-----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, TYLuVrdcPM2dVkHIJkUonHS4bwLNGi0wid9ZMMeURR+E9cCfHvE6hKHDymKf4Mga 5lUyQE1VOXuSnwJ7Bz4pnw== /in/edgar/work/0001045969-00-000902/0001045969-00-000902.txt : 20001123 0001045969-00-000902.hdr.sgml : 20001123 ACCESSION NUMBER: 0001045969-00-000902 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000921 ITEM INFORMATION: FILED AS OF DATE: 20001122 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: 8-K/A SEC ACT: SEC FILE NUMBER: 001-16033 FILM NUMBER: 775222 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 8-K/A 1 0001.txt FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 September 21, 2000 Date of Report (Date of earliest event reported) ESPERION THERAPEUTICS, INC. (Exact name of registrant as specified in its charter) Delaware 001-16033 38-3419139 (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) 3621 S. State Street, 695 KMS Place Ann Arbor, MI 48108 (734) 332-0506 (Address of principal executive offices, including zip code, and registrant's telephone number, including area code) Not Applicable (Former name or former address, if changed since last report) The undersigned registrant hereby amends the following item of its Current Report on Form 8-K filed October 6, 2000 for the event of September 21, 2000. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits (a) Financial statements of businesses acquired Financial statements for the year ended December 31, 1999 and for the period from October 2, 1998 (inception) to December 31, 1998 are hereby incorporated herein by reference from the Company's Registration Statement on Form S-1, as amended (File No. 333-31032), and are included as Exhibit 99.2 to this Current Report. Pursuant to the instructions to Item 7 of Form 8-K, unaudited financial statements for the six months ended June 30, 2000 and 1999 are included on the following pages: 2 TALARIA THERAPEUTICS, INC. (A Development Stage Enterprise) BALANCE SHEET JUNE 30, 2000 (Unaudited)
ASSETS Current assets Cash and cash equivalent .......................................... $ 513,518 Other current assets .............................................. 21,521 ----------- Total Assets ................................................... $ 535,039 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses ............................. $ 5,491 Other current liabilities ......................................... -- ----------- Total current liabilities ...................................... 5,491 ----------- 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 Series B convertible preferred stock, $.0001 par value; authorized 833,334 shares; issued and outstanding 833,334 shares........... 83 Common stock, $.0001 par value; authorized 9,000,000 shares issued and outstanding 2,333,000 shares ........................ 233 Additional paid-in capital ........................................ 5,237,322 Deficit accumulated during the development stage .................. (4,708,240) ----------- Net stockholders' equity .......................................... 529,548 ----------- Total Liabilities and Stockholders' Equity ..................... $ 535,039 ===========
See notes to financial statements 3 TALARIA THERAPEUTICS, INC. (A Development Stage Enterprise) STATEMENTS OF OPERATIONS (Unaudited)
Six Months Ended June 30, October 2, 1998 -------------------------- (inception) to 1999 2000 June 30, 2000 ----------- ----------- ------------- Operating expenses incurred in the development stage: Research and development ....................... $ 1,058,315 $ 813,168 $ 4,426,068 General and administrative ..................... 74,248 204,741 384,077 ----------- ----------- ----------- Total operating expenses ......................... 1,132,563 1,017,909 4,810,145 Interest income ..................................... 18,896 36,678 101,905 ----------- ----------- ----------- Net loss ............................................ $(1,113,667) $ (981,231) $(4,708,240) =========== =========== =========== Basic and diluted net loss per share................. $ (0.48) $ (0.42) =========== =========== Shares used in computing basic and diluted net loss per share.................................... 2,333,000 2,333,000 =========== =========== Pro forma basic and diluted net loss per share....... $ (0.21) =========== Shares used in computing pro forma basic and diluted net loss per share........................ 4,666,334 ===========
See notes to financial statements 4 TALARIA THERAPEUTICS, INC (A Development Stage Enterprise) STATEMENT OF STOCKHOLDERS' EQUITY OCTOBER 2, 1998 (INCEPTION) TO JUNE 30, 2000 (Unaudited)
Series A Series B Convertible Convertible Preferred Stock Preferred Stock Common Stock ------------------------------------------------------------------ Number Number Number of Shares Amount of Shares Amount of Shares Amount ----------- ------ ----------- ------ ----------- ------ Issuance of Series A convertible preferred stock ....... 1,500,000 $ 150 -- $ -- -- $ -- Issuance of common stock to founders ................... -- -- -- -- 1,090,000 109 Issuance of common stock in exchange for a license for a patent and for technology ........................... -- -- -- -- 1,243,000 124 Net loss for the period ended December 31, 1998 ........ -- -- -- -- -- -- ----------- ------ ----------- ------ ----------- ------ Balance, December 31, 1998 .......................... 1,500,000 150 -- -- 2,333,000 233 Issuance of Series B convertible preferred stock ....... -- -- 833,334 83 -- -- Issuance of stock options in exchange for research and development services ................................ -- -- -- -- -- -- Net loss for the year ended December 31, 1999 .......... -- -- -- -- -- -- ----------- ------ ----------- ------ ----------- ------ Balance, December 31, 1999 .......................... 1,500,000 150 833,334 83 2,333,000 233 Net loss for the six months ended June 30, 2000 ........ -- -- -- -- -- -- ----------- ------ ----------- ------ ----------- ------ Balance, June 30, 2000 .............................. 1,500,000 $ 150 833,334 $ 83 2,333,000 $ 233 =========== ====== =========== ====== =========== ====== [WIDE TABLE CONTINUED FROM ABOVE] Deficit Accumulated Additional During the Net Paid-in Development Stockholders' Capital Stage Equity ----------- ----------- ----------- Issuance of Series A convertible preferred stock ....... $ 1,499,850 $ -- $ 1,500,000 Issuance of common stock to founders ................... 109,000 -- 109,109 Issuance of common stock in exchange for a license for a patent and for technology ........................... 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 .......................... 2,733,026 (1,709,660) 1,023,749 Issuance of Series B convertible preferred stock ....... 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 .......................... 5,237,322 (3,727,009) 1,510,779 Net loss for the six months ended June 30, 2000 ........ -- (981,231) (981,231) ----------- ----------- ----------- Balance, June 30, 2000 .............................. $ 5,237,322 $(4,708,240) $ 529,548 =========== =========== ===========
See notes to financial statements. 5 TALARIA THERAPEUTICS, INC. (A Development Stage Enterprise) STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, October 2, 1998 --------------------------- (Inception) to 1999 2000 June 30, 2000 ----------- ----------- ------------- Cash flows from operating activities Net loss ........................................................ $(1,113,667) $ (981,231) $(4,708,240) Adjustments to reconcile net loss to net cash used in operating activities: Noncash research and development and compensation expense ..... -- -- 1,237,677 Increase in other current assets ........................... (300) (14,420) (21,521) Increase (decrease) in accounts payable and accrued expenses 52,392 (307,153) 5,491 Increase (decrease) in other current liabilities ........... (3,505) -- -- ----------- ----------- ----------- Net cash used in operating activities .................... (1,065,080) (1,302,804) (3,486,593) ----------- ----------- ----------- Cash flows from financing activities Proceeds from the issuance of preferred stock ................... -- -- 4,000,002 Proceeds from the issuance of common stock ...................... -- -- 109 ----------- ----------- ----------- Net cash provided by financing activities ................ -- -- 4,000,111 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents ............... (1,065,080) (1,302,804) 513,518 Cash and cash equivalents, beginning of period ..................... 1,040,531 1,816,322 -- ----------- ----------- ----------- Cash and cash equivalents, end of period ........................... $ (24,549) $ 513,518 $ 513,518 =========== =========== =========== SUPPLEMENTAL INFORMATION REGARDING NONCASH ACTIVITIES Exchange of common stock for a patent license and for technology -- -- $ 1,124,300 Exchange of stock options for research and development services . -- -- $ 4,377 Compensation in conjunction with stock issuance ................. -- -- $ 109,000
See notes to financial statements. 6 TALARIA THERAPEUTICS, INC. (A Development Stage Enterprise) NOTES TO FINANCIAL STATEMENTS (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 September 24, 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. The Company incurred a net loss of $981,231 for the six months ended June 30, 2000. The Company has a deficit accumulated during the development stage of $4,708,240 as of June 30, 2000. The net losses incurred by the Company have consumed working capital. Interim Financial Information The financial statements as of June 30, 2000, for the six months ended June 30, 1999 and 2000 and for the period from October 2, 1998 (inception) to June 30, 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. Note 2 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 3 Subsequent Event On September 21, 2000, the Company entered into a merger agreement providing for the purchase of the Company by Esperion Therapeutics, Inc. ("Esperion"). Pursuant to the merger agreement, all of the outstanding shares of stock of the Company will be exchanged for Esperion common stock. Upon the achievement of certain future milestones, Esperion will make additional payments in cash or Esperion stock to the Company's stockholders. The Company's stockholders will also receive royalty payments in cash or common stock based on future net sales of the product in North America. 7 (b) Pro forma financial information Pursuant to the instructions to Item 7 of Form 8-K, pro forma financial statements for the year ended December 31, 1999 and the nine months ended September 30, 2000 follow: 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 or incorporated by reference into this report. 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 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. 8 ESPERION THERAPEUTICS, INC. AND SUBSIDIARY (A Company in the Development Stage) CONDENSED COMBINED BALANCE SHEET September 30, 2000 (unaudited) ASSETS Current Assets: Cash and cash equivalents ............................... $ 75,638,476 Prepaid expenses and other .............................. 765,961 ------------- Total current assets .................................. 76,404,437 ------------- Furniture and equipment, net ............................... 2,221,695 Goodwill, net .............................................. 3,687,500 Deposits and other assets .................................. 558,765 ------------- $ 82,872,397 ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt ....................... $ 495,495 Accounts payable ........................................ 2,641,239 Accrued liabilities ..................................... 4,400,135 ------------- Total current liabilities ............................. 7,536,869 ------------- Long-term debt, less current portion above ................. 2,483,010 ------------- Stockholders' Equity: Common stock ............................................ 25,760 Convertible preferred stock ............................. 0 Additional paid-in-capital .............................. 110,511,555 Notes receivable ........................................ (73,875) Accumulated deficit during the development stage ........ (34,823,699) Deferred stock compensation ............................. (3,028,245) Accumulated other comprehensive income .................. 241,022 ------------- Total stockholder's equity ............................ 72,852,518 ------------- $ 82,872,397 ============= The accompanying notes are an integral part of this balance sheet. 9 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 Goodwill amortization ....... -- -- 750,000 (A) 750,000 ------------ ------------ ------------ ------------ Total operating expenses.. 11,002,028 2,081,949 750,000 13,833,977 ------------ ------------ ------------ ------------ Loss from operations ..... (11,002,028) (2,081,949) (750,000) (13,833,977) Total other income ....... 331,844 64,600 -- 396,444 ------------ ------------ ------------ ------------ Net loss ......................... $(10,670,184) $ (2,017,349) $ (750,000) $(13,437,533) ============ ============ ============ ============ Basic and diluted net loss per share...................... $ (5.91) $ (5.13) ============ ============ Shares used in computing basic and diluted net loss per share. 1,806,255 2,619,263 (C) ============ ============
The accompanying notes are an integral part of this statement. 10 ESPERION THERAPEUTICS, INC. AND SUBSIDIARY (A Company in the Development Stage) PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (unaudited)
Pro Forma Esperion Talaria Adjustments Pro Forma ------------ ------------ ------------ ------------ Nine Months Period from Nine Months Nine Months Ended January 1 to Ended Ended September 30, September 21, September 30, September 30, 2000 2000 2000 2000 ------------ ------------ ------------ ------------ Operating expenses: Research and development ................ $ 16,867,161 $ 1,267,501 $ -- $ 18,134,662 General and administrative .............. 2,337,383 171,653 -- 2,509,036 Goodwill amortization ................... 62,500 -- 500,000 (A) 562,500 Purchased in process R&D ................ 4,000,000 -- (4,000,000)(B) -- ------------ ------------ ------------ ------------ Total operating expenses ........... 23,267,044 1,439,154 (3,500,000) 21,206,198 ------------ ------------ ------------ ------------ Income (loss) from operations ...... (23,267,044) (1,439,154) 3,500,000 (21,206,198) Total other income ................. 1,256,592 44,664 -- 1,301,256 ------------ ------------ ------------ ------------ Net income (loss) ............................ (22,010,452) (1,394,490) 3,500,000 (19,904,942) Beneficial conversion feature upon issuance of preferred stock ........................... (22,869,760) -- -- (22,869,760) ------------ ------------ ------------ ------------ Net income (loss) attributable to common stockholders .............................. $(44,880,212) $ (1,394,490) $ 3,500,000 $(42,774,702) ============ ============ ============ ============ Basic and diluted net loss per share......... $ (7.14) $ (6.10) ============ ============ Shares used in computing basic and diluted net loss per share..................... 6,285,788 7,017,495 (C) ============ ============
The accompanying notes are an integral part of this statement. 11 ESPERION THERAPEUTICS, INC. AND SUBSIDIARY (A Company in the Development Stage) NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (1) Description of the Acquisition On September 21, 2000 (the "Closing Date"), Esperion Therapeutics, Inc. (the "Company") acquired all of the outstanding shares of stock of Talaria in exchange for the issuance of 813,008 shares of restricted Esperion common stock to Talaria stockholders. Additionally, the merger agreement provides for the following additional consideration to Talaria stockholders: (i) payment by the Company of up to $6.25 million in cash and/or common stock based on the achievement of four future development milestones; and (ii) payment by the Company of royalties in cash and/or common stock based on net annual sales, as defined in the merger agreement, of large unilamellar vesicles, or LUVs, in North America. The milestones are due upon the enrollment of the first patient in certain future clinical trials and upon each of the filing and approval of a new drug application in the United States. These milestone payments will increase the amount of the purchase price in the period when the milestone is achieved. The royalty payments will be included in cost of sales in the period when the respective sales are recognized. The combined milestone payments and royalties are limited by an aggregate ceiling amount. The acquisition was accounted for under the purchase method of accounting. As a result of this allocation, the Company wrote-off approximately $4.0 million of acquired in-process research and development based on an independent appraisal of the fair values of assets acquired on the closing date. The excess aggregate purchase price over the fair value of assets acquired was allocated to goodwill and is being amortized on a straight-line basis over a period of five years. (2) Basis of Presentation The unaudited condensed combined balance sheet as of September 30, 2000 includes the acquisition of Talaria. The adjustments on the Closing Date were based on the purchase price allocation below. The condensed combined balance sheet includes incurred and accrued merger expenses of approximately $265,000. The following table reflects the allocation of purchase price of Talaria as of the Closing Date: Tangible net assets (liabilities)......... $(167,714) Purchased in-process R&D.................. 4,000,000 Goodwill and other intangible assets...... 3,750,000 ---------- Total purchase price................... $7,582,286 ========== The unaudited pro forma condensed combined statements of operations for the year ended December 31, 1999 and the nine months ended September 30, 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 the Company with the results for the same period of Talaria, and combining the results for the nine months ended September 30, 2000 of the Company with the period from January 1, 2000 through the Closing Date of Talaria. The selected unaudited pro forma combined financial information reflects certain adjustments, including adjustments to reflect the amortization of goodwill resulting from the acquisition. The amortization of goodwill for the nine months ended September 30, 2000 includes actual amortization of approximately $63,000 for the period from the Closing Date through September 30, 2000. The basic and diluted net loss per share for Esperion for the nine months ended September 30, 2000 includes 81,301 shares, representing the weighted average of the shares issued to Talaria from the Closing Date to September 30, 2000. 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 nine months ended September 30, 2000, exclude material non-recurring charges which result directly from the merger and which were recorded on the Closing Date, including the write-off of purchased in-process research and development and incurred and accrued expenses resulting from the merger. 12 ESPERION THERAPEUTICS, INC. AND SUBSIDIARY (A Company in the Development Stage) NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (3) Pro Forma Adjustments Pro forma adjustments for the unaudited pro forma condensed combined statements of operations for the year ended December 31, 1999 and the nine months ended September 30, 2000 are as follows: (A.) To reflect amortization of goodwill and other intangible assets resulting from the acquisition. (B.) To remove the write-off of acquired in-process research and development. (C.) Basic and diluted net loss per share has been adjusted to reflect the issuance of 813,008 shares of the Company's common stock to Talaria stockholders, as if these shares had been outstanding for the entire period. (4) Purchased In-Process Research and Development Purchased in-process research and development ("IPR&D") consists of development work on the project in process at Talaria as of the Closing Date. The development of this project has not yet reached technological feasibility and is not expected to reach technological feasibility until 2004. Under SFAS No. 2, the IPR&D should be written-off as it offers no alternative future use. The Company allocated $4.0 million of the 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. The Company expects to spend an additional $20.0 million in third party costs over all phases of the research and development. Of these remaining costs, approximately $15.0 million would relate to a Phase III clinical trial which is expected to commence after the Phase II clinical trials are completed, but not sooner than 2002. A discount rate of 35% was used to discount the cash flows. The IPR&D write-off was recorded on the Closing Date. 13 (c) Exhibits Number Exhibit - ---------- ------------------------------------------------------------------- 2.1*@ (1) Agreement and Plan of Merger and Reorganization by and among Esperion Therapeutics, Inc., Esperion Mergerco, Inc. and Talaria Therapeutics, Inc. dated as of September 21, 2000. 2.2@ (2) Indemnification, Escrow and Participation Agreement by and among Esperion Therapeutics, Inc., the stockholders of Talaria Therapeutics, Inc., Rock Hill Ventures, Inc. and Sills Cummis Radin Tischman Epstein & Gross dated as of September 21, 2000. 2.3 (1) Non-Competition Agreement by and among Esperion Therapeutics, Inc., Esperion Mergerco, Inc. and certain Talaria Parties dated as of September 21, 2000. 23.4 Consent of Goldenberg Rosenthal, LLP 99.1 (1) Press release dated October 5, 2000 of Esperion Therapeutics, Inc. 99.2 Financial statements for the year ended December 31, 1999 and for the period from October 2, 1998 (inception) to December 31, 1998 @ Confidential Treatment Requested (1) Previously filed on October 6, 2000 on Form 8-K. (2) Previously filed on October 6, 2000 on Form 8-K and refiled herewith. *The schedules, including disclosure schedules, and similar attachments to the Agreement and Plan of Merger and Reorganization have been omitted. The disclosure schedules include exceptions and disclosures made by Talaria Therapeutics, Inc. ("Talaria") in connection with the following: corporate existence and power; government authorization; non-contravention of organizational documents, laws and other obligations; capitalization of Talaria; absence of undisclosed liabilities; title to properties and assets; rights and absence of claims and encumbrances regarding intellectual property; absence of certain changes in business; litigation; material contracts; tax compliance and liabilities; employees; transactions with affiliates; insurance coverage; compliance with laws and absence of defaults; environmental matters; confidentiality and non-competition agreements signed by consultants and agents of Talaria; certain negative covenants; and status of agreements among Talaria and any of its securityholders or optionholders, or among any of the Talaria securityholders or option holders. An additional schedule includes an itemization of the amount or percentage of merger consideration to be paid to each Talaria stockholder and/or held in escrow pursuant to this document and the Indemnification, Escrow and Participation Agreement among the Company, the stockholders of Talaria, Rock Hill Ventures, Inc. and Sills Cummis Radin Tischman Epstein & Gross filed as Exhibit 2.2 to this Form 8-K/A. The other attachments include the forms of other documents executed or to be executed and/or filed pursuant to the Agreement and Plan of Merger and Reorganization. Registrant agrees to furnish supplementally a copy of any of the omitted schedules and attachments to the Securities and Exchange Commission upon request. 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: November 20, 2000 ESPERION THERAPEUTICS, INC. (Registrant) By: /s/ Roger S. Newton -------------------------------------------- Roger S. Newton President and Chief Executive Officer (Principal Executive Officer) By: /s/ Timothy M. Mayleben -------------------------------------------- Timothy M. Mayleben Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 15 INDEX TO EXHIBITS Number Exhibit - --------------- ---------------------------------------------------------------- 2.1*@ (1) Agreement and Plan of Merger and Reorganization by and among Esperion Therapeutics, Inc., Esperion Mergerco, Inc. and Talaria Therapeutics, Inc. dated as of September 21, 2000. 2.2@ (2) Indemnification, Escrow and Participation Agreement by and among Esperion Therapeutics, Inc., the stockholders of Talaria Therapeutics, Inc., Rock Hill Ventures, Inc. and Sills Cummis Radin Tischman Epstein & Gross dated as of September 21, 2000. 2.3 (1) Non-Competition Agreement by and among Esperion Therapeutics, Inc., Esperion Mergerco, Inc. and certain Talaria Parties dated as of September 21, 2000. 23.4 Consent of Goldenberg Rosenthal, LLP 99.1 (1) Press release dated October 5, 2000 of Esperion Therapeutics, Inc. 99.2 Financial statements for the year ended December 31, 1999 and for the period from October 2, 1998 (inception) to December 31, 1998 @ Confidential Treatment Requested (1) Previously filed on October 6, 2000 on Form 8-K. (2) Previously filed on October 6, 2000 on Form 8-K and refiled herewith. * The schedules, including disclosure schedules, and similar attachments to the Agreement and Plan of Merger and Reorganization have been omitted. The disclosure schedules include exceptions and disclosures made by Talaria Therapeutics, Inc. ("Talaria") in connection with the following: corporate existence and power; government authorization; non-contravention of organizational documents, laws and other obligations; capitalization of Talaria; absence of undisclosed liabilities; title to properties and assets; rights and absence of claims and encumbrances regarding intellectual property; absence of certain changes in business; litigation; material contracts; tax compliance and liabilities; employees; transactions with affiliates; insurance coverage; compliance with laws and absence of defaults; environmental matters; confidentiality and non-competition agreements signed by consultants and agents of Talaria; certain negative covenants; and status of agreements among Talaria and any of its securityholders or optionholders, or among any of the Talaria securityholders or option holders. An additional schedule includes an itemization of the amount or percentage of merger consideration to be paid to each Talaria stockholder and/or held in escrow pursuant to this document and the Indemnification, Escrow and Participation Agreement among the Company, the stockholders of Talaria, Rock Hill Ventures, Inc. and Sills Cummis Radin Tischman Epstein & Gross filed as Exhibit 2.2 to this Form 8-K/A. The other attachments include the forms of other documents executed or to be executed and/or filed pursuant to the Agreement and Plan of Merger and Reorganization. Registrant agrees to furnish supplementally a copy of any of the omitted schedules and attachments to the Securities and Exchange Commission upon request. 16 EX-2.2 2 0002.txt INDEMNIFICATION, ESCROW AND PARTICIPATION AGREEMENT EXHIBIT 2.2 INDEMNIFICATION, ESCROW AND PARTICIPATION AGREEMENT --------------------------------------------------- INDEMNIFICATION, ESCROW AND PARTICIPATION AGREEMENT dated as of September 21, 2000 (this "Agreement"), by and among Esperion Therapeutics, Inc., a --------- Delaware corporation ("Esperion"), the stockholders of Talaria party hereto (the -------- "Talaria Stockholders"), Rock Hill Ventures, Inc., as the representative of the -------------------- Talaria Stockholders (the "Talaria Stockholder Representative"), and Sills ---------------------------------- Cummis Radin Tischman Epstein & Gross, as escrow agent (the "Escrow Agent"). ------------ W I T N E S S E T H: ------------------- WHEREAS, Esperion, Esperion Mergerco, Inc., a Delaware corporation ("Mergerco"), and Talaria Therapeutics, Inc., a Delaware corporation - ---------- ("Talaria"), have entered into an Agreement and Plan of Merger and ------- Reorganization dated as of the date hereof (the "Merger Agreement"), pursuant to ---------------- which Mergerco will be merged with and into Talaria, which, as the surviving corporation (sometimes hereinafter called the "Surviving Corporation"), will --------------------- become a wholly-owned subsidiary of Esperion; and WHEREAS, one of the conditions precedent to the parties' respective obligations under the Merger Agreement is that Esperion, Mergerco, the Talaria Stockholders, the Talaria Stockholder Representative and the Escrow Agent shall have executed and delivered this Agreement; and WHEREAS, the purpose of this Agreement is to provide for certain indemnification obligations of Esperion and the Talaria Stockholders and for the escrow of certain of the consideration to be received by the Talaria Stockholders pursuant to the Merger Agreement as security for the indemnification obligations of the Talaria Stockholders. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Certain Capitalized Terms. Capitalized terms not otherwise ------------------------- defined herein shall have the meanings assigned to such terms in the Merger Agreement. 2. Indemnification. --------------- (a) The Talaria Stockholders hereby agree to jointly and severally indemnify, defend, protect and hold harmless each of Esperion and the Surviving Corporation and their respective affiliates and all officers, directors, stockholders, members, employees, agents, representatives, heirs, successors and assigns of Esperion and the Surviving Corporation and their respective affiliates (each an "Esperion Indemnified Party" and collectively, the "Esperion -------------------------- -------- Indemnified Parties") at all times from and against any and all claims, damages, - ------------------- actions, suits, proceedings, demands, assessments, adjustments, Taxes, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) (collectively "Damages") incurred by any ------- Esperion Indemnified Party as a result of, relating to or arising out of (a) any breach of any representation or warranty of Talaria or any Talaria Stockholder set forth in the Merger Agreement or any other Transaction Document or in any certificate or other document delivered in connection with any of the foregoing; (b) any breach or nonfulfillment by Talaria or by any Talaria Stockholder, or any noncompliance by Talaria or by an Talaria Stockholder with, any covenant, agreement or obligation contained in the Merger Agreement or any other Transaction Document or in any certificate or other document delivered in connection with any of the foregoing; or (c) any claim by a stockholder or former stockholder of Talaria or any other person or entity seeking to assert, or based upon: (i) ownership or rights of ownership to any shares of capital stock of Talaria; (ii) any rights of the stockholder (other than the right to receive the Merger consideration pursuant to the Merger Agreement or appraisal rights under the applicable provisions of the Delaware Corporation Law or any other rights arising under the Merger Agreement or any Transaction Document), including any option, preemptive rights, or rights to notice or to vote; (iii) any rights under the Charter or bylaws of Talaria; or (iv) any claim that his, her or its shares were wrongfully repurchased by Talaria, regardless of whether an action, suit or preceding can or has been made against Talaria; provided, -------- that Damages hereunder shall be determined taking into account only the actual damages, deficiency, cost or expense incurred or suffered by reason of the event or condition giving rise to the obligation to indemnify and shall be net of any insurance proceeds payable in respect of the claim, damage, action, suit, proceeding, demand, assessment, adjustment, costs and expenses from and against which such Esperion Indemnified Party seeks indemnification pursuant hereto. (b) Esperion hereby agrees to indemnify, defend, protect and hold harmless each of the Talaria Stockholders and their respective affiliates and all officers, directors, stockholders, members, employees, agents, representatives, heirs, successors and assigns of the Talaria Stockholders and their respective affiliates (each a "Talaria Indemnified Party" and ------------------------- collectively, the "Talaria Indemnified Parties") at all times from and against --------------------------- all Damages incurred by any Talaria Indemnified Party as a result of or arising out of (a) any breach of any representation or warranty of Esperion or Mergerco set forth in the Merger Agreement or any other Transaction Document or in any certificate or other document delivered in connection with any of the foregoing; or (b) any breach or nonfulfillment by Esperion or Mergerco, or any noncompliance by Esperion or Mergerco with, any covenant, agreement or obligation contained in the Merger Agreement or any other Transaction Document or in any certificate or other document delivered in connection with any of the foregoing; provided, that Damages hereunder shall be determined taking into -------- account only the actual damages, deficiency, cost or expense incurred or suffered by reason of the event or condition giving rise to the obligation to indemnify and shall be net of any insurance proceeds payable in respect of the claim, damage, action, suit, proceeding, demand, assessment, adjustment, costs and expenses from and against which such Talaria Indemnified Party seeks indemnification pursuant hereto. (c) No person obligated to provide indemnification pursuant to this Agreement (an "Indemnifying Party") shall be obligated hereunder with respect to ------------------ any Damages unless a person entitled to indemnification with respect thereto (an "Indemnified Party") delivers to the Indemnifying Party and the Escrow Agent on ----------------- or before the expiration of the applicable survival period or, in the event that there is no specific survival period, the expiration of the applicable statute of limitations, a written certificate (a "Claim Certificate") to the effect that ----------------- one or more of the Indemnified Parties has suffered Damages. (d) No Esperion Indemnified Party shall be entitled to indemnification hereunder until the aggregate amount of Damages incurred by all Esperion Indemnified Parties exceeds $50,000, in which event such liability shall apply to all Damages only to the extent they exceed $50,000. No Talaria Indemnified Party shall be entitled to indemnification hereunder until the aggregate amount of Damages incurred by all Talaria Indemnified Parties exceeds $50,000, in which event such liability shall apply to all Damages only to the extent they exceed $50,000. (e) Except in the case of fraud or intentional misconduct, the right of Esperion to proceed against the escrow provided herein shall be the sole and exclusive remedy of Esperion against the Talaria Stockholders for breaches of any representation, warranty or covenant or otherwise with respect to the transactions contemplated by the Merger Agreement or this Agreement. 3. Appointment of Talaria Stockholder Representative; Authority. ------------------------------------------------------------ (a) By their execution and delivery of this Agreement, each of the Talaria Stockholders hereby authorizes the Talaria Stockholder Representative to act as the representative of such stockholder and his or its successors under this Agreement with the powers and authority herein provided, until a successor representative is named as hereinafter provided. The Talaria Stockholder Representative is authorized, on behalf of all of the Talaria Stockholders and their successors, to review claims of the Esperion Indemnified Parties pursuant to Section 2(a) hereof and dispute or question the accuracy thereof, to interpret all the terms and provisions of this Agreement, to compromise and settle any claims asserted hereunder, to authorize payments to be made with respect thereto, and to take all such other actions which this Agreement provides may be taken by the Talaria Stockholder Representative. All actions taken by the Talaria Stockholder Representative hereunder shall be binding upon the Talaria Stockholders and their successors as if expressly confirmed and ratified in writing by each of them. The Talaria Stockholder Representative is hereby authorized to retain counsel to assist it in matters relating to this Agreement and its obligations hereunder, including the dispute of any claims of the Indemnified Parties. Esperion and the Surviving Corporation and all other Esperion Indemnified Parties shall have the right to rely on any action or inaction of the Talaria Stockholder Representative without any independent inquiry or investigation. (b) The appointment of the Talaria Stockholder Representative hereunder is irrevocable and any action taken by the Talaria Stockholder Representative pursuant to the authority granted in this Agreement shall be effective and absolutely binding on each Talaria Stockholder notwithstanding any contrary action of or direction from a Talaria Stockholder. The death or incapacity of any Talaria Stockholder shall not terminate the prior authority and agency of the Representative. (c) Each Talaria Stockholder hereby authorizes the Talaria Stockholder Representative, on behalf and in the name of such Talaria Stockholder, to take all actions necessary and/or appropriate to effectuate the transactions contemplated by this Agreement and the Merger Agreement including, without limitation, the following: (i) To receive all consideration payable by Esperion to the Talaria Stockholders under the Merger Agreement and to remit such consideration to the Talaria Stockholders in accordance with their respective interests; provided, however, that the Talaria Stockholder Representative shall have the - -------- ------- right, in its discretion to deduct from such consideration, in accordance with the respective interests of the Talaria Stockholders, all amounts as shall be necessary to pay any expenses incurred the Talaria Stockholder Representative in accordance with this Agreement. (ii) To receive all notices or documents given or to be given to such Talaria Stockholder by Esperion pursuant to this Agreement or in connection herewith and to receive and accept service of legal process in connection with any suit or other proceeding arising under this Agreement. The Talaria Stockholder Representative promptly shall forward a copy of such notice or process to each Talaria Stockholder. (iii) To take all action necessary to comply with all applicable laws in connection with the transactions contemplated by this Agreement including, without limitation, the making of such filings and/or disclosures as shall be necessary and/or appropriate. (iv) To take any action in respect of any claim against Esperion or any of the Talaria Stockholders under this Agreement including the payment or settlement of any claim as the Talaria Stockholder Representative shall deem appropriate. (v) To take such action on behalf of such Talaria Stockholder as the Talaria Stockholder Representative may deem appropriate in respect of: (1) Waiving any inaccuracies in the representations and warranties of Esperion contained in this Agreement or in any documents delivered by Esperion pursuant hereto; (2) Waiving the fulfillment of any of the conditions precedent to the Talaria Stockholders' obligations hereunder; (3) Taking such other action as the Talaria Stockholder Representative is authorized to take under this Agreement; and (4) All such other matters as the Talaria Stockholder Representative may deem necessary or appropriate to consummate this Agreement and the transactions contemplated hereby. 4. Third Party Claims; Notice and Opportunity to Settle. ---------------------------------------------------- (a) Promptly after the receipt by an Indemnified Party of any claim or demand (including but not limited to, notice of any action, suit or proceeding) by any third party against an Indemnified Party which gives rise to a right to indemnification for Damages hereunder, the Indemnified Party shall promptly give the Indemnifying Parties written notice of such claim or demand and, in each case, the basis therefor and such other information as the Indemnifying Parties may reasonably request, all as part of the Claim Certificate referred to in Section 2(c) hereof. The Talaria Stockholder Representative shall act on behalf of all of the Talaria Stockholders and the other Talaria Indemnified Parties with respect to all matters contained in this Section 4. (b) The Indemnifying Parties shall have the right (without prejudice to the right of the Indemnified Parties to participate at their own expense through counsel of their own choosing), to defend against such claim or demand at their own expense and through counsel of their own choosing and to control such defense if they give written notice to the Indemnified Parties of their intention to do so within thirty (30) days of the receipt of the notice referred to in Section 4(a) above. If the Indemnifying Parties shall decline to assume the defense of such claim or demand, the Indemnified Parties shall have the right to assume, at the Indemnifying Parties' expense, the control of such defense. (c) The Indemnifying Parties shall have the right to elect to settle any claim or demand concerning which they have exercised their right to defend and control the defense, subject to the consent of the Talaria Stockholder Representative in the case of the Talaria Indemnified Parties and Esperion in the case of the Esperion Indemnified Parties, which consent shall not be unreasonably withheld or delayed. 5. Escrow Fund. Subject to the terms hereof, at the Effective Time ----------- Esperion shall deliver to the Escrow Agent, for the account of the Talaria Stockholders, in accordance with their respective interests as shown in Part I of Schedule 1 hereto, [****] shares of the Esperion Common to be distributed by Esperion to the Talaria Stockholders pursuant to Section 2.3(b)(i) of the Merger Agreement (collectively, the "Initial Escrow"). -------------- Additionally, if and when Esperion is obligated to make payment to the Talaria Stockholders of any Prepaid Royalty Payment or Royalty pursuant to Section 5.4(a) or 5.4(b) of the Merger Agreement, respectively, Esperion shall deliver to the Escrow Agent, for the account of the Talaria Stockholders, in accordance with their respective interests as shown in Part II of Schedule 1 hereto, [****] (***) of the amount of such Prepaid Royalty Payment or Royalty, as the case may be (collectively, the "Additional Deposits" and, together with the ------------------- Initial Escrow, the "Escrow Fund"). Subject to the requirements of Section ----------- 5.4(b)(viii) of the Merger Agreement, the delivery by Esperion to the Escrow Agent of the Additional Deposits, if any, shall be made by Esperion to the Escrow Agent in cash, shares of Esperion Common or a combination thereof, in Esperion's sole discretion. For this purpose, each share of Esperion Common shall be valued at its Fair Market Value at the time the applicable Prepaid Royalty Payment is achieved or the Royalty becomes due and payable, as the case may be. All of the Escrow Fund shall be held by the Escrow Agent to secure the Talaria Stockholders' obligations hereunder and shall not, except as expressly provided herein, be disposed of by the Escrow Agent. To the extent the Escrow Fund consists of shares of Esperion Common (the "Escrow Shares"), such Escrow ------------- Shares shall be registered in the names of the individual Talaria Stockholders, in accordance with their respective interests as shown on Schedule 1 hereto. The Talaria Stockholders shall have the right to vote the Escrow Fund in accordance with their respective interests. The respective interests of the Talaria Stockholders in the Escrow Fund shall not be transferable or assignable. Simultaneously with the execution and delivery of this Agreement, each of the Talaria Stockholders shall deliver to the Escrow Agent stock powers endorsed in blank for use by the Escrow Agent in furtherance of the transactions contemplated by this Agreement. 6. Claims for Indemnification. With respect to any claim by an -------------------------- Esperion Indemnified Party pursuant to Section 2(a) above: (a) Subject to Section 6(b) below, upon receipt of any Claim Certificate, the Escrow Agent shall on that date which is thirty (30) business days after delivery to the Talaria Stockholder Representative and the Escrow Agent of such Claim Certificate, pay to Esperion to the extent that the Escrow Fund is sufficient for such purpose, the amount set forth in such Claim Certificate. (b) Unless, within thirty (30) business days after delivery to the Talaria Stockholder Representative of any Claim Certificate, the Talaria Stockholder Representative gives written notice to Esperion, the Surviving Corporation and the Escrow Agent that it disputes the claim for indemnity asserted in such Claim Certificate (a "Claim Denial"), such Claim Certificate ------------ shall constitute full authority to the Escrow Agent to take the action provided for in the preceding paragraph and shall be conclusive on all parties hereto, including the Talaria Stockholders, with respect to such claim for indemnity hereunder by any of the Esperion Indemnification Parties. (c) If the Talaria Stockholder Representative delivers a Claim Denial to Esperion, the Surviving Corporation and the Escrow Agent, the Escrow Agent shall not make any payment to Esperion or the Surviving Corporation pursuant to this Section 6 until (i) it receives the written consent of the Talaria Stockholder Representative, or (ii) there is a final determination of a court or competent jurisdiction with respect to the dispute at issue (a "Final ----- Determination") in favor of the Esperion Indemnified Parties adjudging that the - ------------- Talaria Stockholders are liable for an amount claimed thereunder; in which case the Escrow Agent shall pay the amount of the Escrow Fund authorized pursuant thereto. 7. Distribution of Escrow Fund. ---------------------------- (a) On the first business day immediately following the second anniversary of the Effective Time (the "Release Date"), the Escrow Agent shall ------------ distribute to the Talaria Stockholder Representative, on behalf of the Talaria Stockholders, the balance of the remaining Escrow Fund then held by the Escrow Agent pursuant to this Agreement, less the aggregate amount of such Escrow Fund ---- (if any) as is then subject to a pending Claim Certificate (whether or not a Claim Denial has been given with respect thereto). To the extent any portion of the Escrow Fund shall remain in escrow pursuant to the preceding sentence, the form of such remaining Escrow Fund (cash, shares of Esperion Common or a combination thereof) shall be in Esperion's sole discretion. For this purpose, each share of Esperion Common shall be valued at [****] (**) of its Fair Market Value as of the Release Date. Any part of the Escrow Fund that is not distributed to the Talaria Stockholder Representative on the Release Date because it is subject to a pending Claim Certificate shall be distributed (y) in accordance with the written agreement of Esperion and the Talaria Stockholder Representative, or (z) pursuant to a Final Determination. (b) Subject to Section 5.4(b)(viii) of the Merger Agreement, all payments to Esperion or any other Esperion Indemnified Parties from the Escrow Fund in respect of Damages, if any, shall be made in the form of cash, shares of Esperion Common or a combination thereof, in Esperion's sole discretion. For this purpose, each share of Esperion Common shall be valued at its Fair Market Value at the time the Escrow Agent is required to release such shares of Esperion Common to Esperion or the other Esperion Indemnified Parties. (c) In connection with any distribution of shares of Esperion Common held in the Escrow Fund, the Escrow Agent shall execute and deliver any instruments of assignment necessary to provide the recipient of such securities with legal and valid title thereto and record ownership thereof. With respect to such transfers of record ownership by the Escrow Agent, Esperion will take all actions in connection with the issuance and re-issuance of certificates for such shares of Esperion Common and the registration and re-registration of such shares of Esperion Common on Esperion's books as may be necessary or appropriate to reflect the record ownership of such securities contemplated by this Agreement. (d) All interest or dividends on any of the Escrow Fund and any shares of capital stock distributed on account of any of the Escrow Shares shall become part of the Escrow Fund and shall be subject to the provisions of this Agreement. 8. Authority and Liability of the Escrow Agent. ------------------------------------------- (a) The parties hereto acknowledge and agree that the Escrow Agent (i) shall not be responsible for any of the agreements referred to herein but shall be obligated only for the performance of such duties as are specifically set forth in this Agreement as being the responsibility of the Escrow Agent; (ii) shall not be obligated to take any legal or other action hereunder which might be in its judgment involve any expense or liability unless it shall be protected in acting or refraining from acting upon any written notice, instruction, instrument, statement, request waiver, consent or other document (collectively "Documents") (A) signed by any person required or entitled to --------- execute and to deliver to the Escrow Agent any such Documents, not only as to such Documents' due execution and the validity and effectiveness of the provisions thereof but also as to the accuracy of the information contained therein and (B) believed by it to be genuine and to have been signed or presented by the proper person; and (iv) may retain and consult counsel satisfactory to it, including in-house counsel, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with the opinion of such counsel. Esperion shall repay or reimburse the Escrow Agent for any reasonable fees, expenses and disbursements of such counsel. (b) Neither the Escrow Agent nor any of its directors, officers or employees shall be liable to anyone for any action taken or omitted to be taken by it or any of its directors, officers or employees hereunder except in the case of gross negligence or willful misconduct. (c) Neither the Escrow Agent nor any of its members, directors, officers, shareholders, managers, employees, agents or representatives shall be liable to anyone for any action taken or omitted to be taken by it or any of the foregoing except in the case of willful misconduct. Esperion and the Talaria Stockholders, jointly and severally, covenant and agree to indemnify, defend, protect and hold harmless the Escrow Agent, its affiliates and all officers, directors, stockholders, members, employees, agents, representatives, heirs, successors and assigns of the Escrow Agent and its affiliates from and against any and all Damages arising out of or in connection with this Agreement or with the administration of the Escrow Agent's duties hereunder, including but not limited to legal fees and other costs and expenses of defending or preparing to defend against any claim or liability relating to this Agreement, unless such loss, liability or expense shall be caused by the liable for indirect, special or consequential damages. The indemnification provided in this Section 8(c) shall survive the resignation or removal of the Escrow Agent and the termination of this Agreement. (d) Each of the parties hereto agrees that, in the event a dispute or conflict hereafter arises among the parties, such party shall not, on the basis of an alleged conflict of interest with respect to such representation, object to the representation of Esperion and/or the Surviving Corporation, by Sills Cummis Radin Tischman Epstein & Gross, P.A. with respect to such matter. The provisions of this Section 8(d) shall survive the resignation or removal of the Escrow Agent and the termination of this Agreement. (e) The Escrow Agent shall act only in accordance with the express provisions of this Agreement or pursuant to an order of a court of competent jurisdiction or the joint written instructions of Esperion and the Talaria Stockholder Representative. 9. Liability of the Talaria Stockholder Representative. The Talaria --------------------------------------------------- Stockholder Representative shall have no duties or responsibilities except those expressly set forth in this Agreement. The Talaria Stockholder Representative may act upon any instrument or other writing believed by it in good faith to be genuine and to be signed or presented by the proper person and shall not be liable in connection with the performance by it of its duties pursuant to the provisions of this Agreement or any action omitted to be taken by it in connection herewith, except for its own willful misconduct or gross negligence. The Talaria Stockholder Representative may retain counsel and act with respect to this Agreement and its obligations hereunder on the advice of such counsel. The Talaria Stockholder Representative shall be, and hereby is, jointly and severally indemnified and held harmless by the Talaria Stockholders from all losses, liabilities, damages, penalties, judgments, suits, costs and expenses (including legal fees) which it may incur in connection with this Agreement. 10. Fees and Expenses. All expenses incurred by the Talaria Stockholder ------------------ Representative in connection with this Agreement and its obligations hereunder, including legal fees and expenses of counsel retained by the Talaria Stockholder Representative pursuant to the terms hereof, shall be paid by the Talaria Stockholders in accordance with their respective interests from the Escrow Fund. 11. Participation. Each Talaria Stockholder hereby represents and ------------- warrants to and agrees with Esperion and Mergerco as follows: (i) Such Talaria Stockholder is the owner of outstanding shares of Talaria capital stock set forth on Schedule 2 hereto opposite such Talaria ---------- Stockholder's name, free and clear of all Liens, and collectively the Talaria Stockholders are the holders of all of the outstanding capital stock of Talaria; (ii) Such Talaria Stockholder has had an opportunity to review the Merger Agreement, including all exhibits thereto, in substantially the form agreed to by the parties; (iii) Such Talaria Stockholder understands and agrees that all Esperion Common issuable pursuant to the Merger Agreement (the "Merger Shares") ------------- may not be sold in open stock market transactions (which exclude privately negotiated transactions) until February 10, 2001 (the "Holding Period") and that -------------- certificates representing the Merger Shares shall be legended accordingly; (iv) Such Talaria Stockholder understands and agrees that the Merger Shares have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "1933 Act") or the securities laws of any state of -------- the United States, except as contemplated by the Merger Agreement; (v) Such Talaria Stockholder understands and agrees that the issuance of the Merger Shares will be made in transactions not involving any public offering within the meaning of the 1933 Act, and that, accordingly, such shares are "restricted securities" within the meaning of Rule 144 under the 1933 Act ("Rule 144"), and therefore the Merger Shares may not be offered or sold by -------- the undersigned, directly or indirectly, in the United States without registration under United States federal and state securities laws or an exemption therefrom; (vi) Unless the Merger Shares are registered under the 1933 Act, such Talaria Stockholder has not acquired the Merger Shares as a result of any general solicitation or general advertising, including advertisements, articles, notices or other communications published in any newspaper, magazine or similar media or broadcast over radio or television, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising; (vii) Unless the Merger Shares are registered under the 1933 Act, such Talaria Stockholder will not offer, sell, pledge or otherwise transfer any of the Merger shares except (i) outside the United States in accordance with Rule 904 of Regulation S under the 1933 Act; (ii) in another transaction otherwise exempt from registration under the 1933 Act in compliance with Rule 144 or Rule 145 under the 1933 Act, if applicable, and in compliance with any applicable state securities laws of the United States; or (iii) pursuant to another applicable exemption from such registration and applicable state securities laws as evidenced by an opinion of counsel of recognized standing in form reasonably satisfactory to Esperion; it being understood and acknowledged by the Talaria Stockholder that Esperion is not obligated to file and has no present intention of filing with the U.S. Securities and Exchange Commission or with any state securities administrator any registration statement in respect of resales of any of the Merger Shares in the United States, except as contemplated by the Merger Agreement; (viii) All certificates representing the Merger Shares, as well as all certificates issued in exchange for or in substitution of the foregoing securities, will bear the legends set forth in Section 2.3(f) of the Merger Agreement; and (ix) Esperion has the right to instruct its transfer agent not to record a transfer by any person in the United States without first being notified by Esperion that it is reasonably satisfied that such transfer is exempt from or not subject to registration under the 1933 Act and any applicable state securities laws. (b) Covenants of Talaria Stockholders. Each Talaria Stockholder --------------------------------- hereby covenants and agrees with Esperion and Mergerco to vote all shares of Talaria capital stock now owned or controlled, or hereafter acquired or controlled by such Talaria Stockholder, IN FAVOR OF the consummation of the Merger and the transactions contemplated by the Merger Agreement (subject to the conditions contained therein), whether such vote is taken at a meeting of stockholders pursuant to due notice or by circulation of a written consent of stockholders in lieu of such meeting. (c) Restrictions Prior to the Merger. Each Talaria Stockholder -------------------------------- hereby covenants and agrees with Esperion and Mergerco that prior to the Effective Time such Talaria Stockholder shall not, directly or indirectly (including through his, her or its agents), enter into any agreement, solicit or entertain offers from, discuss or negotiate with or in any manner consider any proposal of any other person relating to the acquisition, by any means, of Talaria, the business of Talaria or any or all of the shares of Talaria owned or controlled by such Talaria Stockholder; provided that the foregoing covenant and -------- agreement shall terminate upon the termination of the Merger Agreement. If a Talaria Stockholder shall receive any unsolicited communication, offer or proposal relating to the acquisition of Talaria, the business of Talaria or any or all of the shares of capital stock of Talaria owned or controlled by such Talaria Stockholder, such communication, offer or proposal shall be unqualifiedly refused and such Talaria Stockholder shall advise Esperion and Mergerco of such receipt and refusal in reasonable detail (including a copy of any written communication, offer or proposal). (d) Transfer Restrictions Following the Merger. Each Talaria ------------------------------------------ Stockholder hereby covenants and agrees with Esperion that, until the expiration of the Holding Period, such Talaria Stockholder shall not trade in open stock market transactions (which exclude privately negotiated transactions) any of such Talaria Stockholder's Merger Shares. 12. Notices. All notices and other communications under this Agreement ------- shall be in writing and shall be delivered by hand or overnight courier service, mailed or sent by telex, as follows: If to Esperion: Esperion Therapeutics, Inc. 3621 S. State Street 695 KMS Place Ann Arbor, MI 48108 Telecopier: (734) 332-0516 Attention: Christine Ballman, Esq. with a copy to: Sills Cummis Radin Tischman Epstein & Gross, P.A. One Riverfront Plaza Newark, NJ 07102 Telecopier: (973) 643-6500 Attention: Ira A. Rosenberg, Esq. If to the Talaria Stockholders or the Talaria Stockholder Representative: Rock Hill Ventures, Inc. One Tower Bridge, Suite 1350 100 Front Street West Conshohocken, PA 19428 Telecopier: (610) 940-0301 Attention: Charles G. Hadley with a copy to: Duane, Morris & Heckscher LLP One Liberty Place Philadelphia, PA 19103-7396 Telecopier: (215) 979-1020 Attention: Kathleen M. Shay, Esq. If to the Escrow Agent: Sills Cummis Radin Tischman Epstein & Gross, P.A. One Riverfront Plaza Newark, NJ 07102 Telecopier: (973) 643-6500 Attention: Ira A. Rosenberg, Esq. or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall only be effective upon receipt. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt (or rejection of delivery) if delivered by hand or overnight courier service or sent by telex, or on the date five (5) business days after dispatch by certified or registered mail if mailed, in each case delivered, sent or mailed (properly addressed) to such party as provided in this Section 12 or in accordance with the latest unrevised direction from such party given in accordance with this Section 12. 13. Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of Delaware. 14. Binding Effect. This Agreement and all action taken hereunder in -------------- accordance with its terms shall be binding upon and insure to the benefit of the parties hereto and their respective successors, assigns, heirs, executors, administrators and legal representatives. 15. Successor Talaria Stockholder Representative. The Talaria Stockholder -------------------------------------------- Representative, or any successor to it hereafter appointed, may resign and shall be discharged of its duties hereunder upon the appointment of a successor Talaria Stockholder Representative as herein provided. In case of such resignation, or inability to act of the Talaria Stockholder Representative, a successor shall be named by unanimous consent of the remaining Talaria Stockholders, or, if no replacement is so appointed within forty five (45) days of such resignation, or inability to act, by written agreement of Talaria Stockholders whose respective interests in the Escrow Fund exceed a majority of the total thereof. Each such successor Talaria Stockholder Representative shall have all the power, authority, rights and privileges hereby conferred upon the original Talaria Stockholder Representative, and the term "Talaria Stockholder Representative" as used herein shall be deemed to include a successor Talaria Stockholder Representative. 16. Resignation/Removal of Escrow Agent. The Escrow Agent may at any time ----------------------------------- resign as Escrow Agent hereunder by giving thirty (30) days' prior written notice of resignation to Esperion, Talaria, the Surviving Corporation and the Talaria Stockholder Representative. Prior to the effective date of the resignation as specified in such notice, Esperion will issue to the Escrow Agent a written instruction authorizing redelivery of the amounts held by it hereunder to a bank or trust company that it selects as the successor escrow agent, subject to the consent of the Talaria Stockholder Representative, which consent shall not be unreasonably withheld or delayed. Such bank or trust company selected as successor escrow agent shall have capital, surplus and undivided profits in excess of $50,000,000. If, however, Esperion shall fail to name a successor escrow agent within twenty (20) days after the notice of resignation from the Escrow Agent, the Talaria Stockholder Representative shall be entitled to name such successor escrow agent. If no successor escrow agent is named by Esperion or the Talaria Stockholder Representative, the Escrow Agent may apply to a court of competent jurisdiction for appointment of a successor escrow agent at the expense of Esperion and the Talaria Stockholders. Any successor escrow agent shall execute and deliver to the parties hereto a counterpart of this Agreement. 17. Confirmation of Escrow Agent's Appointment. Esperion, the Surviving ------------------------------------------ Corporation, the Talaria Stockholder Representative and the Talaria Stockholders hereby confirm the appointment of the Escrow Agent under this Agreement, and the Escrow Agent hereby accepts such appointment. 18. Entire Agreement. This Agreement contains the entire agreement among ---------------- the parties hereto with respect to the transactions contemplated hereby and supersedes all prior agreements and understandings, whether written or oral, among the parties hereto with respect to the subject matter of this Agreement. 19. Severability. The invalidity or unenforceability of a particular ------------ provision of this Agreement shall not effect any other provisions, and this Agreement shall be construed in all respects as though such invalid or unenforceable provisions were omitted. 19. Amendments. This Agreement may only be amended or modified by a ---------- written instrument executed by Esperion, Talaria Stockholders then holding a majority-in-interest of the Escrow Fund, and the Escrow Agent. 20. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties hereto have caused this Indemnification, Escrow and Participation Agreement to be signed as of the date first above written. ESPERION THERAPEUTICS, INC. By: /s/ Roger S. Newton ----------------------------------- Name: Roger S. Newton Title: President and Chief Executive Officer ESPERION MERGERCO, INC. By: /s/ Roger S. Newton ----------------------------------- Name: Roger S. Newton Title: President TALARIA STOCKHOLDERS: /s/ Hal S. Broderson ----------------------------------- Dr. Hal S. Broderson /s/ Dennis I. Goldberg ----------------------------------- Dr. Dennis I. Goldberg /s/ Charles G. Hadley ----------------------------------- Charles G. Hadley C.G. Grefenstette and Thomas G. Bigley, Trustees Under Agreement of Trust Dated 8/26/68 For Audrey Hilliard Hillman Fisher By: /s/ C.G. Grefenstette ------------------------------- C.G. Grefenstette, Trustee By: /s/ Thomas G. Bigley ------------------------------- Thomas G. Bigley, Trustee C.G. Grefenstette and Thomas G. Bigley, Trustees Under Agreement of Trust Dated 8/26/68 For William Talbott Hillman By: /s/ C.G. Grefenstette ------------------------------- C.G. Grefenstette, Trustee By: /s/ Thomas G. Bigley ------------------------------- Thomas G. Bigley, Trustee C.G. Grefenstette and Thomas G. Bigley, Trustees Under Agreement of Trust Dated 8/26/68 For Henry Lea Hillman, Jr. By: /s/ C.G. Grefenstette ------------------------------- C.G. Grefenstette, Trustee By: /s/ Thomas G. Bigley ------------------------------- Thomas G. Bigley, Trustee C.G. Grefenstette and Thomas G. Bigley, Trustees Under Agreement of Trust Dated 8/26/68 For Juliet Lea Hillman Simonds By: /s/ C.G. Grefenstette ------------------------------- C.G. Grefenstette, Trustee By: /s/ Thomas G. Bigley ------------------------------- Thomas G. Bigley, Trustee Henry L. Hillman, Elsie Hilliard Hillman and C.G. Grefenstette, Trustees of the Henry L. Hillman Trust U/A dated November 18, 1985 By: /s/ Henry L. Hillman ------------------------------- Henry L. Hillman, Trustee By: /s/ Elsie Hilliard Hillman ------------------------------- Elsie Hilliard Hillman, Trustee By: /s/ C.G. Grefenstette ------------------------------- C.G. Grefenstette, Trustee HCC Investments, Inc. By: /s/ Andrew H. McQuarrie ------------------------------- /s/ Robert C. Blanks ---------------------------------- Robert C. Blanks /s/ David P. Rosenbaum ---------------------------------- Dr. David P. Rosenbaum Reverse Transport Licensing and Consulting, Inc. By: /s/ Kevin Jon Williams ------------------------------- ROCK HILL VENTURES, INC., as Talaria Stockholder Representative By: /s/ Charles G. Hadley ------------------------------------ SILLS CUMMIS RADIN TISHCMAN EPSTEIN & GROSS, P.A., as Escrow Agent By: /s/ Ira A. Rosenberg ------------------------------------ Schedule 1 ---------- I. Issuance of Shares at the Effective Time of the Merger: Shares To Be Escrowed Name of Talaria Stockholder Delivered Shares Total - ----------------------------- ------------ -------- ------ [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] [****] ------ ------ ------ [****] [****] [****] II. Consideration To Be Paid After the Effective Time: Percent of Name Consideration - ---- ------------- [****] [****]% [****] [****]% [****] [****]% [****] [****]% [****] [****]% [****] [****]% [****] [****]% [****] [****]% [****] [****]% [****] [****]% [****] [****]% [****] [****]% --------- 100.0000% ________________________ 1. If any consideration is paid in a combination of cash and shares, the cash and shares shall be allocable pro rata to each Talaria Stockholder. 2. The shares are to be issued in the names of the respective Talaria Stockholders as shown in this Schedule. 3. All consideration payable to the Talaria Stockholders shall be delivered to Rock Hill Ventures, Inc. (attention: Charles G. Hadley) as the Talaria Stockholder Representative. September 21, 2000 Schedule 2 ---------- I. Holders of Common Stock - ----------------------------- [****] [****] shares [****] [****] shares [****] [****] shares [****] [****] shares [****] [****] shares [****] [****] shares [****] [****] shares [****] [****] shares [****] [****] shares [****] [****] shares [****] [****] shares [****] [****] shares II. Holders of Series B Convertible Preferred Stock - ---------------------------------------------------- [****] [****] shares [****] [****] shares [****] [****] shares [****] [****] shares [****] [****] shares [****] [****] shares EX-23.4 3 0003.txt CONSENT OF GOLDENBERG ROSENTHAL, LLP EXHIBIT 23.4 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Form 8-K/A of our report dated August 1, 2000, covering the financial statements of Talaria Therapeutics, Inc., appearing in this Current Report, which is a part of the Registration Statement File No. 333-31032. It should be noted that we have not audited any financial statements of the company subsequent to December 31, 1999 or performed any audit procedures subsequent to the date of our report. /s/ Goldenberg Rosenthal, LLP ------------------------------------------ GOLDENBURG ROSENTHAL, LLP Jenkintown, Pennsylvania November 20, 2000 EX-99.2 4 0004.txt FINANCIAL STATEMENTS EXHIBIT 99.2 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 1 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 2 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 3 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. 4 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. 5 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 September 24, 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. 6 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. 7 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, 1999, 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 8 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. 9 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.................. $ -- $ -- $ -- ======== ========== ==========
10 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 negotiate 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's stockholders. The Company's stockholders would also receive deferred contingent payments in cash or common stock based on future net sales of the product in North America. 11 -----END PRIVACY-ENHANCED MESSAGE-----