<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: September 28, 1998
INTERNEURON PHARMACEUTICALS, INC.
(Exact name of registrant as specified in charter)
DELAWARE
(State of other jurisdiction of incorporation)
0-18728 043047911
(Commission File Number) (IRS Employer Identification No.)
One Ledgemont Center, 99 Hayden Avenue, Lexington, Massachusetts 02421
(Address of principal executive offices) (Zip Code)
Registrant's telephone no. including area code: (781) 861-8444
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Item 5. Other Events
Preliminary Approval of Settlement Agreement
On September 28, 1998, Interneuron Pharmaceuticals, Inc. (the
"Company") announced that the U.S. District Court for the Eastern District of
Pennsylvania (the "Court") preliminarily approved an Agreement of Compromise and
Settlement (the "Settlement Agreement") between the Company and the Plaintiffs'
Management Committee ("PMC") relating to the proposed settlement of all product
liability litigation and claims against the Company relating to Redux(TM)
(dexfenfluramine). As part of the Settlement Agreement, the Company and the PMC
entered into a royalty agreement relating to a portion of the payments proposed
to be made to the settlement fund.
Reference is made to (i) the Company's press release dated September
28, 1998 filed as Exhibit 99.1 hereto; (ii) the Agreement of Compromise and
Settlement, filed as Exhibit 99.2 hereto; and (iii) the Royalty Agreement, filed
as Exhibit 99.3 hereto, each incorporated by reference herein.
Termination of Intercardia collaboration with Astra Pharmaceuticals (formerly
Astra-Merck)
On September 30, 1998, Intercardia, Inc., the Company's majority-owned
subsidiary ("Intercardia"), and Astra Pharmaceuticals, L.P. (formerly
Astra-Merck Inc.) ("Astra") announced termination of an agreement among
Intercardia, CPEC, Inc., a majority-owned subsidiary of Intercardia which is
minority-owned by the Company, and Astra for the U.S. development and
commercialization of BEXTRA(R) (bucindolol HCl), a drug under development for
the treatment of congestive heart failure. In connection with the termination of
this agreement, Astra agreed to return to Intercardia and CPEC all its rights
and information relating to bucindolol and has made a $4 million cash payment to
CPEC.
Reference is made to the press release of Intercardia and Astra dated
September 30, 1998 filed as Exhibit 99.4 hereto and incorporated by reference
herein.
Item 7 Financial Statements, Pro Forma Financial Information and Exhibits
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(c) Exhibits
99.1 Press Release of the Company dated September 28, 1998
99.2 Agreement of Compromise and Settlement, including
Appendices dated September 21, 1998
99.3 Royalty Agreement between the Company and the
PMC dated September 21, 1998
99.4 Press Release of Intercardia and Astra dated September
30, 1998
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INTERNEURON PHARMACEUTICALS, INC.
By:/S/ Glenn L. Cooper
--------------------------------------
Glenn L. Cooper, M.D.
President and Chief Executive Officer
Dated: October 2, 1998
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FOR IMMEDIATE RELEASE EXHIBIT 99.1
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CONTACT AT (781) 402-3410
GLENN L. COOPER, M.D. WILLIAM B. BONI
PRESIDENT AND CHIEF EXECUTIVE OFFICER VP, CORP. COMMUNICATIONS
COURT ISSUES PRELIMINARY APPROVAL OF INTERNEURON'S
FORMAL REDUX SETTLEMENT AGREEMENT
LEXINGTON, MA, September 28, 1998 - Interneuron Pharmaceuticals, Inc. (NASDAQ:
IPIC) today announced that the U.S. District Court for the Eastern District of
Pennsylvania has preliminarily approved a formal agreement to settle all product
liability litigation and claims against the Company related to Redux(TM)
(dexfenfluramine). The Court also conditionally certified a limited fund class
action.
The Court order follows a letter of understanding outlining terms of the
settlement announced on September 3, 1998 and execution of the formal settlement
agreement between the Company and the Plaintiffs' Management Committee,
consisting of attorneys designated by the Court to represent plaintiffs in the
multi-district litigation relating to Redux. A fairness hearing on the
settlement has been scheduled for February 25, 1999.
"This action marks important, timely progress toward the finalization of the
settlement of Redux product liability litigation," said Glenn L. Cooper, M.D.,
president and chief executive officer of Interneuron. "It represents a
significant step toward putting this litigation behind us as we focus on
continuing progress with our products in late-stage clinical development."
Redux was a prescription anti-obesity drug withdrawn from the market in
September 1997 by Interneuron and Wyeth-Ayerst Laboratories, a division of
American Home Products Corporation.
The limited fund class action established by this settlement includes all
persons in the United States who used Redux, and certain other persons such as
their family members, who would be bound by the terms of the settlement.
Membership in the class is mandatory for all persons included within the class
definition.
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Under the terms of the proposed settlement, class members asserting claims
against Interneuron will be required to seek compensation only from the
settlement fund, and their lawsuits against Interneuron will be dismissed. By
agreeing to the proposed settlement, Interneuron does not admit liability to any
plaintiffs or claimants.
As previously announced, the settlement agreement requires Interneuron to
deposit a total of $15 million in three installments into a settlement fund. The
first installment of $2 million has been deposited into the settlement fund. A
second installment of $3 million is to be made after the settlement agreement is
approved by the Court, which would follow the fairness hearing. These
installments will be returned to Interneuron if the settlement does not become
final. A third installment of $10 million, plus interest, is to be made after
the settlement becomes final.
In addition, the proposed settlement provides for Interneuron to deposit all
remaining and available insurance proceeds related to Redux into the settlement
fund. Interneuron has also agreed to make certain royalty payments to the
settlement fund, in the total amount of $55 million, based upon sales of
Interneuron products and other revenues, over a seven year period after the
settlement becomes final. If, at the end of that seven year period, the amount
of royalty payments made by Interneuron is less than $55 million, the settlement
fund will receive shares of Interneuron stock in an amount equal to the unpaid
balance divided by approximately $7.50 per share. At or prior to the time the
settlement becomes final, the Company will incur charges to operations equal to
the estimated fair value of the consideration given, exclusive of insurance
proceeds. The formal settlement will not become final until approved by the
Court and the time for filing appeals has passed or all appeals have been
exhausted.
Interneuron Pharmaceuticals and its majority-owned subsidiary, Intercardia, Inc.
(NASDAQ: ITRC) are engaged in the development and commercialization of a
portfolio of products and product candidates for central nervous system,
cardiovascular and other disorders, including multiple compounds in late-stage
clinical development.
Except for the descriptions of historical facts contained herein, this press
release contains forward-looking statements that involve risks and uncertainties
as detailed from time to time in the Company's filings under the Securities Act
of 1933 and the Securities Exchange Act of 1934, including in particular, risks
relating to the withdrawal of Redux and Redux-related litigation, including risk
relating to the finalization of the proposed related settlement, uncertainties
relating to regulatory approvals and clinical trials; product liability; the
need for additional funds; the early stage of products under development; risks
relating to product launches and managing growth; government regulation, patent
risks, dependence on third parties and competition.
###
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EXHIBIT 99.2
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
IN RE: DIET DRUGS (PHENTERMINE, :
FENFLURAMINE, DEXFENFLURAMINE) : MDL DOCKET NO.
PRODUCTS LIABILITY LITIGATION : 1203
:
THIS DOCUMENT RELATES TO ALL :
CASES :
SHARON WISH v. INTERNEURON : CIVIL ACTION NO.
PHARMACEUTICALS, INC. : 98-CV-20594
:
AGREEMENT OF COMPROMISE AND SETTLEMENT
Proposed Class Representative Sharon Wish, by and through her counsel,
the Plaintiffs' Management Committee ("PMC") in the above-captioned
multidistrict litigation and the Defendant Interneuron Pharmaceuticals, Inc.
("Interneuron"), hereby enter into this Agreement of Compromise and Settlement,
providing for settlement of the claims herein described against Interneuron
pursuant to the terms and conditions set forth below, and subject to the
approval of the Court.
1 BACKGROUND
1.1 Interneuron is a Delaware corporation with its principal place
of business in Massachusetts. Interneuron and a division of
American Home Products Corporation co-promoted the
prescription, anti-obesity drug dexfenfluramine under the
brand name Redux(TM). Boehringer Ingelheim Pharmaceuticals,
Inc., encapsulated and packaged Redux(TM) for Interneuron, but
it did not participate in the design, development or promotion
of the drug. Redux(TM) was approved by the United States Food
and Drug Administration for use in the treatment of obesity in
April, 1996. It was first marketed in the United States in
June, 1996. Redux(TM) was withdrawn from the market on or
about September 15, 1997.
1.2 After Redux(TM)'s withdrawal from the market, Interneuron was
sued in
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a number of individual and purported class actions filed in
state and federal courts nationwide. These actions allege
claims for compensatory and punitive damages and equitable
relief against Interneuron for alleged diet drug-related
injuries. On December 10, 1997, the Judicial Panel on
Multidistrict Litigation created MDL No. 1203 In re Diet Drugs
(Phentermine, Fenfluramine, Dexfenfluramine) Products
Liability Litigation, transferring all of the federal cases
against Interneuron to the United States District Court for
the Eastern District of Pennsylvania. As of the date of this
Settlement Agreement, Interneuron has pending against it over
650 state and federal actions in 46 states.
1.3 The Plaintiffs' Management Committee ("PMC") in MDL No. 1203
has conducted substantial discovery against Interneuron.
Interneuron has responded to document requests by producing
over a million pages of documents into the MDL No. 1203
Document Depository. Interneuron has responded to plaintiffs'
written interrogatories, and the PMC has had access to the
transcripts of depositions of Interneuron's senior personnel
conducted in state court litigation.
1.4 Interneuron has denied and continues to deny any wrongdoing or
liability to plaintiffs of any kind and has asserted many
affirmative defenses. Both the PMC and Interneuron recognize
the uncertainty and risks associated with the outcome of
litigation. They also recognize the significant costs involved
in litigating mass product liability cases through trials and
appeals. In entering into this Settlement Agreement, both the
PMC and Interneuron have extensively analyzed the strengths
and weaknesses of their respective cases on the facts and the
law.
1.5 Over the last five months, Interneuron and the PMC have
explored
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settling the cases pending against Interneuron. During these
settlement discussions, Interneuron expressed its belief that
the cost of defending the litigation nationwide and the
massive liability exposure presented by these cases created a
substantial risk that its assets would be insufficient to
defend itself in the pending and anticipated cases, much less
meet all of the plaintiffs' claims.
1.6 The PMC accepted Interneuron's invitation to independently
evaluate the company's financial condition. The PMC hired an
expert, Dr. Harvey Rosen, who examined Interneuron's financial
statements and extensively interviewed Interneuron's President
and Chief Executive Officer, Chief Financial Officer, and the
Executive Vice President for Research and Development. Dr.
Rosen concluded (and the PMC agreed) that there was a
substantial risk that Interneuron's assets, including
insurance coverage, would be insufficient to defend the
company and/or satisfy the claims against the company, and
that the costs of defense alone or together with early
recovery by a few individual plaintiffs would deprive the rest
of the Class Members of a sufficient fund from which to
recover.
1.7 On September 1, 1998, Plaintiff Wish, represented by the PMC,
filed a class action complaint in the United States District
Court for the District of Pennsylvania seeking certification
of a mandatory, limited fund class action as to Interneuron
pursuant to Federal Rule of Civil Procedure 23(b)(1)(B). On
that same date, she filed a motion for conditional class
certification. On September 3, 1998, Interneuron and the PMC
signed a Letter of Understanding proposing a limited fund,
mandatory class action settlement of all products liability
litigation (pending and anticipated) against the company. This
Letter of
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Understanding was the result of prolonged adversarial
negotiations conducted at arms' length. In conjunction with
the filing of the Letter of Understanding, the Court in MDL
No. 1203 issued Pretrial Order No. 270, which stayed the
federal litigation against Interneuron. The company filed a
response to Plaintiff's motion on September 14, 1998, that
supported certification of a mandatory, limited fund class.
1.8 Based on its analysis of the facts involving Interneuron's
financial condition and the facts and law underlying the Class
Members' claims against the company, the PMC has concluded
that the settlement provided for by this Agreement is the best
possible result for the class as a whole and is fair,
reasonable and adequate, and therefore in the best interests
of the class.
1.9 Interneuron has concluded that the settlement provided for by
this Agreement is desirable to provide for the continued
viability of the company, avoid the time and enormous expense
of defending protracted litigation on a nationwide basis, and
provide a final and complete resolution of Interneuron's
Redux(TM)-related claims.
1.10 The PMC and Interneuron understand and agree that this
Settlement Agreement is predicated, first and foremost, on the
notion that only through a mandatory class action can all
persons with health-related claims against Interneuron be
assured an equitable opportunity to seek a recovery of damages
against the company. The parties recognize that if the
litigation against Interneuron is allowed to continue on its
present course, Interneuron's resources will be consumed and
most, if not all, claimants will recover nothing, regardless
of the seriousness of their injuries or the merits of their
claims. Nothing short of global resolution and bar of all
claims against the company - including
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Derivative Claims and claims for contribution and indemnity -
can prevent this injustice by preserving enough assets to
generate a fund from which all claimants may seek an equitable
distribution.
2 GENERAL PROVISIONS
NOW, THEREFORE, the undersigned parties agree as follows, and the PMC
recommends, subject to the approval of the Court:
2.1 Class Representative Sharon Wish, on behalf of the class, and
Interneuron now desire to settle the disputes existing between
them, subject to the terms set forth below, which are the
result of prolonged, extensive, arms-length negotiations
between the parties.
2.2 The undersigned attorneys of the PMC represent and warrant
that they have the authority to enter into this Agreement on
behalf of the proposed Class Representative, Plaintiff Sharon
Wish, the PMC, and all of the individual plaintiffs
represented by members of the PMC.
2.3 Interneuron represents and warrants that it has all requisite
corporate power and authority to execute, deliver and perform
this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance by Interneuron
of this Agreement and the consummation by it of the actions
contemplated hereby have been duly authorized by all necessary
corporate action on the part of Interneuron. This Agreement
has been duly and validly executed and delivered by
Interneuron's authorized agent.
2.4 Neither this Agreement, nor any exhibit, document or
instrument delivered hereunder is intended to be or shall be
construed as or deemed to be evidence of an admission or
concession by Interneuron of any liability or wrongdoing or of
the truth of any allegations asserted by the Class
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Representative, Class Members or any other persons, and none
of them shall be admissible in evidence for any such purpose
in this or any other proceeding, except that this Agreement is
admissible to enforce its terms. Likewise, neither this
Agreement, approved or not approved, nor any exhibit, document
or instrument delivered hereunder, nor any statement,
transaction or proceeding in connection with the negotiation,
execution or implementation of this Agreement (including the
Letter of Understanding dated September 3, 1998) is intended
to be or shall be construed as or deemed to be evidence of an
admission or concession by the Class Representative, PMC or
Class Members, of any lack of merit in their claims.
2.5 The headings of the sections and paragraphs of this Agreement
are included for convenience only and shall not be deemed to
constitute part of this Agreement or to affect its
construction.
2.6 The parties agree that Class Counsel or their agents received
or will receive from Interneuron all information deemed
reasonably necessary to an examination of Interneuron's
insurance coverage and financial condition in connection with
this Agreement. The parties agree to cooperate in good faith
on any additional investigation that may be necessary on these
issues in connection with the Court's evaluation of the
fairness and adequacy of this Agreement. Specifically,
Interneuron agrees to grant reasonable requests from Class
Counsel for documents or interviews with Interneuron's
employees on the subjects of Interneuron's financial condition
and insurance coverage. All non-public information provided by
Interneuron shall be "confidential" information and shall be
used by Class Counsel solely for the purposes of establishing
whether Interneuron is a "limited fund" such that an action
against it should
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proceed as a class action pursuant to Fed. R. Civ. P.
23(b)(1)(B) and whether the settlement provided in this
Agreement is fair, reasonable, adequate, and in the best
interest of the Class. Such confidential information may be
disclosed to any other person only if such person has properly
filed an objection to the terms of the proposed settlement and
has signed a Confidentiality Agreement limiting the further
disclosure or use of the information. Such confidential
information shall be disclosed on the public record only upon
an order of the Court for good cause shown. Notwithstanding
the foregoing, persons that are competitors of Interneuron
shall not be entitled to receive Interneuron's confidential
information except by order of the Court upon a showing of
extraordinary need.
3 DEFINITIONS
For the purposes of this Agreement:
3.1 The "Agreement" or "Settlement Agreement" refers to this
Agreement of Compromise and Settlement, together with all
appendices thereto.
3.2 "American Home Products Corp." or "AHP" shall mean American
Home Products Corporation and its subsidiaries, divisions,
affiliates, and other related entities.
3.3 The "Claims Administrator" means the person appointed by the
Court to administer the settlement and make distributions to
Class Members.
3.4 The "Class" is a mandatory, non-opt out class under Fed. R.
Civ. P. 23(b)(1)(B) that includes:
3.4.1 All persons who obtained Redux(TM) in the United
States or its territories and used the product prior
to the Notice Date;
3.4.2 All persons (except the United States Government)
asserting
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standing to sue Interneuron or any Released Party as
a result of another person's obtaining Redux(TM) in
the United States or its territories and using the
product prior to the Notice Date (including spouses,
children, other family members, heirs, beneficiaries,
executors, administrators, legal representatives,
successors, subrogees or assigns of any person who
used Redux(TM));
3.4.3 All persons in the United States and its territories
who used a Diet Drug other than Redux(TM) prior to
the Notice Date and who seek to hold Interneuron or
any Released Party liable on a theory of conspiracy,
concert of action, aiding and abetting, negligent
undertaking, "Good Samaritan" liability, deceptive
trade practices, consumer fraud, unfair business
practices or any similar legal theory;
3.4.4 All persons in the United States and its territories
(except the United States Government) asserting
standing to sue Interneuron or any Released Party
based upon a theory of conspiracy, concert of action,
aiding and abetting, negligent undertaking, "Good
Samaritan" liability, deceptive trade practices,
consumer fraud, unfair business practices or any
similar legal theory as a result of another person's
use of a Diet Drug other than Redux(TM) prior to the
Notice Date, including spouses, children, other
family members, heirs, beneficiaries, executors,
administrators, legal representatives, successors,
subrogees or assigns of any person who used a Diet
Drug other than Redux(TM).
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3.5 "Class Counsel" means counsel approved by the Court to serve
as attorney(s) for the Class in the above-captioned
litigation.
3.6 "Class Members" means all persons included in the Class, as
defined above.
3.7 "Class Representative" means Sharon Wish and/or any other
individuals approved by the Court as class representatives.
3.8 The "Court" means the United States District Court for the
Eastern District of Pennsylvania.
3.9 A "Derivative Claim" is one asserted by a person who does not
claim to have used Redux(TM) or a Diet Drug other than
Redux(TM), but instead seeks to recover for losses sustained
as a result of another person's use of Redux(TM) or a Diet
Drug other than Redux(TM). "Derivative Claims" include,
without limitation, claims for loss of consortium, services,
society and affection and/or reimbursement of medical
expenses, regardless of whether such claims are classified as
"derivative claims" under the law of the applicable
jurisdiction. "Derivative Claim" as used herein does not
include shareholder derivative claims pursued pursuant to
Federal Rule of Civil Procedure 23.1 or any state analogue of
Federal Rule of Civil Procedure 23.1.
3.10 "Diet Drug" includes Redux(TM), dexfenfluramine, Pondimin,
fenfluramine and phentermine.
3.11 "Diet Drug Litigation" means litigation brought by persons
seeking to recover damages and/or injunctive or equitable
relief arising out of any person's purchase or use of a Diet
Drug. As used herein, "Diet Drug Litigation" includes, without
limitation, actions in which persons seek legal or equitable
relief for personal injury, bodily injury, past or future
medical monitoring or
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screening expenses (whether as a lump sum or a
court-supervised fund), reimbursement of the cost of
purchasing a Diet Drug, disgorging of profits from Diet Drug
sales, or injunctive relief directing a defendant to take any
action such as providing notice to consumers of alleged health
risks associated with a Diet Drug or to finance studies of the
alleged health risks associated with a Diet Drug. As used
herein, "Diet Drug Litigation" also includes litigation
brought by persons seeking to recover for Derivative Claims.
3.12 "Final Approval Date" means the date on which the Court enters
a judgment pursuant to Federal Rules of Civil Procedure 23(e)
and 54(a) stating its final approval of this Agreement and
dismissing all Released Claims.
3.13 "Final Settlement Date" means the earliest of the following:
3.13.1 The date on which the time for appeal from the
Court's judgment approving this Agreement has elapsed
without any appeals being filed; or
3.13.2 All appeals from the Court's judgment approving this
Agreement have been exhausted, and no further appeal
may be taken.
3.14 "Interneuron" means the defendant Interneuron Pharmaceuticals,
Inc., a Delaware corporation.
3.15 The "Interneuron Class Action Settlement Fund" or the "Fund"
means all funds and common stock deposited in an account with
a Court-approved Trustee pursuant to the terms of this
Agreement and an Indenture of Trust in a form to be approved
by the Court.
3.16 A "Judgment Credit" is an amount that defendants in Diet Drug
Litigation may use to offset a judgment in favor of a Class
Member for injuries adjudicated to have been caused by
Redux(TM), and is calculated by dividing the
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Fund balance on the date of the request for a Judgment Credit
by the number of registered claimants on that date.
3.17 "Notice Date" means the last date on which Notice of this
Agreement is published to Class Members in a newspaper of
general circulation pursuant to order of the Court.
3.18 "Phentermine Defendants" means entities or persons that
marketed, sold or distributed phentermine and have been sued
in Diet Drug Litigation.
3.19 The "PMC" means those attorneys appointed by the Court to
serve on the Plaintiffs' Management Committee in the
above-captioned litigation.
3.20 "Pondimin" means fenfluramine marketed under the brand name
Pondimin.
3.21 "Preliminary Approval Date" means the date on which the Court
enters an order preliminarily approving this Agreement
pursuant to Federal Rule of Civil Procedure 23(e).
3.22 "Redux(TM)" means dexfenfluramine marketed under the brand
name Redux(TM).
3.23 The "Released Claims" are:
3.23.1 All claims that have, might have been, or in the
future could be asserted by Class Members against
Interneuron or any Released Parties arising out of
any Class Member's use of Redux(TM), including
without limitation all claims for damages or remedies
of whatever kind or character, known or unknown, that
are now recognized by law or that may be created or
recognized in the future by statute, regulation,
judicial decision, or in any other manner, for actual
damages, exemplary and punitive damages,
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penalties of any kind, personal injuries or death,
mental or physical pain or suffering, loss of wages,
income, earnings, and earning capacity, doctor,
hospital, nursing and drug bills, medical expenses,
Derivative Claims, loss of consortium, companionship,
society or affection, damage to familial relations,
loss of enjoyment of life, economic or business
losses, disgorgement of profits, prejudgment and
postjudgment interest, medical monitoring or
screening, injunctive or declaratory relief, and any
other loss or detriment of any kind.
3.23.2 All claims based upon a theory of conspiracy, concert
of action, aiding and abetting, negligent
undertaking, "Good Samaritan" liability, deceptive
trade practices, consumer fraud, unfair business
practices or any similar legal theory that has, might
have been, or in the future could be asserted by any
Class Member against Interneuron or any Released
Parties arising out of a Class Member's use of a Diet
Drug other than Redux(TM); including without
limitation all claims for damages or remedies of
whatever kind or character, known or unknown, that
are now recognized by law or that may be created or
recognized in the future by statute, regulation,
judicial decision, or in any other manner, for actual
damages, exemplary and punitive damages, penalties of
any kind, personal injuries or death, mental or
physical pain or suffering, loss of wages, income,
earnings, and earning capacity, doctor, hospital,
nursing and drug bills, medical expenses, Derivative
Claims, loss of consortium, companionship, society or
affection,
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damage to familial relations, loss of enjoyment of
life, economic or business losses, disgorgement of
profits, prejudgment and postjudgment interest,
medical monitoring, injunctive or declaratory relief,
and any other loss or detriment of any kind.
3.24 The "Released Parties" are:
3.24.1 Notwithstanding any other section or subsection of
this Agreement, Interneuron, Boehringer Ingelheim
Pharmaceuticals, Inc., their respective parents,
subsidiaries, affiliates, divisions, current and
former officers, directors, employees, attorneys, and
agents; and each of their insurers (including
Columbia Casualty Co., Reliance Insurance Company of
Illinois, and New Hampshire Insurance Company), but
only to the extent of the insurance set forth in
Appendix B hereto and only to the extent that the
insurer has tendered its unimpaired policy limits
without reservation of rights; provided, however,
that Boehringer Ingelheim Pharmaceuticals, Inc. shall
not be a Released Party for any claim arising from
defects in the manufacture or packaging of Redux(TM).
3.24.2 Any and all predecessors and/or shareholders of
Interneuron and/or Boehringer Ingelheim
Pharmaceuticals, Inc.; provided, however, that (i)
any predecessor and/or shareholder of Interneuron
and/or Boehringer Pharmaceuticals, Inc. who is or
becomes a defendant in Diet Drug Litigation shall be
considered a Released Party pursuant to this
subsection only to the extent that such entity is
sued in its capacity as a predecessor and/or
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shareholder of Interneuron and/or Boehringer
Pharmaceuticals, Inc. and (ii) no person or entity
described in this subsection shall be released from
any claims based upon its own independent negligence
or culpable conduct.
3.24.3 Any and all successors to Interneuron and/or
Boehringer Ingelheim Pharmaceuticals, Inc.; provided,
however, that (i) any current or future defendant in
Diet Drug Litigation who becomes a successor to
Interneuron and/or Boehringer Ingelheim
Pharmaceuticals, Inc. by reason of a merger,
acquisition, consolidation or otherwise shall be
considered a Released Party pursuant to this
subsection only to the extent that such entity is
sued in its capacity as a successor of Interneuron
and/or Boehringer Pharmaceuticals, Inc. and (ii) no
person or entity described in this subsection shall
be released from any claims based upon its own
independent negligence or culpable conduct.
3.24.4 All distributors of Redux(TM), including wholesale
distributors, private label distributors,
pharmacists, retail distributors, physicians,
hospitals and clinics, and their respective
predecessors, successors, parents, subsidiaries,
affiliates and divisions, and their respective
current and former shareholders, officers, directors,
employees, attorneys, agents, and insurers; provided
that (i) such persons and entities described in this
subsection shall be released only as to Released
Claims as to which such persons would have a
contractual, common law, or statutory right of
indemnity against Interneuron, and (ii) no person or
entity described in this
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subsection shall be released from any claims based,
in whole or in part, upon its own independent
negligence or culpable conduct (including without
limitation negligence claims or claims for
professional malpractice asserted against physicians,
health care providers and diet centers).
3.24.5 Neither AHP nor Servier are Released Parties under
any of the subsections of this section 3.24.
3.25 The "Royalty Agreement" refers to the Royalty Agreement
attached hereto as Appendix A.
3.26 The "Royalty Term" shall mean the period commencing on the
Final Settlement Date and ending seven (7) years from the
Final Settlement Date.
3.27 "Servier" shall mean Les Laboratoires Servier, S.A. and its
subsidiaries, divisions, affiliates, and other related
entities.
3.28 "Stay Date" means the date upon which the Court enters an
order staying and enjoining all pending state and federal
proceedings and those commenced hereafter regarding Released
Claims, including claims for contribution and indemnity,
against Interneuron and the Released Parties.
4 PROPOSED ORDERS
4.1 The parties to this Agreement shall promptly submit this
Agreement to the Court and jointly request the Court to enter
an order in the form annexed hereto as Appendix C:
(i) conditionally certifying a class pursuant to Federal Rule of
Civil Procedure 23(b)(1)(B);
(ii) preliminarily approving the Settlement Agreement;
(iii) temporarily staying and enjoining all pending state and
federal proceedings and
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those commenced hereafter regarding Released Claims, including
claims for contribution and indemnity, against Interneuron and
the Released Parties;
(iv) setting a hearing date to permit Class Members and any other
interested parties to appear and show cause why the stay
provided for in the immediately preceding subsection should
not be continued until the Court can make a final judgment on
final class certification and the fairness and adequacy of
this Settlement Agreement;
(v) directing the parties to submit a long form and short form
class notice within two weeks of the date of the order;
(vi) scheduling a hearing (a) to determine whether the proposed
settlement of the Class Action on the terms and conditions
provided in this Agreement is fair, reasonable and should be
approved by the Court; (b) to determine whether, upon Final
Approval judgment should be entered dismissing with prejudice
the class action and any other actions by Class Members
transferred to the Court by the Judicial Panel on
Multidistrict Litigation; and (c) to determine whether the
Court should enter an order barring and enjoining all claims
for contribution and/or indemnity against Interneuron and/or
the Released Parties arising out of or related to the Released
Claims; and (d) to consider all other matters deemed
appropriate by the Court;
(vii) setting forth scheduling and procedures for the implementation
of the terms and conditions of the proposed settlement; and
(viii) setting forth procedures and timing for the filing of
objections to the proposed settlement by Class Members and any
other interested parties.
4.2 On the date of the Fairness Hearing, the parties shall jointly
request that the Court enter an order and judgment
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(i) finally certifying a mandatory class pursuant to Federal Rule
of Civil Procedure 23(b)(1)(B);
(ii) approving, pursuant to Federal Rule of Civil Procedure 23(e),
the settlement as defined in this Agreement;
(iii) dismissing with prejudice and without costs the Class Action
and any other actions by Class Members against Released
Parties transferred to the Court by the Judicial Panel on
Multidistrict Litigation; provided, however, that actions
against those Released Parties defined in section 3.24 shall
not be dismissed to the extent that the plaintiffs in such
actions seek to recover for any claims not released by this
Agreement;
(iv) permanently enjoining the Class Members from initiating,
asserting, prosecuting, or litigating against the Released
Parties any actions involving Released Claims, as those terms
are defined in this Agreement; and
(v) permanently barring and enjoining all claims for contribution
and/or indemnity against Interneuron and/or the Released
Parties arising out of or related to the Released Claims.
5 CREATION OF THE INTERNEURON CLASS ACTION SETTLEMENT FUND
5.1 On September 9, 1998, Interneuron deposited $2 million into
the Court's Registry for the account of the Interneuron Class
Action Settlement Fund, pursuant to the Letter of
Understanding dated September 3, 1998.
5.2 Within a reasonable time from the date of this Agreement, the
Court shall appoint a Trustee pursuant to an Indenture of
Trust in a form to be approved by the Court. The Trustee shall
maintain and administer the Interneuron Class Action
Settlement Fund in accordance with the Settlement Agreement,
the Indenture of Trust, and the Royalty Agreement attached
hereto
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as Appendix A.
5.3 Within ten days after the Final Approval Date, Interneuron
shall deposit $3 million into the account of the Interneuron
Class Action Settlement Fund.
5.4 Within ten days after the Final Settlement Date, Interneuron
shall deposit $10 million into the account of the Interneuron
Class Action Settlement Fund. In addition, on such date,
Interneuron shall deposit an amount equal to interest on such
$10 million at an annual rate equal to the average rate earned
by the $2 million deposited on September 9, 1998.
5.5 Interneuron shall deposit all available and uncommitted
insurance proceeds remaining on the Stay Date into the account
of the Interneuron Class Action Settlement Fund. Insurance
proceeds are considered available and uncommitted only to the
extent that there are no unpaid bills for reasonable legal
expenses (including fees and disbursements) as of the Stay
Date, regardless of whether such bills have been forwarded to
Interneuron's insurance carriers, or unbilled legal expenses
(including fees and disbursements) for expenses incurred prior
to the Stay Date.
5.6 In the event Interneuron is unable to cause its insurers to
pay the available and uncommitted insurance proceeds into the
Interneuron Class Action Settlement Fund, Interneuron shall
initiate a declaratory judgment action against its insurers in
order to compel the contribution of all available and
uncommitted insurance proceeds into the Interneuron Class
Action Settlement Fund Account. Bills for fees and expenses
incurred by Interneuron in connection with such declaratory
judgment action shall be timely submitted to and promptly paid
by the Interneuron Class Action Settlement Fund following
Court review and approval of such bills, provided however,
that Interneuron
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shall seek to recover its fees and expenses associated with
litigating the declaratory judgment action in said action. The
PMC shall have the right to review and comment upon
Interneuron's application for payment of such litigation fees
and expenses. In the event that Interneuron recovers all or
any part of its fees and expenses incurred in litigating the
declaratory judgment action in said action, Interneuron shall
deposit such amounts (less any amounts owing to Interneuron
from the Fund) in the Interneuron Class Action Settlement
Fund.
5.7 Additional payments to the Interneuron Class Action Settlement
Fund shall be made by Interneuron according to the terms of
the Royalty Agreement attached hereto as Appendix A. The
Royalty Agreement shall be executed by the PMC and Interneuron
contemporaneous with the execution of this Agreement.
Thereafter, the Indenture of Trust, which shall require the
Trustee to assume all Fund-related obligations under the
Royalty Agreement, shall be executed by the Court-appointed
Fund Trustee within ten days of the Trustee's appointment.
6 RELEASE/BAR OF CONTRIBUTION AND INDEMNITY CLAIMS/SUBROGATION CLAIMS
6.1 The Released Parties are not, and in the future shall not be,
subject to liability or expense of any kind to any Class
Member with respect to any of the Released Claims.
Compensation from the Interneuron Class Action Settlement Fund
established by this Agreement shall be the exclusive remedy of
Class Members against the Released Parties as to any and all
Released Claims. Each of the Class Members is forever barred
from asserting any of the Released Claims against any of the
Released Parties. No individual Class Member shall receive
funds from the Interneuron Class Action Settlement Fund unless
he, she
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or it executes the Release and Indemnity Agreement attached as
Appendix D. The mandatory, classwide release contained in this
section is full and complete, and the requirement that Class
Members execute an individual release should in no way be
interpreted as altering the immediate and binding effect of
this classwide release upon each Class Member as of the Final
Settlement Date.
6.2 Upon the Final Settlement Date, each Class Member shall be
deemed to have covenanted and agreed that he, she or it will
forever refrain from instituting, maintaining, or proceeding
against any Released Party on account of any Released Claim,
including Released Claims known and not now known, suspected
or claimed, which such Class Member ever had, now has or
hereafter may have against any Released Party.
6.3 Class Members agree to reduce any judgment that they might
obtain against any defendant in Diet Drug Litigation by an
amount equal to the total amount, if any, that they receive
pursuant to this Agreement (before deduction of any amounts
for costs and counsel fees). Class Members shall not be
required to further reduce any judgment that they obtain
against any defendant in Diet Drug Litigation by: (a) the
amount, percentage or share of such judgment that is or may be
attributable to any liability-creating conduct of the Released
Parties (including conduct that creates strict liability in
tort); (b) the pro rata share, percentage, or proportion of
liability that otherwise would be attributable or apportioned
to the Released Parties; and/or (c) any other reduction that
is claimed or asserted on account of the terms and conditions
of this Settlement Agreement and any order or release entered
pursuant hereto, including the proposed bar order enjoining
defendants in Diet Drug Litigation from seeking contribution
or indemnity from Interneuron or the Released Parties.
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6.4 In the event that, before a Class Member has received a
distribution from the Fund, any defendant (or group of
defendants) in Diet Drug Litigation is required to satisfy a
judgment in favor of the Class Member for injuries adjudicated
to have been caused by Redux(TM), then the defendant (or group
of defendants) shall be entitled to elect from one of two
options: (i) to receive an immediate Judgment Credit toward
satisfaction of the judgment, or (ii) to receive from the Fund
in the ordinary course of the claims administration process
the net settlement proceeds (if any) to which the Class Member
subsequently becomes entitled to receive. Any such defendant
(or group of defendants) shall make this election by providing
written notice to the Claims Administrator and the Class
Member by certified mail, return receipt requested, prior to
the time that the judgment must be satisfied. In its notice of
election, the defendant (or group of defendants) shall affirm,
subject to penalty of perjury, that it is required to satisfy
a judgment in favor of the Class Member arising from injuries
adjudicated to have been attributable in whole or in part to
Redux(TM) or Interneuron (or any other Released Party) and
that the defendant (or group of defendants) has elected either
to take a Judgment Credit or to receive the Class Member's net
settlement proceeds upon distribution from the Fund. The
formula for determining the amount of the Judgment Credit on a
given date shall be: the Fund balance on the date of the
notice of election of the Judgment Credit, divided by the
number of registered claimants on that date. The amount of the
Judgment Credit shall be determined by the Court.
6.5 The parties will jointly seek an order barring and enjoining
claims by other defendants in Diet Drug Litigation seeking
contribution and/or indemnity from Interneuron or the Released
Parties arising out of the sale, marketing or
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<PAGE> 22
distribution of Redux(TM). The order shall provide that, with
respect to the claims of each specific Class Member,
defendants in Diet Drug Litigation will be entitled to an
offset for the settlement of the Released Claims in an amount
equal to the gross amount received by the Class Member from
the Interneuron Class Action Settlement (before deduction of
costs and counsel fees) or, if applicable, the right set forth
in section 6.4 of this Agreement.
6.6 Interneuron and the Released Parties shall be indemnified and
promptly paid by the Interneuron Class Action Settlement Fund,
by appropriate petition to the Court, for its continuing legal
fees and expenses incurred in the course of seeking approval
of this settlement and defending it on appeal, participating
in any discovery in Diet Drug Litigation that may be ordered
by the Court, and for and against all reasonable fees, costs,
expenses incurred and money paid in defending, settling, or
satisfying judgments entered in any claim or proceeding
involving Released Claims by any person included within the
definition of the Class (including cross-claims, third party
claims, subrogation claims, claims for contribution and/or
indemnity) that are not terminated as a result of the Class
Action Settlement Agreement or that are filed or pursued in
the future despite the Class Action Settlement Agreement.
Because of Interneuron's financial condition and cash flow
situation, Interneuron's petitions for reimbursement of these
fees, costs and expenses shall be considered on an expedited
basis.
6.7 All subrogation claims (including claims by workers'
compensation insurers, employers, and/or healthcare insurers
or providers) shall be submitted within ninety days of the
Notice Date to the Claims Administrator or, if one is not yet
appointed, to the Court. All such claims shall be stamped
"SUBROGATION CLAIM" and shall specifically identify the
subrogor Class
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Member and social security number, and shall include with
specificity the particulars of the subrogation claims for each
individual Class Member, including proof of what was actually
paid by the subrogee on behalf of the Class Member. Once the
deadline for filing subrogation claims has passed, the Court
-- after notice and an opportunity for subrogees to be heard
-- shall consider the payment from the Fund of timely
submitted subrogation claims, subject to equitable principles
as applied in the limited fund settlement context. The failure
of any subrogee to submit a claim by the deadline set forth in
this section shall constitute a waiver of such claim.
7 INJUNCTIONS
7.1 The parties will jointly seek an order extending the stay
entered on September 3, 1998 to all pending and future
litigation (both state and federal) against any Released
Parties arising out of any Released Claims. The parties shall
request such a stay and injunction to be entered on the
Preliminary Approval Date.
7.2 The parties will jointly seek a permanent injunction, barring
and enjoining all litigation (both state and federal),
including claims for contribution and indemnity, against any
Released Parties arising out of any Released Claims, to be
entered on the Final Approval Date.
7.3 The injunction orders described in sections 7.1 and 7.2 shall
not operate to stay or bar any proceedings against AHP,
Servier, the Phentermine Defendants, or any other party in
Diet Drug Litigation not defined as a Released Party under
this Agreement. Furthermore, the orders contemplated in
sections 7.1 and 7.2 shall not operate to stay or bar
proceedings against Released Parties other than Interneuron
arising out of claims that are not to be
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released under the terms of this Agreement.
7.4 The injunction orders described in sections 7.1 and 7.2 shall
not prevent:
7.4.1 any Released Party from moving to dismiss any action
on the ground that the claims asserted in such action
have been released under this Agreement, and any
proceedings related to such motion;
7.4.2 the entry of a stipulation or order of dismissal,
7.4.3 removal to federal court and proceedings in federal
court related to the determination of federal
jurisdiction;
7.4.4 transfer of any federal actions to the federal
multidistrict litigation,
7.4.5 any party from moving to sever Released Claims
against Released Parties and proceedings related to
the resolution of such motions.
7.5 In order to minimize Interneuron's litigation expenses and
maximize the amount of money in the Interneuron Class Action
Settlement Fund, the parties will jointly seek an order from
the Court enjoining Interneuron from participating in formal
or informal discovery proceedings in any Diet Drug Litigation
without the Court's approval. This proposed order is attached
as Appendix E. Interneuron acknowledges that additional
discovery against the company, including the depositions of
certain current employees and the completion of certain
document discovery, may be warranted in the context of
continuing Diet Drug Litigation. Such discovery, however, must
be coordinated to preserve the limited assets of both
Interneuron and the Fund, and thus it shall be conducted only
with the Court's coordination and approval so as to minimize
the cost and burden of discovery that is reasonably necessary
for Class
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Members to prosecute Diet Drug claims that are not Released
Claims.
8 DISTRIBUTION OF SETTLEMENT PROCEEDS
8.1 The Court will appoint a Claims Administrator who shall be
responsible for administering the settlement and distributing
the settlement proceeds in accordance with a protocol to be
developed by the Claims Administrator and approved by the
Court, after notice and an opportunity to be heard has been
afforded to Class Counsel, Class Members, private counsel for
Class Members and all other interested parties. This protocol
shall take account of the nature and extent of the injuries
sustained by the Class Members that they claim to be related
to the use of Redux(TM) or the conduct of Released Parties,
the age of the Class Member, the health of the Class Member
prior to taking Redux(TM), and such other information as the
Court deems just and appropriate. The protocol also shall take
account of the fact that the Fund available to pay claimants
is, by definition, a limited one, and therefore shall
minimize, to the extent possible, the costs of administration.
8.2 Until the end of the Royalty Term, the Interneuron Class
Action Settlement Fund shall maintain a reasonable percentage
of any cash deposited pursuant to the terms of this Agreement
as a reserve sufficient to satisfy the Fund's obligations to
indemnify Interneuron pursuant to section 6.6.
8.3 The Claims Administrator may retain persons to assist him or
her with the administration of the Interneuron Class Action
Settlement Fund, including clerical personnel. All reasonable
expenses relating to the administration of the Fund, including
the compensation of the Claims Administrator and personnel
retained by him or her, are to be paid from the Fund, subject
to approval of the Court, and shall not be assessed to the
Released Parties.
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8.4 The Claims Administrator shall retain all records relating to
the payment of claims and administration of the Fund. Upon
reasonable notice to the Claims Administrator, the Released
Parties and/or Class Counsel and the PMC may, at their
expense, and pursuant to procedures approved by the Court,
inspect and copy the Claims Administrator's records.
9 COUNSEL FEES, LITIGATION COSTS AND ADMINISTRATIVE EXPENSES
9.1 Class Counsel shall receive an award in an amount approved by
the Court in its sole discretion, in accordance with
Fed.R.Civ.P. 23(b)(1)(B), 23(d) and 23(e): (i) for
reimbursement of reasonable costs and expenses incurred for
the benefit of the Class, and (ii) as reasonable fees for
services performed for the benefit of the Class determined in
accordance with applicable standards for such fees, including,
as appropriate, consideration of the results achieved and the
contingencies involved in the performance of such services.
Interneuron and Class Counsel have made no agreement regarding
what the award of counsel fees should be.
9.2 The PMC will recommend that the Court give appropriate
recognition to private fee agreements between attorneys and
Class Members.
9.3 All reasonable expenses incurred in administering the
Settlement, including the cost of all required notices to
Class Members and compensation to the Claims Administrator and
any other person appointed by the Court or retained by the
Claims Administrator to assist the Administrator with the
administration of the Interneuron Class Action Settlement
Fund, shall be paid from the Fund as ordered by the Court.
9.4 No payments may be made from the Interneuron Class Action
Settlement Fund prior to the Final Settlement Date except for
costs of notice
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incurred pursuant to section 10.3 of this Agreement and
attorneys' fees and expenses incurred pursuant to sections 5.6
and 6.6 of this Agreement.
9.5 In no event will Interneuron be required to make any further
contribution to the Interneuron Class Action Settlement Fund
on account of compensation to Class Counsel, private counsel
for Class Members, or administrative or other expenses of this
settlement.
10 NOTICE OF SETTLEMENT
10.1 Within two weeks of the date of this Agreement, the parties
will jointly propose to the Court for its approval a long form
and short form of notice to be provided to Class Members and
all parties to pending Diet Drug Litigation in the following
manner:
10.1.1 Long form notice by mail: The long form notice of the
settlement shall be sent to all potential Class
Members with currently pending litigation against
Interneuron, all other parties in such cases, and all
attorneys of record in such cases. The long form
notice will also be posted by computer on the World
Wide Web.
10.1.2 Short form notice by publication: The short form
notice of the settlement shall be published on two
consecutive Fridays in USA Today, once in Parade
Magazine, and once in TV Guide.
10.2 No later than one month after the Notice Date, Class Counsel
shall file with the Court a report describing its notification
efforts, with copies of published notices and lists of the
persons notified by mail attached.
10.3 The costs of notice shall be paid by the Interneuron Class
Action Settlement Fund.
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11 TERMINATION/WITHDRAWAL
11.1 Interneuron shall have the right to withdraw from, terminate
and cancel its obligations under the Settlement Agreement upon
any of the following events:
11.1.1 Preliminary approval of the Settlement Agreement is
not entered by the Court;
11.1.2 A mandatory, non-opt class as defined in this
Agreement is not certified;
11.1.3 Final approval of the Settlement Agreement is not
entered by the Court;
11.1.4 Class certification and/or approval of the settlement
is overturned on appeal for any reason;
11.1.5 Pending and future litigation against the Released
Parties is not stayed and preliminarily enjoined on
the Preliminary Approval Date consistent with section
4.1;
11.1.6 Pending and future litigation against the Released
Parties is not permanently enjoined on the Final
Approval Date consistent with section 4.2;
11.1.7 The Class Action and all pending MDL lawsuits against
the Released Parties are not dismissed with prejudice
on the Final Approval Date consistent with section
4.2; or
11.1.8 An order is not entered by the Court permanently
barring contribution and indemnity claims by other
defendants in Diet Drug Litigation consistent with
section 6.5.
11.2 The Class Representative, by and through Class Counsel and the
PMC,
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shall have the right to withdraw from this Agreement if, after
120 days from the Preliminary Approval Date, Interneuron has,
in the PMC's reasonable determination, been unable to compel
tender of its insurance proceeds without reservation of
rights.
11.3 If Interneuron withdraws from, terminates, or cancels its
obligations under this Agreement pursuant to section 11.1 or
the Class Representative withdraws from this Agreement
pursuant to section 11.2, all money previously deposited by
Interneuron, including any insurance proceeds, and any
interest accrued thereon shall be refunded to Interneuron and
its insurers (less the cost of class notice, fees and expenses
associated with any declaratory judgment action to compel
payment of insurance proceeds, and other mutually agreed upon
administrative expenses).
12 MISCELLANEOUS PROVISIONS
12.1 Any Class Member who wants to receive any portion of the
Interneuron Class Action Settlement Fund must register as a
claimant by completing a Court-approved Class Member
Registration Form and serving a copy of the completed form on
the PMC and counsel for Interneuron no later than sixty (60)
days after the date established by the Court for the Fairness
Hearing. Any Class Member who fails to comply with this
requirement shall not be entitled to receive any portion of
the Fund. Any Class Member who has filed a claim against
Interneuron in federal or state court already is deemed to
have registered as a claimant to the Fund.
12.2 The Interneuron Class Action Settlement Fund shall be
structured and maintained so as to constitute a "qualified
settlement fund" within the meaning of Treasury Regulation
Section 1.468B-1 and all applicable statutes, rules and
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regulations. This is a material term of the Agreement, and the
parties agree to negotiate in good faith any changes to the
Agreement necessary so that Interneuron can obtain an opinion
of its tax counsel that the Fund meets the legal requirements
of a "qualified settlement fund."
12.3 The Court shall retain jurisdiction over the Interneuron Class
Action Settlement Fund pending its final disposition and with
respect to implementation of the terms of this Agreement.
12.4 The parties acknowledge that Interneuron intends to remain as
an ongoing business entity, subject to its right to seek to
merge, consolidate, or acquire other business entities, and
therefore, Interneuron requires cash and assets for business
and product development, and ongoing business interests. As
such, the parties acknowledge that Interneuron shall be
entitled to retain a cash balance and may raise capital from
time to time for the on-going conduct of its business,
including clinical trials and expenses related to the
development and marketing of technology and products. The
receipt of funds from any source (whether it be from the
extension of credit, issuance of securities, sale of assets,
proceeds received from litigation [except for proceeds of the
declaratory judgment action litigated as described in section
5.6], or otherwise) shall not cause Interneuron's obligations
to contribute money to the Interneuron Class Action Settlement
Fund to increase beyond what is provided for in this
Agreement. Interneuron, however, acknowledges that it will,
consistent with applicable law, have fiduciary duties relating
to the Fund, and accordingly, shall not voluntarily take any
action to avoid its performance under the terms of this
Agreement, including its obligation to make contributions of
money to the Fund in accordance with this Agreement.
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12.5 Commencing upon the Final Settlement Date through the
Termination Date (as defined in the Royalty Agreement,
Appendix A), the Fund shall be entitled to the following:
Interneuron shall provide the Fund with a copy of its Annual
Report on Form 10-K and Quarterly Reports on Form 10-Q, as
filed with the Securities and Exchange Commission; and (ii) at
the request of the Fund on no more than a quarterly basis,
Interneuron will provide the Fund with a copy of a quarterly
financial package, including budget information. The
non-public quarterly financial package shall be maintained by
the Fund as confidential and proprietary information and shall
be made available only to the Fund Trustee, the Court, and
such other persons that are explicitly approved by Interneuron
and execute a confidentiality agreement.
12.6 No payments shall be made from the Interneuron Class Action
Settlement Fund unless Medicare and Medicaid claims have been
resolved to the satisfaction of Interneuron.
12.7 Upon the request of any Class Member in connection with the
settlement of any Diet-Drug related claim, Interneuron shall
provide a Mutual Release, which shall release each defendant
in Diet Drug Litigation that settles a Diet Drug-related claim
with a Class Member, provided that such defendant also
executes the Mutual Release. This Mutual Release shall release
such defendant and the Released Parties (as defined in this
Agreement) from any and all claims, cross-claims, third-party
complaints, and other actions arising from claims by Class
Members (including all claims for contribution, indemnity
and/or subrogation), whether the claims are filed now or in
the future in any court of record, whether foreign or
domestic.
12.8 As soon as practical after the Final Settlement Date, Class
Counsel and
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the PMC will file motions and/or stipulations dismissing with
prejudice any Released Claims against Released Parties pending
in jurisdictions other than this Court and maintained by Class
Members whom they represent and will use their best efforts to
assist Interneuron in obtaining prompt dismissals with
prejudice of any other Released Claims against Released
Parties maintained by Class Members.
12.9 All parties hereto agree to exercise their best efforts and to
take all reasonable steps necessary to effectuate the
Settlement set forth in this Agreement.
12.10 This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective estates, heirs,
successors and assigns.
12.11 This Agreement, including the Royalty Agreement attached as
Appendix A, constitutes the sole and entire agreement among
the parties and may not be modified, amended, waived or
terminated except in writing duly executed by the party
against whom such modification, amendment, waiver or
termination is sought and approved by the Court. This
Agreement, including the Royalty Agreement, supersedes any
prior or contemporaneous agreement, understanding or
undertaking, written or oral, by and between the parties
regarding such subject matter. No prior draft of this
Agreement or the Royalty Agreement, nor any negotiations or
proceedings in pursuit of these Agreements, shall be offered
or received as evidence concerning the interpretation or
construction of either the Settlement Agreement or the Royalty
Agreement.
12.12 Plaintiff Sharon Wish, the PMC and Interneuron assume joint
responsibility for the form and composition of each and all
provisions of this Settlement Agreement and all appendices
thereto. The parties further agree that
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this Agreement and its appendices shall be interpreted as
though each of the parties participated equally in the
drafting of the provisions. No party shall assert that a
provision should be construed against its drafter.
12.13 This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
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AGREED this 21 day of September, 1998.
INTERNEURON PHARMACEUTICALS, INC.
By:/S/ Glenn L. Cooper
-------------------------------------
Glenn L. Cooper, M.D.
President and Chief Executive Officer
CO-LEAD COUNSEL FOR PLAINTIFFS'
MANAGEMENT COMMITTEE AND
COUNSEL FOR PLAINTIFF SHARON WISH
By:/S/ Arnold Levin
-------------------------------------
Arnold Levin
By:/S/ John Cummings
-------------------------------------
John Cummings
By:/S/ Stanley M. Chesley
-------------------------------------
Stanley M. Chesley
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EXHIBIT 99.3
ROYALTY AGREEMENT
BETWEEN
INTERNEURON PHARMACEUTICALS, INC.
and
THE PLAINTIFFS' MANAGEMENT COMMITTEE
ON BEHALF OF CLASS REPRESENTATIVE
SHARON WISH AND THE INTERNEURON
CLASS ACTION SETTLEMENT FUND
<PAGE> 2
ROYALTY AGREEMENT
THIS ROYALTY AGREEMENT effective this 21 day of September, 1998 (the
"Effective Date"), between Interneuron Pharmaceuticals, Inc., a corporation
organized and existing under the laws of Delaware and having its principal
office at 99 Hayden Avenue, Lexington, MA 02421 ("Interneuron") and the
Plaintiffs' Management Committee (as defined in the Settlement Agreement) on
behalf of Class Representative Sharon Wish and the Interneuron Class Action
Settlement Fund (the "PMC").
W I T N E S S E T H:
WHEREAS, in connection with an Agreement of Compromise and Settlement
entered into on the Effective Date (the "Settlement Agreement"), Interneuron and
the PMC have agreed to the terms of a limited fund, mandatory class action
settlement (the "Settlement");
WHEREAS, pursuant to the terms of the Settlement Agreement, the PMC, at
the direction of the Court, will establish the Interneuron Class Action
Settlement Fund Trust (the "Fund"); and
WHEREAS, as partial consideration for the Settlement, Interneuron has
agreed to pay Royalty Payments (as defined herein) to the Fund, upon the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein contained, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Unless specifically set forth to the contrary herein, the following terms,
whether used in the singular or plural, shall have the respective meanings set
forth below:
1.1 "Affiliate" shall mean (i) any Person of which more than fifty percent
(50%) of the securities or other ownership interests representing the
equity, the voting stock or general partnership interest are owned,
controlled or held, directly or indirectly, by a Party; or (ii) any Person
which, directly or indirectly, owns, controls or holds more than fifty
percent (50%) (or the maximum ownership interest permitted by law) of the
securities or other ownership interests representing the equity, the
voting stock or, if applicable, the general partnership interest, of a
Party.
<PAGE> 3
1.2 "Cash Dividends" shall mean any cash dividends received by Interneuron
from its Subsidiaries related to Product sales generated in any country in
the world.
1.3 "Common Stock" shall mean the common stock, $.001 par value, of
Interneuron.
1.4 "Final Settlement Date" shall have the meaning set forth in the Settlement
Agreement to which this Royalty Agreement is attached as APPENDIX A.
1.5 "GAAP" shall mean generally accepted accounting principles in the United
States.
1.6 "Gross Sales" shall mean the actual gross amount invoiced for the sale in
any country in the world of Interneuron Product by Interneuron to a Third
Party. If an Interneuron Product is sold or otherwise transferred as a
part of a package with other items to a Third Party, the Gross Sales for
Interneuron Product shall be the Gross Sales applicable to Interneuron
Product as if it were sold separately.
1.7 "Interneuron Product" shall mean a Product which is sold directly by
Interneuron.
1.8 "Interneuron Receipts" shall mean Gross Sales, License Revenue and/or Cash
Dividends.
1.9 "Letter of Understanding" shall mean the letter of understanding between
Interneuron and PMC, dated September 3, 1998.
1.10 "License Revenues" shall mean license fees, royalties or milestone
payments received by Interneuron from a Sublicensee related to Product
sales generated in any country in the world. License Revenues shall not
include any amounts received by Interneuron as reimbursements for research
and development expenses or as equity investments in Interneuron.
1.11 "Party" shall mean Interneuron, on the one hand, or the PMC or the Fund,
on the other, as applicable.
1.12 "Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, trust association, unincorporated
organization, other entity, or governmental body.
1.13 "PMC" shall have the meaning set forth in the Settlement Agreement to
which this Royalty Agreement is attached as APPENDIX A.
1.14 "Product" shall mean any product in final form for commercial sale by
prescription, over-the-counter, or by any other method.
<PAGE> 4
1.15 "Representative of the Fund" shall mean the PMC. By execution of this
Royalty Agreement, the Fund grants the PMC the right and authority to act
on behalf of the Fund to the extent set forth herein.
1.16 "Royalty Amount" shall mean $55 million.
1.17 "Royalty Conversion Price" shall mean $7.49, subject to adjustment as
provided in SECTION 6.1.
1.18 "Royalty Term" shall mean the period commencing on the Final Settlement
Date and ending seven (7) years from the Final Settlement Date.
1.19 "Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
1.20 "Sublicensed Product" shall mean a Product other than an Interneuron
Product.
1.21 "Sublicensee" shall mean a Third Party to which Interneuron has
sublicensed or otherwise granted rights to market a Product.
1.22 "Subsidiary" shall mean a corporation of which Interneuron owns at least
20% of the outstanding voting securities.
1.23 "Termination Date" shall mean the last day of the Royalty Term; provided,
however, that the Termination Date may be accelerated pursuant to the
provisions of SECTION 7.1; further provided that if such date shall in the
State of New York be a holiday or a day on which banks are authorized to
close, the Termination Date shall be on the next following day which in
the State of New York is not a holiday or a day on which banks are
authorized to close.
1.24 "Third Party" shall mean a Person which is neither a Party nor an
Affiliate or Subsidiary of a Party.
1.25 "Transfer" shall mean any sale, bequest, exchange, assignment or gift, the
creation of any security interest or other encumbrance and any other
disposition of any kind, whether voluntary or involuntary, affecting title
to or possession of any of the Royalty Shares.
1.26 "Trustee" shall mean the financial institution appointed by the Honorable
Louis C. Bechtle, of the United States District Court for the Eastern
District of Pennsylvania, in connection with the Settlement.
<PAGE> 5
ARTICLE II
ROYALTY PAYMENTS AND REPORTS
2.1 ROYALTY PAYMENTS. Subject to the terms and conditions of this Royalty
Agreement, Interneuron shall pay to the Fund as partial consideration for
the Settlement, cash payments (the "Royalty Payments") equal to a portion
of Interneuron Receipts received during the Royalty Term, not to exceed in
the aggregate, the Royalty Amount, as follows:
(a) seven percent (7%) of Gross Sales of Interneuron Product by
Interneuron during each Royalty Calculation Period (as defined in
SECTION 2.4) subject to the following conditions:
(i) that only one Royalty Payment shall be due with respect to the
same unit of Interneuron Product; and
(ii) no Royalty Payments shall accrue on the disposition of
Interneuron Product in reasonable quantities by Interneuron as
samples (promotion or otherwise) or as donations (for example,
to non-profit institutions or government agencies for a
non-commercial purpose);
(b) fifteen percent (15%) of Cash Dividends received by Interneuron
during each Royalty Calculation Period; and
(c) fifteen percent (15%) of License Revenues received by Interneuron
during each Royalty Calculation Period.
2.2 ROYALTY PAYMENT OBLIGATION. Interneuron's Royalty Payment obligation
pursuant to SECTION 2.1 shall be effective as of the Final Settlement Date
and shall continue until the earlier of the Termination Date or the date
at which Interneuron has made payments to the Fund equal to the Royalty
Amount; provided however, if, as of the Termination Date, Interneuron has
not made Royalty Payments equal in the aggregate to the Royalty Amount,
the provisions of SECTION 2.3 herein shall apply.
2.3 FINAL ROYALTY PAYMENT. If, on the last day of the Royalty Term the
aggregate Royalty Payments paid by Interneuron to the Fund do not equal
the Royalty Amount, then Interneuron shall make a payment (the "Final
Royalty Payment") to the Fund, within ninety (90) days following the
Termination Date, consisting of the issuance to the Fund of the number of
shares of Common Stock (the "Royalty Shares"), rounded to the nearest
whole number, equal to the quotient obtained by dividing (a) the number
obtained by subtracting from the Royalty Amount the aggregate Royalty
Payments paid to the Fund as of the Termination Date (the "Royalty
Balance") by (b) the then effective Royalty Conversion Price.
Notwithstanding the foregoing, Interneuron, in its sole discretion, may
elect (the "Cash Election") to pay all or a portion of the Final Royalty
Payment in cash
<PAGE> 6
instead of issuing all or any portion of any Royalty Shares which may be
payable to the Fund pursuant to the terms of this SECTION 2.3. If
Interneuron makes a Cash Election, it shall (i) notify the Fund of such
election within ten (10) days after the Termination Date and (ii) pay to
the Fund cash in an amount equal to ninety percent (90%) of the fair
market value of the Royalty Shares payable as the Final Royalty Payment
which Interneuron has elected to be paid in cash.
2.4 REPORTS; PAYMENT OF ROYALTY. Interneuron shall furnish to the Trustee a
written report (the "Royalty Report") on March 31, June 30, September 30,
and December 31 of each year during the Royalty Term (the "Royalty Payment
Dates") for each prior three month period ending December 31, March 31,
June 30, and September 30, respectively (the "Royalty Calculation
Periods") showing all Interneuron Receipts subject to Royalty Payments and
the Royalty Payments accrued under this Royalty Agreement during such
Royalty Calculation Period. Royalty Payments shown to have accrued during
each Royalty Calculation Period shall be due and payable on the applicable
Royalty Payment Date. Interneuron shall keep complete and accurate records
in sufficient detail to enable the Royalty Payments hereunder to be
determined.
2.5 AUDITS.
(a) Upon the written request of the Trustee and not more than once in
each calendar year of the Royalty Term, Interneuron shall permit an
independent certified public accounting firm of nationally
recognized standing selected by the Trustee and acceptable to
Interneuron, to have access during normal business hours at times
mutually convenient to the parties and upon reasonable notice to
Interneuron to such of the records of Interneuron as may be
reasonably necessary to verify the accuracy of the Royalty Reports
hereunder for any Royalty Calculation Period ending not more than
eighteen (18) months prior to the date of such request. The
accounting firm shall disclose to the Trustee only whether the
Royalty Reports are correct or incorrect and the specific details
concerning any discrepancies.
(b) If such accounting firm correctly concludes that additional Royalty
Payments were owed during such period, Interneuron shall pay the
additional Royalty Payments within sixty (60) days of the date the
Trustee delivers to Interneuron such accounting firm's written
report. If such accounting firm correctly concludes that Interneuron
paid an excess amount, Interneuron will credit the excess amount
that was paid against the next Royalty Payment due. The fees charged
by such accounting firm shall be paid by the Fund through a credit
against future Royalty Payments; provided, however, that if an error
in favor of the Fund in the payment of Royalty Payments of more than
ten percent (10%) of the Royalty Payments due hereunder for the
period being reviewed is discovered, then the fees and expenses of
the accounting firm shall be borne by Interneuron.
<PAGE> 7
(c) Upon the expiration of eighteen (18) months (subject to extension in
the event the accounting firm correctly concludes that Interneuron
has committed fraud in the calculation of Royalty Payments)
following the end of any Royalty Calculation Period the calculation
of Royalty Payments payable with respect to such Royalty Calculation
Period shall be binding and conclusive upon the Fund, and
Interneuron shall be released from any liability or accountability
with respect to Royalty Payments for such Royalty Calculation
Period.
(d) The Fund shall treat all financial information subject to review
under this SECTION 2.5 in accordance with the confidentiality
provisions of this Royalty Agreement.
2.6 PAYMENT EXCHANGE RATE. All cash Royalty Payments to the Fund under this
Royalty Agreement shall be in United States dollars. In the case of sales
outside of the United States, the rate of exchange to be used in computing
the amount of currency equivalent in United States dollars shall be
calculated monthly in accordance with GAAP based on the average of the
conversion rates on the first and last business day of the month during
each Royalty Calculation Period published in the Wall Street Journal,
Eastern edition.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE PMC. The PMC represents and warrants
to Interneuron that as of the Effective Date:
(a) this Royalty Agreement has been duly authorized, executed and
delivered by it; and
(b) except as set forth in the Settlement Agreement, no approval,
authorization, consent, or other order or action of or filing with
any court, administrative agency or other governmental authority is
required for the execution and delivery by it of this Royalty
Agreement or the consummation by it of the transactions contemplated
hereby.
3.2 INVESTMENT REPRESENTATIONS AND WARRANTIES OF THE PMC ON BEHALF OF THE
FUND. The PMC represents and warrants to Interneuron on behalf of the Fund
that:
(a) the Royalty Shares, if any, payable to the Fund pursuant to the
terms hereof will be acquired for investment for its own account,
without any view to the unregistered public distribution or resale
thereof, all without prejudice, however, to the right of the Fund,
subject to the terms and conditions of this Royalty Agreement, at
any time lawfully to sell or otherwise to dispose of all or any part
<PAGE> 8
of the Royalty Shares pursuant to registration or any exemption
therefrom under the Securities Act and applicable state securities
laws;
(b) The PMC understands that the Royalty Shares, if any, to be received
by the Fund pursuant to the terms hereof have not been registered
under the Securities Act inasmuch as they are issuable by
Interneuron in a transaction not involving a public offering and
exempt from the registration requirements under the Securities Act,
and that under the federal securities laws and applicable
regulations the Royalty Shares may be resold without registration
under the Securities Act only in certain limited circumstances;
(c) The PMC has, and the Fund will have, the capacity to evaluate the
merits and high risks of an investment in the Royalty Shares and is
able to bear the economic risk of this investment. The PMC has been
provided access to all information requested by it in order to
evaluate the merits and risks of an investment by the Fund in the
Royalty Shares;
(d) The PMC acknowledges that the certificates evidencing the Royalty
Shares to be issued to the Fund, if any, shall bear a legend
substantially as follows:
"THESE SECURITIES (A) ARE SUBJECT TO THE TERMS AND CONDITIONS OF A
ROYALTY AGREEMENT, DATED SEPTEMBER 21, 1998, A COPY OF WHICH IS ON
FILE WITH THE COMPANY AND (B) HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED, EXCEPT IN ACCORDANCE WITH THE
TERMS OF THE ROYALTY AGREEMENT AND UNLESS A REGISTRATION STATEMENT
IS IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
The foregoing legend shall be removed by Interneuron from any
certificate at such time as the holder of the Royalty Shares
represented by the certificate delivers to Interneuron an opinion of
counsel to the effect that (i) the Transfer provisions of this
Royalty Agreement have been met and that (ii) such legend is not
required in order to establish compliance with any provisions of the
Securities Act or at such time as the holder of such Royalty Shares
satisfies the requirements of Rule 144(k) under the Securities Act
(provided that Rule 144(k) as then in effect does not differ
substantially from Rule 144(k) as in effect as of the date of this
Royalty Agreement), and provided further that Interneuron has
received from the holder a written representation that such holder
has (i) complied with the Transfer provisions of this Royalty
Agreement and (ii) satisfies the requirements of Rule 144(k) as then
in effect with respect to such Royalty Shares.
<PAGE> 9
3.3 INTERNEURON REPRESENTATIONS AND WARRANTIES. Interneuron represents and
warrants to the PMC on behalf of the Fund that as of the Effective Date:
(a) this Royalty Agreement has been duly authorized, executed and
delivered by it;
(b) except as set forth in the Settlement Agreement, no approval,
authorization, consent, or other order or action of or filing with
any court, administrative agency or other governmental authority is
required for the execution and delivery by it of this Royalty
Agreement or the consummation by it of the transactions contemplated
hereby; and
(c) the issuance and delivery by Interneuron of shares of Common Stock
which may be issuable to the Fund as Royalty Shares, if any, have
been duly authorized by all requisite corporate action of
Interneuron and, when so issued and delivered, if ever, the Royalty
Shares will be validly issued and outstanding, fully paid and
nonassessable.
ARTICLE IV
CONFIDENTIALITY
4.1 NON-DISCLOSURE AND NON-USE OBLIGATIONS. All information disclosed by one
Party to another Party hereunder shall be maintained in confidence and
shall not be disclosed to any Third Party or used for any purpose except
as expressly permitted herein without the prior written consent of the
disclosing Party. The foregoing non-disclosure and non-use obligations
shall not apply to the extent that such information:
(a) is known by the receiving Party at the time of its receipt, and not
through a prior disclosure by the disclosing Party, as documented by
business records;
(b) is properly in the public domain; or
(c) is subsequently disclosed to a receiving Party by a Third Party who
may lawfully do so and is not under an obligation of confidentiality
to the disclosing Party.
4.2 PERMITTED DISCLOSURE OF INFORMATION. Notwithstanding SECTION 4.1, a Party
receiving information from another Party may disclose such information if
required to be disclosed by law or court order, provided that notice is
promptly delivered to the non-disclosing Party in order to provide an
opportunity to challenge or limit the disclosure obligations; provided,
however, without limiting any of the foregoing, it is understood that any
Party may make disclosure of this Royalty Agreement and the terms hereof
in a press release and in any filings required by the United States
Securities and Exchange Commission and other regulatory agencies.
<PAGE> 10
ARTICLE V
RESTRICTION ON VOTING AND TRANSFER OF ROYALTY SHARES.
5.1 LIMITATION ON TRANSFER. The Fund may not Transfer (other than to
Interneuron) any Royalty Shares except as permitted in accordance with the
terms of this Royalty Agreement. Any purported Transfer of any Royalty
Shares in any other manner shall be void.
5.2 RIGHT OF FIRST REFUSAL UPON PROPOSED TRANSFER OF ROYALTY SHARES.
Interneuron shall have the right of first refusal (the "Right of First
Refusal") to purchase Royalty Shares in the event of any proposed Transfer
of Royalty Shares by the Fund. Accordingly, if the Fund intends to seek to
Transfer any Royalty Shares, the Fund shall give written notice to
Interneuron of such intention and of the proposed price, terms and, if
known by the Fund, the name of the potential purchaser of the Royalty
Shares. In connection with a proposed Transfer in a private transaction,
the notice by the Fund shall also include, if known by the Fund, the names
of the directors and majority stockholders of any corporation or the
principals of any other entity proposed as the potential purchaser. The
Right of First Refusal shall entitle Interneuron to purchase Royalty
Shares on the same terms as the proposed Transfer described in the notice.
The Right of First Refusal shall be exercisable by notice given to the
Fund at any time within twenty (20) days of the receipt by Interneuron of
the notice given by the Fund (the "Option Period").
If Interneuron does not exercise its Right of First Refusal prior to the
expiration of the Option Period, the Fund may, at any time within ten (10)
days (the "Sale Period") following the expiration of the Option Period,
sell for cash all, but not less than all, of the offered Royalty Shares on
the terms proposed in the notice at a cash price per share not less than
the minimum price proposed in the notice, provided that prior to any sale,
counsel for the Fund shall have delivered to Interneuron its opinion, in
form and substance acceptable to Interneuron, that the sale will not
violate any applicable federal or state securities law. If the offered
Royalty Shares remain unsold at the end of the Sale Period, such Royalty
Shares may not thereafter be Transferred by the Fund unless the Fund again
complies with this SECTION 5.2. The failure by Interneuron to exercise its
Right of First Refusal in any particular instance shall not affect in any
way such right with respect to any other proposed Transfer of Royalty
Shares.
5.3 RULE 144 RESTRICTIONS ON TRANSFER. The Fund agrees that any Royalty Shares
Transferred by the Fund shall be Transferred in accordance with the volume
restrictions contained in paragraph (e) of Rule 144 of the Securities Act,
or any successor rule.
<PAGE> 11
5.4 VOTING RESTRICTIONS.
(a) So long as the Fund owns any Royalty Shares, with respect to all
actions to be taken by Interneuron or its stockholders (whether by
proxy or consent) on which holders of Common Stock have the right,
by statute or otherwise, to vote, whether as a separate class or
together with other classes of Interneuron capital stock (a
"Stockholder Action"), the Fund hereby agrees and hereby irrevocably
(i) makes, constitutes and appoints the Trustee (the "Fund Voting
Designee") to act as the Fund's true and lawful proxy and
attorney-in-fact in the name and on behalf of the Fund, with full
power to appoint a substitute or substitutes with respect to any
Royalty Shares owned by the Fund, and (ii) directs the Fund Voting
Designee to vote the Royalty Shares owned by it, at the time and
from time to time, with respect to all Stockholder Actions, in the
place and stead of the Fund, in the same manner and proportion as
the holders of outstanding shares of Common Stock, other than the
Fund, and other securities of Interneuron entitled to vote on a
Stockholder Action, voting as one class ("Voting Securities") and
represented in person or by proxy, vote their shares in connection
with a Stockholder Action. For example, if a particular Stockholder
Action receives the affirmative vote of holders of sixty percent
(60%) of the Voting Securities represented in person or by proxy,
then sixty percent (60%) of the Royalty Shares shall be voted in
favor of the Stockholder Action. By giving this proxy the Fund
hereby revokes any other proxy granted by the Fund to vote any of
the Royalty Shares owned by it. The proxy granted herein shall
expire when all of the Royalty Shares owned by the Fund have been
sold.
(b) All power and authority hereby conferred is coupled with an interest
and is irrevocable, shall not be terminated by any act of the Fund
or by operation of law, by lack of appropriate power or authority,
or by the occurrence of any other event or events and shall be
binding upon all beneficiaries, heirs at law, legatees,
distributees, successors, assigns and legal representatives of the
Fund. If after the execution of this Royalty Agreement the Fund
shall cease to have appropriate power or authority, or if any other
such event or events shall occur, the Fund Voting Designee is
nevertheless authorized and directed to vote any Royalty Shares
owned by the Fund in accordance with the terms of this Royalty
Agreement as if such lack of appropriate power or authority or other
event or events had not occurred and regardless of notice thereof.
(c) The Fund shall perform such further acts and execute such further
documents as may be required to vest in the Fund Voting Designee the
sole power to vote any Royalty Shares owned by the Fund as required
herein.
(d) Notwithstanding the terms and conditions set forth in this SECTION
5.4, the Fund shall not, by virtue hereof, be entitled to any voting
or other rights as a stockholder of Interneuron unless and until
such time, if ever, as Interneuron shall issue Royalty Shares to the
Fund.
<PAGE> 12
ARTICLE VI
ADJUSTMENT PROVISIONS; MERGER, CONSOLIDATION OR SALE
6.1 ADJUSTMENT TO ROYALTY CONVERSION PRICE. The Royalty Conversion Price in
effect at any time shall be subject to adjustment from time to time upon
the happening of certain events as follows:
In case Interneuron shall (i) declare a dividend or make a distribution on
its outstanding shares of Common Stock in shares of Common Stock, (ii)
subdivide or reclassify its outstanding shares of Common Stock into a
greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Royalty
Conversion Price in effect at the time of the record date for such
dividend or distribution or of the effective date of such subdivision,
combination or reclassification shall be adjusted so that it shall equal
the price determined by multiplying the Royalty Conversion Price by a
fraction, the denominator of which shall be the number of shares of Common
Stock outstanding after giving effect to such action, and the numerator of
which shall be the number of shares of Common Stock outstanding
immediately prior to such action. Such adjustment shall be made
successively whenever any event listed above shall occur.
6.2 OFFICER'S CERTIFICATE. Whenever the Royalty Conversion Price shall be
adjusted as required by the provisions of the SECTION 6.1, Interneuron
shall file in the custody of its Treasurer or an Assistant Treasurer at
its principal office an officer's certificate showing the adjusted Royalty
Conversion Price determined as herein provided, setting forth in
reasonable detail such facts as shall be necessary to show the reason for
and the manner of computing such adjustment. Each such officer's
certificate shall be made available at all reasonable times for inspection
by the Fund, and Interneuron shall, forthwith after each such adjustment,
mail a copy by certified mail of such certificate to the Fund.
6.3 MERGER, CONSOLIDATION OR SALE. In case Interneuron shall at any time prior
to the earlier of (a) the Termination Date or (b) the date on which
Interneuron has made payments to the Fund equal to the Royalty Amount, (i)
consolidate or merge with or into another corporation (other than a merger
in which Interneuron is the continuing or surviving corporation); or (ii)
sell or transfer to another corporation all or substantially all of the
assets of Interneuron (a "Corporate Transaction") in which holders of
Common Stock are entitled to receive stock, other securities or property
in exchange for Common Stock held by them then, in lieu of any further
Royalty Payments or right to receive Royalty Shares under this Royalty
Agreement, the Fund shall be entitled to receive upon the later of (a) the
effectiveness of the Corporate Transaction, or (b) the Final Settlement
Date, if such date is subsequent to the effectiveness of the Corporate
Transaction, the kind and amount of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock which
the Fund would have been entitled as Royalty Shares pursuant to the terms
of SECTION 2.3 herein as if the provisions of SECTION 2.3 had been
<PAGE> 13
applicable at such time, based on the Royalty Balance outstanding
immediately prior to the effectiveness of such Corporate Transaction or,
if subsequent to such time, on the Final Settlement Date. If (i) at the
time of any Corporate Transaction, Interneuron has made payments to the
Fund equal to the Royalty Amount such that there is no Royalty Balance, or
(ii) as a result of any Corporate Transaction this SECTION 6.3 becomes
applicable, then any further obligations of Interneuron pursuant to
ARTICLE 2 hereunder shall immediately expire and this Royalty Agreement
shall terminate.
ARTICLE VII
TERM AND TERMINATION
7.1 TERM AND TERMINATION. This Royalty Agreement shall be effective as of the
Effective Date and shall continue in effect for the Royalty Term, unless
(i) this Royalty Agreement is terminated earlier pursuant to SECTION 2.2
OR 6.3 above, or (ii) the Settlement Agreement terminates in accordance
with its terms. In addition, if a Party is in breach of any of the
material terms or conditions of this Royalty Agreement or the Settlement
Agreement and such breach is not cured within the period set forth in
SECTION 8.2 hereof, the non-breaching Party shall have the right to
terminate this Royalty Agreement. The date on which this Royalty Agreement
is terminated is the "Termination Date".
7.2 EFFECT OF TERMINATION. Termination of this Royalty Agreement shall not
relieve the Parties of any obligation accruing prior to such termination.
In addition to any other provisions of this Royalty Agreement which by
their terms continue after the Termination Date, (i) the provisions of
ARTICLE 3 shall survive the termination of this Royalty Agreement and
shall continue in effect for five (5) years from the Termination Date and
(ii) the provisions of ARTICLE 5 shall survive the termination of this
Royalty Agreement (except a termination under SECTION 6.3 hereof) and
shall continue in effect until all of the Royalty Shares are sold pursuant
to SECTION 5.2 herein. The termination of this Royalty Agreement shall be
without prejudice to the rights of any Party against the other accrued or
accruing under this Royalty Agreement prior to the Termination Date.
ARTICLE VIII
MISCELLANEOUS
8.1 FORCE MAJEURE. Neither Party shall be held liable or responsible to the
other Party nor be deemed to have defaulted under or breached the Royalty
Agreement for failure or delay in fulfilling or performing any term of the
Royalty Agreement during the period of time when such failure or delay is
caused by or results from causes beyond the reasonable control of the
affected Party including, but not limited to, fire, flood, embargo, war,
acts
<PAGE> 14
of war (whether war be declared or not), insurrection, riot, civil
commotion, strike, lockout or other labor disturbance, act of God or act,
omission or delay in acting by the other Party. The affected Party shall
notify the other Party of such force majeure circumstances as soon as
reasonably practicable.
8.2 CURE PERIOD FOR BREACH. If a Party is in breach of any material obligation
hereunder or, to the extent applicable, the Settlement Agreement, it shall
have thirty (30) days after receipt of notice from the other Party
requesting cure of the breach, to cure such breach; provided however, that
if the breach is not capable of being cured within thirty (30) days of
receipt of such written notice for causes or reasons beyond such Party's
control, such Party may remain in breach of such obligation so long as it
has commenced and is taking commercially reasonable actions to cure such
breach as promptly as practicable.
8.3 SEVERABILITY. In the event that any of the provisions contained in this
Royalty Agreement are held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby, unless the absence of the invalidated provision(s) adversely
affect the substantive rights of the Parties. The Parties shall replace
the invalid, illegal or unenforceable provision(s) with valid, legal and
enforceable provision(s) which, insofar as practical, implement the
purposes of this Royalty Agreement.
8.4 NOTICES. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered
personally, sent by facsimile (and promptly confirmed by personal
delivery, registered or certified mail or overnight courier), sent by
nationally-recognized overnight courier or sent by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
if to Interneuron to: Interneuron Pharmaceuticals, Inc.
One Ledgemont Center
99 Hayden Avenue, Suite 340
Lexington, MA 02421
Attention: President
Fax No.: 781-862-3859
with copies to: Bachner, Tally, Polevoy Misher LLP
380 Madison Avenue
18th Floor
New York, NY 10017
Attention: Jill M. Cohen, Esq.
Fax No.: 212-682-5729
and
<PAGE> 15
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue, 30-36
New York, NY 10022
Attention: Barbara Wrubel, Esq.
Fax No.: 212-735-3748
if to the Fund, to: Plaintiffs' Management Committee
510 Walnut Street, Suite 500
Philadelphia, PA 19106
Attention: Arnold Levin, Esq.
Fax No.: 215-592-4663
with a copy to the Trustee, at such address as is provided in
writing to each Party within thirty (30) days of the Effective Date
or to such other address as the Party to whom notice is to be given may
have furnished to the other Parties in writing in accordance herewith. Any
such communication shall be deemed to have been given when delivered if
personally delivered or sent by facsimile on a business day, on the
business day after patch if sent by nationally-recognized overnight
courier and on the third business day following the date of mailing if
sent by mail.
8.5 APPLICABLE LAW. The Royalty Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware and the United States
without reference to any rules of conflict of laws.
8.6 WAIVER. The waiver by a Party hereto of any right hereunder or the failure
to perform or of a breach by another Party shall not be deemed a waiver of
any other right hereunder or of any other breach or failure by said other
Party whether of a similar nature or other:
wise.
8.7 COUNTERPARTS. The Royalty Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE> 16
IN WITNESS WHEREOF, the Parties have executed this Royalty Agreement as of
the date first set forth above.
INTERNEURON PHARMACEUTICALS, INC.
By:/S/ Glenn L. Cooper
------------------------------------
Name: Glenn L. Cooper, M.D.
Title: President and Chief Executive
Officer
PLAINTIFFS' MANAGEMENT COMMITTEE
ON BEHALF OF CLASS REPRESENTATIVE
SHARON WISH AND THE INTERNEURON
CLASS ACTION SETTLEMENT FUND
By:/S/ Arnold Levin
------------------------------------
Name:
By:/S/ John Cummings
------------------------------------
Name:
By:/S/ Stanley Chesley
------------------------------------
Name:
<PAGE> 17
APPENDIX A
Royalty Agreement (filed as Exhibit 99.3 hereto)
<PAGE> 18
APPENDIX B
SCHEDULE OF INTERNEURON PHARMACEUTICALS, INC.'S INSURANCE
Columbia Casualty Co. (CNA)
Policy No. ADT 1028639694
(efeective May 15, 1997 to May 15, 1998)
$20 million per occurrence and in the aggregate
Reliance Insurance Co. of Illinois
Policy No. NPD 0137779
(effective May 15, 1997 to May 15, 1998)
$5 million per occurrence and in the aggregate
New Hampshire Insurance Co./ AIG Europe (UK) Ltd.
Policy No. 3200810697
(effective May 15, 1997 to May 15, 1998)
$15 million per occurance and in the aggregate
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<PAGE> 19
APPENDIX C
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
IN RE: DIET DRUGS (PHENTERMINE, :
FENFLURAMINE, DEXFENFLURAMINE) : MDL DOCKET NO.
PRODUCTS LIABILITY LITIGATION : 1203
:
THIS DOCUMENT RELATES TO ALL :
CASES :
SHARON WISH v. INTERNEURON : CIVIL ACTION NO.
PHARMACEUTICALS, INC. : 98-CV-20594
:
ORDER CONDITIONALLY CERTIFYING A MANDATORY CLASS,
PRELIMINARILY APPROVING THE SETTLEMENT AGREEMENT,
INSTRUCTING THE PARTIES TO PREPARE NOTICE, AND
TEMPORARILY STAYING AND ENJOINING PENDING AND FUTURE
LITIGATION AGAINST INTERNEURON PHARMACEUTICALS, INC.
The Plaintiffs' Management Committee ("PMC"), on behalf of Plaintiff
Sharon Wish, and Interneuron Pharmaceuticals, Inc. ("Interneuron") have made
application for an Order preliminarily approving the settlement of this action
in accordance with the Agreement of Compromise and Settlement (with attached
Royalty Agreement) dated September __, 1998 (the "Settlement Agreement"), a copy
of which is attached hereto. Having read and considered the Settlement Agreement
and the Memoranda submitted by the parties in support of class certification,
and being satisfied that the proposed Settlement Agreement meets the applicable
criteria for preliminary approval, the Court hereby preliminarily approves the
proposed class action settlement on the terms set forth in the Settlement
Agreement and further orders as follows:
1. The capitalized terms used in this Order shall have the same meaning
as those in the Settlement Agreement.
2. The Settlement Class is conditionally certified, and is defined as
follows:
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<PAGE> 20
The "Class" is a mandatory, non-opt out class under Fed. R. Civ. P.
23(b)(1)(B) that includes:
(a) All persons who obtained Redux(TM) in the United States or its
territories and used the product prior to the Notice Date;
(b) All persons (except the United States Government) asserting or
who may in the future assert standing to sue Interneuron or
any Released Party as a result of another person's obtaining
Redux(TM) in the United States or its territories and using
the product prior to the Notice Date (including spouses,
children, other family members, heirs, beneficiaries,
executors, administrators, legal representatives, successors,
subrogees or assigns of any person who used Redux(TM));
(c) All persons in the United States and its territories who used
a Diet Drug other than Redux(TM) prior to the Notice Date and
who seek or may in the future seek to hold Interneuron or any
Released Party liable on a theory of conspiracy, concert of
action, aiding and abetting, negligent undertaking, "Good
Samaritan" liability, deceptive trade practices, consumer
fraud, unfair business practices or any similar legal theory;
(d) All persons in the United States and its territories (except
the United States Government) asserting or who may in the
future assert standing to sue Interneuron or any Released
Party based upon a theory of conspiracy, concert of action,
aiding and abetting, negligent undertaking, "Good Samaritan"
liability, deceptive trade practices, consumer fraud, unfair
business practices or any similar legal theory as a result of
another person's use of a Diet Drug other than Redux(TM) prior
to the Notice Date, including spouses, children, other family
members, heirs, beneficiaries, executors, administrators,
legal representatives, successors, subrogees or assigns of any
person who used a Diet Drug other than Redux(TM).
3. Plaintiff Sharon Wish is appointed as the Representative Plaintiff
to represent the Settlement Class. The Plaintiffs' Management Committee is
appointed as Class Counsel.
4. In light of the foregoing, and after having considered the arguments
and evidence submitted by both parties on Plaintiff's motion for class
certification, the Court finds that:
(a) The Class is so numerous that joinder of all members is
impracticable;
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<PAGE> 21
(b) There are questions of law and fact common to the Class;
(c) The claims of Plaintiff Sharon Wish are typical of the claims of
the Class;
(d) Plaintiff Sharon wish will fairly and adequately protect the
interests of the Class, and her counsel, the PMC, are free from
intraclass conflicts and will fairly and adequately represent the
class;
(e) The continued prosecution of separate actions by individual Class
Members would create a risk of adjudications with respect to individual
Class Members that would, as a practical matter, be dispositive of the
interests of other Class Members not parties to the adjudications and
substantially impair their ability to protect their interests.
Interneuron's financial condition presents a substantial risk that the
continued defense of Diet Drug Litigation nationwide would deplete the
company's resources and leave no fund from which plaintiffs could
recover.
These findings are without prejudice to Interneuron's rights under Federal Rule
of Civil Procedure 23 and the Settlement Agreement if the Settlement is not
finally approved. In particular, these findings in no way suggest that this
action could be certified under Rule 23(1,)(2) or Rule 23(1,)(3).
5. The Court will hold a formal fairness hearing (the "Fairness
Hearing") to determine whether the Agreement is fair, adequate, and reasonable
and should be finally approved and any other matters deemed appropriate by the
Court. The Fairness Hearing will be held on ________________________, at 10:00
a.m., in Courtroom 17B of the United States District Court for the Eastern
District of Pennsylvania, to determine: (a) whether the Class should be
certified as a class action under Federal Rule of Civil Procedure 23(a) and
23(b)(1)(B); (b) whether the Agreement is fair, reasonable, and adequate and
whether final judgment should be entered dismissing the action on the merits,
with prejudice and without costs; (c) whether
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<PAGE> 22
the Court should enter an order barring and enjoining all claims for
contribution and/or indemnity against Interneuron and/or the Released Parties
arising out of Released Claims; and (d) to consider any other matters deemed
appropriate by the Court.
6. To maintain orderly proceedings and to afford a reasonable
opportunity to be heard to those who wish it, any Class Member or other
interested party wishing to appear at the Fairness Hearing in person or through
his or her attorney must submit a written request, including a summary of the
issue(s) to be presented at the hearing, postmarked no later than
_________________, and mailed to the address provided in the Notice of
Settlement. This requirement ensures that the parties will have adequate notice
of the issues and arguments to be addressed at the hearing.
7. Any Class Member or other interested party wishing to submit
comments to support or oppose any aspect of the Agreement may do so in writing,
without the necessity of retaining counsel or making any formal appearance. All
written comments must be postmarked no later than _____________________ and
mailed to the address provided in the Notice of Settlement. Any Class Member or
other interested party who does not make an objection in the manner provided
shall be deemed to have waived such objection and shall be forever foreclosed
from making any objection to the certification of the Class, the fairness,
adequacy or reasonableness of the proposed Settlement Agreement, the entry of
the Final Order and Judgment, and the issuance of a permanent injunction and bar
against all claims for contribution and/or indemnity against Interneuron and/or
the Released Parties arising out of Released Claims.
8. The parties shall jointly propose a long form and short form of
notice within two weeks of the date of this Order. The Court will then evaluate
the content of the notice to ensure that it comports with the requirements of
due process. Notice of the settlement shall be given in the manner set forth
below. The Court finds that such manner
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<PAGE> 23
of notice meets the requirements of due process and is the best notice
practicable under the circumstances and shall constitute due and sufficient
notice to all persons entitled thereto.
(a) As soon as practicable after this Court's approval of the
forms of notice, but no later than ________________________,
the long form notice shall be sent by First Class mail to all
Class Members with currently pending litigation against
Interneuron, all parties to such litigation, and all attorneys
of record in such litigation. Class Counsel also shall cause
the long form notice to be posted by computer on the World
Wide Web.
(b) As soon as practicable after the Court approves the short form
notice and no later than _____________________, Class Counsel
shall cause the short form notice to be published on two
consecutive Fridays in USA Today, once in Parade Magazine
(national edition), and once in TV Guide.
(c) The costs of notice shall be paid by the Interneuron Class
Action Settlement Fund, as stipulated in section 10.3 of the
Settlement Agreement.
9. Counsel for Interneuron is directed to cooperate with Class Counsel
by providing Class Counsel a list of all parties involved in pending state and
or federal products liability or health-related claims against the company, and
their counsel, together with a computer disk formatted for mailing labels as
soon as practical, but no later than 21 days after this Order.
10. No later than one month after the Notice Date (as defined in the
Settlement Agreement), Class Counsel shall file with the Court a report
describing their notification efforts, with copies of published notices and
lists of the persons notified by mail attached.
11. The Settlement Agreement, with appendices thereto, will be made
available for public inspection in the Clerk's office during regular business
hours.
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<PAGE> 24
12. In necessary aid of the Court's jurisdiction over this limited fund
and to assure the fair and orderly conduct and completion of the settlement
consideration process, the Court is contemplating entry of an Order staying and
enjoining all Class Members, defendants in Diet Drug Litigation, and any other
interested parties from initiating, asserting, prosecuting, or otherwise
litigating any Released Claims, including claims for contribution and indemnity,
against Interneuron or the Released Parties until such time as the Court holds a
fairness hearing and determines whether or not to finally approve the Settlement
Agreement.
13. The Court will hold a hearing to permit Class Members and any other
interested parties to appear and show cause why the Court should not enter the
stay and injunction contemplated in paragraph 12 of this Order. This hearing
shall be held on ________________________, at 10:00 a.m., in Courtroom 17B of
the United States District Court for the Eastern District of Pennsylvania.
14. The stay entered by Pretrial Order No. 270 (which related to
federal cases only) shall continue and remain in effect until further Order of
the Court. ORDERED this ____ day of September, 1998.
__________________________________
United States District Court Judge
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<PAGE> 25
APPENDIX D
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
IN RE: DIET DRUGS (PHENTERMINE, :
FENFLURAMINE, DEXFENFLURAMINE) : MDL DOCKET NO.
PRODUCTS LIABILITY LITIGATION : 1203
:
THIS DOCUMENT RELATES TO ALL :
CASES :
:
SHARON WISH v. INTERNEURON : CIVIL ACTION NO.
PHARMACEUTICALS, INC. : 98-CV-20594
:
CLASS MEMBER RELEASE AND INDEMNITY AGREEMENT
STATE OF ___________________________________________ )
) ss.
COUNTY OF __________________________________________ )
This Release and Indemnity Agreement is being executed in light of the
settlement of class action litigation involving the diet drug Redux(TM), which
was memorialized in an Agreement of Compromise and Settlement executed September
___, 1998 (the "Settlement Agreement") on behalf of a Class as defined in that
Settlement Agreement. The undersigned Class Member submits to the personal
jurisdiction of the Court in the above-captioned action and hereby ratifies the
acts of the Plaintiffs' Management Committee ("PMC") in entering into the
Settlement Agreement on his or her behalf. The undersigned Class Member also
ratifies the Settlement Agreement as executed by the PMC and agrees to be bound
by its terms and conditions and to perform every requirement necessary to
satisfy the conditions and obligations set forth in the Settlement Agreement and
ordered by the Court supervising the settlement of Diet Drug Litigation against
the Released Parties.
I,_____________, individually [and as personal
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<PAGE> 26
representative/administrator/executor of the estate of ______________] [and as
the surviving spouse and/or child and/or heir of ___________________][and as the
parent/guardian/next friend of ____________], hereinafter [collectively]
referred to as "Class Member," in consideration of the amounts already
deposited and amounts to be deposited in the future by Interneuron
Pharmaceuticals, Inc. ("Interneuron") into the Interneuron Class Action
Settlement Fund (the "Fund") established in the above-captioned action and
pursuant to the Settlement Agreement, and for other good and valuable
consideration, receipt and sufficiency of which is hereby acknowledged and
confessed, hereby RELEASE, ACQUIT, AND FOREVER DISCHARGE the Released Parties,
as defined below and in the Agreement, from any and all claims that the Class
Member may presently have or in the future may have against the Released
Parties arising out of "Released Claims" as defined below and in the Agreement.
These "Released Claims" include all claims that have, might have been,
or in the future could be asserted by the Class Member against Interneuron or
any Released Parties arising out of the Class Member's use of Redux(TM),
including without limitation all claims for damages or remedies of whatever kind
or character, known or unknown, that are now recognized by law or that may be
created or recognized in the future by statute, regulation, judicial decision,
or in any other manner, for actual damages, exemplary and punitive damages,
penalties of any kind, personal injuries or death, mental or physical pain or
suffering, loss of wages, income, earnings, and earning capacity, doctor,
hospital, nursing and drug bills, medical expenses, Derivative Claims, loss of
consortium, companionship, society or affection, damage to familial relations,
loss of enjoyment of life, economic or business losses, disgorgement of profits,
prejudgment and postjudgment interest, medical monitoring or screening,
injunctive or declaratory relief, and any other loss or detriment of any kind.
These "Released Claims" also include all claims based upon a theory of
conspiracy, concert of action, aiding and abetting, negligent undertaking, "Good
Samaritan"
-2-
<PAGE> 27
liability, deceptive trade practices, consumer fraud, unfair business practices
or any similar legal theory that have, might have been, or in the future could
be asserted by any Class Member against Interneuron or any Released Parties
arising out of the Class Member's use of a Diet Drug other than Redux(TM);
including without limitation all claims for damages or remedies of whatever kind
or character, known or unknown, that are now recognized by law or that may be
created or recognized in the future by statute, regulation, judicial decision,
or in any other manner, for actual damages, exemplary and punitive damages,
penalties of any kind, personal injuries or death, mental or physical pain or
suffering, loss of wages, income, earnings, and earning capacity, doctor,
hospital, nursing and drug bills, medical expenses, Derivative Claims, loss of
consortium, companionship, society or affection, damage to familial relations,
loss of enjoyment of life, economic or business losses, disgorgement of profits,
prejudgment and postjudgment interest, medical monitoring, injunctive or
declaratory relief, and any other loss or detriment of any kind.
The "Released Parties" include Interneuron, Boehringer Ingelheim
Pharmaceuticals, Inc., their respective parents, subsidiaries, affiliates,
divisions, current and former officers, directors, employees, attorneys, and
agents; and each of their insurers (including Columbia Casualty Co., Reliance
Insurance Company of Illinois, and New Hampshire Insurance Company), but only to
the extent of the insurance set forth in Appendix B to the Settlement Agreement
dated September __, 1998, and only to the extent that the insurer has tendered
its unimpaired policy limits without reservation of rights; provided, however,
that Boehringer Ingelheim Pharmaceuticals, Inc. shall not be a Released Party
for any claim arising from defects in the manufacture or packaging of Redux(TM).
The "Released Parties" also shall include any and all predecessors
and/or shareholders of Interneuron and/or Boehringer Ingelheim Pharmaceuticals,
Inc.; provided, however, that (i) any predecessor and/or shareholder of
Interneuron and/or Boehringer
-3-
<PAGE> 28
Pharmaceuticals, Inc. who is or becomes a defendant in Diet Drug Litigation
shall be considered a Released Party pursuant to this paragraph only to the
extent that such entity is sued in its capacity as a predecessor and/or
shareholder of Interneuron and/or Boehringer Pharmaceuticals, Inc. and (ii) no
person or entity described in this paragraph shall be released from any claims
based upon its own independent negligence or culpable conduct.
The "Released Parties" also include all distributors of Redux(TM),
including wholesale distributors, private label distributors, pharmacists,
retail distributors, physicians, hospitals and clinics, and their respective
predecessors, successors, parents, subsidiaries, affiliates and divisions, and
their respective current and former shareholders, officers, directors,
employees, attorneys, agents, and insurers; provided that (i) such persons and
entities described in this paragraph shall be released only as to Released
Claims as to which such persons would have a contractual, common law, or
statutory right of indemnity against Interneuron, and (ii) no person or entity
described in this paragraph shall be released from claims based, in whole or in
part, upon its own independent negligence or culpable conduct (including without
limitation negligence claims or claims for professional malpractice asserted
against physicians, health care providers, and diet centers).
The "Released Parties" also shall include any and all successors to
Interneuron and/or Boehringer Ingelheim Pharmaceuticals, Inc.; provided,
however, that (i) any current or future defendant in Diet Drug Litigation who
becomes a successor to Interneuron and/or Boehringer Ingelheim Pharmaceuticals,
Inc. by reason of a merger, acquisition, consolidation or otherwise shall be
considered a Released Party pursuant to this paragraph only to the extent that
such entity is sued in its capacity as a successor of Interneuron and/or
Boehringer Pharmaceuticals, Inc. and (ii) no person or entity described in this
paragraph shall be released from any claims based upon its own independent
negligence or culpable conduct.
It is explicitly acknowledged that the Released Parties under this
Release and
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<PAGE> 29
Indemnity Agreement do not include American Home Products Corporation, Les
Laboratoires Servier, S.A., or either company's subsidiaries, divisions,
affiliates, and other related entities.
As part of the consideration for Interneuron's payment of sums into the
Fund, the Class Member expressly warrants and represents to each and all of the
Released Parties that: (1) the Class Member is legally competent to execute this
Release; and (2) the Class Member has not assigned, pledged, sold or otherwise
transferred in any manner whatsoever, either by instrument in writing or
otherwise, any right, title, interest or claim that the Class Member may
currently have or may have in the future (except to counsel, if counsel is
executing this instrument).
To the extent that the Class Member receives a judgment against any
person in an action arising out of a Released Claim, the Class Member will
reduce and satisfy that judgment by an amount equal to the total amount, if any
that the Class Member has received pursuant to the Settlement Agreement (before
deductions of any amounts for costs and legal fees). The Class Member has agreed
and does hereby INDEMNIFY, DEFEND and HOLD HARMLESS each and all of the Released
Parties -- but only up to the amount the Class Member has received from the Fund
pursuant to the Settlement Agreement (before deductions of any amounts for costs
and legal fees) -- from any and all claims, demands, actions, and causes of
action of whatever nature or character that arise out of or are related to
Released Claims, including all costs, expenses and legal fees in defending same,
that have been or hereafter may be asserted by any person, firm or corporation
claiming by, through or under the Class Member, and from any and all legal
actions, including third-party actions and cross-actions, asserted or brought
against any of the Released Parties by any firm, person or corporation against
whom the Class Member has asserted or brought, or may hereafter assert or bring,
any action, arising out of or in any manner connected with the Released Claims.
The Class Member acknowledges and understands that attorneys' fees and
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<PAGE> 30
expenses shall be paid from any disbursement the Class Member receives from the
Interneuron Class Action Settlement Fund, and the Class Member authorizes and
agrees to payment of that disbursement. The Class Member also acknowledges and
understands that certain costs and expenses associated with the administration
of the Fund will be paid from the Fund and therefore may reduce the amount of
money available to compensate the Class Member.
It is intended by the undersigned that this Release shall be complete
and shall not be subject to the claim of mistake of fact or law by the
undersigned, and that it expresses a full and complete settlement of liability
claimed and denied as against each and all of the Released Parties for Released
Claims, and regardless of the adequacy or inadequacies of the consideration,
this Release is intended to avoid litigation and to be final and complete.
This Release is the result of a compromise of a disputed claim and
shall never at any time for any purpose be considered as an admission of
liability or responsibility of the Released Parties, who continue to deny such
liability and to disclaim such responsibility.
The Class Member fully understands that the execution of this Release
and Indemnity Agreement does not automatically or immediately entitle the Class
Member to any monies that have been deposited by Interneuron into the Fund. The
Class Member may receive a share of the settlement proceeds deposited into the
Fund by Interneuron. The amount will be paid to the Class Member only upon
approval by the Fund's Claims Administrator. The procedures for registering a
claim with the Claims Administrator and receiving a disbursement from the Fund
will be set by order of the Court. The Class Member expressly acknowledges that
his or her total damages and claims may amount to more than what the Claims
Administrator determines is the Class Member's proportionate share of the Fund.
Also, the Class Member acknowledges that the Released Parties may not ultimately
be paying the total of the Class Member's damages arising out of the Released
Claims.
The Class Member also expressly agrees and understands that if
subrogation
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<PAGE> 31
claims have been asserted by insurers, employers, health care providers, or the
government against the proportionate share allocated by the Claims Administrator
to the Class Member, the Class Member's proportionate share may be reduced
because of the Class Member's indemnity obligation. In the event this occurs,
the Class Member understands and intends that this Release and Indemnity
Agreement is still valid. The Class Member is also aware of section 6.7 of the
Settlement Agreement, which limits the amount of time in which a subrogation
claim may be asserted.
The Class Member expressly warrants and represents to the Released
Parties, as part of the consideration for the money paid and to be paid by
Interneuron into the Fund, that before executing this instrument, the
undersigned has conferred with counsel, or declined the opportunity to do so,
and agrees that, in light of the Court's recognition of Interneuron as a limited
fund, the payment of money and other consideration given in exchange for this
Release and Indemnity constitutes a fair and reasonable compromise and
settlement of the Class Member's Released Claims.
The Class Member hereby declares and represents that the injuries the
Class Member sustained as a result of the use of a Diet Drug and/or the Released
Parties' alleged conduct may be permanent and progressive, and that the Class
Member's damages and losses may not now be fully known and may be more numerous
or more serious than the Class Member now expects. The Class Member represents
that he or she has not been influenced to any extent in making this Release and
Indemnity Agreement by any representations or statements made by the Released
Parties regarding the Class Member's injuries or the legal liability therefor.
The Class Member acknowledges and states that if this Release and
Indemnity Agreement becomes ineffective as to any Released Party or if the
Settlement Agreement identified above becomes ineffective for any reason
whatsoever, this Release and Indemnity Agreement shall not be affected thereby,
and shall remain in effect as to all other Released
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<PAGE> 32
Parties.
A copy of the Settlement Agreement identified above has been provided
to the Class Member's counsel and was made available to the Class Member to
review and read, if so requested, before the Class Member signed this Release
and Indemnity Agreement.
[Where required by state statute, additional disclosures
or language may be added here.]
-8-
<PAGE> 33
CAUTION: READ BEFORE SIGNING BELOW
I HAVE READ THE FOREGOING RELEASE AND HAD THE OPPORTUNITY TO READ THE SETTLEMENT
AGREEMENT IDENTIFIED ABOVE. I FULLY UNDERSTAND THIS RELEASE. I REALIZE AND
UNDERSTAND THAT THIS RELEASE HAS IMPORTANT LEGAL CONSEQUENCES. I HAVE HAD THE
OPPORTUNITY TO GET A LAWYER'S ADVICE. I UNDERSTAND THAT MY INJURIES MAY BE
PROGRESSIVE AND THAT I MAY BE PRESENTLY UNAWARE OF CLAIMS THAT I MIGHT BE ABLE
TO ASSERT AGAINST THE RELEASED PARTIES IN THE FUTURE. EVEN SO, I INTEND THIS TO
BE A COMPLETE AND UNEQUIVOCAL RELEASE OF ALL CLAIMS THAT I MAY EVER HAVE AGAINST
THE RELEASED PARTIES ARISING OUT OF THE USE OF DIET DRUGS, EVEN THOSE CLAIMS
ABOUT WHICH I PRESENTLY AM UNAWARE.
EXECUTED in multiple originals on __________________________________.
(date)
______________________________________
CLASS MEMBER
______________________________________
Date signed
BEFORE ME, the undersigned authority, on this day personally appeared
_____________________, known to me to be the person whose name is subscribed to
the foregoing instrument, and acknowledged to me that he/she executed the same
for the purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE on __________________________.
(date)
______________________________________
Notary Public in and for
the State of _________________________
______________________________________
Printed Name of Notary
My Commission Expires:________________
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<PAGE> 34
APPENDIX E
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
IN RE: DIET DRUGS (PHENTERMINE, :
FENFLURAMINE, DEXFENFLURAMINE) : MDL DOCKET NO.
PRODUCTS LIABILITY LITIGATION : 1203
:
THIS DOCUMENT RELATES TO ALL :
CASES :
:
SHARON WISH v. INTERNEURON : CIVIL ACTION NO.
PHARMACEUTICALS, INC. : 98-CV-20594
:
ORDER ENJOINING DEFENDANT INTERNEURON
PHARMACEUTICALS, INC. AND ITS SUBSIDIARIES
AND AFFILIATES FROM PARTICIPATING IN FORMAL
OR INFORMAL DISCOVERY IN DIET DRUG LITIGATION
The PMC and Interneuron Pharmaceuticals, Inc. ("Interneuron") have
entered into a Settlement Agreement, dated September __, 1998, to bring about an
end to Interneuron's involvement in Diet Drug Litigation. The Court has
conditionally certified the above-captioned action as a mandatory, limited fund
class action under Federal Rule of Civil Procedure 23(b)(1)(B), preliminarily
approved the settlement, and stayed and enjoined Diet Drug Litigation against
Interneuron. The Court specifically finds that the costs and burdens of
Interneuron's continuing participation in discovery related to Diet Drug
litigation on a nationwide basis present a substantial risk of impairing
Interneuron's ability to meet its financial obligations under the Settlement
Agreement and of thereby significantly prejudicing the recovery rights of all
parties with Redux-related claims against the company.
Accordingly, this Court hereby preliminarily enjoins and bars
Interneuron, its subsidiaries and affiliates from participating in any
discovery, formal or informal, related to Diet Drug Litigation (as that term is
defined in the Settlement Agreement) in any court, state, federal or foreign,
without the express approval of this Court. Interneuron has acknowledged
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<PAGE> 35
that certain additional discovery, including document discovery and some limited
depositions, may be warranted for the benefit of the parties involved in
continuing Diet Drug Litigation. Conducting such discovery, however, threatens
to seriously deplete the limited available resources from which the class
members must draw any recovery. Therefore, this Court will closely supervise any
additional discovery from Interneuron and allow it only on a tightly coordinated
basis.
This preliminary injunction is necessary in aid of the Court's
jurisdiction over the limited fund and to assure the fair and orderly conduct
and completion of the settlement consideration process. Accordingly, this
injunction shall remain in effect until the Court has rendered a final decision
on the fairness and adequacy of the settlement, which will occur after the
Fairness Hearing.
Interneuron is directed to provide a copy of this Order to any parties
and/or courts that should seek to compel its participation in formal or informal
discovery in Diet Drug Litigation.
SO ORDERED this ____ day of September, 1998.
__________________________________
United States District Court Judge
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<PAGE> 1
EXHIBIT 99.4
Contact:
Intercardia:
W. Bennett Love
919-558-1907
Astra Pharmaceuticals:
Gary M. Bruell
610-695-1554
For Immediate Release:
INTERCARDIA AND ASTRA PHARMACEUTICALS END AGREEMENT
FOR COLLABORATION ON BEXTRA(R)
COMPETING PRODUCT ARISES FROM CORPORATE RESTRUCTURING OF ASTRA MERCK
Research Triangle Park, N.C., USA, and Wayne, PA. September 30, 1998 --
Intercardia, Inc. (Nasdaq:ITRC) and Astra Pharmaceuticals, L.P. (formerly Astra
Merck, Inc.) announced today termination of an agreement for the U.S.
development and commercialization of BEXTRA(R) (bucindolol HCl), a
cardiovascular drug presently under investigation for the treatment of
congestive heart failure. Due to a non- compete clause in the original agreement
between the two companies, Intercardia will now assume responsibility for the
U.S. development and commercialization for BEXTRA.
On July 1, 1998, Astra AB and Merck & Co., Inc. signed an agreement to
restructure Astra Merck's business and combine it with Astra's wholly-owned
subsidiary, Astra USA, Inc., in a new limited partnership in which Astra has
management control as the general partner. The new company, Astra
Pharmaceuticals, L.P. now has an expanded product line which includes the
once-daily beta blocker Toprol-XL(R) (metoprolol succinate) which is indicated
for treating hypertension and angina and is also being investigated for
treatment of heart failure. Since metoprolol and bucindolol are both beta
blockers being investigated for heart failure, Astra Pharmaceuticals and
Intercardia agreed to terminate the collaboration in light of a non-compete
clause in their original agreement. Astra will be returning to Intercardia all
rights, material and information relating to bucindolol as well as a termination
fee.
<PAGE> 2
"Astra Merck has been a good partner and very professional throughout our
relationship. Nevertheless, we believe termination of the BEXTRA Collaboration
presents an unexpected opportunity for Intercardia," stated Clayton I. Duncan,
President and CEO of Intercardia. "We regain the U.S. rights for the product and
also receive a payment to help fund development. BEXTRA is in late-stage Phase
III clinical trials for heart failure, the most common reason for
hospitalization in patients over the age of 65, and as a result has attracted
the interest of other pharmaceutical companies. Regaining the rights to BEXTRA
opens new partnering possibilities."
BEXTRA (bucindolol HCl) is a non-selective beta-blocker with vasodilating
properties in Phase III clinical development for the treatment of congestive
heart failure. The product is currently being evaluated in the Beta-blocker
Evaluation of Survival Trial (BEST), a NIH/VA sponsored Phase III mortality
study initiated in June 1995. The BEST Study is designed to test the hypothesis
that the addition of the beta-adrenergic blocking agent bucindolol to standard
therapy will reduce mortality in patients with moderate to severe congestive
heart failure. To date, the BEST study has enrolled over 2,500 patients in 90
medical centers throughout the U.S. and Canada.
Congestive heart failure is a condition in which the heart progressively
loses the ability to pump sufficient quantities of blood to meet the metabolic
needs of the body. It is estimated that 5.0 million people in Europe and 4.7
million people in the United States are afflicted. CHF is the most common reason
for hospitalization in patients over the age of 65 in the U.S. and Europe.
Intercardia, a majority-owned subsidiary of Interneuron Pharmaceuticals,
Inc. (Nasdaq:IPIC), focuses on drug discovery and clinical drug development. The
Company's strategy is to develop and add value to in-licensed products and
research programs and to enter into collaborations and licensing agreements with
corporate partners for final product development, manufacturing and marketing.
Intercardia and BASF Pharma/Knoll AG of Ludwigshafen, Germany, have an agreement
that provides for sharing development expenses and operating profits for the
commercialization of BEXTRA outside the United States and Japan.
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<PAGE> 3
Astra Pharmaceuticals, L.P. is responsible for marketing all Astra
prescription products, including gastrointestinal, cardiovascular, respiratory,
pain control medications and several other hospital products. In addition to
Toprol-XL(R), other major products include the anti-secretory agent Prilosec(R)
(omeprazole), the cardiovascular agents Atacand(R) (candesartan cilexetil),
Plendil(R) (felodipine) and Lexxel(R) (enalapril maleate-felodipine ER), the
respiratory agents Pulmicort Turbuhaler(R) (budesonide inhilation powder) and
Rhinocort(R) Nasal Inhaler (budesonide) and the topical anesthetic Xlylocaine(R)
(lidocaine HCl).
The statements in this press release that are not purely statements of
historical fact are forward-looking statements, and actual results may differ
materially from those anticipated. With respect to Intercardia, important
factors that could cause results to differ include risks associated with funding
of operations, results of the BEST study, product development activities and
regulatory decisions which are described in Intercardia's reports on Form 10-K,
Form 10-Q and Form 8-K filed with the Securities and Exchange Commission.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. Intercardia assumes no
obligation to update the information in this release.
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