<PAGE>
As filed with the Securities and Exchange Commission on February 24, 2000
Registration Statement No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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ESPERION THERAPEUTICS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 2834 38-3419139
(State or other (Primary Standard Industrial (IRS Employer
jurisdiction of Classification Code No.) Identification Number)
incorporation or
organization)
3621 S. State Street, 695 KMS Place
Ann Arbor, MI 48108
734/332-0506
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
ROGER S. NEWTON, PH.D.
President and Chief Executive Officer
Esperion Therapeutics, Inc.
3621 S. State Street, 695 KMS Place
Ann Arbor, MI 48108
(734) 332-0506
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
Copies to:
David R. King Mitchell S. Bloom
Morgan, Lewis & Bockius LLP Testa, Hurwitz & Thibeault, LLP
1701 Market Street 125 High Street
Philadelphia, PA 19103 Boston, MA 02110
(215) 963-5000 (617) 248-7000
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Amount of the
Title of each Class of\ Maximum Aggregate Registration
Securities to be Registered Offering Price(1) Fee
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<S> <C> <C>
Common Stock, $0.001 par value............................. $138,000,000 $36,432
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</TABLE>
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(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933, as amended.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 24, 2000
[ESPERION LOGO]
Shares
Common Stock
Esperion is offering shares of its common stock. This is our initial
public offering. We have applied to have our common stock approved for
quotation on the Nasdaq National Market under the symbol "ESPR." We anticipate
that the initial public offering price will be between $ and $ per
share.
---------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 5.
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<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Public Offering Price.............................................. $ $
Underwriting Discounts and Commissions............................. $ $
Proceeds to Esperion............................................... $ $
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Esperion has granted the underwriters a 30-day option to purchase up to an
additional shares of common stock to cover over-allotments.
FleetBoston Robertson Stephens Inc. expects to deliver the shares to purchasers
on , 2000.
---------------
Robertson Stephens Chase H&Q
U.S. Bancorp Piper Jaffray
The date of this Prospectus is , 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 5
Forward-Looking Statements............................................... 15
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Consolidated Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 20
Business................................................................. 24
Management............................................................... 36
Certain Relationships and Related Transactions........................... 43
Principal Stockholders................................................... 45
Description of Capital Stock............................................. 47
Shares Eligible for Future Sale.......................................... 50
Underwriting............................................................. 52
Lawyers.................................................................. 54
Experts.................................................................. 54
Additional Esperion Information.......................................... 54
Index to Financial Statements............................................ F-1
</TABLE>
<PAGE>
SUMMARY
Because this is only a summary, it does not contain all the information
that may be important to you. You should read the entire prospectus, especially
"Risk Factors" and the consolidated financial statements and notes, before
deciding to invest in shares of our common stock.
Esperion Therapeutics, Inc.
We discover and develop pharmaceutical products for the treatment of
cardiovascular disease. We intend to commercialize a novel class of drugs that
focus on a new treatment approach we call HDL Therapy which is based on our
understanding of high density lipoprotein, or HDL, function. HDL is the primary
facilitator of the reverse lipid transport, or RLT, pathway. The RLT pathway is
responsible for removing excess cholesterol from arteries and other tissues and
for its transport to the liver for elimination from the body. Our goal is to
develop drugs that exploit the beneficial functions of HDL within the RLT
pathway. We currently have five product candidates under development for the
treatment of cardiovascular disease. Preclinical studies suggest that these
product candidates increase HDL levels or enhance HDL function. Additionally,
third-party published reports of preliminary human clinical studies of a number
of our product candidates suggest that these compounds are safe and well
tolerated and may increase elimination of cholesterol.
According to the American Heart Association, or AHA, cardiovascular
disease is the largest killer of American men and women. Currently, over $15
billion is spent annually on the drug treatment of cardiovascular disease in
the United States. Coronary disease and atherosclerosis, the most prevalent
forms of cardiovascular disease, lead to limited blood flow to the heart and
can result in heart attacks, chest pain or angina and a variety of other
complications. These conditions significantly reduce a person's quality of life
and may result in death. Atherosclerosis is caused by the buildup of lipids,
primarily cholesterol, that form plaque in the arteries. This buildup of lipids
is usually caused by an imbalance between the "bad" cholesterol, known as low
density lipoprotein, or LDL, and the "good" cholesterol, known as high density
lipoprotein, or HDL. The generally accepted medical viewpoint is that low
levels of HDL and/or high levels of LDL lead to the progression of
atherosclerosis.
A current treatment for atherosclerosis is the use of pharmaceutical
lipid regulating agents, including statins, which limit the progression of the
disease by lowering levels of LDL. Statins, which sold approximately $10
billion in 1999, generally do not promote the regression of atherosclerosis. As
a result, invasive surgical procedures, such as balloon angioplasty or coronary
artery bypass surgery, are often required to remove accumulated deposits of
arterial plaque. We believe our product candidates will complement the use of
existing lipid regulating agents and minimize the necessity of invasive
procedures.
We are developing ProApoA-I, a precursor of ApoA-I, the major protein of
HDL, for the treatment of life-threatening acute coronary syndromes, including
heart attacks. Third-party published reports of preliminary human clinical
studies of ProApoA-I suggest that when it is infused into people with high
blood cholesterol levels elimination of cholesterol from the body is increased.
We plan to initiate clinical trials with ProApoA-I in the second half of 2000.
We are developing ApoA-I Milano, or AIM, for the treatment of acute
coronary syndromes and restenosis, the reclosure of an artery following
surgical procedures. We believe AIM, a natural variant of the protein ApoA-I,
facilitates the removal and transport of cholesterol and other lipids from
arteries. Published studies suggest that human carriers of this protein are
protected against atherosclerosis. Third-party preclinical studies to evaluate
AIM's therapeutic potential indicate that intravenous infusion of AIM can limit
the progression and promote regression of atherosclerosis, as well as inhibit
restenosis following balloon angioplasty. We plan to initiate clinical trials
with AIM by the first half of 2001.
1
<PAGE>
We are developing large unilamellar vesicles, or LUVs, for the treatment
of acute coronary syndromes. LUVs are made of naturally occurring lipids that
enhance the RLT pathway. When injected into the bloodstream, we believe LUVs
will have a high capacity to accept cholesterol and deliver it to the liver for
elimination from the body. We plan to initiate clinical trials with LUVs in the
second half of 2000.
We are also developing two other product candidates. The first, an RLT
peptide, has been designed to remove cholesterol from arteries and activate
specific steps in the RLT pathway. The second, an HDL elevator, is an orally
active, small molecule for the sustained elevation of HDL, which we believe
increases the efficiency of the RLT pathway.
We are actively engaged in the discovery and development of new drugs to
treat cardiovascular and metabolic diseases, including diabetes and obesity. To
accomplish this, we have developed technologies and approaches to discover new
drug candidates. These approaches include the use of genomic information, which
we believe will assist us in the design of more effective drugs and
identification of people who would benefit from their use.
We are managed by an experienced group of drug developers with
significant expertise in cardiovascular research and drug development. Roger S.
Newton, Ph.D., our President and Chief Executive Officer, was the co-discoverer
and chairman of the discovery and development team responsible for the
introduction of Lipitor at Warner-Lambert. Sales of the statin Lipitor, the
most frequently prescribed cholesterol lowering drug, exceeded $3.5 billion in
1999.
The key elements of our business strategy are to:
. develop several different drug candidates for HDL Therapy;
. leverage experienced scientific and drug development expertise;
. optimize clinical and regulatory strategies to shorten time to market;
and
. retain the marketing and development rights to our product candidates.
Additional Information
We were formed in May 1998. Our principal executive offices are located
at 3621 S. State St., 695 KMS Place, Ann Arbor, MI 48108, and our telephone
number is (734) 332-0506.
We have applied for a federally registered trademark for "Esperion." This
prospectus also includes trademarks and tradenames of other parties.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by
Esperion............... shares
Common stock to be
outstanding after this
offering............... shares
Use of proceeds.......... For further development and commercialization of our
product candidates, ongoing research and
development, payments under licensing agreements
and general corporate and working capital purposes.
Proposed Nasdaq National
Market symbol.......... ESPR
</TABLE>
The number of shares outstanding after this offering excludes, as of
February 24, 2000, 1,787,500 shares of common stock issuable upon exercise of
outstanding stock options under our 1998 Stock Option Plan, consisting of
1,278,750 options granted prior to December 31, 1999 at a weighted average
exercise price of $0.41 per share and 508,750 options granted after December
31, 1999 at a weighted average exercise price of $1.60 per share.
--------------------
Generally, the information in this prospectus, unless otherwise noted:
. assumes that the over-allotment option is not exercised; and
. reflects the automatic conversion of all outstanding shares of
preferred stock into an aggregate of 21,889,242 shares of common stock
upon the closing of this offering.
3
<PAGE>
Summary Financial Data
(in thousands except share and per share data)
The following table presents summary consolidated financial information
for Esperion. The pro forma balance sheet data give effect to the sale of the
series C and series D preferred stock in January and February 2000. The pro
forma as adjusted balance sheet data reflect the sale by Esperion of shares of
common stock in this offering at an assumed offering price of $ per
share, and the conversion of the outstanding shares of the convertible
preferred stock. The summary financial data for the period from inception (May
18, 1998) through December 31, 1998, the year ended December 31, 1999 and the
period from inception through December 31, 1999 are derived from the audited
consolidated financial statements. You should read this data together with the
consolidated financial statements and notes included in this prospectus.
<TABLE>
<CAPTION>
Period from Period from
Inception Inception
(May 18, 1998) (May 18, 1998)
Through Year Ended Through
December 31, December 31, December 31,
1998 1999 1999
-------------- ------------ --------------
<S> <C> <C> <C>
Statement of Operations Data:
Operating expenses:
Research and development........... $ 1,923 $ 8,484 $ 10,407
General and administrative ........ 464 2,518 2,982
--------- ---------- --------
Operating loss.................... (2,387) (11,002) (13,389)
Net interest income................. 244 332 576
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Net loss............................ $ (2,143) $ (10,670) $(12,813)
========= ========== ========
Basic and diluted net loss per
share............................. $ (1.06) $ (4.27) --
========= ==========
Shares used in computing basic and
diluted net loss per share........ 2,029,918 2,500,008 --
========= ==========
Pro forma basic and diluted net loss
per share (unaudited)............. -- $ (0.82) --
==========
Shares used in computing pro forma
basic and diluted net
loss per share (unaudited)........ -- 13,000,008 --
==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
------------------------------------
Pro Pro Forma
Actual Forma(1) As Adjusted(2)
-------- ---------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................ $ 5,904 $ 32,775
Working capital.......................... 3,143 30,289
Total assets............................. 7,999 34,870
Long-term debt, less current portion..... 2,284 2,284
Convertible preferred stock.............. 105 219
Deficit accumulated during the
development stage...................... (12,813) (12,813)
Total stockholders' equity............... 2,815 29,961
</TABLE>
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(1) The pro forma balance sheet data give effect to the private placements
completed in January and February 2000 and the application of the $21.8
million cash proceeds and $5.0 million cash proceeds, respectively, from
those private placements as though these events occurred as of December 31,
1999. We expect to record approximately $11.5 million relating to the
beneficial conversion feature of the series C preferred stock sold in January
2000. The total of the non-cash beneficial conversion feature will be
reflected through equal and offsetting additional paid in-capital amounts and
will not affect total stockholders' equity. The beneficial conversion feature
will be considered in the determination of the Company's net loss per common
share amounts.
(2) The pro forma as adjusted balance sheet data give effect to the unaudited
pro forma adjustments as described in footnote 1 and are adjusted to reflect
the issuance of shares of common stock at an assumed offering price of
$ per share, after deducting estimated offering expenses and the
underwriting discounts, as though these events occurred as of December 31,
1999.
4
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors, together with
all of the other information contained in this prospectus before purchasing our
common stock. If any of the following risks actually occur, our business,
financial condition and operating results could be seriously harmed, the
trading price of our common stock could decline and you may lose all or part of
your investment.
Risks Related to Our Business
All of our product candidates are at early stages of product development and
may never be commercialized.
We have no products that have received regulatory approval for commercial
sale and we have not yet initiated clinical testing of our product candidates.
All of our product candidates are in early stages of development, and we face
the risks of failure inherent in developing drugs based on new technologies.
None of our product candidates are expected to be commercially available for
several years, if at all. Our company is less than two years old and most of
our product candidates were recently in-licensed from third parties. As a
result, we have limited in-house experience with these product candidates and
obtaining regulatory approval to commercialize any of them will require
significant further research, development, testing, regulatory approvals and
investment. Product candidates that do not demonstrate preclinical or clinical
safety or efficacy will not achieve regulatory approval and will not be
commercialized. Our product candidates may not yield results that would permit
or justify clinical testing. Even if one or more of our product candidates
advance to clinical testing, they still may not be approved or commercialized.
Additionally, even if the results are favorable for any of our product
candidates, we may decide to commercialize only one of these product
candidates.
Our product candidates must satisfy rigorous standards of safety and
efficacy before they can be approved by the United States Food and Drug
Administration, or FDA, and international regulatory authorities for commercial
use. We will need to conduct significant additional research, testing involving
animals and testing involving humans, before we can file applications with the
FDA for product approval. Typically, there is a high rate of attrition for
product candidates in preclinical testing and clinical trials. Also,
satisfaction of regulatory requirements typically takes many years, is
dependent upon the type, complexity and novelty of the product and requires the
expenditure of substantial resources. Even if any of our product candidates are
approved, third parties may develop superior products or have proprietary
rights that preclude us from marketing our products.
If our research and testing is not successful or if we cannot show that
our product candidates are safe and effective, we will be unable to
commercialize our product candidates and our business may fail.
The progress and results of our preclinical testing and any future clinical
trials are uncertain and our product candidates may fail in clinical studies.
Preclinical testing and clinical trials are long, expensive and have a
high risk of failure. It will take us several years to complete our testing and
failure can occur at any stage of testing. Interim results of trials do not
necessarily predict final results and acceptable results in early trials may
not be repeated in later trials. Success in preclinical testing and early
clinical trials does not ensure that later clinical trials will be successful
and preclinical and clinical data can be interpreted in different ways, which
could delay, limit or prevent regulatory approval. Negative or inconclusive
results or adverse medical events during a clinical trial could cause a
clinical trial to be repeated or a program to be terminated. For example, a
number of companies in the pharmaceutical industry, including biotechnology
companies, have suffered significant setbacks in advanced clinical trials, even
after promising results in earlier trials.
5
<PAGE>
We do not know whether planned clinical trials will begin on time or
whether any of our clinical trials will be completed on schedule or at all. Any
of our future clinical studies might be delayed or halted for various reasons,
including:
. the drug is not effective, or physicians think that the drug is not
effective;
. patients experience severe side effects during treatment;
. patients die during a clinical study because their disease is too
advanced or because they experience medical problems that are not
related to the drug being studied;
. patients do not enroll in the studies at the rate we expect; or
. drug supplies are not sufficient to treat the patients in the
studies.
If the delays in testing or approvals we experience are significant, or
if we need to perform more or larger clinical trials than planned, our product
development costs will increase, our financial results and the commercial
prospects for our product candidates will be harmed, and our ability to become
profitable will be jeopardized.
Because we must obtain regulatory approval to market any products in the United
States and foreign jurisdictions, we cannot predict whether or when we will be
permitted to commercialize our product candidates.
The pharmaceutical industry is subject to stringent regulation by a wide
range of authorities. We cannot predict whether regulatory approval will be
granted for any product candidate we develop. A pharmaceutical product cannot
be marketed in the United States until it has completed rigorous preclinical
testing and clinical trials and has been subject to an extensive regulatory
clearance process implemented by the FDA.
Before commencing clinical trials in humans, we must submit and receive
approval of an Investigational New Drug application from the FDA. Clinical
trials are subject to oversight by institutional review boards and the FDA and:
. must be conducted in conformance with the FDA's good laboratory
practice regulations;
. must meet requirements for institutional review board oversight;
. must meet requirements for informed consent;
. must meet requirements for good clinical practices;
. may require large numbers of test subjects; and
. may be suspended by us or the FDA at any time if it is believed that
the subjects participating in these trials are being exposed to
unacceptable health risks or if the FDA finds deficiencies in the
Investigational New Drug application or the conduct of these trials.
In order to receive FDA approval to market a product, we must demonstrate
that the product candidate is safe and effective in a predefined patient
population for the treatment of a specific condition. Data obtained from
preclinical and clinical activities are susceptible to varying interpretations
that could delay, limit or prevent regulatory clearances. In addition, delays
or rejections may be encountered based upon additional government regulation
from future legislation, administrative action, or changes in FDA policy during
the period of product development, clinical trials and FDA regulatory review.
Failure to comply with applicable FDA or other applicable regulatory
requirements may result in criminal prosecution, civil penalties, recall or
seizure of products, total or partial suspension of production or injunction,
as well as other regulatory action against our product candidates or us. If the
FDA grants regulatory approval of a product, this approval will be limited to
those disease states and conditions for which the product has demonstrated
through clinical trials to be safe and effective.
6
<PAGE>
Outside the United States, our ability to market any of our potential
products is contingent upon receiving marketing authorizations from the
appropriate regulatory authorities. This foreign regulatory approval process
includes all of the risks associated with the FDA approval process described
above.
Our product candidates may not prove to be safe and effective in clinical
trials and may not meet all of the applicable regulatory requirements needed to
support marketing approval. The FDA and foreign regulatory authorities have
substantial discretion over the approval process and may not ever approve any
of our product candidates.
If we are unable to contract with third parties to manufacture our product
candidates in sufficient quantities and at an acceptable cost, we may be unable
to complete future clinical trials and commercialize our product candidates.
Completion of our future clinical trials and commercialization of our
product candidates will require access to, or development of, facilities to
manufacture a sufficient supply of our product candidates. We do not have the
resources, facilities or experience to manufacture our product candidates on
our own and do not intend to develop or acquire facilities for the manufacture
of product candidates for clinical trials or commercial purposes in the
foreseeable future. We will thus depend on third parties for the manufacture of
compounds for preclinical, clinical and commercial purposes. Our manufacturing
strategy presents the following risks:
. we may not be able to locate acceptable manufacturers or enter into
favorable long-term agreements with them;
. third parties may not be able to successfully manufacture our product
candidates and even if they can they may not be able to do so in a
cost effective and/or timely manner;
. the manufacturing processes for our product candidates have not been
tested in quantities needed for clinical trials or commercial sales;
. delays in scale-up to commercial quantities could delay clinical
studies, regulatory submissions and commercialization of our
products;
. we may not have intellectual property rights, or may have to share
intellectual property rights, to many improvements in the
manufacturing processes or new manufacturing processes for our
product candidates;
. a long lead time is needed to manufacture our product candidates and
the manufacturing process is complex; and
. manufacturers of our product candidates are subject to the FDA's
current Good Manufacturing Practices regulations, or cGMPs, and
similar foreign standards and we do not have control over compliance
with these regulations by our third-party manufacturers.
Any of these factors could delay clinical studies or commercialization of
our product candidates, entail higher costs and result in us being unable to
effectively sell any products for which we receive regulatory approval.
The supplies we depend on for the components of our product candidates,
including proteins, peptides, phospholipids and bulk chemical materials, are
limited and we may not be able to obtain the supplies of such components
necessary to develop and commercialize our product candidates.
We rely on third parties to provide the components we need to develop and
commercialize all of our product candidates. We have not entered into any
agreements that provide us assurance of continued supply of these components.
Because we have not yet commercialized or entered clinical trials for any of
our product candidates, there is currently a limited supply of components, such
as proteins, peptides, phospholipids and bulk chemical materials, available
from any supplier. We may not be able to obtain sufficient supply of these
components from our suppliers at acceptable prices, if at all, necessary to
conduct clinical trials for and
7
<PAGE>
commercialize our product candidates. We may not be able to find any alternate
suppliers in a timely manner that would provide these components at acceptable
prices or in acceptable quantities. Any delay or disruption in the supply of
these components could slow or stop the development and commercialization of
our product candidates. Before replacing our current suppliers or engaging any
other suppliers, we would need to satisfy various regulatory requirements.
We currently rely on sole source third-party manufacturers and those third
party manufacturers may not perform.
We currently rely, and will continue to rely for at least the next few
years, on contract manufacturers to produce quantities of our product
candidates proApoA-I, AIM, LUVs, RLT peptide and HDL elevators and their
components, for use in our anticipated clinical trials. We currently rely on a
sole source supplier for all of our product candidates and their components.
Our contract manufacturers have limited experience at manufacturing,
formulating, analyzing, fill and finishing our product candidates. We currently
rely on our contract manufacturing to produce all our product candidates under
cGMPs, which meet acceptable standards for our clinical trials. If our contract
manufacturers cannot meet cGMPs or fail to deliver the required quantities of
our product candidates for preclinical or clinical use on a timely basis or at
acceptable prices, and we fail to find a replacement manufacturer or develop
our own manufacturing capabilities, our business, financial condition, and
results of operations will be seriously harmed.
We have never conducted and managed clinical trials necessary to obtain
regulatory approval and we will rely on third parties to conduct our clinical
trials and those third parties might not perform acceptably.
We do not have the ability to independently conduct clinical studies and
obtain regulatory approvals for our product candidates, and we intend to rely
on third-party clinical research organizations to perform these functions. If
we cannot locate acceptable contractors to run our clinical studies or enter
into favorable agreements with them, or if these third parties do not
successfully carry out their contractual duties or meet expected deadlines, we
will be unable to get required approvals and will be unable to commercialize
our product candidates on a timely basis, if at all.
If we receive regulatory approvals for any of our product candidates and cannot
maintain these approvals, we will be unable to sell the products and our
revenues will suffer.
The process of maintaining regulatory approvals for new drugs is
expensive and uncertain. The manufacturing, distribution, advertising and
marketing of any approved products are subject to extensive regulation. Any
product approvals we receive in the future could include significant
restrictions on the use or marketing of our products. Product approvals, if
granted, can be withdrawn for failure to comply with regulatory requirements or
upon the occurrence of adverse events following commercial introduction of the
products. If approvals are withdrawn for a product, we would be unable to sell
that product and our revenues would suffer. In addition, governmental
authorities could seize our products or force us to recall our products.
Finally, Esperion and its officers and directors could be subject to civil and
criminal penalties.
We have incurred substantial losses since we were formed, and we expect to
continue to incur substantial losses for the foreseeable future. These losses
could increase significantly as we continue our product development efforts.
We have incurred substantial losses since our inception. As of December
31, 1999, we had a cumulative net loss of approximately $12.8 million. These
losses have resulted principally from costs incurred in our research and
development programs, and from our general and administrative costs. To date we
have no revenue from product sales or royalties, and we do not expect to
achieve any revenue from product sales or royalties until we receive regulatory
approval and begin commercialization of our product candidates. We are not
certain of when, if ever, that will occur. We expect to incur additional
operating losses in the future and these losses could increase significantly,
whether or not we generate revenue, as we expand our development and clinical
trial efforts.
8
<PAGE>
In the near term, we expect our quarterly and annual operating results
to fluctuate, depending primarily on the following factors:
. timing of preclinical and clinical trials;
. interruption or delays in the supply of our product candidates or
components;
. timing of payments to licensors and corporate partners; and
. timing of investments in new technologies.
We may never be profitable even if any of our product candidates are
approved and commercialized.
If our licensing arrangements and strategic relationships with third parties
are breached, terminated or proven to be unsuccessful, our efforts to develop
and commercialize our product candidates may be delayed.
We depend on licensing arrangements and other strategic relationships
with third parties for research, development, manufacturing and
commercialization of our product candidates. Our licensing arrangements may be
terminated if we do not perform as required under these arrangements. In
addition, these third parties may also breach or terminate their agreements
with us or otherwise fail to conduct their activities in connection with our
relationships in a timely manner. If any of our licenses or relationships are
terminated or breached, we:
. may lose our rights to develop and market our product candidates;
. may lose patent and/or trade secret protection for our product
candidates;
. may experience significant delays in the development or
commercialization of our product candidates;
. may not be able to obtain any other licenses on acceptable terms, if
at all; and
. may incur liability for damages.
Licensing arrangements and strategic relationships in our industry can
be very complex, particularly with respect to intellectual property rights.
Disputes may arise in the future regarding ownership rights to technology
developed by or with other parties. These and other possible disagreements
between us and third parties with respect to our licenses or our strategic
relationships could lead to delays in the research, development, manufacture
and commercialization of our product candidates. These third parties may also
pursue alternative technologies or product candidates either on their own or
in strategic relationships with others in direct competition with us. These
disputes could also result in litigation or arbitration, both of which are
time-consuming and expensive.
If we fail to secure or enforce the patents and other intellectual property
rights underlying our product candidates and technologies, we may be unable to
compete effectively.
The pharmaceutical industry places considerable importance on obtaining
patent and trade secret protection for new technologies, products and
processes. Our success depends on our ability and, in some situations, the
ability of our third-party licensors to:
. obtain and maintain patent protection for our product candidates and
technologies;
. preserve our trade secrets; and
. operate without infringing on the intellectual property rights of
third parties.
Our reliance on patent protection presents the following risks:
. patents may not ultimately be issued from any pending or future
patent applications;
. issued patents may not be sufficient to protect our product
candidates or technologies;
9
<PAGE>
. issued patents may be held to be invalid or unenforceable if
challenged; and
. third parties may develop technology which circumvents our or our
licensors' patents.
Patent applications in the United States are maintained in secrecy until
a patent issues. As a result, others may have filed patent applications for
products or technology covered by any pending patent applications we are
relying upon. There may be third-party patents, patent applications and other
intellectual property relevant to our product candidates and technologies which
are not known to us and that block or compete with our product candidates or
technologies. Litigation may be necessary to enforce any patents issued to us
or to determine the scope and validity of the intellectual property rights of
third parties. The defense and prosecution of patent and other intellectual
property claims is both costly and time consuming, even if the eventual outcome
is favorable to us.
We may face significant expense and liability if our technologies, product
candidates, methods or processes are found to infringe the intellectual
property rights of others, or if we allege others infringe our intellectual
property rights.
A third party may claim that we are using inventions claimed by their
patents and may go to court to stop us from engaging in our normal operations
and activities, such as research and development and the sale of products. Such
lawsuits are expensive and would consume time and other resources. There is a
risk that the court will decide that we are infringing the third party's
patents and will order us to stop the activities claimed by the patents. In
addition, there is a risk that a court will order us to pay the other party
damages for having infringed their patents. Moreover, there is no guarantee
that the prevailing patent owner would offer us a license so that we could
continue to engage in activities claimed by the patent, or that such a license,
if made available to us, could be acquired on commercially-acceptable terms.
Should third parties file patent applications, or be issued patents,
claiming technology also claimed by us in pending applications, we may be
required to participate in interference proceedings in the United States Patent
and Trademark Office to determine priority of invention. We, or our licensors,
also could be required to participate in interference proceedings involving our
issued patents and pending applications of another entity. An adverse outcome
in an interference proceeding could require us to cease using the technology or
to license rights from prevailing, third parties. There is no guarantee that
any prevailing party would offer us a license or that such a license, if made
available to us, could be acquired on commercially-acceptable terms.
We are aware of issued patents that claim use of LUVs to treat diseases
including atherosclerosis. We do not believe that we infringe any valid and
enforceable claim of these patents, and we have received an opinion of a patent
counsel that claims to such use in the patents should be invalidated. However,
it is possible that a claim could be asserted that the manufacture, use or sale
of LUVs by us infringes one or more claims of these issued patents. If these
patents are found to contain claims infringed by the manufacture, use or sale
of LUVs and such claims are ultimately found to be valid and enforceable, we
may not be able to obtain a license to the intellectual property in such
patents at an acceptable cost, if at all, or develop or obtain alternative
technology. In addition, if a third party makes a claim for infringement, we
would have to defend ourselves in court and this could result in substantial
cost and diversion of management's resources, and our defense may not be
successful.
In addition, third parties may, in the future, assert patent or other
intellectual property infringement claims against us with respect to our
product candidates, technologies or other matters.
Our success also depends upon the skills, knowledge and experience of our
scientific and technical personnel. The confidentiality agreements required of
our employees may not provide adequate protection for our trade secrets, know-
how or other confidential information or prevent any unauthorized use or
disclosure or the unlawful development by others. If any of our confidential
intellectual property is disclosed, our business may suffer. In addition, many
of our scientific and management personnel were previously employed by other
biotechnology and pharmaceutical companies, where they were conducting research
in areas similar to those that we now pursue. As a result, we could be subject
to allegations of trade-secret violations and other claims relating to the
intellectual property rights of these companies.
10
<PAGE>
Failure to recruit, retain and motivate skilled personnel will delay our
product development programs and our research and development efforts.
We are a small company with 38 employees, and our success depends on our
continued ability to recruit, retain and motivate highly qualified management
and scientific personnel, for which competition is intense. In particular, our
product development programs depend on our ability to recruit and retain highly
skilled chemists and clinical development personnel. If we lose the services of
any key personnel, in particular, Roger S. Newton, Ph.D., our Chief Executive
Officer, it could significantly impede the achievement of our research and
development objectives and could delay our product development programs and
approval and commercialization of any of our product candidates. We maintain
key man life insurance on Dr. Newton in the amount of $5 million. In addition,
we will need to hire additional personnel as we continue to expand our research
and development activities. We do not know if we will be able to recruit,
retain or motivate personnel.
If we fail to obtain the capital necessary to fund our operations, we will be
unable to successfully develop our product candidates.
We expect that significant additional capital will be required in the
future to fund our operations. We do not know whether additional financing will
be available on acceptable terms when needed. We have consumed substantial
amounts of cash to date and expect capital outlays and operating expenditures
to increase over the next several years as we expand our infrastructure and
research and development activities. We may raise this financing through public
or private equity offerings, debt financings or corporate collaborations and
licensing arrangements.
We believe that the net proceeds from the offering, existing cash and
investment securities will be sufficient to support our current operating plan
through at least the end of 2001. We have based this estimate on assumptions
that may prove to be wrong. Our future capital requirements depend on many
factors that affect our research, development, collaboration and sales and
marketing activities. For example, we may need to spend more money than
currently expected because we may need to change our product candidate
development plans or offerings to address any difficulties in clinical studies
or in commercialization.
If we raise additional capital by issuing equity securities, our
stockholders may experience substantial dilution. If we raise additional funds
through collaborations and licensing arrangements, we may be required to
relinquish some rights to our technologies or product candidates, or grant
licenses on terms that are not favorable to us. If adequate funds are not
available, we may have to delay or may not be able to continue developing our
product candidates.
If our competitors develop and market products faster than we do or which are
superior to our product candidates, our commercial opportunities will be
reduced or eliminated.
The extent to which any of our product candidates achieve market
acceptance will depend on competitive factors, many of which are beyond our
control. Competition in the pharmaceutical industry is intense and has been
accentuated by the rapid pace of technology development. Our competitors
include large integrated pharmaceutical companies, biotechnology companies that
currently have drug and target discovery efforts, universities and public and
private research institutions. Almost all of these entities have substantially
greater research and development capabilities and financial, scientific,
manufacturing, marketing and sales resources than we do, as well as more
experience in research and development, clinical trials, regulatory matters,
manufacturing, marketing and sales. These organizations also compete with us
to:
. attract parties for acquisitions, joint ventures or other
collaborations;
. license the proprietary technology that is competitive with the
technology we are practicing; and
. attract funding.
11
<PAGE>
Our competitors may succeed in developing and marketing products earlier
and obtaining regulatory approvals from the FDA more rapidly than us. Our
competitors may also develop products or technologies that are superior to
those we are developing and render our product candidates or technologies
obsolete or non-competitive. If we cannot successfully compete with new or
existing products our marketing and sales will suffer and we may not ever be
profitable.
If we are unable to create sales, marketing and distribution capabilities or
enter into agreements with third parties to perform these functions, we will
not be able to commercialize any of our product candidates.
We currently have no sales, marketing or distribution capability. In
order to commercialize any of our product candidates, we must either internally
develop sales, marketing and distribution capabilities or make arrangements
with third parties to perform these services.
Our licensors have granted us exclusive rights to market our product
candidates except for AIM. In the United States, we do not intend to enter into
co-promotion arrangements or out-license our product candidates until any of
our product candidates are in the later stages of development, but at that
point we may promote our product candidates through marketing relationships
with one or more companies that have established distribution systems and
direct sales forces. In international markets, initially we intend to seek
strategic relationships to market, sell and distribute our product candidates,
but we may eventually become involved in direct sales and marketing activities
in other parts of the world.
To market any of our products directly, we must develop a marketing and
sales force with technical expertise and supporting distribution capabilities
and we may not be able to do so. To promote any of our products through third
parties, we will have to locate acceptable third parties for these functions
and enter into agreements with them on acceptable terms and we may not be able
to do so. If we enter into co-promotion or other licensing arrangements, any
product revenues would likely be lower than if we directly marketed and sold
our products, and any revenues we may receive would depend upon the efforts of
third parties, which efforts may not be successful. If these third parties are
not successful carrying out their contractual duties or do not meet expected
deadlines, our sales would suffer and we might not be profitable.
Our product candidates, if approved, may not be commercially successful because
physicians and patients may not accept them.
Even if regulatory authorities approve our product candidates, they may
not be commercially successful. We expect that most of our product candidates
will be very expensive, if approved. Patient acceptance of and demand for any
product candidates we obtain regulatory approvals for will depend largely on
the following factors:
. acceptance by physicians and patients of our products as safe and
effective therapies;
. the extent, if any, of reimbursement of drug and treatment costs by
third-party payors;
. pricing of alternative products;
. convenience and ease of administration of our products; and
. prevalence and severity of side effects associated with our products.
In addition, any of our product candidates could cause adverse events,
such as immunologic or allergic reactions. These reactions may not be observed
in clinical trials, but may nonetheless occur after commercialization. If any
of these reactions occur, they may render our product candidates ineffective in
some patients and our sales would suffer.
12
<PAGE>
Our ability to generate revenues will be diminished if we fail to obtain
acceptable prices or an adequate level of reimbursement for our products from
third-party payors.
The continuing efforts of government and third-party payors to contain or
reduce the costs of health care through various means will limit our commercial
opportunity. For example, in some foreign markets, pricing and profitability of
prescription pharmaceuticals are subject to government control. In the United
States, we expect that there will continue to be a number of federal and state
proposals to implement similar government control. In addition, increasing
emphasis on managed care in the United States will continue to put pressure on
the pricing of pharmaceutical products. Cost control initiatives could decrease
the price that we would receive for any products in the future.
Our ability to commercialize pharmaceutical product candidates, alone or
with third parties, could be adversely affected by cost control initiatives and
may also depend in part on the extent to which reimbursement for the product
candidates will be available from:
. government and health administration authorities;
. private health insurers; and
. other third-party payors.
Significant uncertainty exists as to the reimbursement status of newly
approved health care products. Third-party payors, including Medicare, are
challenging the prices charged for medical products and services. Government
and other third-party payors increasingly are attempting to contain health care
costs by limiting both coverage and the level of reimbursement for new drugs
and by refusing, in some cases, to provide coverage for uses of approved
products for disease indications for which the FDA has not granted labeling
approval. Third-party insurance coverage may not be available to patients for
any product candidates we discover and develop, alone or through our strategic
relationships. If government and other third-party payors do not provide
adequate coverage and reimbursement levels for our product candidates, the
market acceptance of these product candidates may be reduced.
If product liability lawsuits are successfully brought against us, we may incur
substantial liabilities and may be required to limit commercialization of our
products.
Our business exposes us to potential product liability risks, which are
inherent in the testing, manufacturing, marketing and sale of pharmaceutical
products. We may not be able to avoid product liability claims. Product
liability insurance for the pharmaceutical industry is generally expensive, if
available at all. We do not currently have any product liability insurance. If
we are unable to obtain sufficient insurance coverage on reasonable terms or to
otherwise protect against potential product liability claims, we may be unable
to commercialize our product candidates. A successful product liability claim
brought against us in excess of our insurance coverage, if any, may cause us to
incur substantial liabilities and our business may fail.
If we use biological and hazardous materials in a manner that causes injury or
violates laws, we may be liable for damages.
Our research and development activities involve the controlled use of
potentially harmful biological materials as well as hazardous materials,
chemicals and various radioactive compounds. We cannot completely eliminate the
risk of accidental contamination or injury from the use, storage, handling or
disposal of these materials. In the event of contamination or injury, we could
be held liable for damages that result, and any liability could exceed our
resources. We are subject to federal, state and local laws and regulations
governing the use, storage, handling and disposal of these materials and
specified waste products. The cost of compliance with these laws and
regulations could be significant.
13
<PAGE>
Risks Related to the Offering
The market price of our common stock after this offering may be lower than the
price you pay.
Prior to this offering, there has been no public market for our common
stock. If you purchase shares of our common stock in this offering, you will
not pay a price that was established in a competitive market. Rather, you will
pay a price that we negotiated with the representatives of the underwriters.
The price of our common stock that will prevail in the market after this
offering may be higher or lower than the price you pay. After this offering, an
active trading market in our stock might not develop or continue.
Our stock price may be highly volatile and could decline.
The market price of our common stock may fluctuate significantly in
response to many factors, some of which are beyond our control, including the
following:
. results of preclinical studies and clinical trials conducted by us or
by others;
. timing of regulatory approvals;
. announcements of technological innovations or new commercial products
by us, or by others;
. developments or disputes concerning patents or other proprietary
rights;
. regulatory developments in both the United States and foreign
countries;
. changes in reimbursement policies;
. rate of product acceptance;
. fluctuations in our operating results;
. failure to meet estimates of or changes in recommendations by
securities analysts;
. public concern as to the safety and efficacy of product candidates
developed by us, or by others;
. lack of adequate trading liquidity as a public company; or
. general market conditions.
In addition, the market price for securities of early-stage drug
companies have been particularly volatile. In the past, following periods of
volatility in the market price of a particular company's securities, securities
class action litigation has often been brought against that company. We may
become involved in this type of litigation in the future. Litigation of this
type is often extremely expensive and diverts management's attention and
resources.
You will incur immediate and substantial dilution of the value of your shares.
The assumed offering price of our common stock is substantially higher
than the net tangible pro forma book value per share of our outstanding common
stock. As a result, investors purchasing common stock in this offering will
incur immediate and substantial dilution in the net tangible book value of
their common stock of $ per share based on the assumed offering price of $
per share. In the past, we issued options to acquire capital stock at prices
significantly below the assumed offering price. There will be further dilution
to investors when any of these outstanding options are exercised.
Future sales of our common stock could cause the market price of our common
stock to decline.
The market price of our common stock could decline due to sales of a
large number of shares in the market after this offering or the perception that
such sales could occur, including sales or distributions of shares by our large
stockholders. These sales could also make it more difficult for us to sell
equity securities in the
14
<PAGE>
future at a time and price that we deem appropriate to raise funds through
future offerings of common stock and could also make it more difficult for us
to pay in stock for any acquisitions we decide to pursue in the future.
Our certificate of incorporation and Delaware law contain provisions that could
discourage a takeover.
Our certificate of incorporation provides for the division of our board
of directors into three classes and provides our board of directors the power
to issue up to five million shares of preferred stock without stockholder
approval. This preferred stock could have voting rights that could be superior
to that of our common stock, and our board of directors has the power to
determine these voting rights. Our certificate of incorporation also requires
supermajority approval of the removal of any member of our board of directors
and prevents our stockholders from acting by written consent. In addition,
Section 203 of the Delaware General Corporation Law contains provisions which
impose restrictions on stockholder action to acquire control of Esperion. The
effect of these provisions of our certificate of incorporation and Delaware law
would likely discourage third parties from seeking to obtain control of
Esperion.
The interests of our officers, directors, principal stockholders and affiliates
may conflict with our interests and the interests of our other stockholders.
Upon the completion of this offering, our officers, directors, principal
stockholders and affiliates will own approximately shares or % of our
outstanding common stock. The interests of our controlling stockholders could
conflict with the interests of our other stockholders. For example, if our
controlling stockholders choose to act together, they may be able to exert
considerable influence over us, including in the election of directors and the
approval of actions submitted to our stockholders. This concentration of
ownership may also have the effect of discouraging third-party offers to
acquire our company or of delaying or preventing a change in control of our
company. Also, the provision of Section 203 of the Delaware General Corporation
Law would not be applicable to these stockholders.
The net proceeds from the offering may be allocated in ways with which you and
other stockholders may not agree.
Management will have significant flexibility in applying the net proceeds
of this offering and could use these proceeds for purposes other than those
contemplated at the time of the offering.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements under the captions
"Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere.
When used in this prospectus, the words "aim," "believe," "anticipate,"
"estimate," "expect," "seek," "intend," "may" and similar expressions are
generally intended to identify "forward-looking statements." Our forward-
looking statements involve known and unknown risks, uncertainties and other
factors which may cause our actual results, performance or achievements, or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by these forward-looking
statements. These factors are discussed in more detail elsewhere in this
prospectus, including under the captions "Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." Because of these uncertainties, you should not
place undue reliance on our forward-looking statements. In addition, the safe
harbor for forward-looking statements contained in the Securities Litigation
Reform Act of 1995 is not available for our forward-looking statements
contained in this prospectus. We do not intend to update any of these factors
or to publicly announce the result of any revisions to any of our forward-
looking statements contained herein, whether as a result of new information,
future events or otherwise.
15
<PAGE>
USE OF PROCEEDS
We estimate our net proceeds from the sale of our common stock in this
offering will be approximately $ million, or approximately $ million if
the underwriters' over-allotment option is exercised in full. This is based
upon an assumed offering price of $ per share after deducting underwriting
discounts and estimated offering expenses.
We expect to use these proceeds for the following purposes:
. further development and commercialization of our product candidates;
. ongoing research and development activities;
. payments under current licensing agreements; and
. general corporate and working capital purposes.
In addition, a portion of the net proceeds may be used to acquire
businesses, products and technologies that are comparable to ours. We currently
have no agreements with respect to any material acquisitions.
The amounts and timing of our actual expenditures for each purpose may
vary significantly depending upon numerous factors, including:
. the size, scope and progress of our product candidate development
efforts;
. regulatory approvals;
. competition;
. marketing and sales activities;
. the market acceptance of any products introduced by us;
. future revenue growth, if any; and
. the amount of cash, if any, we generate from operations.
As a result, we will retain broad discretion in the allocation of the net
proceeds of this offering. Pending uses described above, we intend to invest
the net proceeds of this offering in short-term, investment-grade, interest-
bearing securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We do
not anticipate paying any cash dividends in the foreseeable future. We
currently intend to retain any future earnings to fund the continued
development of our business. In addition, our existing credit facility
prohibits the payment of dividends.
16
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1999, (1) our actual
capitalization derived from our audited consolidated financial statements, (2)
our pro forma capitalization giving effect to private placements of series C
and series D convertible preferred stock completed in January and February
2000, respectively, and (3) our pro forma capitalization as adjusted to reflect
the sale of shares of common stock offered hereby at an assumed offering
price of $ per share, after deducting the underwriting discounts and
estimated offering expenses, and the automatic conversion of all outstanding
shares of convertible preferred stock into common stock upon the closing of the
offering.
<TABLE>
<CAPTION>
As of December 31, 1999
------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- -------------- -----------
(unaudited) (unaudited)
(in thousands)
<S> <C> <C> <C>
Long-term debt, less current portion...... $ 2,284 $ 2,284 $
Stockholders' equity:
Preferred stock, $0.01 par value,
15,000,000 shares authorized at
December 31, 1999:
Series A convertible preferred,
500,000 shares issued and
outstanding actual and pro forma,
none issued and outstanding pro
forma as adjusted.................. 5 5
Series B convertible preferred,
10,000,000 shares issued and
outstanding actual and pro forma,
none issued and outstanding pro
forma as adjusted.................. 100 100
Series C convertible preferred,
10,252,879 shares issued and
outstanding pro forma, none issued
and outstanding pro forma as
adjusted........................... -- 103
Series D convertible preferred,
1,136,363 shares issued and
outstanding pro forma, none issued
and outstanding pro forma as
adjusted........................... -- 11
Total convertible preferred stock.. 105 219
Common stock, $0.001 par value,
20,000,000 shares authorized,
2,680,000 shares issued and
outstanding actual and pro forma,
issued and outstanding pro
forma as adjusted..................... 3 3
Additional paid-in capital.............. 16,466 43,498
Notes receivable........................ (106) (106)
Deferred compensation................... (838) (838)
Deficit accumulated during the
development stage..................... (12,813) (12,813)
Accumulated other comprehensive loss.... (2) (2)
-------- -------- -------
Total stockholders' equity......... 2,815 29,961
-------- -------- -------
Total capitalization............... $ 5,099 $ 32,245 $
======== ======== =======
</TABLE>
The number of shares of common stock to be outstanding after this
offering is based on the 2,680,000 shares outstanding as of December 31, 1999
plus 21,889,242 shares issuable upon the automatic conversion of all
outstanding shares of convertible preferred stock into common stock upon the
closing of this offering, and shares offered hereby. It does not include
1,787,500 shares of common stock issuable upon the exercise of outstanding
options under our 1998 Stock Option Plan, consisting of 1,278,750 options
granted prior to December 31, 1999 at a weighted average exercise price of
$0.41 per share and 508,750 options granted after December 31, 1999 at a
weighted average exercise price of $1.60 per share.
17
<PAGE>
DILUTION
As of December 31, 1999, our pro forma net tangible book value was
$ or $ per share. Pro forma net tangible book value per share is
determined by dividing pro forma net tangible book value (total tangible assets
less total liabilities) by the pro forma number of shares of common stock after
giving effect to the automatic conversion of all outstanding shares of
preferred stock into an aggregate of 21,889,242 shares of common stock, upon
the closing of this offering.
Without taking into effect any changes in pro forma net tangible book
value after December 31, 1999, after giving effect to the sale of the common
stock offered hereby at an assumed offering price of $ per share and after
deducting the underwriter discounts and estimated offering expenses, the pro
forma as adjusted net tangible book value would have been $ , or $ per
share. This represents an immediate increase in pro forma net tangible book
value of $ per share to existing stockholders and dilution in pro forma as
adjusted net tangible book value of $ per share to new investors who purchase
shares in this offering. The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed offering price per share.................................. $
Pro forma net tangible book value per share before the
offering...................................................... $
Increase per share attributable to new investors................
-----
Pro forma as adjusted net tangible book value per share after the
offering........................................................
-----
Dilution in net tangible book value per share to new investors.... $
=====
</TABLE>
If the underwriters' over-allotment option were exercised in full, the
pro forma as adjusted net tangible book value per share after the offering
would be $ per share, the increase in net tangible book value per share to
existing stockholders would be $ per share and the dilution in net tangible
book value to new investors would be $ per share.
The following table summarizes, on a pro forma as adjusted basis as of
December 31, 1999, the differences between the total consideration paid and the
average price per share paid by the existing stockholders and the new investors
with respect to the number of shares of common stock purchased from us based on
an assumed offering price of $ per share:
<TABLE>
<CAPTION>
Total Average
Shares Consideration Price
-------------- -------------- Per
Number Percent Amount Percent Share
------ ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. % $ % $
New investors..........................
--- ----- ---- -----
Total............................. 100.0% $ 100.0%
=== ===== ==== =====
</TABLE>
These tables do not assume exercise of stock options outstanding at
December 31, 1999.
As of February 24, 2000 there were 1,787,500 shares issuable upon
exercise of outstanding stock options, consisting of 1,278,750 options granted
prior to December 31, 1999 at a weighted average exercise price of $0.41 per
share and 508,750 options granted after December 31, 1999 at a weighted average
exercise price of $1.60 per share.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands except share and per share data)
The following selected consolidated financial data of Esperion should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on page 20 and the consolidated financial
statements and notes beginning on page F-3. The selected consolidated financial
data for the period from inception (May 18, 1998) through December 31, 1998,
the year ended December 31, 1999 and the period from inception through December
31, 1999 are derived from our audited consolidated financial statements.
<TABLE>
<CAPTION>
Period from Period from
Inception Inception
(May 18, 1998) (May 18, 1998)
Through Year Ended Through
December 31, December 31, December 31,
1998 1999 1999
-------------- ------------ --------------
<S> <C> <C> <C>
Statement of Operations Data:
Operating expenses:
Research and development........... $ 1,923 $ 8,484 $ 10,407
General and administrative......... 464 2,518 2,982
---------- ---------- ----------
Operating loss.................... (2,387) (11,002) (13,389)
Net interest income................. 244 332 576
---------- ---------- ----------
Net loss............................ $ (2,143) $ (10,670) $ (12,813)
========== ========== ==========
Basic and diluted net loss per
share............................. $ (1.06) $ (4.27) --
========== ==========
Shares used in computing basic and
diluted net loss per share........ 2,029,918 2,500,008 --
========== ==========
Pro forma basic and diluted net loss
per share (unaudited)............. -- $ (0.82) --
==========
Shares used in computing pro forma
basic and diluted net loss per
share (unaudited)................. -- 13,000,008 --
==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------------
Pro Pro Forma
Historical Forma(1) As Adjusted(2)
---------- ----------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........... $ 5,904 $ 32,775
Working capital..................... 3,143 30,289
Total assets........................ 7,999 34,870
Long-term debt, less current
portion........................... 2,284 2,284
Convertible preferred stock......... 105 219
Deficit accumulated during the
development stage................. (12,813) (12,813)
Total stockholders' equity.......... 2,815 29,961
</TABLE>
- --------
(1) The pro forma balance sheet data give effect to the private placements
completed in January and February 2000 and the application of the $21.8
million cash proceeds and $5.0 million cash proceeds, respectively, from
those private placements as though these events occurred as of December 31,
1999. We expect to record $11.5 million relating to the beneficial
conversion feature of the series C preferred stock sold in January 2000.
The total of the non-cash item will be reflected through equal and
offsetting additional paid-in capital amounts and will not affect total
stockholders' equity. The beneficial conversion feature will be considered
in the determination of Esperion's net loss per common share amounts.
(2) The pro forma as adjusted balance sheet data give effect to the unaudited
pro forma adjustments as described in footnote 1 and are adjusted to
reflect the issuance of shares of common stock at an assumed offering
price of $ per share, after deducting estimated offering expenses and
the underwriting discounts, as though these events occurred as of December
31, 1999.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Background
We have devoted substantially all of our resources since we began our
operations in May 1998 to the research and development of pharmaceutical
product candidates for cardiovascular disease. We are a development stage
pharmaceutical company and have not generated any revenues from product sales.
We have not been profitable and have incurred a cumulative net loss of
approximately $12.8 million from inception through December 31, 1999. These
losses have resulted principally from costs incurred in research and
development activities, and general and administrative expenses. We expect to
incur significant additional operating losses for at least the next several
years and until such time as we generate sufficient revenue to offset expenses.
Research and development costs relating to product candidates will continue to
increase. Manufacturing, sales and marketing costs will increase as we prepare
for the commercialization of our products.
Equity Financings
We have financed our operations primarily from the net proceeds generated
from the issuance of convertible preferred stock. As of February 24, 2000, we
have received total proceeds of approximately $42.3 million from the following
sales of preferred stock:
. 500,000 shares of series A preferred stock were sold in July 1998
raising total proceeds of approximately $500,000;
. 10,000,000 shares of series B preferred stock were sold in August 1998
raising total proceeds of approximately $15.0 million;
. 10,252,879 shares of series C preferred stock were sold in January
2000 raising total proceeds of approximately $21.8 million; and
. 1,136,363 shares of series D preferred stock were sold in February
2000 raising total proceeds of approximately $5.0 million.
Milestone Payments, Royalties and License Fees
We paid Pharmacia & Upjohn, or PNU, $750,000 at the time we entered into
our license agreement with PNU for AIM in June 1998. Our license agreement with
PNU requires us to make payments to PNU as milestones are achieved, and to pay
PNU royalties on sales of products that are covered by the PNU patents or
developed using the PNU technology. The first milestone payment will be paid in
cash or by issuance of a promissory note to PNU if and when we have completed
clinical studies showing safety and initial proof-of-concept (which may include
early Phase IIa studies). If PNU exercises its exclusive right to co-develop
and market AIM in countries other than the United States and Canada, then we
will make additional milestone payments to PNU. If PNU does not exercise its
right to co-develop and market AIM in countries other than the United States
and Canada, then we will make several milestone payments to PNU starting if and
when we enroll the first patient in the first Phase III clinical trial for AIM
in the United States. Instead of paying milestones in cash, if the milestone
payments are greater than 10% of our cash reserves at the time of payment, we
may instead make these payments by issuing PNU a promissory note.
We paid Inex $250,000 at the time we entered into our license agreement
with Inex for LUVs in March 1999. Our license agreement with Inex requires us
to make payments to Inex as milestones are achieved, and to pay Inex royalties
on sales of products that are covered by the Inex patents or developed using
the Inex technology. The first milestone payment will be paid to Inex if and
when we enroll our first patient in a Phase II clinical trial. Other milestone
payments will be paid to Inex if and when we achieve various future development
milestones outlined in the agreement with Inex.
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We paid the inventors of our RLT peptide $50,000 at the time we entered
into our license agreement with them in September 1999 and will pay an
additional $50,000 in the first quarter of 2000. Our license agreement with the
inventors requires us to make payments to them as milestones are achieved, and
to pay them royalties on sales of products that are covered by the inventors'
patents or developed using the inventors' technology. Additional milestone
payments will be paid to the inventors if and when we achieve various future
development milestones outlined in the agreement with the inventors.
We paid Region Wallonne $25,000 at the time we entered into our license
agreement in February 2000. Our license agreement with La Region Wallonne
requires us to pay royalties on sales of products that are covered by the La
Region Wallonne patents.
Results of Operations
Year Ended December 31, 1999.
Research and Development Expenses. Research and development expenses
increased to approximately $8.5 million for the year ended December 31, 1999
compared to approximately $1.9 million for the period from inception (May 18,
1998) to December 31,1998. This increase is primarily due to the full year
period for 1999 as compared with a partial year for 1998, costs associated with
developing AIM and LUVs, and to a lesser extent expanded efforts to develop new
product candidates.
General and Administrative Expenses. General and administrative expenses
increased to approximately $2.5 million for the year ended December 31, 1999
compared to approximately $464,000 for the period from inception to December
31, 1998. This increase is primarily due to the full year period for 1999 as
compared with a partial year for 1998, higher personnel costs, higher facility
costs and the acquisition of additional product candidates and technologies.
Net Interest Income (Expense). Interest income increased to approximately
$424,000 for the year ended December 31, 1999 compared to approximately
$246,000 for the period from inception to December 31, 1998. The increase is
attributable to the full year period for 1999 as compared to a partial year for
1998, offset by lower levels of cash and cash equivalents available for
investment in 1999. Interest expense for the same periods was approximately
$92,000 and $0 and represents interest incurred on an equipment financing
facility and a special project loan in 1999.
Net Loss. The net loss was approximately $10.7 million for the year ended
December 31, 1999 compared to approximately $2.1 million for the period from
inception to December 31, 1998. The increase reflects the full year period for
1999 as compared to a partial year in 1998, increases in research and
development and general and administrative expenses, offset in part by the
increase in interest income.
Liquidity and Capital Resources
After giving effect to the series C and series D preferred stock
financings in January 2000 and February 2000, respectively, we had cash and
cash equivalents of approximately $32.8 million. As of December 31, 1999, we
had cash and cash equivalents of approximately $5.9 million, a decrease of
approximately $6.6 million from December 31, 1998.
During the year ended December 31, 1999 net cash used in operating
activities was approximately $7.9 million. This net use of cash was to fund our
net losses for the periods, adjusted for non-cash expenses and changes in
operating assets and liabilities.
Net cash used in investing activities for the year ended December 31,
1999 was $1.6 million, primarily the result of the acquisition of laboratory
equipment, furniture and fixtures and office equipment.
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We anticipate that our capital expenditures will be approximately $2.5
million in 2000. These expenditures include an agreement we have entered into
with a scientific instrument manufacturer to purchase a specialized piece of
equipment for $1.0 million. We expect delivery in the second half of 2000.
Net cash proceeds from financing activities was $2.8 million for the year
ended December 31, 1999 and $15.3 million for the period from inception to
December 31, 1998. The net cash proceeds from financing activities during the
year ended December 31, 1999 were from borrowings on a special project loan and
an equipment loan. The net cash proceeds from financing activities during the
period from inception to December 31, 1998 were from the issuance of preferred
and common stock.
We have a credit facility with a bank that may be used to finance
purchases of equipment. Borrowings under the facility bear interest at the
bank's prime rate plus 1.0%. As of December 31, 1999, there was approximately
$1.2 million outstanding under the credit facility.
We have a credit facility with a Swedish entity totaling 50 million
Swedish kronor (approximately $5.9 million at December 31, 1999) that may only
be used to finance the development of our AIM product candidate. If a related
product is not developed or does not succeed in the market, our obligation to
repay the loan may be forgiven. Borrowings under the loan facility bear
interest at 17.0% of which 9.5% is payable quarterly. The remaining 7.5% of
interest together with principal are payable in five equal annual installments
starting December 2004. We made an initial draw on the loan facility of $1.5
million in December 1999.
We lease our corporate and research and development facilities under
operating leases expiring at various times through January 2001. We may extend
these leases for additional periods. Minimum annual payments under these leases
are approximately $395,000 for 2000.
We expect that our operating expenses and capital expenditures will
increase in future periods. We also intend to hire additional research and
development, clinical testing and administrative staff. Our capital expenditure
requirements will depend on numerous factors, including the progress of our
research and development programs, the time required to file and process
regulatory approval applications, the development of commercial manufacturing
capability, the ability to obtain additional licensing arrangements, and the
demand for our product candidates, if and when approved by the FDA or other
regulatory authorities.
We believe that our current cash position, proceeds from our sales of our
series C and series D preferred stock financings in January and February 2000,
available borrowings under our credit facilities and the proceeds of this
offering will be sufficient to fund our operations and capital expenditures
until at least the end of 2000.
Income Taxes
As of December 31, 1999, we had approximately $9.8 million of net
operating loss carryforwards for federal income tax purposes. These
carryforwards expire on various dates beginning in 2018. U.S. tax law contains
provisions that may limit our ability to utilize net operating loss
carryforwards in any year or if there has been an ownership change. Any such
future ownership change may limit the utilization of net operating loss
carryforwards. We believe the offering will not have a material effect on our
ability to use those carryforwards.
Year 2000 Compliance
We have identified year 2000 risks in the two major categories of
internal business operations software and software used by external suppliers.
A review of our non-information technology systems did not identify any
material risks.
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With respect to our internal business operations software, most of our
computers and software programs have been recently acquired. We have relied on
the efforts of computer and software vendors to make their latest hardware and
software releases year 2000 compliant. As a result, we do not expect to incur
any compliance cost. We have contacted vendors to confirm the status of the
software that is used in our computers and have verified that each computer is
using the software version that the vendor represents is year 2000 compliant.
In addition, we have utilized consultants and year 2000 test software to
evaluate compliance.
We believe that because we are in an early stage of development and will
have no revenue from product sales for at least the next several years, any
short-term disruption relating to year 2000 will have little impact on our
operations. We have asked our suppliers about their year 2000 programs and they
have advised us that they are year 2000 compliant.
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BUSINESS
Introduction
We discover and develop pharmaceutical products for the treatment of
cardiovascular disease. We believe our therapies enhance the naturally
occurring processes in the body for the removal of excess cholesterol. We
intend to commercialize a novel class of drugs that focus on a new treatment
approach we call HDL Therapy, which is based upon our understanding of HDL
function. We intend to exploit the beneficial properties of HDL in
cardiovascular and metabolic diseases through our portfolio of product
candidates. Preclinical studies suggest that our product candidates may either
increase HDL levels or its function and may enhance removal of excess
cholesterol and lipids from arteries. Third-party published reports of
preliminary human clinical studies with respect to some of our product
candidates suggest that these compounds are safe, with no major side effects,
and may increase elimination of cholesterol from the body by enhancing the
efficiency of the RLT pathway.
Background
General
Our bodies are made of building blocks called cells. Cells are primarily
made of protein, carbohydrate, and fat, or lipid, molecules. Cholesterol, a
well known lipid, is essential for cells to function normally. Our bodies
obtain cholesterol both through the foods we eat and by manufacturing
cholesterol inside some of our cells and organs. Cholesterol either remains
within the cell or is secreted into the blood for transport to various organs.
The major carriers for cholesterol in the blood are lipoproteins, including low
density lipoprotein, or LDL, and high density lipoprotein, or HDL. LDL delivers
cholesterol to organs where it can be used to produce hormones, maintain
healthy cells and be transformed into natural products which assist in the
digestion of lipids. HDL removes excess cholesterol from arteries and tissues
to transport it back to the liver for elimination.
[Graphic depicting HDL and LDL]
The RLT pathway, which is a process comprised of four steps, is
responsible for removal of cholesterol from arteries and its transport to the
liver for elimination from the body. The first step is the removal of
cholesterol from arteries by HDL in a process termed cholesterol removal. In
the second step, cholesterol is converted to a new form that is more tightly
associated with HDL as it is carried in the blood; this process is called
cholesterol conversion. The third step is the transport and delivery of that
converted cholesterol to the liver in a process termed cholesterol transport.
The final step is the transformation and discarding of cholesterol by the liver
in a process termed cholesterol elimination. We believe our product candidates
have the potential to affect these four steps to enhance the RLT pathway in
humans.
[Graphic depicting RLT pathway]
In a healthy human body, there is a balance between the delivery and
removal of cholesterol. Over time, however, there is often an imbalance that
occurs in our bodies in which there is too much cholesterol delivery by LDL and
too little removal by HDL. When people have a high level of LDL and low level
of HDL, the imbalance results in more cholesterol being deposited in the
arteries than that being removed. This imbalance can also be exaggerated by,
among other factors, age, gender, high blood pressure, smoking, diabetes,
obesity, genetic factors, physical inactivity, vascular disease of the
extremities or the brain and the consumption of a high-fat diet. The excess
cholesterol carried in the blood on LDL particles is deposited throughout the
body, but frequently ends up in the lining of arteries, especially those found
in the heart. As a consequence of repeated deposits of cholesterol, plaque
forms which narrows or blocks arteries. The blockage of these arteries can
result in chest pain, heart attack and possibly death.
Cardiovascular disease is a condition that arises when arteries are
narrowed or blocked by atherosclerotic plaque, which prevents oxygen-rich blood
from reaching tissues. Some of the symptoms of
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cardiovascular disease include: uncomfortable pressure, fullness, squeezing or
pain in the center of the chest lasting more than a few minutes; pain spreading
to the shoulders, neck or arms; and chest discomfort with lightheadedness,
fainting, sweating, nausea or shortness of breath. Over 50% of the deaths from
cardiovascular disease are due to coronary heart disease and atherosclerosis.
Importance of HDL in Human Health
Numerous studies involving thousands of people have identified the causes
and determined the distribution of cardiovascular disease in different
populations around the world. Physicians now generally recognize high LDL and
low HDL levels as risk factors for coronary heart disease. In addition, high
HDL levels generally are associated with lower incidence of heart disease.
These studies have suggested that:
. Low levels of HDL are a risk factor for cardiovascular disease. The
first study suggesting that people with low HDL had increased
incidence of cardiovascular disease was reported in 1951. Since that
time, a number of studies have confirmed that low HDL levels are a
risk factor for heart disease.
. Increasing HDL reduces risk of heart disease. The Helsinki Heart
Study, completed in 1987, suggested that increasing HDL levels reduced
incidence of coronary heart disease in individuals at risk due to low
HDL, high LDL, and high triglycerides, another type of lipid.
. Increasing HDL levels reduces the incidence of death from coronary
artery disease. The Veterans Affairs Cooperative Studies Program High
Density Lipoprotein Cholesterol Intervention Trial, completed in 1999,
suggested that men with coronary artery disease who took a lipid
regulating drug for five years experienced on average a 6% increase in
HDL, resulting in a 24% reduction in death due to coronary artery
disease, heart attack and stroke.
. Low levels of HDL translate to a low survival rate following coronary
bypass surgery. A 20-year study completed in 1999 suggested that
people with low HDL levels have a lower survival rate following
coronary bypass surgery. This study suggests the importance of HDL in
minimizing the necessity of post-operative treatments.
There are several risk factors that determine the likelihood of a person
developing heart disease. Some examples besides low levels of HDL and high
levels of LDL include age, gender, high blood pressure, smoking, diabetes,
obesity, genetic factors, physical inactivity, vascular disease of the
extremities or the brain, or a high-fat diet. Unlike many of these risk factors
that cannot be altered, such as age, gender, and family history, we believe HDL
levels can be beneficially modulated. Clinical evidence suggests that an
increase in HDL results in greater protection from heart disease than a
corresponding reduction in LDL. In addition, published studies suggest other
protective properties of HDL, such as reducing arterial inflammation and
cellular proliferation.
Current Treatments
The initial recommendation for a patient with cardiovascular disease is
frequently a change in lifestyle involving exercise combined with a low-fat,
low-cholesterol diet. If a patient's condition does not improve, then a
physician moves to the next level of treatment to achieve acceptable levels of
cholesterol in the blood.
Following the initial diet/exercise regimen, treatments are either short-
term solutions, termed "acute" by physicians, or long-term solutions, termed
"chronic." Acute treatments are reserved for more life-threatening
cardiovascular conditions, such as ischemia, a condition where there is a
shortage of oxygen-rich blood available to the heart. In contrast, chronic
treatments are used to prevent cardiovascular disease from growing worse and
having to resort to acute treatments. Acute treatments usually involve costly
surgical procedures, while chronic treatments are usually in tablet or pill
form.
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Acute Treatments
Acute treatments are required when blood flow to the heart is severely
restricted and the patient is at immediate risk for further complications.
Three common surgical procedures used to open clogged arteries include coronary
artery bypass grafting, or coronary bypass surgery, percutaneous transluminal
coronary angioplasty, or balloon angioplasty, and coronary atherectomy. In
bypass surgery, the cardiologist redirects blood flow around the blocked
arteries by grafting a healthy vessel removed from another location in the
patient. In balloon angioplasty, a catheter with an inflatable balloon at its
end is positioned in the artery at the point of blockage. During the surgical
procedure, the balloon is inflated and this pushes aside the plaque that causes
the blockage, resulting in a reopening of the artery to allow greater blood
flow. Frequently, a cardiologist reinforces the newly opened artery with a
wire-mesh cylinder called a stent. In coronary atherectomy the plaque is
removed from the artery using a rotating blade.
The primary benefit of acute treatments is the immediate restoration of
oxygen-rich blood flow to the heart. However, the major drawbacks are:
. Restenosis, or reclosing of the artery, even after stenting, occurs in
up to 40% of patients who have had these invasive surgical procedures.
This may require an additional surgical procedure within six months.
. These treatments are invasive to the patient and involve opening up
the chest cavity to expose the heart, as in coronary bypass surgery,
or snaking a wire through the leg vein to the heart, as in balloon
angioplasty, and atherectomy.
. Since acute treatments are invasive and involve a high risk of
complications, including death, there is significant recovery time
after the surgical procedure. In fact, 3-5% of coronary bypass
patients die from post-operative complications.
. Many patients are not eligible for invasive procedures due to their
anatomy, physical condition, age, or past medical history.
. Atherosclerosis affects the entire cardiovascular system. Acute
procedures are localized and treat only one segment of a diseased
artery at a time. Therefore, many diseased arteries are left untreated
using these invasive surgical procedures.
In 1997, 607,000 coronary bypass surgeries were performed on 366,000
patients in the United States with an average cost of about $45,000. Almost
half of the patients that have a coronary bypass require a repeat coronary
bypass because the grafted vessels become blocked again. In the United States,
over 450,000 balloon angioplasty procedures are performed each year. The
average cost of a balloon angioplasty is $20,000 and more when a stent is used.
Thirty to forty percent of balloon angioplasty procedures result in reclosing
of the diseased artery within the first few months due to restenosis. In 1995,
about 50,000 people in the United States underwent coronary atherectomy. The
average cost of an atherectomy is approximately $12,000.
Chronic Treatments
Chronic treatments for cardiovascular disease have the goal of preventing
or limiting progression of the disease so that acute treatments will not be
required in the near future, if at all. Physicians frequently will prescribe a
statin drug that lowers the level of LDL in the blood by inhibiting cholesterol
production in the body. These drugs can also lower other lipids and have the
ability to raise HDL slightly. Recent studies have shown that the statins
reduce the incidence of morbidity and mortality from cardiovascular disease by
approximately 30%. It usually takes at least two years, if at all, for the
drugs to have an effect on morbidity. These drugs neither treat the cause of
atherosclerosis nor reverse the disease. In addition, in post-operative
patients, they have also failed to prevent restenosis.
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Products in Development
Our initial product development efforts are focused on developing a novel
class of drugs designed to treat both acute and chronic atherosclerotic disease
using HDL Therapy. Our five product candidates are designed to enhance HDL
function and address all four steps of the RLT pathway. The product candidates
we are presently developing are ProApoA-I, AIM, LUVs, a RLT peptide and an HDL
elevator. We plan to initiate clinical trials with each of our product
candidates within the next twelve to eighteen months. Our clinical trials may
not commence or proceed as anticipated and we may not be able to demonstrate
the same levels of safety and efficacy in clinical trials that have been
suggested in preclinical trials.
ProApoA-I
We are developing ProapolipoproteinA-I, or ProApoA-I, as an acute
treatment to improve vascular function in ischemic patients suffering from
atherosclerosis. ProApoA-I is a naturally occurring protein found in all humans
that forms particles with lipids similar to natural HDL. ProApoA-I is converted
to ApoA-I in the blood.
Preclinical studies suggest that ProApoA-I complexed with lipids removes
cholesterol from arteries and activates the second step in the RLT pathway, the
conversion of cholesterol into a form more tightly associated with HDL. Recent
third-party published reports of preliminary human clinical studies of ProApoA-
I conducted to date, suggest that when ProApoA-I is infused into people with
high cholesterol levels they show increased elimination of cholesterol from the
body by enhancing the RLT pathway.
Our goal is to establish in human clinical trials that infusions of
ProApoA-I can help arteries remain open, thus increasing blood flow and
reducing the symptoms associated with atherosclerosis. We plan to initiate
clinical trials with ProApoA-I in the second half of 2000.
AIM
We are developing apolipoprotein A-I Milano, or AIM, for the treatment of
acute coronary syndromes including angina and restenosis. AIM is a variant form
of the ApoA-I protein lipid complex and is present in a small fraction of the
population with low HDL levels. Low HDL levels would normally suggest that this
population would be at high risk for cardiovascular disease. However, those
people with the AIM variant show low incidence of cardiovascular disease. We
believe infusion of AIM lipid complexes in humans will enhance the RLT pathway
at the cholesterol removal step.
Preclinical studies suggest that AIM can:
. remove cholesterol from arteries;
. prevent restenosis following balloon angioplasty;
. reverse atherosclerosis;
. restore some of the natural flexibility of arteries; and
. prevent inflammation and clotting following balloon angioplasty
procedures.
Our goal is to establish in human clinical trials that infusions of AIM
are safe and can help arteries remain open, thus increasing blood flow and
reducing the symptoms associated with atherosclerosis. We plan to initiate
clinical trials with AIM by the first half of 2001.
We acquired exclusive worldwide rights for AIM from Pharmacia & Upjohn in
July 1998. Under this license agreement, Pharmacia & Upjohn has the exclusive
right of election to co-develop and the exclusive right to market AIM in
countries outside of North America. In addition, if we pursue a co-development
and co-promotion arrangement in North America, Pharmacia & Upjohn has the right
of first negotiation.
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LUVs
We are developing large unilamellar vesicles, or LUVs, as an acute
treatment for ischemia caused by atherosclerosis. LUVs are spherical particles
made of naturally occurring lipids. Instead of being eliminated from the body,
we believe that LUVs can cycle back through arteries several times to remove
more cholesterol. We believe this process will allow the body to significantly
increase the amount of cholesterol it is able to remove and improve
cardiovascular health and function. We believe that LUVs have a high capacity
to transport cholesterol, the third step in the RLT pathway, and deliver it to
the liver for elimination from the body.
Preclinical studies involving administration of LUVs suggest that they
may remove cholesterol from arteries and may regress atherosclerosis, thereby
helping arteries regain their flexibility and function that has been
compromised by atherosclerotic plaque.
Our goal is to establish, in human clinical trials, that infusion of LUVs
is safe and can help arteries remain open, thus increasing blood flow and
reducing the symptoms associated with atherosclerosis. We plan to initiate
clinical studies with LUVs in the second half of 2000.
RLT Peptide
We are developing a RLT peptide as an acute treatment to alleviate
ischemia and angina caused by atherosclerosis. Our RLT peptide is a smaller
version of ApoA-I which we believe mimics ApoA-I's key biological properties
when mixed with lipids. We believe that our RLT peptide removes cholesterol
from arteries and activates the second step in the RLT pathway, the conversion
of cholesterol into a form which is more tightly associated with HDL.
Preclinical studies suggest that our RLT peptide is stable in isolated
human blood samples. Preclinical models suggest our RLT peptide can increase
HDL levels. Our goal is to establish in human clinical trials that infusions of
our RLT peptide are safe and can help arteries remain open, thus increasing
blood flow and reducing the symptoms associated with atherosclerosis. We plan
to initiate clinical studies with our RLT peptide in the first half of 2001.
HDL Elevators
We are developing a class of HDL elevators designed to increase HDL
levels. We have identified a lead compound from this class. Our goal is to
develop an orally active, small molecule designed to elevate HDL levels. We
believe that the HDL elevators enhance the synthesis of new HDL to stimulate
the entire RLT pathway and promote regression of atherosclerosis.
Preclinical studies suggest that our HDL elevators can beneficially alter
HDL function. Our goal is to establish in human clinical trials that orally
administered HDL elevators can be a safe, chronic treatment to enhance the RLT
pathway.
Research and Development
We are actively engaged in the discovery and development of drugs used to
treat cardiovascular disease and the metabolic disorders diabetes and obesity.
To accomplish this, we have developed proprietary technologies and techniques
to discover new drug candidates. We capitalize on our knowledge of chemistry,
drug action and the RLT pathway to discover and refine new chemical structures
that possess beneficial properties for the treatment of diseases and disorders.
To accelerate this process, we are employing advanced instrumentation and a
number of drug discovery tools, including:
. genomics, gene expression profiling, proteomics and metabolomics,
which are ways of cataloging changes in the body in order to provide
an understanding of drug effects;
. protein engineering, which focuses on discovering, designing and
producing new proteins or peptides to develop novel therapies;
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. bioinformatics, which allows us to perform in-depth analysis of the
cataloged changes to identify new targets, enhance drug discovery, and
improve the clinical development process; and
. chemical library screening, which focuses on identifying new chemicals
to develop novel oral therapies for metabolic disease.
By integrating these drug discovery tools, we believe we can rapidly
identify and evaluate drug candidates and improve our prediction of their
clinical success.
In addition, we have implemented a clinical development strategy with
early involvement of regulatory agencies to better define the most appropriate
clinical trial development process. This strategy involves defining the best
clinical parameters for safety and efficacy in targeted populations.
Business Strategy
We are taking a product-focused approach towards drug development. The
key elements of our business strategy are as follows:
Develop several different drug candidates for HDL Therapy. We are
developing a novel class of drugs focused on improving HDL function in the RLT
pathway and remove excess cholesterol from arteries. Based on our understanding
of the RLT pathway, we offer a portfolio of five product candidates we believe
could provide a broad spectrum of treatment options for cardiovascular disease.
Leverage experienced scientific and drug development expertise. We are
managed by an experienced group of drug developers with significant expertise
in cardiovascular research and drug development. Roger S. Newton, Ph.D.,
President and Chief Executive Officer of Esperion, was the co-discoverer and
chairman of the discovery and development team of Lipitor. Sales of Lipitor,
the most frequently prescribed cholesterol lowering drug, exceeded $3.5 billion
in fiscal year 1999. In addition, we have recruited the inventors of two of our
drug candidates.
Optimize clinical and regulatory strategies to shorten time to market. We
intend to perform clinical trials to rapidly assess effectiveness for well-
defined cardiovascular endpoints such as chest pain and restenosis. Our trials
are intended to demonstrate effectiveness as well as safety. We believe that by
initially focusing on acute treatments, we can achieve an abbreviated
development time, and faster time to market, which will benefit patients with
cardiovascular disease.
Retain the marketing and development rights to our product candidates. We
plan to retain our marketing rights to our product candidates for as long as it
is commercially advantageous.
Marketing and Sales
We currently have no sales, marketing or distribution capability. In
order to commercialize any of our product candidates, we must either internally
develop sales, marketing and distribution capabilities or make arrangements
with a third party to perform these services. We intend to sell, market and
distribute some products directly and rely on relationships with third parties
to sell, market and distribute other products. To market any of our products
directly, we must develop a marketing and sales force with technical expertise
and with supporting distribution capabilities.
Our licensors have granted us exclusive rights to market our product
candidates except for AIM. We acquired exclusive worldwide rights for AIM from
Pharmacia & Upjohn in July 1998. Under this license
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agreement, Pharmacia & Upjohn has the exclusive right of election to co-develop
and the exclusive right to market AIM in countries outside of North America. In
addition, if we pursue a co-development and co-promotion arrangement in North
America, Pharmacia & Upjohn has the right of first negotiation.
In the United States, we do not intend to enter into co-promotion
arrangements or out-license our product candidates until any of our product
candidates are in the later stages of development, but at that point we may
promote our product candidates through marketing relationships with one or more
companies that have established distribution systems and direct sales forces.
In international markets, initially we intend to seek strategic relationships
to market, sell and distribute our product candidates, but we may eventually
become involved in direct sales and marketing activities in other parts of the
world.
Manufacturing
We currently rely, and will continue to rely for at least the next few
years, on contract manufacturers to produce ProApoA-I, AIM, LUVs, RLT peptide
and the HDL elevator for use in our preclinical and anticipated clinical
trials. Several of these contract manufacturers are sole source suppliers,
including the manufacturers of ProApoA-I, LUVs, the RLT peptide and the HDL
elevator. Our contract manufacturers have limited experience at manufacturing,
formulating, analyzing, fill and finishing AIM, ProApoA-I, LUVs, RLT peptide,
and the HDL elevator in quantities sufficient for conducting clinical trials or
for commercialization.
The process for manufacturing proteins and formulating them into protein
lipid complexes is complicated. We have no experience in commercial scale
manufacture of ProApoA-I, AIM, LUVs, RLT peptide, and HDL elevators. Our
product candidates will need to be manufactured in a facility in a process that
complies with the FDA's current good manufacturing practices and other similar
regulations. It takes a substantial period of time to begin producing proteins,
peptides, phospholipids and HDL elevators in compliance with such regulations.
If we are unable to establish and maintain relationships with third parties for
manufacturing sufficient quantities of our product candidates and their
components that meet our planned time and cost parameters, the development and
timing of our clinical trials may be adversely affected.
Intellectual Property
Our ability to protect and use our intellectual property rights in the
development and commercialization of our product candidates is crucial to our
continued success. We will be able to protect our proprietary rights from
unauthorized use by third parties only to the extent that our proprietary
rights are covered by valid and enforceable patents or are effectively
maintained as trade secrets, or other proprietary information or know how. We
currently rely on a combination of patents, and pending patent applications,
some of which we license and some of which have been assigned to us,
proprietary information, trade secrets and know how to protect our interests in
developing and commercializing our product candidates and technologies.
ProApoA-1
In February 2000, we entered into a license agreement with La Region
Wallonne to obtain exclusive, worldwide rights to its patents, proprietary
information and know-how concerning ProApoA-1. Human ApoA-1 is a naturally
occurring compound which has been known in scientific literature for many
years. ApoA-1 is synthesized by the human body via a precursor protein known as
proapolipoprotein A-1, or ProApoA-1. In February 2000, we entered into a
license agreement with Region Wallonne in which we were granted exclusive
worldwide rights to its patents and applications, proprietary information and
know-how concerning ProApoA-1. Specifically, we have an exclusive license to a
United States patent relating to the recombinant DNA sequence for ProApoA-1,
expression vectors containing this DNA and a process for producing ProApoA-1.
This patent is set to expire in 2008.
As part of this license, we have agreed to purchase supplies of ProApoA-1
from, and to enter into a research collaboration with, La Region Wallonne.
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AIM
In June 1998, we acquired exclusive, worldwide rights to AIM from
Pharmacia & Upjohn. Under our license agreement with Pharmacia & Upjohn, we
were assigned four U.S. patents and four pending U.S. patent applications, and
numerous related foreign patents and patent applications covering various
aspects of AIM. These patents and patent applications claim methods and
materials for producing AIM in bacteria and yeast, methods for purification and
methods for treating atherosclerosis and cardiovascular disease with AIM. The
issued U.S. patents expire in 2015 and 2016. Corresponding patents are in
effect and patent applications are pending in other countries where we believe
the market potential for AIM is significant, including most European countries
and some Asian countries including Japan.
Under this license agreement, Pharmacia & Upjohn has the exclusive right
of election to co-develop and the exclusive right to market AIM in countries
outside of North America. In addition, if we pursue a co-development and co-
promotion arrangement in North America with another party, Pharmacia & Upjohn
has the right of first negotiations to co-develop and co-promote in North
America.
LUVs
In March 1999, we exclusively licensed certain LUV technology from INEX
Pharmaceuticals Corporation on a worldwide basis. INEX owns issued patents in
13 European countries covering the LUV technology and exclusively licenses,
from the University of British Columbia, two pending U.S. patent applications.
The European patents claim methods for treatment of atherosclerosis using
liposomes. The U.S. patent applications claim liposome compositions and methods
for treatment of disease, including atherosclerosis. The European patents
expires in 2011.
RLT Peptide
In September 1999, we exclusively licensed from the individual inventors,
an RLT peptide technology, including one issued United States patent and
thirteen pending United States, and certain corresponding foreign, patent
applications. The RLT peptide technology relates to peptides and proteins that
have activity equal to, or greater than, ApoA-1. The issued U.S. patent expires
in 2017 and is directed to peptides having ApoA-1 activity and pharmaceutical
compositions. The pending patent applications are directed to peptides,
pharmaceutical compositions containing the peptides, methods of using the
peptides, pharmaceutical dosage forms of the peptides and methods for preparing
the dosage forms.
HDL Elevators
We are also in the process of researching and developing organic
molecules that increase HDL levels. We have filed a provisional United States
patent application primarily directed to a class of compounds having this
activity. We are also pursuing, and will continue to pursue, patent protection
for other classes of compounds having this activity, which have been or will be
identified in our laboratories.
Government Regulation
The FDA and comparable regulatory agencies in state and local
jurisdictions and in foreign countries impose substantial requirements on the
clinical development, manufacture and marketing of pharmaceutical product
candidates. These agencies and other federal, state and local entities regulate
research and development activities and the testing, manufacture, quality
control, safety, effectiveness, labeling, storage, record-keeping,
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<PAGE>
approval and promotion of our product candidates. All of our product
candidates will require regulatory approval before commercialization. In
particular, therapeutic product candidates for human use are subject to
rigorous preclinical and clinical testing and other requirements of the
Federal Food, Drug, and Cosmetic Act, or FDC Act, implemented by the FDA, as
well as similar statutory and regulatory requirements of foreign countries.
Obtaining these marketing approvals and subsequently complying with ongoing
statutory and regulatory requirements is costly and time-consuming. Any
failure by us or our collaborators, licensors or licensees to obtain, or any
delay in obtaining regulatory approvals or in complying with other
requirements could adversely affect the commercialization of product
candidates and our ability to receive product or royalty revenues.
The steps required before a new drug product candidate may be
distributed commercially in the U.S. generally include:
. conducting appropriate preclinical laboratory evaluations of the
product candidate's chemistry, formulation and stability, and
preclinical studies to assess the potential safety and efficacy of the
product candidate;
. submitting the results of these evaluations and tests to the FDA,
along with manufacturing information and analytical data, in an IND;
. making the IND effective after the resolution of any safety or
regulatory concerns of the FDA;
. obtaining approval of Institutional Review Boards, or IRBs, to
introduce the drug into humans in clinical studies;
. conducting adequate and well-controlled human clinical trials that
establish the safety and efficacy of the product candidate for the
intended use, typically in the following three sequential, or slightly
overlapping stages:
Phase 1: The product candidate is initially introduced into healthy
human subjects or patients and tested for safety, dose tolerance,
absorption, metabolism, distribution and excretion;
Phase 2: The product candidate is studied in patients to identify
possible adverse effects and safety risks, to determine dosage
tolerance and the optimal dosage, and to collect some efficacy data;
and
Phase 3: The product candidate is studied in an expanded patient
population at multiple clinical study sites, to confirm efficacy and
safety at the optimized dose, by measuring a primary endpoint
established at the outset of the study;
. submitting the results of preliminary research, preclinical studies,
and clinical trials as well as chemistry, manufacturing and control
information on the product candidate to the FDA in an NDA; and
. obtaining FDA approval of the NDA prior to any commercial sale or
shipment of the product candidate.
This process can take a number of years and require substantial
financial resources. The results of preclinical studies and initial clinical
trials are not necessarily predictive of the results from large-scale clinical
trials, and clinical trials may be subject to additional costs, delays or
modifications due to a number of factors, including the difficulty in
obtaining enough patients, clinical investigators, product candidate supply,
or financial support. The FDA may also require testing and surveillance
programs to monitor the effect of approved product candidates that have been
commercialized, and the FDA has the power to prevent or limit further
marketing of a product candidate based on the results of these post-marketing
programs. Upon approval, a product candidate may be marketed only in those
dosage forms and for those indications approved in the
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NDA. However, pursuant to recent Federal Court decisions, drug marketers are in
some limited circumstances permitted to distribute scientific materials
concerning indications outside of the FDA labeling for product candidates.
In addition to obtaining FDA approval for each indication to be treated
with each product candidate, each domestic product candidate manufacturing
establishment must register with the FDA, list its product candidates with the
FDA, comply with cGMPs and permit and pass manufacturing plant inspections by
the FDA. Moreover, the submission of applications for approval may require
additional time to complete manufacturing stability studies. Foreign companies
that manufacture product candidates for distribution in the United States also
must list their product candidates with the FDA and comply with cGMPs. They are
also subject to periodic inspection by the FDA or by local authorities under
agreement with the FDA.
Any product candidates that we manufacture or distribute pursuant to FDA
approvals are subject to extensive continuing regulation by the FDA, including
record-keeping requirements and reporting of adverse experiences with the
product candidate. In addition to continued compliance with standard regulatory
requirements, the FDA may also require post-marketing testing and surveillance
to monitor the safety and efficacy of the marketed product candidate. Adverse
experiences with the product candidate must be reported to the FDA. Product
candidate approvals may be withdrawn if compliance with regulatory requirements
is not maintained or if problems concerning safety or efficacy of the product
candidate are discovered following approval.
The FDC Act also mandates that product candidates be manufactured
consistent with cGMPs. In complying with the FDA's regulations on cGMPs,
manufacturers must continue to spend time, money and effort in production,
recordkeeping, quality control, and auditing to ensure that the marketed
product candidate meets applicable specifications and other requirements. The
FDA periodically inspects manufacturing facilities to ensure compliance with
cGMPs. Failure to comply subjects the manufacturer to possible FDA action, such
as Warning Letters, suspension of manufacturing, seizure of the product,
voluntary recall of a product or injunctive action, as well as possible civil
penalties. We currently rely on, and intend to continue to rely on, third
parties to manufacture our compounds and product candidates. These third
parties will be required to comply with cGMPs.
Even after FDA approval has been obtained, further studies, including
post-marketing studies, may be required. Results of post-marketing studies may
limit or expand the further marketing of the products. If we propose any
modifications to a product, including changes in indication, manufacturing
process, manufacturing facility or labeling, a supplement to our NDA may be
required to be submitted to the FDA.
Products manufactured in the United States for distribution abroad will
be subject to FDA regulations regarding export, as well as to the requirements
of the country to which they are shipped. These latter requirements are likely
to cover the conduct of clinical trials, the submission of marketing
applications, and all aspects of manufacturing and marketing. Such requirements
can vary significantly from country to country. As part of our strategic
relationships, our collaborators may be responsible for the foreign regulatory
approval process for our product candidates, although we may be legally liable
for noncompliance.
We are also subject to various federal, state and local laws, rules,
regulations and policies relating to safe working conditions, laboratory and
manufacturing practices, the experimental use of animals and the use and
disposal of hazardous or potentially hazardous substances used in connection
with our research work. Although we believe that our safety procedures for
handling and disposing of such materials comply with current federal, state and
local laws, rules, regulations and policies, the risk of accidental injury or
contamination from these materials cannot be entirely eliminated.
The extent of government regulation which might result from future
legislation or administrative action cannot be accurately predicted. In this
regard, although the Food and Drug Administration Modernization Act of 1997
modified and created requirements and standards under the FDC Act with the
intent of facilitating product candidate development and marketing, the FDA is
still in the process of developing regulations
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<PAGE>
implementing the Food and Drug Administration Modernization Act of 1997.
Consequently, the actual effect of these developments on our business is
uncertain and unpredictable.
Competition
The pharmaceutical and biopharmaceuticals industries are intensely
competitive and are characterized by rapid and significant technological
progress. Our competitors include large integrated pharmaceutical companies and
biotechnology companies and universities and public and private research
institutions which currently engage in, have engaged in or may engage in
efforts related to the discovery and development of new pharmaceuticals and
biopharmaceuticals, some of which may be competitive. Almost all of these
entities have substantially greater research and development capabilities and
financial, scientific, manufacturing, marketing and sales resources than we do,
as well as more experience in research and development, clinical trials,
regulatory matters, manufacturing, marketing and sales.
We are aware of companies that are developing products for the acute
treatment of cardiovascular disease, such as atherosclerosis, ischemia and
restenosis that may compete with our own acute treatments. In addition, new
invasive medical procedures and technologies are also under development for the
acute treatment of cardiovascular disease. For example, a compound is being
developed by a third party, which may compete with the LUVs. In addition,
another organization is purifying ApoA-I from outdated human plasma for septic
shock as a therapeutic indication. Other companies with substantially greater
research and development resources may attempt to develop products that are
competitive with our product candidates for the acute treatment of
cardiovascular disease or seek approval for drugs in later stages of
development that have similar effects on cardiovascular disease as our acute
treatments.
We are also aware of companies that are developing products for the
chronic treatment of cardiovascular disease that may compete with our own HDL
elevating drug candidates. For example, several third parties have HDL
elevators under development, which could compete with our HDL elevating drug
candidates. Other companies with substantially greater research and development
resources may attempt to develop products that are competitive with our HDL
elevating product candidates or seek approval for drugs in later stages of
development that have similar effects on HDL levels as our HDL elevating
products.
If regulatory approvals are received, our products may compete with
several classes of existing drugs for the treatment of restenosis,
atherosclerosis, and ischemia, some of which are available in generic form. For
example, drugs available for the treatment of atherosclerosis include fibrates,
statins, niacin and hormones, all of which are available in pill or tablet, as
opposed to the intravenous administration method we intend to use for most of
our product candidates. Such existing drugs were not specifically designed to
elevate HDL levels and when administered only raise HDL levels to a limited
extent. In addition, administration of our product candidates designed to raise
HDL in conjunction with therapeutics designed to lower LDL could reduce the
overall market available to us. There are also surgical treatments such as
coronary bypass surgery and balloon angioplasty that may be competitive with
our products. However, for those patients who do not respond adequately to
existing therapies and remain symptomatic despite maximal treatment with
existing drugs and who are not candidates for these surgical procedures, there
is no currently effective treatment. In certain patients who are candidates for
these surgical procedures, there is no effective pharmacologic treatment
available.
We think that the principal competitive factors in the markets for
ProApoA-I, AIM, LUVs, the RLT peptide and the class of HDL elevators will
include:
. safety and efficacy profile;
. product price;
. ease of administration;
. duration of treatment;
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. the length of time to receive regulatory approval;
. product supply;
. enforceability of patent and other proprietary rights; and
. marketing and sales capability.
We believe that our product candidates are competitive with respect to
these factors. Nonetheless, because our products are still under development,
our relative competitive position in the future is difficult to predict
accurately. Our competitors also compete with us to:
. attract qualified personnel;
. attract parties for acquisitions, joint ventures or other
collaborations;
. license the proprietary technology that is competitive with the
technology we are practicing; and
. attract funding.
Employees
As of February 24, 2000, we had 38 employees. Of these employees, 33 were
engaged in research, preclinical and clinical development, regulatory affairs,
intellectual property activities, and/or manufacturing activities and 5 were
engaged in finance and general administrative activities. None of our employees
is covered by collective bargaining agreements. We consider relations with our
employees to be good.
Facilities
Our leased principal corporate and research facilities, located in Ann
Arbor, Michigan, currently occupy approximately 18,000 square feet. These
leases expire at various times starting in December 2000. We also lease
research and office space in Solna, Sweden, which currently occupies
approximately 2,100 square feet. This lease expires in September 2000. We are
currently in negotiations for an expansion of our existing facilities in Ann
Arbor, Michigan and we believe that our existing facilities, including this
potential expansion, are adequate for our current needs. When our leases
expire, we may look for additional or alternate space for our operations and we
believe that suitable additional or alternative space will be available in the
future on commercially reasonable terms.
Our Solna, Sweden facility is located near the Strangnas, Sweden facility
of Pharmacia & Upjohn, at which Pharmacia & Upjohn manufactures supplies of AIM
for use in preclinical and clinical trials. Our employees work closely with
Pharmacia & Upjohn in the manufacturing of these compounds.
Legal Proceedings
We are not currently a party to any material legal proceedings.
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MANAGEMENT
Executive Officers and Directors
The following table presents information about our executive officers and
directors. Our board of directors is divided into three classes serving
staggered three-year terms.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Roger S. Newton, Ph.D... 49 President, Chief Executive Officer and Director
Hans Ageland............ 39 Vice President, Production
Jan Johansson, M.D.,
Ph.D.................. 45 Vice President, Clinical Affairs
Timothy M. Mayleben..... 39 Vice President, Finance and Chief Financial Officer
David I. Scheer(1)...... 47 Chairman
Christopher Moller,
Ph.D.(2).............. 46 Director
Eileen M. More(1)(2).... 53 Director
Seth A. Rudnick,
M.D.(2)............... 51 Director
Anders Wiklund.......... 59 Director
</TABLE>
- --------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Dr. Newton has served as our President and Chief Executive Officer and as
a director of Esperion since July 1998. From August 1981 until May 1998, Dr.
Newton was employed at Parke-Davis Pharmaceutical Research, Warner-Lambert
Company, as a Distinguished Research Fellow in Vascular and Cardiac Diseases
where he was the co-discoverer and chairman of the Lipitor discovery and
development teams. Dr. Newton received an A.B. in biology from Lafayette
College, an M.S. in nutritional biochemistry from the University of Connecticut
and a Ph.D. in nutrition from the University of California, Davis. He also
specialized in atheroslerosis research during a post-doctoral fellowship at the
University of California, San Diego. He currently holds a faculty appointment
in the Department of Pharmacology at the University of Michigan Medical School.
Mr. Mayleben has served as our Vice President, Finance and Chief
Financial Officer since January 1999. Mr. Mayleben has more than 15 years
experience working with high-growth technology companies. Prior to joining
Esperion, Mr. Mayleben served as a Director of Business Development for
Engineering Animation, Inc., a publicly held company, from September 1999 to
December 1999. From July 1997 to September 1999, Mr. Mayleben served as Chief
Operating Officer and Chief Financial Officer of Transom Technologies, Inc., a
privately held company that was acquired by Engineering Animation, Inc. From
November 1994 to July 1997, Mr. Mayleben served as Director of Operations, of
Applied Intelligent Systems, Inc., a privately held company. Prior to that, Mr.
Mayleben was a manager with the Enterprise Group of Arthur Andersen & Co. Mr.
Mayleben received a BBA from the University of Michigan and an MBA from the
Northwestern University Kellogg Graduate School of Management.
Mr. Ageland has served as our Vice President, Production since May 1999.
From 1998 to 1999, Mr. Ageland served as a consultant to Esperion. From 1997 to
1998, Mr. Ageland served as Director of Production at Medivir AB. From 1988 to
1997, Mr. Ageland served as Project Manager at Pharmacia & Upjohn where he was
responsible for developing and managing the AIM production process. Mr. Ageland
has more than 12 years of experience in recombinant protein production and
purification as well as more than a decade of experience in project management.
Dr. Johansson has served as our Vice President, Clinical Affairs, since
May 1999. From 1998 to May 1999, he served as a consultant to Esperion. From
1997 to 1998, Dr. Johansson directed research and multinational clinical trials
focused on abnormalities in lipid metabolism and atherosclerosis at the
Institute of Medicine at the Karolinska Hospital. Dr. Johansson served as
medical advisor to Pharmacia & Upjohn for the AIM project while working as a
consultant with Non Nocere AB from 1995 to 1997. Dr. Johansson received his
M.D. and Ph.D. from the Karolinska Institute.
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Mr. Scheer, our chairman, has been a director of Esperion since July
1998. He has been President of Scheer & Company, Inc., a firm with activities
in venture capital, corporate strategy, and transactional advisory services
focused on the life sciences industry since 1981. Scheer & Company, Inc. is the
fund manager of Scheer Investment Holdings II, LLC, one of our principal
stockholders. Mr. Scheer was involved in the founding of our company, as well
as ViroPharma, Inc., OraPharma, Inc. and Achillon Pharmaceuticals, Inc. and has
been a member of the board of directors of Nonlinear Dynamics, Inc. Mr. Scheer
received his A.B. from Harvard College and his M.S. from Yale University.
Dr. Moller has been a director of Esperion since July 1998. Since 1990,
he has served as Vice President of TL Ventures, a company which manages a
series of private equity funds. Since 1994, Dr. Moller has served as a Managing
Director of the following funds managed by TL Ventures; Radnor Venture
Partners, Technology Leaders, Technology Leaders II, TL Ventures III and TL
Ventures IV. He is principally responsible for the life science portfolio at TL
Ventures, specializing in financing and development of early-stage
biotechnology, bioinformatics and e-health companies. Dr. Moller also currently
serves as a director on the boards of Adolor Corporation, Assurance Medical,
OraPharma, Inc., Immunicon Corporation, eMerge Interactive, Inc., ChromaVision
Systems, Inc. and Genomics Collaborative. Dr. Moller holds a Ph.D. in
immunology from the University of Pennsylvania.
Ms. More has been a director of Esperion since September, 1999. She has
been associated with Oak Investment Partners, a venture capital firm, since
1978. She is currently a Special Limited Partner and had been a General Partner
or Managing Member since 1980. She currently serves as a director of several
companies including Halox Technologies, OraPharma, Inc., Psychiatric Solutions
and Teloquent Communications Corporation. Ms. More was also a founding investor
in Genzyme and has been responsible for early-stage investments in numerous
companies including Alkermes, Alexion Pharmaceuticals, Dyax, OraPharma, Kera
Vision, Osteotech, Pharmacopeia, Trophix Pharmaceuticals, Compaq Computer,
Network Equipment Technologies, Octel Communications and Stratus Computer.
Dr. Rudnick has been a director of Esperion since January 2000. He has
been a Venture Partner at Canaan Equity Partners, a venture capital firm, since
1998, and serves as a director of OraPharma, Inc. and NaPro BioTherapeutics,
Inc. He was Chairman and Chief Executive Officer of Cytotherapeutics, Inc. from
1995 through 1998. Prior to that, Dr. Rudnick served as Senior Vice President
of the R.W. Johnson Pharmaceutical Research Group of Ortho Pharmaceutical
Corporation, Senior Vice President of Development with Biogen Research
Corporation and Director of Clinical Research with Schering-Plough. Dr. Rudnick
has held various faculty appointments with Brown University, the University of
North Carolina and Yale University, and received his M.D. from the University
of Virginia, with fellowships at Yale in oncology and epidemiology.
Mr. Wiklund has been a director of Esperion since July 1998. He has been
an advisor to the biotechnology and pharmaceutical industries since January of
1997 when he formed Wiklund International Inc. In 1997 he was appointed Sr.
Vice President of Biacore Holding, Inc., a supplier of affinity biosensor
systems. Mr. Wiklund served as President of Pharmacia Development Corporation
from August 1993 to December 1994, as Executive Vice President of Pharmacia US,
Inc. from January 1995 to December 1995 and as Vice President of Pharmacia &
Upjohn from January 1995 to December 1996. Between 1984 and 1993, he was
President & CEO of Kabi Vitrum AB and Kabi Pharmacia, Inc. Mr. Wiklund serves
as a director of InSite Vision, Inc., Medivir AB, Ribozyme Pharmaceuticals,
Inc., Bioreason Inc., and Glyco Design, Inc. He has a Master of Pharmacy from
the Pharmaceutical Institute in Stockholm and studied business administration
at the University of Stockholm.
Board of Directors
Our board of directors is divided into the following three classes, with
the members of the respective classes serving for staggered three-year terms:
. Class 1 directors, whose terms expire at the annual meeting of
stockholders to be held in 2001;
. Class 2 directors, whose terms expire at the annual meeting of
stockholders to be held in 2002; and
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. Class 3 directors, whose terms expire at the annual meeting of
stockholders to be held in 2003.
Messrs. , and are our Class 1 directors, Messrs. , and are
our Class 2 directors, and Messrs. , and are our Class 3 directors. At
each annual meeting of stockholders following this offering, our stockholders
will elect the successors to directors whose terms expire to serve from the
time of election and qualification until the third annual meeting following
election.
All directors were nominated and elected as directors by the holders of
our common and preferred stock in accordance with provisions of our current
stockholders agreement. These provisions of our stockholders agreement will
terminate upon the completion of this offering. Each of the individuals will
remain as a director until resignation or until the stockholders elect their
replacements in accordance with our certificate of incorporation.
Our executive officers are appointed by the board of directors and serve
until their successors have been duly elected and qualified. There are no
family relationships among any of our executive officers or directors.
Audit Committee
We have established an audit committee. Our audit committee consists of
three independent directors. Our audit committee is responsible for reviewing
with management our financial controls and accounting and reporting activities.
In addition, our audit committee is also responsible for reviewing the
qualifications of our independent auditors, making recommendations to the board
of directors regarding the scope, fees and results of any audit and reviewing
any non-audit services and related fees.
Compensation Committee and Compensation Committee Interlocks and Insider
Participation
We have established a compensation committee. Our compensation committee
is responsible for the evaluation, approval and administration of all salary,
incentive compensation, benefit plans and other forms of compensation for our
officers, directors and other employees including, bonuses and options granted
under our option and equity compensation plans. None of the Compensation
Committee members has served as an officer or employee of Esperion or its
subsidiary, except Roger S. Newton, Ph.D., who has been our President and Chief
Executive Officer since our inception in 1998. Effective , Dr. Newton
resigned from the Compensation Committee, which currently consists solely of
non-employee directors.
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Esperion Scientific Advisors
We currently retain scientific advisors who advise us concerning long-
term scientific planning and research and development, periodically evaluate
our research programs and periodically review development plans for our product
candidates. Our current scientific advisors are as follows:
<TABLE>
<CAPTION>
Member Professional Affiliation Expertise
- ---------------------- ----------------------------- --------------------------------
<S> <C> <C>
Prediman K. Shah, M.D. Cedars Sinai Medical Center, Interventional cardiology
Director, Department of
Cardiology
Cesare Sirtori, M.D. University Center E. Grossi Pharmacology of lipid and
Paoletti, Institute of lipoprotein metabolism
Pharmacological Science,
University of Milan, Italy
Guido Franceschini, University Center E. Grossi Pharmacology of lipid and
Ph.D. Paoletti, Institute of lipoprotein metabolism
Pharmacological Science,
University of Milan, Italy
Daniel Rader, M.D. University of Pennsylvania, Human genetics of lipid
Department of Medicine and disorders
Experimental Therapeutics
Charles Sing, Ph.D. University of Michigan, Human genetics of cardiovascular
Department of Human Genetics risk factors
</TABLE>
Director and Scientific Advisors Compensation
We reimburse each member of our board of directors and each of our
scientific advisors for out-of-pocket expenses incurred in connection with
attending our meetings. We also pay each of our scientific advisors who is not
an investor a fee for each meeting attended.
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Executive Compensation
The following table presents information concerning the compensation we
paid for the year ended December 31, 1999 to our chief executive officer and
the other executive officers who earned over $100,000 in compensation during
the year ended December 31, 1999.
1999 Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation Awards
---------------- -----------------------
Restricted Securities
Name and Principal Stock Underlying All Other
Position Salary Bonus Awards(#) Options(#) Compensation(1)
- ------------------ -------- ------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Roger S. Newton,
Ph.D. ............... $200,000 $60,000 -- -- $200,735
President, Chief
Executive Officer
Timothy M. Mayleben.... 145,000 32,000 -- 100,000 735
Vice President, Chief
Financial Officer
Jan Johansson, M.D.,
Ph.D.(2)............. 177,615 10,000 120,000(4) 240,000 60,096
Vice President,
Clinical Affairs
Hans Ageland(3)........ 164,405 10,000 120,000(4) 240,000 5,235
Vice President,
Production
</TABLE>
- --------
(1) Includes $4,500 forgiveness of loans to Dr. Johansson and Mr. Ageland and
term life insurance premiums in the amount of $735 paid by us for Mr.
Newton, Mr. Mayleben, Dr. Johansson and Mr. Ageland during 1999. Includes
$54,861 of relocation expenses reimbursement to Dr. Johansson during 1999.
Includes $200,000 paid by us to Dr. Newton as reimbursement for taxes
during 1999.
(2) Dr. Johansson's employment with Esperion began in May 1999. His salary for
1999 was $106,667. Prior to his employment, Dr. Johansson served as a
consultant to us. He was paid $70,948 in 1999 for his services as a
consultant.
(3) Mr. Ageland's employment with Esperion began in February 1999. His salary
for 1999 was $146,667. Prior to his employment, Mr. Ageland served as a
consultant to us. He was paid $17,738 in 1999 for his services as a
consultant.
(4) The fair market value of these shares at the date of grant was $18,000.
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Stock Option Grants
The following table contains information concerning options to purchase
common stock that we granted in 1999 to each of the executive officers named in
the summary compensation table. We generally grant stock options at 100% of the
fair market value of the common stock as determined by our board of directors
on the date of grant. In reaching the determination of fair market value at the
time of each grant, the board of directors considers a range of factors,
including our current financial position, results of operations and cash flows,
the status of development activities for our product candidates, our assessment
of competitive position in our market and prospects for the future, current
industry market conditions, including valuations for comparable companies and
the illiquidity of an investment in the common stock.
Option Grants in 1999
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------
Potential Realizable
Value at Assumed
Percent of Annual Rates
Number of Total of Stock Price
Securities Options Appreciation
Underlying Granted to Exercise for Option Term
Options Employees Price Per Expiration ---------------------
Name Granted in 1999 Share Date 5% 10%
- ---- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Roger S. Newton,
Ph.D. ................ -- -- -- -- -- --
Jan Johansson M.D.,
Ph.D. ................ 240,000 28.9% $0.15 06/2008 55,848 84,886
Hans Ageland............ 240,000 28.9 0.15 06/2008 55,848 84,886
Timothy M. Mayleben..... 100,000 12.1 0.15 01/2008 23,270 35,369
</TABLE>
The following table contains information covering options to purchase
common stock that we granted in 2000 as of February 24, 2000. The percentage of
total options granted is based on a total of 508,750 options granted in 2000 as
of February 24, 2000.
Option Grants in 2000
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------
Potential Realizable
Value at Assumed
Percent of Annual Rates
Number of Total of Stock Price
Securities Options Appreciation
Underlying Granted to Exercise for Option Term
Options Employees Price Per Expiration ---------------------
Name Granted in 2000 Share Date 5% 10%
- ---- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Roger S. Newton,
Ph.D. ................ 175,000 34.4% $1.60 01/2009 434,372 660,225
Jan Johansson M.D.,
Ph.D. ................ -- -- -- -- -- --
Hans Ageland............ -- -- -- -- -- --
Timothy M. Mayleben..... 125,000 24.6 1.60 01/2009 310,266 471,590
</TABLE>
Amounts reported in the potential realizable value column above are
hypothetical values that may be realized upon exercise of the options
immediately prior to the expiration of their term, calculated by assuming that
the stock price on the date of grant as determined by our board of directors
appreciates at the indicated annual rate compounded annually for the entire
term of the option (nine years). The 5% and 10% assumed rates of appreciation
are mandated by the rules of the Securities and Exchange Commission and do not
represent our estimate or projection of our future common stock price.
The following table contains information concerning options to purchase
common stock held as of December 31, 1999 by each of the executive officers
named in the summary compensation table. There was no
41
<PAGE>
public trading market for the common stock as of December 31, 1999.
Accordingly, these values have been calculated on the basis of the assumed
offering price of $ per share minus the applicable per share exercise price.
1999 Year-End Option Values
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Year End at Year End
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Roger S. Newton, Ph.D... -- -- $ $
Jan Johansson, M.D,
Ph.D.................. 90,000 150,000
Hans Ageland............ 90,000 150,000
Timothy M. Mayleben..... 25,000 75,000
</TABLE>
Employment, Change of Control and Termination of Employment Arrangements
Roger S. Newton, Ph.D., holds the position of President and Chief
Executive Officer and receives an annual salary of $215,000 per year, and a
bonus of up to 30% of his base salary per year. The amount of his bonus, if
any, is dependent upon achievement of a series of performance milestones, set
by our board of directors. He has also received 800,000 shares of restricted
common stock which vest over a four year period and options to purchase 175,000
shares of our common stock with a four year vesting schedule. If we terminate
Dr. Newton's employment without cause, he will receive his salary and benefits
for six months after his termination, and 25% of his unvested options will
automatically vest.
Jan Johansson, M.D., holds the position of Vice President, Clinical
Affairs and receives an annual salary of $160,000 per year and a bonus of up to
20% of his base salary per year. The amount of his bonus, if any, is dependent
on the achievement of a series of performance milestones set by our board of
directors. Dr. Johansson holds options to purchase 240,000 shares of Esperion's
common stock at $0.15 per share. These options are exercisable for nine years
and will vest over a four year period of time from the date of issuance. We
will award to Dr. Johansson options to purchase an additional 25,000 shares of
our stock upon the completion of a clinical trial of AIM, indicating proof of
concept, if such an event occurs by November 2000. If we terminate Dr.
Johansson's employment without cause, he will receive his salary and benefits
for nine months after his termination and 25% of his unvested founder's stock
and options will automatically vest.
Hans Ageland holds the position of Vice President, Production and
receives an annual salary of $160,000 per year and a bonus of up to 20% of his
base salary per year. The amount of his bonus, if any, is dependent on the
achievement of a series of performance milestones set by our board of
directors. Mr. Ageland holds options to purchase 240,000 shares of the our
common stock at $0.15 per share. These options are exercisable for nine years
and will vest over a four year period of time from the date of issuance. We
will award options to purchase an additional 25,000 shares of our common stock
upon the completion of a clinical trial of AIM indicating proof of concept, if
such an event occurs by November 2000. If we terminate Mr. Ageland's employment
without cause, he will receive his salary and benefits for nine months after
his termination and 25% of his unvested founders' stock and options will
automatically vest.
Timothy M. Mayleben holds the position of Vice President, Finance and
Chief Financial Officer and receives an annual salary of $175,000 per year and
a bonus of up to 20% of his salary. The amount of his bonus, if any, is
dependent upon achievement of performance milestones set by our board of
directors. Mr. Mayleben holds options to purchase 100,000 shares of our common
stock at $0.15 per share and options to purchase 125,000 shares of common stock
at $1.60. These options are exercisable for nine years and will vest quarterly
over a four year period of time from the date of issuance. If we terminate Mr.
Mayleben's employment without cause, he will receive his salary and benefits
for six months after his termination, and 25% of his unvested options will
automatically vest.
42
<PAGE>
1998 Stock Option Plan
We maintain a 1998 Stock Option Plan, which has been approved by our
board of directors and our stockholders. The Plan provides for grants of
incentive stock options and nonqualified stock options to our directors,
officers, employees, consultants and advisors; however, only employees,
officers and directors who are also our employees may receive grants of
incentive stock options. The Plan authorizes up to 2,470,000 shares of common
stock for issuance under the terms of the Plan. As of December 31, 1999,
1,278,750 options were outstanding under the Plan. As of February 24, 2000,
1,787,500 options were outstanding under the Plan.
401(k) Plan
We maintain a tax-qualified employee savings and retirement plan, our
401(k) plan, for our eligible employees. At the discretion of the board of
directors, we may make matching contributions on behalf of all participants who
have elected to make deferrals to the 401(k) plan. To date, we have not made
any matching contributions to the 401(k) plan. Any contributions to the 401(k)
plan by us or by our participants are paid to a trustee. The 401(k) plan, and
the accompanying trust, are intended to qualify under Section 401(k) of the
Internal Revenue Code, as amended, so that contributions and income earned, if
any, are not taxable to employees until withdrawn. The contributions made by us
vest in increments according to a vesting schedule. At the direction of each
participant, the trustee invests the contributions made to the 401(k) plan in
any number of investment options.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Previous Capital Stock Financings
Preferred Stock
We sold 500,000 shares of series A preferred stock in July 1998 and
10,000,000 shares of series B preferred stock in August 1998. We sold
10,252,879 shares of series C preferred stock in January 2000 and 1,136,363
shares of series D preferred stock in February 2000. Substantially all of our
shares of preferred stock have been sold to venture capital funds.
The detailed description of the various venture capital funds that have
purchased our preferred stock is contained in the footnotes to the Principal
Stockholder's table on page 46. Each share of outstanding preferred stock will
automatically convert into one share of common stock upon completion of this
offering.
Series A Preferred Stock. We sold 500,000 shares of series A preferred
stock in July 1998 at a purchase price per share of $1.00 for a total of
$500,000. In these transactions, we sold 275,000 shares to Oak Investment
Partners, 175,000 shares to TL Ventures III, and 50,000 shares to Scheer
Investment Holdings II, L.L.C.
Series B Preferred Stock. We sold 10,000,000 shares of series B preferred
stock in August 1998 at a purchase price per share of $1.50, for a total of $15
million. In these transactions, we sold 3,750,000 shares of series B preferred
stock to each of Oak Investment Partners and TL Ventures III, 2,133,333 shares
to HealthCap KB, 33,334 shares to Scheer Investment Holdings II, L.L.C., and
333,333 shares to Dr. Cesare Sirtori.
Series C Preferred Stock. We sold 10,125,465 shares of series C preferred
stock in January 2000 at a purchase price per share of $2.16 for a total of
approximately $21.8 million. In these transactions, we sold:
. 2,280,093 shares to Canaan Equity Partners;
. 1,851,852 shares to Oak Investment Partners;
. 1,851,852 shares to TL Ventures III;
. 1,388,889 shares to HealthCap KB;
43
<PAGE>
. 1,157,408 shares to Avalon Investments;
. 925,926 shares to TL Ventures IV;
. 462,963 shares to Serventia SA;
. 46,296 shares to Scheer Investment Holdings II, L.L.C.;
. 34,722 shares to Seth A. Rudnick; and
. 125,464 to other investors.
In addition, we issued an aggregate of 127,414 shares of series C preferred
stock to Roger Newton and Anders Wiklund for services rendered.
Series D Preferred Stock. We sold 1,136,363 shares of series D preferred
stock in February 2000 at a purchase price per share of $4.40 for a total of
approximately $5.0 million to Novare Kapital AB.
Transactions with Directors
Scheer and Company, Inc., a company owned and controlled by David I.
Scheer, one of our directors, provides business consulting and advisory
services to us for which it has received $30,000 per quarter plus out-of-pocket
expenses since January 1999. From inception through December 31, 1998, Scheer
and Company, Inc. received $10,000 per quarter plus out-of-pocket expenses.
Anders Wiklund, one of our directors, provides business consulting
services to us. Mr. Wiklund was paid $12,000 in 1998 and $27,000 in 1999 for
these services plus reimbursement of his out of pocket expenses.
Transactions with Scientific Advisors
Dr. Cesare Sirtori provides product candidate research and consulting
services to us. For providing these services, we have funded Dr. Sirtori's
laboratory at a cost of $50,000 per quarter since January 1999.
Dr. Prediman K. Shah provides product candidate development services to
us for which we have paid him $5,000 per month, plus out-of-pocket expenses
since November 1998.
44
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table provides information regarding the beneficial
ownership of our common stock as of February 24, 2000, and as adjusted to
reflect the sale of the shares of our common stock offered hereby, by:
. each person or entity who beneficially owns more than 5% of our stock;
. each of our directors;
. our named executive officers; and
. all executive officers and directors as a group.
Unless otherwise indicated, the address of each executive officer named
in the table below is care of Esperion Therapeutics, Inc., 3621 S. State Street
695 KMS Place, Ann Arbor, MI 48108. The amounts and percentages of common stock
beneficially owned are reported on the basis of regulations of the Securities
and Exchange Commission governing the determination of beneficial ownership of
securities. Under the rules of the Commission, a person is deemed to be a
"beneficial owner" of a security if that person has or shares "voting power,"
which includes the power to vote or to direct the voting of such security, or
"investment power," which includes the power to dispose of or to direct the
disposition of such security. A person is also deemed to be a beneficial owner
of any securities of which that person has a right to acquire beneficial
ownership within 60 days. Under these rules, more than one person may be deemed
a beneficial owner of the same securities and a person may be deemed to be the
beneficial owner of securities as to which such person has no economic
interest.
<TABLE>
<CAPTION>
Percentage of Shares
Beneficially Owned
------------------------------
Number of Shares
Name of Beneficial Owner Beneficially Owned Before Offering After Offering
- ------------------------ ------------------ --------------- --------------
5% Stockholders
- ---------------
<S> <C> <C> <C>
Oak Investment Partners
(1)....................... 6,176,852 25.14% %
Canaan Equity Partners (2).. 2,280,093 9.28
TL Ventures III (3)......... 5,776,852 23.51
TL Ventures IV (4).......... 925,926 3.77
HealthCap KB (5)............ 3,522,222 14.34
Avalon Investments (6)...... 1,157,408 4.71
Novare Kapital (7).......... 1,136,363 4.63
<CAPTION>
Directors and Executive
Officers
- -----------------------
<S> <C> <C> <C>
Eileen M. More (1).......... 6,176,852 25.14% %
Seth Rudnick (2)............ 2,314,815 9.42
Christopher Moller (3)...... 6,702,778 27.28
Roger S. Newton............. 895,741 3.65
David I. Scheer (8)......... 629,630 2.56
Jan Johansson (9)........... 210,000 *
Hans Ageland (10)........... 210,000 *
Timothy M. Mayleben (11).... 31,250 *
Anders Wiklund (12)......... 250,423 1.02
---------- -----
All directors and executive
officers as a group (13).. 17,421,489 70.11%
</TABLE>
- --------
* less than one percent
45
<PAGE>
(1) Includes 6,025,519 shares owned by Oak Investment Partners VII, Limited
Partnership and 151,333 shares owned by Oak VII Affiliates Fund Limited
Partnership. Ms. More is a Special Limited Partner of Oak Associates VII,
Limited Partnership and Oak VII Affiliates, Limited Partnership, the
general partners of Oak Investment Partners VII, Limited Partnership and
Oak VII Affiliates Fund, Limited Partnership, respectively. The General
Partners have sole authority and responsibility for all investment, voting
and disposition decisions for Oak Investment Partners VII, Limited
Partnership and Oak VII Affiliates Fund, Limited Partnership, respectively.
Ms. More disclaims beneficial ownership of shares in which she does not
have a pecuniary interest. The address of both Oak Investment Partners VII,
Limited Partnership and Oak VII Affiliates Limited Partnership is One
Gorham Island, Westport, CT 06880.
(2) Includes 1,493,461 shares owned by Canaan Equity II L.P., 668,067 shares
owned by Canaan Equity II L.P. (QP) and 118,556 shares owned by Canaan
Equity II Entrepreneurs LLC. Dr. Rudnick, a venture partner at Canaan
Equity Partners, owns 34,722 shares. Dr. Rudnick disclaims ownership of
shares in which he does not have a recurring interest. The address of each
of the Canaan Equity Partners entities is 105 Rowayton Avenue, Rowayton,
CT 06853.
(3) Includes 4,651,345 shares owned by TL Ventures III L.P., 973,630 shares
owned by TL Ventures III Offshore L.P. and 151,877 shares owned by TL
Ventures III Interfund L.P. TL Ventures III L.P., TL Ventures III Offshore
L.P., and TL Ventures III Interfund L.P. are referred to as TL Ventures
III. TL Ventures III L.P., TL Ventures III Offshore L.P., and TL Ventures
III Interfund L.P. are venture capital partnerships that are required by
their governing documents to make all investment, voting and disposition
actions in tandem. TL Ventures III Management L.P., a limited partnership,
is the sole general partner of TL Ventures III L.P. TL Ventures III
Offshore Partners L.P. is the sole general partner of TL Ventures III
Offshore L.P. TL Ventures III LLC is the sole general partner of TL
Ventures III Interfund L.P. The general partners have sole authority and
responsibility for all investment, voting and disposition decisions for TL
Ventures III. The general partners of TL Ventures III Management L.P., TL
Ventures III Offshore Partners L.P. and TL Ventures III LLC are Safeguard
Scientifics (Delaware), Inc., Robert E. Keith, Jr., Gary J. Anderson, Mark
J. DeNino, Robert A. Fabbio and Christopher Moller, a director of
Esperion. Dr. Moller disclaims beneficial ownership of shares in which he
does not have a pecuniary interest. The address for each of the TL
Ventures investment funds is 700 Building, 435 Devon Park Drive, Wayne, PA
19087.
(4) Includes 902,088 shares owned by TL Ventures IV L.P. and 23,838 shares
owned by TL Ventures IV Interfund L.P. TL Ventures IV L.P., TL and TL
Ventures IV Interfund L.P. are referred to as TL Ventures IV. TL and TL
Ventures IV Interfund L.P. are venture capital partnerships that are
required by their governing documents to make all investment, voting and
disposition actions in tandem. TL Ventures IV Management L.P., a limited
partnership, is the sole general partner of TL Ventures IV L.P. TL
Ventures IV LLC is the sole general partner of TL Ventures III Interfund
L.P. The general partners have sole authority and responsibility for all
investment, voting and disposition decisions for TL Ventures IV. The
general partners of TL Ventures IV Management L.P., and TL Ventures IV LLC
are Safeguard Scientifics (Delaware), Inc. Robert E. Keith, Jr., Gary J.
Anderson, Mark J. DeNino, Robert A. Fabbio and Christopher Moller, a
director of Esperion. Dr. Moller disclaims beneficial ownership of shares
in which he does not have a pecuniary interest. The address for each of
the TL Ventures investment funds is 700 Building, 435 Devon Park Drive,
Wayne, PA 19087.
(5) Includes 1,479,335 shares owned by HealthCap KB and 2,042,887 shares owned
by HealthCap CoInvest KB. The address for HealthCap KB and HealthCap
CoInvest KB is Sturegatan 34, S-11436 Stockholm, Sweden. HealthCap KB and
HealthCap CoInvest KB are Swedish limited partnerships.
(6) Includes 1,157,408 shares owned by Avalon Investments LLC.
(7) Includes 1,119,318 shares owned by Novare Kapital AB and 17,045 shares
owned by Lagrummet 621 AB.
(8) Includes 629,630 shares owned by Scheer Investment Holdings II, L.L.C. Mr.
Scheer is President of Scheer & Company, Inc., the fund manager of Scheer
Investment Holdings II, L.L.C. Mr. Scheer disclaims beneficial ownership
of any shares in which he does not have a pecuniary interest.
(9) Includes 105,000 shares of common stock issuable upon the exercise of
stock options within sixty days.
(10) Includes 105,000 shares of common stock issuable upon exercise of stock
options within sixty days.
(11) Includes 31,250 shares of common stock issuable upon the exercise of stock
options within sixty days.
(12) Includes 18,750 shares of common stock issuable upon exercise of stock
options within sixty days.
(13) Includes 230,000 shares of common stock issuable upon exercise of stock
options within sixty days.
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our Authorized Capital Stock
. 20 million shares of common stock, par value $.001 per share
. 15 million shares of preferred stock, par value $.001 per share
. immediately after the sale of the shares of common stock in this
offering, we will have shares of common stock outstanding and no
shares of preferred stock outstanding
Common Stock
Voting:
. one vote for each share held of record on all matters submitted to a
vote of stockholders
. no cumulative voting rights
. election of directors by plurality of votes cast
. all other matters by majority of votes cast
Dividends:
. subject to preferential dividend rights of outstanding shares of
preferred stock, if any, common stockholders are entitled to receive
declared dividends
. the board of directors may only declare dividends out of legally
available funds
Additional Rights:
. subject to the preferential liquidation rights of outstanding shares
of preferred stock, if any, common stockholders are entitled to
receive net assets, available after the payment of all debts and
liabilities, upon our liquidation, dissolution or winding up
. no preemptive rights
. no subscription rights
. no redemption rights
. no sinking fund rights
. no conversion rights
The rights and preferences of common stockholders are subject to the
rights of the holders of any series of preferred stock we may issue in the
future.
Preferred Stock
We may, by resolution of our board of directors, and without any further
vote or action by our stockholders, authorize and issue, subject to limitations
prescribed by law, up to an aggregate of five million shares of preferred
stock. The preferred stock may be issued in one or more classes or series of
shares. With respect to any classes or series, the board of directors may
determine the designation and the number of shares, preferences, limitations
and special rights, including dividend rights conversion rights, voting rights,
redemption rights and liquidation preferences. Because of the rights that may
be granted, the issuance of preferred stock may delay, defer or prevent a
change of control.
47
<PAGE>
Prior to this offering, we had 500,000 shares of series A preferred
stock, 10,000,000 shares of series B preferred stock, 10,252,879 shares of
series C preferred stock and 1,136,363 shares of series D preferred stock
issued and outstanding. Upon the completion of this offering, all of our
outstanding shares of preferred stock will automatically convert into a total
of 21,889,242 shares of common stock.
Registration Rights
Following completion of this offering, holders of shares of common
stock will have the right to have their shares registered under the Securities
Act of 1933. These rights are provided under the terms of an agreement between
us and the holders of such securities. In addition, pursuant to this agreement,
the holders of shares of common stock are entitled to require us to
include their registrable securities in future registration statements we file
under the Securities Act of 1933. Registration of shares of common stock
pursuant to the exercise of these registration rights would result in such
shares becoming freely tradable without restriction under the Securities Act of
1933 immediately upon the effectiveness of such registration and may adversely
affect our stock price.
Stockholders' Meeting
Our next annual meeting of stockholders will be held in 2001.
Limitations on Liability
Our certificate of incorporation limits or eliminates the liability of
our directors to us or our stockholders for monetary damage to the fullest
extent permitted by the Delaware General Corporation Law. As permitted by the
Delaware General Corporation Law, our certificate of incorporation provides
that our directors shall not be personally liable to us or our stockholders for
monetary damages for a breach of fiduciary duty as a director, except for
liability:
. for any breach of such person's duty of loyalty;
. for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law; and
. for any transaction resulting in receipt by such person of an improper
personal benefit.
Our certificate of incorporation also contains provisions indemnifying
our directors and officers to the fullest extent permitted by the Delaware
General Corporation Law.
We currently have directors' and officers' liability insurance to provide
our directors and officers with insurance coverage for losses arising from
claims based on breaches of duty, negligence, errors and other wrongful acts.
Anti-Takeover Effects of Provisions of Charter Documents and Delaware Law
Upon completion of this offering our certificate of incorporation will
provide for the division of our board of directors into three classes. Each
class must be as nearly equal in number as possible. Additionally, each class
must serve a three-year term. The terms of each class are staggered so that
each term ends in a different year over a three-year period. A director may
only be removed for cause and only by the vote of more than 50% of the shares
entitled to vote for the election of directors.
Our certificate of incorporation also provides that our board of
directors may establish the rights of, and cause us to issue, substantial
amounts of preferred stock without the need for stockholder approval. Further,
our board of directors may determine the terms, conditions, rights, privileges
and preferences of the preferred stock. Our board is required to exercise its
business judgment when making such determinations. Our board of
48
<PAGE>
directors' use of the preferred stock may inhibit the ability of third parties
to acquire Esperion. Additionally, our board may use the preferred stock to
dilute the common stock of entities seeking to obtain control of Esperion. The
rights of the holders of common stock will be subject to, and may be adversely
affected by, any preferred stock that may be issued in the future. Our
preferred stock provides desirable flexibility in connection with possible
acquisitions, financings and other corporate transactions. However, it may
have the effect of discouraging, delaying or preventing a change in control of
Esperion. We have no present plans to issue any shares of preferred stock.
The existence of the foregoing provisions in our certificate of
incorporation could make it more difficult for third parties to acquire or
attempt to acquire control of us or substantial amounts of our common stock.
After this offering is completed, Section 203 of the Delaware General
Corporation Law will apply to Esperion. Section 203 of the Delaware General
Corporation Law generally prohibits certain "business combinations" between a
Delaware corporation and an "interested stockholder." An "interested
stockholder" is generally defined as a person who, together with any
affiliates or associates of such person, beneficially owns, or within three
years did own, directly or indirectly, 15% or more of the outstanding voting
shares of a Delaware corporation. The statute broadly defines business
combinations to include:
. mergers;
. consolidations;
. sales or other dispositions of assets having an aggregate value in
excess of 10% of the consolidated assets of the corporation or
aggregate market value of all outstanding stock of the corporation;
and
. certain transactions that would increase the "interested
stockholder's" proportionate share ownership in the corporation.
The statute prohibits any such business combination for a period of
three years commencing on the date the "interested stockholder" becomes an
"interested stockholder," unless:
. the business combination is approved by the corporation's board of
directors prior to the date the "interested stockholder" becomes an
"interested stockholder";
. the "interested stockholder" acquired at least 85% of the voting stock
of the corporation (other than stock held by directors who are also
officers or by certain employee stock plans) in the transaction in
which it becomes an "interested stockholder"; and
. the business combination is approved by a majority of the board of
directors and by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the "interested
stockholder."
The Delaware General Corporation Law contains provisions enabling a
corporation to avoid Section 203's restrictions if stockholders holding a
majority of the corporation's voting stock approve an amendment to the
corporation's certificate of incorporation or by-laws to avoid the
restrictions. In addition, the restrictions contained in Section 203 are not
applicable to any of our existing stockholders. We have not and do not
currently intend to "elect out" of the application of Section 203 of the
Delaware General Corporation Law.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is StockTrans,
Inc., Ardmore, Pennsylvania.
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market could adversely affect prevailing market prices. Furthermore, since no
shares will be available for sale shortly after this offering because of the
contractual and legal restrictions on resale described below, sales of
substantial amounts of common stock in the public market after these
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate
of shares of common stock, assuming no exercise of the underwriters' over-
allotment option, and excluding shares issuable upon exercise of
outstanding options. Of these shares, all of the shares sold in this offering
will be freely tradable without restriction or further registration under the
Securities Act of 1933, unless such shares are purchased by "affiliates" as
that term is defined in Rule 144 under the Securities Act. The remaining
shares of common stock, excluding shares issuable upon exercise of
outstanding options, held by existing stockholders are "restricted securities"
as that term is defined in Rule 144 under the Securities Act. Restricted shares
may be sold in the public market only if registered or if they qualify for an
exemption from registration described below under Rules 144, 144(k) or 701
promulgated under the Securities Act.
Beginning 180 days after the date of this prospectus, approximately
restricted shares subject to lock-up agreements between the underwriters and
most of our stockholders, including officers and directors, will become
eligible for sale in the public market under Rule 144(k), Rule 144 or Rule 701.
The lock-up agreements provide that the stockholders will not sell or otherwise
dispose of any shares of common stock without the prior written consent of
FleetBoston Robertson Stephens Inc. for a period of 180 days from the date of
this prospectus. Bona fide gifts or distributions to the stockholders or
limited partners of stockholders are excepted from the restrictions of the
lock-up agreements, provided the transferee agrees to be bound by similar
restrictions. FleetBoston Robertson Stephens may release all or any portion of
the securities subject to the lock-up agreements without notice.
Rule 144
Under rule 144, beginning 90 days after the date the registration
statement of which this prospectus is a part is declared effective, a person,
or persons whose shares are aggregated and who has beneficially owned
restricted shares for at least one year, which includes the holding period of
any prior owner other than an affiliate, would generally be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of:
. 1% of the outstanding shares of our common stock then outstanding,
which will equal approximately shares immediately after this
offering; or
. The average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing
of a notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about us.
Rule 144(k)
Under Rule 144(k), a person who was not an affiliate of our's at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, which includes the holding period
of any prior owner except an affiliate, is entitled to sell such shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
50
<PAGE>
Rule 701
In general, under Rule 701 of the Securities Act, any of our employees,
consultants or advisors, other than affiliates, who purchases or receives
shares from us in connection with a compensatory stock purchase plan or option
plan or other written agreement will be eligible to resell such shares
beginning 90 days after the effective date of the registration statement of
which this prospectus is a part, subject only to the manner of sale provisions
of Rule 144, and by affiliates under Rule 144 without compliance with its
holding period requirements.
Registration Rights
Upon completion of this offering, the holders of shares of common
stock, or their transferees, will be entitled to certain rights with respect to
the registration of such shares under the Securities Act. When these shares are
registered under the Securities Act, they will be freely tradable unless held
by affiliates.
Stock Options
We intend to file a registration statement under the Securities Act
covering shares of common stock reserved for issuance under our 1998 Stock
Option Plan 180 days following completion of this offering. Thereafter, shares
which are issued under the plan will, subject to Rule 144 volume limitations
applicable to affiliates, be available for sale in the open market, beginning
approximately 180 days after the effective date of the initial public offering.
51
<PAGE>
UNDERWRITING
The underwriters, acting through their representatives, FleetBoston
Robertson Stephens Inc., Chase Securities Inc. and U.S. Bancorp Piper Jaffray
Inc., have severally agreed to purchase from us the number of shares of common
stock next to their respective names below. The underwriters are committed to
purchase and pay for all the shares if any are purchased.
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C> <C>
FleetBoston Robertson Stephens Inc...........................
Chase Securities Inc.........................................
U.S. Bancorp Piper Jaffray Inc...............................
Total......................................................
</TABLE>
The underwriters propose to offer the shares of common stock to the
public at the public offering price set forth on the cover page of this
prospectus and to specific dealers at that price less a concession of $
per share, of which $ may be reallowed to other dealers. After this
offering, the public offering price, concession and reallowance to dealers may
be reduced by the representatives. However, no reduction will change the amount
of proceeds to be received by us as set forth on the cover page of this
prospectus. The common stock is offered by the underwriters subject to receipt
and acceptance by them and subject to their right to reject any order in whole
or in part.
The underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
Overallotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of common stock at the same price
per share as we will receive for the shares that the underwriters have agreed
to purchase. If the underwriters exercise this option, each of the underwriters
will have a firm commitment, subject to limited conditions, to purchase
approximately the same percentage of these additional shares that the number of
shares of common stock to be purchased by it shown in the above table
represents as a percentage of the total shares offered in this offering. If
purchased, these additional shares will be sold by the underwriters on the same
terms as those on which the shares offered in this offering are being sold. We
will be obligated to sell shares to the underwriters to the extent the option
is exercised. The underwriters may exercise such option only to cover
overallotments made in connection with the sale of the shares of common stock
offered in this offering.
Indemnity. The underwriting agreement contains covenants of indemnity
among the underwriters and us against identified civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Lock-Up Agreements. Each executive officer, director, and substantially
all of our stockholders, agreed with the representatives for a period of 180
days after the date of this prospectus, subject to certain exceptions, not to
offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or
grant any rights with respect to any shares of common stock, any options or
warrants to purchase any shares of common stock, or any securities convertible
into or exchangeable for shares of common stock, owned as of the date of this
prospectus or thereafter acquired directly by such holders or with respect to
which they have or hereafter acquire the power of disposition, without the
prior written consent of FleetBoston Robertson Stephens Inc. FleetBoston
Robertson Stephens Inc. may, in its sole discretion and at any time or from
time to time without notice, release all or any portion of the securities
subject to the lock-up agreements. There are no agreements between the
representatives and any of our stockholders who have executed a lock-up
agreement providing consent to the sale of shares prior to the expiration of
the lock-up period.
52
<PAGE>
Future Sales. In addition, we have agreed that during the 180 days after
the date of this prospectus we will not, subject to certain exceptions, without
the prior written consent of FleetBoston Robertson Stephens Inc. (i) consent to
the disposition of any shares held by stockholders subject to lock-up
agreements prior to the expiration of the lock-up period or (ii) issue, sell,
contract to sell, or otherwise dispose of, any shares of common stock, any
options or warrants to purchase any shares of common stock or any securities
convertible into, exercisable for or exchangeable for shares of common stock
other than the sale of shares in this offering, the issuance of common stock
upon the exercise of outstanding options or warrants and the issuance of
options under our existing stock option and incentive plans, provided that
those options do not vest prior to the expiration of the lock-up period.
Listing. We have applied to have the common stock approved for quotation
on The Nasdaq National Market under the symbol "ESPR."
No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price
for the common stock offered hereby will be determined through negotiations
between us and the representatives of the underwriters. Among the factors to be
considered in such negotiations are prevailing market conditions, certain of
our financial information, market valuations of other companies that we and the
representatives, believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.
Stabilization. The representatives of the underwriters have advised us
that, pursuant to Regulation M under the Securities Act, certain persons
participating in this offering may engage in transactions, including
stabilizing bids, syndicate covering transactions or the imposition of penalty
bids, that may have the effect of stabilizing or maintaining the market price
of the common stock at a level above that which might otherwise prevail in the
open market. A "stabilizing bid" is a bid for or the purchase of shares of
common stock on behalf of the underwriters for the purpose of fixing or
maintaining the price of the common stock. A "syndicate covering transaction"
is the bid for or the purchase of the common stock on behalf of the
underwriters to reduce a short position incurred by the underwriters in
connection with this offering. A "penalty bid" is an arrangement permitting the
representatives to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with this offering if the common
stock originally sold by such underwriter or syndicate member is purchased by
the representatives in a syndicate covering transaction and has therefore not
been effectively placed by such underwriter or syndicate member. The
representatives have advised us that such transactions may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
Directed Share Program. At our request, the underwriters have reserved up
to 5% of the common stock to be issued by us and offered for sale in this
offering, at the initial public offering price, to our directors, officers,
employees, business associates and related persons. The number of shares of
common stock available for sale to the general public will be reduced to the
extent such individuals purchase such reserved shares. Any reserved shares
which are not so purchased will be offered by the underwriters to the general
public on the same basis as the other shares offered in this offering.
53
<PAGE>
LAWYERS
The validity of the shares of common stock offered hereby will be passed
upon for Esperion by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania.
Certain legal matters will be passed upon for the Underwriters by Testa,
Hurwitz and Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The financial statements included in this prospectus have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
ADDITIONAL ESPERION INFORMATION
We have filed with the SEC a registration statement on Form S-1 with
respect to the common stock offered hereby. This prospectus, which constitutes
a part of the registration statement, does not contain all of the information
set forth in the registration statement or the exhibits and schedules which are
part of the registration statement. For further information with respect to
Esperion and our common stock, reference is made to the registration statement
and the exhibits and schedules thereto. You may read and copy any document we
file at the SEC's public reference facilities in Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and the SEC's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. Please call the SEC at 1-800-SEC-0330 for further information about the
public reference rooms. Our SEC filings are also available to the public from
the SEC's web site at http://www.sec.gov. Upon completion of this offering, we
will become subject to the information and periodic reporting requirements of
the Securities Exchange Act and, in accordance therewith, will file periodic
reports, proxy statements and other information with the SEC. Such periodic
reports, proxy statements and other information will be available for
inspection and copying at the SEC's public reference rooms and the Web site of
the SEC referred to above.
54
<PAGE>
ESPERION THERAPEUTICS, INC.
(A Company in the Development Stage)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Stockholders' Equity............................ F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
Report of Independent Public Accountants
To Esperion Therapeutics, Inc.:
We have audited the accompanying consolidated balance sheets of ESPERION
THERAPEUTICS, INC. (a Delaware corporation in the development stage) AND
SUBSIDIARY as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year
ended December 31, 1999, for the period from inception (May 18, 1998) to
December 31, 1998, and for the period from 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 audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Esperion
Therapeutics, Inc. and subsidiary as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the year ended December
31, 1999, for the period from inception to December 31, 1998, and for the
period from inception to December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
Arthur Andersen LLP
Ann Arbor, Michigan,
February 17, 2000.
F-2
<PAGE>
ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)
CONSOLIDATED BALANCE SHEETS
As of December 31, 1998 and 1999
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
Equity
December 31,
1998 1999 1999
------------ ------------ ------------- ---
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....... $ 12,540,963 $ 5,903,932
Prepaid expenses and other...... 75,868 139,002
------------ ------------
Total current assets........... 12,616,831 6,042,934
Furniture and equipment, less
accumulated depreciation of
$67,619 in 1998 and $471,622 in
1999........................... 796,877 1,955,932
------------ ------------
$13,413,708 $ 7,998,866
============ ============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Current portion of long-term
debt.......................... $ -- $ 495,495
Accounts payable................ 108,114 1,425,249
Accrued liabilities............. 118,750 979,638
------------ ------------
Total current liabilities...... 226,864 2,900,382
------------ ------------
Long-term debt, less current
portion above.................. -- 2,283,781
------------ ------------
Commitments (Note 6)
Stockholders' Equity:
Convertible preferred stock,
$0.01 par value; 15,000,000
shares authorized, 10,500,000
shares issued and outstanding
at December 31, 1998 and 1999,
respectively; aggregate
liquidation preference of
$15,500,000 at December 31,
1999.......................... 105,000 105,000 $ --
Common stock, $0.001 par value;
20,000,000 shares authorized,
2,360,000 and 2,680,000 shares
issued and outstanding at
December 31, 1998 and 1999,
respectively.................. 2,360 2,680 13,180
Additional paid-in capital...... 15,301,502 16,466,062 16,560,562
Notes receivable................ (78,000) (106,500) (106,500)
Accumulated deficit during the
development stage............. (2,143,063) (12,813,247) (12,813,247)
Deferred stock compensation..... -- (837,660) (837,660)
Accumulated other comprehensive
loss.......................... (955) (1,632) (1,632)
------------ ------------ ------------
Total stockholders' equity..... 13,186,844 2,814,703 $ 2,814,703
------------ ------------ ============
$ 13,413,708 $ 7,998,866
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the year ended December 31, 1999,
For the period from inception (May 18, 1998) to December 31, 1998, and
For the period from inception (May 18, 1998) to December 31, 1999
<TABLE>
<CAPTION>
Inception Year Ended Inception to
to December December 31, December 31,
31, 1998 1999 1999
----------- ------------ ------------
<S> <C> <C> <C>
Operating expenses:
Research and development............ $ 1,923,074 $ 8,484,125 $ 10,407,199
General and administrative.......... 463,928 2,517,903 2,981,831
----------- ------------ ------------
Total operating expenses......... 2,387,002 11,002,028 13,389,030
----------- ------------ ------------
Loss from operations............. (2,387,002) (11,002,028) (13,389,030)
----------- ------------ ------------
Other income (expense):
Interest income..................... 245,509 423,801 669,310
Interest expense.................... -- (91,957) (91,957)
Other............................... (1,570) -- (1,570)
----------- ------------ ------------
Total other income............... 243,939 331,844 575,783
----------- ------------ ------------
Net loss before taxes................. (2,143,063) (10,670,184) (12,813,247)
Provision for income taxes............ -- -- --
----------- ------------ ------------
Net loss.............................. $(2,143,063) $(10,670,184) $(12,813,247)
=========== ============ ============
Basic and diluted net loss per share.. $ (1.06) $ (4.27)
=========== ============
Shares used in computing basic and
diluted net loss per share.......... 2,029,918 2,500,008
=========== ============
Pro forma basic and diluted net loss
per share (unaudited)............... $ (0.82)
============
Shares used in computing pro forma
basic and diluted net loss
per share (unaudited)............... 13,000,008
============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the year ended December 31, 1999, and
For the period from inception (May 18, 1998) to December 31, 1998
<TABLE>
<CAPTION>
Accumulated
Deficit Accumulated
Convertible Additional During the Deferred Other
Date of Preferred Common Paid-In Notes Development Stock Comprehensive
Transaction Stock Stock Capital Receivable Stage Compensation Loss
----------- ----------- ------- ------------ ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance--
Inception
(May 18,
1998).......... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of
1,840,000
shares of
common stock
for cash....... July 6 -- 1,840 -- -- -- -- --
Issuance of
500,000 shares
of Series A
preferred stock
for cash....... July 6 5,000 -- 463,645 -- -- -- --
Issuance of
10,000,000
shares of
Series B
preferred stock
for cash....... August 11 100,000 -- 14,760,377 -- -- -- --
Issuance of
200,000 shares
of common stock
for note
receivable..... September 1 -- 200 29,800 (30,000) -- -- --
Issuance of
120,000 shares
of common stock
for note
receivable..... November 1 -- 120 17,880 (18,000) -- -- --
Issuance of
200,000 shares
of common stock
for note
receivable..... December 11 -- 200 29,800 (30,000) -- -- --
Net loss........ -- -- -- -- (2,143,063) -- --
Foreign currency
translation
adjustment..... -- -- -- -- -- -- (955)
--------- ------- ------------ --------- ------------ ----------- -------
Comprehensive
loss...........
Balance--
December 31,
1998........... 105,000 2,360 15,301,502 (78,000) (2,143,063) -- (955)
Issuance of
80,000 shares
of common stock
for notes
receivable..... June 4 -- 80 11,920 (12,000) -- -- --
Issuance of
240,000 shares
of common stock
for notes
receivable..... July 1 -- 240 35,760 (36,000) -- -- --
Decrease in
notes
receivables.... -- -- -- 19,500 -- -- --
Deferred stock
compensation
related to
stock options.. -- -- 1,116,880 -- -- (1,116,880) --
Amortization of
deferred stock
compensation... -- -- -- -- -- 279,220 --
Net loss........ -- -- -- -- (10,670,184) -- --
Foreign currency
translation
adjustment..... -- -- -- -- -- -- (677)
--------- ------- ------------ --------- ------------ ----------- -------
Comprehensive
loss...........
Balance--
December 31,
1999........... $ 105,000 $ 2,680 $ 16,466,062 $(106,500) $(12,813,247) $ (837,660) $(1,632)
========= ======= ============ ========= ============ =========== =======
<CAPTION>
Total
Stockholders' Comprehensive
Equity Loss
-------------- --------------
<S> <C> <C>
Balance--
Inception
(May 18,
1998).......... $ --
Issuance of
1,840,000
shares of
common stock
for cash....... 1,840
Issuance of
500,000 shares
of Series A
preferred stock
for cash....... 468,645
Issuance of
10,000,000
shares of
Series B
preferred stock
for cash....... 14,860,377
Issuance of
200,000 shares
of common stock
for note
receivable..... --
Issuance of
120,000 shares
of common stock
for note
receivable..... --
Issuance of
200,000 shares
of common stock
for note
receivable..... --
Net loss........ (2,143,063) $ (2,143,063)
Foreign currency
translation
adjustment..... (955) (955)
-------------- --------------
Comprehensive
loss........... $ (2,144,018)
==============
Balance--
December 31,
1998........... 13,186,844
Issuance of
80,000 shares
of common stock
for notes
receivable..... --
Issuance of
240,000 shares
of common stock
for notes
receivable..... --
Decrease in
notes
receivables.... 19,500
Deferred stock
compensation
related to
stock options.. --
Amortization of
deferred stock
compensation... 279,220
Net loss........ (10,670,184) $(10,670,184)
Foreign currency
translation
adjustment..... (677) (677)
-------------- --------------
Comprehensive
loss........... $(10,670,861)
==============
Balance--
December 31,
1999........... $ 2,814,703
==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended December 31, 1999,
For the period from inception (May 18, 1998) to December 31, 1998, and
For the period from inception (May 18, 1998) to December 31, 1999
<TABLE>
<CAPTION>
Inception Year Ended Inception to
to December December 31, December 31,
31, 1998 1999 1999
----------- ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss............................. $(2,143,063) $(10,670,184) $(12,813,247)
Adjustments to reconcile net loss to
net cash used in
operating activities--
Depreciation........................ 67,619 404,003 471,622
Deferred stock compensation
amortization...................... -- 279,220 279,220
Interest accrued on long-term
debt.............................. -- 15,638 15,638
Increase (decrease) in cash resulting
from changes in--
Prepaid expenses and other.......... (75,060) (63,134) (138,194)
Accounts payable.................... 78,114 1,317,135 1,395,249
Accrued liabilities................. 147,850 860,888 1,008,738
----------- ------------ ------------
Net cash used in operating
activities..................... (1,924,540) (7,856,434) (9,780,974)
----------- ------------ ------------
Cash Flows from Investing Activities:
Purchases of furniture and
equipment.......................... (864,496) (1,563,058) (2,427,554)
----------- ------------ ------------
Net cash used in investing
activities..................... (864,496) (1,563,058) (2,427,554)
----------- ------------ ------------
Cash Flows from Financing Activities:
Proceeds from issuance of Series A
and Series B convertible
preferred stock................... 15,500,000 -- 15,500,000
Cash paid for stock issuance
costs............................. (170,978) -- (170,978)
Proceeds from issuance of common
stock............................. 1,840 -- 1,840
Proceeds from long-term debt........ -- 3,027,025 3,027,025
Repayments of long-term debt........ -- (247,749) (247,749)
----------- ------------ ------------
Net cash provided by financing
activities..................... 15,330,862 2,779,276 18,110,138
----------- ------------ ------------
Effect of Exchange Rate Changes on
Cash................................ (863) 3,185 2,322
----------- ------------ ------------
Increase (Decrease) in Cash and Cash
Equivalents......................... 12,540,963 (6,637,031) 5,903,932
Cash and Cash Equivalents--Beginning
of Period........................... -- 12,540,963 --
----------- ------------ ------------
Cash and Cash Equivalents--End of
Period.............................. $12,540,963 $ 5,903,932 $ 5,903,932
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Description of the Business
Esperion Therapeutics, Inc. (formerly Metapharma, Inc.) was incorporated
on May 18, 1998. Esperion Therapeutics, Inc. and its Swedish subsidiary,
Esperion AB (collectively referred to as "the Company"), are devoting
substantially all of their efforts towards conducting drug discovery and
development, initiating clinical trials, pursuing regulatory approval for
products under development, recruiting personnel, raising capital and building
infrastructure. The Company's main focus is the research and development of
pharmaceutical product candidates for cardiovascular disease.
In the course of such activities, the Company has sustained significant
operating losses and expects such losses, which will likely increase as the
Company expands its research and development activities, to continue for at
least the next several years. The Company has not generated any revenues or
product sales and has not achieved profitable operations or positive cash flows
from operations. The Company's accumulated deficit during the development stage
totaled approximately $12,813,000 through December 31, 1999. The Company plans
to finance its operations with a combination of stock issuances, license
payments, payments from strategic research and development arrangements and, in
the longer term, revenues from product sales. There are no assurances that the
Company will be successful in obtaining an adequate level of financing needed
for the long-term development and commercialization of its planned products.
In February 2000, the Company's Board of Directors authorized management
to file a registration statement with the Securities and Exchange Commission
permitting the Company to sell shares of its common stock to the public. If the
initial public offering is closed under the terms presently anticipated, all of
the Company's convertible preferred stock will automatically convert into
shares of common stock (Note 3). The unaudited pro forma stockholders' equity
at December 31, 1999 in the accompanying consolidated balance sheet reflects
the assumed conversion of the Series A and Series B preferred stock into
10,500,000 shares of common stock.
(2) Significant Accounting Policies
Principles of Consolidation and Translation
The accompanying consolidated financial statements include the accounts
of Esperion Therapeutics, Inc. and Esperion AB ("Sweden"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
The financial statements of Sweden are translated using exchange rates in
effect at the end of the period for assets and liabilities and at average rates
during the period for results of operations. The resulting foreign currency
translation adjustment is reflected as a separate component of stockholders'
equity.
Research and Development
Research and development expenses include all employee payroll and other
related costs attributable to research and development activities and are
expensed as incurred.
Licensed Technology and Patents
Costs incurred in obtaining the license rights to certain technology and
patents in the development stage are expensed as incurred due to the
uncertainty regarding potential alternative future uses and the uncertainty
regarding future operating cash flows expected to be derived from the licensed
technology and patents.
F-7
<PAGE>
ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Cash and Cash Equivalents
The Company considers all financial instruments purchased with maturities
of three months or less to be cash equivalents.
Furniture and Equipment
Additions to furniture and equipment are recorded at cost. Depreciation
is provided using the straight-line method over the estimated useful lives of
the respective assets ranging from three to seven years.
Accrued Liabilities
Accrued liabilities as of December 31, 1998 and 1999 consist of the
following:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Accrued professional fees............................... $ 70,000 $205,000
Accrued compensation.................................... -- 434,301
Accrued other........................................... 48,750 340,337
-------- --------
$118,750 $979,638
======== ========
</TABLE>
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees", and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the fair value of the Company's common stock at the date of the grant
over the amount the employee must pay to acquire the stock. As supplemental
information, the Company has provided pro forma disclosures of stock options in
Note 4, in accordance with the requirements of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation."
Supplemental Disclosures of Cash Flow Information
The Company paid cash for interest of approximately $66,000 in 1999. The
Company did not pay cash for interest in 1998.
Basic, Diluted and Pro Forma Loss per Share
Basic and diluted loss per share amounts have been calculated using the
weighted average number of shares of common stock outstanding during the
respective period.
In 1998 and 1999, options for the purchase of common stock were not
included in the calculation of diluted loss per share as doing so would have
been anti-dilutive.
The following table presents the calculation of pro forma basic and
diluted net loss per share:
<TABLE>
<S> <C>
Net loss to common stockholders............................. $(10,670,184)
============
Shares used in computing basic and diluted net loss per
share..................................................... 2,500,008
Pro forma adjustment to reflect assumed conversion of Series
A and Series B convertible preferred stock (unaudited).... 10,500,000
------------
Shares used in computing pro forma basic and diluted net
loss per share (unaudited)................................ 13,000,008
============
Pro forma basic and diluted net loss per share (unaudited)
.......................................................... $ (0.82)
============
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Actual results could differ from those estimates.
F-8
<PAGE>
ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reclassifications
Certain amounts from fiscal 1998 have been reclassified to conform to
the fiscal 1999 presentation.
(3) Preferred Stock
Series A and Series B preferred stock ("Series A" and "Series B")
provide the following rights, preferences, privileges and restrictions:
Dividends
The Series A and Series B stockholders are entitled to receive
dividends, when and if declared by the Company's Board of Directors on shares
of common stock, equal to the dividends declared on the number of shares of
common stock into which such preferred stock could then be converted.
Conversion
Each share of Series A and Series B is convertible, at the stockholder's
option, into one share of the Company's common stock, subject to adjustment.
Upon the closing of a sale of the Company's common stock in a qualified public
offering, as defined, each share of preferred stock shall automatically
convert into shares of common stock at the same ratio as determined above.
The Company has reserved for issuance such number of shares of its
authorized but unissued common stock necessary to effect conversion of all
outstanding convertible preferred stock and exercise of all outstanding stock
options.
Voting Rights
The stockholders of Series A and Series B have the right to one vote for
each share of common stock into which such preferred stock could then be
converted.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the
affairs of the Company, either voluntarily or involuntarily, the stockholders
of Series A and Series B are entitled to receive, prior to and in preference
to any distributions to the stockholders of common stock or any other
security, an amount initially equal to $1.00 and $1.50 per share,
respectively, subject to adjustment for stock splits and similar transactions,
plus accrued but unpaid dividends. Upon any sale of the Company, merger or
other transaction in which there is a change in control, as defined, the
stockholders of Series A and Series B shall be entitled to the above
liquidation preference.
Right of First Refusal
The Company and its stockholders have entered into various agreements
generally providing the Company or other stockholders the first right to
repurchase any shares of stock offered for sale by a stockholder, under the
same terms of a bona fide offer.
(4) Stock Options
In 1998, the Company established a stock option plan to increase its
ability to attract and retain key individuals. Options granted may be either
incentive stock options, which are granted at the fair market value of
F-9
<PAGE>
ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the common stock on the date of grant or higher (as determined under the plan),
or nonqualified stock options, which may be granted at less than the fair
market value of the common stock on the date of grant. Options are granted at
the discretion of the Board of Directors. The maximum number of shares that may
be granted under the plan is 1,620,000. Options granted generally become
exercisable over a period of four years from the date of grant. Outstanding
options generally expire ten years after the date of grant.
Activity related to stock options is summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
--------- --------
<S> <C> <C>
Outstanding at inception (May 18, 1998)................ --
Options granted...................................... 449,500 $0.11
Options cancelled.................................... --
Options exercised.................................... --
---------
Outstanding at December 31, 1998....................... 449,500 $0.11
Options granted...................................... 829,250 $0.57
Options cancelled.................................... --
Options exercised.................................... --
---------
Outstanding at December 31, 1999....................... 1,278,750 $0.41
=========
</TABLE>
The options outstanding and exercisable at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Weighted-
Price Average
Per Options Remaining Options
Share Outstanding Life Exercisable
----- ----------- --------- -----------
(years)
<S> <C> <C> <C>
$0.10 360,000 9.5 43,125
$0.15 89,500 9.6 8,648
------- ------
449,500 51,773
======= ======
</TABLE>
The options outstanding and exercisable at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
Weighted-
Average
Price Contractual
Per Options Remaining Options
Share Outstanding Life Exercisable
----- ----------- ----------- -----------
(years)
<S> <C> <C> <C>
$0.10 360,000 8.5 133,125
$0.15 810,750 9.4 245,364
$0.22 7,000 9.9 146
$2.10 101,000 9.1 21,741
--------- -------
1,278,750 400,376
========= =======
</TABLE>
F-10
<PAGE>
ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Using the intrinsic value method under APB 25, no compensation expense
has been recognized in the accompanying consolidated statement of operations
for options granted at fair value. Had compensation expense been determined
based on the fair value at the date of grant consistent with SFAS 123, the
reported net loss would have increased to the following pro forma amounts,
which may not be representative of that to be expected in future years:
<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
Net loss:
As Reported............................... $(2,143,063) $(10,670,184)
Pro Forma................................. $(2,144,354) $(10,690,078)
Basic and diluted loss per share:
As Reported............................... $ (1.06) $ (4.27)
Pro Forma................................. $ (1.06) $ (4.28)
</TABLE>
The fair value of options was estimated at the date of grant using the
minimum value option valuation method under SFAS 123 with the following
assumptions as of December 31, 1998 and 1999, respectively: weighted average
risk free interest rate of 5.33% and 5.35%; dividend yield of 0%; and expected
life of options of five years. The weighted-average fair value of options
granted during 1998 and 1999 were $0.03 and $0.13 per share, respectively.
Option valuation models require the input of highly subjective assumptions.
Because changes in subjective input assumptions can materially affect the fair
value estimate, in management's opinion, the existing model does not
necessarily provide a reliable single measure of the fair value of the
Company's stock options.
In 1999, the Company recorded approximately $1.1 million of deferred
stock compensation relating to stock options granted to employees at less than
management's estimate of fair value. These amounts are included as a reduction
in stockholders' equity and are being amortized to expense over the related
vesting periods. In 1999, the Company recorded deferred stock compensation
amortization of approximately $279,000 which is included in general and
administrative expense.
(5) Income Taxes
As of December 31, 1999, the Company had net operating loss carryforwards
of approximately $9.8 million. These net operating loss carryforwards expire in
2018 and 2019. Additionally, utilization of net operating loss carryforwards
may be limited under Section 382 of the Internal Revenue Code. These and other
deferred income tax assets are fully reserved by a valuation allowance as
management has determined that it is more likely than not that the deferred tax
assets will not be realized.
The effective tax rate of zero differs from the statutory rate primarily
due to providing a valuation allowance against deferred tax assets.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets for financial reporting and
the amount used for income tax purposes. Significant components of the
Company's deferred tax assets as of December 31 are as follows:
<TABLE>
<CAPTION>
1998 1999
--------- -----------
<S> <C> <C>
Start-up costs..................................... $ 191,000 $ 191,000
Net operating loss carryforward.................... 527,000 3,317,000
Asset basis differences............................ -- (150,000)
Less--Valuation allowance.......................... (718,000) (3,358,000)
--------- -----------
$ -- $ --
========= ===========
</TABLE>
F-11
<PAGE>
ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(6) Commitments
Lease Commitments
The Company leases its office space under operating leases which expire
at various dates through January 2001. Total rent expense under all leases was
approximately $124,000 in 1998 and $386,000 in 1999. Future minimum payments
under noncancellable operating leases at December 31, 1999, are as follows:
<TABLE>
<S> <C>
2000............................................................. $ 394,860
2001............................................................. 3,300
---------
$ 398,160
=========
</TABLE>
License Agreements
In June 1998 and March 1999, the Company entered into license agreements
with separate pharmaceutical companies for different product candidates ("the
1998 Agreement" and "the 1999 Agreement", respectively). The Company paid
initial license fees of $750,000 under the 1998 Agreement and $250,000 under
the 1999 Agreement and these amounts were charged to operations and included in
research and development expense.
In September 1999, the Company entered into a license agreement with a
group of inventors for a series of product candidates. The initial license fee
of $50,000 is included in accrued liabilities as of December 31, 1999 and was
charged to research and development expense.
In connection with the above agreements, the Company may be obligated to
make various milestone and future royalty payments, as defined per the
agreements, up to an aggregate amount of $25.4 million, not including royalty
payments on future sales. At the present time, the Company can give no
assurances as to the likelihood that such future milestones will be achieved.
Purchase Commitments
On November 23, 1999, the Company entered into an agreement with a
scientific instrument manufacturer to purchase a specialized piece of
equipment. The Company is obligated to pay a total of $1,000,000 for the
equipment. As of December 31, 1999, the equipment has not been received and no
payments have been made.
(7) Long-Term Debt
In April 1999, the Company entered into an equipment loan facility with a
bank whereby the Company may borrow up to $1.5 million for equipment purchases.
Borrowings under the facility are collateralized by the related equipment, bear
interest at the bank's prime rate (8.5% at December 31, 1999) plus 1%, and are
payable in equal monthly principal payments over 36 months. As of December 31,
1999, outstanding borrowings under this facility were $1,238,738. The loan
facility subjects the Company to various financial covenants which, among other
restrictions, requires the Company to maintain certain minimum levels of
tangible net worth and liquidity. Management has determined that the Company is
in compliance with these covenants at December 31, 1999.
The Company has a credit facility, totalling 50 million Swedish kronor
(approximately $5.9 million at December 31, 1999), with a Swedish entity, that
may only be used to finance the development of a certain
F-12
<PAGE>
ESPERION THERAPEUTICS, INC. AND SUBSIDIARY
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
product candidate. If a related product is not developed or does not succeed in
the market, as defined, the Company's obligation to repay the loan may be
forgiven. Borrowings under the loan agreement bear interest at 17.0% of which
9.5% is payable quarterly. The remaining 7.5% of interest along with principal
are payable in five equal annual installments starting December 30, 2004. The
Company made an initial draw on the loan facility of $1,525,000 in December
1999. This outstanding principal balance together with accrued interest of
$15,538, has been classified as long-term debt. Management has determined that
the carrying value of the debt approximates fair value.
As of December 31, 1999, maturities of long-term debt are as follows:
<TABLE>
<S> <C>
2000........................................................... $ 495,495
2001........................................................... 495,495
2002........................................................... 247,748
2003........................................................... --
2004........................................................... 385,135
Thereafter..................................................... 1,155,403
----------
2,779,276
Less--current portion.......................................... (495,495)
----------
$2,283,781
==========
</TABLE>
(8) Related Party Transactions
In 1998 and 1999, certain stockholders have provided consulting and other
professional services to the Company. Total expense for these services was
$108,000 in 1998 and $236,000 in 1999. At December 31, 1998 and 1999, amounts
due to related parties totaled $30,000 and $42,000, respectively, and are
classified as accounts payable in the accompanying consolidated balance sheets.
(9) Subsequent Events
Preferred Stock
In January and February 2000, the Company issued Series C and Series D
convertible preferred stock ("Series C" and "Series D"), respectively. Total
proceeds to the Company were approximately $21.8 million and $5.0 million
relating to the issuance of 10,252,879 shares of Series C and 1,136,363 shares
of Series D, respectively. The Series C and Series D have similar
characteristics to the Series A and Series B convertible preferred stock
(Note 3) including, but not limited to, similar voting, conversion and dividend
rights.
The Company expects to record approximately $11.5 million relating to the
beneficial conversion feature of the Series C in the first quarter of fiscal
2000. The total of the non-cash beneficial conversion feature will be reflected
through equal and offsetting additional paid-in-capital amounts and will not
affect total stockholders' equity. The beneficial conversion feature will be
considered in the determination of the Company's loss per common share amounts.
License Agreements
In February 2000, the Company entered into a license agreement with a
European entity for a product candidate. The Company is obligated to make an
initial license payment and may be obligated to make royalty payments on future
sales.
F-13
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses (other than underwriting discounts and commissions and the
underwriter's non-accountable expense allowance) payable in connection with
this offering of the rights and the sale of the Common Stock offered hereby are
as follows:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee............... $36,432
NASD filing fee................................................... 14,300
Nasdaq filing fee................................................. *
Printing and engraving expenses................................... *
Legal fees and expenses........................................... *
Accounting fees and expenses...................................... *
Blue Sky fees and expenses (including legal fees)................. *
Transfer agent and rights agent and registrar fees and expenses... *
Miscellaneous..................................................... *
-------
Total........................................................... $ *
=======
</TABLE>
- --------
*To be filed by amendment
All expenses are estimated except for the SEC fee and the NASD fee.
Item 14. Indemnification of Directors and Officers
The Registrant's Certificate of Incorporation permits indemnification to
the fullest extent permitted by Delaware law. The Registrant's By-laws require
the Registrant to indemnify any person who was or is an authorized
representative of the Registrant, and who was or is a party or is threatened to
be made a party to any corporate proceeding, by reason of the fact that such
person was or is an authorized representative of the Registrant, against
expenses, judgments, penalties, fines and amounts paid in settlement actually
and reasonably incurred by such person in connection with such third party
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in, or not opposed to, the best interests of the
Registrant and, with respect to any criminal third party proceeding (including
any action or investigation which could or does lead to a criminal third party
proceedings had no reasonable cause to believe such conduct was unlawful. The
Registrant shall also indemnify any person who was or is an authorized
representative of the Registrant and who was or is a party or is threatened to
be made a party to any corporate proceeding by reason of the fact that such
person was or is an authorized representative of the Registrant, against
expenses actually and reasonably incurred by such person in connection with the
defense or settlement of such corporate action if such person acted in good
faith and in a manner reasonably believed to be in, or not opposed to, the best
interests of the Registrant, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Registrant unless and only to the extent that the
Delaware Court of Chancery or the court in which such corporate proceeding was
pending shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such authorized
representative is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper. Such
indemnification is mandatory under the Registrant's Bylaws as to expenses
actually and reasonably incurred to the extent that an authorized
representative of the Registrant had been successful on the merits or otherwise
in defense of any third party or corporate proceeding or in defense of any
claim, issue or matter therein. The determination of whether an individual is
entitled to indemnification may be made by a majority of disinterested
directors, independent legal counsel in a written legal opinion or the
stockholders. Delaware law also permits indemnification in connection with a
proceeding brought by or in the right of the Registrant to procure a judgment
in its favor. Insofar as indemnification for
II-1
<PAGE>
liabilities arising under the Act may be permitted to directors, officers or
persons controlling the Registrant pursuant to the foregoing provisions, the
Registrant has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in that
Act and is therefore unenforceable. The Registrant expects to obtain a
directors and officers liability insurance policy prior to the effective date
of this Registration Statement.
The Underwriting Agreement provides that the underwriter is obligated,
under certain circumstances, to indemnify directors, officers, and controlling
persons of the Registrant against certain liabilities, including liabilities
under the Act. Reference is made to Section of the form of Underwriting
Agreement which will be filed by amendment as Exhibit 1.1 hereto.
Item 15. Recent Sales of Unregistered Securities
In the preceding three years, the Registrant has issued the following
securities that were not registered under the Act:
Since our inception, we have issued an aggregate of 2,680,000 shares of
common stock, par value $0.001 per share. These shares include: (i) 1,840,000
shares of common stock issued on July 6, 1998 at a purchase price per share of
$0.001, for a total of $1,840 in cash; (ii) 200,000 shares of common stock
issued on September 1, 1998 at a purchase price per share of $0.15, for a total
of $30,000 paid with a note receivable to Esperion; (iii) 120,000 shares of
common stock issued on November 1, 1998 at a purchase price per share of $0.15,
for a total of $18,000 paid with a note receivable to Esperion; (iv) 200,000
shares of common stock issued on December 11, 1998 at a purchase price per
share of $0.15 per share, for a total of $30,000 paid with a note receivable to
Esperion; (v) 80,000 shares of common stock issued on June 4, 1999 at a
purchase price per share of $0.15 per share, for a total of $12,000 paid with a
note receivable to Esperion; and (vi) 240,000 shares of common stock issued on
July 1, 1999 at a purchase price per share of $0.15 per share, for a total of
$36,000 paid with a note receivable to Esperion. All such sales and issuances
were deemed to be exempt from registration under Section 4(2) of the Act, or
Regulation D or Regulation S promulgated thereunder.
Since our inception, we have also issued an aggregate of 21,889,243
shares of preferred stock, par value $0.01 per share. These shares include (i)
500,000 shares of series A preferred stock issued in July 1998 at a purchase
price per share of $1.00, for a total of $500,000; (ii) 10,000,000 shares of
series B preferred stock issued in August 1998 at a purchase price per share of
$1.50, for a total of approximately $15 million; (iii) 10,252,879 shares of
series C preferred stock issued in January 2000 at a purchase price per share
of $2.16 for a total of approximately $22.1 million, and 1,136,363 shares of
series D preferred stock issued in February 2000 at a purchase price per share
of $4.40 for a total of approximately $5.0 million. All such sales and
issuances were deemed to be exempt from registration under the Securities Act
by virtue of Section 4(2) or Regulation D or Regulation S promulgated
thereunder.
Pursuant to our 1998 Stock Option Plan, since our inception, we have
granted options to purchase a total of 1,787,500 shares of common stock,
consisting of 1,278,750 options granted prior to December 31, 1999 at a
weighted average exercise price of $0.41 per share and 508,750 options granted
after December 31, 1999 at a weighted average exercise price of $1.60 per
share. For a more detailed description of our 1998 Stock Option Plan, see
"Management--1998 Stock Option Plan." In granting the options and selling the
underlying securities upon exercises of the options, we are relying upon
exemptions from registration set forth in Section 4(2) of the Act and/or Rule
701, Regulation D or Regulation S promulgated thereunder.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.#
3.1 Amended and Restated Certificate of Incorporation of the Company.#
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
3.2 Amended and Restated Bylaws of the Company.#
4.1 Investors' Rights Agreement among Esperion Therapeutics, Inc. and the
parties set forth therein dated July 6, 1998.*
4.2 Amendment No. 1 to the Investors' Rights Agreement among Esperion
Therapeutics, Inc. and the parties set forth therein dated August
11, 1998.*
4.3 Amendment No. 2 to the Investors' Rights Agreement among Esperion
Therapeutics, Inc. and the parties set forth therein dated January
7, 2000.*
4.4 Amendment No. 3 to the Investors' Rights Agreement among Esperion
Therapeutics, Inc. and the parties set forth therein dated February
22, 2000.*
4.5 Form of Restricted Stock Purchase Agreement.#
5.1 Opinion of Morgan, Lewis & Bockius LLP.#
10.1 Esperion Therapeutics, Inc. 1998 Stock Option Plan.#
10.2 Collaboration and License Agreement between Esperion Therapeutics,
Inc. and Pharmacia & Upjohn AB dated June 24, 1998.*@
10.3 License Agreement among Esperion Therapeutics, Inc., Jean-Louis
Dasseux as the Inventors' Representative and the Inventors named
therein dated September 15, 1999.*@
10.4 License Agreement between Inex Pharmaceuticals Corporation and
Esperion Therapeutics, Inc. dated March 15, 1999*@
10.5 Letter Agreement among Esperion Therapeutics, Inc., Inex
Pharmaceuticals Corporation and the University of British Columbia
dated March 12, 1999.*
10.6 License Agreement between Esperion Therapeutics, Inc. and Region
Wallonne dated February 17, 2000.*
10.7 Lease between Esperion Therapeutics, Inc. and State-94 Limited
Partnership dated November 30, 1998.#
10.8 Lease between Esperion Therapeutics, Inc. and Maxey, LLC dated January
4, 1999.#
10.9 Loan and Security Agreement between Silicon Valley Bank, doing
business as Silicon Valley East, and Esperion Therapeutics, Inc.,
dated March 31, 1999.#
21.1 Subsidiary of Esperion Therapeutics, Inc.*
23.1 Consent of Arthur Andersen LLP.*
23.2 Consent of Morgan, Lewis & Bockius LLP (to be included in Exhibit 5.1).#
24.1 Power of Attorney (included on signature page).*
27.1 Financial Data Schedule.*
</TABLE>
- --------
*Filed herewith.
#To be filed by amendment.
@Confidential Treatment Requested.
(b) Financial Statement Schedules
All information for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission is either included in the
financial statements or is not required under the related instructions or is
inapplicable, and therefore has been omitted.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
II-3
<PAGE>
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution no previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 14 above, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes (1) to provide to the
underwriter at the closing specified in the standby underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser; (2) that for
purposes of determining any liability under the Act, the information omitted
from the form of prospectus filed as part of a registration statement in
reliance upon Rule 430(a) and contained in the form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the act shall be
deemed to be part of this registration statement as of the time it was
declared effective; and (3) that for the purpose of determining any liability
under the Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to supplement the
prospectus, after the expiration of the subscription period, to set forth the
results of the subscription offer, the transactions by the underwriter during
the subscription period, the amount of unsubscribed securities to be purchased
by the underwriter, and the terms of any subsequent reoffering thereof. If any
public offering by the underwriter is to be made on terms differing from those
set forth on the cover page of the prospectus, a post-effective amendment will
be filed to set forth the terms of such offering.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has duly reasonable grounds to believe that it
meets all of the requirements for filing on Form S-1 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Ann Arbor, Michigan, on February 24, 2000.
Esperion Therapeutics, Inc.
/s/ Roger S. Newton
By: _________________________________
Roger S. Newton
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. Each person whose signature appears
below in so signing also makes, constitutes and appoints Roger S. Newton and
Timothy M. Mayleben and each of them acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to execute
and cause to be filed with the Securities and Exchange Commission any and all
amendments and post-effective amendments to this Registration Statement and a
related registration statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, and in each case to file the
same, with all exhibits thereto and other documents in connection therewith,
and hereby ratifies and confirms all that said attorney-in-fact or his
substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Roger S. Newton President, Chief Executive February 24, 2000
______________________________________ Officer and Director
Roger S. Newton (Principal Executive
Officer)
/s/ Timothy M. Mayleben Vice President and Chief February 24, 2000
______________________________________ Financial Officer
Timothy M. Mayleben (Principal Financial
Officer and Principal
Accounting Officer)
/s/ David I. Scheer Chairman February 24, 2000
______________________________________
David I. Scheer
/s/ Anders Wiklund Director February 24, 2000
______________________________________
Anders Wiklund
/s/ Christopher Moller Director February 24, 2000
______________________________________
Christopher Moller
/s/ Eileen M. More Director February 24, 2000
______________________________________
Eileen M. More
/s/ Seth A. Rudnick Director February 24, 2000
______________________________________
Seth A. Rudnick
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.#
3.1 Amended and Restated Certificate of Incorporation of the Company.#
3.2 Amended and Restated Bylaws of the Company.#
4.1 Investors' Rights Agreement among Esperion Therapeutics, Inc. and the
parties set forth therein dated July 6, 1998.*
4.2 Amendment No. 1 to the Investors' Rights Agreement among Esperion
Therapeutics, Inc. and the parties set forth therein dated August
11, 1998.*
4.3 Amendment No. 2 to the Investors' Rights Agreement among Esperion
Therapeutics, Inc. and the parties set forth therein dated January
7, 2000.*
4.4 Amendment No. 3 to the Investors' Rights Agreement among Esperion
Therapeutics, Inc. and the parties set forth therein dated February
22, 2000.*
4.5 Form of Restricted Stock Purchase Agreement.#
5.1 Opinion of Morgan, Lewis & Bockius LLP.#
10.1 Esperion Therapeutics, Inc. 1998 Stock Option Plan.#
10.2 Collaboration and License Agreement between Esperion Therapeutics,
Inc. and Pharmacia & Upjohn AB dated June 24, 1998.*@
10.3 License Agreement among Esperion Therapeutics, Inc., Jean-Louis
Dasseux as the Inventors' Representative and the Inventors named
therein dated September 15, 1999.*@
10.4 License Agreement between Inex Pharmaceuticals Corporation and
Esperion Therapeutics, Inc. dated March 16, 1999.*@
10.5 Letter Agreement among Esperion Therapeutics, Inc., Inex
Pharmaceuticals Corporation and the University of British Columbia
dated March 12, 1999.*
10.6 License Agreement between Esperion Therapeutics, Inc. and Region
Wallonne dated February 17, 2000.*
10.7 Lease between Esperion Therapeutics, Inc. and State-94 Limited
Partnership dated November 30, 1998.#
10.8 Lease between Esperion Therapeutics, Inc. and Maxey, LLC dated January
4, 1999.#
10.9 Loan and Security Agreement between Silicon Valley Bank, doing
business as Silicon Valley East, and Esperion Therapeutics, Inc.,
dated March 31, 1999.#
21.1 Subsidiary of Esperion Therapeutics, Inc.*
23.1 Consent of Arthur Andersen LLP.*
23.2 Consent of Morgan, Lewis & Bockius LLP (to be included in Exhibit 5.1).#
24.1 Power of Attorney (included on signature page).*
27.1 Financial Data Schedule.*
</TABLE>
- --------
*Filed herewith.
#To be filed by amendment.
@Confidential Treatment Requested.
<PAGE>
EXHIBIT 4.1
--------------------------------
ESPERION THERAPEUTICS, INC.
INVESTORS' RIGHTS AGREEMENT
July 6, 1998
--------------------------------
<PAGE>
TABLE OF CONTENTS
SECTION 1....................................................................1
RESTRICTIONS ON TRANSFER; REGISTRATON RIGHTS.................................1
1.1 Restrictions on Transfer.........................................1
1.2 Certain Definitions..............................................1
1.3 Restrictive Legend...............................................3
1.4 Notice of Proposed Transfers.....................................4
1.5 Holder's Requested Registration..................................5
1.6 Company Registration.............................................7
1.7 Form S-3 Registration............................................8
1.8 Expenses of Registration.........................................9
1.9 Lock-up..........................................................9
1.10 Registration Procedures.........................................10
1.11 Indemnification.................................................11
1.12 Information by Holder...........................................13
1.13 Rule 144 Reporting..............................................13
1.14 Limitation on Subsequent Registrations..........................13
1.15 Termination of Registration Rights..............................13
SECTION 2...................................................................13
COVENANTS OF THE COMPANY....................................................13
2.1 Financial Information...........................................14
2.2 Additional Information and Rights...............................14
2.3 Termination of Financial Information Rights.....................15
2.4 Confidentiality and Noncompetition Agreements...................15
2.5 Employee and Other Stock Arrangements...........................15
2.6 Corporate Existence.............................................16
2.7 Books of Account and Reserves...................................16
2.8 Stock Fully Paid; Reservation of Shares.........................16
2.9 Replacement of Certificates Representing Preferred Shares.......16
2.10 Material Changes and Litigation.................................16
2.11 Restrictive Agreements Prohibited...............................16
2.12 Expenses of Directors...........................................17
2.13 By-laws.........................................................17
2.14 Employee Nondisclosure and Developments Agreements;
Noncompetition Agreements.......................................17
2.15 Insurance.......................................................17
2.16 Termination of Covenants........................................17
SECTION 3...................................................................17
PREEMPTIVE RIGHTS...........................................................17
3.1 Preemptive Rights...............................................17
3.2 Calculation of Number of Shares of Common Stock Held or
Outstanding.....................................................18
3.3 Notices With Respect to Proposed Issuance of New Securities.....18
<PAGE>
3.4 Company's Right to Complete Proposed Sale of New Securities
to the Extent Preemptive Rights are Not Exercised................18
3.5 Expiration of Preemptive Rights..................................19
3.6 Waiver of Antidilution Adjustment................................19
SECTION 4.....................................................................19
MISCELLANEOUS.................................................................20
4.1 Governing Law....................................................20
4.2 Successors and Assigns; Assignment of Rights.....................20
4.3 Entire Agreement; Amendment; Waiver..............................20
4.4 Notices, etc.....................................................20
4.5 Delays or Omissions..............................................20
4.6 Rights; Separability.............................................20
4.7 Titles and Subtitles.............................................21
4.8 Counterparts.....................................................21
4.9 Aggregation of Stock.............................................21
4.10 No Third Party Beneficiaries.....................................21
4.11 Remedies.........................................................21
4.12 Fees and Expenses................................................21
4.13 Dispute Resolution...............................................21
- --Schedule of Purchasers
EXHIBIT B - Form of Employee Nondisclosure and Developments Agreement
EXBIBIT C - Form of Noncompetition Agreement
<PAGE>
ESPERION THERAPEUTICS, INC.
INVESTORS' RIGHTS AGREEMENT
This Investors' Rights Agreement (this "Agreement") is made and entered
into as of the 6th day of July, 1998, by and among ESPERION THERAPEUTICS, INC.,
a Delaware corporation (the "Company") and the persons identified on Exhibit A
---------
attached hereto (the "Purchasers").
WHEREAS, the Purchasers are parties to the Securities Purchase Agreement
dated as of the date hereof between the Company and the Purchasers (the "Series
A Agreement"), certain of the Company's and such Purchasers' obligations under
which are conditioned upon the execution and delivery by such Purchasers and the
Company of this Agreement:
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereto agree as follows:
SECTION 1
RESTRICTIONS ON TRANSFER: REGISTRATION RIGHTS
---------------------------------------------
1.1 Restrictions on Transfer. No Restricted Securities (as defined
------------------------
below) shall be sold, pledged, assigned, hypothecated, transferred, or otherwise
disposed of by any Holder except upon the conditions specified in this Section 1
hereof, which conditions are intended to ensure compliance with the provisions
of the Securities Act. Each Holder shall cause any proposed transferee of the
Restricted Securities held by a Holder to agree in writing to take and hold such
securities subject to the provisions and upon the conditions specified in this
Section 1 hereof.
1.2 Certain Definitions. As used in this Agreement, the following
-------------------
definitions shall apply:
"Commission" means the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Company's common stock par value
------------
$0.001 per share.
"Conversion Stock" shall mean the shares of Common Stock issued or
----------------
issuable upon conversion of the Preferred Shares, together with any securities
issued or issuable, directly or indirectly, in respect of such securities upon
any stock split, stock dividend, recapitalization or the like.
"Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended, or any similar successor federal statue and the rules and regulations
promulgated thereunder, all as the same shall be in effect from time to time.
"Holder" means any Purchaser who holds Registrable Securities and
------
any holder of Registrable Securities to whom the registration rights conferred
by this Agreement have been transferred pursuant to Section 4.2 hereof.
<PAGE>
"IPO" shall mean the initial underwritten public offering pursuant to an
---
effective registration statement under the Securities Act covering the offer and
sale of Common Stock for the accounts of the Company.
"New Securities" shall mean any shares of capital stock or other equity
--------------
securities (or debt securities convertible into such equity securities) of the
Company, whether now authorized or not, and rights, options or warrants to
purchase said shares of capital stock and securities of any type whatsoever
that are, or may become, convertible into said share of capital stock or other
equity securities: provided however, that the term "New Securities" shall not
----------------
include (i) securities issued upon conversion of the Preferred Shares, (ii)
securities issued pursuant to the acquisition of another corporation by the
Company or issued in connection with any merger, consolidation, combination,
purchase of all or substantially all of the assets or other reorganization which
shall be approved by the Board of Directors of the Company and the holders of at
least 51% of the Preferred Shares, (iii) securities issued pursuant to any
rights or agreement, including without limitation convertible securities,
provided that the preemptive rights established by Section 3 hereof apply with
respect to the initial sale or grant by the Company of such rights or agreements
(other than the rights or agreements described in subsections (v), (vi) and
(vii) of this definition), (iv) securities issued in connection with any stock
split, stock dividend or recapitalization of the Company, (v) up to 940,000
shares of Common Stock issued to certain of the Founders(as set forth in the
Series A Agreement) pursuant to the exercise of options outstanding on the date
hereof or pursuant to the exercise of options issued in accordance with Section
C.4(d)(i)(4)(H) of the Restated Certificate, (vi) up to 380,000 shares of Common
Stock issued to employees, consultants, officers or directors of the Company
pursuant to the exercise of any stock option, stock purchase or stock bonus
plan, agreement or arrangement for the primary purpose of soliciting or
retaining such employees, consultants, officers or directors services and which
are hereafter approved by the Compensation Committee of the Board of Directors
(provided such committee includes at least one Purchaser Director and does not
include any director who is an officer of the Company), (vii) up to 840,000
shares of Common Stock issued in accordance with Section C.4(d)(i)(4)(I) of the
Restated Certificate. (viii) securities issued in an underwritten public
offering pursuant to an effective registration statement under the Securities
Act, covering the offer and sale of securities for the account of the Company
and/or selling shareholders to the public: or (ix) securities issued in a
transaction approved pursuant to Section 2.5(c)
"Preferred Shares" shall mean the Series A Shares, the Series B Shares
----------------
and shares of any additional series of preferred stock of the Company the
issuance of which is approved by the holders of at least 51% of the Preferred
Shares as required by the Restated Certificate.
"Pro Rata Portion" shall mean, with respect to each Holder, that number
----------------
of shares of New Securities as is equal to the product of (i) the total number
of New Securities proposed to be issued multiplied by (ii) a fraction, the
numerator of which is the number of shares of Common Stock held by such Holder
computed as set forth in Section 3.2 hereof, and the denominator of which is the
total number of shares of Common Stock which are held by all Holders as of such
date (computed as set forth in Section 3.2 hereof).
"Purchaser Directors" shall have the meaning given to such term in the
-------------------
Stockholders' Agreement dated the date hereof among the Company, the Purchasers
and certain other stockholders of the Company.
The terms "register", "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act (and any post-effective
2
<PAGE>
amendments filed or required to be filed). and the declaration or ordering of
the effectiveness of such registration statement.
"Registration Securities" means any Common Stock (i) issued or issuable
-----------------------
upon conversion of the Preferred Shares, (ii) issued as a dividend or other
distribution with respect to or in exchange for or other distribution with
respect to or in exchange for or in replacement of the shares referenced in (i)
above, or (iii) otherwise owned by a Purchaser, provided, however, that
-------- -------
Registrable Securities shall not included any shares of Common Stock which have
previously been registered or sold to the public.
"Registration Expenses" means all expenses incurred by the Company in
---------------------
complying with Sections 1.5, 1.6 and 1.7 including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
reasonable fees and disbursements of counsel for the Company and for the
Holders, blue sky fees and expenses, and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company). Registration Expenses shall not include Selling Expenses or other
compensation paid to underwriters or other agents or brokers to effect the sale
or the fees of more than one counsel for the Purchasers.
"Restated Certificate" shall mean the Company's Amended and Restated
--------------------
Certificate of Incorporation, as amended through the date hereof.
"Restricted Securities" means the securities of the Company required to
---------------------
bear the legend set forth in Section 1.3.
"Rule 145" means Rule 145 promulgated under the Securities Act, or any
--------
similar successor rule, as the same shall be in effect from time to time.
"Rule 415" means Rule 415 promulgated under the Securities Act, or any
--------
similar successor rule, as the same shall be in effect from time to time.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar federal statute and the rules and regulations of the Commission
thereunder, as shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
----------------
commissions, and stock transfer taxes applicable to the sale of Registrable
Securities.
"Series A Shares" shall mean the Company's Series A Convertible
---------------
Preferred Stock, par value $0.01 per share.
Series B Shares" shall mean the Company's Series B Convertible Preferred
---------------
Stock, par value $.01 per share.
"Transaction Documents" shall mean, collectively, the Series A
---------------------
Agreement, the Restated Certificate, this Agreement and the other Ancillary
Agreements (as defined in the Series A Agreement).
1.3 Restrictive Legend (a) Each certificate representing (i) the Preferred
------------------
Shares , (ii) the Conversion Stock, and (iii) any other securities issued or
issuable, directly or indirectly, in respect of any of the foregoing securities
upon any stock split, stock dividend, recapitalization, merger, consolidation or
3
<PAGE>
similar event, shall (unless otherwise permitted by the provisions of Section
1.4 hereof) be stamped or otherwise imprinted with legends in substantially the
following form (in addition to any legend(s) required hereunder or under
applicable state securities laws):
THE SALE AND ISSUANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR UNDER THE SECURITIES LAW OF ANY STATE OR OTHER
JURISDICTION. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THESE
SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED, OR TRANSFERRED UNLESS (I)
A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO THESE
SECURITIES AND SUCH OFFER, SALE, PLEDGE, OR TRANSFER IS IN COMPLIANCE
WITH APPLICABLE SECURITIES LAW OF ANY STATE OR OTHER JURISDICTION OR
(II) THERE IS AN OPINION OF COUNSEL OR OTHER EVIDENCE, SATISFACTORY TO
THE COMPANY, THAT AN EXEMPTION THEREFROM IS AVAILABLE AND THAT SUCH
OFFER, SALE, PLEDGE, OR TRANSFER IS IN COMPLIANCE WITH APPLICABLE
SECURITIES LAW OF ANY STATE OR OTHER JURISDICTION.
FURTHERMORE, THE SALE, PLEDGE, ASSIGNMENT, HYPOTHECATION, TRANSFER OR
OTHER DISPOSITION OF THESE SECURITIES ARE RESTRICTED PURSUANT TO THE
TERMS OF AN INVESTORS' RIGHTS AGREEMENT (THE "RIGHTS AGREEMENT") DATED
JULY 6, 1998, AMONG THE COMPANY, THE HOLDER OF THIS CERTIFICATE" OTHER
HOLDERS OF THE COMPANY'S SECURITIES. COPIES OF THE RIGHTS AGREEMENT MAY
BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD
OF THE CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE COMPANY.
Each Holder and any subsequent holder of any Restricted Securities
consents to the Company making a notation on its records and giving instructions
to any transfer agent of the Restricted Securities in order to implement the
restrictions on transfer described in this Section 1.3.
(b) The Company shall be obligated to reissue promptly
certificates without the foregoing legend at the request of any holder thereof
if the holder shall have obtained an opinion of counsel (which counsel may be
counsel to the Company) reasonably acceptable to the Company to the effect that
the securities proposed to be disposed of may lawfully be so disposed of without
registration, qualification or legend. Any legend endorsed on an instrument
pursuant to applicable state securities laws and the stop-transfer instructions
with respect to such securities shall be removed upon receipt by the Company of
an order of the appropriate blue sky authority authorizing such removal or an
opinion of counsel reasonably satisfactory to the Company to the effect that any
such applicable state securities legends or stop-transfer instructions are not
required and may be removed.
1.4 Notice of Proposed Transfers. Prior to any proposed transfer of
----------------------------
any Restricted Securities, unless there is in effect a registration statement
under the Securities Act covering the proposed transfer, the holder thereof
shall give written notice (the "Notice") to the Company of such holder's
intention to make such transfer. The Notice shall describe the manner and
circumstances of the proposed transfer in sufficient detail, and shall be
accompanied by a written opinion of legal counsel who shall be reasonably
satisfactory to the Company, addressed to the Company and reasonably
satisfactory in form and substances
4
<PAGE>
to the Company's counsel, to the effect that the proposed transfer of the
Restricted Securities may be effected without registration under the Securities
Act; provided, however, that for transactions made pursuant to Rule 144 under
-------- -------
the Securities Act, an opinion of counsel shall only be required if reasonably
requested by the Company and which shall be to the effect that the proposed
transfer of the Restricted Securities may be effected without registration under
the Securities Act. Notwithstanding the foregoing provisions of this Section
1.4, no such registration statement or opinion of counsel shall be necessary for
a transfer by a holder which is (A) a corporation to its shareholders in
accordance with their interest in the corporation, (B) a limited liability
company to its members or former members in accordance with their interest in
the limited liability company, (C) a partnership to its partners or retired
partners in accordance with partnership interests or to a liquidating trust for
their benefit, (D) an individual to a family member or trust for the benefit of
such individual or a family member, or (E) a trustee for the benefit of others
to a successor trustee, provided in the case of either (A), (B), (C), (D) or
(E), that the transferee will be subject to the terms of this Section 1 to the
same extent as if he were an original holder hereunder. Each certificate
evidencing the Restricted Securities so transferred shall bear the appropriate
restrictive legends set forth in Section 1.3, except that such certificate shall
not bear such restrictive legends if in the opinion of counsel for the Company
such legends are not required in order to establish compliance with any
provisions of the securities laws.
1.5 Holder's Requested Registration.
-------------------------------
(a) Request for Registration. At any time after the earlier
------------------------
of (A) July 6, 2002 or (B) six months from and after the closing of the
Company's IPO, if the Company receives from a Holder or Holders of Registrable
Securities who own not less than 30% of the then outstanding Registrable
Securities ("Initiating Holders"), a written request that the Company effect any
underwritten registration, qualification, or compliance with respect to
Registrable Securities held by such Initiating Holder or Initiating Holders,
then the Company shall:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to
effect such registration, qualification, or compliance (including, without
limitation, the execution of an undertaking to file post-effective amendments,
appropriate qualification under applicable blue sky or other state securities
laws, and appropriate compliance with applicable regulations issued under the
Securities Act and any other governmental requirements or regulations) as may be
so requested and as would permit or facilitate the sale and distribution of all
or such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holders
joining in such request as are specified in a written request received by the
Company within 20 days after the date the Company mails such written notice.
Provided, however, that the Company shall not be obligated to take any
action to effect any such registration, qualification, or compliance pursuant to
Section 1.5:
(A) In any jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification, or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act:
5
<PAGE>
(B) During the period starting with the date sixty (60)
days prior to the Company's estimated date of filing of, and ending on the date
one hundred eighty (180) days immediately following the effective date of any
registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan); provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective;
(C) After the Company has effected two such
registrations pursuant to this Section 1.5 which have been declared or ordered
effective and pursuant to which securities have been sold; or
(D) If the Company shall furnish to such Initiating
Holders a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company it would be
seriously detrimental to the Company or its shareholders for a registration
statement to be filed in the near future, in which case the Company's obligation
to use its reasonable efforts to register, qualify or comply under this Section
1.5 shall be deferred for a period not to exceed 120 days from the date of
receipt of written request from the Initiating Holders, provided that the
Company may not exercise this deferral right more than once within any 12 month
period.
Subject to the foregoing clauses (A) through (D), the Company shall file
a registration statement covering the Registrable Securities so requested to be
registered within: for any registration which is an IPO, 150 days, and, for any
registration which is not an IPO, 60 days, in each case, after receipt of the
request or requests of the Initiating Holders.
(b) Underwriting. The right of any Holder to registration
------------
pursuant to this Section 1.5 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent requested (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
intending to participate in such registration and such Holder with respect to
such participation and inclusion) to the extent provided herein.
The Company shall (together with all Holders selling Registrable
Securities) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company (which
underwriter shall be reasonably acceptable to a majority in interest of the
Initiating Holders). Notwithstanding any other provision of this Section 1.5, if
the managing underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Company shall so advise all Holders and the number of
shares of Registrable Securities and other securities that may be included in
the registration and underwriting shall be allocated, first, among all Holders
pro-rata, in proportion to the respective amounts of Registrable Securities held
by all such Holders at the time of filing the registration statement and second,
to all other holders, in proportion, as nearly as practicable, to the respective
amounts of securities of the Company owned by them. No Registrable Securities or
other securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. To facilitate the
allocation of shares in accordance with the above provisions, the Company or the
underwriters may round the number of shares allocated to any Holder or other
holder to the nearest 100 shares.
If any Holder disapproves of the terms of the underwriting, such person
may elect to withdraw therefrom by written notice to the Company, the managing
underwriter and the Initiating Holders. The Registrable Securities and/or other
securities so withdrawn shall also be withdrawn from registration, and such
Registrable Securities and/or other securities shall not be transferred in a
public distribution prior to 180 days after the effective date of such
registration, or such other shorter period of time as the
6
<PAGE>
underwriters may require. If by the withdrawal of such Registrable Securities or
other securities, a greater number of Registrable Securities held by other
Holders may be included in such registration (up to the maximum of any
limitation imposed by the underwriters), then the Company shall offer to all
Holders who have included Registrable Securities in the registration the right
to include additional Registrable Securities in the same proportion and manner
used in determining the effect of the underwriter limitation in this Section
1.5(b).
If the managing underwriter has not limited the number of Registrable
Securities to be underwritten, the Company may include securities for its own
account or for the account of others in such registration if the managing
underwriter so agrees and if the number of Registrable Securities which would
otherwise have been included in such registration and underwriting will not
thereby be limited.
1.6 Company Registration.
--------------------
(a) Notice of Registration. If at any time or from time to time,
----------------------
(i) the Company shall determine to register in an underwritten offering any of
its securities, either for its own account or the account of a security holder
or holders, other than (i) a registration relating solely to employee benefit
plans, or (ii) a registration relating solely to Rule 145 transaction, or a
registration on any registration form that does not permit secondary sales, the
Company shall:
(i) promptly give to each Holder written notice thereof;
and,
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
by each Holder received by the Company within 20 days after the Company mails
such written notice, subject to the provisions below.
(b) Underwriting. The right of any Holder to registration
------------
pursuant to this Section 1.6 shall be conditioned upon the participation by such
Holder in such underwriting and the inclusion of such Holder's Registrable
Securities in the underwriting to the extent provided herein. Those parties
proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company. Notwithstanding any other provisions of this Section 1.6, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit the
Registrable Securities to be included in such registration. The Company shall so
advise all Holders, and the other holders distributing their securities through
such underwriting, and the number of shares of Registrable Securities, and other
securities that may be included in the registration and underwriting shall be
allocated among the Company, the Holders and the other holders as follows: first
to the Company so as to permit the Company to include all shares that the
Company desires to sell; second, to the Holders pro-rata, in proportion to the
respective amount of Registrable Securities held by such Holders at the time of
the filing of the registration statement; and third, to all other holders in
proportion, as nearly as practicable, to the respective amounts of securities
entitled to inclusion (determined with regard to any requirement of a request to
be included in such registration) in such registration held by all such other
holders. To facilitate the allocation of shares in accordance with the above
provisions, the Company or the underwriter may round the number of shares
allocated to any Holder, or other holder to the nearest 100 shares. If any
Holder or other holder disapproves of the terms of any such underwriting, he may
elect to withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities included or withdrawn from such underwriting shall
be withdrawn from such registration, and shall not be transferred in a public
distribution prior to 180 days after the
7
<PAGE>
effective date of the registration statement relating thereto, or such other
shorter period of time as the underwriters may require.
(c) Right to Terminate Registration. The Company shall have
-------------------------------
the right to terminate or withdraw any registration initiated by it under this
Section 1.6 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration.
1.7 Form S-3 Registration. After its IPO, the Company shall use its
---------------------
best efforts to qualify for registration on Form S-3. After the Company has
qualified for the use of Form S-3, in addition to the rights contained in the
foregoing provisions of this Section 1, any Holder or Holders of Registrable
Securities shall have the right to request registration on Form S-3 (all such
requests shall be in writing and shall state the number of shares of Registrable
Securities to be disposed of and the intended methods of disposition of such
shares by such Holder or Holders); provided, that the Company shall not be
obligated to so register if the total registered securities, in the aggregate,
represent less than $1,000,000 in value (based upon the anticipated
consideration received therefor). In case the Company shall receive from a
Holder or Holders a written request that the Company effect a registration on
Form S-3 and any related state securities qualification or blue sky compliance
with respect to such an amount of the Registrable Securities owned by such
Holder or Holders, the Company shall:
(a) promptly give written notice of the proposed registration,
and related qualification or compliance, to all other Holders; and
(b) as soon as practicable, use its best efforts to effect
such registration and all such qualifications and compliances as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Holder's or Holders' Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any other Holder of Holders joining in such request as are
specified in a written request given within 20 days after receipt of such
written notice from the Company; provided, however, that the Company shall not
-------- -------
be obligated to effect any such registration, qualification, or compliance
pursuant to this Section 1.7 if Form S-3 is not available for such offering by
Holder(s).
Provided however, that the Company shall not be obligated to take any
action to effect any such registration, qualification, or compliance pursuant to
this Section 1.7;
(A) In any jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification, or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(B) During the period starting with the date sixty (60)
days prior to the Company's estimated date of filing of, and ending on the date
one hundred eighty (180) days immediately following the effective date of any
registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan); provided that the Company is actively employing in good
--------
faith all reasonable efforts to cause such registration statement to become
effective; or
(C) If the Company shall furnish to such Holder or
Holders requesting registration pursuant to this Section a certificate signed by
the President of the Company stating that in the good faith judgment of the
Board of Directors of the Company it would be seriously detrimental to the
Company or its shareholders for a registration statement to be filed in the near
future, in which case
8
<PAGE>
the Company's obligation to use its reasonable efforts to register, qualify or
comply under this Section 1.7 shall be deferred for a period not to exceed 120
days from the date of receipt of written request from such Holder or Holders,
provided that the Company may not exercise this deferral right more than once
within any 12 month period.
Subject to the foregoing, the Company shall effect such registration,
qualification, or compliance (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act and any other
governmental requirements or regulations) covering the Registrable Securities
and other securities so requested to be registered as soon as practicable after
receipt of the request or requests of the Holder.
If the registration to be effected pursuant to the Section 1.7 is to be
an underwritten public offering, it shall be managed by an underwriter or
underwriters selected by the Company and reasonably acceptable to a majority in
interest of the Holders requesting registration. In such event, the right of
any Holder to registration pursuant to this Section 1.7 shall be conditioned
upon the participation by such Holder in such underwriting and the inclusion of
the Registrable Securities of such Holder in the underwriting to the extent
provided herein. If the managing underwriter so selected determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the Registrable Securities held
by such Holders to be included in such registration. The Company shall so advise
such Holders, and the number of shares of Registrable Securities that may be
included in the registration shall be allocated among the Holders and other
holders as follows: first, among the Holders in proportion to the respective
amounts of Registrable Securities held by each of such Holders at the time of
filing of the registration statement and second, to the other holders in
proportion as nearly as practicable, to the amount of Stock entitled to
inclusion in such registration. Any Registrable Securities or other securities
that are so excluded from the underwriting shall be excluded from the
registration. As used throughout this Section the term "Form S-3" shall be
deemed to include any equivalent successor form for registration pursuant to the
Act.
1.8 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with the registration, qualification or compliance pursuant to
Sections 1.5, 1.6, and 1.7 shall be borne by the Company unless otherwise set
forth therein; provided, however, that in connection with any registration of
-------- -------
securities, the Company shall only be responsible for the fees and costs of one
counsel for all of the Holders, any costs of special or accelerated audit
required to effect such a registration on Form S-3 pursuant to Section 1.7 at
the time requested by such Holders in excess of $15,000 shall be paid by the
Holders participating in such registration, and any Registration Expenses
incurred with respect to a registration on Form S-3 in excess of 2 such
registrations in any 12 month period shall be paid by the Holders participating
in such registration. All Selling Expenses relating to securities so registered
shall be borne by the holders of such securities pro rata on the basis of the
number of shares of securities so registered on their behalf.
1.9 Lock-up. Each of the Holders hereby agrees not to offer, sell, make
-------
any short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any of the Company's Common Stock held of record or beneficially
owned by such person (other than those included in the registration) which at
the time of the effective date of such registration statement may be sold or
otherwise transferred in reliance upon Rule 144 promulgated under the Securities
Act during the period of time (not to exceed 180 days) determined by the Board
of Directors of the Company upon advice of its managing underwriter, from and
after the effective date of the registration statement for the Company's IPO:
provided that the obligations of the Holders under this Section 1.9 shall not
apply unless each executive officer and director of the Company and the holders
of two percent (2%) or more of the Company's voting securities then
9
<PAGE>
outstanding are bound by similar restrictions. Such restriction shall not apply
to shares registered in such offering. In order to enforce this provision, the
Company may impose stop-transfer instructions with respect to such shares until
the end of such period. The obligations described in this Section 1.9 shall not
apply to a registration relating solely to employee benefit plans on Form S-1 or
Form S-8 or similar forms that may be promulgated in the future.
1.10 Registration Procedures. If and whenever the Company is required by
-----------------------
the provisions of this Section 1 to use its most diligent efforts to effect
promptly the registration of Registrable Securities the Company shall:
(a) Prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use its most diligent efforts to
cause such registration statement to become and remain effective as provided
herein.
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
current and to comply with the provisions of the Securities Act with respect to
the sale of or other disposition of all Registrable Securities covered by such
registration statement, including such amendments and supplements as may be
necessary to reflect the intended method of disposition of the prospective
seller or sellers of such Registrable Securities but for no longer than one
hundred twenty (120) days subsequent to the effective date of such registration
in the case of a registration statement on Form S-1 (or any similar form of
registration statement required to set forth substantially identical
information); provided, however, that (i) such period shall be extended for a
-------- -------
period of time equal to the period the underwriter recommends that all the
Holders refrain from selling the securities included in such registration due to
marketing conditions or other conditions which adversely affect the offer and
sale of such securities; and (ii) in the case of any registration of Registrable
Securities on Form S-3 which is intended to be offered on a continuous or
delayed basis, such period shall be extended, if necessary, to keep the
registration statement effective until all Registrable Securities are sold,
provided that Rule 415 permits an offering on a continuous or delayed basis, and
provided further that applicable rules under the Securities Act governing the
obligation to file a post-effective amendment permit, in lieu of filing a
post-effective amendment that (I) includes any prospectus required by Section
10(a)(3) of the Securities Act or (II) reflects facts or events representing a
material or fundamental change in the information set forth in the registration
statement, the incorporation by reference of information required to be included
in (I) and (II) above to be contained in periodic reports filed pursuant to
Section 13 or 15(d) of the Exchange Act in the registration statement.
(c) Furnish to each prospective seller of Registrable Securities
such number of copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other
documents, as such seller may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Securities of such seller.
(d) Notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue
10
<PAGE>
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing.
(e) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange or approved for quotation on
any inter-dealer quotation system on which similar securities issued by the
Company are then listed or quoted.
(f) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to such registration statement and a CUSIP number
of all such Registrable Securities in each case not later than the effective
date of such registration.
(g) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first month after the effective date of the
Registrable Securities, which earnings statement shall satisfy the provisions
of Section 11(a) of the Securities Act.
(h) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 1.5, 1.6 or 1.7 hereof, the
Company will enter into an underwriting agreement reasonably necessary to effect
the offer and sale of Common Stock, provided such underwriting agreement
contains customary underwriting provisions and provided further that if the
underwriter so requests the underwriting agreement will contain customary
contribution provisions.
(i) Each seller of Registrable Securities shall not (until further
notice) effect sales of shares covered by any registration statement after
receipt of telegraphic or written notice from the Company to suspend sales to
permit the Company to correct or update a registration statement or prospectus.
1.11 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section I:
(a) The Company will indemnify each Holder, each of its officers
and directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, and each underwriter, if any, and
each person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages or liabilities (or
actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained, on the effective date thereof, in any registration statement, any
prospectus contained therein, or any amendment or supplement thereto, or based
on any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein (in the case of
a prospectus, in the light of the circumstances under which they were made) not
misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act applicable to the Company in connection
with any such registration, qualification or compliance, and the Company will
reimburse each such Holder, each of its officers and directors and partners and
each person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission, or alleged untrue statement or omission, made in reliance upon and in
conformity
11
<PAGE>
with written information furnished to the Company by or on behalf of such Holder
or underwriter and stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers and its legal counsel and independent accountants,
each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such underwriter
within the meaning of Section 15 of the Securities Act, against all claims,
losses, damages and liabilities (or actions in respect thereof), including any
of the foregoing incurred in settlement of any litigation commenced or
threatened, arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained, on the effective date thereof, in any
such registration statement, any prospectus contained therein, or any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they were made) not
misleading, and will reimburse the Company, and such directors, officers,
persons, underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement or
prospectus in reliance upon and in conformity with written information furnished
to the Company by or behalf of such Holder and stated to be specifically for use
therein; provided, however, that the obligations of each Holder hereunder shall
-------- -------
be limited to an amount equal to the net proceeds to each such Holder of
Registrable Securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section
1.11 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 1 to the extent such
failure is not prejudicial. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation. Notwithstanding anything to the contrary contained in this
Section 1.11(c), the Indemnified Praty shall have the right to employ its own
counsel in any action, claim, litigation, proceeding or investigation, and the
fees and expenses thereof shall be borne by the Indemnified Party, unless the
Indemnified Party shall have reasonably concluded that there may be one or more
legal defenses abailable to it which are different from or additional to those
available to the Indemnifying Party, in which case the Indemnifying Party shall
bear all of such Indemnified Party's legal and other fees and expenses which
arise in defense thereof. In such event, the Indemnifying Party shall not have
the right to direct the defense of such action, claim, litigation, proceeding or
investigation on behalf of the Indemnified Party.
(d) If the indemnification provided for in this Section 1.11 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to
herein, then the Indemnifying Party, in lieu of indemnifying the Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified party
with respect to such loss, liability, claim, damage or expense in the proportion
that is appropriate to reflect the relative
12
<PAGE>
fault of the Indemnifying Party and the Indemnified Party in connection with the
statements or omissions that resulted in such loss, liability, claim, damage or
expense, as well as any other relevant equitable considerations. The relative
fault of the Indemnifying Party and Indemnified Party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of material fact or the omission (or alleged omission) to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
1.12 Information by Holder. The holder or holders of
---------------------
Registrable Securities included in any registration shall furnish to the Company
such information regarding such person(s) and the distribution proposed by such
person(s) as the Company may request in writing and as shall be required in
connection with any registration, qualification or compliance referred to in
this Section 1.
1.13 Rule 144 Reporting. With a view to making available the
------------------
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Registrable Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company shall use its best efforts to:
(a) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, beginning
90 days after (i) the effective date of the first registration statement filed
by the Company for an offering of its securities to the general public, (ii) the
Company registers a class of securities under Section 4 of the Exchange Act, or
(iii) the Company issues an offering circular meeting the requirements of
Regulation A under the Securities Act;
(b) File with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements);
(c) Furnish to any Holder promptly upon request, a
written statement as to its compliance with the reporting requirements of Rule
144 (at any time after 90 days after the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company and other information in the possession of or
reasonably obtainable by the Company as a Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing a Holder to
sell any such securities without registration.
1.14 Limitation on Subsequent Registrations. Except for the
--------------------------------------
grant of registration rights to holders of Preferred Shares on the terms stated
herein for Preferred Shares, from and after the date of this Agreement, the
Company shall not, without the prior written consent of the holders of a
majority of the Registrable Securities then outstanding, enter into any
agreement with any holder or prospective holder of any securities of the Company
giving such holder or prospective holder any rights to register any securities
of the Company.
1.15 Termination of Registration Rights. The rights of each
----------------------------------
Holder under this Section 1 shall terminate at such time as a Holder's
Registrable Securities may be sold without registration in reliance upon Rule
144(k) promulgated under the Securities Act, provided that this Section 1.15
shall not apply to any Holder who owns more than two percent (2%) of the
Company's outstanding stock until such time as the Holder owns less than two
percent (2%) of the outstanding stock of the Company.
13
<PAGE>
SECTION 2
COVENANTS OF THE COMPANY
------------------------
The Company hereby covenants and agrees, so long as the Holders, in the
aggregate, hold at least twenty percent (20%) of the Preferred Shares issued
pursuant to the Restated Certificate, as follows:
2.1 Financial Information. The company shall furnish the
---------------------
following reports to the Holders:
(i) Within 20 days after the end of each month an
unaudited monthly income statement, statement of cash flows and balance sheet,
in each case prepared, to the extent consolidation is required under generally
accepted accounting principles applied on a consistent basis, on a consolidated
and a consolidating basis for the Company and any subsidiaries hereafter
existing, subject to normal, non-recurring year-end adjustments; provided,
--------
however,
- -------
that for the six month period beginning on the date hereof, the Company
may provide such unaudited income statement, statement of cash flows and balance
sheet on a quarterly basis; and, 30 days prior to the beginning of each fiscal
year, an annual budget and operating plan (including projected monthly
consolidated and consolidating income statements, balance sheets and statements
of cash flow). The monthly, or quarterly, as applicable, financial statements
shall include comparisons to the then applicable annual budget and summaries of
financial plans of the Company and any subsidiaries.
(ii) As soon as practicable after the end of each fiscal
year, and in any event within 90 days thereafter, an income statement and
statement of cash flows for such fiscal year, a balance sheet of the Company as
of the end of such fiscal year, and a statement of changes in financial
condition for such fiscal year, all certified by independent public accountants
of recognized national standing selected by the Company.
(iii) Promptly upon the filing or making thereof, copies
of each filing and report made by the Company with or to any securities exchange
or to the Securities and Exchange Commission and of each written communication
from the Company to its shareholders generally.
All financial statements provided for above shall be prepared in
accordance with United States generally accepted accounting principles, applied
on a consistent basis (GAAP) (except that such unaudited financial statements
may be prepared without footnotes and will be subject to normal, non-recurring
year-end audit adjustments).
2.2 Additional Information and Rights.
---------------------------------
(a) The Company will permit any Holder, so long as such
Holder owns at least twenty percent (20%) of the Preferred Shares issued
pursuant to the Restated Certificate, and/or shares of Conversion Stock or any
combination thereof (in each case as adjusted for any combinations,
consolidations, stock splits or stock dividends or distribution) (a "Substantial
Holder"), to visit and inspect any of the properties of the Company, including
its books of account and other records (and make copies thereof and take
extracts therefrom), and to discuss its affairs, finances and accounts with the
Company's officers and its independent public accountants, all at such
reasonable times and as often as such person may reasonably request, provided
however that the Company shall be under no obligation to disclose trade secrets,
and may condition disclosure of confidential information upon Holder's execution
of the
14
<PAGE>
Company's Standard Form Confidentiality Agreement restricting use and disclosure
of confidential information.
(b) The provisions of Section 2.1 hereof and this Section 2.2
shall not be in limitation of any rights which any Holder may have with respect
to the books and records of the Company and any subsidiary, or to inspect their
properties or discuss their affairs, finances and accounts, under the laws of
the jurisdictions in which they are incorporated.
(c) Each Purchaser agrees that the information to be provided by
the Company pursuant to Section 2.1 and 2.2 is confidential. Accordingly, each
Purchaser agrees not to disclose any of such information to any competitor or
other person other than such Purchaser's partners, associates, employees,
professional advisors and other persons with a similar "need to know", and not
to use such information for any purpose other than evaluating such Purchaser's
investment in the Company. Notwithstanding the foregoing, a Purchaser that is a
partnership may disclose summary financial and operation information to its
limited partners as provided in its partnership agreement.
2.3 Termination of Financial Information Rights. The Company's
-------------------------------------------
obligation to deliver information under Section 2.1(i), (ii) and (iii) hereof
shall terminate and shall be of no further force or effect upon the earlier to
occur of (x) the closing of an underwritten public offering pursuant to an
effective registration statement under the Securities Act, covering the offer
and sale of Common Stock for the account of the Company and/or selling
shareholders to the public at a price per share of not less than three times the
Series B Original Cost (as such term is defined in the Restated Certificate)
(adjusted for any combinations, consolidation, stock splits, or stock
distributions or dividends with respect to such shares) and resulting in
aggregate net proceeds to the Company of not less than $15,000,000, and (y) the
date all Holders of Preferred Shares hold fewer than 20% of the Preferred Shares
issued pursuant to the Restated Certificate and/or Conversion Stock in the
aggregate. Thereafter, the Company shall deliver to each Holder, and its
assignees or transferees, such financial information as the Company from time to
time provides to holders of its Common Stock.
2.4 Confidentiality and Noncompetition Agreements. The Company shall
---------------------------------------------
cause each person now or hereafter with access to confidential or proprietary
information and, within 30 days of the date hereof, each Founder (as set forth
in the Series A Agreement) to enter into a Proprietary Information and
Confidentiality Agreement, containing provisions satisfactory to the Investors
with respect to confidentiality and corporate ownership of inventions and
innovations during employment. The Company shall cause each person now or
hereafter serving as a key employee of the Company designated by the Board of
Directors of the Company to enter into a Noncompetition Agreement (separately or
as part of an employment or confidentiality agreement), containing provisions
satisfactory to the Investors with respect to non-solicitation of employees and
customers during and for eighteen months after employment.
2.5 Employee and Other Stock Arrangements. (a) The Company shall not,
-------------------------------------
without the recommendation of its management and approval of the Board of
Directors of the Company (or the Compensation Committee thereof including at
least one Purchaser Director and no director who is an officer of the Company),
issue any of its capital stock or grant an option or rights to subscribe for,
purchase or acquire any of its capital stock, to any employee, consultant,
officer or director of the Company or a subsidiary, except for issuances of (i)
up to 940,000 shares of Common Stock issued pursuant to the exercise of options
outstanding on the date hereof or pursuant to the exercise of options issued in
accordance with Section C.4(d)(i)(4)(H) of the Restated Certificate, (ii) up to
380,000 shares of Common Stock issued pursuant to the exercise of options
granted to certain directors, officers, consultants and employees of the Company
pursuant to Company's stock option plan as in effect on the date hereof, the
amount of which shall be subject to the approval of, and shall be administered
by, the Board of
15
<PAGE>
Directors of the Company (or a committee thereof including at least one
Purchaser Director and no director who is an officer of the Company), or (iii)
up to 840,000 shares of Common Stock issued in accordance with Section
C.4(d)(i)(4)(I) of the Restated Certificate.
(b) Each acquisition of any shares of Common Stock or any
options to acquire Common Stock by an employee, consultant, officer or director
of the Company shall be conditioned upon the execution and delivery by the
Company and such director, employee, officer or consultant of a stock purchase
agreement or option agreement, as the case may be, containing transfer
restrictions and vesting limitations, substantially in a form approved by the
Board of Directors of the Company (or a committee thereof having as members at
least one Purchaser Director), including that the Company shall have the right
to acquire any unvested shares allocated to such departing member of management
at cost.
(c) Except as contemplated by sections (a) and (b) of this
Section 2.5, the Company shall not, without the approval of the Board of
Directors, including all the Purchaser Directors, issue any shares of Common
Stock.
2.6 Corporate Existence. The Company will maintain its corporate
-------------------
existence in good standing and comply with all applicable laws and regulations
of the United States or of any state or states thereof or of any political
subdivision thereof and of any governmental authority where the failure to so
comply could have a material adverse effect on the assets, conditions, affairs,
or business operations of the Company.
2.7 Books of Account and Reserves. The Company will keep books of
-----------------------------
record and account in which full, true and correct entries are made of all of
its and their respective dealings, business and affairs, in accordance with
generally accepted accounting principles. The Company will employ certified
public accountants selected by the Board of Directors of the Company and have
annual reviews made by such independent public accountants in the course of
which such accountants shall make such review quality examinations, in
accordance with the standards established by the American Institute of Certified
Public Accountants.
2.8 Stock Fully Paid; Reservation of Shares. The company covenants and
---------------------------------------
agrees that all Conversion Stock that may be issued upon the conversion of the
Preferred Shares will, upon issuance in accordance with the terms of the
Restated Certificate, be fully paid and nonassessable, and that the issuance
thereof shall not give rise to any preemptive rights on the part of any person.
The Company further covenants and agrees that the Company will at all times have
authorized and reserved a sufficient number of shares of its Common Stock for
issuance upon conversion of the Preferred Shares and will increase the
authorized numbers of shares of Common Stock, if at any time the number of
shares of Common Stock authorized and unissued shall be insufficient to permit
the conversion of Preferred Shares.
2.9 Replacement of Certificated Representing Preferred Shares or Common
-------------------------------------------------------------------
Stock. Upon receipt of evidence reasonably satisfactory to the Company of the
- -----
loss, theft, destruction or mutilation of any certificates representing
Preferred Shares or Common Stock, as the case may be, and, in the case of any
such loss, theft or destruction, upon delivery of a bond of indemnity
satisfactory to the Company if required by the Board of Directors of the
Company, or, in the case of any such mutilation, upon surrender and cancellation
of the certificates representing Preferred Shares or Common Stock, as the case
may be, the Company will issue new certificates representing Preferred Shares or
Common Stock, as the case may be, in lieu of such lost, stolen, destroyed or
mutilated certificates representing Preferred Shares or Common Stock, as the
case may be.
16
<PAGE>
2.10 Material Changes and Litigation. The Company shall promptly
-------------------------------
notify the Purchasers of any material adverse change in the business, prospects,
assets or condition, financial or otherwise, of the Company and of any
litigation or governmental proceeding or investigation brought or, to the best
of the Company's knowledge, threatened against the Company, or against any
officer, director, key employee or principal stockholder of the Company
materially adversely affecting or which, if adversely determined, would
materially adversely affect its business, prospects, assets or condition,
financial or otherwise.
2.11 Restrictive Agreements Prohibited. Neither the Company nor
---------------------------------
any of its subsidiaries shall become a party to any agreement which by its terms
restricts the Company's performance of any of the Transaction Documents or the
Restated Certificate.
2.12 Expenses of Directors. The Company shall promptly reimburse
---------------------
in full, each director of the Company who is not an employee of the Company and
who was elected as a director solely or in part by the holders of Preferred
Shares, for all of his reasonable out-of-pocket expenses incurred as a result of
travel to and from each meeting of the Board of Directors of the Company or any
committee thereof.
2.13 By-laws. The Company shall at all times cause its By-laws
-------
to provide that, (a) unless otherwise required by the laws of the State of
Delaware, (i) any director shall have the right to call a meeting of the Board
of Directors of the Company and (ii) any holder or holders of at least 10% of
the outstanding shares of voting capital stock of the Company shall have the
right to call a meeting of the stockholders and (b) the number of directors
fixed in accordance therewith shall in no event conflict with any of the terms
or provisions of the Preferred Shares as set forth in the Restated Certificate.
The Company shall at all times maintain provisions in its By-laws and/or
Restated Certificate indemnifying all directors against liability, absolving all
directors from liability to the Company and its stockholders to the maximum
extent permitted under the laws of the State of Delaware and providing for
advances of all costs, charges and expenses related thereto.
2.14 Employee Nondisclosure and Developments Agreements;
--------------------------------------------------
Noncompetition Agreements.
- -----------------------
The Company shall use its reasonable good faith efforts to obtain, and shall
cause its subsidiaries (if any) to use their reasonable good faith efforts to
obtain, an (i) Employee Nondisclosure and Developments Agreement in
substantially the form of Exhibit B from all future officers, key employees and
---------
other employees who will have access to confidential information of the Company
or any of its subsidiaries, and (ii) a Noncompetition Agreement in substantially
the form of Exhibit C from all officers and such other employees as may be
---------
specified from time to time by the Board of Directors of the Company in each
case upon their employment by the Company or any of its subsidiaries (if any).
2.15 Insurance. The Company will maintain in full force and
---------
effect fire and casualty insurance policies, with extended coverage, in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed, and such other policies of insurance, and in
such amounts as in the Company's best judgement, after advice from its insurance
broker, is acceptable for the nature and extent of the business of the Company.
2.16 Termination of Covenants. The covenants set forth in this
------------------------
Section 2 shall terminate and be of no further force or effect as to each of the
Purchasers when such Purchaser owns less than twenty percent (20%) of the
Preferred Shares issued pursuant to the Restated Certificate (appropriately
adjusted to reflect stock splits, stock dividends, combinations of shares and
the like with respect to the Preferred Shares).
17
<PAGE>
SECTION 3
PREEMPTIVE RIGHTS
-----------------
3.1 Preemptive Rights. The company hereby grants to each Purchaser the
-----------------
irrevocable and exclusive first option (the "First Option") to purchase all or
part of its Pro Rata Portion of any New Securities which the Company may, from
time to time after the date of this Agreement, propose to issue and sell.
Furthermore, if any Purchaser does not, pursuant to Section 3.3, give notice of
its intention to exercise in full its option to purchase its Pro Rata Portion of
the New Securities, then each Purchaser who did give notice of such intent
(collectively, the "Fully Participating Holder") shall have the irrevocable and
exclusive second option (the "Second Option") to purchase all or a part of the
New Securities as to which a notice pursuant to the exercise of the First Option
could have been, but was not, delivered (for purposes of this Section 3, the
"Additional New Securities"). If more than one Fully Participating Holder gives
a notice (a "Second Notice") pursuant to Section 3.3 of its intention to
purchase Additional New Securities pursuant to the exercise of the Second Option
and the total number of New Securities covered by such notices exceeds the total
number of Additional New Securities, then the Additional New Securities shall be
allocated among such Fully Participating Holders according to the following
procedure, or in such different proportions as such Fully Participating Holders
shall agree among themselves:
(a) Each Oversubscribing Holder (as defined below) shall be
apportioned the lesser of (A) that number of Additional New Securities that it
elected to purchase in its Second Notice and which it has not yet been
apportioned pursuant to this Section 3.1(a) or (B) its "Pro Rata Portion of the
Additional New Securities" (as defined below);
(b) If the apportionment in Section 3.1(a) is followed and there
remain (A) at least one Oversubscribing Holder who has not yet been apportioned
the number of Additional New Securities it elected to purchase in its Second
Notice and (B) any Additional New Securities, then the procedure described in
Section 3.1(a) shall be repeated; and
(c) For purposes of this Section 3.1, (i) an "Oversubscribing
Holder" means a Fully Participating Holder who has given a Second Notice and who
has not yet been apportioned pursuant to Section 3.1(a) that number of
Additional New Securities that it elected to purchase in its Second Notice, and
(ii) an Oversubscribing Holder's "Pro Rata Portion of Additional New Securities"
shall be equal to the number of Additional New Securities multiplied by a
fraction, the numerator of which is the number of shares of Common Stock held
by such Oversubscribing Holder as of the date of the Company Notice, and the
denominator of which is the total number of shares of Common Stock held by all
Oversubscribing Holder as of such date.
3.2 Calculation of Number of Shares of Common Stock Held or Outstanding.
-------------------------------------------------------------------
For purposes of any calculation of the number of shares of Common Stock held or
outstanding under this Section 3, and with respect to any numerator or
denominator provided herein, the conversion of all securities convertible into
or exchangeable for Common Stock and the exercise of all outstanding rights,
options and warrants to acquire Common Stock of the Company shall be assumed.
3.3 Notices With Respect to Proposed Issuance Of New Securities. In the
-----------------------------------------------------------
event the Company proposes to undertake an issuance of New Securities, it shall
give each Purchaser entitled to a preemptive right pursuant to this Section 3
written notice (the"Company Notice") of its intention, describing in detail the
type of New Securities, the price and terms upon which the Company proposes to
issue such New Securities. Each such Purchaser shall have fifteen (15) days from
the date of receipt of any such Company Notice to agree to purchase, pursuant to
the exercise of the First Option, up to such Purchaser's
18
<PAGE>
Pro Rata Portion of such New Securities for the price and upon the terms and
conditions specified in the Company Notice by giving written notice to the
Company and stating therein the quantity of New Securities to be purchased. If,
following the expiration of such fifteen (15) day period, there exist
Additional New Securities subject to the Second Option, the Company shall
give each Fully Participating Holder a second written notice (the "Second
Company Notice") to such effect, and each such Fully Participating Holder shall
then have ten (10) days from the date of receipt of such Second Company Notice
to agree to purchase (on such terms and conditions) the quantity of Additional
New Securities stated therein, subject to the application of the procedures set
forth in Section 3.1.
3.4 Company's Right to Complete Proposed Sale of New Securities to the
------------------------------------------------------------------
Extent Preemptive Rights are Not Exercised. In the event the Purchasers fail to
- ------------------------------------------
exercise a preemptive right with respect to any New Securities within the
periods specified in Section 3.3, the Company shall have ninety (90) days
thereafter to sell or enter into an agreement (pursuant to which the sale of
such New Securities shall be closed, if at all, within forty-five (45) days from
the date of said agreement) to sell the New Securities not elected to be
purchased by Purchasers at the price and upon terms no more favorable to the
prospective purchasers of such securities than those specified in the Company
Notice. In the event the Company has not sold the New Securities or entered
into an agreement to sell the New Securities within said 90-day period (or
sold and issued New Securities in accordance with the foregoing within 45 days
from the date of said agreement), the Company shall not thereafter issue or sell
such New Securities without first offering such securities to the Purchasers in
the manner provided in this Section 3.
3.5 Expiration of Preemptive Rights. The preemptive rights granted under
-------------------------------
this Section 3 shall expire upon the closing of the IPO, or upon Purchasers
holding, in the aggregate, less than twenty percent (20%) of the Preferred
Shares issued pursuant to the Restated Certificate and/or Conversion Stock, in
the aggregate.
3.6 Waiver of Antidilution Adjustment. (a) Each Purchaser hereby agrees
---------------------------------
that in the event that: (Defined terms in this Section 3.6 not otherwise defined
in this Agreement shall have the meanings given such terms in the Restated
Certificate.)
(1) the Company shall give such Purchaser fifteen (15)
days' notice of the Company's intent to offer a Dilutive Issuance (as defined
below) together with the terms and conditions of such Dilutive Issuance, and
(2) the Company shall offer such Purchaser its Pro Rata
Portion of such Dilutive Issuance, and
(3) such holder fails to tender the Company the purchase
price of such Purchaser's Pro Rata Portion (or such lesser portion as the
Company may specify in writing) of such Dilutive Issuance on the scheduled
closing of such Dilutive Issuance (which shall not be less than fifteen (15)
days after the written notice provided in (1) above), then (i) no adjustment of
the Conversion Price for such Purchaser's Series B Shares shall be made (other
than adjustments made prior to the time of such dilutive Issuance), and any
future adjustment shall be deemed waived, with respect to the Series B Shares
then held of record by such Purchaser and (ii) such Purchaser shall thereafter
no longer by entitled to the benefits of this Section 3.
(b) A "Dilutive Issuance" shall mean an issuance and sale of
Additional Common Shares with respect to the Series B Shares.
19
<PAGE>
(c) In the event the provisions of this Section 3.6 result in
more than one Conversion Price with respect to the Series B Shares, the
Secretary of the Company shall keep a written ledger identifying the Conversion
Price in effect for each Series B Share outstanding, which information shall be
made available to any person upon request.
(b) The waiver of adjustment of the Conversion Price with
respect to any Series B Shares provided for in this Section 3.6 shall bind any
transferee of Series B Shares. Each Purchaser agrees that, prior to transferring
any Series B Shares to any person or entity, such Purchaser will ensure that
such transferee shall have delivered to the Company a written agreement to be
bound by the provisions of this Section 3.6.
SECTION 4
MISCELLANEOUS
-------------
4.1 Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of Delaware, as applied to agreements among Delaware
residents entered into and to be performed entirely within Delaware.
4.2 Successors and Assigns; Assignment of Rights. The rights and
--------------------------------------------
benefits of a Purchaser hereunder may be assigned to a transferee or assignee
in connection with transfer or assignment of any Preferred Shares or Registrable
Securities owned by such Purchaser (A) to any person or entity which is a
majority-owned subsidiary of a Holder or controls, is controlled by or under
common control with the Holder, (B) to any other person or entity provided that
(a) such transfer may otherwise be effected in accordance with applicable
securities laws, (b) such transferee or assignee acquires at least five percent
(5%) of the Preferred Shares or shares of Registrable Securities, and (c) such
assignee or transferee executes a written instrument agreeing to be bound by the
terms and provisions of this Agreement, (C) to a constituent partner of a
Purchaser or the estate of such a constituent partner or a liquidating trust
for the benefit thereof, and (D) to a successor trustee of a Purchaser in its
capacity as trustee. Any such transfer or assignment permitted hereby shall
inure to the benefit of, and be binding upon, the successors, assigns, heirs,
executors and administrators of the parties hereto.
4.3 Entire Agreement; Amendment; Waiver. This Agreement, the Series A
-----------------------------------
Agreement and the other agreements contemplated thereby constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof. Neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated, except by a written instruments
signed by the Company and the holders of at least fifty-one percent (51%) of the
Preferred Shares (and the Conversion Stock into which such shares have been
converted) and the Company and any such amendment, waiver, discharge or
termination shall be binding upon all the parties hereto.
4.4 Notice, etc. All notices and other communications required or
-----------
permitted hereunder shall be in writing and shall be mailed by United States
first-class mail, postage prepaid, sent by facsimile or delivered personally by
hand or nationally recognized courier addressed (a) if to a Purchaser, as
indicated on the list of Purchasers attached hereto as Exhibit A, or at such
---------
other address as such Purchaser or permitted assignee shall have furnished to
the Company in writing, or (b) if to the Company, at such address or facsimile
number as the Company shall have furnished to each Purchaser in writing. All
such notices and other written communications shall be effective on the date of
delivery.
4.5 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any Purchaser (in any capacity hereunder), upon any
breach or default of the Company under
20
<PAGE>
this Agreement shall impair any such right, power or remedy of such Purchaser
nor shall it be construed to be a waiver of any such breach of default or an
acquiescence therein, or of or in any similar breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
Purchaser (in any capacity hereunder) of any breach or default under this
Agreement or any waiver on the part of any Purchaser of any provisions or
conditions of this Agreement must be made in writing and shall be effective only
to the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any Purchaser, shall be
cumulative and not alternative.
4.6 Rights; Separability. Unless otherwise expressly provided herein, a
--------------------
Purchaser's rights hereunder are several rights, not rights jointly held with
any of the other Purchaser. In case any provision of the Agreement shall be
invalid, illegal or unenforceable the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
4.7 Titles and Subtitles. The titles of the paragraphs and
--------------------
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing or interpreting this Agreement.
4.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
4.9 Aggregation of Stock. All shares of the Registrable Securities held
--------------------
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.
4.10 No Third Party Beneficiaries. The covenants and agreements set
----------------------------
forth herein are for the sole and exclusive benefit of the parties hereto and
their respective successors and assigns and such covenants and agreements shall
not be construed as conferring, and are not intended to confer, any rights or
benefits upon any other persons.
4.11 Remedies. The parties to this Agreement acknowledge and agree that
--------
a breach of any of the covenants of the Company or the Purchasers set forth in
this Agreement may not be compensable by payment of money damages and,
therefore, that the covenants of the foregoing parties set forth in this
Agreement may be enforced in equity by a decree requiring specific performance.
Without limiting the foregoing, if any disputes arise concerning the sale or
other disposition of any of the Restricted Securities contained in Section 1
hereof, the parties to this Agreement agree that an injunction may be issued
restraining the sale or other disposition of such Restricted Securities or
interest or rescinding any such sale or other disposition, pending resolution of
such controversy. Such remedies shall be cumulative and non-exclusive and shall
be in addition to any other rights and remedies the parties may have under this
Agreement. Any transfer or acquisition of Restricted Securities in violation of
this Agreement shall be null and void ab initio.
4.12 Fees and Expenses. The Company shall pay the reasonable fees and
-----------------
expenses incurred in connection with the enforcement by the Purchasers of any of
their respective rights and benefits arising hereunder or under any related
agreement against the Company in the event of any breach thereof by the Company,
or the waiver, modification or amendment of any provision hereof or of any
related agreement, including, without limitation, reasonable fees and
disbursements of one counsel for the Purchasers.
4.13 Dispute Resolution. Any claim or controversy arising out of or
------------------
relating to this Agreement shall be settled by non-binding arbitration in
accordance with the CPR Institute for Dispute Resolution's
21
<PAGE>
Rules for Non-Administered Arbitration of Business Disputes by three
arbitrators, of whom each party shall appoint one. Any Arbitrator not appointed
by a party shall be selected from the CPR Institute for Dispute Resolution
Panels of Distinguished Neutrals. The arbitration shall be governed by the
United States Arbitration Act, 9 U.S.C. 1-16. The place of arbitration shall be
in the New York metropolitan area (including northern New Jersey and
southwestern Connecticut), or such other places as the parties shall mutually
agree. The Arbitrators are not empowered to award damages in excess of actual
damages or to award punitive damages. All applicable statutes of limitation
shall be tolled while the procedures specified in this Section 4.13 are pending.
The parties will take such action, if any, required to effectuate such tolling.
* * *
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Investors'
Rights Agreement effective as of the day and year first above written.
THE COMPANY: ESPERION THERAPEUTICS, INC.
By: /s/ Roger S. Newton
--------------------------------
Name: Roger S. Newton
Title: CEO
THE PURCHASERS: OAK INVESTMENT PARTNERS VII. LIMITED
PARTNERSHIP
By: OAK ASSOCIATES VII. LLC
By: /s/ [ILLEGIBLE]
--------------------------------
A Member
OAK VII AFFILIATES FUND. LIMITED PARTNERSHIP
By: OAK VII AFFILIATES, LLC
Its General Partner
By: /s/ [ILLEGIBLE]
--------------------------------
A Member
<PAGE>
TL VENTURES III L.P.
By: TL Ventures III Management L.P.,
its general partner
By: TL Ventures III LLC,
its general partner
By: /s/ Christopher Moller
-------------------------------
Name: Christopher Moller Ph.D.
Title: Managing Director
TL VENTURES III OFFSHORE L.P.
By: TL Ventures III Offshore Partners L.P.,
its general partner
By: TL Ventures III Offshore Ltd.,
its general partner
By: /s/ Christopher Moller
-------------------------------
Name: Christopher Moller Ph.D.
Title: Vice President
TL VENTURES III INTERFUND L.P.
By: TL Ventures III LLC,
its general partner
By: /s/ Christopher Moller
-------------------------------
Name: Christopher Moller Ph.D.
Title: Managing Director
SCHEER INVESTMENT HOLDINGS II, L.L.C.
By: /s/ David J. Scheer 7/6/98
-------------------------------
Name: David J. Scheer
Title: Managing Member
<PAGE>
EXHIBIT A
---------
SCHEDULE OF PURCHASERS
----------------------
No. of Cash
Purchaser' Name and Address Series A Shares Consideration
- --------------------------- --------------- -------------
Oak Investment Partners VII, Limited 268,263 $268,263
Partnership
c/o Oak Investment Partners
One Gorham Island
Westport CT 06880
Attention: General Partner
Oak VII Affiliates Fund, Limited 6,737 $6,737
Partnership
c/o Oak Investment Partners
One Gorham Island
Westport CT 06880
Attention: General Partner
TL Ventures III L.P. 140,905 $140,905
c/o TL Ventures LLC
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1945
Attention: Chief Financial Officer
TL Ventures III Offshore L.P. 29,494 $29,494
c/o Trident Trust Company (Cayman)
Limited
P.O. Box 847
One Capital Place, Fourth Floor
Grand Cayman, Cayman Islands
with a copy to:
TL Ventures LLC
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1945
Attention: Chief Financial Officer
TL Ventures III Interfund L.P. 4,601 $4,601
c/o TL Ventures LLC
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Attention: Chief Financial Officer
Scheer Investment Holdings II, L.L.C. 50,000 $50,000
c/o Scheer & Company, Inc.
250 West Main Street ------ ------
Branford, CT 06450
TOTAL 500,000 $500,000
===== ======= ========
<PAGE>
EXHIBIT B
---------
(Form of Employee Nondisclosure and Developments Agreement)
<PAGE>
EXHIBIT C
---------
(Form of Noncompetition Agreement)
<PAGE>
Exhibit 4.2
ESPERION THERAPEUTICS, INC.
AMENDMENT NO. 1 TO THE INVESTOR'S RIGHTS AGREEMENT
This AMENDMENT NO. 1 TO THE INVESTORS' RIGHTS AGREEMENT (this "Agreement")
is made and entered into as of August 11, 1998, by and among ESPERION
THERAPEUTICS, INC., a Delaware corporation (the "Company"), the Purchasers (as
-------
such term is defined in the Original Agreement defined below), and the
Additional Purchasers set forth on Exhibit 1 attached hereto under the heading
---------
"Additional Purchasers".
- ----------------------
WHEREAS, the Company and the Purchasers are parties to an Investors' Rights
Agreement made and entered into as of July 6, 1998 (the "Original Agreement");
------------------
and
WHEREAS, the parties to the Original Agreement desire to amend such
agreement to provide for the addition of the Additional Purchasers as Purchasers
thereunder, among other things, on the terms and conditions stated herein and in
the Original Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto agree as follows:
1. Defined Terms. Capitalized terms used and not otherwise
-------------
defined in this Agreement shall have the meanings given to such terms in the
Original Agreement.
2. Exhibit A. Exhibit A to the Original Agreement is amended and
--------- ---------
restated in the form of Exhibit A hereto.
---------
3. Joinder. The Additional Purchasers hereby agree to be bound
-------
by and subject to the terms and conditions of the Original Agreement and the
parties hereto agree that the Additional Purchasers shall be entitled to all, of
the rights and benefits of the Purchasers under the Original Agreement.
4. Amendment to Section 4.3. Section 4.3 of the Original
------------------------
Agreement is hereby amended by adding the following clause immediately prior to
the period at the end of the second sentence of such Section:
"; provided, however, that without the consent of a Holder, no such
-------- -------
amendment shall alter the provisions of Sections 2.1 or 2.2 with respect to
the Preferred Shares held by such Holder"
5. Governing Law. This Agreement shall be governed in all
-------------
respects by the laws of the State of Delaware, as applied to agreements among
Delaware residents entered into and to be performed entirely within Delaware.
6. Effective Date. In accordance with the terms of the Original
--------------
Agreement, this Agreement will become effective upon execution by the Company
and the holders of at least fifty one percent (51%) of the Preferred Shares.
<PAGE>
7. Counterparts. This Agreement may be executed in any number of
------------
counterparts. each of which shall be an original, but all of which, together
shall constitute one instrument.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Investors' Rights
Agreement effective as of the day and year first above written.
THE COMPANY: ESPERION THERAPEUTICS, INC.
By: /s/ Roger S. Newton
--------------------------
Name: Roger S. Newton
Title: President/CEO
THE PURCHASERS: OAK INVESTMENT PARTNERS VII,
LIMITED PARTNERSHIP
By: OAK ASSOCIATES VII, LLC
Its General Partner
By: _____________________________
A Member
OAK VII AFFILIATES FUND, LIMITED
PARTNERSHIP
By: OAK VII AFFILIATES, LLC
Its General Partner
By: ______________________________
A Member
[Signature page to Amendment No. 1 to the Investors' Rights Agreement]
<PAGE>
TL VENTURES III L.P.
By: TL Ventures III Management L.P.,
its general partner
By: TL Ventures III L.L.C.
its general partner
By: /s/ Christopher Moller
------------------------------------
Name: Christopher Moller Ph.D.
Title: Managing Director
TL VENTURES III OFFSHORE L.P.
By: TL Ventures III Offshore Partners, L.P.,
its general partner
By: TL Ventures III Offshore Ltd,
its general partner
By: /s/ Christopher Moller
------------------------------------
Name: Christopher Moller Ph.D.
Title: Vice President
TL VENTURES III INTERFUND L.P.
By: TL Ventures III L.L.C.,
its general partner
By: /s/ Christopher Moller Ph.D.
------------------------------------
Name: Christopher Moller Ph.D.
Title: Managing Director
SCHEER INVESTMENT HOLDINGS II, L.L.C.
By: /s/ David I. Scheer
------------------------------------
David I. Scheer
Managing Member
/s/ Cesare Sirtori
---------------------------------------
Cesare Sirtori, M.D.
[Signature page to Amendment No. 1 to the Investors' Rights Agreement]
<PAGE>
EXHIBIT A
---------
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
No. of Cash
Purchaser's Name and Address Series B Shares Consideration
- ---------------------------- --------------- -------------
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Oak Investment Partners VII, Limited 3,685,125 $5,487,187.503
Partnership
c/o Oak Investment Partners
One Gorham Island
Westport, CT 06880
Attention: General Partner
- ------------------------------------------------------------------------------------------
Oak VII Affiliates Fund, Limited 91,875 $ 137,812.50
Partnership
c/o Oak Investment Partners
One Gorham Island
Westport, CT 06880
Attention: General Partner
- ------------------------------------------------------------------------------------------
TL Ventures III L.P. 3,019,385 $ 4,529,077.50
c/o TL Ventures LLC
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1945
Attention: Chief Financial Officer
- ------------------------------------------------------------------------------------------
TL Ventures III Offshore L.P. 632,026 $ 948,039.00
c/o Trident Trust Company (Cayman)
Limited
P.O. Box 847
One Capital Place, Fourth Floor
Grand Cayman, Cayman Islands
- ------------------------------------------------------------------------------------------
With a copy to:
TL Ventures LLC
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1945
Attention: Chief Financial Officer
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
No. of Cash
Purchaser's Name and Address Series B Shares Consideration
- ---------------------------- --------------- -------------
- ------------------------------------------------------------------------------------------
<S> <C> <C>
TL Ventures III Interfund L.P. 98,589 $ 147,883.50
c/o TL Ventures LLC
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Attention: Chief Financial Officer
- ------------------------------------------------------------------------------------------
HealthCap KB 896,000 $ 1,344,000.00
Sturegatan 34
S-114 Stockholm
Sweden
- ------------------------------------------------------------------------------------------
HealthCap CoInvest KB 1,237,333 $ 1,855,999.50
Sturegatan 34
S-114 Stockholm
Sweden
- ------------------------------------------------------------------------------------------
Cesare Sirtori, M.D. 333,333 $ 499,999.50
[Address]
- ------------------------------------------------------------------------------------------
Scheer Investment Holdings II, L.L.C. 33,334 $ 50,001.00
Cc/o Scheer & Company, Inc.
250 West Main Street
Branford, CT 06405
- ------------------------------------------------------------------------------------------
TOTAL ---------- --------------
- ----- 10,000,000 $15,000,000.00
========== ==============
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 4.3
ESPERION THERAPEUTCS, INC.
AMENDMENT NO. 2 TO THE INVESTORS' RIGHTS AGREEMENT
This AMENDMENT NO. 2 TO THE INVESTORS' RIGHTS AGREEMENT (this "Agreement")
is made and entered into as of January 7, 2000, by and among ESPERION
THERAPEUTICS, INC., a Delaware corporation (the "Company"), the Purchasers (as
such term is defined in the Original Agreement defined below), and the
Additional Purchasers set forth on Exhibit 1 attached hereto under the heading
"Additional Purchasers."
WHEREAS, the Company and the Purchasers are parties to an Investors' Rights
Agreement made and entered into as of July 6, 1998 (the "Original Agreement");
and
WHEREAS, the Original Agreement was amended as of August 11, 1998 pursuant
to Amendment No. 1 to the Investors' Rights Agreement ("Amendment No. 1"), to
provide for the addition of the Additional Purchasers as Purchasers thereunder
with respect to the issuance of the Series B Shares; and
WHEREAS, the parties to the Original Agreement, as amended, desire to amend
further such agreement, to provide for the addition of the Additional Purchasers
as Purchasers thereunder with respect to the issuance of the Series C Shares,
among other things, on the terms and conditions stated herein and in the
Original Agreement as amended;
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto agree as follows:
1. Defined Terms.
(a) Capitalized terms used and not otherwise defined in this Agreement
shall have the meanings given to such terms in the Original Agreement.
(b) The following definitions set forth in Section 1 of the Original
Agreement are hereby amended and restated as follows:
"Preferred Shares" shall mean the Series A Shares, the Series B Shares,
the Series C Shares and shares of any additional series of preferred
stock of the Company, the issuance of which is approved by the holders of
at least 51 % of the Preferred Shares as required by the Restated
Certificate.
"Restated Certificate" shall mean the Company's Amended and Restated
Certificate of Incorporation, as amended from time to time.
"Transaction Documents" shall mean, collectively, the Series A Agreement,
the Securities Purchase Agreement dated as of August 11, 1998 (the
"Series B Agreement"), the Securities Purchase Agreement dated as of
January , 2000
<PAGE>
(the "Series C Agreement"), the Restated Certificate, this Agreement and
the other Ancillary Agreements (as defined in the Series A Agreement, the
Series B Agreement and the Series C Agreement).
(c) The definition of the term "New Securities" set forth in Section 1 of
the Original Agreement is hereby amended to delete the number "380,000" in
subsection (vi) thereof and substitute therefor the number "680,000."
(d) A new definition is hereby added to Section 1 of the Original
Agreement, to read in its entirety as follows:
"Series C Shares" shall mean the Company's Series C Convertible Preferred
Stock, par value $0.01 per share.
2. Exhibit A. Exhibit A to the Original Agreement is amended and restated
in the form of Exhibit A hereto.
3. Request for Registration. Section 1.5(a) of the Original Agreement is
hereby amended (i) to delete the date "July 6, 2002" in subsection (A) thereof
and substitute therefor the date "January , 2003," (ii) to delete the defined
term "("Initiating Holders")" and add after the words "then outstanding
Registrable Securities" in subsection (B) thereof the words "other than the
Series C Shares (or any Common Stock issued or issuable upon conversion thereof,
with respect thereto or in exchange therefor) (the "Non-Series C Initiating
Holders") or 30% of the then outstanding Registrable Securities consisting of
Series C Shares (and any Common Stock issued or issuable upon conversion
thereof, with respect thereto or in exchange therefor) (the "Series C Initiating
Holders"), and with reference to either or both the Series C Initiating Holders
and/or the Non-Series C Initiating Holders, the "Initiating Holders")" and (iii)
to amend and restate subsection (C) thereof to read in its entirety as follows:
(C) After the Company has effected two such registrations pursuant to
this Section 1.5, one such registration at the request of the
Non-Series C Initiating Holders and one such registration at the
request of the Series C Initiating Holders, which registrations have
been declared or ordered effective and pursuant to which the securities
have been sold; or
4. Additional Information and Rights. Section 2.2(a) of the Original
Agreement is hereby amended to add the words "to such Holder" after the word
"issued" therein.
5. Termination of Financial Information Rights. Section 2.3 of the Original
Agreement is hereby amended to delete the term "Series B" and the number
"$15,000,000" therein and substitute therefor the term "Series C" and the number
"$30,000,000," respectively.
6. Employee and Other Stock Agreements. Section 2.5(a)(ii) of the Original
Agreement is hereby amended to delete the number "380,000" and substitute
therefor the number "680,000."
<PAGE>
7. Section 2.16 of the Original Agreement is hereby amended to add the
words "to such Holder" after the word "issued" therein.
8. Waiver of Antidilution Adjustment. Section 3.6 of the Original Agreement
is hereby amended to delete the words "Series B Shares" in subsection (a)(3),
(b), (c) and (d) thereof and substitute therefor the words "Series A Shares,
Series B Shares or Series C Shares."
9. Successors and Assigns; Assignment of Rights. Section 4.2 of the
Original Agreement is hereby amended to add at the end of the first sentence
thereof the following:
;provided that the registration rights of a Holder of any Registrable
Securities, as described in Sections 1.5 through 1.15 hereof, may be
transferred or assigned only to a transferee or assignee who (i)
acquires at least 500,000 shares of Registrable Securities, (ii) is
already a Holder of Registrable Securities and already possesses such
registration rights, (iii) acquires ten percent (10%) or more of the
outstanding capital stock of the Company and the Company is given prior
written notice thereof or (iv) is a transferee described in Section
1.4(A), (B), (C), (D) or (E) hereof.
10. Entire Agreement; Amendment; Waiver. Section 4.3 is hereby amended to
add at the end of the second sentence thereof the following:
provided that no such amendment, waiver, discharge or termination may
amend or modify the provisions of this Section 4.3, amend, modify or
terminate the amount of the Series C Liquidation Value (as such term is
defined in the Restated Certificate) or the respective rights of the
holders of the Series C Shares relating thereto, or subordinate the
rights of the holders of the Series C Shares to the holders of any
other class or series of capital stock of the Company in existence on
the date hereof, in any such case without the prior written consent of
each holder of the Series C Shares.
11. Joinder. The Additional Purchasers hereby agree to be bound by and
subject to the terms and conditions of the Original Agreement and the parties
hereto agree that the Additional Purchasers shall be entitled to all of the
rights and benefits of the Purchasers under the Original Agreement.
12. Governing Law. This Agreement shall be governed in all respects by the
laws of the State of Delaware, as applied to agreements among Delaware residents
entered into and to be performed entirely within Delaware.
13. Effective Date. In accordance with the terms of the Original Agreement,
this Agreement will become effective upon execution by the Company and the
holders of at least fifty one percent (51 %) of the Preferred Shares.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Investors'
Rights Agreement effective as of the day and year first above written.
THE COMPANY: ESPERION THERAPEUTICS, INC.
By: /s/ Roger Newton
-----------------------------------
Name: Roger Newton
Title: President and CEO
THE PURCHASERS: CANAAN EQUITY II L.P.
By: Canaan Equity Partners II LLC,
Its Member/Manager
By:
-----------------------------------
Name:
Title:
TL VENTURES III L.P.
By: TL VENTURES III Management L.P.,
its general partner
By: TL VENTURES III LLC,
its general partner
By:
------------------------------
Name:
Title: Managing Director
TL VENTURES III OFFSHORE L.P.
By: TL VENTURES III Offshore
Partners L.P.,
its general partner
By: TL VENTURES III Offshore Ltd.,
its general partner
By:
------------------------------
Name:
Title: Vice President
<PAGE>
TL VENTURES III INTERFUND L.P.
By: TL VENTURES III LLC,
its general partner
By:
------------------------------
Name:
Title:
TL VENTURES IV L.P.
By: TL VENTURES IV Management L.P.,
its general partner
By:
------------------------------
Name:
Title:
TL VENTURES IV INTERFUND L.P.
By: TL VENTURES IV LLC,
its general partner
By:
------------------------------
Name:
Title:
OAK INVESTMENT PARTNERS VII, LIMITED
PARTNERSHIP
By: OAK ASSOCIATES VII, LLC
Its General Partner
By:
------------------------------
A Member
<PAGE>
OAK AFFILIATES FUND, LIMITED
By: OAK VII AFFILIATES, LLC
Its General Partner
By:
------------------------------
A Member
TECNO VENTURE MANAGEMENT
By:
------------------------------
A Member
AVALAON INVESTMENTS
By:
------------------------------
A Member
HEALTHCAP KB
By: HealthCap AB
its general partner
By: /s/ Bjorn Odlander
------------------------------
Bjorn Odlander
Director
By: /s/ Peder Fredrikson
------------------------------
Peder Fredrikson
Director
<PAGE>
HEALTHCAP COINVEST KB
By: HealthCap AB
its general partner
By: /s/ Bjorn Odlander
------------------------------
Bjorn Odlander
Director
By: /s/ Peder Fredrikson
------------------------------
Peder Fredrikson
Director
/s/ Cesare Sirtori
------------------------------
Cesare Sirtori, M.D.
/s/ Lennart Philipsson
------------------------------
Lennart Philipsson
/s/ Roger Newton
------------------------------
Roger Newton, Ph.D.
SCHEER INVESTMENT HOLDINGS II, L.L.C.
By: /s/ David I. Scheer
------------------------------
David I. Scheer
Managing Member
/s/ Anders Wiklund
------------------------------
Anders Wiklund
/s/ Sandip Mukherjee
------------------------------
Sandip Mukherjee, M.D.
/s/ Seth A. Rudnick
------------------------------
Seth A. Rudnick
<PAGE>
SCHEDULE OF PURCHASERS
- --------------------------------------------------------------------------------
Purchaser's Name No. of Cash Consideration
---------------- ------ ------------------
and Address Series C Shares
- --------------------------------------------------------------------------------
Canaan Equity II, L.P. 2,280,093 $4,925,000.88
105 Rowayton Avenue
Rowayton, Connecticut 06853
- --------------------------------------------------------------------------------
Seth A. Rudnick 34,722 74,999.52
6330 Quadrangle Drive, Suite 200
Chapel Hill, North Carolina 27514
- --------------------------------------------------------------------------------
TL Ventures III, L.P. 1,491,055 3,220,678.80
800 Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087-1945
- --------------------------------------------------------------------------------
TL Ventures III Offshore L.P. 312,110 674,157.80
800 Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087-1945
- --------------------------------------------------------------------------------
TL Ventures III Interfund L.P. 48,687 105,163.92
800 Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087-1945
- --------------------------------------------------------------------------------
TL Ventures IV L.P. 902,088 1,948,510.08
800 Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087-1945
- --------------------------------------------------------------------------------
TL Ventures IV Interfund L.P. 23,838 51,490.08
800 Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087-1945
- --------------------------------------------------------------------------------
Oak Investment Partners VII, LP 1,806,481 3,901,998.96
1 Gorham Island
Westport, Connecticut 06880
- --------------------------------------------------------------------------------
Oak VII Affiliates Fund, LP 45,371 98,001.36
1 Gorham Island
Westport, Connecticut 06880
- --------------------------------------------------------------------------------
Tecno Venture Management 1,851,852 4,000,000.32
101 Arch Street, Suite 1950
Boston, Massachusetts 02110
- --------------------------------------------------------------------------------
Avalon Investments 1,157,408 2,500,001.28
201 West Main Street
Ann Arbor, Michigan 48104
- --------------------------------------------------------------------------------
HealthCap KB 583,335 1,260,003.60
c/o Odlander, Fredrikson & Co. AB
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Sturegatan 34
S-O 114 36 Stockholm, Sweden
- --------------------------------------------------------------------------------
HealthCap CoInvest KB 805,554 1,739,996.64
c/o Odlander, Fredrikson & Co. AB
Sturegatan 34
S-O 114 36 Stockholm, Sweden
- --------------------------------------------------------------------------------
Cesare Sirtori 462,963 1,000,000.08
Institute of Pharmacological Sciences
Via Balzaretti 9
20133 Milano
Italy
- --------------------------------------------------------------------------------
Lennart Philipsson 102,315 221,000.40
Karolinska Institute
Department of Cell and Molecular
Biology
von Eulers vag 3
SE-17177 Stockholm
- --------------------------------------------------------------------------------
Roger Newton 95,741 0
c/o Esperion Therapeutics Inc.
3621 South State Street
695 KMS Place
Ann Arbor, Michigan 48108
- --------------------------------------------------------------------------------
Scheer Investment Holdings II, LLC 46,296 99,999.36
250 West Main Street
Branford, Connecticut 06405
- --------------------------------------------------------------------------------
Anders Wiklund 31,673 0
928 Sunset Ridge
Bridgewater, New Jersey
- --------------------------------------------------------------------------------
Sandip Mukherjee 23,149 50,001.84
71 Quail Run
Madison, Connecticut 06433
- --------------------------------------------------------------------------------
TOTALS 12,104,731 25,871,004.72
- --------------------------------------------------------------------------------
<PAGE>
Exhibit 4.4
ESPERION THERAPEUTCS, INC.
AMENDMENT NO. 3 TO THE INVESTORS' RIGHTS AGREEMENT
This AMENDMENT NO. 3 TO THE INVESTORS' RIGHTS AGREEMENT (this "Agreement")
is made and entered into as of February 22, 2000, by and among ESPERION
THERAPEUTICS, INC., a Delaware corporation (the "Company"), the Purchasers (as
such term is defined in the Original Agreement defined below), and the
Additional Purchasers set forth on Exhibit 1 attached hereto under the heading
"Additional Purchasers."
WHEREAS, the Company and the Purchasers are parties to an Investors' Rights
Agreement made and entered into as of July 6, 1998 (the "Original Agreement");
and
WHEREAS, the Original Agreement was amended as of August 11, 1998 pursuant
to Amendment No. 1 to the Investors' Rights Agreement ("Amendment No. 1"), to
provide for the addition of the Additional Purchasers as Purchasers thereunder
with respect to the issuance of the Series B Shares; and
WHEREAS, the Original Agreement was amended as of August 11, 1998 pursuant
to Amendment No. 2 to the Investors' Rights Agreement ("Amendment No. 2"), to
provide for the addition of the Additional Purchasers as Purchasers thereunder
with respect to the issuance of the Series C Shares; and
WHEREAS, the parties to the Original Agreement, as amended, desire to amend
further such agreement, to provide for the addition of the Additional Purchasers
as Purchasers thereunder with respect to the issuance of the Series D Shares,
among other things, on the terms and conditions stated herein and in the
Original Agreement as amended;
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto agree as follows:
1. Defined Terms.
-------------
(a) Capitalized terms used and not otherwise defined in this Agreement
shall have the meanings given to such terms in the Original Agreement.
(b) The following definitions set forth in Section 1 of the Original
Agreement are hereby amended and restated as follows:
"Preferred Shares" shall mean the Series A Shares, the Series B Shares,
----------------
the Series C Shares and shares of any additional series of preferred
stock of the Company, the issuance of which is approved by the holders of
at least 51 % of the Preferred Shares as required by the Restated
Certificate.
<PAGE>
"Restated Certificate" shall mean the Company's Amended and Restated
--------------------
Certificate of Incorporation, as amended from time to time.
"Transaction Documents" shall mean, collectively, the Series A Agreement,
---------------------
the Securities Purchase Agreement dated as of August 11, 1998 (the
"Series B Agreement"), the Securities Purchase Agreement dated as of
January 7,2000 (the "Series C Agreement"), the Securities Purchase
Agreement dated as of February 22, 2000 (the "Series D Agreement"), the
Restated Certificate, this Agreement and the other Ancillary Agreements
(as defined in the Series A Agreement, the Series B Agreement, the Series
C Agreement and the Series D Agreement).
(c) A new definition is hereby added to Section 1 of the Original
Agreement, to read in its entirety as follows:
"Series D Shares" Shall mean the Company's Series D Convertible Preferred
---------------
Stock, par value $0.01 per share.
2. Exhibit A. Exhibit A to the Original Agreement is amended and restated
--------- ---------
in the form of Exhibit A hereto.
---------
3. Request for Registration. Section 1.5(a) of the Original Agreement is
hereby amended (i) to delete the date "January 7,2003" in subsection (A) thereof
and subsitute therefor the date "February 22, 2003," (ii) to amend subsection
(B) after the words "then outstanding Registrable Securities" to read as
Follows:
other than the Series C and Series D Shares (or any Common Stock issued
or issuable upon conversion thereof, with respect thereto or in exchange
therefor) (the "Non-Series C/Non-Series D Initiating Holders") or 30% of
the then outstanding Registrable Securities consisting of Series C
Shares and Series D Shares (and any Common Stock issued or issuable upon
conversion thereof, with respect thereto or in exchange therefor) (the
"SeriesC/Series D Initating Holders"), and with reference to either or
both Series C/Series D Initiating Holders and/or the Non-Series C/Non-
Series D Initiating Holders, the "Initiating Holders" )
and (iii) to amend and restate subsection (C) thereof to read in its
entirety as follows:
(C) After the Company has effected two such registrations pursuant to
this Section 1.5, one such registration at the request of the
Non-Series C Initiating Holders and one such registration at the
request of the Series C Initiating Holders, which registrations have
been declared or ordered effective and pursuant to which the securities
have been sold; or
4. Additional Information and Rights. Section 2.2(a) of the Original
---------------------------------
Agreement is hereby amended to add the words "to such Holder" after the word
"issued" therein.
2
<PAGE>
5. Termination of Financial Information Rights. Section 2.3 of the Original
-------------------------------------------
Agreement is hereby amended to delete the term "Series C" and substitute
therefor the term "Series D".
6. Wavier of Antidilution Adjustment. Section 3.6 of the Orginal Agreement
---------------------------------
is hereby amended to delete the words "Series A Shares, Series B Shares or
Series C Shares" in subsection (a)(3),(b),(c) and (d) thereof and substitute
therefor the words "Series A Shares, Series B Shares, Series C Shares or Series
D Shares."
7. Entire Agreement;Amendment; Wavier. Section 4.3 is hereby amended to
----------------------------------
amend and restate the proviso at the end of the second sentence thereof to read
in its entirty as follows
; provided that no such amendemnt, waiver, discharge or termination may
amend or modify the provisions of this Section 4.3,amend, modify or
terminate the amount of the Series Liquidation Value or the Series D
Liquidation Value (as such terms are defined in the Restated
Certificate0 or the respective rights of the holders of the Series C
Share or the Series D Shares relating thereto, or subordinate the rights
of the holders of the Series C Shares or the Series D Shares to the
holders of any other class or series of capital stock of the Company in
existence on the date hereof, in any such case without the prior written
consent of each holder of the Series C Shares or the Series D Shares,
respectively.
8. Joinder. The Additional Purchasers hereby agree to be bound by and
-------
subject to the terms and conditions of the Original Agreement and the parties
hereto agree that the Additional Purchasers shall be entitled to all of the
rights and benefits of the Purchasers under the Original Agreement.
9. Governing Law. This Agreement shall be governed in all respects by the
-------------
laws of the State of Delaware, as applied to agreements among Delaware residents
entered into and to be performed entirely within Delaware.
10. Effective Date. In accordance with the terms of the Original Agreement,
--------------
this Agreement will become effective upon execution by the Company and the
holders of at least fifty one percent (51 %) of the Preferred Shares.
11. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Investors'
Rights Agreement effective as of the day and year first above written.
THE COMPANY: ESPERION THERAPEUTICS, INC.
By: /s/ Roger S. Newton
-----------------------------------
Name: Roger S. Newton
Title: President & CEO
THE PURCHASERS: CANAAN EQUITY II L.P.
By: Canaan Equity Partners II LLC,
Its General Partner
By: /s/ Guy M. Russo
-----------------------------------
Name: Guy M. Russo
Title: Member/Manager
CANAAN EQUITY II L.P. (QP)
By: Canaan Equity Partners II LLC,
Its General Partner
By: /s/ Guy M. Russo
-----------------------------------
Name: Guy M. Russo
Title: Member/Manager
CANAAN EQUITY II ENTREPRENEURS LLC
By: Canaan Equity Patners II LLC,
Its Manager
By: /s/ Guy M. Russo
--------------------------------
Name: Guy M.Russo
Title: Member/Manager
4
<PAGE>
TL VENTURES III L.P.
By: TL Ventures III Mangement L.P.,
its general partner
By: TL Ventures III LLC,
its general partner
By: /s/ Christopher Moller
--------------------------
Name: Christopher Moller
Title: Managing Director
TL VENTURES III OFFSHORE L.P.
By: TL Ventures III offshore Partners L.P.,
its general partner
By: TL Ventures III offshore Ltd.,
its general partner
By: /s/ Christopher Moller
--------------------------
Name: Christopher Moller
Title: Vice President
TL VENTURES III INTERFUND L.P.
By: TL Ventures III LLC,
its general partner
By: /s/ Christopher Moller
--------------------------
Name: Christopher Moller
Title: Managing Director
TL VENTURES IV L.P.
By: TL Ventures IV Management L.P.,
its general partner
By: /s/ Christopher Moller
-------------------------
Name: Christopher Moller
Title: Managing Director
5
<PAGE>
TL VENTURES IV INTERFUND L.P.
By: TL Ventures IV LLC,
its general partner
By: /s/ Christopher Moller
------------------------
Name: Christopher Mollen
Title: Managing Director
OAK INVESTMENTS PARTNERS VII, LIMITED
PARTNERSHIP
By: OAK ASSOCIATES VII,LLC
its general partner
By: __________________________
A Member
OAK VII AFFILIATES FUND, LIMITED
PARTNERSHIP
By: OAK VII AFFILIATES, LLC
its general partner
By: __________________________
A Member
AVALON TECHNOLOGY
By: /s/ [ILLEGIBLE]
--------------------------
A Member
6
<PAGE>
By: /s/ [ILLEGIBLE]
----------------------------
A Member
OAK VII AFFILIATES FUND, LIMITED
PARTNERSHIP
By: OAK VII AFFILIATES, LLC
Its General Partner
By: /s/ [ILLEGIBLE]
----------------------------
A Member
AVALON INVESTMENTS
By: _______________________________
A Member
HEALTHCAP KB
By: HealthCap AB
its general partner
By: /s/ Magnus Persson
-------------------------------
Magnus Persson
Director
By: /s/ Staffan Lindstrand
-------------------------------
Staffan Lindstrand
Director
<PAGE>
HEALTHCAP COINVEST KB
By: HealthCap AB
its general partner
By: /s/ Magnus Persson
--------------------------
Magnus Persson
Director
By: /s/ Staffan Lindstrand
--------------------------
Staffan Lindstrand
Director
__________________________
Cesare Sirtori, M.D.
SERVENTIA SA
By: _______________________________________
Franceso Ghiolidi as Sole Administrator
Bioinventor Foundation
By: /s/ Lennart Philipson
--------------------------
Lennart Philipsson
as President
Roger Newton, Ph.D.
<PAGE>
________________________________
Lennart Philipson
/s/ Roger Newton
________________________________
Roger Newton, Ph.D.
SCHEER INVESTMENT HOLDINGS II, L.L.C.
By: /s/ David I. Scheer
----------------------------
David I. Scheer
Managing Member
/s/ Anders Wiklund
--------------------------------
Anders Wiklund
/s/ Sandip Mukherjee, M.D.
--------------------------------
Sandip Mukherjee, M.D.
_________________________________
Seth A. Rudnick
NOVARE KAPTIAL AB
By: _____________________________
Staffan Josephson
Senior Investment Manger
8
<PAGE>
Roger Newton, Ph.D.
SCHEER INVWESTMENT HOLDINGS II, L.L.C.
By:
------------------------------------
David I. Scheer, Managing Member
Anders Wiklund
Sandip Mukherjee, M.D.
---------------------------------------
Seth A. Rudnick
NOVARE KAPITAL AB
By: /s/ Staffan Josephson
------------------------------------
Staffan Josephson, Senior Investment
Manager
LAGRUMMET 621 AB (Reg no 556579-4152)
By: /s/ Pontus Ekman
------------------------------------
Pontus Ekman
<PAGE>
EXHIBIT A
PURCHASERS
----------
TL Ventures III L.P.
TL Ventures III Offshore L.P.
TL Ventures III Interfund L.P.
Oak Investment Partners VII, L.P.
Oak VII Affiliates Fund, L.P.
Scheer Investment Holdings II, L.L.C.
ADDITIONAL PURCHASERS (SERIES B)
--------------------------------
HealthCap KB
Health CoInvest KB
Cesare Sirtori, M.D.
ADDITIONAL PURCHASERS (SERIES C)
--------------------------------
Canaan Equity II L.P.
Canaan Equity II L.P. (QP)
Canaan Equity II Entrepreneurs LLC
Seth A. Rudnick
TL Ventures IV L.P.
TL Ventures IV Interfund L.P.
Serventia SA
Avalon Investments
Lennart Philipsson
Roger Newton, Ph.D.
Anders Wiklund
9
<PAGE>
Sandip Mukherjee, M.D.
ADDITIONAL PURCHASERS (SERIES D)
--------------------------------
Novare Kapital AB
Lagrummet 621
10
<PAGE>
Collaboration and License Agreement Between Esperion Therapeutics, Inc. and
Pharmacia & Upjohn AB dated June 24, 1998.
Confidential treatment requested for portions of this document.
EXHIBIT 10.2
COLLABORATION AND LICENSE AGREEMENT
COLLABORATION AND LICENSE AGREEMENT (this "Agreement") dated as of the 24th
---------
day of June, 1998, by and between Pharmacia & Upjohn AB, a Swedish corporation
with a principal place of business at Lindhagensgatan 133, S-112 87, Stockholm,
Sweden ("PNU"), and Esperion Therapeutics, Inc., a Delaware corporation with a
---
principal place of business at 690 KMS Place, Ann Arbor, Michigan 48108, U.S.A.
(the "Company").
-------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, PNU has been engaged in the development of the Compound (as
defined below) as a therapeutic for cardiovascular market, and owns certain
patent rights and know-how with respect thereto; and
WHEREAS, PNU has decided for strategic reasons to divest such project from
its portfolio; and
WHEREAS, the Company has as its principal business objective the
development of novel anti-atherogenic therapies, and has an interest in
acquiring exclusive rights to the project from PNU and continuing the
development of the Compound and pursuing the commercialization thereof; and
WHEREAS, the parties desire to enter into an agreement pursuant to which
(i) PNU shall transfer and assign to the Company the project and certain patent
rights, know-how and technology relating thereto, (ii) the Company will pursue
the continued development of the Compound and ultimately the commercialization
thereof and (iii) PNU shall have certain options to participate in the
development and marketing of the Compound.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
For the purpose of this Agreement, the following words and phrases shall
have shall have the meanings set forth below:
1.1 "Affiliate" means, with respect to any Person, any other Person that
---------
directly, or indirectly through one or more intermediaries, controls or is
controlled by or is under control with such Person. For purposes hereof, the
term "control" (including, with its correlative meanings, the terms "controlled
------- ----------
by" and "under common control with"), with respect to any Person, means the
- -- -------------------------
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person (whether through the
ownership of voting securities, by contract or otherwise); provided, that in
--------
each event in which any Person owns directly or indirectly more than fifty
percent (50%) of the securities having ordinary voting power for the election of
directors or other governing body of a corporation or more than 50% of the
securities having ordinary
<PAGE>
voting power for the election of directors or other governing body of a
corporation or more than fifty percent (50%) of the ownership interest of any
other Person, such Person shall be deemed to control such corporation or other
Person.
1.2 "Aggregate Cash Reserves" means cash and marketable securities.
-----------------------
1.3 "Assigned Contracts" means the contracts specified in Appendix A hereto.
------------------
1.4 "Assigned PNU Patent Rights" means all Patents owned by PNU or its
--------------------------
Affiliates as of the date of this Agreement and listed in Appendix B hereto.
The Patents listed in Appendix B hereto include Patents (a) which have issued as
of the date of this Agreement, and (b) which issue at any time from applications
(i) pending as of the date of this Agreement or (ii) subsequently filed
worldwide.
1.5 "Company Know-How" means any and all technology, manufacturing and other
----------------
know-how, technical information, inventions, discoveries, methods,
specifications and trade secrets owned or Controlled by the Company relating to
the development, manufacture, use, marketing or sale of Licensed Products or any
Improvements with respect thereto.
1.6 "Company Patent Rights" means any and all Patents owned or Controlled by
---------------------
the Company claiming inventions necessary or useful to the development,
manufacture, use, marketing or sale of Licensed Products or any Improvements
with respect thereto, including the Assigned PNU Patent Rights.
1.7 "Compound" means the Milano variant of Apolipoprotein A-I.
--------
1.8 "Confidential Information" means any and all information (in any and every
------------------------
form and media) not generally known in the relevant trade or industry, which was
obtained from any party or any Affiliate thereof in connection with this
Agreement or the respective rights and obligations of the parties hereunder,
including, without limitation, (a) information relating to trade secrets of such
party or any Affiliate thereof, (b) information relating to existing or
contemplated products, services, technology, designs, processes, formulae,
research and development (in any and all stages) of such party or any Affiliate
thereof, (c) information relating to the Compound or the Licensed Products, and
(d) information relating to business plans, methods of doing business, sales or
marketing methods, customer lists, customer usages and/or requirements and
supplier information of such party or any Affiliate thereof, except that
------
"Confidential Information" shall not include any information which (i) at the
- -------------------------
time of disclosure, is generally known to the public, (ii) after disclosure,
becomes part of the public knowledge (by publication or otherwise) other than by
breach of this Agreement by the receiving party, (iii) the receiving party can
verify by written documentation was in its possession at the time of disclosure
and which was not obtained, directly or indirectly, from the other party or any
Affiliate thereof, (iv) the receiving party can verify by written documentation
results from research and development by the receiving party or any Affiliate
thereof independent of disclosures by the other party or any Affiliate thereof
or (v) the receiving party can prove was obtained from any Person who had the
legal right to disclose such
2
<PAGE>
information, provided that such information was not obtained to the knowledge
--------
of the receiving party or any Affiliate thereof by such Person, directly or
indirectly, from the other party or any Affiliate thereof on a confidential
basis.
1.9 "Control" means, with respect to any Licensed PNU Patent Rights or PNU
-------
Know-How, or any Company Patent Rights Company Know-How, the possession of the
ability to grant a license or sublicense with respect thereto as provided for
herein without violating the terms of any agreement with, or the rights of, any
third Person.
1.10 "FDA" means the United States Food and Drug Administration or any
---
successor agency thereof.
1.11 "Governmental Approval" means any and all approvals, licenses,
---------------------
registrations or authorizations, including pricing approval and reimbursement,
if required, of any Federal, State or local agency, department, bureau or other
governmental entity, foreign or domestic, necessary for the manufacture, use,
storage, import, transport and sale of the Licensed Products in any regulatory
jurisdiction.
1.12 "Improvements" means any invention, discovery or improvement to the PNU
------------
Patent Rights, the PNU Know-How, the Company Patent Rights or the Company Know-
How made, discovered, developed, acquired or Controlled by either party after
the date hereof, whether or not patentable or patented. For purposes of this
Agreement, "Improvements" shall not include any novel technology, uses,
techniques or methods (whether or not incorporated into or used in connection
with the Licensed Products).
1.13 "Licensed PNU Patent Rights" means all Patents (other than Assigned PNU
--------------------------
Patent Rights) (i) which have issued as of the date of this Agreement, a list of
which is attached hereto as Appendix C hereto, or (ii) which issue at any time
from applications pending as of the date of this Agreement or subsequently filed
worldwide and claiming priority from such pending application, now owned or
Controlled during the term of this Agreement, by or on behalf of PNU or any of
its successors or Affiliates, claiming inventions necessary or useful to the
development, manufacture, purification, formulation, use, marketing or sale of
the Compound and/or the Licensed Products or any Improvements with respect
thereto.
1.14 "Licensed Product" means any pharmaceutical product including the Compound
----------------
as its active ingredient the manufacture, use or sale of which (i) would
infringe one of the issued, valid unexpired claims or one of the pending claims
contained in the PNU Patent Rights in any country or (ii) involves use of the
PNU Know-How.
1.15 "NDA" means a complete New Drug Application and all supplements thereto
---
filed with the FDA, including all documents, data and other information
concerning a Licensed Product which are necessary for, or included in, FDA
approval to market such Licensed Product as more fully defined in 21 C.F.R.
(S)314.5 et seq.
------
1.16 "Net Sales" means gross receipts received by any party and/or such party's
---------
Affiliates for sale of the Licensed Products, less the sum of the following
(collectively, "Permitted Deductions"):
--------------------
3
<PAGE>
(i) discounts and rebates allowed in amounts customary in the trade;
(ii) sales taxes, customs and tariff duties and/or use taxes directly
imposed and with reference to particular sales;
(iii) outbound transportation and delivery charges (including insurance
premiums related to transportation and delivery), prepaid or
allowed;
(iv) amounts repaid, allowed or credited on returns; and
(v) commissions paid or allowed to distributors, dealers and agents
which are not Affiliates of such party.
In the event of any sale of the Licensed Products by any party to any
Affiliate thereof for resale to its customers, "Net Sales" shall be based on the
---------
greater of the amount actually received by such party from its Affiliate or the
amount actually received by such Affiliate from its customers for the sale of
the Licensed Products, less (in either such case) the Permitted Deductions.
----
If any party or any of its Affiliates sells any Licensed Products in
combination with other items which are not Licensed Products such as other
active compounds or convenience systems ("Other Items") at a single invoice
-----------
price, "Net Sales" for purposes of computing royalty payments on the combination
---------
shall be determined as follows:
(a) if all Licensed Products and Other Items contained in the
combination are available separately, "Net Sales" for purposes of
---------
computing royalty payments shall be determined by multiplying Net
Sales of the combination by the fraction A/(A+B), where A is the
selling price of all Licensed Products at comparable doses and
strengths in the combination and B is the selling price of all
Other Items in the combination;
(b) if the combination includes Other Items which are not sold
separately (but all Licensed Products contained in the combination
are available separately), "Net Sales" for purposes of computing
royalty payments shall be determined by multiplying Net Sales of
the combination by A/C, where A is as defined above and C is the
selling price of the combination; and
(c) if neither the Licensed Products nor the Other Items contained in
the combination are sold separately, "Net Sales" for purposes of
---------
computing royalty payments shall be determined by multiplying Net
Sales of the combination by the fraction D/(D+E), where D is the
cost of manufacture of all Licensed Products in the combination and
E is the cost of manufacture of all Licensed Products in the
combination, all as reasonably determined by the parties or, if the
parties are unable to agree, by an independent third party mutually
agreed upon by the parties or, if the parties are unable to agree
upon such third party within fifteen (15) days after either party
requests that such third party make such determination, by
arbitration as provided in Section 14.2 hereof (which determination
shall be conclusive).
4
<PAGE>
1.17 "Patent" means (i) unexpired letters patent (including inventor's
------
certificates) which have not been held invalid or unenforceable by a court of
competent jurisdiction from which no appeal can be taken or has been taken
within the required time period, including, without limitation, any
substitution, extension (such as supplementary protection certificates),
registration, confirmation, reissue, re-examination, renewal or any like filing
thereof, and (ii) pending applications for letters patent, including without
limitation any continuation, division or continuation-in-part thereof and any
provisional applications, and any foreign counterparts and all patents that
issue therefrom.
1.18 "Person" means any individual, estate, trust, partnership, joint venture,
------
association, firm, corporation or company, or governmental body, agency or
official.
1.19 "PNU Patent Rights" means, collectively, the Assigned PNU Patent Rights
-----------------
and the Licensed Patent Rights.
1.20 "PNU Know-How" means any and all technology, manufacturing and other know-
------------
how, technical information, inventions, discoveries, methods, specifications and
trade secrets owned or Controlled by PNU as of the date hereof relating to the
Compound or the Licensed Products (the nature of which is described in the
internal reports of PNU listed or referred to in Appendix D hereto), and any
Improvements with respect thereto.
1.21 "U.S. Dollars" and the sign "$" each means lawful currency of the United
------------
States of America.
SECTION 2. GRANT
2.1 Transfer of Rights. Upon the terms and subject to the conditions herein
------------------
stated, PNU hereby sells, assigns, transfers, conveys and delivers to the
Company, and the Company hereby purchases and accepts from PNU, good and valid
title to all of the Assigned PNU Patent Rights, free and clear of all liens and
other defects in title. On the date hereof, or from time to time hereafter in
and to the extent the Company shall so request in order to give effect to this
Agreement, PNU shall, and shall cause its Affiliates to, deliver to the Company
(I) such specific assignments, bills of sale, endorsements and other good and
sufficient instruments of conveyance and transfer, in form and substance and
reasonably satisfactory to the Company, as shall be effective to assign and vest
in the Company good and valid title to all of the Assigned PNU Patent Rights,
free and clear of all liens and other defects in title, and (ii) originals or
copies of all records relating to the Assigned PNU Patent Rights, including
originals of any certificates of registration of any Assigned PNU Patent Rights
or renewals thereof.
2.2 Grant of License. Upon the terms and subject to the conditions herein
----------------
stated, PNU hereby grants the Company an exclusive, worldwide license under the
Licensed PNU patent Rights and PNU Know-How to develop, make, use, import,
export, offer for sale and sell, and to have developed, made, used, imported,
exported, offered for sale and sold, the Licensed Products, with the right to
grant sublicenses. The grant of any
5
<PAGE>
sublicense shall not exceed the scope of the license granted to the Company
pursuant to this Agreement.
2.3 Delivery of PNU Know-How. PNU shall deliver to the Company as soon as
------------------------
reasonably practicable after the date hereof copies of all of its records, data
and documentation relating to the PNU Know-How, including, without limitation,
scientific data and regulatory submissions and documentation, manufacturing
process, reagents, expression systems, formulations and other information
relevant to the Compound and/or the development, manufacture, purification,
formulation, use or marketing of any Licensed Products. In addition, PNU shall
make available to the Company the necessary and appropriate PNU personnel who
are familiar with the PNU Know-How for a reasonable period of consultation at no
cost to the Company, in order to effect the transfer of the PNU Know-How to the
Company.
2.4 Delivery of Improvements. To provide an ongoing procedure for the transfer
------------------------
of Improvements, PNU and the Company shall meet on a periodic basis (but not
less frequently than annually) to discuss Improvements to which either party may
wish to have access and obtain rights thereto in accordance with the provisions
of this Agreement.
2.5 Patent Assignment Procedure. PNU shall execute and deliver to the Company
---------------------------
such patent assignments and such other instruments of transfer and conveyance,
in form and substance satisfactory to the requirements of each patent office, as
shall be effective to vest and/or confirm in the Company good and marketable
title to all of the Assigned PNU Patent Rights. The Company shall perform and
accomplish all the other procedures for transfer and conveyance of the Assigned
Patent Rights required by applicable laws, decrees and regulations. The
expenses incurred hereunder for transfer and conveyance of the Assigned PNU
Patent Rights, including reasonable attorneys' fees and expenses, shall be
shared equally by PNU and the Company. The Company shall be responsible for all
costs relating to maintenance of the Assigned Patent Rights.
2.6 Assigned Contracts. PNU hereby assigns and transfers to the Company and
------------------
the Company hereby accepts from PNU all PNU's rights and obligations under the
Assigned Contracts. The transfer of each of the Assigned Contracts to the
Company is conditional upon consent to the assignment and transfer, where so
required, being obtained by PNU from the other party to the Assigned Contract,
and nothing in this Agreement shall be deemed to constitute an assignment or an
attempt to any Assigned Contract with any third party if the attempted
assignment thereof, without the consent of any such third party, would
constitute a breach thereof or adversely affect in any way the rights of PNU
thereunder. If, after PNU has used reasonable efforts to obtain such consent
from any such third party, any such consent shall not have been obtained, PNU
shall cooperate with the Company, at the Company's expense, in any reasonable
arrangement designed to provide for the Company the benefits of such Assigned
Contract, provided that the Company also undertakes to perform and discharge the
--------
outstanding obligations and liabilities of PNU under such Assigned Contract.
6
<PAGE>
SECTION 3. DEVELOPMENT
3.1 Development Effort. The Company shall use its reasonable good faith
------------------
efforts to pursue the development of the Compound, including the necessary
manufacturing, process development, preclinical and clinical trials and
preparation and prosecution of regulatory submissions, and ultimately shall use
its reasonable good faith efforts to pursue commercialization of the Compound,
either on its own or in conjunction with one or more other Persons, as
determined by the Company.
3.2 Transfer of Materials. PNU shall transfer and as soon as practicably
---------------------
possible deliver to the Company, at the location(s) specified by the Company,
all of its existing supplies and materials relating to the Compound and/or any
Licensed Products, including, without limitation, the Compound, finished
product, intermediates and formulation materials, master cell lines, antibodies
and any available custom-designed reagents, at no cost to the Company.
3.3 Rights of Election. Upon completion of the Company's data analysis of
------------------
Phase IIb trials in the United States for the initial indication of the
Compound, the Company shall furnish written notice of such completion to PNU,
together with a written summary of the results thereof and, upon PNU's written
request, all written documentation reasonably necessary for PNU to review and
evaluate such data analysis and the results thereof. PNU shall have the right
to elect, within ninety (90) days after receipt of such notice and summary (or,
if requested by PNU, the receipt by PNU of the written documentation), to
participate in the further development and/or marketing of the Compound pursuant
to one of the following two options:
(i) PNU may elect to have the exclusive right to co-develop and the
exclusive right to market the Licensed Products in countries other
than the United States and Canada, with the right to grant
sublicenses in such countries (i.e., other than in the United
---
States and Canada) and, if the Company chooses to pursue a co-
development and co-promotion arrangement in the United States and
Canada and with a third Person such as PNU, the right of first
negotiation to co-develop and co-promote the Licensed Products in
the United States and Canada. In the event that PNU makes such
election and desires to exercise its right of first negotiation
with respect to such rights for the United States and Canada, it
shall give written notice thereof to the Company and, if the
Company chooses to pursue such arrangement with another Person for
co-development and co-production in the United States and Canada,
the Company shall first offer such rights to PNU, and the Company
and PNU shall enter into good faith negotiations for such rights.
If the parties have been unable to enter into a mutually acceptable
binding Heads of Agreement containing the basic terms of such a
transaction within four months after such notice is given by PNU,
then the Company may offer such rights to a third Person without
further obligation to PNU; provided that the financial terms of
--------
such
7
<PAGE>
transaction, when taken in their entirety, are not more favorable
to the third Person than the terms offered by PNU. In no event
shall the Company pursue any discussions with a third Person
without having first responded to a proposal made by PNU during
such four month period.
(ii) PNU may elect not to participate in the development or marketing of
the Licensed Products.
In the event that PNU does not deliver to the Company a written notice of
its election pursuant to the foregoing clause (i) or (ii) within ninety (90)
days after receipt of the notice and summary described in the firs sentence of
this Section 3.3, then PNU shall be deemed to have elected the option provided
in the foregoing clause (ii) of this Section 3.3.
In the event that PNU makes the election provided in clause (i) of this
Section 3.3, PNU shall use its reasonable good faith efforts to commit the
resources necessary to develop and market the Licensed Products in the countries
in which PNU has exclusive marketing rights, including a collaborative global
strategy wherein studies conducted in the respective countries of the Company
and PNU will be, wherever possible, useful in submissions to regulatory
authorities in their respective countries. In the event that PNU makes the
election provided in clause (i) of this Section 3.3, then resource allocation,
development and commercialization strategies shall be discussed jointly by the
parties in order to coordinate their respective activities for such countries in
which they have marketing rights, such discussions to be conducted through a
joint steering committee, to consist of an equal number of designees from each
of the Company and PNU, with disputes relating thereto to be resolved in
accordance with the provisions of this Agreement.
3.4 Development Charges. All costs incurred by the Company in the development
-------------------
of the Licensed Products, including, without limitation, payments for clinical
trials and other studies, tests and all filings and applications and other
actions necessary for achieving Governmental Approval of the Licensed Product,
shall be the sole responsibility of the Company, unless PNU elects the option
provided in clause (i) of Section 3.3 and pursuant to the provisions thereof the
Company grants co-development and marketing rights to PNU in the United States,
in which case the costs incurred by either party after completion of the Phase
IIb clinical trials in the United States shall be shared as mutually agreed upon
by the parties.
3.5 Manufacturing. In the event that PNU elects the option provided in clause
-------------
(i) of Section 3.3 and the parties enter into a marketing or co-promotion
agreement as the result of which PNU has certain rights to market and sell the
Licensed Products, the Company shall be and become the exclusive supplier to
PNU, its Affiliates and sublicensees of the Licensed Products for those
countries in which PNU has such marketing rights. The supply of clinical trial
materials and commercial product shall be a follows:
8
<PAGE>
3.5.1 Clinical Trial Materials. The Company shall provide to PNU clinical
------------------------
trial materials in accordance with the specifications of PNU, and will be
invoiced at the Company's fully burdened costs.
3.5.2 Commercial Product. The Company and PNU shall enter into a separate
------------------
supply agreement incorporating a transfer price (including royalties) for
finished product equal to [ ] of the Net Sales of the Licensed
Products by PNU and its Affiliates up to the first [ ] in any given
annual period and [ ] of the portion of Net Sales of the
Licensed Products by PNU and its Affiliates which is in excess of [ ]
in such annual period. The Company shall have both primary and secondary
sources for its production of commercial quantities of the Licensed Product, and
PNU shall be given the option of serving as a primary or secondary vendor of
manufacturing services.
SECTION 4. ROYALTIES AND OTHER PAYMENTS
4.1 Initial License Fee. The Company shall pay to PNU an initial license fee
- --- -------------------
of [ ] in cash, which initial license fee shall be paid within ninety (90)
days after the execution of this Agreement.
4.2 Milestone, Development and Royalty Obligations.
4.2.1 For the rights, privileges and licenses granted hereunder, the
parties shall pay the following amounts to each other in the manner hereinafter
provided during the term of this Agreement:
4.2.1.1 Upon completion of clinical studies showing preliminary safety
and initial proof-of-concept (which may include early Phase IIa studies), the
Company shall pay to PNU [ ] in cash or by issuance of a promissory note,
with the form of payment to be at the exclusive option of the Company. In the
event that such payment is made by promissory note, the terms thereof shall be
as described in Section 4.2.2.
4.2.1.2 In the event that PNU elects the option provided in clause (i)
of Section 3.3, the parties shall make the payments to each other provided in
this Section 4.2.1.2. In the case of milestone payments made by the Company to
PNU, such payments ,may be in the form of cash or a promissory note, as
determined by the Company, except that a milestone payment in cash if the amount
thereof is less than ten percent (10%) of the then Aggregate Cash Reserve of the
Company. The Company shall notify PNU whether it is obligated to pay the
milestone payment in cash, based upon its Aggregate Cash Reserves, and provide
financial documentation related thereto. Upon PNU's written request, PNU shall
have the right to arrange for an independent third party audit to verify whether
the Company shall be obligated to pay a milestone payment in cash, and the
Company will cooperate in such audit making available its financial books and
records to such auditor during normal business hours. If there is a discrepancy
of greater than five percent (5%) in PNU's favor, PNU shall be entitled to
reimbursement of
9
<PAGE>
the reasonable cost of such audit and, if such audit discloses that PNU shall
have been entitled to receive a milestone payment in cash that the Company paid
in the form of a promissory note shall be returned to the Company for
cancellation. If such payment is made by promissory note, the terms thereof
shall be as described in Section 4.2.2. The payments to be made pursuant to this
Section 4.2.1.2 are as follows:
(i) a milestone payment in the amount of [ ] shall be made by the
Company to PNU upon the granting of Governmental Approval for marketing of
the initial Licensed Product in the United States;
(ii) the Company shall pay to PNU royalties in the amount of [
] of the Net Sales of the Licensed Product by the
Company and its Affiliates up to the first [ ] of Net
Sales in any annual period and [ ] of the Net
Sales of the Licensed Product by the Company and its Affiliates
in excess of [ ] in such annual period, except that the
Company shall pay PNU [ ] of the royalties
received by the Company based on the Net Sales of the Licensed
Products by its sublicensees (other than PNU, its Affiliates and
sublicensees) and [ ] of any and all license
fees and milestone payments received by the Company (other than
from PNU, its Affiliates and sublicensees) or [ ]
of the Net Sales of its sublicensees (other than PNU, its
Affiliates and sublicenses), whichever is greater;
(iii) PNU shall pay to the Company royalties in the amount of [
] of the Net Sales of the Licensed Products by PNU
and its Affiliates up to the first [ ] of Net Sales in
any annual period and [ ] of the portion of Net
Sales of the Licensed Products by PNU and its Affiliates which is
in excess of [ ] in such annual period; and
(iv) in the event that PNU has granted sublicensees to any Person
other than the Company or any Affiliate thereof, PNU shall pay
the Company [ ] of any and all payments
received by PNU and/or any of is Affiliates from such
sublicensees (including, without limitation, any royalties,
sublicense issue fees, lump sum payments, technology transfer
payments or other similar fees and payments) or [
] of the Net Sales of PNU's sublicensees, whichever is
greater.
If PNU and the Company enter into a definitive co-development and co-
promotion agreement with respect to the United States and Canada pursuant to
clause (i) of this Section 3.3, [ ] of the amount of the milestone
payment payable by the Company pursuant to clause (i) of this Section 4.2.1.2.
shall be credited against future royalties owned by the Company to PNU
hereunder.
10
<PAGE>
4.2.1.3 In the event that PNU elects the option provided in clause (ii) of
Section 3.3, the Company shall make the payments to PNU provided in this Section
4.2.1.3. In the case of milestone payments made by the Company to PNU, such
payments may be in the form of cash or a promissory note, as determined by the
Company, except that a milestone payment will be made in cash if the amount
thereof is less than ten percent (10%) of the then aggregate cash reserves of
the Company. If such payment is made by promissory note, the terms thereof
shall be as provided in Section 4.2.2. The payments to be made pursuant to this
Section 4.2.1.3 are as follows:
(i) a milestone payment in the amount of [ ] shall be made by the
Company to PNU upon the enrollment of the first patient in the first Phase
III trial for the initial Licensed Product in the United States;
(ii) a milestone payment in the amount of [ ] shall be made by
the Company to PNU upon the filing of the first NDA with respect
to marketing of the initial Licensed Product in the United
States;
(iii) a milestone payment in the amount of [ ] shall be made by
the Company to PNU upon the filing of the first application with
the applicable regulatory authorities for Governmental Approval
of the marketing of the initial Licensed Product in any two of
the following countries: France, Italy, Germany and the United
Kingdom;
(iv) a milestone payment in the amount of [ ] shall be made by
the Company to PNU upon the final approval by the FDA of the
first NDA with respect to the marketing of the initial Licensed
Product in the United States;
(v) a milestone payment in the amount of [ ] shall be made by
the Company to PNU upon final Governmental Approval of the first
application to market the initial Licensed Product in any two of
the following countries: France, Italy, Germany and the United
Kingdom; and
(vi) the Company shall pay to PNU royalties in the amount of [
] of the Net Sales of the Licensed Products by the
Company and its Affiliates up to the first [ ] of Net
Sales in any annual period and [ ] of the Net
Sales of the Licensed Products by the Company and its Affiliates
in excess of [ ] in such annual period, except that the
Company shall pay PNU [ ] of the royalties
received by the Company based on the Net Sales of the Licensed
Products by its sublicensees (other than PNU, its Affiliates and
sublicensees) and [ ] of any and all license
fees and milestone payments received by the Company
11
<PAGE>
(other than from PNU, its Affiliates and sublicensees)
or [ ] of the Net Sales of its sublicensees (other
than PNU, its Affiliates and sublicensees), whichever is greater.
The Company shall be entitled to a credit against future royalties
otherwise payable by the Company to PNU hereunder in an amount equal to [
] of the amount of the milestone payments paid by the Company
pursuant to clause (i, (ii) and (iii) of this Section 4.2.1.3 and [
] of the amount of the milestone payments paid by the Company
pursuant to clauses (iv) and (v) of this Section 4.2.1.3. In no event shall the
Company be entitled to use such credits to offset than [ ]
of the royalties otherwise payable to PNU with respect to any calendar year, and
any unused credits shall be carried over and used by the Company in subsequent
years.
4.2.2 Each promissory note, if any, delivered by the Company to
PNU as a milestone payment pursuant to this Section 4 shall (i) be
issued by the Company to PNU and be dated the date such milestone
payment is due, (ii) be assignable by the holder thereof, (iii) bear
interest at the prime rate per annum plus [ ] using the
prime rate as quoted in The Wall Street Journal on the date such
-----------------------
milestone payment is due and (iv) provide for the payment of the
principal amount thereof, together with interest thereon to the date of
payment, on the first to occur of (a) the fifth anniversary of the date
on which such milestone payment is due or (b) the closing date of the
first public offering of securities of the Company which results in
receipt by the Company of net proceeds of at least [ ]. Each
such note shall also provide that it may be prepaid in full at any time
without penalty.
4.3 Limitation on Royalties. Notwithstanding anything to the contrary
- --- -----------------------
contained herein, (a) no royalties shall be payable by any party hereunder with
respect to the Net Sales of the Licensed Products to any of its Affiliates or by
any of such party's Affiliates to any other Affiliate thereof, and (b) no
multiple royalties shall be payable in the event that any of the Licensed
Products or the manufacture, use or sale thereof is covered by more than one
percent included in the PNU Patent Rights.
4.4 Royalties to Third Persons. The parties recognize that acquisition of
- --- --------------------------
various technologies in the future development work on the Compound or the
Licensed Product by the Company may require the Company to undertake royalty
obligations to third parties. The parties further recognize that such royalty
obligations may render the project financially unacceptable. Therefore, if the
Company contemplates the acquisition of new valuable technologies for the
development of the Compound or the Licensed Product prior to the Company's
notice of completion to PNU pursuant to Section 3.3, and which acquisition
includes royalty obligations that may render the project financially
unacceptable, the parties agree to discuss suitable arrangements to accommodate
for such acquisition of technology, which may include the absorption by PNU of
part of such third party royalty (and PNU agrees to consider any reasonable such
arrangements in good faith).
12
<PAGE>
4.5 Withholding Taxes. The parties acknowledge and agree that there may be
deducted from any payments or royalties otherwise due and payable hereunder any
taxes or other payments required to be withheld under applicable law with
respect to such payments or royalties or otherwise relating to the Licensed
Product.
SECTION 5. PAYMENT OF ROYALTIES, ACCOUNTING FOR
ROYALTIES, RECORDS, ETC.
5.1 Payment. Royalties payable hereunder shall be paid within 30 days after
- --- -------
the end of each calendar quarter, based on the Net Sales of the Licensed
Products by the parties and their respective Affiliates during the preceding
calendar quarter. Such payments shall be accompanied by a statement setting
forth the Net Sales of the Licensed Products.
5.2 Accounting; Foreign Currency. The aggregate amount of the Net Sales of the
- --- ----------------------------
Licensed Products used for computing the royalties payable hereunder shall be
computed in U.S. Dollars, and all payments of such royalties shall be made in
U.S. Dollars. For purposes of determining the amount of royalties due, the
amount of the Net Sales of the Licensed Products in any foreign currency shall
be computed by converting such amounts into U.S. Dollars at the prevailing
commercial rate of exchange for purchasing U.S. Dollars, as quoted in The Wall
Street Journal, on the last business day of the calendar quarter with respect to
which such royalty payment is payable hereunder.
5.3 Records. Each party hereto shall keep for five (5) years complete and
- --- -------
accurate records of the Net Sales of the Licensed Products sold by such party
and its Affiliates in sufficient detail to allow the royalties payable by such
party hereunder to be accurately determined. Each party hereto shall have the
right for a period of five (5) years after receiving any report or statement
with respect to royalties due and payable hereunder by the other party hereto to
appoint an independent accounting firm to inspect and audit the relevant records
of the party furnishing such report or statement and its Affiliates to verify
such report or statement. Each party hereto and its Affiliates shall make their
records available for inspection and audit by such independent accounting firm
during regular business hours at such place or places where such records are
customarily kept, upon reasonable notice of the other party hereto, to the
extent reasonably necessary to verify the accuracy of the reports and payments
required hereunder. The cost of any such inspection and audit shall be paid by
the party conducting such inspection and audit, unless such inspection and audit
discloses for any calendar quarter examined that there shall have been a
negative discrepancy of greater than five percent (5%) between the royalties
payable hereunder by the relevant party and the royalties actually paid by the
relevant party with respect to such calendar quarter, in which case the party
paying such royalties shall be responsible for the payment of the entire cost of
such inspection and audit.
SECTION 6. PATENT PROSECUTION
6.1 Prosecution Obligation. The Company shall, at its sole cost and expense,
- --- ----------------------
maintain during the term of this Agreement any and all Assigned PNU Patent
Rights.
13
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PNU shall, at its sole cost and expense, apply for, and use its reasonable good
faith efforts to seek issuance of, and maintain during the term of this
Agreement any and all Licensed PNU Patent Rights, in a timely and reasonably
prudent business manner.
SECTION 7. REPRESENTATIONS AND WARRANTIES.
7.1 By the Company. The Company hereby represents and warrants to PNU that (a)
--------------
the Company has full legal right, power and authority to execute, deliver and
perform its obligations under this Agreement, (b) the execution, delivery and
performance by the Company of this Agreement do not contravene or constitute a
default under any provision of applicable law or its articles or by-laws (or
equivalent documents) or of any agreement, judgment, injunction, order, decree
or other instrument binding upon the Company, (c) all licenses, consents,
authorizations and approvals, if any, required for the execution, delivery and
performance by the Company of this Agreement have been obtained and are in full
force and effect and all conditions thereof have been complied with, and no
other action by or with respect to, or filing with, any governmental authority
or any other Person is required in connection with this execution, delivery and
performance by the Company of this Agreement, (d) this Agreement constitutes a
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms.
7.2 By PNU. PNU hereby represents and warrants to the Company that (a) PNU has
------
full legal right, power and authority to execute, deliver and perform its
obligations under this Agreement, (b) the execution, delivery and performance by
PNU of this Agreement do not contravene or constitute a default under any
provision of applicable law or of its articles of incorporation or by-laws (or
equivalent documents) or of any agreement, judgment, injunction, order, decree
or other instrument binding upon PNU or otherwise relating to the Compound, the
PNU Patent Rights or the PNU Know-How, (c) all licenses, consents,
authorizations and approvals, if any, required for the execution, delivery and
performance by PNU of this Agreement have been obtained and are in full force
and effect and all conditions thereof have been complied with, and no other
action by or with respect to, or filing with, any governmental authority or any
other Person is required in connection with the execution, delivery and
performance by PNU of this Agreement, (d) PNU is the exclusive owner of all
legal and beneficial right, title and interest in and to the PNU Assigned Patent
Rights, free and clear of any lien, claim or encumbrance or rights of any other
Person, and PNU owns or Controls sufficient legal rights to the PNU Licensed
Patent Rights and the PNU Know-How to grant to the Company the exclusive
licenses and rights contemplated hereby, (e) except as set forth in Schedule 7.2
attached hereto, to the best knowledge of PNU, the practice of the PNU Patent
Rights and/or the PNU Know-How as contemplated by Section 2.2 hereof does not
infringe or violate any patent or other right of any Person, (f) Appendix B
hereto contains a complete and correct list of all Patents owned by PNU or its
Affiliates as of the date hereof claiming inventions relating solely to the
development, manufacture, purification, formulation, use or sale of the
Compound, and (g) this Agreement constitutes a valid and binding agreement of
PNU, enforceable against PNU, in accordance with its terms.
14
<PAGE>
7.3 Due Diligence. The Company and its consultants have, prior to the
-------------
execution of this Agreement, conducted a due diligence of the PNU Patent Rights
and the PNU Know-How. The parties agree that the Company shall not entitled to
raise any claims for compensation for Losses (as defined in Section 8.2.1)
against PNU or its Affiliates insofar as such claims relate to circumstances
that PNU can prove were evidence from the information made available to the
Company and its consultants in the above-mentioned due diligence. The liability
of PNU under Sections 7.2(d) and (e) hereof shall remain valid for eighteen (18)
months from the effective date of this Agreement, prior to which date the
Company must notify PNU in writing of any claim specifying the exact nature and
the Losses relating to such claim, and after said eighteen (18) month period the
Company shall be precluded from raising claims for compensation for such Losses
against PNU or its Affiliates.
7.4 Survival of Representations and Warrants. The representations and
----------------------------------------
warranties contained herein shall survive the execution, delivery and
performance of this Agreement by the parties, notwithstanding any investigation
at any time on or prior to the date hereof made by or on behalf of any party or
parties.
SECTION 8. INFRINGEMENT AND INDEMNIFICATION
8.1 Infringement Claims.
-------------------
8.1.1 Third Party Infringement. Each party shall promptly notify the other
------------------------
party of its knowledge of any potential or actual infringement of the PNU Patent
Rights or the Company Patent Rights. The party having the exclusive marketing
rights to Licensed Products in the territory where the infringement takes place
shall have the first option to take such action against infringers as such
party, using prudent business judgment, deems appropriate. For the purpose of
this Section 8.1, the Company shall be deemed to have the exclusive marketing
rights for U.S. and Canada, even if PNU and the Company conclude a co-promotion
agreement for said countries. If the party having the exclusive marketing
rights fails to take appropriate action against any infringer within six (6)
months from written notice requesting such action from the other party, then
such other party shall have the right to take action against such infringer.
The party taking action to enforce any of the PNU Patent Rights or the Company
Patent Rights shall do so at its own expense and for its own benefit, except
that if a party with exclusive marketing rights is awarded damages by any court
of under any settlement, it shall report such amounts, less out-of-pocket
expenses, as Net Sales for royalty-related purposes insofar as such amounts
relate to damages for lost sales of Licensed Products. In the event that any
such infringement shall not have terminated in any country within one (1) year
after the receipt of notice thereof to the party entitled to receive royalties
hereunder with respect to Net Sales of the Licensed Products in such country,
then the party having the marketing rights in such country shall be entitled to
a royalty reduction, on a country-by-country basis, as follows: if sales of the
product(s) sold by or on behalf of the infringer exceed ten percent (10%) of the
15
<PAGE>
combined sales of such product(s) sold by or on behalf of the infringer exceed
ten percent (10%) of the combined sales of such product(s) and the Licensed
Products, the royalty rate otherwise applicable shall be reduced by twenty-five
percent (25%) of the combined sales, the royalty rate otherwise applicable shall
be reduced by fifty percent (50%).
8.1.2 Third Party Claims. Except to the extent arising out of a breach of such
------------------
party's representations and warranties set forth in Section 7 hereof, each party
shall defend at its own expense any actions brought against it, its Affiliates
or sublicensees alleging that the development, manufacture, marketing, use or
sale of any Licensed Products infringes any claim of any third party Patent in
any country of the world and such party shall pay all damages and costs payable
by such party in such actions. If any claim or proceeding is made or brought
(or, in the reasonable opinion of such party's outside patent counsel (which
patent counsel must be reasonably acceptable to the other party) set forth in
writing and delivered to the other party, is likely to be made or brought)
against a party, its Affiliates or sublicensees, based on any claim of
infringement or alleged infringement of any third party's patent or other
proprietary rights necessary for the practice of the intellectual property
rights licensed or acquired by either party under this Agreement, then such
party may, in its sole judgment but after consultation with the other party,
settle such claim or proceeding (or potential claim or proceeding) by acquiring
or obtaining a license under such third party patent or other proprietary
rights. In such case, the party acquiring or obtaining a license may offset one
hundred percent (100%) of the costs of such acquisition or license against any
royalties otherwise payable to the other party up to one percent (1%) of Net
Sales and fifty percent (50%) of such costs exceeding one percent (1%) of Net
Sales, provided that such party may not exercise such right of offset for an
--------
aggregate amount in excess of fifty percent (50%) of the royalty payments and
other amounts otherwise payable to the other party hereunder.
8.1.3 Revocation or Invalidity Actions. Each party shall have the right to
--------------------------------
defend at its own expense all suits or proceedings seeking to have any of its
Patents licensed to the other party hereunder revoked or declared invalid. If
such party fails to take action in either case at least thirty (30) days prior
to the time that such party is obliged to respond to such suit or proceeding,
the other party shall have the right to take whatever action it deems
appropriate to defend such suit or proceeding. All costs and expenses
(including attorney's fees) incurred by such party in such action may be
deducted from royalties and/or other amounts otherwise payable to the other
party hereunder from the sale of the Licensed Products in the country where such
revocation or invalidity suit or proceeding is pending, up to a maximum of fifty
percent (50%) of such royalties and/or other payments.
8.1.4 Competing Products. If, as a result of revocation or invalidation of one
------------------
or more of the Patents or unlicensed competition under the PNU Patent Rights,
one or more third Persons begins to sell a product competing with the Licensed
Product (a "Competing Product") in any country of the world, then the party
-----------------
having the marketing rights in such country shall be entitled to a royalty
16
<PAGE>
reduction, on a country-by-country basis, as follows: if the sales of the
Competing Product in such country exceed ten percent (10%) of the combined sales
of the Competing Product and the Licensed Products, the royalty rate otherwise
applicable shall be reduced by twenty-five percent (25%), and if sales of such
Competing Product exceed twenty-five percent (25%) of such combined sales, the
royalty rate otherwise applicable shall be reduced by fifty percent (50%).
8.2 Indemnification.
---------------
8.2.1 Indemnification by the Company. The Company hereby agrees that it shall
------------------------------
be responsible for, indemnify, hold harmless and defend PNU and PNU Affiliates,
and their respective directors, officers, managing members, shareholders,
partners, attorneys, accountants, agents, employees and consultants, and their
respective heirs, successors and assigns (collectively, the "PNU Indemnities"),
---------------
from and against any and all claims, demands, losses, liabilities, damages,
costs and expenses (including the cost of settlement, reasonable legal and
accounting fees and any other expenses for investigating or defending any
actions or threatened actions) (collectively, "Losses") suffered or incurred by
------
any PNU Indemnitee arising out of, relating to, resulting from or in connection
with (a) any actual or alleged injury or death of any Person or damage to any
property caused or claimed to be caused by any Licensed Product marketed or sold
by the Company, but only to the extent the Company has insurance coverage
therefor, (b) the breach of any representation or warranty made by the Company
herein, (c) the default by the Company in the performance or observance of any
of its obligations to be performed or observed hereunder, and (d) any action,
suit or other proceeding, or compromise, settlement or judgment, relating to any
of the foregoing matters with respect to which PNU Indemnitees are entitled to
indemnification hereunder. The foregoing shall not apply to the extent that
such Losses are due to the willful misconduct or gross negligence of any of the
PNU Indemnitees.
8.2.2 Indemnification by PNU. PNU hereby agrees that it shall be responsible
----------------------
for, responsible for, indemnify, hold harmless and defend the Company and the
Company's Affiliates, and their respective directors, officers, managing
members, shareholders, partners, attorneys, accountants, agents, employees and
consultants, and their respective heirs, successors and assigns (collectively,
the "Company Indemnities"), from and against any and all Losses suffered or
-------------------
incurred by any of the Company Indemnitees arising out of, relating to,
resulting from or in connection with (a) the breach of any representation or
warranty made by PNU herein, (b) the default by PNU in the performance or
observance of any of its obligations to be performed or observed hereunder, and
(c) any action, suit or other proceeding, or compromise, settlement or judgment,
relating to any of the foregoing matters with respect to which the Company
Indemnitees are entitled to indemnification hereunder. The foregoing shall not
apply to the extent that such Losses are due to the willful misconduct or gross
negligence of any of the PNU Indemnitees.
17
<PAGE>
8.2.3 Notice of Claims. In the event that a claim is made pursuant to Section
----------------
8.2.1 and 8.2.2 above against any party which seeks indemnification hereunder
(the "Indemnitee"), the Indemnitee agrees to promptly notify the other party
----------
(the "Indemnitor") of such claim or action and, in the case of any claim by a
----------
third Person against the Indemnitee, the Indemnitor may, at its option, elect to
assume control of the defense of such claim or action; provided, however, that
-------- -------
(a) the Indemnitee shall be entitled to participate therein (through counsel of
its own choosing) at the Indemnitee's sole cost and expense, and (b) the
Indemnitor shall not settle or compromise any such claim or action without the
prior written consent of the Indemnitee, unless such settlement or compromise
includes a general release of the Indemnitee and all of the other PNU
Indemnities or the Company Indemnities, as the case may be, from any and all
liability with respect thereto.
SECTION 9. CONFIDENTIALITY
The parties each recognize that the Confidential Information of the other
party and any and all Affiliates thereof constitutes valuable confidential and
proprietary information. Accordingly, the parties each agree that they and
their respective Affiliates shall, during the term of this Agreement and for a
period of five (5) years after the termination hereof for any reason, hold in
confidence all Confidential Information of the other party (including this
Agreement and the terms hereof) and not use the same for any purpose other than
as set forth in this Agreement nor disclose the same to any other Person except
------
to the extent that it is necessary for such party to enforce its rights under
this Agreement or if required by law or any governmental authority (including,
without limitation, the FDA or any stock exchange upon which such party's shares
or other equity securities may be traded); provided, however, if any party shall
-------- -------
be required by law to disclose any such Confidential Information to any other
Person, such party shall give prompt written notice thereof to the other party
and shall minimize such disclosure to the amount required. Notwithstanding the
foregoing, either party may disclose Confidential Information of the other (a)
to such party's attorneys, accountants and other professional advisors under an
obligation of confidentiality to such party, (b) to such party's banks or other
financial institutions or venture capital sources for the purpose of raising
capital or borrowing money or maintaining compliance with agreements,
arrangements and understandings relating thereto, and (c) to any Person who
proposes to purchase or otherwise succeed (by merger, operation of law or
otherwise) to all of such party's right, title and interest in, to and under
this Agreement, if such Person agrees to maintain the confidentiality of such
Confidential Information pursuant to a written agreement in form and substance
reasonably satisfactory to the parties. The standard of care required to be
observed hereunder shall be not less than the degree of care which each party or
Affiliate thereof uses to protect its own information of a confidential nature.
SECTION 10. INTELLECTUAL PROPERTY; IMPROVEMENTS
10.1 Rights to Propriety Technology. Neither party shall through this
------------------------------
Agreement obtain any rights to the other party's proprietary technology except
for such rights as are expressly granted or allocated under this Agreement.
18
<PAGE>
10.2 Improvements and Filing, Prosecution and Maintenance of Patents.
---------------------------------------------------------------
10.2.1 Any Improvement to the Compound or any Licensed Product made, discovered
or developed by any party during the term of this Agreement shall be owned
solely by such party, provided that the Company is hereby granted a license upon
--------
the terms set forth in Section 2.2 hereof to any such Improvement and under any
PNU Patent Rights and PNU Know-How and under any other intellectual property
rights of PNU relating thereto owned or Controlled by PNU, to the extent that
such Improvement is used solely for the development, manufacture, use,
importation, marketing, offer for sale or sale of any Licensed Product. If PNU
elects to co-develop and market the Licensed Products, then PNU shall have a
license upon the same terms as granted to the Company with respect to any
Improvements, and under any Company Patent Rights and Company Know-How and under
any other intellectual property rights of the Company relating thereto owned or
Controlled by the Company, to the extent that such Improvement is used solely
for the development, manufacture, use, importation, marketing, offer for sale or
sale of any Licensed Product in the countries in which PNU has marketing rights.
Each party agrees to give the other Party prompt written notice of any
Improvement to the Compound or any Licensed Product discovered or developed by
such party during the term of this Agreement. Improvements to the Company
Patent Rights and the Company Know-How made, discovered or acquired by the
Company during the term of this Agreement shall be owned by the Company,
provided that with respect to any such Improvement to the Assigned Patents made
- --------
or developed by the Company in the nature of a patentable manufacturing process
or technique, PNU shall have the option to acquire, for such consideration as
may be mutually agreed upon by the parties after negotiation in good faith, a
non-exclusive, worldwide license under any intellectual property rights owned or
Controlled by the Company relating to such Improvement, with the right to
sublicense upon obtaining the Company's prior written consent thereto (which
consent shall not be unreasonably withheld), to use such Improvement for
purposes other than (i) to develop, manufacture, use, market or sell the
Licensed Products or any other pharmaceutical products or compounds containing
an apolipoprotein as an active ingredient for medical treatment in the field of
atherosclerosis, or (ii) any such purpose that may be adverse to or in
competition with the interests of the Company. Improvements to the PNU Patents
and the PNU Know-How made, discovered or acquired by the Company during the term
of this Agreement shall be owned by the Company, provided that PNU shall be
--------
granted a non-exclusive, free-of-charge, worldwide license under any
intellectual property rights owned or Controlled by the Company relating to such
Improvement, with the right to sublicense, to use such Improvements for purposes
other than to develop, manufacture, use, market or sell pharmaceutical products
or compounds containing an apolipoprotein as an active ingredient for medical
treatment in the field of atherosclerosis.
10.2.2 In the event that any Improvements owned by either party are deemed
patentable, such party shall be entitled to file and prosecute patent
applications related thereto and maintain patents issued thereon, at its own
cost
19
<PAGE>
and expense. The other party shall render reasonable assistance to such
party in filing such applications whenever requested to do so, at such
party's sole cost and expense. The Company and PNU agree to sign and
execute such forms and documents as may be reasonably requested by the
other party as being necessary or desirable to vest or confirm in such
other party title to all such improvements owned by such other party.
SECTION 11. LIMITATIONS ON LIABILITY
11.1 No Warranties. Except as expressly set forth in Section 7 hereof, neither
-------------
party makes any representations or warranties as to any matter whatsoever. EACH
PARTY HEREBY DISCLAIMS ANY AND ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS
OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE.
11.2 Limitations of Liability. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE
------------------------
LIABLE TO THE OTHER PARTY OR ANY OTHER PERSON FOR ANY SPECIAL, CONSEQUENTIAL OR
INDIRECT DAMAGES OF ANY KIND WHATSOEVER.
11.3 Force Majeure. No party shall be liable for failure or delay in
-------------
performing any of its obligations hereunder if such failure or delay is
occasioned by compliance with any governmental regulation, request or order, or
by circumstances beyond the reasonable control of the party so failing or
delaying, including, without limitation, Acts of God, war, insurrection, fire,
flood, accident, labor strikes, work stoppage or slowdown (whether or not such
labor event is within the reasonable control of the parties), or inability to
obtain raw materials, supplies, power or equipment necessary to enable such
party to perform its obligations hereunder. Each party shall (a) promptly
notify the other party in writing of any such event of force majeure, the
expected duration thereof and its anticipated effect on the ability of such
party to perform its obligations hereunder, and (b) make reasonable efforts to
remedy any such event of force majeure.
SECTION 12. NON-USE OF NAMES
12.1 Non-use of Names. Neither party shall use the name of the other party nor
----------------
the name of any of Affiliates or employees of such other party, nor any
adaptation thereof, in any advertising, promotional or sales literature without
prior written consent obtained from such other party in each case (which consent
shall not be unreasonably withheld or delayed).
12.2 Insurance. The Company agrees to obtain and maintain in effect, from and
---------
after the first commercial sale of the Licensed Products, appropriate insurance
coverage for the Company's potential liability relating to the marketing and
sale of the Licensed Products consistent with industry standards for similar
companies.
20
<PAGE>
SECTION 13. TERM AND TERMINATION
13.1 Term. This Agreement shall be effective from the date of its execution by
----
the parties and, unless sooner terminated in accordance with the provisions of
this Section 13, shall continue until the later to occur of (i) 20 years from
the date of this Agreement, or (ii) the last to expire of any Patent included
within the PNU Patent Rights.
13.2 Events of Default. Each party shall have the right to terminate this
-----------------
Agreement upon the occurrence of any of the following events (each, an "Event of
--------
Default") with respect to the other party (the "Defaulting Party"): (a) a
- ------- ----------------
decree or order shall have been entered by a court of competent jurisdiction
adjudging the Defaulting Party bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, readjustment, arrangement, composition
or similar relief for the Defaulting Party under any bankruptcy law or any other
similar applicable statute, law or regulation, or a decree or order of a court
of competent jurisdiction shall have been entered for the appointment of a
receiver or liquidator or trustee or assignee in bankruptcy or insolvency of the
Defaulting Party or a substantial part of its property, or for the winding up or
liquidation of its affairs; and (b) the Defaulting Party shall institute
proceedings to be adjudicated a voluntary bankrupt, or shall consent to the
filing of a bankruptcy petition against it, or shall file a petition or answer
or consent seeking reorganization, readjustment, arrangement, composition,
liquidation or similar relief under any bankruptcy or insolvency of it or of a
substantial part of its property, or shall make an assignment for the benefit of
creditors, or shall be unable to pay its debts generally as they become due; or
(c) the Defaulting Party shall commit a material breach of the terms of this
Agreement and the same and all of its effects shall be remedied within 60 days
after written notice thereof is given by the other party to the Defaulting
Party. The failure by either party to pay the other party any royalties or
other payments when due and payable in accordance with the provisions of Section
5 hereof shall be deemed a material breach of this Agreement.
13.3 Termination. Each party may terminate this Agreement upon the occurrence
-----------
of an Event of Default by giving written notice thereof to the other party,
which notice shall specifically identify the reason(s) for such termination. In
addition, (i) the Company may terminate this Agreement and, PNU, if the option
set forth in Section3.3(i) hereof is elected by PNU, may terminate its co-
development and marketing rights hereunder at any time upon not less than ninety
(90) days' prior written notice to the other party, if the Board of Directors of
such party determines in good faith that the development, manufacture, marketing
or sale of the Licensed Product is not technically or commercially feasible and
such circumstances cannot be overcome by exerting reasonable good faith efforts
as provided in Sections 3.1 and 3.3, provided; that the other party shall have
--------
the right to propose amended terms of this Agreement in order the improve the
technical or commercial feasibility for such party, which proposal such party
agrees to consider in good faith. Such proposal shall be made in writing within
thirty (30) days following receipt of notice of termination and the party
receiving the proposal shall respond in writing within thirty (30) days
following receipt of such proposal. (ii) PNU may terminate this Agreement by
giving at least 30 days' prior written notice to the Company in the event that
the Company has not obtained, in the aggregate, at least
21
<PAGE>
$8,000,000 in equity financing within 12 months after the date of execution of
this Agreement.
13.4 Consequences of Termination. Upon the termination of this Agreement, all
---------------------------
rights, privileges and licenses granted by PNU to the Company hereunder,
including the Assigned PNU Patent Rights (by reassignment), shall revert to PNU,
and the Company agrees thereupon to negotiate in good faith with PNU the terms
and conditions under which the Company would be willing to grant PNU a license
under the Company Patent Rights and the Company Know-How to make, use and sell
the Licensed Products, unless this Agreement has been terminated by PNU by
reason of a material breach or default by the Company with respect to its
obligations hereunder that shall not have been cured by the Company within one
hundred twenty (120) days following its receipt of written notice thereof from
PNU specifically describing such breach of default, in which case the Company
shall, without charge to PNU, (i) assign to PNU all of the Company Patent Rights
and the Company Know-How relating solely to the Licensed Products and (ii) grant
to PNU, free of charge, a license under any other Company Patent Rights and
Company Know-How, but only to the extent necessary to permit PNU to make, use
and sell the Licensed Products (with the right to grant sublicenses). The
termination of this Agreement for any reason shall be without prejudice to (i)
the right of each party to receive all amounts accrued under Section 5 hereof
prior to the effective date of such termination, (ii) the rights and obligations
of the parties pursuant to Sections 6, 8 and 9 hereof, and (iii) any other
remedies as may now or hereafter be available to any party, whether under this
Agreement or otherwise. Upon the termination of this Agreement (a) the Company
and its Affiliates and sublicensees shall immediately discontinue the
manufacture, use and sale of the Licensed Products, and (b) each party and its
Affiliates shall immediately discontinue the manufacture, use and sale of the
Licensed Products, and (b) each party and its Affiliates shall immediately cease
the use of all Confidential Information obtained from the other party or any
Affiliate thereof.
SECTION 14. MISCELLANEOUS
14.1 Notices. All payments in the form of a promissory note, notices, reports
-------
and/or other communications made in accordance with this Agreement, shall be
deemed to be duly made or given (i) when delivered by hand, (ii) three days
after being mailed by registered or certified mail (air mail if mailed
overseas), return receipt requested, or (iii) when received by the addressee, if
sent by facsimile transmission or by Express Mail, Federal Express or other
express delivery service (receipt requested), in each case addressed to such
party at its address set forth below (or to such other address as such party may
hereafter designate as to itself by notice to the other party hereto):
22
<PAGE>
In the case of the Company:
Esperion Therapeutics, Inc.
690 KMS Place
Ann Arbor, MI 48108
Attention: President
Telecopier: (734) 332-0516
with a copy to:
Sills Cummis Radin
Tischman Epstein & Gross, P.A.
One Riverfront Plaza
Newark, New Jersey 07102
U.S.A.
Attention: Ira A. Rosenberg, Esq.
Telecopier: (973) 643-6500
In the case of PNU:
Pharmacia & Upjohn AB
Lindhagensgatan 133
S-112 87, Stockholm
SWEDEN
Attention: President
Telecopier: 011-46-8-618-2668
with a copy to:
Pharmacia & Upjohn AB
Legal Department
Lindhagensgatan 133
S-112 87, Stockhold
SWEDEN
Telecopier: 011-46-8-695-4708
14.2 Amendment, etc. This Agreement may not be amended or modified, nor may
---------------
any right or remedy of any party be waived, unless the same is in writing and
signed by such party or a duly authorized representative of such party. The
waiver by any party of the breach of any term or provision hereof by any other
party shall not be construed as a waiver of any other subsequent breach.
14.3 No Waiver; Remedies. No failure or delay by any party in exercising any
-------------------
of its rights or remedies hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right or remedy preclude any other or
further exercise thereof or the exercise of any other right or remedy. The
rights and remedies of the
23
<PAGE>
parties provided in this Agreement are cumulative and not exclusive of any
rights or remedies provided by law.
14.4 Successors and Assigns. This Agreement shall be binding upon and inure to
----------------------
the benefit of the parties and their respective heirs, legal representatives,
successors and permitted assigns; provided that, except as expressly provided
--------
herein, neither party may assign or otherwise transfer this Agreement or any of
its rights, duties or obligations hereunder without the prior written consent of
the other party (which consent shall not be unreasonably withheld or delayed);
except that no such consent shall be required for any assignment or transfer of
this Agreement by either party to an Affiliate thereof (in which case the party
shall give prompt notice of such assignment or transfer to the other party
unless such assignment or transfer is to a wholly-owned subsidiary of such party
in which event no such notice shall be required).
14.5 Relationship of Parties. The Company and the PNU, are not (and nothing in
-----------------------
this Agreement shall be construed to constitute them) partners, joint venturers,
agents, representatives or employees of the other party, nor to create any
relationships between them other than that of an independent contractor.
Neither party shall have any responsibility of liability for the actions of the
other party except as specifically provided herein. Neither party shall have
any right or authority to bind or obligate the other party in any manner or make
any representation or warranty on behalf of the other.
14.6 Expenses. Unless otherwise provided herein, all costs and expenses
--------
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party which shall have incurred the same and the
other party shall have no liability relating thereto.
14.7 Entire Agreement. This Agreement constitutes the entire agreement between
----------------
the parties and supersedes all prior proposals, communications, representations
and agreements, whether oral or written, with respect to the subject matter
hereof.
14.8 Severability. Any term or provision of this Agreement which is invalid or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions
hereof in any other jurisdiction.
14.9 Counterparts. This Agreement may be signed in any number of counterparts,
------------
each of which shall be deemed an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
14.10 Headings. The headings used in this Agreement are for convenience of
--------
reference only and shall not affect the meaning or construction of this
Agreement.
14.11 Governing Law. This Agreement, including the performance and
-------------
enforceability hereof, shall be governed by and construed in accordance with the
laws of the State of New York, without reference to choice of law doctrine. For
purposes of any legal proceedings described in the last sentence of Section
14.12, each party hereby
24
<PAGE>
submits itself for the sole purpose of this Agreement and any controversy
arising hereunder to the jurisdiction of the courts located in the State of New
York and any courts of appeal therefrom, and waives any objection (on the
grounds of lack of jurisdiction, or forum non conveniens or otherwise) to the
exercise of such jurisdiction over it by any such courts.
14.12 Arbitration. Except as expressly provided herein, any dispute,
-----------
controversy, or claim arising out of or relating to this Agreement, its
validity, construction or enforceability or the breach of any of the terms or
provisions hereof shall be settled by arbitration under the American Arbitration
Association by a panel of three arbitrators, one selected by each party and the
third selected by the other two arbitrators. Any arbitration proceeding
commenced by either party shall be held in the New York City, New York
metropolitan area (including Northern New Jersey). The decision of the
arbitrators shall be final and binding upon the parties and judgment upon the
decision by the arbitrators may be entered in any court of competent
jurisdiction, and execution may be had thereon. The expense of such
arbitration, including attorneys' fees, shall be allocated between the parties
as the arbitrators may decide and as the claims and interests of each party may
prevail. Notwithstanding anything to the contrary contained in this Section
14.12, any dispute, controversy or claim relating to actual or threatened
unauthorized use or disclosure of any Confidential Information, or the validity,
applicability, enforceability or infringement of any patent rights, shall not be
required to be submitted to arbitration hereunder and may be resolved by a court
of competent jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written below.
PHARMACIA & UPJOHN AB
By: /s/ Hans Sievertsson
-----------------------------
ESPERION THERAPEUTICS, INC.
By: /s/ Roger S. Newton
-----------------------------
25
<PAGE>
Exhibit 10.3
"LICENSE AGREEMENT"
Confidential treatment requested for portions of this document
LICENSE AGREEMENT (this "Agreement") dated as of the day of ,
1999, (the "Effective Date") by and among Jean-Louis Dasseux, with an address at
7898 Huron Oaks Drive, Brighton, Michigan 48116, Renate Sekul with an address at
Wichernstrasse 13, D-68526 Ladenburg, Germany, Klaus Buttner with an address at
Eichendorffstrasse 6, D-74925 Epfenbach, Germany, Isabelle Cornut with an
address at Meisenweg 10, D-68535 Edingen-Neckarhausen, Germany, Guenther Metz
with an address at Schenkendorfstrasse 1, D-53173 Bonn, Germany, and Jean
Dufourcq with an address at Avenue Schweizer, F-33600 Pessac, France
(individually an "Inventor" and collectively the "Inventors"), and Esperion
-------- ---------
Therapeutics, Inc., a Delaware corporation with a principal place of business at
3621 S. State Street, 695 KMS Place, Ann Arbor, Michigan 48108 (the "Company").
W I T N E S S E T H :
- - - - - - - - - - -
WHEREAS, the Inventors own or have exclusive rights to certain patent
rights, proprietary information and know-how with respect to compositions and
uses of peptide mimetics of Apoprotein A-I; and
WHEREAS, the Company has an interest in acquiring exclusive rights to
the Licensed Patents (as defined below) and non-exclusive rights to the Know-How
(as defined below) from the Inventors and continuing the development thereof and
products based thereon; and
WHEREAS, the parties desire to enter into an agreement pursuant to
which (i) the Inventors shall license to the Company the Licensed Patents and
Know-How, and (ii) the Company will pursue the continued development of the
Licensed Patents and Know-How and ultimately the commercialization of products
based thereon.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
SECTION 1. DEF1NITIONS
For the purpose of this Agreement, the following words and phrases
shall have the meanings set forth below:
1.1 "Affiliate" means, with respect to Company, any other Person that
---------
directly, or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with the Company. For purposes hereof,
the term "control" (including, with its correlative meanings, the terms
-------
"controlled by" and "under common control with", with respect to the Company,
------------- -------------------------
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of the
<PAGE>
Company (whether through the ownership of voting securities, by contract or
otherwise); provided that in each event in which any Person owns directly or
indirectly more than 50% of the securities having ordinary voting power for the
election of directors or other governing body of a corporation or more than 50%
of the ownership interest of any other Person, such Person shall be deemed to
control such corporation or other Person.
1.2 "Confidential Information" means any and all information (in any and
------------------------
every form and media) not generally known in the relevant trade or industry,
which was obtained from any party or any Affiliate thereof in connection with
this Agreement or the respective rights and obligations of the parties
hereunder, including, without limitation, (a) information on trade secrets of
such party or any Affiliate thereof, (b) information relating to existing or
contemplated products, services, technology, designs, processes, formulae,
research and development (in any and all stages) of such party or any Affiliate
thereof, (c) information relating to the Licensed Patents, the Know-How or the
Licensed Products, and (d) information relating to business plans, methods of
doing business, sales or marketing methods, customer lists, customer usages
and/or requirements and supplier information of such party or any Affiliate
thereof, except that "Confidential Information" shall not include any
information which (i) at the time of disclosure, is generally known to the
public, (ii) after disclosure, becomes' part of the public knowledge (by
publication or otherwise) other than by breach of this Agreement by the
receiving party, (iii) the receiving party can verify by contemporaneous written
documentation was in its possession at the time of disclosure and which was not
obtained, directly or indirectly, from the other parry or any Affiliate thereof,
(iv) the receiving party can verify by contemporaneous written documentation
results from research and development by the receiving party or any Affiliate
thereof independent of disclosures by the other party or any Affiliate thereof
or (v) the receiving party can prove was obtained from any Person who had the
legal right to disclose such information, provided that such information was not
obtained to the knowledge of the receiving party or any Affiliate thereof by
such Person, directly or indirectly, from the other party or any Affiliate
thereof on a confidential basis.
1.3 "Control" (i) means with respect to any Licensed Patents, excluding
-------
Improvement(s), the possession of the ability to grant a license or sublicense
with respect thereto as provided for herein without violating the terms of any
agreement with, or the rights of, any third Person and, (ii) means with respect
to any Know-How and Improvement(s), that such Know-How or Improvement is known
to, in the custody of and owned solely by one or more of the Inventors, and such
Inventors are free to grant a license or sublicense hereunder without violating
the terms of any agreement with, or rights of, any third Person.
1.4 "FDA" means the United States Food and Drug Administration or any
---
successor agency thereof, or equivalent thereof in any country other than the
United States.
1.5 "Field" means Apoprotein A-I mimetics as described in the Licensed
-----
Patents for the diagnosis and/or treatment of atherosclerosis and related
metabolic diseases.
-2-
<PAGE>
1.6 "Governmental Approval" means any and all approvals, licenses,
---------------------
registrations or authorizations, including pricing approval, of any Federal,
State or local agency, department, bureau or other governmental entity, foreign
or domestic, necessary for the manufacture, use, storage, import, transport and
sale of the Licensed Products in any regulatory jurisdiction.
1.7 "Improvement" means any modification of a Licensed Product which is
-----------
conceived by one or more of the Inventors during the term of this Agreement,
provided that, such modification (i) if unlicensed, would infringe one or more
claims of any Patent included within the Licensed Patents, and (ii) is
Controlled by, such Inventor(s).
1.8 "Licensed Product" means any product the manufacture, use or sale of
----------------
which would infringe at least one claim of any of the Licensed Patents.
1.9 "Know-How" means any and all non-patented proprietary technology and
--------
information necessary for the practice of the Licensed Patents, that is
Controlled by one or more of the Inventors.
1.10 "Licensed Patents" means all Patents(i) which have issued as of the
----------------
date of this Agreement, a list of which is attached hereto as Appendix A, (ii)
which consist of applications pending as of the date of this Agreement, a list
of which is attached hereto as Appendix B, and all patents issuing thereon, and
(iii) which consist of any improvement, and in each case described in clauses
(i) through (iii) hereof including any reissue, extension, substitution,
continuation-in-part thereof and any provisional applications and any foreign
counterparts and all patents that issue therefrom Controlled by one or more of
the Inventors.
1.11 "NDA" means a complete New Drug Application and all supplements
---
thereto filed with the FDA, including all documents, data and other information
concerning a Licensed Product which are necessary for, or included in, FDA
approval to market such Licensed Product as more fully defined in 21 C.F.R.
(Sec.)314.5 et seq. For purposes of this Agreement, "NDA" shall also include any
-------
analogous foreign applications f6r governmental and/or regulatory approval.
1.12 "Net Sales" means gross receipts received by the Company, whether or
---------
not invoiced, and/or its Affiliates for the sale or other disposition of the
Licensed Products, less the sum of the following (collectively, "Permitted
---------
Deductions"):
- ----------
(1) discounts and rebates actually allowed in amounts customary in the
trade;
(2) ales taxes, customs and tariff duties and/or use taxes directly
imposed and with reference to particular sales;
(3) transportation and delivery charges (including insurance premiums
related to transportation and delivery) prepaid or allowed; and
-3-
<PAGE>
(4) amounts actually repaid, allowed or credited on returns.
In the event of any sale of the Licensed Products by the Company to any
Affiliate for resale to its customers, "Net Sales" shall be based on the greater
---------
of the amount actually received by the Company from its Affiliate or the amount
actually received by such Affiliate from its customers for the sale of the
Licensed Products, less (in either such case) the Permitted Deductions.
Where Licensed Products are not sold, but are otherwise disposed of,
the Net Sales of such products for the purpose of computing royalties shall be
the selling price at which such products or products of a similar kind and
quality, sold in similar quantities, are currently being offered for sale by
Company, its sublicensees and/or Affiliates. Where such products are not
currently being offered for sale by Company, the Net Sales of products otherwise
disposed of, for purpose of computing royalties, shall be the average selling
price at which products of similar kind and quality, sold in similar quantities,
are then currently being offered for sale by other manufacturers. Where such
products are not currently sold or offered for sale by Company or others, then
the Net Sales, for the purpose of computing royalties, shall be the Company's
cost of manufacture, determined by Company's accounting procedures, plus fifty
percent (50%).
If the Company, its sublicensees, or any of its Affiliates sells any
Licensed Products in combination with other items which are not Licensed
Products ("Other Items") at a single invoice price "Net Sales" for purposes
----------- ---------
computing royalty payments on the combination shall be determined as follows:
(1) if all Licensed Products and Other Items contained in the
combination are available separately, "Net Sales" for purposes of
computing royalty payments shall be determined by multiplying Net
Sales of the combination of the fraction A/A + B, where A is the
selling price of all Licensed Products in the combination and B is the
selling price of all Other Items in the combination;
(2) if the combination includes Other Items which are not sold
separately (but all Licensed Products contained in the combination are
available separately), "Net Sales" for purposes of computing royalty
---------
payments shall be determined by multiplying Net Sales of the
combination by A/C, where A is as defined above and C is the selling
price of the combination; and
(3) if neither the Licensed Products nor the Other Items
contained in the combination are sold separately, "Net Sales" for
purposes of computing royalty payments shall be determined by
multiplying Net Sales of the combination by the fraction D/D + E,
where D is the cost of manufacture of all Licensed Products in the
combination and E is the cost of manufacture of all Other Items in the
combination, all as reasonably determined by the Company (which
determination shall be conclusive).
-4-
<PAGE>
1.13 "Patent" means (i) unexpired letters patent (including inventor's
------
certificates) which have not been held invalid or unenforceable by a court of
competent jurisdiction from which no appeal can be taken or has been taken
within the required time period, including, without limitation, any
substitution, extension, registration, confirmation, reissued, reexamination,
renewal or any like filing thereof, and (ii) pending applications for letters
patent.
1.14 "Person" means any individual, estate, trust, partnership, joint
------
venture, association, firm, corporation or company, or governmental body, agency
or official, or any other entity.
1.15 "U.S. Dollars" and the sign "$" each means lawful currency of the
------------ -
United States of America.
SECTION 2. GRANT
2.1 Grant of License. Upon the terms and subject to the conditions herein
----------------
stated, the Inventors hereby grant the Company (a) an exclusive, worldwide
license, with the right to grant sublicenses, under the Licensed Patents to
make, have made, use, import, offer for sale, sell and otherwise dispose of the
Licensed Products in the Field, and (b) subject to any pre-existing rights of
third Persons, a non-exclusive worldwide license, with the right to grant
sublicenses, under the Know-How to make, have made, use, import, offer for sale,
sell and otherwise dispose of the Licensed Products in the Field.
2.2 Delivery of Know-How. Pursuant to the license granted in Section 2.1
--------------------
hereof, the Inventors shall promptly deliver to the Company originals or copies
of all of their records, data and documentation relating to the Know-How, not
already known to and/or in the possession of the Company as of the Effective
Date.
SECTION 3. DEVELOPMENT
3.1 Development Effort. The Company shall use commercially reasonable
------------------
efforts to develop and commercialize the Licensed Products.
3.2 Development Review. The Company will make available to the Inventors an
------------------
annual summary of the Company's development efforts hereunder as follows: The
Inventors hereby designate Dr. Jean-Louis Dasseux as their representative to
receive such annual summaries, which summaries will disclose, in detail
appropriate to the intent of the review, the activities undertaken pursuant to
Section 3.1 hereof and any significant developments during the preceding year.
The Inventors may change their representative on written notice to the Company,
but only to another of the Inventors who is not involved in any competitive
activities in drug discovery or development, or a consultant to or employed by
any third party so engaged. Such annual summaries will be held by
-5-
<PAGE>
the Inventors' representative in confidence. The Inventors may elect at any time
(but not more than once each year) to designate an independent consultant who is
acceptable to both the Company and the Inventors, for the purpose of determining
compliance by the Company with its diligence obligations under Section 3.1
hereof. Such consultant shall enter into a written confidentiality agreement
satisfactory to the Company, and shall disclose to the Inventors only whether
the Company, in the opinion of such consultant, is in compliance with its
diligence obligations under Section 3.1 hereof. The Company will provide such
consultant with commercially reasonable access to information. The consultant
shall conduct his/her review during normal business hours, and in a manner that
does not interfere with the Company's business, and will complete his/her review
within a reasonable time (not to exceed two weeks). The cost of such consultant,
which will be borne solely by the Company, shall not exceed $1500 for each
review plus reasonable out-of-pocket expenses. In the event that the Inventors'
representative or consultant believes that the Company has not made a
commercially reasonable effort pursuant to Section 3.1 hereof, then the parties
shall enter into good faith discussions to resolve the issue(s) raised,
including a cure for the potential breach in diligence, and allowing for a
reasonable period of time within which the breach can be resolved. If the
parties, however, are unable to agree on whether there has, in fact, been a
breach of the Company's diligence obligations under Section 3.1 hereof, then the
dispute will be resolved by binding arbitration, provided that, if the
arbitrator determines that the Company s diligence obligations have not been
satisfied, the Inventors shall have the right to terminate this Agreement and
the Company's rights hereunder.
3.3 Development Charges. All costs incurred by the Company in the
-------------------
development of the Licensed Products, including, without limitation, payments
for clinical trials and other studies, tests and all filings and applications
and other actions necessary for achieving Governmental Approval of the Licensed
Products, shall be the sole responsibility of the Company.
SECTION 4. ROYALTIES AND OTHER PAYMENTS
4.1 License Fees. The Company shall pay to the Inventors an initial license
------------
fee of $50,000 in cash, which initial license fee shall be paid on the Effective
Date.
4.2 Milestone and Royalty Obligations.
---------------------------------
4.2.1. For the rights, privileges and licenses granted hereunder, the
Company shall pay the amounts set forth in this Section to the Inventors in the
manner hereinafter provided during the term of this Agreement as follows:
(1) a milestone payment in the amount of $50,000 in cash shall be made by
the Company to the Inventors within fifteen (15) business days after
the identification of the first lead candidate, which the Company
decides to advance into pre-phase I evaluation, as a potential
Licensed Product;
-6-
<PAGE>
(2) a milestone payment in the amount of [ ] in cash shall be made by
the Company to the Inventors within fifteen (15) business days after
the enrollment of the first patient in a Phase HI clinical trial for
the first Licensed Product after generation of data in a Phase H trial
of data satisfactory to the Company supporting a clinical indication
for which the Company is seeking approval;
(3) a milestone payment in the amount of [ ] in cash shall be made by
the Company to the Inventors within fifteen (15) business days after
submission of the first NDA in the United States or Europe for the
first Licensed Product;
(4) a milestone payment in the amount of [ ] in cash shall be made by
the Company to the Inventors within fifteen (15) business days after
submission of the first NDA in the United States or Europe for the
second and third Licensed Products;
(5) a milestone payment in the amount of [ ] in cash shall be made
by the Company to the Inventors within fifteen (15) business days
after approval of the first NDA in the United States or Europe for the
first Licensed Product; and
(6) a milestone payment in the amount of [ ] in cash shall be made by
the Company to the Inventors within fifteen (15) business days after
approval of the first NDA in the United State s or Europe for the
second and third Licensed Products.
[ ] of the milestone payments made pursuant to clauses (iii)
through (vi) of this Section 4.2.1 shall be creditable against future royalties
owed by the Company to the Inventors pursuant to Section 4.2.2 hereof.
-7-
<PAGE>
4.2.2. The Company shall pay to the Inventors royalties in the amount of
[ ]of the Net Sales of the Licensed Products by the Company and
its Affiliates, and the Company shall pay the Inventors [ ]
of the royalties received by the Company based on the sales of the
Licensed Products by its sublicensees and [ ] of all other cash
payments received by the Company from its sublicenses, excluding equity and
research payments. In the event that the Company licenses additional patents
from third parties which are required to practice the Licensed Patents, the
Company shall be entitled to reduce Company's royalty payments to the Inventors
hereunder by the amount of such royalty payments paid by the Company to such
third parties; provided that the reduction for any given year does not reduce
the royalties paid to the Inventors for such year to an amount less than [
] of Net Sales. In the event that no valid current claims of any
Licensed Patent (including any claims of any patent application included
therein) exist in a country with respect to a Licensed Product, then the
royalties otherwise payable by the Company to the Inventors with respect to such
Licensed Product in such country will be reduced by [ ].
4.3 Limitation on Royalties. Notwithstanding anything to the contrary
-----------------------
contained herein, (a) no royalties shall be payable by the Company with respect
to the Net Sales of the Licensed Products to any of its Affiliates thereof
(although such sales may be used as the basis for calculating Net Sales pursuant
to Section 1. 12 hereof and the royalties payable to the Inventors based upon
such Affiliates' Net Sales), and (b) no multiple royalties shall be payable in
the event that any of the Licensed Products or the manufacture, use or sale
thereof is covered by more than one patent included in the Licensed Patents.
4.4 Unlicensed Competition. The Company shall promptly notify the
----------------------
Inventors, in writing, of any substantial unlicensed competition by any Person
making, using, selling or importing a product in any geographic area which
product infringes one or more claims of any Licensed Patent. If, one (1) year
after such notice by Company, Company, after diligent efforts, has not abated
such infringement (e.g., by sublicense or legal action), Inventors shall
----
negotiate with Company in good faith in an attempt to adjust the royalty
provided in Section 4.2.2 hereof, provided that, Company presents Inventors with
evidence, satisfactory to Inventors, that such unlicensed competition, and not
other market factors, is materially adversely affecting Net Sales.
4.5 Withholding Taxes. The parties acknowledge and agree that there may be
-----------------
deducted from any payments or royalties otherwise due and payable hereunder any
taxes or other payments required to be paid by Inventors under applicable law
with respect to such payments or royalties or otherwise relating to the Licensed
Products.
4.6 Payments to Inventors. All payments to be made by the Company to the
---------------------
Inventors under this Agreement shall be made by the Company to Jean-Louis
Dasseux, and the Company shall have no responsibility whatsoever with respect to
the division of any such payment among Inventors or the receipt by any
particular Inventor of any particular portion of any such payment.
-8-
<PAGE>
SECTION 5. PAYMEENT OF ROYALTIES, ACCOUNTING FOR
ROYALTIES, RECORDS, ETC.
5.1 Payment. Royalties payable hereunder shall be paid within 60 days after
-------
the end of each calendar quarter, based on the Net Sales of the Licensed
Products by the Company and its sublicensees and Affiliates during the preceding
calendar quarter.
5.2 Accounting Reports. With each quarterly payment, the Company shall
------------------
deliver to Jean-Louis Dasseux, on behalf of the Inventors, a full and accurate
accounting that sets forth the following information:
(a) total receipts for each Licensed Product sold or otherwise
disposed of by Company and/or its Affiliates subject to royalty,
by country, and, to the extent used in any royalty calculations
during such quarter, the exchange rate set forth in Section 5.3
of this Agreement;
(b) Royalties and other payments received by Company in connection
with any sublicense of Company's rights under this Agreement, and
compensation due to Inventors on sales or other disposition of
Licensed Products by sublicensees and other cash payments
pursuant to such sublicense; and
(c) total royalties and/or compensation payable to the Inventors.
5.3 Accounting: Foreign Currency. The aggregate amount of the Net Sales of
----------------------------
the Licensed Products used for computing the royalties payable hereunder shall
be computed in U.S. Dollars, and all payments of such royalties shall be made in
U.S. Dollars. For purposes of determining the amount of royalties due, the
amount of the Net Sales of the Licensed Products in any foreign currency shall
be computed by converting such amounts into U.S. Dollars at the prevailing
commercial rate of exchange for purchasing U.S. Dollars, as quoted in The Wall
Street Journal, on the last business day of the calendar quarter with respect to
which such royalty payment is payable hereunder.
5.4 Records. The Company shall keep, and shall cause each of its Affiliates
-------
and sublicensees to keep, for five (5) years, complete and accurate records of
the Net Sales of the Licensed Products sold in sufficient detail to allow the
royalties payable by the Company to be accurately determined. The Inventors
shall have the right for a period of five (5) years after receiving any report
or statement with respect to royalties due and payable hereunder by the Company
to appoint an independent accounting firm to inspect and audit the relevant
records of the Company and its Affiliates to verify such report or statement.
The Company and its Affiliates shall make their records available for inspection
and audit by such independent accounting firm during regular business hours at
such place or places where such records are customarily kept, upon reasonable
notice to the Company, to the extent reasonably necessary to verify the accuracy
of the reports and payments required hereunder. The cost of any such inspection
and audit shall be paid by the Inventors unless such inspection and audit
discloses for any calendar quarter examined that there shall have been a
discrepancy of greater than seven and one-half
-9-
<PAGE>
percent (7-1/2%) between the royalties payable hereunder by the Company and the
royalties actually paid by the Company with respect to such calendar quarter, in
which case the Company shall be responsible for the payment of the entire cost
of such inspection and audit. In all cases, the Company shall pay to the
Inventors any underpaid royalties promptly and with interest at the prime rate
quoted by Citibank, N.A. on the date such payment was due.
SECTION 6. PATENT PROSECUTION
6.1 Prosecution Obligation. The Company shall apply for, and maintain
----------------------
during the term of this Agreement any and all Licensed Patents in the European
Patent Community, Japan, the United States of America and Canada and such other
countries in which the Company desires in its sole discretion to commercialize
the Licensed Products. All reasonable costs and expenses of the prosecution and
maintenance of the Licensed Patents in such countries (including all
governmental filing fees) shall be paid by the Company. The Inventors shall
render reasonable assistance to the Company in filing and prosecuting such
applications and maintaining the Licensed Patents in such countries whenever
requested to do so, at the Company's expense.
SECTION 7. REPRESENTATIONS AND WARRANTIES.
7.1 By the Company. The Company hereby represents and warrants to the
--------------
Inventors that (a) the Company has full legal right, power and authority to
execute, deliver and perform its obligations under this Agreement, (b) the
execution, delivery and performance by the Company of this Agreement do not
contravene or constitute a default under any provision of applicable law or its
articles or by-laws (or equivalent documents) or of any agreement, judgment,
injunction, order, decree or other instrument binding upon the Company, (c) all
licenses, consents, authorizations and approvals, if any, required for the
execution, delivery and performance by the Company of this Agreement have been
obtained and are in full force and effect and all conditions thereof have been
complied with, and no other action by or with respect to, or filing with, any
governmental authority or any other Person is required in connection with this
execution, delivery and performance by the Company of this Agreement, (d) this
Agreement constitutes a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, and (e) Company's patent
counsel, Patrea Pabst, Esq. has had full access to and has reviewed to her
satisfaction the complete and correct files relating to the prosecution of the
Licensed Patents.
7.2 By The Inventors. The Inventors hereby jointly and severally represent
----------------
and warrant to the Company that (a) the Inventors have full legal right, power
and authority to execute, deliver and perform their obligations under this
Agreement, (b) the execution, delivery and performance by the Inventors of this
Agreement do not contravene or constitute a default under any provision of
applicable law or of any agreement, judgment, injunction, order, decree or other
instrument binding upon the Inventors, (c) all licenses, consents,
authorizations and approvals, if any, required for the
-10-
<PAGE>
execution, delivery and performance by the Inventors of this Agreement have been
obtained and are in full force and effect and all conditions thereof have been
complied with, and no other action by or with respect to, or filing with, any
governmental authority or any other Person is required in connection with the
execution, delivery and performance by the Inventors of this Agreement, (d) to
the best knowledge of the Inventors, the Inventors are the exclusive owners of
all legal and beneficial right, title and interest in and to the Licensed
Patents, (e) as of the Effective Date (and without undertaking any independent
investigation), the Inventors are not aware of any patent or other right of any
third Person that would be infringed or violated by the practice of the Licensed
Patents as contemplated by Section 2.1 hereof, (f) the Inventors have caused to
be made available to the Company complete and correct files of their patent
counsel relating to the prosecution of the Licensed Patents, and (g) this
Agreement constitutes a valid and binding agreement of the Inventors,
enforceable against the Inventors, in accordance with its terms.
7.3 Survival of Representations and Warrants. The representations and
----------------------------------------
warranties contained herein shall survive the execution, delivery and
performance of this Agreement by the parties, notwithstanding any investigation
at any time on or prior to the date hereof made by or on behalf of any party or
parties.
SECTION 8. THIRD PARTY INFRINGEMENT
8.1 Third Party Infringement.
8.1.1. Notice. In the event that either party becomes aware of any
------
substantial infringement of the Licensed Patents, such party shall notify the
other party of the substantial infringement in writing and must provide a
summary of the relevant facts and circumstances known to such party relating to
such infringement. Neither party will notify a third Person of the substantial
agreement of any of the Licensed Patents without first obtaining consent of the
other party, which consent shall not be unreasonably withheld or delayed. The
parties agree to consult with each other, prior to the commencement of any legal
or patent office proceedings, as to the most effective way of pursuing such
matter.
8.1.2. Company Options. During the term of this Agreement, the Company
---------------
shall have the right, but shall not be obligated, to prosecute, at its own
expense, any infringements of the Licensed Patents, to defend the Licensed
Patents and to recover, for its own account, any damages, awards or settlements
resulting therefrom. The Inventors hereby agree that the Company may join one or
more of the Inventors as a party plaintiff in any such suit, without expense to
the Inventors. The Company shall hold harmless and indemnify the Inventors from
and against any order for costs arising without fault of the Inventors that may
be made against the Inventors by reason of being named a party plaintiff in such
proceedings. The Company shall have sole control of any such suit and all
negotiations for its settlement or compromise, provided that, the Company shall
not settle or compromise any such suit or enter into any consent order for the
settlement or compromise thereof that adversely affects the Licensed Patents
without
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<PAGE>
the prior written consent of a majority of the Inventors, or Jean-Louis Dasseux
(on behalf of the Inventors), which consent shall not be unreasonably withheld
or delayed. The total cost of any infringement action commenced or defended
solely by the Company shall be borne by the Company.
8.1.3. Investors' Options. If, within one (1) year after having been
------------------
notified of any, potential infringement subject to the provisions of Sections
8.1.2, the Company shall have been unsuccessful in causing the alleged infringer
to desist and shall not have brought and shall not be diligently prosecuting an
infringement action, or if the Company notifies the Inventors at any time prior
thereto of its intention not to bring suit against any alleged infringer, then,
in those events only, the Inventors shall have the right, but shall not be
obligated, to prosecute, at their own expense, any infringements of the Licensed
Patents, to defend the Licensed Patents and to recover, for their own account,
any damages, awards or settlements resulting therefrom. The Company hereby
agrees that the Inventors may join the Company as a party plaintiff in any such
suit, without expense to the Company. The Inventors shall hold harmless and
indemnify the Company from and against any order for costs arising without fault
of the Company that may be made against the Company by reason of being named a
party plaintiff in such proceedings. The Inventors shall have sole control of
any such suit and all negotiations for its settlement or compromise, provided
that the Inventors shall not settle or compromise any such suit or enter into
any consent order for the settlement or compromise thereof that adversely
affects the Licensed Patents or any of the licenses or rights of the Company
hereunder, without the prior written consent of the Company which consent shall
not be unreasonably withheld or delayed. The total cost of any infringement
action commenced or defended solely by the Inventors shall be borne by the
Inventors.
8.2 Infringement Charges Against the Company. In the event that any action,
----------------------------------------
suit or proceeding is brought against, or written notice or threat thereof is
provided to, the Company alleging infringement of any patent or unauthorized use
or misappropriation of technology arising out of or in connection with the
Company's practice of Licensed Patents, the Company shall defend at its own
expense such action, suit or proceeding and, in futherance of such rights, the
Inventors hereby agree that the Company may join one or more of the Inventors as
a party in such suit, without expense to the Inventors. The Company shall hold
harmless and indemnify the Inventors from and against any order for costs
arising without fault of the Inventors that may be made against the Inventors in
such proceedings. The Inventors agree to cooperate with the Company, at the
Company's expense, in connection with the Company's response to or defense of
such action, suit or proceeding, or notice or threat thereof
8.3 Cooperation. In the event that a party shall undertake the enforcement
-----------
and/or defense of the Licensed Patents by legal or patent office proceedings
pursuant to this Agreement, the other party shall, at the request and expense of
the party undertaking such enforcement and/or defense, cooperate in all
reasonable respects and, to the extent possible, have its employees testify when
requested and make available relevant records, papers, information, samples and
the like.
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<PAGE>
8.4 Company Rights. The Company shall have the sole right in accordance
--------------
with the terms and conditions hereof to sublicense any alleged infringer for
future use of the Licensed Patents to which it has exclusive rights under
Section 2.1 of this Agreement.
SECTION 9. INDEMNIFICATION
9.1 Indemnification. The Company hereby agrees that it shall be responsible
---------------
for, indemnify, hold harmless and defend the Inventors and their Affiliates and
heirs, successors and assigns (collectively, the "Indemnities"), from and
against any and all claims, demands, losses, liabilities, damages, costs and
expenses (including the cost of settlement, reasonable legal and accounting fees
and any other expenses for investigating or defending any actions or threatened
actions) (collectively, "Losses") suffered or incurred by any Indemnitee arising
out of, relating to, resulting from or in connection with (a) a claim brought by
a third Person of personal injury (including death) or property damage caused by
a Licensed Product manufactured by or for the Company its Affiliates or
sublicensees, (b) the exercise of any of the rights and/or licenses granted
herein to Company, its Affiliates, or any sublicensee, and (c) any action, suit
or other proceeding, or compromise, settlement or judgment, relating to any of
the foregoing matters described in subparagraph (a) hereof with respect to which
the Indemnitees are entitled to indemnification hereunder. The foregoing shall
not apply to the extent that such Losses are due to the willful misconduct or
gross negligence of any of the Indemnitees.
9.2 Notice of Claims. In the event that a claim is made pursuant to Section
----------------
9.1 above against any Indemnitee, the Indemnitee agrees to promptly notify the
Company of such claim or action and, in any such case the Company shall assume
control of the defense of such claim or action; provided, however, that (a) all
Indemnitees shall be entitled to participate therein (through a single counsel
of their own choosing) at the Indemnitees' sole cost and expense, (b) the
Indemnitees shall fully cooperate with the Company in all reasonable respects,
and (c) the Company shall not settle or compromise any such claim or action
without the prior written consent of the Indemnitees, unless such settlement or
compromise includes a general release of the Indemnities from any and all
liability with respect thereto and does not include an admission of liability on
the part of any Indemnitee, and does not impose any restriction on the conduct
by such Indemnitee of any of its activities.
SECTION 10. CONFIDENTIALITY
10.1 Confidentiality. The parties each recognize that the Confidential
---------------
Information of the other party and any and all Affiliates and sublicensees
thereof constitute valuable confidential and proprietary information.
Accordingly, the parties each agree that they and any Affiliates shall, during
the term of this Agreement and for a period of five (5) years after the
termination hereof for any reason, hold in confidence all Confidential
Information of the other party (including this Agreement and the terms hereof)
and not use the same for any purpose other dm as set forth in this Agreement or
disclose the same to any other Person except to the extent that it is necessary
for such
-13-
<PAGE>
party to enforce its rights under this Agreement or if required by law or any
governmental authority (including, without limitation, any stock exchange upon
which such party's shares or other equity securities may be traded); provided,
however' if any party shall be required by law to disclose any such Confidential
Information to any other Person, such party shall give prompt written notice
thereof to the other party and shall minimize such disclosure to the amount
required. Notwithstanding the foregoing, either party may disclose Confidential
Information of the other (a) to such party's attorneys, accountants and other
professional advisors under an obligation of confidentiality to such party, (b)
to such party's banks or other financial institutions or venture capital sources
for the purpose of raising capital or borrowing money or maintaining compliance
with agreements, arrangements and understandings relating thereto, and (c) to
any Person who proposes to purchase or otherwise succeed (by merger, operation
of law or otherwise) to all of such party's right, title and interest in, to and
under this Agreement, if such Person identified in subparagraphs (b) and (c) of
this Section IO. I agrees to maintain the confidentiality of such Confidential
Information pursuant to a written agreement in form and substance reasonably
satisfactory to the parties. The standard of care required to be observed
hereunder shall be not less than the degree of care which each party uses to
protect its own information of a confidential nature. The Company agrees that
any and all Affiliates and sublicensees thereof shall enter into and maintain
appropriate confidentiality agreements prior to receiving Confidential
Information belonging to the Inventors and/or relating to the subject matter of
this Agreement.
SECTION 11. INTELLECTUAL PROPERTY; IMPROVEMENTS
11.1 Rights to Propriety Technology. Neither party shall through this
------------------------------
Agreement obtain any rights to the other party's proprietary technology except
for such rights as are expressly granted or allocated under this Agreement.
11.2 Improvements and Filing, Prosecution and Maintenance of Patents.
---------------------------------------------------------------
11.2.1. Any improvement to the Licensed Patents, the Know-How or any
Licensed Product discovered or developed by any party during the term of this
Agreement shall be owned solely by such party, provided that, any Improvement
shall be subject to the license granted to Company under Section 2. 1(c) hereof.
11.2.2. Subject to Company'sobligationsetforthinSection6.lhereofifany
improvements owned by either party are deemed patentable, such party shall be
entitled to file and prosecute patent applications related thereto and maintain
patents issued thereon, in its own name and, at its own cost. The other party
shall render reasonable assistance to such party in filing such applications
whenever requested to do so, at such party's sole cost and expense. The Company
and the Inventors agree to sign and execute such forms and documents as may be
reasonably requested by the other party as being necessary or desirable to vest
or confirm in such other party title to all such improvements owned by such
other party.
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<PAGE>
SECTION 12. LIMITATIONS ON LIABILITY
12.1 No Warranties. Except as expressly set forth in Section 7 hereof,
-------------
neither party makes any representations or warranties as to any matter
whatsoever. EACH PARTY HEREBY DISCLAIMS ANY AND ALL OTHER REPRESENTATIONS AND
WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE LICENSED PATENTS, THE
KNOW-HOW AND THE LICENSED PRODUCTS, INCLUDING, WITHOUT LMTATION, ANY WARRANTIES
OF MERCHANTABI]LITY OR FITNESS FOR ANY PARTICULAR PURPOSE.
12.2 Limitations of Liability. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE
------------------------
LIABLE TO THE OTHER PARTY OR ANY OTHER PERSON FOR ANY SPECIAL, CONSEQUENTIAL OR
INDIRECT DAMAGES OF ANY KIND WHATSOEVER.
12.3 Force Majeure. No party shall be liable for failure or delay in
-------------
performing any of its obligations hereunder if such failure or delay is
occasioned by compliance with any governmental regulation, request or order, or
by circumstances beyond the reasonable control of the party so failing or
delaying, including, without limitation, Acts of God, war, insurrection, fire,
flood, accident, labor strikes, work stoppage or slowdown (whether or not such
labor event is within the reasonable control of the parties), or inability to
obtain raw materials, supplies, power or equipment necessary to enable such
party to perform its obligations hereunder. Each party shall (a) promptly notify
the other party in writing of any such event of force majeure, the expected
duration thereof and its anticipated effect on the ability of such party to
perform its obligations hereunder, and (b) make reasonable efforts to remedy any
such event of force majeure.
SECTION 13. NON-USE OF NAMES
Neither party shall use the name of the other party nor the name of any of
Affiliates or employees of such other party, nor any adaptation thereof, in any
advertising, promotional or sales literature without prior written consent
obtained from such other party in each case (which consent shall not be
unreasonably withheld or delayed).
SECTION 14. PATENT MARKING
The Company shall mark all Licensed Products made, used, offered for sale,
sold or imported under this Agreement, or their containers, in accordance with
the applicable patent marking laws.
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<PAGE>
SECTION 15. TERM AND TERMINATION
15.1 Term. This Agreement shall be effective from the date of its execution
----
by the parties and, unless sooner terminated in accordance with the provisions
of this Section 15, shall continue until the later to occur of (i) 10 years from
the date of this Agreement, or (ii) the last to expire of any Patent included
within the Licensed Patents.
15.2 Events of Default. Each party shall have the right to terminate this
-----------------
Agreement upon the occurrence of any of the following events (each, an "Event of
--------
Default") with respect to the other party (the "Defaulting Party"): (a) to the
- ------- ----------------
extent permitted by law, the Inventors may terminate this Agreement if a decree
or order shall have been entered by a court of competent jurisdiction adjudging
the Company bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, readjustment, arrangement, composition or similar relief
for the Company under any bankruptcy law or any other similar applicable
statute, law or regulation, or a decree or order of a court of competent
jurisdiction shall have been entered for the appointment of a receiver or
liquidator or trustee or assignee in bankruptcy or insolvency of the Company or
a substantial part of its property, or for the winding up or liquidation of its
affairs; and (b) to the extent permitted by law, the Inventors may terminate
this Agreement if the Company shall institute proceedings to be adjudicated a
voluntary bankrupt, or shall consent to the filing of a bankruptcy petition
against it, or shall file a petition or answer or consent seeking
reorganization, readjustment, arrangement, composition, liquidation or similar
relief under any bankruptcy law or any other similar applicable statute, law or
regulation, or shall consent to the appointment of a receiver or liquidator or
trustee or assignee in bankruptcy or insolvency of it or of a substantial part
of its property, or shall make an assignment for the benefit of creditors, or
shall be unable to pay its debts generally as they become due.
15.3 Termination. Each party may terminate this Agreement upon the
-----------
occurrence of an Event of Default specified in Section 15.2 by giving written
notice thereof to the other party, which notice shall specifically identify the
reason(s) for such termination. In addition, (i) the Company may terminate this
Agreement at any time by giving at least ninety (90) days' prior written notice
to the Inventors; and (ii) this Agreement shall terminate upon written notice of
a material breach of the terms of this Agreement to a Defaulting Party unless
the same and all of its effects are remedied within thirty (30) days after such
written notice thereof is given by the other party to the Defaulting Party. The
failure by the Company substantially to comply with the diligence obligations
set forth in Section 3.1 of this Agreement, or to pay the Inventors any
royalties or other payments when due and payable in accordance with the
provisions of Section 4 hereof shall be deemed a material breach of this
Agreement.
15.4 Consequences of Termination. Upon the termination of this Agreement by
---------------------------
the Company for any reason other than an Event of Default on the part of the
Inventors, all rights and obligations of the Company hereunder shall revert to
the Inventors. The termination of this Agreement for any reason shall be without
prejudice to (i) the right of the Inventors to receive all amounts accrued under
Section 4 hereof prior to the effective date of such termination, (ii) the
rights and obligations of the parties
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<PAGE>
pursuant to Sections 6, 8 and 9 hereof, and (iii) any other remedies as may now
or hereafter be available to any party, whether under this Agreement or
otherwise. Upon any termination of this Agreement which results in the reversion
to the Inventors of the rights and obligations of the Company hereunder pursuant
to the first sentence of this Section 15.4 (a) the Company and its Affiliates
and sublicensees shall immediately discontinue the manufacture, use and sale of
the Licensed Products, and (b) each party and its Affiliates shall immediately
cease the use of all Confidential Information obtained from the other party or
any Affiliate thereof, provided that, upon termination of this Agreement by the
Company, the Inventors may, in their sole discretion, ratify and maintain in
full force and effect any sublicense(s) of the rights granted under this
Agreement.
SECTION 16. EXPORT CONTROLS
All obligations to furnish goods, technology, or software under this
Agreement are subject to U.S. Export Control Laws and Regulations. Company
agrees to comply fully with all applicable laws and regulations before exporting
any goods, technology, or software to any Person. Company recognizes and agrees
that its obligations to comply with U.S. export control laws and regulations
survive the termination or expiration of this Agreement.
SECTION 17. MISCELLANEOUS
17.1 Notices. All notices, reports and/or other communications made in
-------
accordance with this Agreement, shall be deemed to be duly made or given (i)
when delivered by hand, (ii) three days after being mailed by registered or
certified mail (air mail if mailed overseas), return receipt requested, or (iii)
when received by the addressee, if sent by facsimile transmission or by Express
Mail, Federal Express or other express delivery service (receipt requested), in
each case addressed to such party at its address set forth below (or to such
other address as such party may hereafter designate as to itself by notice to
the other party hereto):
In the case of the Company:
Esperion Therapeutics, Inc.
3621 S. State Street
695 KMS Place
Ann Arbor, MI 48108
Attention: President
Telecopier: (734) 332-0516
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<PAGE>
with a copy to:
Sills Cummis Radin
Tischman Epstein & Gross, P.A.
One Riverfront Plaza
Newark, New Jersey 07102
Attention: Ira A. Rosenberg, Esq.
Telecopier: (973) 643-6500
In the case of the Inventors:
To his or her address set forth at the beginning of this
Agreement
with a copy to:
Ann L. Gisolfi, Esq.
Pennie & Edmonds LLP
1155 Avenue of the Americas
New York, New York 10036
Telecopier: (212) 869-9741
17.2 Amendment, etc. This Agreement may not be amended or modified, nor may
--------------
any right or remedy of any party be waived, unless the same is in writing and
signed by such party or a duly authorized representative of such party. The
waiver by any party of the breach of any term or provision hereof by any other
party shall not be construed as a waiver of any other subsequent breach.
17.3 No Waiver: Remedies. No failure or delay by any party in exercising
-------------------
any of its rights or remedies hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or remedy preclude any
other or further exercise thereof or the exercise of any other right or remedy.
The rights and remedies of the parties provided in this Agreement are cumulative
and not exclusive of any rights or remedies provided by law.
17.4 Assignment. Neither party may assign or otherwise transfer this
----------
Agreement or any -of its rights, duties or obligations hereunder without the
prior written consent of the other party.
17.5 Sublicense of Rights by the Company. If the Company sublicenses any of
-----------------------------------
its rights under this Agreement to a sublicensee, such sublicensee shall be
bound by the terms and conditions of this Agreement. The Company shall advise
the Inventors in writing of any such sublicense and provide the Inventors with a
copy of any sublicense within thirty (30) days of execution of such sublicense;
provided that, the Company may redact such copy to delete any financial
provisions.
17.6 The Company as Guarantor. The Company shall guarantee and be
------------------------
responsible for the payment of all royalties due and the making of reports under
this
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<PAGE>
Agreement by reason of the development and sales of any Licensed Products by the
Company, its Affiliates and sublicensees and their compliance with all
applicable terms of this Agreement. The performance or satisfaction of any
obligations of the Company under this Agreement by any of its Affiliates or
sublicensees shall be deemed performance or satisfaction of such obligation by
the Company.
17.7 Relationship of Parties. The Company, on the one hand, and the
-----------------------
Inventors, on the other hand, are not (and nothing in this Agreement shall be
construed to constitute them) partners, joint venturers, agents, representatives
or employees of each other (except that Jean-Louis Dasseux is an employee of the
Company), nor to create any relationships between them other than that of an
independent contractor. Neither the Company, on one hand, nor the Inventors, on
the other hand, shall have any responsibility or liability for the actions of
the other party except as specifically provided herein. Neither the Company, on
one hand, nor the Inventors, on the other hand, shall have any right or
authority to bind or obligate the other in any manner or make any representation
or warranty on behalf of the other. The foregoing provisions of this Section
17.7 relate solely to the relationship between the Company, on the one hand, and
the Inventors, on the other hand. All covenants, representations and warranties
of the Inventors hereunder are joint and several obligations of the Inventors to
the Company hereunder and one or more Inventors may act as agent or
representative of the other Inventors hereunder to the extent expressly provided
herein.
17.8 Expenses. Unless otherwise provided herein, all costs and expenses
--------
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party which shall have incurred the same and the
other party shall have no liability relating thereto.
17.9 Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties and supersedes all prior proposals, communications,
representations and agreements, whether oral or written, with respect to the
subject matter hereof.
17.10 Severability. Any term or provision of this Agreement which is
------------
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions hereof in any other jurisdiction.
17.11 Counterparts. This Agreement may be signed in any number of
------------
counterparts,each of which shall be deemed an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument.
17.12 Headings. The headings used in this Agreement are for convenience of
--------
reference only and shall not affect the meaning or construction of this
Agreement.
17.13 Governing Law. This Agreement, including the performance and
-------------
enforceability hereof, shall be governed by and construed in accordance with the
laws of the State of Michigan, without reference to choice of law doctrine. Each
party hereby
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<PAGE>
submits itself for the sole purpose of this Agreement and any controversy
arising hereunder to the jurisdiction of the courts located in the State of
Michigan and any courts of appeal therefrom, and waives any objection (on the
grounds of lack of jurisdiction, or forum non conveniens or otherwise) to the
--- ----------
exercise of such jurisdiction over it by any such courts.
17.14 Arbitration. Except as expressly provided herein, any dispute,
-----------
controversy, or claim arising out of or relating to this Agreement, its
validity, construction or enforceability or the breach of any of the terms or
provisions hereof shall be settled by arbitration under the Commercial
Arbitration Rules of the American Arbitration Association by a panel of three
arbitrators, one selected by each party and the third selected by the other two
arbitrators. Any arbitration proceeding commenced by either party shall be held
in the New York City, New York. The decision of the arbitrators shall be final
and binding upon the parties and judgment upon the decision by the arbitrators
may be entered in any court of competent jurisdiction, and execution may be had
thereon. The expense of such arbitration, including attorneys' fees, shall be
allocated between the parties as the arbitrators may decide and as the claims
and interests of each party may prevail. Notwithstanding anything to the
contrary contained in this Section 17.14, any dispute, controversy or claim
relating to actual or threatened unauthorized use or disclosure of any
Confidential Information, or the validity, applicability, enforceability or
infringement of any patent rights, shall not be required to be submitted to
arbitration hereunder and may be resolved by a court of competent jurisdiction.
17.15 Representative of Inventors. Each of Inventors, by executing this
---------------------------
Agreement, irrevocably appoints Jean-Louis Dasseux (the "Inventors'
Representative") as his agent and true and lawful attorney-in-fact, with full
power of substitution, with full capacity and authority and in his sole
discretion, to act in the name of and for and on behalf of each of them in
connection with all matters arising out of, resulting from, contemplated by or
related or incident to this Agreement. Without limiting the generality of the
foregoing, the powers of the Inventors' Representative shall include the power
to represent each of the Inventors with respect to all aspects of this
Agreement, which power shall include, without limitation, the power to (i)
receive any payment or transfer to be made pursuant to this Agreement, (ii)
waive any and all conditions of this Agreement, (iii) amend this Agreement and
any agreement executed in connection herewith in any respect, (iv) settle claims
for indemnity pursuant to Section 9.1 hereof, (v) retain legal counsel and be
reimbursed by Inventors for all fees, expenses and other charges of such legal
counsel, (vi) receive notices or other communications, (vii) deliver any
notices, certificates or other documents required, and (viii) take all such
other action and to do all such other things as the Inventors' Representative
deems necessary or advisable with respect to this Agreement. The Company shall
have the absolute right and authority to rely upon the acts taken or omitted to
be taken by the Inventors' Representative on behalf of the Inventors and the
Company shall have no duty to inquire as to the acts and omissions of Inventors'
Representative. Each of the Inventors acknowledge and agree that (i) all
deliveries by the Company to Inventors Representative shall be deemed deliveries
to each of the Inventors, (ii) the Company shall not have any liability with
respect to any aspect of the distribution or communication of such deliveries
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<PAGE>
between the Inventors' Representative and any of the Inventors or among any
thereof, and (iii) any disclosure made to the Inventors Representative by or on
behalf of the Company shall be deemed to be disclosure made to each. In the
event the Inventors' Representative refuses to, or is no longer capable of,
serving as Inventors' Representative hereunder, each of the Inventors shall
promptly appoint a successor Inventors' Representative who shall thereafter by a
successor Inventors' Representative hereunder.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written below.
EXPERION THERAPEUTICS, INC.
By: /s/ Roger S. Newton
----------------------------------
Roger S. Newton, President & CEO
/s/ Jean-Louis Dasseux
----------------------------------
Jean-Louis Dasseux
/s/ Renate Sekul
----------------------------------
Renate Sekul
/s/ Klaus Buttner
----------------------------------
Klaus Buttner
/s/ Isabelle Cornut
----------------------------------
Isabelle Cornut
/s/ Guenther Metz
----------------------------------
Guenther Metz
/s/ Jean Defourcq
----------------------------------
Jean Dufourcq
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APPENDIX A
----------
Amended as of February 22, 2000
- --------------------------------------------------------------------------------
Title Patent No. Issue Date
----- ---------- -----------
- --------------------------------------------------------------------------------
APOLIPOPROTEIN AI US 6,004,925 12/21/99
AGONISTS AND THEIR USE
TO TREAT DYSLIPIDEMIC
DISORDERS (10001)
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
APPENDIX B
----------
Amended as of February 22, 2000
- ---------------------------------------------------------------------------------------------------------------------------
Title Serial No. Filing Date
----- ---------- -----------
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
APOLIPOPROTEIN AI AGONISTS AND THEIR USE TO TREAT PCT/US98/20327 09/28/98
DYSLIPIDEMIC DISORDERS (10001)
- -------------------------------------------------------------------------------
APOLIPOPROTEIN AI AGONISTS AND THEIR USE TO TREAT 08/940,096 09/28/97
DYSLIPIDEMIC DISORDERS (5005)
- ---------------------------------------------------------------------------------------------------------------------------
APOLIPOPROTEIN AI AGONISTS AND THEIR USE TO TREAT PCT/US98/20326 09/28/98
DYSLIPIDEMIC DISORDERS (50051)
- -------------------------------------------------------------------------------
APOLIPOPROTEIN AI AGONISTS AND THEIR USE TO TREAT 08/940,093 09/28/97
DYSLIPIDEMIC DISORDERS (18-mer)
- -------------------------------------------------------------------------------
APOLIPOPROTEIN AI AGONISTS AND THEIR USE TO TREAT PCT/US98/20328 09/28/81
DYSLIPIDEMIC DISORDERS (18-mer)
- ---------------------------------------------------------------------------------------------------------------------------
GENE THERAPY APPROACHES TO SUPPLY APOLIPOPROTEIN 08/940,136 09/29/97
A-I AGONISTS AND THEIR USE TO TREAT DYSLIPIDEMIC
DISORDERS
- -------------------------------------------------------------------------------
GENE THERAPY APPROACHES TO SUPPLY APOLIPOPROTEIN PCT/US98/20329 09/28/98
A-I AGONISTS AND THEIR USE TO TREAT DYSLIPIDEMIC
DISORDERS
- ---------------------------------------------------------------------------------------------------------------------------
PEPTIDE/LIPID COMPLEX FORMATION BY CO- 08/942,597 10/02/97
LYOPHILIZATION
- ---------------------------------------------------------------------------------------------------------------------------
PEPTIDE/LIPID COMPLEX FORMATION BY CO- PCT/US98/20330 09/28/98
LYOPHILIZATION
- ---------------------------------------------------------------------------------------------------------------------------
MULTIMERIC APO AI AGONIST COMPOUNDS 09/453,841 12/01/99
- ---------------------------------------------------------------------------------------------------------------------------
MULTIMERIC APO AI AGONIST COMPOUNDS 09/453,840 12/01/99
- ---------------------------------------------------------------------------------------------------------------------------
BRANCHED APO AI AGONIST COMPOUNDS 09/453,833 12/01/99
- ---------------------------------------------------------------------------------------------------------------------------
LIPID COMPLEXES OF APO AI AGONIST COMPOUNDS 09/453,838 12/01/99
- ---------------------------------------------------------------------------------------------------------------------------
METHOD OF TREATING DYSLIPIDEMIA 09/453,826 12/01/99
- ---------------------------------------------------------------------------------------------------------------------------
METHOD OF TREATING SEPTIC SHOCK 09/453,605 12/01/99
- ---------------------------------------------------------------------------------------------------------------------------
APOLIPOPROTEIN AI AGONISTS AND THEIR USE TO TREAT 09/453,834 12/01/99
DYSLIPIDEMIC DISORDERS (10001)
- ---------------------------------------------------------------------------------------------------------------------------
APOLIPOPROTEIN AI AGONISTS AND THEIR USE TO TREAT 09/465,719 12/17/99
DYSLIPIDEMIC DISORDERS (5005)
- ---------------------------------------------------------------------------------------------------------------------------
APOLIPOPROTEIN AI AGONISTS AND THEIR USE TO TREAT 09/465,718 12/17/99
DYSLIPIDEMIC DISORDERS (18-mer)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The foregoing Amended Appendices A and B to the License Agreement entered into
between Esperion Therapeutics, Inc. and the Inventors on August 23, 1999 are
hereby Acknowledged and Agreed to:
/s/ Roger S. Newton 2/22/00
- -------------------------------- ---------------------------
By Esperion Therapeutics, Inc. Date
/s/ Jean-Louis Dasseux February 22, 2000
- --------------------------------- ---------------------------
By the Inventors,
as represented by Jean-Louis Dasseux
<PAGE>
Confidential treatment requested for portions of this document.
Exhibit 10.4
LICENSE AGREEMENT
between
INEX PHARMACEUTICALS CORPORATION
and
ESPERION THERAPEUTICS, INC.
<PAGE>
LICENSE AGREEMENT
-----------------
LICENSE AGREEMENT dated as of the ___ 16th ___ day of March, 1999 between
INEX PHARMACEUTICALS CORPORATION, a British Columbia corporation, having its
principal place of business at 100 - 8900 Glenlyon Parkway, Burnaby, B.C.
Canada V5J 5J8 (hereinafter referred to as "INEX"), and ESPERION THERAPEUTICS,
INC., a Delaware corporation having its principal place of business at 3621 S.
State Street, 695 KMS Place, Ann Arbor, MI, 48108, USA (hereinafter referred to
as "ESPERION").
INTRODUCTION
1. INEX has research and development facilities and experienced scientists,
technical associates and assistants and other personnel which enable it to
conduct research and development activities in the area of biotechnology and the
application thereof to the development, production and manufacture of
pharmaceutical products using that technology.
2. ESPERION is in the business of the research and development of
pharmaceutical products.
3. INEX is the assignee of European Patent serial number EP 0461559 Bl entitled
"Wirkstofffreie Liposomen zur Behandlung von Atherosklerose," granted and
registered in various states of the European Union (herein sometimes called
"Braun").
4. The University of British Columbia, Vancouver, B.C. Canada ("UBC") is the
assignee of US Patent Application S.N. 08/507,170 entitled "Liposome
Compositions and Methods for the Treatment of Atherosclerosis" (herein sometimes
called "Hope/Rodrigueza").
5. INEX has by license agreement with UBC the right to sublicense
Hope/Rodrigueza, on terms and conditions set out therein, and subject to the
prior written consent of UBC.
6. ESPERION desires to license from INEX the exclusive right to develop, make,
have made, use, import and sell products subject to Hope/Rodrigueza, Braun and
certain improvements to these patents.
7. INEX is willing, for the consideration and on the terms set forth herein, to
license ESPERION for such purposes.
In consideration of the mutual covenants and promises contained in this
Agreement and other good and valuable consideration, INEX and ESPERION agree as
follows:
2
<PAGE>
ARTICLE I.
DEFINITIONS
As used in this Agreement, the following terms, whether used in the singular or
plural, shall have the following meanings:
1.1 "Affiliate" means any corporation, company, partnership, joint
---------
venture or other person or entity which controls, is controlled by or is under
common control with a Party. For purposes of this Section 1. 1, "control" shall
mean (a) in the case of corporate entities, direct or indirect ownership of at
least 50% of the stock or shares entitled to vote for the election of directors;
and (b) in the case of non-corporate entities, direct or indirect ownership of
at least 50% of the equity interest or the power to direct the management and
policies of such noncorporate entities.
1.2 "Combination Product(s)" means a product that includes a Licensed
---------------------
Product sold in combination with another component(s) whose manufacture, use or
sale by an unlicensed party would not constitute an infringement of the Licensed
Patents or Know-How.
1.3 "Confidential Information" means (a) all proprietary information and
------------------------
materials, patentable or otherwise, of a Party which is disclosed in writing by
or on behalf of such Party to the other Party, including DNA sequences, vectors,
cells, substances, formulations, techniques, methodology, equipment, data,
reports, know-how, preclinical and clinical trials and the results thereof,
sources of supply, patent positioning and business plans, including any negative
developments, and (b) any other information, oral or written, designated in
writing by the disclosing Party to the other Party as confidential or
proprietary within ten (IO) days of such disclosure, whether or not related to
the making, use, importing or selling of Licensed Products.
1.4 "Distributor" means a third party which is not an Affiliate or
-----------
Sublicensee of ESPERION and which is a distributor, wholesaler or other entity
purchasing Licensed Products from ESPERION or an Affiliate or Sublicensee for
resale.
1.5 "Enhancements" means any information, patentable or otherwise,
------------
developed or acquired by ESPERION (other than information licensed from INEX
pursuant to the terms of Section 2.1 of this Agreement) during the term of this
Agreement which is required to develop, use or manufacture Licensed Products and
which is related solely to compositions and uses of Large Unilammelar Vesicles
(LUVS) and is otherwise not associated with any therapeutic agent other than an
apoprotein or other cholesterol lowering drug.
1.6 "Field" means
-----
For the Hope/Rodrigueza and Braun patents, human and veterinary
therapeutics (the "Basic Field");
3
<PAGE>
For Improvements, human and veterinary therapeutics, but limited to
products that use or include Large Unilammelar Vesicles (LUVS) as a therapeutic
agent which are not associated with any other therapeutic agent other than an
apoprotein (the "Improvements Field");
For Know-How, human and veterinary therapeutics, but limited to products
that use or include Large Unilammelar Vesicles (LUVS) as a therapeutic agent
which are not associated with any other therapeutic agent other than an
apoprotein (the "Know-How Field");
Together, the Basic Field, Improvements Field and Know-How Field comprise
the Field.
1.7 "Future INEX Technology" means future inventions conceived, acquired
----------------------
or reduced to practice by INEX outside the scope of a development and supply
agreement between the parties as contemplated in Article VII after the date of
this Agreement.
1.8 "Improvements" means any inventions or improvements conceived,
------------
reduced to practice, developed, acquired or controlled by INEX or any of its
Affiliates at any time after the date hereof under a development and commercial
supply agreement between the Parties as contemplated in Article VII. For greater
clarity, "Improvements" does not include Future INEX Technology.
1.9 "IND" means an Investigational New Drug application or its
equivalent or any corresponding foreign application or registration.
1.10 "Know-How" means all trade secret and/or confidential and
proprietary information, without regard to form, including but not limited to,
technical or non-technical data, formulas, patterns, compilations, programs,
devices, methods, techniques, drawings, discoveries and/or inventions which have
been developed, acquired, or are controlled by INEX or any of its Affiliates as
of the date of this Agreement, for use in connection with the development or
uses of methods or compositions which are disclosed by INEX to ESPERION. Such
"Know-How" must not be generally known by, or readily ascertainable by proper
means by others and must have been the subject of reasonable efforts to maintain
its secrecy. Information shall no longer be considered to be Know-How, should
the information become publicly known through no fault of ESPERION or should it
be disclosed to ESPERION by a person under no obligation of confidentiality.
1.11 "Licensed Patents" means
Hope/Rodrigueza - United States patent application serial number
---------------
08/507,170 entitled "Liposome Compositions and Methods for the Treatment of
Atherosclerosis", and any patent claims issued therefrom and patent claims
issued from any corresponding continuations, continuations-in-part, divisions,
re-exams, or foreign applications claiming priority from such application;
4
<PAGE>
Braun - European Patent serial number EP 04615 59 B 1 entitled
-----
"Wirkstofffreie Liposomen zur Behandlung von Atherosklerose," registered in
Switzerland, Sweden, Spain, Austria, Netherlands, Luxembourg, Italy, United
Kingdom, Greece, France, Denmark, Belgium, Germany and any patent claims issued
from any corresponding continuations, continuations-in-part, divisions, reissues
and foreign applications claiming priority from such patent;
Improvements shall be included as invented pursuant to a development and
commercial supply agreement as contemplated in Article VII; and
Future INEX Technology in the Improvements Field may be included upon
written agreement signed by the Parties pursuant to Section 2.2 hereof
For greater clarity, Licensed Patents excludes other currently existing
intellectual property of INEX, except those required to practice the inventions
defined by the Hope/Rodrigueza and Braun patents. "Required to practice" as
used in this definition means necessary, not just useful or useable. INEX
represents and warrants that it has no knowledge of any such other currently
existing intellectual property of INEX which is required to practice the
inventions defined by the Hope/Rodrigueza and Braun patents.
1.12 "Licensed Products" means human and veterinary therapeutic
-----------------
compositions and methods which, but for an immunity from suit under the Licensed
Patents or Know-How, would infringe one or more of the Licensed Patents or Know-
How.
1.13 "NDA" means a New Drug Application or its equivalent or any
---
corresponding foreign application or registration.
1.14 "Net Annual Sales" means the aggregate United States dollar
----------------
equivalent of gross revenues derived by or payable to ESPERION or its Affiliates
from or on account of the sale of Licensed Products to third parties, in any
given calendar year, less (a) reasonable credits or allowances, if any, actually
granted on account of price adjustments, recalls, rejection or return of items
previously sold, (b) excise taxes, sales taxes, value added taxes, consumption
taxes, customs and other duties or other taxes imposed upon and paid with
respect to such sales (excluding income or franchise taxes of any kind), (c)
separately itemized insurance and transportation costs incurred in shipping
Licensed Products to such third parties and (d) fees paid to Distributors,
dealers and other persons or entities which are not Affiliates of ESPERION but
which purchase Licensed Products from Esperion or its Affiliates for resale
(collectively, the "Permitted Deductions"). No deduction shall be made for any
item of cost incurred by ESPERION, its Affiliates, or Distributors in preparing,
manufacturing, shipping or selling Licensed Products except as permitted
pursuant to clauses (a), (b), (c) and (d) of the foregoing sentence. Net Annual
Sales shall not include any transfer between any of ESPERION and any of its
Affiliates for resale. Fair market value shall be assigned to any and all non-
cash consideration such as but not limited to any credit, barter, benefit,
advantage or concession received by
5
<PAGE>
ESPERION or its Affiliates in payment for Licensed Products. As used in this
definition, a "sale" shall have occurred when Licensed Products are billed out
or invoiced. Notwithstanding anything herein to the contrary, the following
shall not be considered a sale of a Licensed Product under this Agreement: (i)
the transfer of a Licensed Product to a third party without consideration to
ESPERION in connection with the development or testing of a Licensed Product; or
(ii) the transfer of a Licensed Product to a third party without consideration
in connection with the marketing or promotion of the Licensed Product (e.g.,
---
pharmaceutical samples).
1.15 "Party" means INEX or ESPERION; "Parties" means INEX and ESPERION.
-----
1.16 "Sublicensee" means a third party which is not an Affiliate of
-----------
ESPERION and to whom ESPERION has granted a sublicense to make, have made, use,
import or sell Licensed Products. Without limiting the generality of the
foregoing, a Sublicensee shall be deemed to include any third party who is
granted a sublicense hereunder by ESPERION pursuant to the terms of the outcome
or settlement of any infringement or threatened infringement action.
1.17 "Sublicensing Royalties" means all royalties, revenues, receipts,
----------------------
monies and the fair market value of all non-cash consideration such as but not
limited to any credit, barter, benefit, advantage or concession payable to
ESPERION by a Sublicensee which is, or may be reasonably construed as being
calculated on or based on the making, using or selling of Licensed Products by
the Sublicensee. For the avoidance of doubt, Sublicensing Royalties shall not
include payments which are reasonably construed as initial or periodic sub-
licensing fees, funds for research and development, milestone payments or equity
investments.
1.18 "Territory" means worldwide.
---------
1.19 "UBC License Agreement" means the License Agreement dated July 1,
---------------------
1998 by and between INEX and UBC.
1.20 "Valid Claim" means a claim of an unexpired issued patent which
-----------
shall not have been withdrawn, canceled or disclaimed, nor held invalid by a
court of competent jurisdiction in an unappealed or unappealable decision.
ARTICLE II.
PATENT AND KNOW-HOW LICENSES
2.1 Licenses. Subject to the payment of the Milestone Payments provided
--------
for in Article III of this Agreement, the royalties provided for in Article IV
or this Agreement
6
<PAGE>
and the fulfillment of the other terms and conditions of this Agreement, and
subject to the reservation set forth in Section 2.3 hereof, INEX hereby grants
to ESPERION:
(a) an exclusive license for the Field in the Territory under
the Licensed Patents; and
(b) an exclusive license for the Field to use the Know-How in
the Territory; for the sole and exclusive purpose of developing, making, having
made, importing, using and selling Licensed Products in the Territory, including
the right to grant sublicenses under these rights as set out in Section 2.4
hereof. The licenses granted pursuant to Section 2. 1 (a) shall continue in
effect until the expiration of the last patent licensed to ESPERION hereunder,
or until otherwise terminated according to this Agreement. The licenses granted
pursuant to Section 2.1 (b) shall continue in effect as provided in Section 4. 1
(b) of this Agreement.
2.1.1. Exclusivity. In order to establish exclusivity for ESPERION,
-----------
INEX hereby agrees that it shall not, without ESPERION's prior written consent,
grant to any other person or entity a license or other right, under the Licensed
Patents or Know-How, to develop, make, have made, import, use, lease and/or sell
Licensed Products in the Field during the period of time in which this Agreement
is in effect.
2.2. Further Right. ESPERION shall have the first right to
-------------
negotiate an exclusive license in the Improvements Field to any Future INEX
Technology. If the Parties are unable to agree on the terms of such exclusive
license, INEX will not license such Future INEX Technology to a third party on
more favourable financial terms than those first offered to ESPERION. This fight
shall be exhausted as to any specific item of Future INEX Technology upon
ESPERION's failure to initiate negotiations within thirty (30) days of receiving
terms for such exclusive license for such specific item of Future INEX
Technology, or having initiated negotiations, upon the Parties' failure to
execute such exclusive license within a reasonable period but in any event not
less than ninety (90) days.
2.3. Reservation of Rights. INEX retains the non-exclusive right
---------------------
under the Licensed Patents and the Know-How to practice the inventions solely
for internal research purposes in the Field, which right shall not be assigned,
sublicensed or delegated without ESPERION's consent. ESPERION and INEX
acknowledge and agree that UBC may use Hope/Rodrigueza without charge in any
manner whatsoever for research, scholarly publication, educational or other non-
commercial use. INEX may not use Hope/Rodrigueza for any commercial purpose in
the Field.
2.4. Sublicenses. ESPERION shall have the right to sublicense
-----------
rights granted in Section 2. 1, subject to MX's right to review and comment on
the proposed sublicense as provided below. ESPERION shall provide a brief
summary of the nature of the proposed sublicense and the name of such proposed
sublicensee, except to the extent prohibited by the terms of any confidentiality
agreement between ESPERION and such proposed sublicensee, and sufficient
portions of the proposed sublicensing agreement to
7
<PAGE>
permit RNEX to evaluate whether the agreement contains covenants by the
Sublicensee to observe and perform similar terms and conditions to those in the
UBC License Agreement and in this Agreement. If INEX does not provide ESPERION
with its comments within ten (IO) calendar days after such request is given by
ESPERION, INEX shall be deemed to have waived its right to review and comment.
Within ten (IO) calendar days after execution of a sublicensing agreement,
ESPERION shall provide INEX with a copy thereof. Within thirty (30) calendar
days after receiving such copy, INEX shall notify ESPERION, in express terms, of
any deficiency or failure of the sublicensing agreement to satisfy the terms and
conditions of the UBC License Agreement and this Agreement. The consent of UBC
shall not be required. All sublicenses granted by ESPERION shall be personal to
the sublicensee and shall not be assignable without the prior written consent of
INEX, except as provided by this Section 2.4. Such sublicenses shall terminate
upon the termination of ESPERION's rights granted herein unless events of
default are cured by ESPERION or Sublicensee within sixty (60) days of
notification by INEX of default and/or as provided by the terms of this
Agreement. Each sublicense shall contain covenants by the Sublicensee to observe
and perform similar terms and conditions to those in the UBC License Agreement
and in this Agreement. INEX agrees that if ESPERION has provided to INEX notice
that ESPERION has granted a sublicense to a Sublicensee under this Agreement,
then in the event INEX terminates this Agreement for any reason provided
hereafter, INEX shall provide to such Sublicensee written notice of such
termination no less than sixty (60) days prior to the effective date of such
termination. The Sublicensee may during such sixty (60) day period provide to
INEX notice wherein the Sublicensee: (a) reaffirms the terms and conditions of
this Agreement as it relates to the rights the Sublicensee has been granted
under the sublicense; (b) agrees to abide by all of the terms and conditions of
this Agreement applicable to Sublicensees and to discharge directly all
pertinent obligations of ESPERION which ESPERION is obligated hereunder to
discharge with respect to such sublicense; and (c) acknowledges that INEX shall
have no obligations to the Sublicensee other than its obligations set forth in
this Agreement with regard to ESPERION. INEX agrees that upon such Sublicensee's
notice and provided such Sublicensee is not in material breach of its
sublicense, INEX shall grant to such Sublicensee license rights and terms
equivalent to the sublicense rights and terms which ESPERION shall have granted
to such Sublicensee.
2.5. Delivery of Know-How. Upon execution and delivery by the parties
--------------------
of this Agreement, INEX shall make available to ESPERION originals or copies of
all of its records, data and documentation relating to the Licensed Patents and
Know-How, including, without limitation, scientific data and regulatory
submissions and documentation, manufacturing process, reagents, formulations and
other information relevant to the development, manufacture, purification,
formulation, use, importation or sale of any Licensed Products.
8
<PAGE>
ARTICLE III.
MILESTONE PAYMENTS AND SUBLICENSE FEES
3.1 Milestone Payments. In consideration of the licenses granted by INEX
------------------
to ESPERION under this Agreement, ESPERION shall make the following milestone
payments to INEX:
Milestone Amount
--------- ------
[ ] [ ]
[ ] [ ]
[ ] [ ]
[ ] [ ]
[ ] [ ]
ESPERION shall make the milestone payments to INEX whether the milestone
is achieved by ESPERION itself, or by an Affiliate or a Sublicensee. For the
purposes of this Section 3. 1, "Phase II Clinical Trial" shall mean a clinical
trial for which an efficacy endpoint is defined in the clinical protocol and for
which data are collected and "Phase III Clinical Trial" shall mean a clinical
trial which is sized to enable measurement of statistically significant efficacy
for the purposes of filing for approval with regulatory authorities.
3.2. Independent Consideration. Subject to the credits described in
-------------------------
Section 4.2 of this Agreement, the amounts payable to INEX pursuant to Section
3.1 hereof shall be in addition to, and not in lieu of, the royalties payable to
INEX pursuant to Article IV of this Agreement.
9
<PAGE>
ARTICLE IV.
PATENT AND KNOW-HOW ROYALTIES
4.1 Royalties.
---------
(a) ESPERION shall pay to INEX during the term of the licenses
granted in Section 2.1 of this Agreement earned royalties at the rate set forth
on Schedule A hereto on all Net Annual Sales in the Territory of Licensed
Products by ESPERION, its Affiliates, and Distributors. If a Licensed Product is
made, used or sold by a Sublicensee in any part of the Territory, ESPERION shall
pay to INEX the earned royalties on all Sublicensing Royalties as set out in
Schedule A hereto. One royalty on either Licensed Patents or Know-How shall be
due with respect to each sale of a Licensed Product; and under no circumstance
shall ESPERION be obligated to pay both royalties.
(b) Royalties based upon Licensed Products solely involving
Know-How and not involving Licensed Patents shall be payable for a period of ten
(10) years after the first sale in each such country in the Territory of
Licensed Products. Upon the expiration of the royalty obligations set forth in
subsection (a) above with respect to any Know-How in any country in the
Territory, the licenses granted under Section 2. 1 (b) of this Agreement with
respect to such Know-How in such country in the Territory shall become fully
paid licenses. ESPERION may, upon such expiration, elect to continue in effect
the exclusive nature of the license of any Know-How in any country in the
Territory by continuing to pay to INEX fifty percent (50%) of the earned royalty
specified on Schedule A hereto. Such exclusive license shall remain in effect so
long as ESPERION pays such royalty; if and when such royalty payments are
terminated, the license shall become a fully paid, non-exclusive license with
respect to such Know-How in such country in the Territory. All royalty
obligations under this paragraph 4. 1 (b) shall cease should information cease
to be Know-How under the circumstances provided in Section 1.10.
(c) For purposes of calculating royalties, in the event that a
Licensed Product which is approved for commercial sale by an applicable
regulatory authority includes both component(s) covered by a Valid Claim of a
Licensed Patent (a "Patented Component") and a component which is diagnostically
useable or therapeutically active alone or in a combination which does not
require the Patented Component, and such component is not covered by a Valid
Claim of a Licensed Patent (an "Unpatented Component"), then Net Annual Sales of
the Combination Product shall be calculated using one of the following methods:
(i) By multiplying the Net Annual Sales of the
Combination Product during the applicable royalty
accounting period ("accounting period") by a
fraction, the numerator of which is the aggregate
gross selling price of the Patented Component(s)
contained in the Combination Product if sold
10
<PAGE>
separately, and the denominator of which is the sum
of the gross selling price of both the Patented
Component(s) and the Unpatented Component(s)
contained in the Combination Product if sold
separately; or
(ii) In the event that no such separate sales are made
of the Patented Component(s) or the Unpatented
Component(s) during the applicable accounting
period, or in the event that either the Patented
Component(s) or the Unpatented Component(s) have
not been sold separately for at least one (1) year,
Net Annual Sales for purposes of determining
royalties payable hereunder shall be calculated by
multiplying the Net Sales of the Combination
Product by a fraction, the numerator of which is
the fully allocated production cost of the Patented
Component(s) and the denominator of which is the
sum of the fully allocated production costs of the
Patented Component(s) and the Unpatented
Component(s) contained in the Combination Product;
provided, however, that Net Annual Sales for
purposes of determining such royalties shall not be
less than fifty percent (50%) of the Net Annual
Sales of the Combination Product for the accounting
period, The fully allocated production costs shall
be determined by using ESPERION's accounting
procedures, which procedures must conform to
generally accepted accounting procedures (GAAP).
4.2 Creditability of Milestone Payments. [ ] of each of
-----------------------------------
the fourth and fifth milestone payments will be creditable towards royalties
owed to INEX, except that in a given year, INEX's royalties will not be reduced
below fifty per cent (50%) of royalties owed in that year. Remaining credits
will be carried forward until exhausted.
4.3 Third Party Royalties. For any Licensed Product which is not a
---------------------
Combination Product or for any Patented Component of a Combination Product, if
ESPERION, its Affiliates or Distributors, in order to operate under or exploit
the licenses granted under Article II of this Agreement in any country in the
Territory, must pay royalties to one or more third parties to obtain a license
or similar right in the absence of which the Licensed Products could not legally
be made, used, imported or sold in any country in the Territory, and such
royalties are, in fact, paid ESPERION, may deduct from royalties thereafter
payable to INEX on Net Annual Sales in such country in the Territory an amount
equal to up to fifty percent (50%) of such third party royalty payments,
provided that the total royalties otherwise due to INEX on Net Annual Sales in
such country in the Territory in any calendar year shall not be reduced by more
than fifty percent (50%) as a result of such deduction.
11
<PAGE>
4.3.1 In this Section 4.3.1., "Unlicensed Competitive Product" means any
product which is commercially competitive with a Licensed Product, and which is
reasonably construed as infringing a Licensed Patent. In the event that an
Unlicensed Competitive Product is reducing the market share of any Licensed
Product, INEX and ESPERION agree to enter good faith negotiations for a
reduction in royalties payable on Net Annual Sales, such reduction in royalties
to be not more that 50% of the royalties otherwise payable, if such reduction is
required for ESPERION to make a Licensed Product competitive in the marketplace,
provided that any such reduction shall be effective no earlier than twelve (12)
months after the first commercial sale of the Unlicensed Competitive Product.
4.4 Reports and Payment. ESPERION shall deliver to INEX within thirty
-------------------
(30) days after the end of each calendar quarter a written report showing its
computation of royalties due under this Agreement upon Net Annual Sales by
ESPERION and its Affiliates and upon Sublicensing Royalties received from
Sublicensees, during such calendar quarter. All Net Annual Sales and
Sublicensing Royalties shall be segmented in each such report according to sales
by ESPERION, each Affiliate and each Sublicensee, as well as on a country-by-
country basis, including the rates of exchange used to convert such royalties to
United States dollars from the currency in which such sales were made. For the
purposes hereof, the rates of exchange to be used for converting royalties
hereunder to United States dollars shall be those in effect for the purchase of
dollars at CitiBank, New York, New York, on the last business day of the quarter
with respect to which the payment is due. ESPERION, simultaneously with the
delivery of each such report, shall tender payment in United States dollars of
all royalties shown to be due thereon.
4.5 Foreign Royalties. Where royalties are due INEX hereunder for sales
-----------------
of Licensed Products in a country in the Territory where, by reason of currency
regulations or taxes of any kind, it is impossible or illegal for ESPERION, any
Affiliate or Sublicensee to transfer royalty payments to INEX for Net Annual
Sales in that country in the Territory, such royalties shall be deposited in
whatever currency is allowable by the person or entity not able to make the
transfer for the benefit or credit of INEX in an accredited bank in that country
in the Territory that is reasonably acceptable to INEX.
4.6 Records. ESPERION shall keep, and shall require all Affiliates and
-------
Sublicensees to keep, full, true and accurate books of accounts and other
records containing all information and data which may be necessary to ascertain
and verify the royalties payable hereunder for a period of five (5) years after
the date such royalties became payable. After the first commercial sale of
Licensed Products and for a period of one (1) year following termination of this
Agreement, INEX shall have the right from time to time (not to exceed twice
during each calendar year) to have an independent firm of accountants inspect
such books, records and supporting data. Such independent firm of accountants
shall perform these audits at INEX's expense upon reasonable prior notice and
during ESPERION's regular business hours, and shall agree as a condition to such
audit to maintain the confidentiality of all information of ESPERION disclosed
or observed in connection with such audit and to disclose to INEX only whether
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ESPERION has complied with its obligations under this Agreement. If the result
of such audit demonstrates an underpayment to INEX of 5% or more, ESPERION shall
pay for the reasonable costs of such audit.
ARTICLE V.
DUE DILIGENCE AND ANNUAL REPORTS
5.1 Due Diligence. ESPERION shall use commercially reasonable
-------------
efforts in such portions of the Territory as is commercially reasonable but at a
minimum in the United States, and three countries of the European Community to:
(a) conduct all necessary and appropriate preclinical and
clinical trials and control the manner and extent of such trials in order to
file IND's and NDA's which it believes will be sufficient to obtain approval to
sell Licensed Products;
(b) prepare, file and diligently prosecute all governmental
applications necessary to obtain approvals to sell Licensed Products; and
(c) diligently market Licensed Products.
5.2 Annual Reports. ESPERION shall make annual reports, due on each
--------------
anniversary of this Agreement, to INEX setting forth in general terms,
sufficient for evaluation by INEX of the diligence obligations contained herein,
the efforts it made to develop Licensed Products during the previous year,
including pre-clinical and clinical efforts and all submissions to regulatory
bodies, and the efforts it intends to make in the upcoming year on these
matters.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES
6.1 By ESPERION. ESPERION hereby represents and warrants to INEX
-----------
that (a) ESPERION has full legal right, power and authority to execute, deliver
and perform its obligations under this Agreement, (b) the execution, delivery
and performance by ESPERION of this Agreement do not contravene or constitute a
default under any provision of applicable law or its articles or by-laws (or
equivalent documents) or of any agreement, judgment, injunction, order, decree
or other instrument binding upon ESPERION, (c) all licenses, consents,
authorizations and approvals, if any, required for the execution and delivery by
ESPERION of this Agreement have been obtained and are in full force and effect
and all conditions thereof have been complied with, and no other action by or
with respect to, or filing with, any governmental authority or any other person
or entity is required in connection with the execution, delivery and performance
by ESPERION of this Agreement, and (d) this Agreement constitutes a valid and
binding agreement of ESPERION, enforceable against ESPERION in accordance with
its terms,
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except as such enforceability may be limited by bankruptcy, insolvency,
moratorium or creditors' rights generally.
6.2 By INEX. INEX hereby represents and warrants to ESPERION that
-------
(a) INEX has full legal right, power and authority to execute, deliver and
perform its obligations under this Agreement, (b) the execution, delivery and
performance by INEX of this Agreement do not contravene or constitute a default
under any provision of applicable law or of any agreement, judgment, injunction,
order, decree or other instrument binding upon INEX or otherwise relating to the
Licensed Patents or the Know-How, (c) all licenses, consents, authorizations and
approvals, if any, required for the execution, delivery and performance by INEX
of this Agreement have been obtained and are in full force and effect and all
conditions thereof have been complied with, and no other action by or with
respect to, or filing with, any governmental authority or any other person or
entity is required in connection with the execution, delivery and performance by
FNEX of this Agreement as of the date of this Agreement, (d) INEX is the
exclusive owner of all legal and beneficial right, title and interest in and to
the Braun Patent; (e) INEX is the sole and exclusive owner of the Know-How, free
and clear of any lien, claim or encumbrance or rights of any other person or
entity, except with respect to such Know-How of which FNEX is the sole and
exclusive licensee pursuant to the UBC License Agreement, (f) INEX is the sole
and exclusive licensee of Hope/Rodrigueza other than in favor of UBC pursuant to
the UBC License Agreement, (g) the UBC License Agreement and Research Agreement
effective February 1, 1993 are the only agreements between INEX and UBC or
otherwise relating to Hope/Rodrigueza, (h) the UBC License Agreement is in full
force and effect and has not been breached by INEX or, to the best knowledge of
INEX, UBC, and the representations and warranties made by FNEX and, to the best
of INEX's knowledge, UBC in the UBC License Agreement are sufficient to permit
the granting by FNEX of the license in Article II hereof on the date hereof, (i)
to the best knowledge of INEX, the practice of the Licensed Patents and/or the
Know-How, as embodied in the methods and compositions of the Hope/Rodrigueza and
Braun patents, and the development, manufacture, use, importation, offer for
sale, sale or commercialization of any method or composition described therein
can be enjoyed without infringing or violating any patent right of any person or
entity except that INEX provides no opinion, legal or otherwise, with respect to
certain patents set forth on Schedule B and 0) this Agreement constitutes a
valid and binding agreement of INEX, enforceable against it in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
insolvency, moratorium or creditors' rights generally.
6.3 Survival of Representations and Warranties. The representations and
------------------------------------------
warranties contained herein shall survive the execution, delivery and
performance of this Agreement by the parties, notwithstanding any investigation
at any time made by or on behalf of any Party or Parties, subject to any
necessary changes which do not affect the employment by the Parties of the
rights granted in this Agreement.
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ARTICLE VII.
FUTURE AGREEMENTS: INTELLECTUAL PROPERTY RIGHTS
7.1 Future Agreements. While not being bound to reach any further
-----------------
agreement, the Parties acknowledge that development and commercial supply
agreements may arise between the Parties in the future. It is the non-binding
proposal of the Parties that ESPERION and INEX will negotiate contracts for the
supply of materials, as well as services, which would support pre-clinical
development, clinical development, and regulatory submissions. The contracts
will be negotiated in good faith, but costs of such materials and services will
not exceed INEX's reasonable fully burdened costs plus twenty percent (20%)
profit. INEX will have the right of first offer for commercial supply of bulk
drug product, with terms to be negotiated in good faith; however such terms will
not exceed INEX's reasonable fully burdened costs plus twenty percent (20%)
profit.
7.2 Prosecution and Maintenance of Licensed Patents.
-----------------------------------------------
(a) ESPERION shall be responsible for and pay all future costs
of prosecuting and maintaining the Hope/Rodrigueza and Braun patents. ESPERION
shall advise INEX in writing of all significant actions which it undertakes
concerning the prosecution and maintenance of Hope/Rodrigueza and Braun, and
shall, except to the extent protected by attorney-client privilege between
ESPERION and its attorneys, provide copies of the substantive correspondence and
documents which it sends or receives in connection therewith to INEX and, in the
case of Hope/Rodrigueza, also to UBC. ESPERION shall diligently prosecute and
maintain the Hope/Rodrigueza and Braun patents, and ESPERION shall not
irrevocably alter the scope of patent coverage of such patents without prior
review by INEX and consideration of the opinion of INEX's patent advisor(s).
Should ESPERION seek to discontinue or not pursue Hope/Rodrigueza and/or Braun
in any specific jurisdiction, then ESPERION shall provide INEX, and in the case
of Hope/Rodrigueza, also UBC, with notice of its decision to discontinue or not
to pursue such patent in sufficient time, not to be less than forty-five (45)
days, whereupon INEX shall become entitled to continue or pursue such patent in
such jurisdiction at its own expense.
Failure of ESPERION to maintain a granted or issued patent in a jurisdiction
does not relieve ESPERION of the increased earned royalty obligation for that
jurisdiction set out in Schedule A.
----------
(b) INEX and ESPERION shall each make available to the other
Party or such other Party's authorized attorneys, agents or representatives,
such of its employees whom the other Party in its reasonable judgment deems
necessary in order to assist it in obtaining patent protection of the
Hope/Rodrigueza and/or Braun patents. INEX and ESPERION shall each execute all
legal documents reasonably necessary to support the filing, maintenance and
prosecution of said patent applications. ESPERION shall, at the request of INEX
and, in the case of Hope/Rodrigueza, UBC, enter into such
15
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further agreements and execute any and all documents as may reasonably be
required to ensure that ownership of the Licensed Patents remains with the legal
owner.
7.3 Improvements and Future INEX Technology. INEX shall have the
right and responsibility to decide whether or not to seek or continue to seek or
maintain patent protection on any Improvement or Future INEX Technology in any
country, and shall have the right to file for, procure and maintain patents on
any Improvement or Future INEX Technology in any country. Obligations of
ESPERION regarding patent prosecution or costs for Improvements or Future INEX
Technology, if any, shall be determined by written agreement of the Parties.
7.4 Infringement. This Section 7.4 is subject to the rights of UBC in
Section 11.1(a).
(a) Each Party shall promptly report in writing to the other
Party during the term of this Agreement any (i) known infringement or suspected
infringement of any of the Licensed Patents in the Territory, or (ii)
unauthorized use or misappropriation of Know-How or Confidential Information by
a third party in the Territory of which it becomes aware, and shall provide the
other Party with all available evidence supporting said infringement, suspected
infringement or unauthorized use or misappropriation.
(b) Except as provided in subsection (c) below, ESPERION shall
have, upon receiving the prior written consent of INEX, not to be unreasonably
withheld, the right anywhere in the Territory to defend an allegation of
invalidity of one or more Licensed Patents, and to initiate an infringement or
other appropriate suit against any third party who at any time has infringed, or
is suspected of infringing, or is anticipated to infringe any of the Licensed
Patents or of using without proper authorization all or any portion of the
Confidential Information and/or Know-How. Provided that it has first granted its
prior written consent, not to be unreasonably withheld, INEX agrees to co-
operate to the extent of executing all necessary documents and to vest in
ESPERION the right to institute any such suits, in the name of ESPERION or INEX
or both, so long as all the direct or indirect costs and expenses of bringing
and conducting any such litigation or settlement shall be borne by ESPERION and
in such event all recoveries shall inure to ESPERION. For purposes of this
Agreement, if ESPERION requests in writing INEX's prior written consent to any
matter, as required hereby, and INEX does not either grant or deny such consent
within ten (10) days of receiving such request from ESPERION, INEX shall be
deemed to have granted the requested consent. In the event of any litigation:
(b.i) Each Party shall keep the other fully informed of the actions
and positions taken or proposed to be taken by such Party and actions and
positions taken by all other parties to such litigation;
(b.ii) No decision or action concerning or governing any final
disposition of the litigation shall be taken without five (5) days prior
notification thereof to INEX;
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(b.iii) INEX may elect to participate formally in the litigation to
the extent that the court may permit, but any additional expenses generated by
such formal participation shall be paid by INEX (subject to the possibility of
recovery of some or all of such additional expenses from such other parties to
the litigation);
(b.iv) If a Party to a litigation is willing to make or accept an
offer of settlement and the other is not, then the unwilling party shall conduct
all further proceedings at its own expense, and shall be responsible to account
to the willing party for any deficiency in litigated or settled result from that
which it would have been entitled to in the offer, but shall be entitled to
retain unto itself the benefit of any litigated or settled result entailing a
greater payment of costs, damages, accounting of profits and settlement costs
than that provided in such offer;
(c) In the event that ESPERION elects not to initiate an
infringement or other appropriate suit pursuant to subsection (b) above,
ESPERION shall promptly advise INEX of its intent not to initiate such suit, and
INEX shall have the right, in INEX's sole discretion, and at the expense of
INEX, of initiating an infringement suit, a defense of patent validity, or other
appropriate suit against any third party who at any time has infringed, or is
suspected of infringing, or is anticipated to infringe any of the Licensed
Patents or of using without proper authorization all or any portion of the
Confidential Information and Know-How. At INEX's request, ESPERION shall offer
reasonable assistance to INEX in connection with such litigation at no charge to
INEX except for reimbursement of reasonable out-of-pocket expenses, including
salaries of ESPERION personnel, incurred in rendering such assistance.
7.5 Claimed Infringement. In the event that a third party at any
--------------------
time provides written notice of a claim to, or brings an action, suit or
proceeding against, either Party or any of their respective Affiliates or
Sublicensees, claiming infringement of such third party's patent rights or
unauthorized use or misappropriation of its know-how, based upon an assertion or
claim arising out of the development, use, manufacture, distribution,
importation or sale of Licensed Products, such Party shall promptly notify the
other Party, and if Hope/Rodrigueza is involved, UBC, of the claim or the
commencement of such action, suit or proceeding, enclosing a copy of the claim
and/or all papers served. INEX agrees to make available to ESPERION its advice
and counsel regarding the technical merits of any such claim at no cost to
ESPERION. THE ENTIRE RESPONSIBILITY OF INEX IN THE CASE OF ANY CLAIMED
INFRINGEMENT OR VIOLATION OF ANY THIRD PARTY'S RIGHTS OR UNAUTHORIZED USE OR
MISAPPROPRIATION OF ANY THIRD PARTY'S KNOW-HOW IS SET OUT IN THIS AGREEMENT.
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ARTICLE VIII.
CONFIDENTIAL INFORMATION
8.1 Treatment of Confidential Information. Each Party hereto shall
-------------------------------------
maintain the Confidential Information of the other Party in confidence, and
shall not disclose, divulge or otherwise communicate such Confidential
Information to others, or use it for any purpose, except pursuant to, and in
order to carry out, the terms and objectives of this Agreement, and hereby
agrees to exercise every reasonable precaution to prevent and restrain the
unauthorized disclosure of such Confidential Information by any of its
directors, officers, employees, consultants, subcontractors, sublicensees or
agents.
8.2 Release from Restrictions. The provisions of Section 8.1 shall
-------------------------
not apply to any Confidential Information disclosed hereunder which:
(a) was known or used by the receiving Party or its Affiliates
prior to its date of disclosure to the receiving Party, as evidenced by the
prior written records of the receiving Party or its Affiliates; or
(b) either before or after the date of the disclosure to the
receiving Party is lawfully disclosed to the receiving Party or its Affiliates
by an independent, unaffiliated third party rightfully in possession of the
Confidential Information; or
(c) either before or after the date of the disclosure to the
receiving Party becomes published or generally known to the public through no
fault or omission on the part of the receiving Party or its Affiliates; or
(d) the Party can verify by written documentation results from
research and development by the receiving Party or any of its Affiliates
independent and in advance of disclosure by the other Party thereof, or
(e) is disclosed by the receiving party to its attorneys,
accountants or other advisors, actual or potential lenders, investors or
purchasers, each of whom shall be subject to a confidentiality restriction; or
(f) is required to be disclosed by the receiving Party to comply
with applicable laws, to defend or prosecute litigation or to comply with
governmental regulations, provided that the receiving Party provides prior
written notice of such
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<PAGE>
disclosure to the other Party and takes reasonable and lawful actions to avoid
and/or minimize the degree of such disclosure.
8.3 Publications. The following restrictions shall apply with
------------
respect to the disclosure in scientific journals or publications by any Party or
any employee or consultant of any Party relating to the inventions contained in
the Licensed Patents and the Know-How:
(a) a Party (the "publishing Party") shall provide the other
Party with an advance copy of any proposed publication which may be in draft
form) and such other Party shall have a reasonable opportunity to recommend any
changes it reasonably believes are necessary to preserve patent rights or know
how belonging in whole or in part to INEX or E8PERION, and the incorporation of
such recommended changes shall not be unreasonably refused; and
(b) if such other Party informs the publishing Party, within
thirty (30) days of receipt of an advance copy of a proposed publication, that
such publication in its reasonable judgment could be expected to have a material
adverse effect on any patent rights or know how belonging in whole or in part to
INEX or ESPERION, the publishing Party shall, to the extent permitted by its
agreements with its employees and consultants, delay or prevent such publication
as proposed. In the case of inventions, the delay shall be sufficiently long to
permit the timely preparation and filing of a patent application(s) or
application(s) for a certificate of invention on the information involved but
not less than sixty (60) days.
ARTICLE IX.
TERMINATION
9.1 Term. This Agreement shall remain in effect for ten (IO) years
----
from the first commercial sale of a Licensed Product or until the last to expire
of the Licensed Patents, or until the last to expire of the licenses granted
pursuant to Article II, above, whichever is longer, on a country-by-country
basis.
9.2 Voluntary Termination. ESPERION may terminate the licenses
---------------------
under this Agreement at any time by providing ninety (90) days prior written
notice to INEX.
9.3 Termination for Breach. Each Party shall be entitled to
----------------------
terminate this Agreement and the licenses granted hereunder to the other Party
by written notice to the other Party in the event that the other Party shall be
in default of any of its obligations hereunder, and shall fail to remedy any
such default within sixty (60) days after notice thereof by the non-breaching
Party. Any such notice shall specifically state that the non-breaching Party
intends to terminate this Agreement in the event that the breaching Party shall
fail to remedy the default. Any such notice shall set out expressly the actions
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required of the breaching Party to remedy the default. Where the alleged default
identified is of an obligation to maintain insurance (as in Sections 10.4 or
11.1(b)) or an obligation of indemnity in Article X, the termination date shall
be the effective date of the written notice provided (which effective date shall
take into account the sixty (60) day cure period described above). If the
alleged default relates to an obligation other than in Section 10.4, Section
11.1(b) or Article X, and if the existence of said breach is in dispute, the
license and all rights granted to ESPERION pursuant to this Agreement and all
obligations and commitments of ESPERION to INEX and/or to UBC shall continue
until finallydeterminedbyarbitrationorotherjudicialprocessasprovidedherein. In
the event a breach is finally determined, the remedy for such breach may take
effect from the date of first occurrence of such breach.
9.4 Termination upon Bankruptcy. This Agreement shall automatically
---------------------------
and immediately terminate without notice to ESPERION upon (a) the bankruptcy,
insolvency, liquidation or dissolution of ESPERION; (b) the filing of any
voluntary petition for bankruptcy, dissolution, liquidation or winding-up of the
affairs of ESPERION; or (c) the filing of any involuntary petition for
bankruptcy, dissolution, liquidation or winding-up of the affairs of ESPERION
which is not dismissed within one hundred twenty (I 20) days of the date on
which it is filed or commenced.
9.5 Continuing Obligations. Upon any termination of this Agreement
----------------------
to this Article IX, neither Party shall be relieved of any obligations incurred
prior to such termination.
9.6 Disposition of Licensed Products. Upon any termination of this
--------------------------------
Agreement pursuant to Sections 9.2, 9.3 or 9.4 hereof, ESPERION shall within
thirty (30) days of the effective date of such termination notify INEX in
writing of the amount of Licensed Products which ESPERION, its Affiliates and
Sublicensees then have completed on hand, the sale of which would, but for the
termination, be subject to royalty, and ESPERION, its Affiliates and
Sublicensees shall thereupon be permitted during the one (1) year following such
termination to sell that amount of Licensed Products, provided that ESPERION
shall pay the aggregate royalty thereon at the conclusion of the earlier of the
last such sale or such one (1) year period. Except as provided in this
Agreement, all sublicenses granted by ESPERION shall forthwith terminate upon
the termination of this Agreement.
9.7 Survival of Obligations; Return of Confidential Information.
-----------------------------------------------------------
(a) Notwithstanding any termination of this Agreement, the
obligations of the Parties under Section 7.5 and Article VIII and Article X
hereof, as well as under any other provisions which by their nature are intended
to survive any such termination, shall survive and continue to be enforceable.
Upon any termination of this Agreement pursuant to Section 9.2, 9.3 or 9.4
hereof, each Party shall promptly return to the other Party all written
Confidential Information, and all copies thereof (except for one archival copy
to be retained by a person designated by such Party (who shall not make
20
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such Confidential Information generally available to employees or other
representatives of such Party) for the purpose of confirming which information
to hold in confidence hereunder), of the other Party which is not covered by a
license surviving such termination;
(b) Upon termination, ESPERION shall promptly deliver to INEX,
at no cost to INEX, all animal and human data and such other information,
materials (including biological materials) and documents in ESPERION's
possession that INEX may require in order to obtain approval of applicable
government regulatory agencies to market Licensed Products. Upon
termination, ESPERION shall also promptly deliver to INEX, at no cost to
INEX, all Licensed Patents, patent prosecution records and, Know-How in its
possession or control, and shall destroy any copies of such materials
(except for one archival copy to be retained by a person designated by such
Party (who shall not make such Confidential Information generally available
to employees or other representatives of such Party) for the purpose of
confirming which information to hold in confidence hereunder); and
(c) Termination shall give effect to a non-exclusive, royalty-
free license from ESPERION to INEX, to make, have made, use or sell, any
and all Enhancements to Licensed Products in the Territory.
9.8 Arbitration. In the event of any unresolvable dispute, difference,
-----------
or question arising between the Parties in connection with this Agreement or any
clause or the construction thereof, or the rights, duties or liabilities of
either Party, or the scope or validity of any patent licensed hereunder, the
matter shall be submitted for arbitration in accordance with the rules of the
American Arbitration Association. Arbitration shall take place in continental
North America or as otherwise agreed by the Parties. A single arbitrator shall
be appointed by agreement of the Parties to resolve all such disputes,
differences or questions. The arbitrator shall be guided by the contents of this
Agreement in arriving at a decision to resolve the dispute, but may rely on
extrinsic evidence where appropriate and/or necessary. The Parties shall share
the cost of the arbitration unless, in the arbitrator's opinion, the position
advanced by one of the Parties, or the nature or manner of presenting it, is
such that it would be unfair to so apportion such expenses, in which case the
arbitrator may apportion such expenses differently. In cases where validity or
scope of a patent is in issue, either party shall have the right to elect to
have the arbitration conducted by three arbitrators, each party selecting one
and those arbitrators selecting the third.
ARTICLE X.
INDEMNIFICATION AND LIABILITY LIMITATIONS
10.1 Indemnification by ESPERION. ESPERION hereby agrees that it shall
---------------------------
be responsible for, indemnify, hold harmless and defend INEX and its Affiliates,
and their respective Board of Governors, directors, officers, employees,
faculty, students, invitees, managing members, shareholders, partners,
attorneys, accountants, consultants and
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agents, and their respective heirs, successors and assigns (collectively, the
"INEX Indemnities"), and UBC and its Affiliates and their respective directors,
officers, Board of Governors, employees, faculty, students, invitees, managing
members, shareholders, partners, attorneys, accountants, consultants and agents
and their respective heirs, successors and assigns (collectively, the "UBC
Indemnities") from and against any and all claims, demands, losses, liabilities,
damages, costs and expenses (including the cost of settlement, reasonable legal
and accounting fees and any other expenses for investigating or defending any
actions or threatened actions) (collectively, "Losses") suffered or incurred by
any INEX Indefinite or UBC Indemnity arising out of, relating to, resulting from
or in connection with (a) any third party claims arising out of or relating to
the breach of any representation or warranty made by ESPERION herein, (b) any
third party claims arising out of or relating to the default by ESPERION in the
performance or observance of any of its obligations to be performed or observed
hereunder, (c) any third party claims arising out of or relating to any injury
or death to any person or damage to any property caused by any Licensed Product,
whether claimed by reason of breach of warranty, negligence, product defect or
otherwise, and regardless of the form in which any such claim is made except to
the extent that such injury, death or damage is caused by the negligence or
willful misconduct of any INEX Indemnity or UBC Indemnity, and (d) any claim or
action which INEX is made a party at the request of ESPERION pursuant to Section
7.6.3 above. The foregoing shall not apply to the extent that such Losses are
due to the negligence or willful misconduct of any of the INEX Indemnities or
the gross negligence or willful misconduct of any of the UBC Indemnities or are
on account of or arising out of the Williams Claim.
10.2 Indemnification by INEX. INEX hereby agrees that it shall be
-----------------------
responsible for, indemnify, hold harmless and defend ESPERION and ESPERION's
Affiliates, and their respective Board of Governors, directors, officers,
employees, faculty, students, invitees, managing members, shareholders,
partners, attorneys, accountants, consultants and agents and their respective
heirs, successors and assigns (collectively, the "ESPERION Indemnities"), from
and against any and all Losses suffered or incurred by any ESPERION Indemnity
arising out of, relating to, resulting from or in connection with (a) any third
party claims arising out of or relating to the breach of any representation or
warranty made by INEX herein, and (b) any third party claims arising out of or
relating to the default by INEX in the performance or observance of any of its
obligations to be performed or observed hereunder, and (c) losses relating to
the Williams Claim that are (i) damages, costs, and expenses awarded against any
ESPERION Indemnity relating to the Williams Claim, (ii) any amounts payable in
connection with the settlement or compromise of any claims relating to the
Williams Claim, and (iii) any legal expenses, such as but not limited to,
reasonable legal fees, and any other expenses for investigating or defending any
actions or threatened actions. Reasonable legal fees, in this section, means
legal fees paid to attorneys appointed by FNEX to defend ESPERION against the
Williams Claim, or should ESPERION select its own attorneys to make such
defense, reasonable legal fees that explicitly distinguish legal expenses
relating to the Williams Claim from all other business between ESPERION and its
own attorneys. The foregoing shall not apply to the extent that such Losses are
due to the negligence or willful misconduct of any of ESPERION Indemnities.
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10.3 Notice of Claims. In the event that a claim is made pursuant to
----------------
Section IO. I or 10.2 above against any person or entity which seeks
indemnification hereunder (the "Indemnity"), the Ingenuity agrees to promptly
notify the indemnifying Party (the "Indemnity") of such claim or action and, in
the case of any claim by a third Person against the Indemnity, the Indemnity
may, at its option, elect to assume control of the defense of such claim or
action; provided, however, that (a) the Indemnity shall be entitled to
participate therein (through counsel of its own choosing) at the Indemnity's
sole cost and expense, and (b) the Indemnitor shall not settle or compromise any
such claim or action without the prior written consent of the Indemnity, unless
such settlement or compromise includes a general release of the Indemnity and
all of the other INEX Indemnities or ESPERION Indemnities, as the case may be,
from any and all liability with respect thereto.
10.4 Liability. No Party shall be liable for special, incidental or
---------
consequential damages or for loss of profit or lost revenue, even if such Party
has been advised of the possibility of such damage.
10.5 Insurance. If available on commercially reasonable terms (as
---------
determined in good faith by the Board of Directors of ESPERION), ESPERION shall
obtain product liability insurance in an amount not less than US Five Million
Dollars (US$5,000,000) per occurrence, and US Five Million Dollars
(US$5,000,000) annual aggregate, naming INEX and UBC as a named-insured. This
provision shall take effect at the time a Licensed Product is being commercially
sold (other than for the purpose of obtaining regulatory approval) by ESPERION,
an Affiliate, Sublicensee or Distributor.
10.6 Limitation on Liability. INEX's liability for damages under this
-----------------------
Agreement (regardless of form of action, whether in contract, tort or warranty)
shall not exceed the aggregate milestone payments and royalties paid to INEX.
10.7 Actions Between the Parties. For the avoidance of doubt, in
---------------------------
connection with actions brought by one party hereto against the other (whether
for breach of any provisions hereof, any representation or warranty made herein
or otherwise), each party expressly reserves all of its rights and remedies
under applicable law, including, without limitation, the right to sue for breach
of contract.
23
<PAGE>
ARTICLE XI.
UBC PROVISIONS
11.1 Limitations to License. ESPERION and INEX agree to the following
----------------------
additional limitations, terms and conditions to the licenses granted herein, in
relation to Hope/Rodrigueza, expressly for the benefit of UBC:
(a) In the event a suit under Section 7.4 involves
Hope/Rodrigueza, the rights of INEX shall be transferred to UBC.
(b) One month prior to the first sale of a Licensed Product,
ESPERION will give notice to UBC of the terms and amount of the public
liability, product liability and errors and omissions insurance which it
has placed in respect of the same, which in no case shall be less than the
insurance which a reasonable and prudent businessman carrying on a similar
line of business would acquire. This insurance shall be placed with a
reputable and financially secure insurance carrier, and where available on
commercially reasonable terms, shall include UBC, its Board of Governors,
faculty, officers, employees, students and agents as additional insureds,
and shall provide primary coverage with respect to the activities
contemplated by this Agreement. Such policy shall include severability of
interest and cross-liability clauses and shall provide that the policy
shall not be canceled or materially altered except upon at least thirty
(30) days written notice to UBC. UBC shall have the right to propose
reasonable amendments to the terms or the amount of coverage contained in
the policy. Failing the parties agreeing on the appropriate terms or the
amount of coverage, then the matter shall be determined by arbitration as
provided for herein. ESPERION shall provide UBC with certificates of
insurance evidencing such coverage seven (7) days before commencement of
sales of any Licensed Product and ESPERION covenants not to sell any
Licensed Product before such certificate is provided and approved by UBC.
ESPERION shall require that each Sublicensee under this Agreement shall
procure and maintain, during the term of the sublicense, public liability,
product liability and efforts and omissions insurance consistent with the
terms of this section. ESPERION shall use commercially reasonable efforts
to ensure that any and all such policies of insurance required pursuant to
this clause shall contain a waiver of subrogation against UBC, its Board of
Governors, faculty, officers, employees, students and agents.
(c) UBC shall not be restricted from presenting at symposia,
national or regional professional meetings, or from publishing in journals
or other publications accounts of its research relating to Hope/Rodrigueza,
provided, however, that ESPERION shall have the same right to review such
publication as it has with respect to publications made by INEX pursuant to
Section 8.3 above. For practical application of this provision, INEX agrees
to provide to ESPERION any and all publication(s) INEX receives from UBC
relating to the inventions contained in the Licensed Patents and the Know-
How to ESPERION within ten (IO) business days of such receipt.
24
<PAGE>
(d) ESPERION shall not use any of the UBC's registered trade-
marks or make reference to UBC or its name in any advertising or publicity
whatsoever, without the prior written consent of UBC, except as required by
law. Nothing herein shall prevent ESPERION from making or issuing factual
statements to the public regarding its business or use of Hope/Rodrigueza.
If ESPERION is required by law to act in contravention of this provisions,
ESPERION shall provide UBC with sufficient advance notice in writing to
permit UBC to bring an application or other proceeding to contest the
requirement.
(e) UBC's total liability, whether under the express or implied
terms of this Agreement, in tort (including negligence), or at common law,
for any loss or damage suffered by ESPERION, whether direct, indirect,
special, or any other similar or like damage that may arise or does arise
from any action by UBC, its Board of Governors, officers, employees,
faulty, students, or agents shall be limited to the sum of Cdn$l0,000. In
no event shall UBC be liable for consequential or incidental damages
arising from actions related to this Agreement.
11.2 The Parties acknowledge and confirm that in relation to
Hope/Rodrigueza:
(a) UBC makes no representations, conditions, or warranties,
either express or implied, with respect to Licensed Products. Without
limiting the generality of the foregoing, UBC specifically disclaims any
implied warranty, condition or representation that the Licensed Products
(i) shall correspond with a particular description;
(ii) are of merchantable quality;
(iii) are fit for a particular purpose; or
(iv) are durable for a reasonable period of time.
UBC shall not be liable for any loss, whether direct, consequential, incidental,
or special which ESPERION suffers arising from any defect, error, fault or
failure to perform with respect to the Licensed Products, even if UBC has been
advised of the possibility of such defect, error, fault, or failure. ESPERION
acknowledges that it has been advised by UBC to undertake its own due diligence
with respect to the Licensed Products.
(b) Nothing in this Agreement shall be construed as:
25
<PAGE>
(i) a warranty or representation by UBC as to title to
Hope/Rodrigueza or that anything made, used, sold or otherwise disposed of
under the license granted in this Agreement is or will be free from
infringement of patents, copyrights, trademarks, industrial design or other
intellectual property rights,
(ii) an obligation by UBC to bring or prosecute or
defend actions or suits against third parties for infringement of patents,
copyrights, trade-marks, industrial designs or other intellectual property
or contractual rights, or
(iii) the conferring by UBC of the right to use in
advertising or publicity the name of UBC or UBC Trade-marks.
ARTICLE XII.
MISCELLANEOUS
12.1 Publicity. Neither Party, nor any of its Affiliates, shall
---------
originate any publicity, news release or other public announcement, written or
oral, relating to this Agreement or the existence of an arrangement between the
Parties, without the prior written approval of the other Party, which approval
shall not be unreasonably withheld, except as otherwise required by law.
12.2 Non-Use of Names. Neither Party shall use the name of the other
----------------
Party, nor any adaptation thereof, in any advertising, promotional or sales
literature without prior written consent obtained from such other Party in each
case (which consent shall not be unreasonably withheld or delayed).
12.3 Assignment. Except as otherwise provided in this Agreement, neither
----------
this Agreement nor any of the rights or obligations hereunder may be assigned by
either Party without the prior written consent of the other Party, except either
to an Affiliate or to a third-party who acquires all or substantially all of the
business of the assigning Party by merger, sale of assets or otherwise.
12.4 Governing Law. This Agreement shall be governed by and interpreted
-------------
in accordance with the laws of the State of Michigan, without regard to
conflicts of law principles.
12.5 Force Majeure. In the event that either Party is prevented from
-------------
performing or is unable to perform any of its obligations under this Agreement
due to any act of God; fire; casualty; flood; war; strike; lockout; failure of
public utilities; injunction or any act,
26
<PAGE>
exercise, assertion or requirement of governmental authority; epidemic;
destruction of production facilities; riots; insurrection; inability to procure
or use materials, labor, equipment, transportation or energy; or any other cause
beyond the reasonable control of the Party invoking this Section 12.5 if such
Party shall have used its reasonable efforts to avoid such occurrence, such
Party shall give notice to the other Party in writing promptly, and thereupon
the affected Party's performance shall be excused and the time for performance
shall be extended for the period of delay or inability to perform due to such
occurrence.
12.6 Waiver. The waiver by either Party of a breach or a default of any
------
provision of this Agreement by the other Party shall not be construed as a
waiver of any succeeding breach of the same or any other provision, nor shall
any delay or omission on the part of either Party to exercise or avail itself of
any right, power or privilege that it has or may have hereunder operate as a
waiver of any right, power or privilege by such Party.
12.7 Notices. Any notice or other communication in connection with this
-------
Agreement must be in writing and if by mail, by registered mail, return receipt
requested, and shall be effective when delivered to the addressee at the address
listed below or such other address as the addressee shall have specified in a
notice actually received by the addressor.
If to INEX:
Inex Pharmaceuticals Corporation
100-8900 Glenlyon Parkway
Burnaby, B.C.
Canada V5J 5J8
Telecopier No.: (604) 419-3 202
Attention: Vice-President, Corporate Development
If to ESPERION:
Esperion Therapeutics, Inc.
3621 S. State Street
695 KMS Place
Ann Arbor, MI 48108 USA
Telecopier No.:
Attention: President
With a copy to:
Sills Cummis Radin Tischman Epstein & Gross
One Riverfront Plaza
27
<PAGE>
Newark, New Jersey 07102 USA
Telecopier No.: (973) 643-6500
Attention: Ira A. Rosenberg, Esq.
If to UBC:
The Director
University - Industry Liaison Office University of British
Columbia
IRC 331 - 2194 Health Sciences Mail Vancouver, B.C.
Canada V6T I Z3
Telephone: (604) 822-8580
Facsimile: (604) 822-8589
12.8 No Agency. Nothing herein shall be deemed to constitute either
---------
Party as the agent or representative of the other Party, or both Parties as
joint ventures or partners for any purpose. INEX shall be an independent
contractor, not an employee or partner of ESPERION, and the manner in which INEX
renders its services under this Agreement shall be within INEX's sole
discretion. Neither Party shall be responsible for the acts or omissions of the
other Party, and neither Party will have authority to speak for, represent or
obligate the other Party in any way without prior written authority from the
other Party.
12.9 Entire Agreement. This Agreement and the Schedule hereto (which
----------------
Schedule is deemed to be a part of this Agreement for all purposes) contain the
full understanding of the Parties with respect to the subject matter hereof and
supersede all prior understandings and writings relating thereto. No waiver,
alteration or modification of any of the provisions hereof shall be binding
unless made in writing and signed by the Parties by their respective officers
thereunto duly authorized.
12.10 Headings. The headings contained in this Agreement are for
--------
convenience of reference only and shall not be considered in construing this
Agreement.
12.11 Severability. In the event that any provision of this Agreement is
------------
held by a court of competent jurisdiction to be unenforceable because it is
invalid or in conflict with any law of any relevant jurisdiction, the validity
of the remaining provisions shall not be affected, and the rights and
obligations of the Parties shall be construed and enforced as if the Agreement
did not contain the particular provisions held to be unenforceable.
12.12 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the Parties hereto and their successors and permitted
assigns.
28
<PAGE>
12.13 Third Parties. None of the provisions of this Agreement shall be
-------------
for the benefit of or enforceable by any third party.
12.14 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
12.15 Further Assurances. Each party hereto agrees to execute,
------------------
acknowledge and deliver such further instruments and do all such further acts as
may be necessary or appropriate to carry out the purposes and intent of this
Agreement.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as a sealed instrument in their names by their properly and duly
authorized officers or representatives as of the date first above written.
INEX PHARMACEUTICALS CORPORATION
/s/ David J. Main
- -----------------------------
David J. Main
Executive Vice President
ESPERION THERAPEUTICS, INC.
/s/ Roger Newton
- -----------------------------
Roger Newton
President & C.E.O.
29
<PAGE>
SCHEDULE A
EARNED ROYALTIES
----------------
1. Earned Royalties Payable for each Licensed Product
--------------------------------------------------
[ ]
SCHEDULE A
Acknowledgment and Acceptance
INEX DJM March 16, 1999
-------------------------------
Initials Date
ESPERION RSN March 18, 1999
----------------------------
Initials Date
30
<PAGE>
SCHEDULE B
----------
INEX PROVIDES NO OPINION REGARDING
----------------------------------
THE FOLLOWFNG PATENTS
---------------------
US 5746223
WO 9713501
AU 9675956
US 5736157
31
<PAGE>
EXHIBIT 10.5
VIA COURIER
March 12, 1999
Bernard H. Bressler, Ph.D.
Vice President Research
University of British Columbia
2075 Wesbrook Mall
Vancouver, B.C.
V6T 1W5
Roger Newton, Ph.D.
President & C.E.O.
Esperion Therapeutics, Inc.
3621 S. State Street, 695 KMS Place
Ann Arbor, MI
48108
Dear Dr. Bressler and Dr. Newton,
Re: License Agreement dated July 1, 1998 between Inex
Pharmaceuticals Corporation ("Inex") and The University of British
Columbia ("UBC")
re: Sub-License by Inex to Esperion Therapeutics, Inc. ("Esperion")
Title: Liposome Compositions and Methods
for the Treatment of Atherosclerosis.
Serial No. and Filing Date: US SN 08/507,170; March 4,1994
Inventors: Hope, M. and Rodrigueza, W.
Inex File No.: 500
UILO File No.: 94-049
Inex hereby requests the consent of UBC under Article 4 of the above
noted License Agreement, to a sublicense of the above noted technology to
Esperion (the "Esperion Sublicense"), substantially in the form attached as
Appendix A.
In addition to the above noted consent, Inex requests that the
provisions of the License Agreement, specifically as it relates to the above
noted Hope/Rodrigueza Technology, be amended as follows:
<PAGE>
4A.0 SUBLICENSING OF HOPE/RODRIGUEZA
TECHNOLOGY (UILO FILE 94-049):
The provisions of Article 4.0 SUBLICENSING of the UBC License, and any
other inconsistent provision of the UBC License relating to Sub-
Licensing, as they relate to, and only to, the Hope/Rodrigueza
Technology (UILO File 94-049) are amended to include and to give
effect to the following:
4A.1 Curing of events of default by Sublicensees. Sublicenses
-------------------------------------------
granted by Licensee shall terminate upon the termination of Licensee's
rights granted herein unless events of default are cured by Licensee
or sublicensee within ninety (90) days of notification by UBC of
default and/or as provided by the terms of this Agreement. Each
sublicense shall contain covenants by the sublicensee to observe and
perform similar terms and conditions to those in this Agreement. UBC
agrees that if Licensee has provided to UBC notice that Licensee has
granted a sublicense to a sublicensee under this Agreement, then in
the event UBC terminates this Agreement for any reason, UBC shall
provide to such sublicensee written notice of such termination no less
than ninety (90) days prior to the effective date of such termination.
The sublicensee may during such ninety (90) day period provide to UBC
notice wherein the sublicensee: (a) reaffirms the terms and
conditions of this Agreement as it relates to the rights the
sublicensee has been granted under the sublicense; (b) agrees to abide
by all of the terms and conditions of this Agreement applicable to
sublicensees and to discharge directly all pertinent obligations of
Licensee which Licensee is obligated hereunder to discharge with
respect to such sublicense; and (c) acknowledges that UBC shall have
no obligations to the sublicensee other than its obligations set forth
in this Agreement with regard to Licensee. UBC agrees that upon such
sublicensee's notice and provided such sublicensee is not in material
breach of its sublicense, UBC shall either (i) provide for the
continuation of such sublicense as a direct license from UBC to such
sublicensee, or (ii) at UBC's election grant to such sublicensee a new
license, effective as of the date of termination of this Agreement
which provides for license rights and terms equivalent to the
sublicense rights and terms which Licensee shall have granted to such
sublicensee. In the event transfer to a sublicensee as considered in
this paragraph of the continuation of a sublicense or a grant of a
direct license by UBC, as considered in this Paragraph, UBC shall be
entitled to receive the full benefit of such sublicense or license.
<PAGE>
The signatories to this letter further agree that UBC shall be deemed
a third party beneficiary of the Esperion Sublicense for the purpose of
enforcing UBC's rights under Article X and Article XI of the Esperion
Sublicense.
Sincerely,
David J. Main
VP, Commercial Development
Inex Pharmaceuticals Corp.
CONSENT & AGREEMENT
ESPERION THERAPEUTICS, INC.
/s/ Roger Newton
---------------------------
Dr. Roger Newton
President & C.E.O.
March 18, 1999
---------------------------
Date
CONSENT & AGREEMENT
The undersigned hereby consents to the sublicense,
substantially in the form attached, and agrees to
the amendments to the License Agreement proposed
herein:
UNIVERSITY OF BRITISH COLUMBIA
/s/ Bernard H. Bressler
---------------------------
Dr. Bernard H. Bressler
Vice President Research
March 15, 1999
---------------------------
Date
<PAGE>
Exhibit 10.6
LICENSE AGREEMENT
-----------------
This LICENSE AGREEMENT (this "Agreement") dated as of February 17, 2000, is
entered into by and
BETWEEN: REGION WALLONNE, a duly constituted region of the Kingdom of
Belgium, acting through the Ministere de la Region Wallonne, Direction
generale des Technologies, de la Recherche et de l'Energie, having
offices at Avenue Prince de Liege, 7, B-5100 Jambes (Namur), Belgium;
Hereinafter referred to as "LICENSOR";
AND: ESPERION THERAPEUTICS, INC., a Delaware corporation with a
principal place of business at 3621 S. State Street, 695 KMS
Place, Ann Arbor, MI, 48108, USA
Hereinafter referred to as "LICENSEE".
WITNESSETH:
WHEREAS, LICENSOR has entered into various contracts with U.C.B., pursuant to
which LICENSOR has partly financed a research project led by U.C.B. relating to
Pro-Apolipoprotein A-I and lipid complexes;
WHEREAS, U.C.B. has entered into contracts with subcontractors in the frame of
the above mentioned research project, including CERIA (Brussels, Belgium),
U.L.B. - Service de Genetique Appliquee (Nivelles, Belgium), INVERESK RESEARCH -
HUNTINGDON LIFE SCIENCES (*, United Kingdom), Laboratoire SIMON (*, Belgium) and
KAROLINSKA INSTITUTE (*, Sweden).
WHEREAS, U.C.B. has terminated in 1998 its contracts with LICENSOR;
WHEREAS, as a consequence of this termination, LICENSOR owns or has exclusive
rights to certain patent rights, proprietary information and know-how with
respect to the Compound (as defined below);
WHEREAS, LICENSEE, a company specialised in novel therapies for patients with
atherosclerosis and related metabolic disorders, has an interest in acquiring
exclusive rights to such patent rights, proprietary information and know-how
with respect to the Compound;
WHEREAS, the parties desire to enter into an agreement pursuant to which
LICENSOR shall license to LICENSEE such patent rights, proprietary information
and know-how with respect to the Compound.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained
<PAGE>
herein, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
----------------------
1. "Affiliate" means, with respect to any Person, any other Person that
---------
directly, or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with such Person.
For purposes hereof, the term "control" (including, with its correlative
-------
meanings, the terms "controlled by" and "under common control with", with
------------- -------------------------
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of
such Person (whether through the ownership of voting securities, by
contract or otherwise); provided, that in each event in which any Person
--------
owns directly or indirectly more than 50% of the securities having ordinary
voting power for the election of directors or other governing body of a
corporation or more than 50% of the securities having ordinary voting power
for the election of directors or other governing body of a corporation or
more than 50% of the ownership interest of any other Person, such Person
shall be deemed to control such corporation or other Person.
The characterization of a Person as an Affiliate for the purposes of this
Agreement is not made definitively at the date of execution of this
Agreement. Therefore any Person which, during the course of the present
Agreement, will either fall within this definition while it did not at the
date of execution of this Agreement or which, alternatively, will no longer
fall within this definition while it did at that date, shall become or,
alternatively, cease to be an "Affiliate", for the purposes of this
Agreement, for the corresponding period.
1.2. "Compound" means Pro-Apolipoprotein A-I.
1.3. "Confidential Information" means any and all information (in any and every
------------------------
form and media) not generally known in the relevant trade or industry,
which was obtained from any party or any Affiliate thereof in connection
with this Agreement or the respective rights and obligations of the parties
hereunder, including, without limitation (a) information to trade secrets
of such party or any Affiliate thereof, (b) information relating to
existing or contemplated products, complexes, services, technology,
designs, processes, formulae, research and development (in any and all
stages) of such party or any Affiliate thereof, (c) information relating to
the Compound or the Licensed Products, and (d) information relating to
business plans, methods of doing business, sales or marketing methods,
customer lists, customer usages and/or requirements and supplier
information of such party or any Affiliate thereof.
However,"Confidential Information" shall not include any information which
------------------------
(i) the receiving party can prove was, at the time of disclosure, generally
known to the public, (ii) the receiving party can prove became, after
disclosure, part of the public knowledge (by publication or otherwise)
other than by breach of this Agreement by the receiving party, (iii) the
receiving party can prove, by written documentation, was in its possession
at the time of disclosure and which was not obtained, directly or
<PAGE>
indirectly, from the other party or any Affiliate thereof, (iv) the
receiving party can prove by written documentation results from research
and development by the receiving party or any Affiliate thereof independent
of disclosures by the other party or any Affiliate thereof or (v) the
receiving party can prove was obtained from any Person who had the legal
right to disclose such information, provided that such information was not
--------
obtained to the knowledge of the receiving party or any Affiliate thereof
by such Person, directly or indirectly, from the other party or any
Affiliate thereof on a confidential basis.
1.4. "Control" (including, with its correlative meanings, the term "Controlled
-------
by") means, with respect to any Patent Rights or Know-How, the possession
of the ability to lawfully and validly grant a license or sublicense with
respect thereto as provided for herein without violating the terms of any
agreement with, or the rights of, any third Person.
1.5. "Licensed Product" means any product the manufacture, use or sale of which
----------------
(i) would infringe one of the issued, valid unexpired claims or one of the
pending claims contained in the Patent Rights in any country or (ii)
involves use of the Know-How.
1.6. "Know-How" means any and all technology, manufacturing and other know-how,
--------
technical information, inventions, discoveries, methods and specifications
relating to the Compound or Pro-Apolipoprotein A-I /lipid complexes owned
at any time or Controlled by LICENSOR.
For the purpose of this Agreement, Know-How shall not include any
technology manufacturing and other know-how, technical information,
inventions, discoveries, methods and specifications that LICENSEE can prove
(i) were in its knowledge before September 16, 1999, or (ii) are generally
known in the relevant circles of research, trade or industry or (iii) part
of the public domain or knowledge other than by breach of this Agreement by
Licensee.
1.7. "Net Sales" means, calculated on a quaterly basis, gross receipts received
---------
by LICENSEE and/or its Affiliates and/or its sublicensees for sale of the
Licensed Products, less the sum of the following (collectively, "Permitted
---------
Deductions"):
----------
i) discounts and rebates allowed in amounts customary in the trade;
ii) sales taxes, customs and tariff duties and/or use taxes directly
imposed and with reference to particular sales;
iii) amounts repaid, allowed or credited on returns;
iv) charges of transportation and delivery to Persons that are not
Affiliates of LICENSEE.
v) royalties paid to third parties for license to use Dominant Patents.
For the purpose of this Agreement, "Dominant Patents" shall mean any
and all Patents which claim technology the use of which is necessary
for the production, use and/or practice of the Compound as it is
disclosed and/or claimed in the Patent Rights.
In the event of any sale of the Licensed Products by LICENSEE to any
Affiliate thereof for resale to its customers, "Net Sales" shall be based
---------
on the greater of the amount actually received by LICENSEE from its
Affiliate or the amount actually received by such Affiliate from its
customers for the sale of the Licensed Products, less (in either such case)
----
the Permitted Deductions.
<PAGE>
If LICENSEE or any of its Affiliates sells any Licensed Products in
combination with other items which are not Licensed Products ("Other
-----
Items") at a single invoice price, "Net Sales" for purposes of computing
---------
royalty payments on the combination shall be determined as follows:
(a) if all Licensed Products and Other Items contained in the combination
are available separately, "Net Sales" for purposes of computing royalty
---------
payments shall be determined by multiplying Net Sales of the combination of
the fraction A/A+B, where A is the selling price of all Licensed Products
in the combination and B is the selling price of all Other Items in the
combination;
(b) if the combination includes Other Items which are not sold separately
(but all Licensed Products contained in the combination are available
separately), "Net Sales" for purposes of computing royalty payments shall
---------
be determined by multiplying Net Sales of the combination by A/C, where A
is as defined above and C is the selling price of the combination; and
(c) if neither the Licensed Products nor the Other Items contained in the
combination are sold separately, "Net Sales" for purposes of computing
---------
royalty payments shall be determined by multiplying Net Sales of the
combination by the fraction D/D+E, where D is the cost of manufacture of
all Licensed Products in the combination and E is the cost of manufacture
of all Other Items in the combination, all as reasonably determined by
LICENSEE;
provided that LICENSOR shall in no event receive less than 50% of the
--------
royalties which would be owed to it in respect of such Licensed Products if
they had been sold separately and not in combination with other items.
1.8. "Patent" means (i) unexpired letters patent (including
------
inventor's certificates) which have not been held invalid or unenforceable
by a court of competent jurisdiction from which no appeal can be taken or
has been taken within the required time period, including, without
limitation, any substitution, extension, registration, confirmation,
reissued, re-examination, renewal or any like filing thereof, and (ii)
pending applications for letters patent, including without limitation any
continuation, division or continuation-in-part thereof and any provisional
applications, and any foreign counterparts and all patents that issue
therefrom.
<PAGE>
1.9. "Patent Rights" means all Patents (i) which have issued as of
-------------
the date of this Agreement, a list of which is attached hereto as Appendix
A, or (ii) which issue at any time from applications pending as of the date
of this Agreement or subsequently filed worldwide, now owned or Controlled
during the term of this Agreement, by or on behalf of LICENSOR or any of
its successors or Affiliates, claiming, in whole or in part, inventions
necessary or useful to the development, manufacture, purification,
formulation, use or sale of Compound.
1.10. "Person" means any individual, estate, trust, partnership,
------
joint venture, association, firm, corporation or company, or governmental
body, agency or official, or any other entity.
1.11. "U.S. Dollars" and the sign "$" each mean lawful currency of
the United States of America.
1.12. Numbers are expressed using US number nomenclature (e.g. 1,000
means one thousand; 0.50 means one half).
1.13. Except to the extent the context otherwise requires or as
otherwise expressly stipulated, words denoting any one gender include all
other gender and words denoting the singular shall include the plural and
vice versa.
SECTION 2. GRANT
----------------
2.1. Grant of License. Upon the terms and subject to the conditions
----------------
herein stated, LICENSOR hereby grants LICENSEE an exclusive, worldwide
license under the Patent Rights and Know-How to develop, make, use, import,
offer for sale and sell, and to have developed, made, used, imported,
offered for sale and sold, the Licensed Products.
LICENSEE shall be entitled to grant sublicences. Such right is however
conditional upon the obligation of LICENSEE to impose on sub-licensees all
the terms and conditions - save for the financial terms - imposed on
LICENSEE under this Agreement, including the obligations deriving from
sections 3.1, 5.3 and 9.1 of this Agreement.
LICENSEE shall provide LICENSOR with a copy of all sublicense contracts
executed with sublicensees.
2.2. Delivery of Know-How and Required Documentation. LICENSOR shall
-----------------------------------------------
promptly deliver to LICENSEE any and all Know-How.
LICENSOR shall moreover use its best efforts to obtain from UCB a legally
binding commitment and warranty (hereinafter refferred to as "UCB's
Warranty) that UCB and /or its Affiliates shall fully disclose and deliver
to LICENSOR any and all events, data, information, materials and/or records
related to the Compound or Pro-Apolipoprotein A- I/lipid complexes, to the
research related thereto and to their
<PAGE>
development and production, as required by the regulatory agencies
(hereinafter referred to as the "Required Documentation").
Without prejudice to the generality of the above, Required Documentation
shall, for the purpose of this Agreement, include:
. originals or copies of any and all scientific data and regulatory
submissions and documentation, manufacturing process, reagents, samples,
expressions systems, written formulations and other information relevant
to the Compound or Pro-Apolipoprotein A-I/lipid complexes, and/or to the
development, manufacture, purification, formulation, use or sale of any
Licensed Products;
. originals or copies of any and all such records, data and documentation that
relates to, or results from, previous arrangements and/or agreements
between LICENSOR or U.C.B. (and/or any of its Affiliates), on the one
hand, and third parties (contract research organizations,
subcontractors, universities, hospitals, researchers, scientists, etc.,
hereinafter referred to as the "Subcontractors") on the other hand, with
respect to the Compound research and development (including, without
limitation, Compound characterization, clinical studies, production,
formulation, purification and/or preclinical studies);
. originals or copies of any and all agreements with researchers to which
LICENSOR and/or U.C.B. (and/or any of its affiliates) is a party or
otherwise has access and which relate to the Compound.
LICENSOR shall moreover use its best efforts to obtain from UCB the
commitment and warranty that (all this being included in UCB's Warranty):
. U.C.B. and/or it Affiliates shall, upon request of LICENSEE and to the extent
permitted by such agreements with Subcontractors, assign to LICENSEE any
and all rights which LICENSOR and/or U.C.B. (and/or its Affiliates) may
have under any or all such agreements.
. UCB and/or its Affiliates shall, upon request of LICENSEE, authorize and/or
direct the Subcontractors to disclose and/or provide to LICENSOR any
element of the Required Documentation in said Subcontractors possession,
as the said Subcontractors would do with UCB (and/or its Affiliates) or
LICENSOR;
. UCB and/or its Affiliates shall provide LICENSOR with a complete list of all
the Persons which have possession of the Compound; UCB and/or its
Affiliates shall provide full and unrestricted access to all records
related to all hospitals and researchers which have possession of the
Compound, including without limitation access to any material transfer
agreements;
. any Compound or components thereof of UCB (or its Affiliates) that is in
storage or in the possession of others shall be and become the property
of LICENSOR;
. all Required Documentation possessed or Controlled by UCB, or that UCB is or
should be aware of, have been fully disclosed and delivered to LICENSOR.
LICENSEE shall pay for shipment of all records, data, documentation and
Compound or components thereof to be delivered by LICENSOR pursuant to this
Section 2.2. and which exist prior the date of this Agreement, to a
location determined by LICENSEE. If this Agreement terminates prior to its
contractual term for any reason (other than due to an Event of Default on
the part of LICENSOR), LICENSEE shall pay for return of such records, data,
documentation, Compound and components thereof to a location in Belgium
specified by LICENSOR.
<PAGE>
LICENSOR shall use its best efforts to obtain UCB to execute UCB's Warranty
at the latest 30 days following the execution of this Agreement. If
LICENSOR fails to submit an original copy of UCB's Warranty at the latest
30 days following the execution of this Agreement, LICENSEE shall have the
right to terminate this Agreement by giving written notice thereof to
LICENSOR. The termination shall than be immediate and without any period of
notice or compensation whatsoever to be paid to LICENSOR or LICENSEE.
All amounts to be paid by LICENSEE to LICENSOR and which become due during
a period of time of 30 days starting on the date of this Agreement, shall
be paid on an escrow account. In case of termination of the Agreement by
LICENSEE pursuant to this article, the amounts paid on the escrow account
shall immediatly be released and reimbursed to LICENSEE with interest if
any.
Upon execution of UCB's Warranty by UCB, LICENSOR shall have, towards
LICENSEE, the same obligations as UCB shall have towards LICENSOR with
respect to the disclosure and delivery of the Required Documentation. In no
case shall the obligations of LICENSOR towards LICENSEE be greater than
those of UCB towards LICENSOR, even if UCB fails to execute UCB's Warranty
as hereabove defined.
LICENSOR moreover represents and warrants to LICENSEE that LICENSOR shall
disclose and deliver to LICENSEE any and all Required Documentation that
LICENSOR has received or shall receive from UCB (and/or its Affiliates) or
from any Person at any time.
Without prejudice to section 4.7. of this Agreement, shall transfer and as
soon as practicably possible deliver to LICENSEE, at the location(s)
specified by LICENSEE, all of its existing supplies and materials relating
to the Compound and/or any Licensed Products, including without limitation,
the Compound, finished products, intermediates and formulation materials,
master cell lines, antibodies and any available custom-designed reagents.
LICENSEE shall pay cost of shipment and transfer.
SECTION 3. DUE DILIGENCE
------------------------
3.1. Due Diligence. LICENSEE shall use commercially reasonable efforts in
-------------
such portions of the Territory as is commercially reasonable, but at a
minimum in the United States, to pursue the development of the Compound,
including the necessary manufacturing, process development, preclinical and
clinical trials and preparation and prosecution of regulatory submissions,
and ultimately shall use its reasonable good faith efforts to pursue
commercialization of the Compound, either on its own or in conjunction with
one or more other Persons, as determined by LICENSEE.
3.2. Future Agreements. While not being bound to reach or enter into any
-----------------
further or other agreement, with the exception provided in Section 4.6. of
this Agreement, LICENSEE agrees that (a) it shall use best efforts to
collaborate with known investigators in the Wallonne Region of Belgium with
respect to development of the Compound and (b) it shall use good faith
efforts to negotiate a supply agreement with
<PAGE>
a manufacturer preferably in the Wallonne Region but otherwise in Belgium
to produce the Compound, so long as the terms of such supply arrangement
are economically feasible and such manufacturer is capable of manufacturing
the Compound in accordance with specifications, applicable law and good
manufacturing practices and on a timely basis.
SECTION 4. ROYALTIES AND OTHER PAYMENTS
---------------------------------------
4.1. Initial licence fee. LICENSEE shall pay to LICENSOR an initial
-------------------
licence fee of $ 25,000, which initial fee shall be paid on the escrow
account described in Section 2.2. of this Agreement, within 10 days after
the execution of the Agreement.
4.2. Royalties. For the rights, privileges and licenses granted
---------
hereunder, LICENSEE shall pay to LICENSOR royalties in the amount of (a)
two percent (2%) of the first $300 Million in Net Sales and (b) three
percent (3%) of Net Sales above $300 Million.
4.3. Limitation on Royalties. Notwithstanding anything to the contrary
-----------------------
contained herein, (a) no royalties shall be payable by LICENSEE with
respect to the Net Sales of the Licensed Products to any of its Affiliates
or by any of LICENSEE's Affiliates to any other Affiliate thereof, and (b)
no multiple royalties shall be payable in the event that any of the
Licensed Products or the manufacture, use or sale thereof is covered by
more than one patent included in the Patent Rights.
4.4. Unlicensed Competition. LICENSEE shall promptly notify LICENSOR in
----------------------
writing of any substantial unlicensed competition by any Person (a
"Competitor") making, selling or using a product in any geographic area
-----------
which product infringes one or more valid current claims included in the
Patent Rights with respect to which LICENSEE has an obligation to pay
royalties to LICENSOR hereunder.
Upon receipt of any such notice, LICENSOR shall use reasonable efforts to
cause such infringement by the Competitor to terminate.
In the event that the infringement by the Competitor described in the
notice shall not have terminated within six months after the receipt of
such notice by LICENSOR, (a) the royalties otherwise payable by LICENSEE
hereunder shall be abated by *% of the amount otherwise payable with
respect to the manufacture, sale and use of the Licensed Products affected
thereby in the country or countries in which such infringement has occurred
(but only in such country or countries, and not elsewhere), until such
infringement shall have terminated and (b) LICENSEE shall have the right to
commence and prosecute such legal proceedings and LICENSOR shall assist and
cooperate in any such proceedings so commenced by LICENSEE (including, but
not limited to, through becoming a party to the proceedings in the
countries where that would be mandatory or desirable).
In the event that any royalties are so abated and LICENSEE so prosecutes
such legal proceedings with respect to the affected Patent Rights and
recovers any monetary damages by final, nonappealable court judgment or
order, then after payment of all costs and expenses of LICENSEE in
prosecuting such proceeding (including, but not
<PAGE>
limited to, attorney fees), LICENSEE and LICENSOR shall divide any
remaining portion of such monetary damages equally between them; provided
---------
that the amount to be paid to LICENSOR pursuant to this sentence shall not
exceed the amount of royalties so abated and all amounts of damages in
excess of such amount so abated shall be paid solely to LICENSEE.
4.5. Withholding Taxes. The parties acknowledge and agree that there may
-----------------
be deducted from any payments or royalties otherwise due and payable
hereunder any taxes or other payments required to be withheld under
applicable law with respect to such payments or royalties or otherwise
relating to the Licensed Products.
4.6. Upon execution of this Agreement, LICENSEE shall enter into a
research collaboration with Professor Alex Bollen of the Universite Libre
de Bruxelles for an estimated amount of $50,000 for the first year. The
terms of such research collaboration agreement will be as mutually agreed
upon by LICENSEE and such Professor and the Universite. LICENSEE shall
have the option to renew this agreement annually thereafter.
4.7. LICENSEE shall pay $ 10,000 to LICENSOR for the supply of the entire
quantity of Compound (approximately 100 grams) currently being stocked in
CERIA (Brussels), as such quantity does not meet reasonable specifications
(as defined by LICENSEE and similar to UCB Company and its Affiliates
specifications for its clinical trials). LICENSEE shall be entitled to take
possession of the above quantity of Compound upon execution of the
Agreement, at no cost to LICENSOR.
SECTION 5. PAYMENT OF ROYALTIES, ACCOUNTING
-------------------------------------------
FOR ROYALTIES, RECORDS, ETC
---------------------------
5.1. Payment. Royalties payable hereunder shall be paid within 30 days
-------
after the end of each calendar quarter, based on the Net Sales of the
Licensed Products by LICENSEE and its Affiliates during the preceding
calendar quarter. Such payments shall be accompanied by a statement
setting forth the Net Sales of the Licensed Products.
5.2. Accounting; Foreign Currency. The aggregate amount of the Net Sales
----------------------------
of the Licensed Products used for computing the royalties payable hereunder
shall be computed in U.S. Dollars, and all payments of such royalties shall
be made in U.S. Dollars. For purposes of determining the amount of
royalties due, the amount of the Net Sales of the Licensed Products in any
foreign currency shall be computed by converting such amounts into U.S.
Dollars at the prevailing commercial rate of exchange for purchasing U.S.
Dollars, as quoted in The Wall Street Journal, on the last business day of
the calendar quarter with respect to which such royalty payment is payable
hereunder.
5.3. Records. LICENSEE and its Sublicensees shall keep for five (5) years
-------
complete and accurate records of the Net Sales of the Licensed Products
sold by LICENSEE and its Affiliates and/or its Sublicensees in sufficient
detail to allow the royalties payable by LICENSEE to be accurately
determined.
<PAGE>
LICENSOR shall have the right for a period of five (5) years after
receiving any report or statement with respect to royalties due and payable
hereunder by LICENSEE to appoint an independent accounting firm, reasonably
acceptable to LICENSEE, to inspect and audit the relevant records of
LICENSEE and its Affiliates and/or its Sublicensees to verify such report
or statement.
LICENSEE, its Affiliates and Sublicensees shall make their records
available for inspection and audit by such independent accounting firm
during regular business hours at such place or places where such records
are customarily kept, upon reasonable notice to LICENSEE, to the extent
reasonably necessary to verify the accuracy of the reports and payments
required hereunder.
The cost of any such inspection and audit shall be paid by LICENSOR unless
such inspection and audit discloses for any calendar quarter examined that
there shall have been a discrepancy of greater than five percent (5%)
between the royalties payable hereunder by LICENSEE and the royalties
actually paid by LICENSEE with respect to such calendar quarter, in which
case LICENSEE shall be responsible for the payment of the entire cost of
such inspection and audit.
SECTION 6. PATENT PROSECUTION
-----------------------------
6.1. Prosecution Obligation. LICENSEE shall on behalf of LICENSOR apply
----------------------
for, seek prompt issuance of, and maintain during the term of this
Agreement any and all Patent Rights in countries in North America and
Western Europe, in Japan, and in any other country in which LICENSEE
desires to apply for, prosecute and/or maintain Patent Rights on behalf of
LICENSOR.
All reasonable costs and expenses of the prosecution and maintenance of
such Patent Rights shall be paid by LICENSEE.
LICENSOR shall render reasonable assistance to LICENSEE in filing and
prosecuting such applications and maintaining the Patent Rights whenever
requested to do so, at LICENSEE's expense.
In the event that LICENSEE intends to cease prosecution of or otherwise
abandon any Patent Rights in any geographic area, LICENSEE shall so notify
LICENSOR and LICENSOR shall thereafter have the right to prosecute and
maintain such Patent Rights in such geographic area by itself and at its
own expense.
SECTION 7. REPRESENTATIONS AND WARRANTIES
-----------------------------------------
7.1. By LICENSEE. LICENSEE hereby represents and warrants to LICENSOR
------------
that (a) LICENSEE has full legal right, power and authority to execute,
deliver and perform its obligations under this Agreement, (b) the
execution, delivery and performance by LICENSEE of this Agreement do not
contravene or constitute a default under any provision of applicable law or
its articles or by-laws (or equivalent documents) or of any agreement,
judgment, injunction, order, decree or other instrument binding upon
LICENSEE, (c) all licenses, consents, authorizations and
<PAGE>
approvals, if any, required for the execution, delivery and performance by
LICENSEE of this Agreement have been obtained and are in full force and
effect and all conditions thereof have been complied with, and no other
action by or with respect to, or filing with, any governmental authority or
any other Person is required in connection with this execution, delivery
and performance by LICENSEE of this Agreement, and (d) this Agreement
constitutes a valid and binding agreement of LICENSEE, enforceable against
LICENSEE in accordance with its terms.
7.2. By LICENSOR. LICENSOR hereby represents and warrants to LICENSEE
-----------
that (a) LICENSOR has full legal right, power and authority to execute,
deliver and perform its obligations under this Agreement, (b) the
execution, delivery and performance by LICENSOR of this Agreement do not
contravene or constitute a default under any provision of applicable law or
of any agreement, judgment, injunction, order, decree or other instrument
binding upon LICENSOR or otherwise relating to the Compound, the Patent
Rights or the Know-How, (c) all licenses, consents, authorizations and
approvals, if any, required for the execution, delivery and performance by
LICENSOR of this Agreement have been obtained and are in full force and
effect and all conditions thereof have been complied with, and no other
action by or with respect to, or filing with, any governmental authority or
any other Person is required in connection with the execution, delivery and
performance by LICENSOR of this Agreement, (d) LICENSOR is the exclusive
owner of all legal and beneficial right, title and interest in and to the
Patent Rights and the Know-How, free and clear of any lien, claim or
encumbrance or rights of any other Person, (e) US Patents No 4,760,022 and
No 4,757,013 (and their counterparts in other countries) disclose and claim
technology the use of which is necessary for the production, use and/or
practice of the Compound as it is disclosed and/or claimed in the Patent
Rights, (f) to the best knowledge of LICENSOR, neither the practice of
Patent Rights and/or Know-How as contemplated by Section 2.1 hereof, nor
the development, manufacture, use, importation, offer for sale, sale or
commercialization of any Licensed Product, infringes or violates any patent
or other right of any Person, except as disclosed in point (e) hereabove
(g) this Agreement constitutes a valid and binding agreement of LICENSOR,
enforceable against LICENSOR in accordance with its terms.
7.3. Survival of Representations and Warranties. The representations and
------------------------------------------
warranties contained herein shall survive the execution, delivery and
performance of this Agreement by the parties, notwithstanding any
investigation at any time made by or on behalf of any party or parties.
SECTION 8. INFRINGEMMENT AND INDEMNIFICATION
--------------------------------------------
8.1. Infringement Claims. Without prejudice to article 4.4, each party
-------------------
shall promptly advise the other party of any infringements or suspected
infringements of any Patent Rights of which such party becomes aware, and
each party shall cooperate with and assist the other party in any action
undertaken by the other party for the defense of infringement of any Patent
Rights by any Person or for the defense of any claim that the Patent Rights
infringe the rights of any other Person. In such case, the other party
shall retain the right to elect, in its sole discretion, which remedies to
adopt.
<PAGE>
8.2. Indemnification
---------------
8.2.1. Indemnification by LICENSEE. LICENSEE hereby agrees that it shall
---------------------------
be responsible for, indemnify, hold harmless and defend LICENSOR and its
Affiliates and heirs, successors and assigns (collectively, the "LICENSOR
--------
Indemnitees"), from and against any and all claims, demands, losses,
-----------
liabilities, damages, costs and expenses (including the cost of settlement,
reasonable legal and accounting fees and any other expenses for
investigating or defending any actions or threatened actions)
(collectively, "Losses") suffered or incurred by any LICENSOR Indemnitee
------
arising out of, relating to, resulting from or in connection with (a) the
breach of any representation or warranty made by LICENSEE herein, (b) the
default by LICENSEE in the performance or observance of any of its
obligations to be performed or observed hereunder, and (c) any action, suit
or other proceeding, or compromise, settlement or judgment, relating to any
of the foregoing matters with respect to which LICENSOR Indemnitees are
entitled to indemnification hereunder.
The foregoing shall not apply to the extent that such Losses are due to the
willful misconduct or gross negligence of any of the LICENSOR Indemnitees.
8.2.2. Indemnification by LICENSOR. LICENSOR hereby agrees that it shall
---------------------------
be responsible for, indemnify, hold harmless and defend LICENSEE and its
Affiliates and heirs, successors and assigns (collectively, the "LICENSEE
--------
Indemnitees"), from and against any and all losses suffered or incurred by
-----------
any LICENSEE Indemnitee arising out of, relating to, resulting from or in
connection with (a) the breach of any representation or warranty made by
LICENSOR herein, (b) the default by LICENSOR in the performance or
observance of any of its obligations to be performed or observed
hereunder, and (c) any action, suit or other proceeding, or compromise,
settlement or judgment, relating to any of the foregoing matters with
respect to which LICENSEE Indemnitees are entitled to indemnification
hereunder.
The foregoing shall not apply to the extent that such Losses are due to the
willful misconduct or gross negligence of any of the LICENSEE Indemnitees.
8.2.3. Notice of Claims. In the event that a claim is made pursuant to
----------------
Section 8.2.1 or 8.2.2 above against any party which seeks indemnification
hereunder (the "Indemnitee"), the Indemnitee agrees to promptly notify the
----------
other party (the "Indemnitor") of such claim or action and, in the case of
----------
any claim by a third Person against the Indemnitee, the Indemnitor may, at
its option, elect to assume control of the defense of such claim or action;
provided, however, that (a) the Indemnitee shall be entitled to participate
-------- -------
therein (through counsel of its own choosing) at the Indemnitee's sole cost
and expense, and (b) the Indemnitor shall not settle or compromise any such
claim or action without the prior written consent of the Indemnitee, unless
such settlement or compromise includes a general release of the Indemnitee
and all of the other LICENSOR Indemnitees or LICENSEE Indemnitees, as the
case may be, from any and all liability with respect thereto.
8.2.4. Survival of Indemnification Duties. The indemnification duties
----------------------------------
contained herein shall survive the execution, delivery and performance of
this Agreement by the
<PAGE>
parties, notwithstanding any investigation at any time made by or on behalf
of any party or parties.
SECTION 9. CONFIDENTIALITY
--------------------------
9.1. Confidentiality. The parties each recognize that the Confidential
---------------
Information of the other party and any and all Affiliates thereof
constitutes valuable confidential and proprietary information.
Accordingly, the parties each agree that they and their respective
Affiliates shall, during the term of this Agreement and for a period of
five (5) years after the termination hereof for any reason, hold in
confidence all Confidential Information of the other party (including this
Agreement and the terms hereof) and not use the same for any purpose other
than as set forth in this Agreement nor disclose the same to any other
Person except to the extent that it is necessary for such party to enforce
------
its rights under this Agreement or if required by law or any governmental
authority (including, without limitation, any stock exchange upon which
such party's shares or other equity securities may be traded); provided,
--------
however, if any party shall be required by law to disclose any such
-------
Confidential Information to any other Person, such party shall give prompt
written notice thereof to the other party and shall minimize such
disclosure to the amount required.
Notwithstanding the foregoing, LICENSOR shall be entitled to disclose to
U.C.B. that this Agreement has ben executed by the parties as well as the
amount of royalties paid by LICENSEE to LICENSOR pursuant to this
Agreement.
Notwithstanding the foregoing, either party may disclose Confidential
Information of the other (a) to such party's attorneys, accountants and
other professional advisors under an obligation of confidentiality to such
party, (b) to such party's banks or other financial institutions or venture
capital sources for the purpose of raising capital or borrowing money or
maintaining compliance with agreements, arrangements and understandings
relating thereto, and (c) to any Person who proposes to purchase or
otherwise succeed (by merger, operation of law or otherwise) to all of such
party's right, title and interest in, to and under this Agreement, if such
Person agrees to maintain the confidentiality of such Confidential
Information pursuant to a written agreement in form and substance
reasonably satisfactory to the parties.
The standard of care required to be observed hereunder shall be not less
than the degree of care which each party or Affiliate thereof uses to
protect its own information of a confidential nature.
Parties shall procure that all their employees, counsels, agents,
directors, sub-licensees and/or subcontractors which have access to the
Confidential Information shall be bound and shall comply with the same
confidentiality undertakings.
SECTION 10. INTELLECTUAL PROPERTY; IMPROVEMENTS
-----------------------------------------------
<PAGE>
10.1. Rights to Proprietary Technology. Neither party shall through this
--------------------------------
Agreement obtain any rights to the other party's proprietary technology
except for such rights that are expressly granted or allocated under this
Agreement.
10.2. Improvements and filing. Prosecution and Maintenance of Patents.
----------------------------------------------------------------
10.2.1. Any improvement to the Patent Rights, the Know-How or any Licensed
Product discovered or developed by any party during the term of this
Agreement shall be owned solely by LICENSEE, provided that in the event
--------
that any improvement to the Patent Rights, the Know-How or any Licensed
Product is owned or controlled by a third party, LICENSOR shall provide
assistance to LICENSEE in obtaining rights to such improvement from such
third party.
10.2.2. In the event that any improvements owned by LICENSEE are deemed
patentable, Licensee shall be entitled to file and prosecute patent
applications related thereto and maintain patents issued thereon, in its
own name and at its own cost. LICENSOR shall render reasonable assistance
to LICENSEE in filing such applications whenever requested to do so, at
LICENSEE's sole cost and expense. LICENSOR agrees to sign and execute such
forms and documents as may be reasonably requested by LICENSEE as being
necessary or desirable to vest or confirm in Licensee to all such
improvements owned by LICENSEE.
SECTION 11. LIMITATIONS ON LIABILITY
------------------------------------
11.1. No Warranties. Except as expressly set forth in Section 7 hereof,
-------------
neither party makes any representations or warranties as to any matter
whatsoever. Each party hereby disclaims any and all other representations
and warranties, express or implied, with respect to the Patent Rights, the
Know-How and the Licensed Products, including, without limitation, any
warranties of merchantability or fitness for any particular purpose.
11.2. Limitation of Liability. Under no circumstances shall either party
-----------------------
be liable to the other party or any other person for any loss of profits or
special, consequential or indirect damages of any kind whatsoever.
11.3. Force Majeure. No party shall be liable for failure or delay in
-------------
performing any of its obligations hereunder if such failure or delay is
occasioned by compliance with any governmental regulation, request or
order, or by circumstances beyond the reasonable control of the party so
failing or delaying, including, without limitation, Acts of God, war,
insurrection, fire, flood, accident, labor strikes, work stoppage or
slowdown (whether or not such labor event is within the reasonable control
of the parties), or inability to obtain raw materials, supplies, power or
equipment necessary to enable such party to perform its obligations
hereunder.
Each party shall (a) promptly notify the other party in writing of any such
event of force majeure, the expected duration thereof and its anticipated
effect on the ability of such party to perform its obligations hereunder,
and (b) make reasonable efforts to remedy any such event of force majeure.
<PAGE>
SECTION 12. NON USE OF NAMES; INSURANCE
---------------------------------------
12.1. Non-Use of Names. Neither party shall use the name of the other
----------------
party nor the name of any of Affiliates or employees of such other party,
nor any adaptation thereof, in any advertising, promotional or sales
literature without prior written consent obtained from such other party in
each case (which consent shall not be unreasonably withheld or delayed).
12.2. Insurance. LICENSEE agrees to obtain and maintain in effect, from
---------
and after the first commercial sale of the Licensed Products, product
liability insurance coverage relating to the marketing and sale of the
Licensed Products consistent with industry standards for similar companies;
provided that such coverage can be obtained on commercially reasonable
--------
terms.
LICENSOR shall be an additional named insured under such coverage so long
as it can be named without unreasonable expense to LICENSEE.
SECTION 13. TERM AND TERMINATION
--------------------------------
13.1. Term. This Agreement shall be effective from the date of its
----
execution by the parties and, unless sooner terminated in accordance with
the provisions of this Section 13, shall continue until the later to occur
of (i) 20 years from the date of this Agreement or (ii) the last to expire
of any Patent included within the Patent Rights.
13.2. Events of Default. Each party shall have the right to terminate
-----------------
this Agreement upon the occurrence of any of the following events (each, an
"Event of Default") with respect to the other party (the "Defaulting
---------------- ----------
Party"): (a) a decree or order shall have been entered by a court of
competent jurisdiction adjudging the Defaulting Party bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, readjustment, arrangement, composition or similar relief
for the Defaulting Party under any bankruptcy law or any other similar
applicable statute, law or regulation, or a decree or order of a court of
competent jurisdiction shall have been entered for the appointment of a
receiver or liquidator or trustee or assignee in bankruptcy or insolvency
of the Defaulting Party or a substantial part of its property, or for the
winding up or liquidation of its affairs; or (b) the Defaulting Party shall
institute proceedings to be adjudicated a voluntary bankrupt, or shall
consent to the filing of a bankruptcy petition against it, or shall file a
petition or answer or consent seeking reorganization, readjustment,
arrangement, composition, liquidation or similar relief under any
bankruptcy law or any other similar applicable statute, law or regulation,
or shall consent to the appointment of a receiver or liquidator or trustee
or assignee in bankruptcy or insolvency of it or of a substantial part of
its property, or shall make an assignment for the benefit of creditors, or
shall be unable to pay its debts generally as they become due; or (c) the
Defaulting Party shall commit a serious breach of the terms of this
Agreement and the same and all of its effects shall not be remedied within
30 days after written notice thereof is given by the other party to the
Defaulting Party. The failure by LICENSEE to pay LICENSOR any royalties or
other payments when due and payable in accordance with the provisions of
Section 4 hereof shall be deemed a serious breach of this Agreement.
<PAGE>
13.3. Termination. Each party may terminate this Agreement upon the
-----------
occurrence of any Event of Default by giving written notice thereof to the
other party, which notice shall specifically identify the reason(s) for
such termination.
13.4. Consequences of Termination. Upon the termination of this
---------------------------
Agreement, all rights, privileges and licenses granted by LICENSOR to
LICENSEE hereunder, shall revert to LICENSOR.
The termination of this Agreement for any reason shall be without prejudice
to (i) the right of LICENSOR to receive all amounts accrued under Section 4
hereof prior to the effective date of such termination, (ii) the rights and
obligations of the parties pursuant to Sections 6, 8 and 9 hereof, and
(iii) any other remedies as may now or hereafter be available to any party,
whether under this Agreement or otherwise.
Upon the termination of this Agreement (a) LICENSEE and its Affiliates and
sublicensees shall immediately discontinue the manufacture, use and sale of
the Licensed Products, (b) each party and its Affiliates shall immediately
cease the use of all Confidential Information obtained from the other party
or any Affiliate thereof and (c) such Confidential Information shall be
immediately returned to the party to which it belongs.
SECTION 14. MISCELLANEOUS
-------------------------
14.1. Notices. All notices, reports and/or other communications made in
-------
accordance with this Agreement, shall be deemed to be duly made or given
(i) when delivered by hand, (ii) three days after being mailed by
registered or certified mail (air mail if mailed oversees), return receipt
requested, or (iii) when received by the addressee, if sent by facsimile
transmission or by Express Mail, Federal Express or other express delivery
service (receipt requested), in each case addressed to such party at its
address set forth below (or to such other address as such party may
hereafter designate as to itself by notice to the other party hereto):
In case of the LICENSEE:
Esperion Therapeutics, Inc.
Attention: President
3621 S. State Street
695 KMS Place
Ann Arbor, MI 48108 USA
Telecopier: (734) 332-0516
with a copy to:
Sills Cummis Radin Tischman
Epstein & Gross, P.A.
Attention: Ira A. Rosenberg, Esq.
One Riverfront Plaza
Newark, New Jersey 07102
Telecopier: (973) 643-6500
<PAGE>
In the case of LICENSOR:
Ministere de la Region Wallonne
Attention: Ministre
Direction Generale des Technologies, de la Recherche et de
l'Energie
avenue Prince de Liege, 7
B-5100 JAMBES - Belgium
Telecopier: 32.81.30.66.00
14.2. Amendments, etc.. This Agreement may not be amended or modified,
----------------
nor may any right or remedy of any party be waived, unless the same is in
writing and signed by such party or a duly authorized representative of
such party. The waiver by any party of the breach of any term or provision
hereof by any other party shall not be construed as a waiver of any other
subsequent breach.
14.3. No Waiver; Remedies. No failure or delay by any party in exercising
-------------------
any of its rights or remedies hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or remedy
preclude any other or further exercise thereof or the exercise of any other
right or remedy. The rights and remedies of the parties provided in this
Agreement are cumulative and not exclusive of any rights or remedies
provided by law.
14.4. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their respective heirs, legal
representatives, successors and permitted assigns; provided that, except as
--------
expressly provided herein, neither party may assign or otherwise transfer
this Agreement or any of its rights, duties or obligations hereunder
without the prior written consent of the other party.
14.5. Relationship of Parties. LICENSEE and LICENSOR are not (and nothing
-----------------------
in this Agreement shall be construed to constitute them) partners, joint
venturers, agents, representatives or employees of the other party, nor to
create any relationships between them other than that of an independent
contractor. Neither party shall have any responsibility nor liability for
the actions of the other party except as specifically provided herein.
Neither party shall have any right or authority to bind or obligate the
other party in any manner or make any representation or warranty on behalf
of the other party.
14.6. Expenses. Unless otherwise provided herein, all costs and expenses
--------
incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party which shall have incurred
the same and the other party shall have no liability relating thereto.
14.7. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties and supersedes all prior proposals, communications,
representations and agreements, whether oral or written, with respect to
the subject matter hereof.
14.8. Severability. Any term or provision of this Agreement which is
------------
invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or
<PAGE>
unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions
hereof in any other jurisdiction.
14.9. Counterparts. This Agreement may be signed in any number of
------------
counterparts, each of which shall be deemed an original, with the same
effect as if the signatures thereto and hereto were upon the same
instrument.
14.10. Headings. The headings used in this Agreement are for convenience
--------
of reference only and shall not affect the meaning or construction of this
Agreement.
14.11. Governing Law. This Agreement, including the performance and
-------------
enforceability hereof, shall be governed by and construed in accordance
with the laws of the State of Belgium, without reference to choice of law
doctrine.
Any dispute arising between the parties in connection with this Agreement,
including its existence, conclusion, validity, interpretation, performance
or termination, and which cannot be amicably resolved by the Parties, shall
be finally settled under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce by one or more arbitrators appointed in
accordance with the said Rules. The place of arbitration shall be Paris
(France). The proceedings shall be conducted in English.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
ESPERION THERAPEUTICS, INC.
By: /s/ Roger S. Newton
---------------------------
<PAGE>
REGION WALLONNE
of the Kingdom of Belgium
By: ____________________________
<PAGE>
Exhibit 21.1
SUBSIDIARY OF ESPERION THERAPEUTICS, INC.
Company Jurisdiction of Organization
- ------- ----------------------------
Esperion AB Sweden
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
registration statement.
/s/ Arthur Anderson LLP
Ann Arbor, Michigan,
February 24, 2000.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ESPERION
THERAPEUTICS, INC.'S DECEMBER 31, 1998 AND DECEMBER 31, 1999 FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> MAY-18-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<CASH> 12,540,963 5,903,932
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 12,616,831 6,042,934
<PP&E> 864,496 2,427,554
<DEPRECIATION> 67,619 471,622
<TOTAL-ASSETS> 13,413,708 7,998,866
<CURRENT-LIABILITIES> 226,864 2,900,382
<BONDS> 0 2,283,781
0 0
105,000 105,000
<COMMON> 2,360 2,680
<OTHER-SE> 13,079,484 2,707,023
<TOTAL-LIABILITY-AND-EQUITY> 13,413,708 7,998,866
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 2,387,002 11,002,028
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 (91,957)
<INCOME-PRETAX> (2,143,063) (10,670,184)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,143,063) (10,670,184)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,143,063) (10,670,184)
<EPS-BASIC> (1.06) (4.27)
<EPS-DILUTED> (1.06) (4.27)
</TABLE>
