary personnel, materials, facilities, equipment and other resources to perform its obligations hereunder. NEOSYSTEM shall provide and supervise the services of personnel, laboratory facilities, equipment, chemicals, and other suppliers necessary to conduct its activities under this AGREEMENT according to cGMP. 3.9 Subcontracting. NEOSYSTEM may not subcontract any of its obligations -------------- under this AGREEMENT without the prior written consent of ESPERION. 3.10 Quantitative Shortfalls. ESPERION shall inform NEOSYSTEM in writing of any claim relating to quantitative shortfalls in shipments of PRODUCTS occurring prior to delivery in accordance with DDU (Delivery Duty Unpaid), Incoterms 2000, within ninety (90) days following actual receipt of such shipments by ESPERION, and ESPERION shall provide to NEOSYSTEM copies of any appropriate documents relating to such shortfall that ESPERION may have in its possession. NEOSYSTEM shall, at its own cost and expense (subject to submission by ESPERION of copies of any such documents in its possession relating to such shortfall), provide ESPERION with any missing quantities of such PRODUCTS as soon as reasonably possible after receipt of notice from ESPERION. ESPERION shall only be obligated to pay for actual quantities of PRODUCTS received by ESPERION. 3.11 Product Samples. NEOSYSTEM shall provide ESPERION with a reasonable --------------- quantity of samples of the PRODUCTS promptly upon ESPERION's request. Such samples shall be shipped to ESPERION in accordance with the provisions set forth in Exhibit A hereof. ARTICLE IV: TERM AND TERMINATION 4.1 Term, Renewal; Notice. This AGREEMENT shall become effective on the --------------------- date written above and shall terminate sixty (60) months thereafter, except as otherwise provided herein. This AGREEMENT shall automatically be renewed for additional one (1) year terms thereafter unless either party shall give written notice to other, at least ninety (90) days prior to the end of the initial term or any renewal term, that it does not wish this AGREEMENT to be renewed for an additional one (1) year. 4.2 Termination, Notice. ------------------- 6 (a) Either party may terminate this AGREEMENT at any time during the term hereof by written notice to the other party if: i) the other party shall suspend or discontinue its business operations or make any assignment for the benefit of its creditors or commence voluntary proceedings for liquidation in bankruptcy, or admit in writing its inability to pay its debts generally as they become due, or consent to the appointment of a receiver, trustee or liquidator of the other party or of all or any part of its property, or if there is an execution sale of a material portion of its assets; ii) involuntary bankruptcy or reorganization proceedings are commenced against the other party or any of its properties or if a receiver or trustee is appointed for the other party or any of its properties and such proceedings are not discharged within thirty (30) days; iii) the other party files or consents to the filing of a petition for reorganization or arrangement under any applicable Bankruptcy Act or Code; or iv) the other party fails to comply with any material term of this AGREEMENT or breaches any representation or warranty herein and fails to cure such noncompliance or breach within thirty (30) days after receipt of written notice thereof. (b) In the event that ESPERION terminates this AGREEMENT NEOSYSTEM shall (i) transfer (and shall be automatically deemed at the time of such termination to have transfer-red) the manufacturing rights for the PRODUCTS to ESPERION; and (ii) grant (and shall be automatically deemed at the time of such termination to have granted) to ESPERION a nonexclusive world-wide royalty-free license (with the right to sublicense) to use the NEOSYSTEM TECHNOLOGY to perform the PROJECT and develop, manufacture and supply the PRODUCTS in accordance with the terms of this AGREEMENT (which license shall continue until the last to expire patents therefor). 4.3 Survival. Articles V, VI, VII, VIII, XI, XII, XIII, XIV, XV, XVI and -------- XVII shall survive the termination of this AGREEMENT. 4.4 Return of ESPERION'S Property. Upon the effective date of expiration ----------------------------- or termination of this AGREEMENT for any reason whatsoever, NEOSYSTEM shall immediately deliver to ESPERION or its designee all ESPERION TECHNOLOGY and all other materials, supplies or equipment provided by ESPERION. NEOSYSTEM shall also deliver to ESPERION or its designee all PRODUCTS produced hereunder, and shall invoice ESPERION in accordance with the terms of Exhibit A. ARTICLE V: INTELLECTUAL PROPERTY 7 5.1 Ownership. Each Party retains ownership rights in all INTELLECTUAL --------- PROPERTY that it owned prior to entry into this Agreement. 5.2 Joint Development. If any improvements or modifications to the ----------------- PRODUCTS are developed by ESPERION or NEOSYSTEM, either jointly or severally, such improvements or modifications shall be the exclusive property of ESPERION and shall be held in confidence by NEOSYSTEM for ESPEPION's sole benefit in the development and/or the operation of manufacturing processes with respect to the PRODUCTS. NEOSYSTEM shall disclose to ESPERION and receive the approval of ESPERION with respect to all such improvements or modifications relating to the manufacturing, and/or packaging process of the PRODUCTS or use of the PRODUCTS developed by NEOSYSTEM. All trademarks, trade names, brand names, patents, slogans, logos, copyrights, trade dress, know-how and goodwill associated with the PRODUCTS shall be the sole and exclusive property of ESPERION. NEOSYSTEM shall have no right or license to use any such rights at any time before, during or after the term of this AGREEMENT, except as necessary for the manufacture, processing, packaging and supply of PRODUCTS to ESPERION hereunder. 5.3 Patenting. In accordance with Article VI, ESPERION may, at its sole --------- discretion, prepare and file all domestic and foreign patent applications drawn to inventions included in such PROJECT INTELLECTUAL PROPERTY. ESPERION shall name all co-inventors who are employed by N'EOSYSTEM, who shall cooperate in the preparation and the prosecution of such patent application(s). Further, such co- inventors shall assign ownership in such patent application(s) and patent(s) issuing therefrom solely to ESPERION. 5.4 Invention Disclosure. NEOSYSTEM agrees that it will promptly disclose -------------------- in writing all developments or discoveries, whether patentable or not, related to the PROJECT only to ESPERION. 5.5 Documentation. NEOSYSTEM agrees to document in detail, with ------------- appropriate signatures, dates and witnessing, all methods and formulations used in the PROJECT, unless permission otherwise is granted in writing by ESPERION. All such materials will be documented and dated following the recommendations of the U.S. Patent Office and ESPERION. 5.6 Assignment By Employee. NEOSYSTEM represents that, by operation of ---------------------- local laws, each of its employees assigns to NEOSYSTEM all INTELLECTUAL PROPERTY made by an employee during the course of his or her employment by N'EOSYSTEM. 5.7 Assignment By NEOSYSTEM. NEOSYSTEM agrees that NEOSYSTEM shall assign ----------------------- and hereby does assign its rights to any and all PRODUCTS comprising the PROJECT INTELLECTUAL PROPERTY discovered or developed during the term of this Agreement solely to ESPERION, including but not limited to their synthesis routes. NEOSYSTEM hereby 8 grants a paid-up, royalty-free, exclusive license to ESPERION to all synthesis routes and compounds developed during the term of this AGREEMENT for use by ESPERION to make compounds other than those specified on Exhibit A. --------- 5.8 Survival. The provisions of this Article V shall survive the -------- termination or expiration of this AGREEMENT. 5.9 Exclusivity. Except as specifically provided herein, all technology or ----------- information owned by ESPERION or provided by ESPERION to NEOSYSTEM in connection with this AGREEMENT shall not be used by NEOSYSTEM in the provision of any manufacturing or other services or the development, manufacture or supply of any PRODUCTS or disclosed or made available to any customers of NEOSYSTEM or other third parties. All such information shall be deemed confidential information subject to the provisions of Article XII. ARTICLE VI: PATENT PREPARATION, PROSECUTION & ENFORCEMENT 6.1 Responsibility. The preparation, prosecution and maintenance of all -------------- patent applications and patents for PROJECT INTELLECTUAL PROPERTY shall be the primary responsibility of ESPERION. NEOSYSTEM agrees that it will participate in the preparation, prosecution and maintenance of any patent applications for PROJECT INTELLECTUAL PROPERTY, at ESPERION'S request, with expenses for such participation to be borne by ESPERION. 6.2 Notice of Infringement. NEOSYSTEM shall promptly notify ESPERION of ---------------------- any alleged infringement of PROJECT INTELLECTUAL PROPERTY and shall supply to ESPERION all available evidence of such infringement. 6.3 Enforcement. ESPERION shall have the right, but shall not be ----------- obligated, to commence suit for any infringement of the PROJECT INTELLECTUAL PROPERTY. NEOSYSTEM agrees to cooperate with ESPERION using all reasonable means at no expense to NEOSYSTEM. The total cost of any such infringement action commenced or defended solely by ESPERION shall be borne by ESPERION, and ESPERION shall retain all recovery or damages awarded in such action. 6.4 Intervention. In the event that a declaratory judgment action alleging ------------ invalidity or unenforceability of, or infringement by, any of the PROJECT INTELLECTUAL PROPERTY shall be brought against NEOSYSTEM, ESPERION, at its option, shall have the right, within ninety (90) days after receiving written notification of the commencement of such action, to intervene and assume sole responsibility for the defense of the action at its own expense. 9 6.5 Cooperation. In any suit ESPERION may commence pursuant to its rights ----------- under this AGREEMENT in order to enforce the PROJECT INTELLECTUAL PROPERTY, NEOSYSTEM shall, at the request and expense of ESPERION, cooperate in all respects and, to the extent possible, have its employees testify when requested and make available relevant records, papers, information, samples, specimens and the like. ARTICLE VII: LICENSE 7.1 Grant of NEOSYSTEM's Technology: Product. NEOSYSTEM hereby grants to ----------------------------------------- ESPERION a paid-up, royalty-free, perpetual, nonexclusive license (the "LICENSE"), on a worldwide basis, to any or a part of NEOSYSTEM'S TECHNOLOGY required in the manufacture of the PRODUCT developed hereunder, effective as of the date of execution of this Agreement. 7.2 Grant of NEOSYSTEM's Technology: Project. NEOSYSTEM hereby grants to ----------------------------------------- ESPERION a paid-up, royalty-free, perpetual, nonexclusive right to use NEOSYSTEM'S TECHNOLOGY for activities related to the PROJECT. ARTICLE VIII: PROJECT COMMERCIALIZATION 8.1 Esperion's Rights. ESPERION shall have the exclusive, delegable right ----------------- to make, have made, use, sell, offer to sell, or import any PROJECT INTELLECTUAL PROPERTY and PRODUCT during and after the term of this AGREEMENT. ARTICLE IX: CHARGES AND INVOICING 9.1 Price. ESPERION shall pay to NEOSYSTEM the prices set forth in Exhibit ----- ------- A for the PROJECT, at the times indicated in Exhibit A. - - --------- 9.2 Taxes. The prices set forth in Exhibit A include all sales, use, --------- consumption or excise taxes of any taxing authority. NEOSYSTEM hereby indemnities ESPERION against, and shall reimburse ESPERION for, any expenditures ESPERION may be required to make as a result of NEOSYSTEM's failure to pay such taxes or other governmental charges to the relevant taxing authorities after invoicing and receiving payment therefor from ESPERION. 9.3 Costs. ESPERION'S liability to NEOSYSTEM for the payment of out-of ----- pocket costs in carrying out the PROJECT shall not exceed One Thousand U.S. Dollars (U.S. $1,000.00) in any month without the written approval of ESPERION. 10 9.4 Invoicing. NEOSYSTEM will send ESPERION invoices on a monthly basis --------- until completion of the PROJECT. The invoices shall describe the actual PRODUCTS supplied and services rendered pursuant to this Agreement in such detail as ESPERION may reasonably request. Such invoices shall be payable 2/10, net 30 (payments received within ten (10) days of the date on which the invoice submitted by NEOSYSTEM is received by ESPERION will entitle ESPERION to a 2% discount.) In any event, all payments shall be due within thirty (30) days of the date on which the invoice submitted by NEOSYSTEM is received by ESPERION. ESPERION shall have a right to cure any failure to pay within the time provided in this Section within sixty (60) days of receipt of notice of such failure. 9.5 Winding Down. Upon receipt of ESPERION'S written notice to terminate ------------ this AGREEMENT, NEOSYSTEM will promptly discontinue work on the PROJECT and will invoice ESPERION for any uninvoiced charges incurred prior to receipt of ESPERION'S notice of termination. ESPERION shall pay to NEOSYSTEM the charges approved by ESPERION listed on this invoice before termination of this AGREEMENT. ARTICLE X: DELIVERABLES 10.1 Reports. NEOSYSTEM will furnish ESPERION progress reports summarizing ------- the results of the PROJECT and all documents (including all DMF files) necessary for registration of the PRODUCT, as frequently as ESPERION may reasonably request, but in any event at least quarterly. 10.2 Delivery; Risk of Loss. NEOSYSTEM shall deliver PRODUCTS ordered by ---------------------- ESPERION to ESPERIONs principal place of business or to such other location in the continental United States designated by ESPERION in writing to NEOSYSTEM. NEOSYSTEM shall schedule freight pick up, load the carrier's trailer and complete documentation. All deliveries and prices hereunder shall be DDU (Delivery Duty Unpaid), Incoterms 2000. 10.3 Specifications. The SPECIFICATIONS of PRODUCTS may be modified or -------------- changed by ESPERION as reasonably required in writing. Such writing shall address any related price increases or decreases arising from such modification or change. 10.4 Storage. NEOSYSTEM shall store all materials and PRODUCTS in ------- accordance with the SPECIFICATIONS in a clean, dry area, free from insects and rodents, in a manner to prevent entry of foreign materials. Storage and handling of the foregoing shall be in accordance with the SPECIFICATIONS, cGMP and all applicable and legal requirements. Materials utilized by NEOSYSTEM in connection with the development, manufacturing, processing and packaging of the PRODUCTS shall be used by NEOSYSTEM on a first in, first out basis and shall not be used by NEOSYSTEM beyond the shelf life required under the SPECIFICATIONS, cGMT or any applicable legal requirements. 11 10.5 Nonconforming Materials. NEOSYSTEM shall not knowingly use any ----------------------- packaging or other PRODUCT materials that do not comply with the SPECIFICATIONS, cGMP or applicable legal requirements. NEOSYSTEM shall promptly contact ESPERION in the event that NEOSYSTEM anticipates making changes to any such material or in the event NEOSYSTEM considers any such material to be non-conforming or unacceptable. If NEOSYSTEM uses any nonconforming PRODUCT material without prior written approval by ESPERION, NEOSYSTEM shall be responsible for all losses, costs and expenses suffered or incurred by ESPERION as a result of such use and any expenses incurred by NEOSYSTEM in the correction thereof The foregoing shall apply regardless of any involvement ESPERION may have had in connection with such material including supplying or purchasing PRODUCT materials or designating approved NEOSYSTEM's. 10.6 Quality Tests & Checks. NEOSYSTEM shall perform all in-process and ---------------------- finished PRODUCT tests or checks required by the specifications or applicable legal requirements. For purposes of this AGREEMENT, such tests shall be considered routine and shall be performed at NEOSYSTEM's expense. All tests and test results shall be performed, documented and summarized by NEOSYSTEM in accordance with the SPECIFICATIONS and applicable legal requirements. 10.7 Production Codes; Records. NEOSYSTEM shall maintain detailed records ------------------------- on PRODUCT material usage and finished PRODUCT production. NEOSYSTEM's PRODUCT records shall be sufficient such that NEOSYSTEM shall be capable of responding to PRODUCT inquiries by ESPERION within seventy-two (72) hours of notification, including providing the location of the PRODUCTS in question. 10.8 Training. NEOSYSTEM shall educate and train all affected employees and -------- contractors about the potential hazards associated with the handling of the Hazardous Materials and Waste, the provision of the SERVICES, the manufacture, packaging, analyzing and handling of the PRODUCTS and the raw materials and packaging components, and the proper use of engineering controls, process equipment and appropriate personal protective equipment. ESPERION shall have no responsibility for educating, g or ensuring knowledge of any NEOSYSTEM employees and contractors regarding any of the foregoing. 10.9 Product Rejection; Latent Defects. ESPERION shall have the right to --------------------------------- give NEOSYSTEM written notice of rejection of any shipment of PRODUCT that in whole or in part breaches NEOSYSTEM's warranties, covenants and obligations under this AGREEMENT, which notice shall be given within thirty (30) days after discovery of such breach. If there is disagreement between the parties as to whether the PRODUCT meets SPECIFICATIONS, the parties shall have such PRODUCT tested by a mutually agreed upon third party. Such party's determination as to whether such PRODUCT meets SPECIFICATIONS shall be binding on the parties hereto. The expense for such testing and for any costs associated with the destruction of such PRODUCT shall be borne by NEOSYSTEM except to the extent it is determined that NEOSYSTEM is not responsible for such failure or breach. At ESPERIONs option, NEOSYSTEM shall promptly replace PRODUCT which does not conform with 12 NEOSYSTEM's warranties under this AGREEMENT. ESPERION shall have the right to set off any refund due ESPERION on account of rejected PRODUCT against invoices otherwise due or which become due to NEOSYSTEM. The provisions of this subparagraph shall survive termination of this AGREEMENT with respect to PRODUCTS packaged by NEOSYSTEM that are received or sold by ESPERION subsequent to the termination or expiration of this AGREEMENT but prior to any last sale date on the PRODUCT(S) label(s). 10.10 Complaints. In connection with any PRODUCT complaints forwarded by ---------- ESPERION to NEOSYSTEM, NEOSYSTEM shall conduct all necessary reviews of records and testing of such PRODUCT and investigate such complaint, at no additional cost to ESPERION. 10.11 Health & Safety. NEOSYSTEM shall be solely responsible for ---------------- implementing and maintaining health and safety procedures for the manufacture, packaging, and handling at the facility of the raw materials, Hazardous Materials, Waste, packaging components and PRODUCTS as provided herein. ESPERION shall have no responsibility for developing, implementing or overseeing NEOSYSTEM's health and safety program. 10.12 Product Recall. If ESPERION reasonably decides to or is required to -------------- initiate a product recall, withdrawal or field correction with respect to, or if there is any governmental seizure of, its products containing any product supplied hereunder which action is due, in whole or in part, to (i) a failure of any of the product manufactured by NEOSYSTEM hereunder to conform to applicable SPECIFICATIONS (including, without limitation, it being adulterated or misbranded), or any warranty or other requirement set forth in this AGREEMENT, (ii) the failure by NEOSYSTEM to comply in all material respects with any applicable law, rule, regulation, standard, court order or decree, on (iii) the negligent or intentional wrongful act or omission of NEOSYSTEM in connection with the production of product hereunder, ESPERION will notify NEOSYSTEM promptly of the details regarding such action, including providing copies of all relevant documentation concerning such action. NEOSYSTEM will assist ESPERION in investigating any such situation and all regulatory contacts that are made and all activities concerning seizure, recall, withdrawal or field correction will be jointly coordinated by ESPERION and NEOSYSTEM. 10.13 Cost & Expense. If any such recall, withdrawal, field correction or -------------- seizure occurs due solely to (i) a failure of any PRODUCT sold by NEOSYSTEM hereunder to conform to applicable specifications (including, without limitation, it being adulterated or misbranded) or any warranty or other requirement set forth in this AGREEMENT, (ii) the failure by NEOSYSTEM to comply in all material respects with any applicable law, rule, regulation, standard, court order or decree or (iii) the negligent or intentional wrongful act or omission of NEOSYSTEM in connection with the production of product hereunder, then NEOSYSTEM shall bear the full cost and expense of any such seizure, recall, withdrawal or field correction. If any such recall, withdrawal, field correction or seizure occurs due solely to (i) any pharmaceutical product manufactured, sold or distributed by ESPERION that contains PRODUCT failing to conform to its applicable SPECIFICATIONS (including, without limitation, it being adulterated or misbranded) or otherwise being defective, (ii) the failure to ESPERION to comply in all 13 material respects with any applicable law, rule, regulation, standard, court order or decree or (iii) the negligent or intentional wrongful act or omission of ESPERION, then ESPERION, shall bear the fall cost and expense of any such seizure, recall, withdrawal or field correction. If both NEOSYSTEM and ESPERION contribute to the cause of a seizure, recall, withdrawal or field correction, the cost and expenses thereof will be shared in proportion to each party's contribution to the problem. ARTICLE XI: PUBLICITY 11.1 Media. No publication, advertising, or publicity matter having any ----- reference to either ESPERION or NEOSYSTEM, expressed or implied, or the PROJECT or PRODUCT shall be initiated by or made use of by NEOSYSTEM or anyone on behalf of NEOSYSTEM, unless and until such matter shall have first been agreed upon in writing by ESPERION. ARTICLE XII: CONFIDENTIALITY 12.1 Secrecy; Limited Use. ESPERION and NEOSYSTEM agree that they will -------------------- maintain in confidence and will exert diligent efforts to limit information exchanged hereunder to those with a need to know, and to ensure their employees, agents, and consultants will not disclose or publish any proprietary information, confidential technical information, or confidential business information referring or relating to the INTELLECTUAL PROPERTY of the other and PROJECT INTELLECTUAL PROPERTY (collectively hereinafter referred to as "INFORMATION") transmitted to one another for use in the performance of this PROJECT. NEOSYSTEM agrees to use such INFORMATION only for evaluation purposes or to manufacture PRODUCT solely for ESPERION. NEOSYSTEM further agrees not to disclose ESPERION's or PROJECT INTELLECTUAL PROPERTY directly or indirectly to others in whole or in part under any circumstances without the prior written permission of ESPERION. 12.2 Prohibitions. The specific preclusions against use of such INFORMATION ------------ are: (a) such INFORMATION shall not be reproduced in whole or in part; (b) access to such INFORMATION shall be limited to individuals within NEOSYSTEM's organization who have been advised of the need to treat such INFORMATION according to the terms of this Agreement, and who have a need to know such INFORMATION; and (c) under no circumstances shall such INFORMATION be used by NEOSYSTEM in any commercial or production aspect of NEOSYSTEM'S business without the prior written permission of ESPERION. 14 12.3 Lifting of Restrictions. NEOSYSTEM's obligations regarding use and ----------------------- confidentiality shall cease when the INFORMATION: (a) enters the public domain through no wrongful act of NEOSYSTEM; or (b) at the time of disclosure is in the public domain; or (c) becomes available to the public or is lawfully made available to ESPERION or NEOSYSTEM by a third party without restrictions as to disclosure; or (d) is such that ESPERION or NEOSYSTEM can establish by reasonable proof was in its possession at the time of disclosure, or was subsequently and independently developed by employees of ESPERION or NEOSYSTEM who had no knowledge of the INFORMATION disclosed. If NEOSYSTEM believes that its obligation regarding use or confidentiality ceases under this subparagraph, it shall notify ESPERION within thirty (30) days of receipt of such INFORMATION from ESPERION. Such independent development shall be evidenced by written records in admissible form to be provided with the notification by the NEOSYSTEM to ESPERION; or (e) is deemed necessary and appropriate by ESPERION to perfect its patent rights pursuant to ARTICLE VI; or (f) is such that ESPERION or NEOSYSTEM mutually agree in writing to release each other from the terms of this AGREEMENT; or (g) is required to be disclosed by order of a court or other governmental body after consultation with the party who owns the INFORMATION. In the event of such a requirement to disclose imposed on NEOSYSTEM, NEOSYSTEM shall promptly notify ESPERION of the requirement to disclose prior to any disclosure and ESPERION shall have the right to intercede in the disclosure. 12.4 Marking. All INFORMATION provided by either party to the other under ------- this Agreement shall be identified as "Proprietary Information" at the time of disclosure, and be stamped as "Proprietary" (or by an equivalent legend). If communicated by oral or visual disclosure, the Proprietary Information shall thereafter be embodied within a document or sample and marked as described above within thirty (30) days after such disclosure. 12.5 Instructions. Each Party will instruct all persons to whom disclosure ------------ is made of the Proprietary Information that they shall not disclose such Proprietary Information to any third party. 12.6 Reverse Engineering, Reconstruction. NEOSYSTEM shall not be permitted ----------------------------------- to justify disregard of any obligation of confidence by using the received INFORMATION to guide a search of publicly available information to select a series of items of knowledge from unconnected sources and combine them to create a reconstruction of the INFORMATION and 15 contend that the INFORMATION is generally available to the public, and is thus not confidential and secret information. 12.7 Duration. NEOSYSTEM'S obligation not to disclose or publish shall -------- continue for five (5) years from the termination date of this AGREEMENT unless granted specific permission by ESPERION. 12.8 Disclosure to Third Party. ESPERION or NEOSYSTEM may, in its sole ------------------------- discretion, disclose necessary or appropriate INFORMATION as may be required by law or to representatives of one or more of its AFFILIATES in order for ESPERION or NEOSYSTEM to perform its obligations under this AGREEMENT, provided, however, that such AFFILIATES and such representatives shall be bound by the terms and conditions of this ARTICLE XII that are applicable to ESPERION or NEOSYSTEM. Such obligation not to disclose or publish shall continue in effect for any former such AFFILIATES and such representatives of ESPERION or NEOSYSTEM. NEOSYSTEM must inform ESPERION if NEOSYSTEM assigns all or a portion of the PROJECT to an AFFILIATE. Such assignment shall be subject to prior approval by ESPERION. 12.9 Prohibitions On Use. NEOSYSTEM agrees that the INFORMATION disclosed ------------------- will not be used to provoke an interference with any patent application that ESPERION or its employees have filed with respect to the INFORMATION, and will not be used to amend any claim in any pending patent application to expand the claim to read on, cover or dominate any technology (whether or not patentable) disclosed as INFORMATION. 12.10 Consequences of Breach. In the event that NEOSYSTEM breaches any of ---------------------- the terms of this Agreement, NEOSYSTEM acknowledges and agrees that said breach will result in immediate and irreparable harm to the business and goodwill of ESPERION and that damages, if any, and remedies at law for such breach will be inadequate and not determinable. ESPERION, upon a breach or violation of this Agreement by NEOSYSTEM shall therefore be entitled to apply for and receive from any court of competent jurisdiction equitable relief by way of a temporary or permanent injunction to restrain any breach or violation of this Agreement and for such further relief as the court may deem just and proper, at law or in equity. ESPERION shall be entitled to reasonable costs and expenses in enforcing such rights under this Agreement (including court costs and legal fees and expenses), in the event that ESPERION shall prevail in enforcing any of its rights hereunder. ESPERION shall be indemnified and held harmless by NEOSYSTEM from and against any and all manner of expenses, losses, claims and liabilities of any kind incurred by ESPERION in connection with such breach or violation. ARTICLE XIII: REPRESENTATIONS AND WARRANTIES 13.1 General. NEOSYSTEM warrants and represents that: ------- 16 (a) All PRODUCTS furnished by NEOSYSTEM to ESPERION under this AGREEMENT (a) shall be of the quality specified in, and shall conform with, the SPECIFICATIONS in effect upon delivery; (b) shall be manufactured, processed, packaged, stored and delivered in conformity with the SPECIFICATIONS and all applicable laws, rules and regulations including cGMP; and (c) shall not contain any material provided by or on behalf of NEOSYSTEM, which material has not been used or stored in accordance with the SPECIFICATIONS, any other quality assurance standards instructed by ESPERION or the NEOSYSTEM of such material and all applicable governmental standards. (b) NEOSYSTEM represents, warrants and covenants that as of the date hereof (a) NEOSYSTEM is, and during the term of this AGREEMENT, NEOSYSTEM shall continue to be, in full compliance with all applicable laws, rules and regulations including all applicable labor and employment laws and all environmental laws; and (b) NEOSYSTEM holds all licenses, permits and similar governmental authorizations necessary or required for NEOSYSTEM to conduct its operations and business. NEOSYSTEM will assist ESPERION in fulfillment of any of its compliance obligations relating to the PROJECT. (c) NEOSYSTEM will promptly furnish ESPERION with pertinent portions of all FDA inspection reports and their non-U.S. equivalents and related correspondence directly related to and affecting its performance hereunder as and when such reports and correspondence become available to NEOSYSTEM. (d) NEOSYSTEM will notify ESPERION immediately of any warning (including any FDA Form 483 or its domestic or foreign equivalent), citation, indictment, claim, lawsuit, or proceeding issued or instituted by any federal, state or local government entity or agency against NEOSYSTEM or any of its affiliates or of any revocation of any license or permit issued to NEOSYSTEM or any of its affiliates, to the extent that any such occurrence may relate to NEOSYSTEM's performance hereunder. (e) If the United States Food and Drug Administration or any other federal, state or local governmental authority makes an inspection of that portion of NEOSYSTEM's premises used to develop, manufacture or package PRODUCTS or seizes PRODUCTS, NEOSYSTEM shall immediately notify ESPERION thereof and NEOSYSTEM shall take such actions as may be required under the cGW and applicable legal requirements. NEOSYSTEM shall promptly send retained samples of PRODUCTS seized by such authority and duplicate reports relating to such inspections to ESPERION. (f) PRODUCTS sold hereunder by NEOSYSTEM will not be in violation of any application national, regional or local law or regulation, including, but not limited to: i) Sections 5 or 12 of the Federal Trade Commission Act or improperly labeled under applicable Federal Trade Commission Trade Practice Rules, as and to the extent applicable hereunder, ii) adulterated or misbranded within the meaning of the federal Food, Drug and Cosmetic Act, as amended, or within the meaning of any applicable state or municipal law in which the definitions or adulteration and misbranding are substantially identical 17 with those contained in the federal Food, Drug and Cosmetic Act, or articles which may not under the provisions of Sections 404 or 505 of said Act be introduced into interstate commerce or which may not under substantially similar provisions of any state or municipal law be introduced into commerce, iii) manufactured or sold in violation of the federal Controlled Substances Act, as amended, or any applicable state law, iv) manufactured or sold in violation of any of the provisions of the Fair Labor Standards Act of 1938, as amended, v) manufactured or sold in violation of The Occupational Safety and Health Act of 1970, as amended, vi) manufactured in violation of any applicable federal, state or local environmental law or regulation, vii) manufactured in violation of any agreement (commercial or otherwise), judgment, order or decree to which NEOSYSTEM is a party, or viii) in violation of any counterpart non-U.S. regulations or laws to subparagraphs (f) (i-vii). (g) Its signatory to this AGREEMENT- and it respectively have the full legal right, power, and authority to bind NEOSYSTEM and enter into this AGREEMENT. (h) This AGREEMENT is a legal and valid obligation of NEOSYSTEM. The execution, delivery and performance of this AGREEMENT by NEOSYSTEM does not and will not conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound, nor violate any law or regulation of any court, governmental body, administrative or other agency having authority over it. (i) To the best of NEOSYSTEM'S knowledge, NEOSYSTEM's TECHNOLOGY does not infringe any valid right of any person. It will immediately notify ESPERION in writing of the nature and reason for any potential specification changes required by changes in applicable laws, rules or regulations or actions of the FDA or any other regulatory agency. Such changes will be implemented by NEOSYSTEM as and when required. (j) All PRODUCT supplied to ESPERION will be properly and safely packaged as reasonably required by the Drug Mastercap File (DMF) or its equivalent with respect to the PRODUCT. NEOSYSTEM will provide all bottles and other packaging materials required by NEOSYSTEM to perform its obligations hereunder. (k) All raw materials utilized in connection with the PROJECT will be in conformance with applicable SPECIFICATIONS. Such raw materials and other resources required in connection with the manufacture of the PRODUCT to be supplied shall be provided NEOSYSTEM and at its own cost and expense. 18 (l) It has access to, and during the entire term of this AGREEMENT will make all reasonable efforts to ensure that it will continue to have access to sufficient supplies of raw materials, utilities, container/closure systems, packaging materials and all other required items to perform the services required of it hereunder without interruption. (m) It shall maintain all equipment, tooling and molds used in the manufacture, packaging and supply of PRODUCTS hereunder in good operating condition and shall maintain the facility and such equipment, tooling and molds in accordance with, or shall exceed, all requirements set forth in the specifications, cGMP and applicable legal requirements. In the event NEOSYSTEM fails or anticipates it will fail to meet any of the foregoing requirements relating to its maintenance of the facility or such equipment, tooling or molds, or in the event it receives any notice from any federal, state or local governmental or regulatory authority with respect to its maintenance of, or failure to maintain, the facility or such equipment, tooling or molds, NEOSYSTEM shall promptly notify ESPERION of such notice, provide copies of such notice to ESPERION and, if such notice relates specifically to the PRODUCTS, provide - copy of NEOSYSTEM's response for ESPERION's prior review. (n) It shall provide a completed certificate of analysis for each lot of finished products supplied hereunder at the time of shipment (o) It shall be responsible for all process, cleaning and methods revelation, stability studies or other tests and procedures necessary for the manufacture and release of finished PRODUCT hereunder in accordance with cGMP and in accordance with the requirements of the relevant manufacturing process. (p) NEOSYSTEM shall retain, and upon request by ESPERION make available to ESPERION, (a) copies of quality control records in relation to the PRODUCTS; (b) copies of testing results of all the tests performed in relation to the SERVICES or the PRODUCTS; and (c) samples of the materials used in the development, manufacturing and processing of the PRODUCTS to the extent reasonably requested by ESPERION or required by applicable legal requirements. (q) ESPERION, through its employees, consultants, other representatives (or potential partners), shall have access to NEOSYSTEM's facility for the purpose of conducting inspections, performing quality control audits or witnessing the processing, storage or transportation of PRODUCTS or materials related to or used in the development, manufacture or packaging of PRODUCTS. ESPERION shall have access to the results of any PRODUCT tests performed by NEOSYSTEM or at NEOSYSTEM's direction. ESPERION shall also be permitted to audit that portion of NEOSYSTEM's books and records pertaining to this AGREEMENT to the extent reasonably necessary to verify NEOSYSTEM's compliance with its obligations hereunder. NEOSYSTEM shall use its commercially reasonable best efforts to ensure that ESPERION has similar access to the facilities, data and records of NEOSYSTEM's NEOSYSTEM's or manufacturers. Such inspections do not relieve NEOSYSTEM of any of its obligations under this AGREEMENT or create new obligations on the part of ESPERION. hwections and audits by ESPERION personnel hereunder shall be conducted upon reasonable notice, during normal business 'hours and in compliance with the confidentiality provisions set out in Article XII. 19 (r) It will notify ESPERION promptly of any actual or anticipated events which are reasonably likely to have a material adverse effect on the PRODUCTS or on NEOSYSTEM's ability to provide the , SERVICES or produce PRODUCTS in accordance with the provisions set forth herein, including any labor difficulties, strikes, shortages in materials, plant closings and other interruptions in activity. (s) It shall use its best efforts to ensure that there will be no failure or production of erroneous data as a consequence of the inability to receive, store, process or output date information regardless of the date(s) utilized (including, without limitation, relating to the change of century) in any computer software, computer hardware, automation systems or other devices owned, licensed, or otherwise used by NEOSYSTEM or any NEOSYSTEM's of NEOSYSTEM that would result in the inability of NEOSYSTEM to either (a) successfully carry out any service hereunder; or (b) develop, manufacture and supply PRODUCTS and supporting documentation and information under this AGREEMENT on a timely basis. 13.2 Sole Supply to Esperion, Best Efforts. Under this AGREEMENT, NEOSYSTEM ------------------------------------- is to manufacture custom peptide sequences according to cGMP and other work incidental thereto, and is to provide only to ESPERION related counseling, advice, conclusions, and/or recommendations. NEOSYSTEM represents that it will use its best professional experience and diligent professional efforts in performing this work. 13.3 Release. NEOSYSTEM hereby agrees to release, waive and forever ------- discharge any demands, claims, suits, or actions of any character against ESPERION arising out of or in connection with NEOSYSTEM'S performance of any work under this AGREEMENT. In connection with the work performed hereunder, ESPERION shall in no event be responsible or liable in contract or in tort for any special, indirect, incidental, or consequential damages such as, but not limited to, loss of product, profits or revenues, damage or loss from operation or nonoperation of plant, or claims of customers of NEOSYSTEM. 13.4 Authorization. ESPERION represents that it has the full legal right, ------------- power, and authority to enter into this AGREEMENT. ARTICLE XIV: INDEMNIFICATION 14.1 NEOSYSTEM's Indemnification of ESPERION. NEOSYSTEM shall indemnify, --------------------------------------- defend and hold ESPERION, each Affiliate of ESPERION and the officers, directors, stockholders and employees and agents thereof (each an "ESPERION -------- indemnified party") harmless from and against any and all losses, liabilities, - ----------------- damages, claims, expenses, suits, recoveries, judgments and fines (including reasonable attorneys' fees and expenses) (collectively' "Losses") that may be ------ incurred by any ESPERION indemnified party or any Person arising out of any (a) actual or alleged damage to property or injury or death occurring to any Person- arising out of possession, use or consumption by any Person of the PRODUCTS to the extent that such damage, injury or death was caused by the failure of such PRODUCTS to meet 20 SPECIFICATIONS; (b) claim, action or proceeding brought by any governmental or regulatory authority arising out of or resulting from NEOSYSTEM's performance under this AGREEMENT; or (c) breach by NEOSYSTEM of any of its obligations, representations or warranties under this AGREEMENT. 14.2 Esperion's Indemnification of NEOSYSTEM. ESPERION shall indemnify, --------------------------------------- defend and hold NEOSYSTEM, each Affiliate of NEOSYSTEM and the officers, directors, stockholders, employees and agents thereof (each a "NEOSYSTEM --------- indemnified party") harmless from and against any and all Losses that may be - ----------------- incurred by any NEOSYSTEM indemnified party or any other Person arising out of any breach by ESPERION of any of its obligations, representations or warranties under this AGREEMENT. 14.3 Patent Infringement. In the event any claim for damages by way of ------------------- patent infringement is asserted against NEOSYSTEM arising from performance of the PROJECT (except for any such claim arising from or relating to NEOSYSTEM TECHNOLOGY), ESPERION agrees to defend or settle at its own cost and expense, any such claim or subsequent action, suit or proceeding and shall indemnify and hold NEOSYSTEM harmless against any such claim or action, suit or proceeding, including reasonable legal fees and costs incurred at any judgment or award of damages arising out of such claim or action. 14.4 Procedure. Any person that may be entitled to indemnification under --------- this AGREEMENT (an "Indemnified Party"), shall give written notice to the person obligated to indemnify it (an "Indemnifying Party") with reasonable promptness upon becoming aware of any claim or other facts upon which a claim for indemnification will be based. The notice shall set forth such information with respect thereto as is then reasonably available to the Indemnified Party. The Indemnifying Party shall have the right to undertake the defense of any such claim asserted by a third party with counsel reasonably satisfactory to the Indemnified Party in connection therewith at the Indemnified Party's expense. If the Indemnified Party shall have assumed the defense of the claim with counsel reasonably satisfactory to the Indemnified Party, the Indemnifying Party shall not be liable to the Indemnified Party for any legal or other expenses (other than for reasonable costs of investigation) subsequently incurred by the indemnified Party in connection with the defense thereof. The Indemnifying Party shall not be liable for any claim settled without its consent, which consent shall not be unreasonably withheld or delayed. The Indemnifying Party shall obtain the written consent of the Indemnified Party prior to ceasing to defend, settling or otherwise disposing of any claim. In on event shall NEOSYSTEM institute, settle or otherwise resolve any claim or potential claim, action or proceeding relating to the PRODUCTS or any trademarks or other intellectual property rights of ESPERION without the prior written consent of ESPERION. 14.5 The indemnification obligations set forth in this Article XIV shall survive the expiration or termination of this AGREEMENT. 21 ARTICLE XV: ENVIRONMENTAL MATTERS 15.1 Waste Materials. The generation, collection, storage, handling, --------------- disposal, transportation and release of all Hazardous Materials and Waste shall be the responsibility of NEOSYSTEM and the cost for providing such services shall be borne exclusively by NEOSYSTEM. As part of the SERVICES, NEOSYSTEM shall collect, handle, package, label and store, treat or dispose of Hazardous Materials and Waste, in a proper and lawful manner, and shall comply with all federal, state or local laws, rules and regulations governing such activity. All Waste generated as a result of the manufacturing process shall be handled and disposed of by NEOSYSTEM using onsite environmental systems, or, at NEOSYSTEM's option, through a responsible waste contractor. NEOSYSTEM, with ESPERION's cooperation, shall be responsible for developing and implementing all procedures necessary to prevent diversion of PRODUCTS and any labeling materials from the waste stream, including rendering the PRODUCTS unsalable. NEOSYSTEM shall immediately notify ESPERION if at any time it believes that the PRODUCTS or any labeling materials have been lost or stolen. 15.2 Environmental Permits, License & Authorizations. NEOSYSTEM shall be ----------------------------------------------- responsible for obtaining and shall obtain all necessary environmental or other licenses, certificates, approvals or permits from federal, state and local governmental authorities and any private permissions, whether original documents or modifications to existing documents, which are necessary to perform the services in connection with the manufacture and packaging of the PRODUCTS and shall provide copies thereof to ESPERION upon request by ESPERION. NEOSYSTEM shall provide ESPERION with immediate verbal notice, confirmed in writing within twenty-four (24) hours, in the event of revocation or modifications of any license, certificate, approval or permit which in any way materially impacts NEOSYSTEM's ability to provide SERVICES or use the facility to manufacture the PRODUCTS as set forth herein. 15.3 Hazardous & Special Wastes. In the event any current or future raw -------------------------- materials, packaging components, finished products or wastes resulting from the manufacture of the PRODUCTS hereunder are deemed Hazardous Waste or Special Waste, NEOSYSTEM shall be responsible for obtaining all necessary environmental or other licenses, certificates, approvals or permits from federal, state and local governmental authorities and any private permissions which are necessary in connection with the proper handling, storage, treatment or disposal of such Hazardous Waste or Special Waste generated as a result of the manufacture and packaging of the PRODUCTS in the facility. All costs and expenses relating to the Proper handling, storage, treatment or disposal of such Hazardous Waste or Special Waste, including the cost of obtaining any required licenses, certificates, approvals or permits (or permit modifications) shall be borne solely by NEOSYSTEM. NEOSYSTEM shall also prepare and execute, as the generator of the Hazardous Waste or Special Waste, all shipping documents and waste manifests required under applicable legal requirements and shall maintain all records for the term and in the manner required by all applicable legal requirements with respect to the Hazardous Waste or Special Waste. 22 15.4 Hazardous or Special Waste Disposal. NEOSYSTEM or a Hazardous Waste or ----------------------------------- Special Waste contractor contracted by NEOSYSTEM and authorized to handle, transport and dispose of the Hazardous Waste or Special Waste, as the case may be, shall handle, package and label the Hazardous Waste and Special Waste in a lawful and proper manner, and shall comply with all federal, state or local laws, rules and regulations governing such activity. Both NEOSYSTEM or the contractor, as the case may be, and the disposal facility shall be duly licensed and authorized to handle the Hazardous Waste or Special Waste, as the case may be. NEOSYSTEM agrees to make, or cause to be made, periodic and timely pick-ups of the Hazardous Waste and Special Waste and shall not allow such Waste to remain on-site for any period of time in excess of that required by applicable legal requirements or as required in order to abate a safety or health hazard arising from the Hazardous Waste or Special Waste. ARTICLE XVI: INSURANCE 16.1 Coverage. NEOSYSTEM shall acquire and maintain at its sole cost and -------- expense (a) Statutory Worker's Compensation Insurance and Employer's Liability Insurance; (b) all risk coverage for physical loss or damage to materials and PRODUCT while at the facility or under its control; and (c) such other insurance as ESPERION may reasonably request. 16.2 Certificates of Insurance, Maintenance of Coverage. NEOSYSTEM shall -------------------------------------------------- submit certificates of such insurance to ESPERION (which shall include an agreement by the insurer not to cancel such coverage except upon thirty (30) days prior written notice to ESPERION) for its approval before commencing performance of this AGREEMENT. NEOSYSTEM shall maintain such insurance coverage in effect for ESPERIONs benefit throughout the term of this AGREEMENT and for a period of one (1) year from the date of the last delivery of PRODUCTS to ESPERION hereunder. In case of NEOSYSTEM's failure to furnish such certificates of insurance or cancellation of any required insurance, ESPERION shall notify NEOSYSTEM of such failure and shall allow NEOSYSTEM a period of thirty (30) days to furnish such certificates. If such certificates are not furnished within thirty (30) days of NEOSYSTEM's receipt of such notice, ESPERION may, at its option, immediately terminate this AGREEMENT. 16.3 Relationship of the Parties. The relationship between ESPERION and --------------------------- NEOSYSTEM is that of independent contractors and nothing herein shall be deemed to constitute the relationship of partners, joint ventures, nor of principal and NEOSYSTEM between ESPERION and NEOSYSTEM. Neither party shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other party or to bind the other party to any contract, agreement, or undertaking with any third party. ARTICLE XVII: MISCELLANEOUS 17.1 Assignment. This AGREEMENT and the benefits and obligations hereunder ---------- may not be assigned by NEOSYSTEM without the prior written consent of ESPERION, except 23 (a) to an AFFILIATE, or (b) in connection with a merger or consolidation of the party in which such party is not the surviving entity, or a sale of all or substantially all of the assets of the party, provided that the successor or purchaser agrees to answer all of the obligations of the party hereunder. In the event of an assignment under this Paragraph, NEOSYSTEM shall notify ESPERION in writing of such assignment at least thirty (30) days in advance of its occurrence. 17.2 Entire Agreement. This AGREEMENT, including Exhibit A (PEPTIDE SUPPLY ---------------- PROJECT DESCRIPTION), between ESPERION and NEOSYSTEM constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, and supersedes any and all prior agreements, requests for quotation, quotations, purchase orders, letters of intent and understandings between the parties, and any and all promises, statements, and representations made by either party to the other concerning the subject matter hereof and the terms applicable hereto. 17.3 Waivers; Amendments. ------------------- (a) The failure of either party to insist upon the performance of any of the terms of this AGREEMENT or to exercise any right hereunder at law or in equity, or any delay by either party in the exercise of any such right, shall not be construed as a waiver or relinquishment of any such performance or right or of the future performance of any such term or the future exercise of such right, and any effective waiver or relinquishment of any such right must be in writing and signed by a duly authorized officer of the party waiving or relinquishing the right or rights. No waiver or relinquishment of any right granted by either party to the other shall be deemed to be a continuing waiver of such right in the future unless otherwise provided in the waiver. (b) This AGREEMENT may not be released, discharged, amended, or modified in any manner except by an instrument in writing that references this AGREEMENT and is signed by a duly authorized officer of each party. 17.4 Further Assurances. Each of the parties shall execute and deliver to, ------------------ or cause to be executed and delivered to, the other party, such further instruments, or take such other action as may reasonably be requested of it to consummate more effectively the actions contemplated hereby. 17.5 Notices. Any notice or other written communication required or ------- permitted to be made or given hereunder may be made or given by either party to the other party by fax communication to the fax number set forth below and such notice shall be followed up by depositing the same in the mail, certified delivery, return receipt requested, postage prepaid, and addressed to the mailing address set forth below: 24 If to ESPERION: Esperion Therapeutics, Inc. 3621 S. State Street 695 KMS Place Ann Arbor, Michigan 48108 USA ADDRESSEE: Roger Newton, Ph.D. TITLE: President and CEO FAX: 734-332-0516 If to NEOSYSTEM: Neosystem S.A. 7 rue de Boulogne 61700 Strasbourg, France ADDRESSEE:_________________________ TITLE:_____________________________ FAX:_______________________________ 17.6 Applicable Law; Divisibility. This AGREEMENT is to be governed by and ---------------------------- construed in accordance with the laws of the State of New York, excluding its conflicts laws. If, however, any provision hereof in any way contravenes the laws of any state or jurisdiction where this AGREEMENT is to be performed, such provision shall be deemed to be deleted therefrom, and if any term of this AGREEMENT shall be declared by a final adjudication to be illegal or contrary to public policy, it shall not affect the validity of any other terms or provisions of this AGREEMENT. 17.7 Headings. Descriptive headings used herein are for convenience only -------- and shall not affect the meaning or construction of any provision hereof. 17.8 Translations. In the event of an inconsistency between any terms of ------------ this AGREEMENT and any translations thereof into another language, the English language meaning shall control. 17.9 Force Majeure. The untimely performance- of any obligation arising ------------- hereunder by either party will be excused, and such delay of performance shall not constitute a breach or grounds for termination or prejudice of any rights hereunder, provided that (a) the delay of performance is a result of circumstances or occurrences beyond the reasonable control of the party whose performance is excused hereunder (the "DELAYING EVENT"), and (b) such party shall (i) immediately resume performance after the DELAYING EVENT is removed and (ii) be reasonably diligent during such DELAYING EVENT in avoiding further delay. Without limiting the generality of circumstances or occurrences that shall constitute a DELAYING EVENT, examples of DELAYING EVENTS include, but are not limited to, strikes, shortages of power or other utility services, materials or transportation, acts of government or of God, sabotage, insurrection and civil war. A party whose performance may be affected by a DELAYING EVENT promptly shall give notice to the other party of such DELAYING EVENT and the fact 25 that it intends to rely upon such DELAYING EVENT to excuse its performance under this AGREEMENT. Any delay caused by an event of force majeure shall toll the term of this AGREEMENT which shall be extended by the length thereof. In the event of a force majeure prevents performance by one party for more than two (2) months, the other party shall have the right to terminate this AGREEMENT. 17.10 Counterparts. This AGREEMENT may be executed in two or more ------------ counterparts, each of which shall be deemed an original, which together shall constitute one and the same instrument. 17.11 Arbitration. ----------- (a) Any dispute, controversy or claim arising out of, relating to, or in connection with, this AGREEMENT, or the breach, termination or validity thereof, shall be finally settled by arbitration. The arbitration shall be conducted in accordance with the Center for Public Resources Rules for Non- Administered Arbitration of International Disputes in effect at the time of the arbitration (the "CPR Rules"), except as they may be modified herein or by --------- mutual agreement of the parties. The neutral organization designated to perform the functions specified in Rule 6 and Rules 7.7(b), 7.8 and 7.9 of the CPR Rules shall be the Center for Public Resources. (b) The seat of the arbitration shall be in New York, and the arbitration shall be conducted in the English language, provided, however, that either party may submit testimony or documentary evidence in French but shall, on the request of the other party, furnish a translation or interpretation into English of any such testimony or documentary evidence. (c) Notwithstanding the choice of law clause contained in this AGREEMENT, the arbitration and this clause shall be governed by the Federal Arbitration Act, 9 U.S. C. (S)(S) 1 et seq. (d) The arbitration shall be conducted by one arbitrator who shall be selected as provided for in the CPR Rules, except that such arbitrator must be free of any potential for bias or conflict of interest with respect to any of the parties to the dispute, whether directly or indirectly; be in a position to hear the dispute immediately and thereafter render a decision within the time specified, and be a party who is familiar with the biotechnology field. (e) At the request of a party, the arbitrator may take such interim measures as he deems necessary in respect of the subject matter of the dispute. In addition to the authority conferred on the arbitrator by the CPR Rules specified above, the arbitrator shall have the authority to order reasonable discovery and production of documents. (f) The arbitral award shall be in writing, decided in accordance with law, state the reasons for the award, and be final and binding on the parties. The award may include an award of costs, including reasonable attorneys' fees and disbursements. Judgment upon the award may be entered by any court having jurisdiction thereof or having jurisdiction over the parties or their assets. 26 IN WITNESS WHEREOF, the parties hereto have caused this AGREEMENT to be duly executed, on the date written above. ESPERION THERAPEUTICS, INC. NEOSYSTEM S.A. By: /s/ Roger S. Newton By: /s/ Dr. S. Plaue -------------------------------- ------------------------------ Name & Title: Name & Title: Dr. Roger Newton, President and CEO Dr. S. Plaue CEO --------------------------------- Date: March 25, 2000 Date: April 17, 2000 ------------------------------ ---------------------------- 27 EXHIBIT A PEPTIDE SUPPLY PROJECT DESCRIPTION ---------------------------------- I. Name and specification of the PRODUCT ESP 24218 Sequence: H-Pro-Val-Leu-Asp-Leu-Phe-Arg-Glu-Leu-Leu-Asn-Glu-Leu-Leu-Glu- Ala-Leu-Lys-Gln-Lys-Leu-Lys-OH II. Quantity required minimum 2,5 kg. III. Acceptance range of quality of PRODUCT (and assay means, if known): See attached specifications. IV. Acceptance timing for delivery to ESPERION of initial batches of the PRODUCT of the acceptable quality. On or prior to: June 1/st/, 2000 - 300 - 400 g September 1/st/, 2000 - around 700 g October 1/st/, 2000 - around 700 g December 15/th/, 2000 - complementary quantity to 2,5 kg. V. Method NEOSYSTEM will use to prepare the PRODUCT: The peptide will be prepared by solid phase synthesis using Fmoc strategy. The method involves information that is present in the public domain. VI. Total fee to be paid by ESPERION to NEOSYSTEM for the project for at lease 2,5 kg will be 1 250 000 $. VII. The payment will be made at prorata of the quantity at the delivery of the product. On behalf of ESPERION On behalf of NEOSYSTEM Prepared and agreed by: Prepared and agreed by: J. L. DASSEUX: /s/ J. L. DASSEUX S. PLAUE: /s/ S. PLAUE ----------------- ------------------ T. REA: /s/ T. REA ------------------------ 28 EX-23.1 18 0018.txt CONSENT OF ARTHUR ANDERSEN Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated February 17, 2000, (except with respect to the matters discussed in Notes 9 and 10, as to which the date is July 31, 2000), and to all references to our Firm included in or made a part of this Registration Statement No. 333-31032. /s/ Arthur Andersen LLP Ann Arbor, Michigan August 3, 2000 EX-23.3 19 0019.txt CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23.3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated August 1, 2000, and to all references to our Firm included in or made a part of this Registration Statement No. 333-31032. /s/ Goldenberg Rosenthal, LLP Jenkintown, Pennsylvania August 2, 2000 -----END PRIVACY-ENHANCED MESSAGE-----