-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NeAtbwUaF2TSxDB+vvADh4GH4UPlTuXWSRzfmjlI6NfdeHaq/5soK4VF1r/eIElO CDDhD6d32YxFUYFlUwRhNw== 0000950133-99-001367.txt : 19990419 0000950133-99-001367.hdr.sgml : 19990419 ACCESSION NUMBER: 0000950133-99-001367 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 29 FILED AS OF DATE: 19990416 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED THERAPEUTICS CORP CENTRAL INDEX KEY: 0001082554 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 521984749 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-76409 FILM NUMBER: 99595514 BUSINESS ADDRESS: STREET 1: 1110 SPRING ST CITY: SILVER SPRING STATE: MD ZIP: 20910 BUSINESS PHONE: 3016089292 MAIL ADDRESS: STREET 1: 1110 SPRING ST CITY: SILVER SPRING STATE: MD ZIP: 20910 S-1 1 UNITED THERAPEUTICS CORPORATION FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 16, 1999 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------ UNITED THERAPEUTICS CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 2836 52-1984749 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification incorporation or organization) Classification Code Number) No.)
1110 SPRING STREET SILVER SPRING, MD 20910 (301) 608-9292 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------ MARTINE A. ROTHBLATT CHAIRMAN AND CHIEF EXECUTIVE OFFICER UNITED THERAPEUTICS CORPORATION 1110 SPRING STREET SILVER SPRING, MD 20910 (301) 608-9292 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------ COPIES TO: LADAWN NAEGLE, ESQ. LESLIE E. DAVIS, ESQ. BRYAN CAVE LLP TESTA, HURWITZ & THIBEAULT, LLP 700 THIRTEENTH STREET, N.W. HIGH STREET TOWER SUITE 700 125 HIGH STREET WASHINGTON, DC 20005 BOSTON, MA 02110 (202) 508-6000 (617) 248-7000
------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. ------------------ If any of the securities registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE - ---------------------------------------------------------------------------------------------------------- Common Stock, par value $.01 per share $86,250,000 $23,978 - ---------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933 and includes shares that may be purchased by the underwriters to cover over-allotments, if any. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. UNITED THERAPEUTICS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND UNITED THERAPEUTICS IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION APRIL 16, 1999 Shares [UNITED THERAPEUTICS CORPORATION LOGO] Common Stock ------------------ This is the initial public offering of United Therapeutics Corporation. United Therapeutics is offering shares of Common Stock. United Therapeutics anticipates that the initial public offering price will be between $ and $ per share. United Therapeutics has applied to list the Common Stock on the Nasdaq National Market under the symbol "UTHR." INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 5.
PER SHARE TOTAL --------- -------- Public Offering Price....................................... $ $ Underwriting Discounts and Commissions...................... $ $ Proceeds to United Therapeutics............................. $ $
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. United Therapeutics has granted the Underwriters the right to purchase up to additional shares at the public offering price to cover any over-allotments. BT ALEX. BROWN A.G. EDWARDS & SONS, INC. VECTOR SECURITIES INTERNATIONAL, INC. , 1999 3 DESCRIPTION OF PICTURES APPEARING ON THE INSIDE FRONT COVER PAGE: Outline of the entire human body, also specifically depicting the heart and lungs. Above the picture is a caption that reads: "Conditions Targeted by United Therapeutics' Products". Along the length of the body are the following captions, which are connected by lines to various areas of the body: (a) "Chronic Obstructive Pulmonary Disease"; (b) "Pulmonary Hypertension" with sub-captions "Early Stage" and "Advanced"; (c) "Peripheral Vascular Disease" with sub-captions "Early Stage" and "Late Stage"; and (d) "Osteoarthritis". Beneath that picture is a series of three schematic representations of artery cross sections, appearing left to right. Above the first representation is a caption that reads: "Normal Capillary Cross-Section". Below the representation are two captions, with lines connecting the captions to the picture, which read: (a) "Artery (through which blood flows)"; and (b) "Smooth muscle cell layer (dilates and constricts)". Above the second representation is a caption that reads: "Diseased Capillary Cross-Section". Below the representation are three captions, with lines connecting the captions to the picture, which read: (a) "Artery becomes constricted, blocking blood flow"; (b) "Platelets begin to adhere to the inner surface of the artery"; and (c) "Smooth muscle cell layer thickens, further narrowing blood vessel". Above the third representation is a caption that reads: "Expected Effects of UT-15". Below the representation, there are three captions, with lines connecting the captions to the picture, which read: (a) "A more normal blood flow returns to the artery, and arterial blood pressure drops"; (b) "Platelets stop adhering to the inner surface of the artery"; and (c) "Smooth muscle cells dilate and cease proliferating". At the bottom is the United Therapeutics logo and trademark, "Medicines for Life(TM)". 4 PROSPECTUS SUMMARY You should read the following summary together with the more detailed information and financial statements and related notes appearing elsewhere in this Prospectus. This Prospectus contains forward-looking statements. The outcome of the events described in these forward-looking statements is subject to risks, and actual results could differ materially. The sections entitled "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Business" contain discussions of some of the factors that could contribute to these differences. United Therapeutics Corporation develops pharmaceuticals to treat vascular diseases, including pulmonary hypertension and peripheral vascular disease, as well as selected other chronic conditions. Both pulmonary hypertension and peripheral vascular disease are characterized by reduced production of natural prostacyclin, a highly unstable molecule that has powerful effects on blood-vessel health. United Therapeutics' lead products, UT-15 and beraprost, are stable synthetic forms of prostacyclin. UT-15 is delivered subcutaneously and is currently in two multi-center Phase III clinical trials for treating advanced pulmonary hypertension. Beraprost is delivered orally, and United Therapeutics is beginning a Phase III clinical trial program to treat early-stage peripheral vascular disease. Pulmonary hypertension is a progressive, life-threatening disease that is difficult to diagnose and treat and is currently incurable. It is characterized by high pressure in the blood vessels between the heart and lungs, but normal blood pressure in the rest of the body. The advanced form of pulmonary hypertension afflicts approximately 55,000 people in North America and Europe, and United Therapeutics believes that the potential market for UT-15 to treat these patients is approximately $2.5 billion. The FDA has approved only one drug treatment for advanced pulmonary hypertension. Flolan[Registered Trademark], an intravenous infusion of prostacyclin, was approved in 1995 to treat primary pulmonary hypertension, a small subset of advanced pulmonary hypertension. Flolan is marketed by Glaxo Wellcome Inc. Flolan is an effective therapy, but has numerous significant drawbacks. For example, Flolan has a short half life in the body which increases the risk of an abrupt recurrence of hypertension and death if its delivery is interrupted for even a short period of time. Additionally, Flolan must be continuously infused through a catheter surgically implanted in the patient's chest, creating a risk of life-threatening sepsis infections. United Therapeutics believes that UT-15 overcomes the safety and quality-of-life drawbacks associated with Flolan therapy and will provide patients with a safe, convenient, non-intravenous form of life-long prostacyclin therapy. In October 1998, United Therapeutics completed a 26-patient, randomized, double-blind, placebo-controlled, eight-week clinical trial for UT-15 in primary pulmonary hypertension patients. Results from this trial demonstrated that UT-15 can be safely administered to severely ill patients on an outpatient basis, and also showed that continuous, subcutaneous dosing of UT-15 leads to improvements in pulmonary blood pressure and exercise ability. Patients receiving UT-15 in this study experienced improvements similar to those achieved by patients receiving Flolan therapy for 12 weeks. Each patient who finished this study elected to receive UT-15 therapy indefinitely. United Therapeutics is beginning a Phase III clinical trial program for beraprost for treating early-stage peripheral vascular disease in the United States. Peripheral vascular disease is characterized by the progressive degradation of the circulatory system in the legs and affects over six million people in the United States and a similar number in Europe. Peripheral vascular disease results in over 200,000 amputations and more than $12 billion in medical costs annually. Clinical testing outside the United States has demonstrated that peripheral vascular disease is amenable to prostacyclin therapy. Beraprost was approved for the treatment of peripheral vascular disease in Japan in 1994 and generated 1998 sales of over $225 million for Toray Industries, Inc., the developer of the compound, and its licensees. In December 1998, Hoechst Marion Roussel, 1 5 Inc., the European licensee of beraprost, submitted a regulatory application for beraprost to treat peripheral vascular disease in Europe. United Therapeutics is undertaking additional clinical studies. UT-15 is in Phase II clinical trials to treat late-stage peripheral vascular disease, and United Therapeutics is beginning a Phase II clinical trial program for beraprost to treat early-stage pulmonary hypertension. United Therapeutics believes that beraprost's current oral formulation will be complementary to UT-15 because this formulation cannot provide the constant therapeutic levels of prostacyclin in the body necessary to treat advanced pulmonary hypertension and late-stage peripheral vascular disease effectively. United Therapeutics is beginning a Phase II clinical trial program for UT-77, an elastase inhibitor, for the treatment of chronic obstructive pulmonary disease. Finally, United Therapeutics is beginning a Phase II/III clinical trial program for Ketotop, a transdermal patch that delivers the FDA-approved anti-inflammatory pain reliever ketoprofen, for the treatment of osteoarthritis. United Therapeutics believes that it has assembled the preeminent group of scientists and clinicians in the field of pulmonary vascular medicine. Members of United Therapeutics' scientific advisory board have won the Nobel Prize for the discovery and characterization of prostacyclin, discovered Flolan and invented UT-15. Members of United Therapeutics' senior management led the team at Burroughs Wellcome Co. that designed the clinical trials for, obtained FDA approval of and commercialized Flolan. These executives have similarly designed UT-15's clinical trials, which have primary end points identical to those used for the studies to approve Flolan. United Therapeutics believes this expertise will be instrumental in the development and commercialization of UT-15, beraprost and its other products. United Therapeutics also maintains a streamlined corporate infrastructure that is focused on strategic business management. United Therapeutics outsources the non-core aspects of its business to substantially reduce fixed overhead and capital investment, accelerate commercialization of its products and reduce its business risk. For example, United Therapeutics has partnered with MiniMed Inc., the worldwide leader in subcutaneous continuous-flow microinfusion devices. Under the terms of this strategic alliance, MiniMed will market UT-15 through a dedicated sales force, provide the pager-sized infusion device to patients, train patients and care providers in its use and obtain third-party reimbursement. United Therapeutics' objective is to become a leader in the development and commercialization of drugs to treat pulmonary and vascular diseases, as well as other selected chronic conditions. To achieve this objective, United Therapeutics is pursuing the following strategies: - Capitalize on its experience and expertise in pulmonary vascular medicine; - Establish its prostacyclin products as the standard of care for pulmonary hypertension and peripheral vascular disease; - Minimize fixed costs and corporate overhead through outsourcing and partnering; and - In-license, develop and commercialize selected other product candidates. United Therapeutics was incorporated in Delaware in June 1996. Its principal office is located at 1110 Spring Street, Silver Spring, Maryland 20910, and its telephone number there is (301) 608-9292. United Therapeutics' clinical development office is located at 68 T.W. Alexander Drive, Research Triangle Park, North Carolina 27709, and its telephone number there is (919) 485-8350. Information on United Therapeutics' web site is not a part of this Prospectus. 2 6 THE OFFERING Common Stock offered by United Therapeutics.............................. shares Common Stock to be outstanding after the offering.................................. shares Use of proceeds........................... For clinical development and commercialization of its existing products, working capital and general corporate purposes. See "Use of Proceeds." Proposed Nasdaq National Market symbol.... UTHR 3 7 SUMMARY CONSOLIDATED FINANCIAL DATA The following tables summarize the financial data for United Therapeutics' business. The consolidated balance sheet data are presented as of March 31, 1999, and have been adjusted to reflect the sale of the shares of Common Stock United Therapeutics is offering at an assumed public offering price of $ per share (after deducting estimated underwriting discounts and commissions and estimated offering expenses) and the application of the estimated net proceeds. See the consolidated financial statements and related notes appearing elsewhere in this Prospectus, "Use of Proceeds" and "Capitalization."
PERIOD FROM JUNE 26, 1996 YEAR ENDED THREE MONTHS ENDED (INCEPTION) TO DECEMBER 31, MARCH 31, DECEMBER 31, --------------------- --------------------- 1996 1997 1998 1998 1999 ---------------- --------- --------- --------- --------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue............................ $ 154 $ 116 $ 54 $ -- $ 54 Operating expenses: Research and development......... 100 2,027 11,015 1,740 11,611 General and administrative....... 85 1,006 2,366 573 848 ---------------- --------- --------- --------- --------- Loss from operations............... (31) (2,917) (13,327) (2,313) (12,405) Net loss........................... $ (30) $ (2,901) $ (12,835) $ (2,264) $ (12,238) Basic and diluted net loss per share(1)......................... $ (0.02) $ (0.87) $ (1.54) $ (0.38) $ (1.19) Shares used in computing basic and diluted net loss per share(1).... 1,667 3,339 8,322 5,939 10,256
MARCH 31, 1999 -------------------------- ACTUAL AS ADJUSTED ----------- ----------- (UNAUDITED) CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents and short-term investments........ $ 15,429 $ Total assets................................................ 17,765 Accumulated deficit......................................... (28,005) Total stockholders' equity.................................. 15,468
- --------------- (1) See Note 2 of Notes to Consolidated Financial Statements for a description of the computation of basic and diluted net loss per share. ----------------------- This Prospectus contains trademarks owned by other companies. Unless otherwise specifically stated, information throughout this Prospectus (a) gives effect to a one-for-three reverse split of United Therapeutics' Common Stock to be effected prior to the effectiveness of the Registration Statement of which this Prospectus is a part, and (b) assumes no exercise of the Underwriters' over-allotment option. 4 8 RISK FACTORS This offering involves a high degree of risk. You should carefully consider the risks and uncertainties described below and the other information in this Prospectus before deciding whether to invest in United Therapeutics' Common Stock. If any of the following risks actually occur, United Therapeutics' business, financial condition or operating results could be materially adversely affected. This could cause the market price of the Common Stock to decline, and you may lose part or all of your investment. UNITED THERAPEUTICS' PRODUCTS MAY FAIL IN CLINICAL STUDIES In order to receive regulatory approval for its products, United Therapeutics must conduct clinical studies demonstrating that the drug and the delivery mechanism for the drug are safe and effective. United Therapeutics has started Phase III clinical studies for UT-15 for advanced pulmonary hypertension and Phase II clinical studies for UT-15 for late-stage peripheral vascular disease. United Therapeutics is beginning a Phase III clinical trial program to treat early-stage peripheral vascular disease with beraprost and a Phase II clinical trial program to treat early-stage pulmonary hypertension with beraprost. United Therapeutics is still developing studies for its other products. Although United Therapeutics' products, such as UT-15 and beraprost, appear promising based on clinical studies to date, they may not be successful in later clinical studies. United Therapeutics' ongoing clinical studies might be delayed or halted for various reasons, including: - The drug is not effective, or physicians think that the drug is not effective; - Patients experience severe side effects during treatment; - Patients die during the clinical study because their disease is too advanced or because they experience medical problems that are not related to the drug being studied; - Patients do not enroll in the studies at the rate United Therapeutics expects; and - Drug supplies are not sufficient to treat the patients in the studies. In addition, the FDA and foreign regulatory authorities have substantial discretion in the approval process. The FDA and foreign regulatory authorities may not agree that United Therapeutics has demonstrated that its products are safe and effective. UNITED THERAPEUTICS MAY NOT BE ABLE TO OBTAIN OR MAINTAIN REGULATORY APPROVALS FOR ITS PRODUCTS The process of obtaining and maintaining regulatory approvals for new drugs is lengthy, expensive and uncertain. The research, preclinical testing and clinical studies of potential products are subject to extensive and rigorous regulation by numerous governmental authorities in the United States and in other countries where United Therapeutics wants to sell its products. The manufacturing, distribution, advertising and marketing of these products are also subject to extensive regulation. Any new product approvals United Therapeutics receives in the future could include significant restrictions on the use or marketing of United Therapeutics' products. Product approvals, if granted, can be withdrawn for failure to comply with regulatory requirements or upon the occurrence of adverse events following commercial introduction of the products. If United Therapeutics does not comply with laws and regulations that apply to its business, United Therapeutics could be subject to enforcement actions. Governmental authorities could seize United Therapeutics' products or force United Therapeutics to recall its products. In addition, United Therapeutics and its officers and directors could be subject to civil and criminal penalties. 5 9 UNITED THERAPEUTICS HAS A HISTORY OF LOSSES AND MAY NOT BE PROFITABLE United Therapeutics has lost money since its inception in 1996, and its accumulated deficit was approximately $28.0 million at March 31, 1999. United Therapeutics expects to incur substantial additional losses over the next several years, whether or not it generates revenue, as it expands clinical studies and continues to develop its products. United Therapeutics expects its quarterly and annual operating results to fluctuate, depending primarily on the following factors: - Timing of regulatory approvals and commercial sales of its products; - Level of patient demand for its products; - Timing of payments to licensors and corporate partners; and - Timing of investments in new technologies. All of United Therapeutics' products are in clinical studies, and United Therapeutics is not yet selling any products. United Therapeutics might not obtain regulatory approvals for its products, including its lead products, UT-15 and beraprost, and may not be able to sell its products commercially. Even if United Therapeutics sells its products, United Therapeutics may not ever be profitable and may not be able to sustain any profitability it achieves. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." DISCOVERIES OR DEVELOPMENTS OF NEW TECHNOLOGIES BY OTHERS MAY MAKE UNITED THERAPEUTICS' PRODUCTS OBSOLETE Other companies may conduct research, make discoveries or introduce new products that render all or some of United Therapeutics' technologies and products obsolete or not commercially viable. Researchers are continually learning more about pulmonary and vascular diseases that may lead to new technologies to treat the diseases. In addition, alternative approaches to treating chronic diseases, such as gene therapy, may make United Therapeutics' products obsolete or noncompetitive. UNITED THERAPEUTICS' PRODUCTS MAY NOT BE COMMERCIALLY SUCCESSFUL BECAUSE PHYSICIANS AND PATIENTS MAY NOT ACCEPT THEM Even if regulatory authorities approve United Therapeutics' products, those products may not be commercially successful. United Therapeutics expects that most of its products, including UT-15, will be very expensive. Patient acceptance of and demand for United Therapeutics' products will depend largely on the following factors: - Acceptance by physicians and patients of United Therapeutics' products as safe and effective therapies; - Reimbursement of drug and treatment costs by third-party payors; - Pricing of alternative products; - Convenience and ease of administration of United Therapeutics' products; and - Prevalence and severity of side effects associated with United Therapeutics' products. COMMERCIAL SUCCESS WILL DEPEND ON THIRD-PARTY PAYORS REIMBURSING FOR UNITED THERAPEUTICS' DRUG PRODUCTS United Therapeutics' commercial success will depend in part on third-party payors agreeing to reimburse patients for the costs of United Therapeutics' products. Third-party payors frequently challenge the pricing of new drugs. United Therapeutics expects that its products will be very expensive. Third-party payors may not approve United Therapeutics' products for reimbursement. 6 10 UNITED THERAPEUTICS RELIES ON THIRD PARTIES TO DEVELOP, MARKET, DISTRIBUTE AND SELL ITS PRODUCTS AND THOSE THIRD PARTIES MAY NOT PERFORM United Therapeutics does not have the ability to independently conduct clinical studies, obtain regulatory approvals, market, distribute or sell its products and intends to rely on experienced third parties to perform all of those functions. United Therapeutics may not locate acceptable contractors or enter into favorable agreements with them. Third parties may not successfully carry out their contractual duties or meet expected deadlines. MiniMed Inc. is United Therapeutics' exclusive partner for the subcutaneous delivery of UT-15 using the MiniMed(R) microinfusion device in the field of pulmonary hypertension. MiniMed will be responsible for marketing, sales and customer service. United Therapeutics is dependent on MiniMed's experience, expertise and performance to successfully market and sell UT-15 for pulmonary hypertension. See "Business -- The MiniMed Strategic Alliance." UNITED THERAPEUTICS DEPENDS ON THIRD PARTIES TO SYNTHESIZE AND MANUFACTURE ITS PRODUCTS AND THOSE THIRD PARTIES MAY NOT PERFORM United Therapeutics does not have the resources, facilities or experience to manufacture its products itself. The company depends on third parties for the manufacture of all its products. United Therapeutics is relying on Cook Imaging Corporation, SynQuest, Inc. and Schweizerhall, Inc. for the formulation and manufacture of UT-15. United Therapeutics relies on Magellan Laboratories Incorporated to test the purity and stability of each batch of UT-15. United Therapeutics' manufacturing strategy presents the following risks: - The manufacturing processes for some of United Therapeutics' products have not been tested in quantities needed for commercial sales; - Delays in scale-up to commercial quantities could delay clinical studies, regulatory submissions and commercialization of United Therapeutics' products; - A long lead time is needed to manufacture UT-15, and the manufacturing process is complex; - If United Therapeutics has to change to another manufacturing contractor, it may not be able to effectively sell its products; - Without satisfactory long-term agreements with its manufacturers, United Therapeutics will not be able to develop or commercialize its products as planned or at all; and - United Therapeutics may not have intellectual property rights, or may have to share intellectual property rights, to any improvements in the manufacturing processes or new manufacturing processes for its products. United Therapeutics relies exclusively on Toray Industries, Inc. to manufacture beraprost and on Global Medical Enterprises Ltd. to supply Ketotop. Manufacturers of United Therapeutics' products are subject to the FDA's good manufacturing practices regulations and similar foreign standards. Third-party manufacturers must comply with these regulations, and United Therapeutics does not have control over their compliance. In addition, if United Therapeutics were to change to a different manufacturer, FDA and comparable foreign regulators would require new testing and compliance inspections and the new manufacturer would have to be educated in the processes necessary for the production of UT-15 or any other affected product. Any of these factors could delay clinical studies or commercialization of United Therapeutics' products and entail higher costs. See "Business -- Government Regulation." 7 11 UNITED THERAPEUTICS MAY NOT HAVE ADEQUATE PATENT AND OTHER INTELLECTUAL PROPERTY PROTECTION The U.S. patent for the UT-15 composition of matter expires in 2000, and the U.S. patent for the method of treating pulmonary hypertension with UT-15 expires in 2009. The U.S. patents for the beraprost composition of matter and synthesis expire in 2003 and 2010. United Therapeutics may not be able to extend these or any other patents. Ketotop is patented in the United States, but not in any other jurisdiction where United Therapeutics has marketing rights. Competitors may develop products based on the same active ingredients as United Therapeutics' products, including UT-15, and market those products after the patents expire, or may design around United Therapeutics' existing patents. The issued beraprost patents do not cover methods of treating any disease, including pulmonary hypertension or peripheral vascular disease, using beraprost. The issued Ketotop patent in the United States does not cover methods of treating osteoarthritis with Ketotop. Patents may be issued to others which prevent the manufacture or sale of United Therapeutics' products. United Therapeutics may have to license those patents and pay significant fees or royalties to the owners of the patents in order to keep marketing its products. United Therapeutics has filed a patent application in the United States for the use of UT-15 to treat peripheral vascular disease, but this and other patent applications which have been or may be filed by United Therapeutics may not issue. The scope of any patent that issues may not be sufficient to protect United Therapeutics' technology. The laws of foreign jurisdictions in which United Therapeutics intends to sell its products may not protect the company's rights to the same extent as the laws of the United States. In addition to patent protection, United Therapeutics also relies on trade secrets, proprietary know-how and technology advances. United Therapeutics enters into confidentiality agreements with its employees and others, but these agreements may not be effective in protecting the company's proprietary information. Others may independently develop substantially equivalent proprietary information or obtain access to United Therapeutics' know-how. Litigation, which is very expensive, may be necessary to enforce or defend United Therapeutics' patents or proprietary rights and may not end favorably for United Therapeutics. Any of United Therapeutics' licenses, patents or other intellectual property may be challenged, invalidated, canceled, infringed or circumvented and may not provide any competitive advantage to United Therapeutics. UNITED THERAPEUTICS DEPENDS ON LICENSES THAT MAY BE BREACHED OR TERMINATED United Therapeutics acquires or licenses drugs which have been discovered and initially developed by others. In addition, United Therapeutics has obtained and will be required to obtain licenses to third-party technology to conduct its business, including licenses for its products and a license for the MiniMed microinfusion device. This dependence on licenses has the following risks: - United Therapeutics may not be able to obtain future licenses at a reasonable cost or at all; - If any of United Therapeutics' licenses are terminated, United Therapeutics will lose its rights to develop and market some or all of its products; - The licenses that United Therapeutics holds generally provide for termination by the licensor in the event United Therapeutics breaches the license agreement, including by failing to pay royalties and other fees on a timely basis; - In the event that Glaxo Wellcome or Pharmacia & Upjohn terminate their agreements, United Therapeutics will have no further rights to utilize their patents or trade secrets to develop and commercialize UT-15; and 8 12 - If licensors fail to maintain the intellectual property licensed to United Therapeutics as required by most of United Therapeutics' license agreements, United Therapeutics may lose its rights to develop and market some or all of its products and may be forced to incur substantial additional costs to maintain the intellectual property itself or force the licensor to do so. In addition, United Therapeutics' agreement with Global Medical Enterprises Ltd., LLC requires United Therapeutics to obtain trademark protection for the Ketotop mark in every jurisdiction where United Therapeutics has the right to market Ketotop. United Therapeutics has not yet begun filing trademark applications for the Ketotop mark. UNITED THERAPEUTICS MAY NOT HAVE ACCESS TO FUTURE INVENTIONS ARISING FROM ITS OUTSOURCING AGREEMENTS, OR IT MAY HAVE TO SHARE THE RIGHTS RELATING TO ANY INVENTIONS Pursuant to the MiniMed agreement, any new inventions or intellectual property that arise from United Therapeutics' activities with MiniMed will be owned jointly by United Therapeutics and MiniMed. Under United Therapeutics' agreement with Cortech, any inventions or intellectual property that relate to UT-77 will be owned by the company that employs the person who made the discovery. Under United Therapeutics' agreement with SynQuest, SynQuest will own all inventions and intellectual property (including new or improved manufacturing processes or chemical syntheses) developed during the term of the agreement that are not directly and solely related to UT-15, the initial process to make UT-15 and any new procedures to make UT-15. United Therapeutics may not have rights to new developments or inventions that arise during the terms of these agreements, or United Therapeutics may have to share the rights with others. UNITED THERAPEUTICS DEPENDS ON HIGHLY QUALIFIED MANAGEMENT AND TECHNICAL PERSONNEL WHO MAY NOT REMAIN WITH THE COMPANY United Therapeutics is highly dependent on its current management and key scientific and technical personnel, including Ms. Martine A. Rothblatt, Chairman of the Board and Chief Executive Officer, Dr. James W. Crow, President and Chief Operating Officer, Dr. Gilles Cloutier, Executive Vice President, Business Development and Chief Financial Officer, Shelmer D. Blackburn, Jr., Director of Operations, and Dr. Roger Jeffs, Director of Research, Development and Medical. The company does not maintain key person life insurance. United Therapeutics' success will depend in part on retaining the services of its existing management and key personnel and attracting and retaining new highly qualified personnel. Expertise in the field of pulmonary and vascular disease is not generally available in the market, and competition for qualified management and personnel is intense. UNITED THERAPEUTICS MAY NOT SUCCESSFULLY COMPETE WITH ESTABLISHED DRUG COMPANIES United Therapeutics competes with established drug companies for funding, access to licenses, personnel and third-party collaborators and during product development. Almost all of these companies have substantially greater financial, marketing, sales, distribution and technical resources, and more experience in research and development, clinical trials and regulatory matters, than United Therapeutics. United Therapeutics is aware of existing treatments that will compete with its products. United Therapeutics may not successfully compete with new or existing products. See "Business -- Competition." UNITED THERAPEUTICS MAY NEED ADDITIONAL FINANCING AND CANNOT BE CERTAIN OF OBTAINING IT United Therapeutics may need to spend more money than currently expected because it may need to change its product development plans or product offerings to address difficulties with clinical studies or preparing for commercial sales. United Therapeutics may not be able to obtain 9 13 additional funds on commercially reasonable terms or at all. If additional funds are not available, United Therapeutics may be compelled to delay clinical studies, curtail operations or obtain funds through collaborative arrangements that may require it to relinquish rights to certain of its products or potential markets. UNITED THERAPEUTICS MAY NOT HAVE ADEQUATE INSURANCE AND MAY HAVE SUBSTANTIAL EXPOSURE TO PAYMENT OF PRODUCT LIABILITY CLAIMS The testing, manufacture and marketing of human drugs involves product liability risks. United Therapeutics has product liability insurance providing coverage of up to $2 million for each claim, and $5 million for all claims combined. United Therapeutics may not be able to maintain this product liability insurance at an acceptable cost, if at all, and this insurance may not provide adequate coverage against potential losses. If claims or losses exceed United Therapeutics' liability insurance coverage, United Therapeutics may go out of business. UNITED THERAPEUTICS IS NOT YET YEAR 2000 COMPLIANT United Therapeutics is dependent on the proper functioning of its computer and data-dependent systems and their ability to input, store, manipulate and output dates for the years 2000 or thereafter without error or interruption (commonly known as the Year 2000 problem). These include, but are not limited to, its information, business, finance, operations and service systems. In addition, United Therapeutics relies on the proper functioning of the systems of third parties. If these or other systems fail or malfunction, United Therapeutics' business could be negatively affected. Even if United Therapeutics acts in a timely manner to complete all of its Year 2000 assessments and to identify, develop and implement remedial plans which United Therapeutics believes are adequate, some problems may not be identified or corrected in time to prevent negative consequences to United Therapeutics' business and operations. United Therapeutics believes that its worst case scenario includes a power interruption and a lack of drug products to support clinical studies. See "Management's Discussion and Analysis of Financial Condition -- Year 2000 Readiness Disclosure Statement." THE MARKET PRICE OF UNITED THERAPEUTICS' COMMON STOCK AFTER THE OFFERING MAY NOT EXCEED THE OFFERING PRICE Prior to this offering, there was no public market for the Common Stock, and a significant public trading market may not develop or continue after this offering. The Underwriters and United Therapeutics determined the initial public offering price of the Common Stock through negotiations. The market price of the Common Stock after the offering may not equal or exceed the initial public offering price. UNITED THERAPEUTICS' STOCK PRICE COULD BE VOLATILE AND COULD DECLINE The market prices for securities of drug companies are highly volatile, and there are significant price and volume fluctuations in the market that may be unrelated to particular companies' operating performances. United Therapeutics' stock price could decline suddenly due to the following factors: - Results of clinical trials; - Timing of regulatory approvals; - Fluctuations in operating results; - Announcements by United Therapeutics or others of technological innovations or new products; - Failure to meet estimates or expectations of securities analysts; 10 14 - Rate of product acceptance; - Developments in patent or other proprietary rights; - Public concern as to the safety of products developed by United Therapeutics or by others; - Future sales of substantial amounts of Common Stock by existing United Therapeutics stockholders; and - General market conditions. Investors in United Therapeutics' Common Stock may not be able to resell their shares at or above the initial public offering price. See "Shares Eligible for Future Sale" and "Underwriting." FUTURE SALES OF SHARES MAY DEPRESS THE STOCK PRICE If a substantial number of shares of United Therapeutics' Common Stock is sold in the public market after this offering, or investors become concerned that substantial sales might occur, the market price of the Common Stock could decrease. Such a decrease could make it difficult for United Therapeutics to raise capital by selling stock or to pay for acquisitions using stock. There will be shares of Common Stock outstanding immediately after this offering and 1,174,458 shares issuable upon exercise of outstanding options and warrants. Of these shares, all of the shares offered hereby will be freely tradable unless purchased by affiliates of United Therapeutics. Of the remaining 10,726,967 shares of Common Stock (excluding 1,174,458 shares issuable upon exercise of outstanding options and warrants), approximately 10,337,550 shares are subject to lock-up agreements with the Underwriters. The lock-up agreements prohibit sales or other dispositions of any shares of Common Stock owned by the stockholders for 180 days after the offering. Each of United Therapeutics' executive officers and directors have signed lock-up agreements. United Therapeutics has agreed to similar restrictions. After these lock-up agreements expire, all but approximately 666,666 of the shares subject to these lock-up agreements could be sold immediately in the public market, subject in some cases to volume and other restrictions. BT Alex. Brown Incorporated may release any or all of the shares subject to lock-up agreements at any time without notice. After the 180-day lock-up period expires, United Therapeutics expects to file a registration statement covering 14,939,517 shares of Common Stock issuable upon exercise of options and other grants pursuant to the company's equity incentive plan. United Therapeutics may issue additional shares: - to employees; - in connection with corporate alliances; - in connection with acquisitions; and - to raise capital. In addition, the holders of 797,222 shares of Common Stock are entitled to registration rights. As a result of these factors, sales of a substantial number of shares of Common Stock in the public market could occur at any time. See "Shares Eligible for Future Sale." EXISTING STOCKHOLDERS WILL RETAIN CONTROL OF UNITED THERAPEUTICS EVEN AFTER THIS OFFERING United Therapeutics' directors, executive officers and principal stockholders will beneficially own approximately % of its outstanding Common Stock immediately following this offering. Accordingly, these shareholders as a group can control United Therapeutics' business. These stockholders can direct the outcome of matters requiring approval by United Therapeutics' 11 15 shareholders, including the election of its directors and the approval of mergers or other changes of control. Such stockholder control could delay or prevent a change of control of United Therapeutics. A THIRD PARTY MAY HAVE DIFFICULTY ACQUIRING UNITED THERAPEUTICS Certain provisions of United Therapeutics' Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws, and the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, could delay or prevent a third party from acquiring United Therapeutics or replacing members of the United Therapeutics board of directors, even if the acquisition or the replacements would be beneficial to United Therapeutics' stockholders. These factors could also reduce the price that certain investors might be willing to pay for shares of the Common Stock and result in the market price being lower than it would be without these provisions. STOCKHOLDERS WILL EXPERIENCE SUBSTANTIAL DILUTION IN THE NET TANGIBLE BOOK VALUE OF THEIR COMMON STOCK Investors purchasing shares of Common Stock in this offering will incur immediate and substantial dilution. Based on the net tangible book value of United Therapeutics' Common Stock as of March 31, 1999, dilution in net tangible book value to investors purchasing shares of Common Stock in this offering would be $ per share (assuming an initial public offering price of $ per share). In addition, investors purchasing shares of Common Stock in this offering may incur additional dilution to the extent outstanding options and warrants are exercised or additional shares of capital stock are issued. MANAGEMENT WILL HAVE BROAD DISCRETION OVER THE PROCEEDS OF THE OFFERING Assuming an initial public offering price of $ per share, United Therapeutics will receive approximately $ from the sale of the shares of Common Stock offered by this Prospectus. The company expects to use the net proceeds of the offering for clinical development and commercialization of its existing products, working capital and general corporate purposes. United Therapeutics also might use a portion of the net proceeds to acquire or invest in complementary businesses, products and technologies. United Therapeutics currently has no specific plans for the balance of the proceeds. Consequently, management and the board of directors of United Therapeutics will have the discretion to allocate the net proceeds to uses that stockholders may not deem advisable. STOCKHOLDERS MAY NOT RECEIVE DIVIDENDS United Therapeutics has never declared or paid cash dividends on any of its capital stock. United Therapeutics currently intends to retain its earnings for future growth and therefore does not anticipate paying cash dividends in the future. See "Dividend Policy." 12 16 USE OF PROCEEDS United Therapeutics estimates that the net proceeds from the sale of the shares of Common Stock that it is offering will be $ after deducting estimated Underwriters' discounts and commissions and estimated offering expenses and assuming an initial public offering price of $ per share. If the Underwriters' over-allotment option is exercised in full, United Therapeutics estimates that the net proceeds will be $ . United Therapeutics anticipates using the net proceeds from this offering for clinical development and commercialization of its existing products, working capital and general corporate purposes. United Therapeutics will retain broad discretion over the use of the net proceeds of this offering. The amounts and timing of the expenditures may vary significantly depending on numerous factors, such as the progress of the company's research and development efforts, technological advances and the competitive environment for the company's products. United Therapeutics also might use a portion of the net proceeds to acquire or invest in complementary businesses, products and technologies. United Therapeutics is not currently planning any acquisition, and no portion of the net proceeds has been allocated for any specific acquisition. United Therapeutics believes that its available cash, together with the net proceeds of this offering, will be sufficient to meet its capital requirements for the foreseeable future. Pending use of the net proceeds, United Therapeutics intends to invest the net proceeds in short-term, interest-bearing, investment-grade securities. DIVIDEND POLICY United Therapeutics has never declared or paid cash dividends on its capital stock. United Therapeutics intends to retain earnings for use in the operation and expansion of its business, and therefore does not anticipate paying any cash dividends in the foreseeable future. 13 17 CAPITALIZATION The following table sets forth United Therapeutics' capitalization as of March 31, 1999, (a) on an actual basis and (b) as adjusted to give effect to the sale of the shares of Common Stock it is offering at an assumed initial public offering price of $ per share and the application of the estimated net proceeds as well as an amendment to United Therapeutics' Certificate of Incorporation to increase its authorized Common Stock to 100,000,000 shares.
AS OF MARCH 31, 1999 ---------------------- ACTUAL AS ADJUSTED -------- ----------- (IN THOUSANDS) Long-term debt, including current portion................... $ 313 $ Stockholders' equity Preferred stock, $.01 par value; 10,000,000 shares authorized actual and as adjusted; no shares outstanding, actual, and as adjusted................... -- -- Common stock, $.01 par value; 50,000,000 shares authorized, 10,726,967 shares issued and outstanding, actual; 100,000,000 shares authorized, shares issued and outstanding, as adjusted(1)................. 107 Additional paid-in capital.................................. 43,365 Accumulated deficit......................................... (28,004) -------- ------- Total stockholders' equity................................ 15,468 -------- ------- Total capitalization................................. $ 15,781 $ ======== =======
- --------------- (1) Based on the number of shares outstanding on March 31, 1999. Excludes 1,174,458 shares issuable upon exercise of options and warrants outstanding as of March 31, 1999 at a weighted average exercise price of $11.89 per share. An additional 14,057,532 shares are available for future issuances under the Amended and Restated Equity Incentive Plan. See "Management -- Equity Incentive Plan." 14 18 DILUTION The net tangible book value of United Therapeutics as of March 31, 1999 was $15.3 million, or $1.42 per share of Common Stock. Net tangible book value per share represents the amount of total tangible assets less total liabilities divided by the number of shares of Common Stock outstanding at that date. After giving effect to the sale of the shares of Common Stock being offered hereby at an assumed initial public offering price of $ per share, and after deducting estimated underwriting discounts and commissions and estimated offering expenses, the pro forma net tangible book value of United Therapeutics as of March 31, 1999, would have been $ , or $ per share. This represents an immediate increase in pro forma net tangible book value of $ per share to existing stockholders, and an immediate dilution of $ per share to new investors. The following table illustrates this per share dilution: Assumed initial public offering price per share............. $ Net tangible book value per share at March 31, 1999....... $1.42 Increase per share attributable to new investors.......... ----- Pro forma net tangible book value per share after this offering.................................................. ----- Dilution per share to new investors......................... $ =====
The following table summarizes, on a pro forma basis as of March 31, 1999, the differences between the number of shares of Common Stock issued by United Therapeutics, the total consideration paid and the average price per share paid by existing stockholders and by the new investors purchasing shares in this offering (at an assumed initial public offering price of $ per share):
SHARES ISSUED TOTAL CONSIDERATION -------------------- --------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ----------- ------- ------------- Existing stockholders........ 10,726,967 % $43,472,469 % $4.05 New investors................ ---------- ------- ----------- ------- Total...................... % $ % ========== ======= =========== =======
The foregoing discussion and tables assume no exercise of any outstanding stock options or warrants. The discussion does not include 1,174,458 shares issuable upon exercise of options and warrants outstanding as of March 31, 1999 at a weighted average exercise price of $11.89. An additional 14,057,532 shares are available for future issuances under the Equity Incentive Plan. To the extent that any shares reserved for issuance under the company's stock plan or the warrants are issued, there will be further dilution to new investors. 15 19 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with United Therapeutics' consolidated financial statements and related notes included elsewhere in this Prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus. The consolidated statement of operations data for the period from June 26, 1996 (date of inception) through December 31, 1996 and for the years ended December 31, 1997 and 1998, and the consolidated balance sheet data as of December 31, 1997 and 1998, are derived from the audited consolidated financial statements which have been audited by KPMG LLP, independent auditors, and are included elsewhere in this Prospectus. The consolidated balance sheet data as of December 31, 1996 are derived from audited consolidated financial statements not included herein. The selected data presented below for the three-month periods ended March 31, 1998 and 1999, and as of March 31, 1999, are derived from the unaudited consolidated financial statements included elsewhere in this Prospectus. The historical results are not necessarily indicative of results to be expected for future periods.
PERIOD FROM JUNE 26, 1996 YEAR ENDED THREE MONTHS ENDED (INCEPTION) TO DECEMBER 31, MARCH 31, DECEMBER 31, --------------------- --------------------- 1996 1997 1998 1998 1999 ---------------- --------- --------- --------- --------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue................................ $ 154 $ 116 $ 54 $ -- $ 54 Operating expenses: Research and development............. 100 2,027 11,015 1,740 11,611 General and administrative........... 85 1,006 2,366 573 848 ---------------- -------- -------- -------- -------- Total operating expense............ 185 3,033 13,381 2,313 12,459 ---------------- -------- -------- -------- -------- Loss from operations................... (31) (2,917) (13,327) (2,313) (12,405) Other income (expense): Interest income...................... 1 135 510 52 178 Interest expense..................... -- (8) (15) -- (7) Write-down of investment............. -- (111) -- -- -- ---------------- -------- -------- -------- -------- Total other income, net............ 1 16 495 52 171 ---------------- -------- -------- -------- -------- Net loss before income tax............. (30) (2,901) (12,832) (2,261) (12,234) Income tax............................. -- -- (3) (3) (4) ---------------- -------- -------- -------- -------- Net loss............................... $ (30) $ (2,901) $(12,835) $ (2,264) $(12,238) ================ ======== ======== ======== ======== Basic and diluted net loss per share(1)............................. $ (0.02) $ (0.87) $ (1.54) $ (0.38) $ (1.19) ================ ======== ======== ======== ======== Shares used in computing basic and diluted net loss per share(1)........ 1,667 3,339 8,322 5,939 10,256
DECEMBER 31, --------------------------------- MARCH 31, 1996 1997 1998 1999 --------- --------- --------- ----------- (UNAUDITED) (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Cash, cash equivalents and short-term investments.................................... $ 94 $ 5,018 $ 16,802 $ 15,429 Total assets..................................... 102 5,074 18,747 17,765 Note payable(2).................................. -- -- 314 313 Accumulated deficit.............................. (30) (2,931) (15,767) (28,005) Total stockholders' equity....................... 70 4,617 16,676 15,468
- --------------- (1) See Note 2 of Notes to Consolidated Financial Statements for a description of the computation of pro forma basic and diluted net loss per share. (2) Includes current portion. 16 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the financial statements and related notes appearing elsewhere in this Prospectus. The following discussion contains forward-looking statements that reflect the plans and estimated beliefs of management. Actual results could differ materially from those anticipated in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this Prospectus, particularly in "Risk Factors." OVERVIEW United Therapeutics develops pharmaceuticals to treat vascular diseases including pulmonary hypertension and peripheral vascular disease, as well as selected other chronic conditions. United Therapeutics commenced operations in June 1996 and, since inception, has devoted substantially all of its resources to its research and development programs. United Therapeutics has generated no product revenues and has funded its operations primarily from the proceeds of private placements of equity securities. United Therapeutics operates with a minimal number of employees and has contracted with qualified third parties for substantially all pharmaceutical development activities, including drug manufacturing and certain key aspects of clinical trials. United Therapeutics has incurred net losses each year since inception and had an accumulated deficit of $28.0 million at March 31, 1999. United Therapeutics expects to continue to incur net losses over the next several quarters due to lack of product revenues and increased expenditures for drug development, manufacturing and administrative activities. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998 Revenue for the three months ended March 31, 1999 was approximately $54,000, as compared to zero for the corresponding period in 1998. This revenue was earned under an orphan drug grant awarded by the FDA. Research and development expenses consist primarily of costs to acquire pharmaceutical products for development and amounts paid to contract research organizations, hospitals and laboratories for the provision of services and materials for drug development and clinical trials. Research and development expenses were $11.6 million for the three months ended March 31, 1999, as compared to $1.7 million for the three months ended March 31, 1998. This increase resulted almost entirely from the payment of an up-front licensing fee consisting of Common Stock and $100,000 in cash to obtain the exclusive rights to develop beraprost, an oral form of prostacyclin, to treat peripheral vascular disease in the United States and Canada. Research and development expenses for the three months ended March 31, 1999 also reflect an increased level of patient enrollment in United Therapeutics' Phase III clinical trials of UT-15. General and administrative expenses consist primarily of personnel salaries, office expenses and professional fees. General and administrative expenses were $848,000 for the three months ended March 31, 1999, as compared to $573,000 for the three months ended March 31, 1998. This increase was due primarily to increased staffing to support expanded operations. Interest income for the three months ended March 31, 1999 was $178,000, as compared to $52,000 for the three months ended March 31, 1998. This increase was attributable to an increase in the amount of cash available for investing resulting from $3.2 million of net proceeds from privately placing Common Stock during the latter part of 1998 and early 1999. 17 21 YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997 Revenue for the year ended December 31, 1998 was approximately $54,000, as compared to approximately $116,000 for the year ended December 31, 1997. The 1998 revenue was earned under an orphan drug grant awarded by the FDA. The 1997 revenue was earned under a contract relating to primary pulmonary hypertension research. Research and development expenses were $11.0 million for the year ended December 31, 1998, as compared to $2.0 million for the year ended December 31, 1997. This increase resulted primarily from higher expenditures of approximately $7.6 million in 1998 associated with the commencement of Phase III clinical trials for United Therapeutics' lead product, UT-15. In addition, the company paid up-front licensing fees of Common Stock, options, warrants and cash to obtain exclusive rights to develop beraprost to treat pulmonary hypertension in the United States and Canada, and UT-77 for all indications worldwide. General and administrative expenses were $2.4 million for the year ended December 31, 1998, as compared to $1.0 million for the year ended December 31, 1997. This increase was due primarily to the recruitment and hiring of additional administrative personnel and increased legal and other professional fees associated with license and patent activities and the expansion of United Therapeutics' operations. Interest income for the year ended December 31, 1998 was approximately $510,000, as compared to approximately $135,000 for the year ended December 31, 1997. This increase was attributable to an increase in the amount of cash available for investing resulting from $22.9 million in net proceeds from United Therapeutics' private placements of Common Stock during 1998. YEAR ENDED DECEMBER 31, 1997 For the year ended December 31, 1997, revenue from operations was approximately $116,000 which was earned under a contract relating to primary pulmonary hypertension research. United Therapeutics' first full year of operations was 1997. Accordingly, operating expenses for 1997 were significantly higher than in 1996. Operating expenses for the year ended December 31, 1997 totaled $3.0 million, of which $2.0 million was for research and development expenses and $1.0 million was for general and administrative expenses. Interest income for the year ended December 31, 1997 was approximately $135,000. PERIOD FROM INCEPTION (JUNE 26, 1996) TO DECEMBER 31, 1996 Revenue from operations from inception (June 26, 1996) to December 31, 1996 was approximately $154,000 which was earned under a contract relating to primary pulmonary hypertension research. Operating expenses for this period totaled $185,000 of which approximately $100,000 was for research and development and approximately $85,000 was for general and administrative expenses. LIQUIDITY AND CAPITAL RESOURCES Since its inception in June 1996, United Therapeutics has financed its operations principally through various private placements of Common Stock. United Therapeutics' working capital at March 31, 1999 was $13.6 million, as compared with $15.1 million at December 31, 1998, and $4.6 million at December 31, 1997. Current liabilities at March 31, 1999 were $2.0 million, as compared with $1.8 million at December 31, 1998, and $453,000 at December 31, 1997. United Therapeutics' debt at March 31, 1999 was approximately $313,000, as compared with $314,000 at December 31, 1998, and consisted of a note secured by United Therapeutics' building and due in monthly installments over 25 years. 18 22 Net cash used in operating activities was approximately $3.0 million, $9.6 million, $2.3 million and zero for the three months ended March 31, 1999, years ended December 31, 1998 and 1997 and the period ended December 31, 1996, respectively. The increases resulted from the expansion of United Therapeutics' operations. For the three months ended March 31, 1999, United Therapeutics invested approximately $126,000 in cash for property, plant, and equipment. From inception through December 31, 1998, United Therapeutics invested approximately $1.1 million in cash for property, plant, and equipment. Net cash provided by financing activities was approximately $1.8 million, $22.9 million, $7.4 million and $100,000, for the three months ended March 31, 1999, years ended December 31, 1998 and 1997 and the period ended December 31, 1996, respectively. Cash flows from financing activities were derived from private equity financings during these periods. United Therapeutics expects that the proceeds from its initial public offering, together with its existing capital resources, will be adequate to fund its operations for the foreseeable future. United Therapeutics' future capital requirements and the adequacy of its available funds will depend on many factors, including: - Regulatory approval of UT-15 and beraprost; - Size and scope of its development efforts for additional products; - Cost, timing and outcomes of regulatory reviews; - Rate of technological advances; - Determinations as to the commercial potential of United Therapeutics' products under development; - Status of competitive products; - Defending and enforcing intellectual property rights; - Establishment, continuation or termination of third-party manufacturing arrangements; - Development of sales and marketing resources or the establishment, continuation or termination of third-party manufacturing arrangements; - Development of sales and marketing resources or the establishment, continuation or termination of third-party sales and marketing arrangements; - Establishment of additional strategic or licensing arrangements with other companies; and - Availability of other financing opportunities. As of December 31, 1998, United Therapeutics had available approximately $11.0 million in net operating loss carryforwards and $3.6 million in business tax credit carryforwards for federal income tax purposes which expire at various dates through 2018. As of March 31, 1999, United Therapeutics had available approximately $22.4 million in net operating loss carryforwards and $4.3 million in business tax credit carryforwards. As a result of past financings, United Therapeutics experienced ownership changes as defined by rules enacted with the Tax Reform Act of 1986. Accordingly, United Therapeutics' ability to use its net operating loss and tax credit carryforwards is subject to certain limitations as defined by the Tax Reform Act and may be limited. YEAR 2000 READINESS DISCLOSURE STATEMENT United Therapeutics uses a number of computer software programs and operating systems in its internal operations, including applications used in financial business systems and various administrative functions. To the extent that these software applications, and the software applications of United Therapeutics' vendors, suppliers, financial institutions and service providers, contain source code that is unable to appropriately interpret the upcoming calendar 19 23 year 2000 (the "Year 2000" issue), some level of modification or even possibly replacement of such source code or applications will be necessary. United Therapeutics has identified the software applications that are not Year 2000 compliant. United Therapeutics anticipates its Year 2000 remediation efforts will be completed in the third quarter of 1999 and expects to incur expenses of up to $100,000 to complete its remediation efforts. United Therapeutics has contacted all of its major vendors, suppliers, financial institutions and service providers to ensure they are Year 2000 compliant. Key third party vendors have been asked to certify in writing that their software or systems are Year 2000 compliant. United Therapeutics has confirmed with MiniMed that the microinfusion devices used to deliver its key drug, UT-15, to patients have been tested and are Year 2000 compliant. United Therapeutics believes its worst case scenario relating to Year 2000 risks includes a power interruption and a lack of pharmaceutical products to support clinical trials. United Therapeutics is currently purchasing quantities of pharmaceutical products for use in clinical trials to ensure adequate supply is available in 2000. United Therapeutics is also installing uninterruptable power systems at its locations and is maintaining backups of critical systems at each location to serve as back up processing sites if needed. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." United Therapeutics is required to adopt SFAS No. 133 for the year ending December 31, 2000. SFAS No. 133 established methods of accounting for derivative financial instruments and hedging activities related to those instruments as well as other hedging activities. Because United Therapeutics holds no derivative financial instruments and does not engage in hedging activities, adoption of SFAS No. 133 is not expected to have a material impact on United Therapeutics' financial condition or results of operations. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position, or "SOP," 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires that entities capitalize certain costs related to internal-use software once certain criteria have been met. United Therapeutics is required to implement SOP 98-1 for the year ending December 31, 1999. Adoption of SOP 98-1 is not expected to have a material impact on United Therapeutics' financial condition or results of operations. 20 24 BUSINESS This Prospectus contains forward-looking statements that involve risks and uncertainties. United Therapeutics' actual results may differ significantly from the results discussed in these forward-looking statements. Factors that may cause such a difference include, but are not limited to, those discussed in "Risk Factors." OVERVIEW United Therapeutics develops pharmaceuticals to treat vascular diseases, including pulmonary hypertension and peripheral vascular disease, as well as selected other chronic conditions. Both pulmonary hypertension and peripheral vascular disease are characterized by reduced production of natural prostacyclin, a highly unstable molecule with powerful effects on blood-vessel health. United Therapeutics' lead products, UT-15 and beraprost, are stable synthetic forms of prostacyclin. UT-15 is delivered subcutaneously and is currently in two multi-center Phase III clinical trials for treating advanced pulmonary hypertension. Beraprost is delivered orally, and United Therapeutics is beginning a Phase III clinical trial program to treat early-stage peripheral vascular disease. In October 1998, United Therapeutics completed a 26-patient, randomized, double-blind, placebo-controlled, eight-week clinical trial for UT-15 in primary pulmonary hypertension patients. Results from this trial demonstrated that UT-15 can be safely administered to severely ill patients on an out-patient basis and also showed that continuous, subcutaneous dosing of UT-15 leads to improvements in pulmonary blood pressure and exercise ability. Patients receiving UT-15 in this study experienced improvements similar to those achieved by patients receiving Flolan therapy for 12 weeks. Flolan was approved by the FDA in 1995 to treat primary pulmonary hypertension, a small subset of advanced pulmonary hypertension. Each patient who finished this study elected to receive UT-15 therapy indefinitely. United Therapeutics is beginning a Phase III clinical trial program for beraprost for treating early-stage peripheral vascular disease in the United States. Peripheral vascular disease is characterized by the progressive degradation of the circulatory system in the legs and affects over six million people in the United States and a similar number in Europe. Peripheral vascular disease results in over 200,000 amputations and more than $12 billion in medical costs annually. Clinical testing outside the United States has demonstrated that peripheral vascular disease is amenable to prostacyclin therapy. Beraprost was approved for the treatment of peripheral vascular disease in Japan in 1994 and generated 1998 sales of over $225 million for Toray Industries, Inc., the developer of the compound, and its licensees. In December 1998, Hoechst Marion Roussel, Inc., the European licensee of beraprost, submitted a regulatory application for beraprost to treat peripheral vascular disease in Europe. United Therapeutics is undertaking additional clinical studies. UT-15 is in Phase II clinical trials for treating late-stage peripheral vascular disease, and United Therapeutics is beginning a Phase II clinical trial program for beraprost to treat early-stage pulmonary hypertension. United Therapeutics believes that beraprost's current oral formulation will be a complementary product to UT-15 because this formulation cannot provide the constant therapeutic levels of prostacyclin in the body necessary to treat advanced pulmonary hypertension and late-stage peripheral vascular disease effectively. United Therapeutics is also beginning a Phase II clinical trial program for UT-77, an elastase inhibitor, for the treatment of chronic obstructive pulmonary disease. Finally, United Therapeutics is beginning a Phase II/III clinical trial program for Ketotop, a transdermal patch that delivers the FDA-approved anti-inflammatory pain reliever ketoprofen, for the treatment of osteoarthritis. 21 25 BACKGROUND VASCULAR DISEASE AND PROSTACYCLIN Many vascular diseases are characterized by the degradation of the blood-vessel wall lining, the aggregation of platelets and the disruption of smooth muscle cell function. These conditions cause blockages and affect the ability of the blood vessels to dilate and then constrict as blood flows through the circulatory system. Prostacyclin is an important molecule that is produced by the body and has powerful effects on blood-vessel health and function. Natural prostacyclin is inherently unstable, with a half life in the body of under six minutes. It appears to act in three key ways to keep blood vessels functioning properly: - It dilates blood vessels, where necessary, enabling smooth blood flow; - It prevents platelet aggregation; and - It prevents proliferation of smooth muscle cells surrounding the vessels, which otherwise would constrict the vessels and obstruct blood flow. PULMONARY HYPERTENSION Pulmonary hypertension is a progressive, life-threatening vascular disease that is difficult to diagnose and treat and is currently incurable. It is characterized by high pressure in the blood vessels between the heart and lungs (the pulmonary blood vessels), but normal blood pressure in the rest of the body. The high pressure is due to the narrowing of pulmonary blood vessels caused primarily by reduced production of prostacyclin in the affected blood vessels. This elevated pulmonary blood pressure causes increasing strain on the right side of the heart as it tries to pump blood to the lungs. Patients with early-stage pulmonary hypertension may be unaware they have the disease. As the disease progresses, however, patients suffer breathlessness and fainting spells and are increasingly unable to carry out normal daily activities. Patients with untreated advanced pulmonary hypertension become bed-ridden and die, usually of right-heart failure. According to statistics compiled by the National Institutes of Health before the introduction of Flolan in 1995, the mean survival period for a patient with primary pulmonary hypertension was approximately 30 months from diagnosis. Survival of patients using Flolan appears to be markedly increased. The five-year survival rate of children using Flolan is 92%. Traditionally, physicians have thought of pulmonary hypertension as consisting of two diseases: primary pulmonary hypertension and secondary pulmonary hypertension. Primary pulmonary hypertension has been defined as pulmonary hypertension with no identified specific cause. Secondary pulmonary hypertension has been defined as pulmonary hypertension with a known cause such as heart, lung or liver dysfunction or the connective tissue disease, scleroderma. Currently, several thousand people in North America and Europe have been diagnosed with primary pulmonary hypertension, while over 50,000 people in North America and Europe have advanced secondary pulmonary hypertension. Primary pulmonary hypertension and advanced secondary pulmonary hypertension appear to be amenable to prostacyclin therapy. In its 1998 world symposium on primary pulmonary hypertension, The World Health Organization proposed a new combined classification -- pulmonary hypertension -- to recognize the similarity between primary pulmonary hypertension and secondary pulmonary hypertension. The new classification also includes pulmonary hypertension linked to the use of Redux(R) or phen-fen diet drugs, HIV infection and genetic predisposition to the disease. In addition, according to a 1989 report published in Chest, the official publication of the American College of Chest Physicians, the prevalence of pulmonary hypertension in the U.S. male population is between 8% and 13% for men between the ages of 35 and 44, depending on severity. It is also reported that the prevalence of mild pulmonary hypertension in men age 65 and older exceeds 20%. 22 26 Current Treatments Flolan. The FDA has approved only one drug treatment for primary pulmonary hypertension and no drug treatments for secondary pulmonary hypertension. The approved drug treatment is Flolan, a continuous intravenous infusion of prostacyclin, marketed by Glaxo Wellcome Inc. in the United States since 1995. Flolan has also been approved for the treatment of primary pulmonary hypertension in France and Switzerland. Prior to Flolan's approval in the United States for primary pulmonary hypertension, physicians often treated pulmonary hypertension with off-label use of other drugs such as calcium channel blockers and anticoagulants. In certain circumstances, these are still used off-label to treat pulmonary hypertension. The FDA approved Flolan based on results from Glaxo Wellcome's pivotal Phase III trial, in which Flolan proved to be an effective treatment for patients with primary pulmonary hypertension. Patients who were treated with Flolan experienced clinical benefits during the 12-week study, such as increased survival and exercise ability. In contrast, patients who were not treated with Flolan because they were in the control group experienced a worsening of their condition. Of the 40 patients in the control group, eight died during the study, while no patients treated with Flolan died. Although Flolan is not an approved treatment for secondary pulmonary hypertension, a study of scleroderma patients presented at the November 1998 American Heart Association meeting reported that Flolan appears to be a safe and effective treatment for advanced secondary pulmonary hypertension. Flolan's active component, prostacyclin, dilates blood vessels, prevents platelet aggregation and prevents proliferation of smooth muscle cells surrounding blood vessels. The half life of Flolan in the body, however, is under six minutes. Although Flolan extends the lives of patients with primary pulmonary hypertension, there are a number of significant drawbacks associated with Flolan treatment: - Because of its short half life and unstable nature, Flolan must be delivered continuously by an external pump through an intravenous catheter surgically implanted in the patient's chest; - Because of Flolan's short half life, patients risk abrupt recurrence of hypertension (called rebound hypertension) and death in the event Flolan delivery is interrupted for even a short period of time; - Because of Flolan's highly unstable nature, patients must prepare a mixture of Flolan under completely sterile conditions one or more times a day; - Patients experience frequent infections, including life-threatening sepsis, from the catheter or from mixing the drug under unsterile conditions; - Because of its highly unstable nature, Flolan should always remain refrigerated, even during administration; - To be mobile, patients must wear or carry a pack containing the pump and ice; and - Patients cannot swim, shower or otherwise immerse themselves in water because of the infection risks caused by the permanent intravenous catheter. Because of these safety and quality-of-life drawbacks, physicians typically prescribe Flolan for only those approximately 2,000 patients with the most advanced stages of pulmonary hypertension. Other patients who could benefit from Flolan therapy are not using Flolan because they live in countries where Flolan is unavailable or they are diagnosed with forms of pulmonary hypertension for which Flolan is not approved and thus the costs of Flolan therapy are generally not reimbursed by third-party payors. 23 27 Transplants. Besides Flolan, the only other treatment for advanced pulmonary hypertension is a lung or heart-lung transplant. There are significant drawbacks associated with transplants, including the following: - Patients often die before suitable donor organs become available; - Less than 20% of heart-lung transplant patients survive for 10 years; - Post-operative complications can result in organ rejection, requiring another transplant if organs are available; and - Transplant patients require life-long immuno-suppressant drug therapy that entails life-threatening side effects, including vulnerability to serious infections and diseases such as cancer and insulin-dependent diabetes. Market Size United Therapeutics believes that the potential market for a non-intravenous form of prostacyclin such as UT-15 to treat advanced pulmonary hypertension exceeds $2.5 billion. There are an estimated 55,000 people suffering from advanced pulmonary hypertension in North America and Europe. Of these, only approximately 2,000 patients receive Flolan therapy. According to the Journal of Pharmacy Systems Reports, the annual cost of Flolan therapy in the United States, including the necessary supplies and pumps, is in excess of $57,000 per patient, or over $110 million in the aggregate. In addition, Flolan patients incur substantial annual hospitalization and other costs related to the surgically implanted catheter. The costs associated with Flolan therapy are reimbursable by third-party payors, including Medicare. In addition to UT-15, which United Therapeutics is developing to treat patients with advanced pulmonary hypertension. United Therapeutics believes that its oral form of prostacyclin therapy, beraprost, may provide an opportunity to treat millions of patients with early-stage pulmonary hypertension. PERIPHERAL VASCULAR DISEASE When vascular disease affects the blood vessels in the legs, it is referred to as peripheral vascular disease. While the precise cause of peripheral vascular disease is unknown, diabetes, obesity, smoking and lack of exercise are associated with the disease. In the early stages of the disease, the patient is at first free of symptoms and then experiences mild to severe pain while walking. As the disease progresses, the patient experiences leg pain while at rest and suffers from delayed wound healing which sometimes leads to ulcers, gangrene and amputation. The mean survival period of the late-stage peripheral vascular disease patient is six years. Peripheral vascular disease affects approximately six million people in the United States, and United Therapeutics believes that a similar number of people are affected by the disease in Europe. Additionally, there are approximately 350,000 new diagnoses of peripheral vascular disease annually in the United States and 650,000 new diagnoses of peripheral vascular disease annually in Europe. Current Treatments Treatment for peripheral vascular disease depends upon the disease stage. In the early stages, physicians treat the disease primarily by recommending lifestyle changes such as special diet and regular exercise programs. If these changes are not effective in halting the progress of the disease, physicians sometimes prescribe drug treatment. The progression of the disease frequently results in repeated surgeries or other interventions, including angioplasty to unblock the arteries of the leg, arterial grafts to bypass the blocked arteries and insertion of stents to prevent the arteries from collapsing. If these procedures are ineffective, amputations are often required. The FDA has approved only two drugs for peripheral vascular disease, pentoxifylline 24 28 and cilostazol. Pentoxifylline improves the flow properties of the red blood cells, and cilostazol reduces the stickiness of blood platelets. Cilostazol should not be prescribed for patients with certain cardiovascular complications, including those that commonly occur in patients with peripheral vascular disease. The company believes that neither of these drugs provide all the benefits of UT-15 or beraprost. Market Size Surgeons currently perform approximately 200,000 amputations each year in the United States and Europe on late-stage peripheral vascular disease patients and an additional 600,000 non-amputation surgical procedures. Based on an average cost of $16,000 per amputation and of $15,000 per angioplasty, there is in excess of $12 billion spent each year on surgeries related to peripheral vascular disease in the United States and Europe. United Therapeutics is evaluating how much of this market can be addressed by prostacyclin therapy. The company expects that many amputations may be avoided and, when prostacyclin therapy is used in conjunction with the other surgical procedures, repeat surgical procedures may be reduced. CHRONIC OBSTRUCTIVE PULMONARY DISEASE Chronic obstructive pulmonary disease (COPD) is a serious and potentially life-threatening inflammation of the lungs characterized by chronic obstruction of airflow. The two principal subsets of COPD are emphysema and chronic bronchitis. Emphysema Approximately two million people in the United States, and the company believes a similar number in Europe, suffer from emphysema, which is a disease affecting the small airways of the lung. Emphysema may be hereditary or caused by smoking or environmental toxins. Patients with emphysema experience shortness of breath, labored breathing, excessive and chronic coughing and production of excessive sputum. In healthy lungs, two proteins act in harmony to keep the lungs clear and functional. The first protein, elastase, is carried by the body's white blood cells and protects the lungs by killing bacteria and neutralizing inhaled particles. Once these beneficial effects are achieved, the second protein -- alpha-1 antitrypsin -- neutralizes elastase, which, if left to act unchecked, destroys lung tissue. In patients with emphysema, the alpha-1 antitrypsin levels are greatly reduced, which allows elastase to damage the elastic fibers of the lungs, rendering the lungs unable to expand and contract as with normal breathing. In most cases, this damage is permanent and irreversible. Chronic Bronchitis Approximately 14 million people in the United States, and the company believes a similar number in Europe, suffer from chronic bronchitis, which is a disease affecting the large airways of the lungs. Chronic bronchitis is an inflammation of the bronchi which can be caused by smoking, environmental toxins or bacterial infections. Patients with chronic bronchitis, like emphysema patients, experience shortness of breath, labored breathing, excessive and chronic coughing and production of excessive sputum. Current Treatments Current management of COPD is based on the degree of the respiratory obstruction and the extent of the patient's disability. Prolastin(R) is the only FDA-approved drug specifically for the 10% of emphysema patients with an inherited deficiency of alpha-1 antitrypsin. Prolastin is difficult to manufacture and is not available in sufficient quantities to support this subset of emphysema patients. A lung transplant is the treatment of last resort for late-stage emphysema 25 29 patients. There is no treatment currently available to restore lung elasticity and thus reverse the progression of emphysema. With respect to chronic bronchitis, physicians prescribe bronchodilators, which act to open airways in the lungs, early in the disease process, including Combivent(R) and Atrovent(R) inhalation aerosols. Theophylline and albuterol are frequently prescribed to produce dilation of bronchioles for both emphysema and chronic bronchitis. Finally, physicians have used intermittent positive pressure breathing devices and continuous oxygen therapy when other agents have failed. For patients with the most advanced stages of emphysema, the only treatment is a lung transplant. Market Size There were 97,000 deaths in the United States in 1995 attributable to COPD, the country's fourth leading cause of death. There are approximately 500,000 hospitalizations annually due to chronic bronchitis. Over $2 billion was spent in the United States in 1993 on drugs for the treatment of COPD. The current market for Prolastin, the only approved product to treat alpha-1 antitrypsin deficiency, is estimated to be $100 million. STRATEGY United Therapeutics' objective is to become a leader in the development and commercialization of drugs to treat pulmonary and vascular diseases, as well as other selected chronic conditions. To achieve this objective, United Therapeutics is pursuing the following strategies: Capitalize on United Therapeutics' Experience and Expertise in Pulmonary Vascular Medicine. United Therapeutics believes that it has assembled the preeminent group of scientists and clinicians in the field of pulmonary vascular medicine. Members of United Therapeutics' scientific advisory board have won the Nobel Prize for the discovery and characterization of prostacyclin, discovered Flolan and invented UT-15. Members of United Therapeutics' senior management led the team at Burroughs Wellcome Co. that designed the clinical trials for, obtained FDA approval of and commercialized Flolan. These executives have similarly designed UT-15's clinical trials, which have primary end points identical to those used for the studies to approve Flolan. United Therapeutics believes this expertise will be instrumental in the development and commercialization of UT-15, beraprost and its other products. Establish United Therapeutics' Prostacyclin Products as the Standard of Care for Pulmonary Hypertension and Peripheral Vascular Disease. United Therapeutics is seeking to establish UT-15 and beraprost, its stable analogs of prostacyclin, as the worldwide standards of care for the treatment of pulmonary hypertension and peripheral vascular disease. Currently, United Therapeutics is conducting two multi-center pivotal Phase III clinical trials of UT-15 for advanced pulmonary hypertension and a Phase II trial of UT-15 for late-stage peripheral vascular disease. United Therapeutics is also beginning a multi-center Phase III clinical trial program for beraprost to treat early-stage peripheral vascular disease and a Phase II clinical trial program for beraprost to treat early-stage pulmonary hypertension. United Therapeutics believes that its influential scientific advisory board, strong network of clinical investigators and experienced management team can demonstrate and communicate to physicians the benefits of treating pulmonary hypertension and peripheral vascular disease patients with United Therapeutics' stable synthetic forms of prostacyclin following their approval. Minimize Fixed Costs and Corporate Overhead Through Outsourcing and Partnering. United Therapeutics maintains a streamlined corporate infrastructure that is focused on strategic business management. United Therapeutics contracts with FDA-approved manufacturers for the synthesis and manufacture of its products and with established drug sales organizations for marketing and distribution of its products. United Therapeutics has partnered with MiniMed Inc., the worldwide leader in subcutaneous continuous-flow microinfusion device systems, to design, 26 30 develop and implement the delivery of UT-15 therapies for pulmonary hypertension using MiniMed products. By outsourcing the non-core aspects of its business, United Therapeutics believes that it will substantially reduce fixed overhead and capital investment, accelerate commercialization of its products and reduce its business risk. In-License, Develop and Commercialize Selected Other Product Candidates. United Therapeutics intends to continue to in-license and develop product candidates that: - have positive human safety and efficacy data; - address a chronic condition with currently inadequate or high-cost treatment options; and - address a condition with little existing or potential treatment competition. Accordingly, United Therapeutics has in-licensed UT-77 and Ketotop. The company is developing UT-77, which appears to prevent elastase from destroying lung tissue, for the treatment of chronic obstructive pulmonary disease. United Therapeutics is beginning a Phase II clinical trial program for UT-77. United Therapeutics is also beginning a Phase II/III clinical trial program for Ketotop, a unique transdermal delivery system for the FDA-approved anti-inflammatory pain reliever, ketoprofen. Ketotop is currently being sold by others in several countries outside the United States. UNITED THERAPEUTICS' PRODUCTS The following table summarizes United Therapeutics' potential product portfolio.
PRODUCT MODE OF DELIVERY INDICATION CLINICAL TRIAL STATUS UT TERRITORY - ---------- ---------------- --------------------- ----------------------- ------------- UT-15 Subcutaneous Advanced pulmonary Phase III Worldwide hypertension UT-15 Subcutaneous Late-stage peripheral Phase II Worldwide vascular disease Beraprost Oral Early-stage Beginning Phase III U.S./Canada peripheral vascular disease Beraprost Oral Early-stage pulmonary Beginning Phase II U.S./Canada hypertension UT-77 Inhalation Chronic obstructive Beginning Phase II Worldwide pulmonary disease Ketotop Transdermal Osteoarthritis Beginning Phase II/III North America
UT-15 In December 1996 and January 1997, United Therapeutics obtained worldwide rights to UT-15 for all indications from Glaxo Wellcome and Pharmacia & Upjohn. Pulmonary Hypertension United Therapeutics has focused primarily on developing UT-15 as its lead product for treating advanced pulmonary hypertension. UT-15 is a significantly more stable form of prostacyclin than Flolan, and United Therapeutics believes that it will provide patients with a convenient and non-intravenous life-long prostacyclin therapy. In contrast to Flolan, UT-15 is stable at room temperature for up to five years and has a half life in the human body of approximately 45 minutes. These attributes allow for a safer and more convenient delivery of UT-15 to patients. Specifically, UT-15 does not need to be administered by a refrigerated, bulky pump through a surgically implanted catheter. Instead, UT-15 is delivered by subcutaneous 27 31 infusion with a pager-sized MiniMed microinfusion device, the same type of reliable device that has been used to deliver insulin to over 60,000 diabetics. Subcutaneous delivery of UT-15 also eliminates the risk of sepsis infection and related hospitalization associated with the Flolan catheter. UT-15's extended half life also greatly reduces the risk of death from life-threatening rebound hypertension in cases of treatment interruption. The stability of UT-15 also allows it to be prepackaged, thus eliminating the need to reconstitute the drug one or more times daily under completely sterile conditions, as is the case with Flolan. The primary differences between the Flolan therapy and the UT-15 therapy are summarized in the following table.
CHARACTERISTIC FLOLAN UT-15 - ------------------------------------------------------------ ----------- ------------ Delivery of drug Intravenous Subcutaneous Surgical implant of catheter Yes No Constant refrigeration Yes No Sterile conditions for frequent drug constitution required Yes No Risk of rebound hypertension High Low Risk of serious infections, including sepsis High Low Bulky pack for pump Yes No Swimming and showers prohibited Yes No
UT-15 is currently in pivotal Phase III clinical trials for advanced pulmonary hypertension. In earlier clinical trials, United Therapeutics demonstrated that UT-15, delivered in a brief intravenous infusion, has similar effects on primary pulmonary hypertension patients as does a comparable infusion of Flolan. United Therapeutics then demonstrated that UT-15, delivered in a brief subcutaneous infusion to primary pulmonary hypertension patients, had similar effects as when delivered intravenously. Recently, United Therapeutics studied 26 primary pulmonary hypertension patients in a randomized, double-blind, placebo-controlled, eight-week trial that concluded: - UT-15 can be safely administered to severely ill patients on an outpatient basis; - Continuous dosing of UT-15 leads to improvement in pulmonary blood pressure and exercise ability; and - These improvements are similar to improvements observed with Flolan administered for 12 weeks. Each patient who finished this study in October 1998 elected to receive UT-15 therapy indefinitely. United Therapeutics is now enrolling 224 advanced pulmonary hypertension patients (without distinction between primary and secondary pulmonary hypertension) in each of two pivotal Phase III trials of UT-15 at approximately 40 select medical centers. The main objective of the trials is to determine the impact of continuous subcutaneous UT-15 therapy on exercise ability after 12 weeks of therapy. The primary endpoints for these trials are identical to those in the studies to approve Flolan. Secondary objectives include assessing the impact of UT-15 on the symptoms of advanced pulmonary hypertension. Peripheral Vascular Disease United Therapeutics is also developing UT-15 for late-stage peripheral vascular disease. Peripheral vascular disease appears to be similar to pulmonary hypertension in that there is a 28 32 reduction in natural prostacyclin in the affected blood vessels. In September 1998, United Therapeutics completed a Phase II study which assessed the safety and blood flow effects of UT-15 administered intravenously to patients with late-stage peripheral vascular disease. The study demonstrated that UT-15 can be administered safely to patients with late-stage peripheral vascular disease and substantially increased blood flow in the affected areas of the legs. United Therapeutics will next undertake a pre-pivotal study to optimize dosing levels of UT-15 for pivotal Phase III trials. Other studies by independent clinical investigators have shown that Flolan provides therapeutic benefit to patients with early- and late-stage peripheral vascular disease. BERAPROST In September 1998, United Therapeutics obtained an exclusive license from Toray Industries, Inc. for beraprost for the treatment of pulmonary hypertension in the United States and Canada. In March 1999, United Therapeutics obtained an additional exclusive license from Toray for beraprost for the treatment of peripheral vascular disease in the United States and Canada. Beraprost is an oral form of prostacyclin that is chemically stable and has a half life in the body of approximately one hour. Like natural prostacyclin and UT-15, beraprost dilates blood vessels, prevents platelet aggregation and prevents proliferation of smooth muscle cells surrounding blood vessels. United Therapeutics believes that beraprost may be an important treatment for early-stage peripheral vascular disease and for early-stage pulmonary hypertension. Intermittent oral doses of beraprost do not, however, provide consistent levels of the drug in the blood necessary to treat advanced stages of these diseases. Consequently, United Therapeutics believes that UT-15 will be the more effective treatment for the late stages of these diseases. Beraprost has proven to be safe and effective for the treatment of peripheral vascular disease in clinical studies conducted outside the United States and has been approved for treatment of peripheral vascular disease in Japan since 1994. Sales in Japan of beraprost by Toray and its licensees were over $225 million in 1998. Toray has licensed to Hoechst Marion Roussel, Inc. rights to beraprost in Europe. Hoechst has conducted extensive clinical research with beraprost, including a 1997-1998 controlled study in patients suffering from intermittent leg pain due to blood vessel blockages. This study shows that beraprost is effective in treating patients with early-stage peripheral vascular disease, and Hoechst has filed for approval of beraprost for the treatment of peripheral vascular disease in Europe. A recent Japanese study presented at the 1998 American Heart Association meeting suggests that beraprost may improve survival in patients with pulmonary hypertension as well. In that study, 21 of the 24 patients using beraprost survived during the four year study period, as compared to eight of the 34 patients not using beraprost. United Therapeutics is beginning a Phase III clinical trial program for beraprost to treat early-stage peripheral vascular disease and Phase II clinical trial program for beraprost to treat early-stage pulmonary hypertension. UT-77 In November 1998, United Therapeutics acquired from Cortech, Inc. exclusive worldwide rights to develop and market UT-77 for all indications, except the treatment of skin conditions. United Therapeutics believes that UT-77 is the only potential new chemical entity or drug in Phase II or later clinical trials for preventing elastase from destroying the lung tissue of patients with chronic obstructive pulmonary disease. United Therapeutics intends to develop UT-77 for delivery by both injection and inhalation. The company is beginning a multi-center Phase II study to assess the effectiveness of UT-77 in improving breathing of patients suffering from periodic life-threatening episodes associated with COPD. Cortech conducted extensive pre-clinical and clinical studies of UT-77 that showed continuous intravenous infusion of UT-77 inhibits elastase overproduction and enhances lung function in COPD patients. Prior to United Therapeutics' license from Cortech, clinical investigators in U.S. medical centers conducted 29 33 Phase I and Phase II studies involving 40 patients that showed UT-77 to be safely tolerated as a continuous intravenous infusion therapy. These studies also showed that the drug affected the levels of certain proteins in the body that are involved in several respiratory diseases. United Therapeutics believes that these results provide a reasonable basis for further development of UT-77 as a treatment for COPD. KETOTOP In July 1998, United Therapeutics began collaborating with Global Medical Enterprises Ltd. and Global Medical Enterprises Ltd., LLC to develop Ketotop, and in February 1999, United Therapeutics obtained the exclusive rights from Global Medical to develop Ketotop for marketing in North America and Central America. Ketotop is a unique, transdermal drug delivery system which contains ketoprofen, an FDA-approved oral pain reliever that has strong anti-inflammatory properties. United Therapeutics plans to market Ketotop to relieve osteoarthritis and other musculo-skeletal pain. Osteoarthritis is a disease that afflicts nearly 21 million people in the United States, including 13.7 million with osteoarthritis of the knee. Although highly effective, ketoprofen in pill form frequently produces gastric irritation. To address this problem, Ketotop uses a unique matrix technology to provide ketoprofen transdermally in concentrated doses specifically to targeted sites for a sustained period of 12 to 14 hours. United Therapeutics believes that this delivery system, which is patented in the United States, is the most effective way to deliver pain relief through the skin. United Therapeutics is beginning Phase II/III studies to demonstrate that Ketotop is safe and effective for the treatment of osteoarthritis. TELEMEDICINE SERVICES Pulmonary hypertension patients require periodic monitoring of certain bodily measurements such as heart and lung function. Much of this monitoring can be achieved with less expense and inconvenience by using telemedicine devices that enable physicians to monitor patients remotely. United Therapeutics intends to provide telemedicine services for a fee to patients and physicians using and prescribing United Therapeutics' products. United Therapeutics also intends to utilize its experience with pulmonary hypertension telemedicine to explore the development of similar internet-based services for other chronic diseases. THE MINIMED STRATEGIC ALLIANCE MiniMed Inc. is a world leader in the design, development, manufacturing and marketing of advanced infusion systems for the delivery of drugs. The pager-sized microinfusion device which MiniMed has agreed to provide United Therapeutics to deliver UT-15 by continuous, subcutaneous infusion is a system substantially similar to the system which has been successfully marketed to over 60,000 diabetics for insulin delivery. United Therapeutics entered into an agreement with MiniMed in September 1997 to collaborate in the design, development and implementation of therapies to treat pulmonary hypertension utilizing MiniMed products and UT-15. The term of the agreement is for seven years after the FDA grants a new drug approval for UT-15 and will be automatically extended for additional 12-month periods unless otherwise terminated. The agreement is subject to early termination in the event of a material breach or bankruptcy of either party. United Therapeutics and MiniMed have established a Management Committee comprised of two representatives from each company to implement the agreement. MiniMed will: - Establish a dedicated sales force for UT-15 for advanced pulmonary hypertension; - Take responsibility for the marketing and sales of UT-15 to physicians who treat pulmonary hypertension; - Train patients and care providers in the use of the MiniMed device with UT-15; 30 34 - Provide the MiniMed device, related supplies and customer service; - Obtain third-party payor reimbursement approvals; and - Assist patients with third-party payor reimbursement. United Therapeutics has agreed to pay MiniMed the greater of a percentage of the revenues derived from commercial sales of UT-15 or a fixed amount per patient per year. In the event that there are any discoveries or improvements arising out of work performed under the agreement, the parties will have joint ownership of those discoveries or improvements. PATENTS AND PROPRIETARY RIGHTS United Therapeutics' success will depend in part on its ability to obtain and maintain patent protection for its products, preserve trade secrets, prevent third parties from infringing upon its proprietary rights and operate without infringing upon the proprietary rights of others, both in the United States and internationally. GLAXO WELLCOME ASSIGNMENT In January 1997, Glaxo Wellcome Inc. assigned to United Therapeutics patents and patent applications for the use of the stable prostacyclin analog now known as UT-15 for the treatment of pulmonary hypertension and congestive heart failure. Glaxo Wellcome has a right to negotiate a license from United Therapeutics if United Therapeutics decides to license any part of the marketing rights to a third party. Glaxo Wellcome waived this right with respect to the agreement with MiniMed. Under the agreement, Glaxo Wellcome is entitled to certain royalties from United Therapeutics for a period of 10 years from the date of the first commercial sale of any product containing UT-15. If United Therapeutics grants to a third party any license to UT-15, Glaxo Wellcome is also entitled to a percentage of all consideration payable to United Therapeutics by such licensee. For pulmonary hypertension, the patent does not expire in the United States until October 2009 and until various dates from September 2009 to August 2013 in nine other countries. For congestive heart failure, the patent does not expire until May 2011 in the United States and from May 2011 to March 2012 in five other countries. United Therapeutics is responsible for all patent prosecution and maintenance for the UT-15 patent portfolio. PHARMACIA & UPJOHN LICENSE In December 1996, Pharmacia & Upjohn Company exclusively licensed to United Therapeutics patents and a patent application for the composition and production of the stable prostacyclin analog now known as UT-15. United Therapeutics filed a U.S. patent application for a new synthesis and production method for UT-15 in October 1997. United Therapeutics believes that its method is a substantial improvement over the Pharmacia & Upjohn method. United Therapeutics intends to use its improved and unique synthesis method rather than the licensed Pharmacia & Upjohn method for the actual production of the UT-15 product. Under the Pharmacia & Upjohn agreement, United Therapeutics paid an initial license fee and must make additional milestone payments for orphan and non-orphan indications of the compound. United Therapeutics will make certain royalty payments to Pharmacia & Upjohn until the later of the expiration of the applicable patent or 10 years after the date of the first commercial sale of a product in a country defined as a milestone country under the agreement. The agreement may be terminated earlier by either party in certain circumstances, including upon a material breach by or bankruptcy of the other party, and by United Therapeutics at any time upon 60 days' notice to Pharmacia & Upjohn. Pursuant to the agreement, United Therapeutics is obliged to use its best efforts to conduct a research and development program in the United States relating to the use of the product containing the compound for at least one 31 35 indication, and to obtain regulatory approvals and market a product in the United States and such other countries as United Therapeutics deems appropriate. The term of the patent licensed from Pharmacia & Upjohn expires in March 2000 in the United States and various dates from January 2001 to February 2010 in 14 other countries. Pharmacia & Upjohn is responsible for prosecution and maintenance of the U.S. and foreign patent portfolio relating to the UT-15 compound and synthesis method, but may discontinue prosecution of and/or abandon the patent portfolio and give United Therapeutics an opportunity to prosecute or maintain the portfolio. TORAY INDUSTRIES LICENSES In September 1998, United Therapeutics entered into an agreement with Toray Industries, Inc. obtaining the exclusive right to develop and market beraprost in the existing immediate-release oral form in the United States and Canada for the treatment of pulmonary hypertension and other pulmonary vascular diseases, plus certain additional rights of first refusal for other products, therapies or territories. In exchange, United Therapeutics paid Toray cash and Common Stock, and granted Toray an option to purchase additional Common Stock. United Therapeutics also agreed to pay Toray milestone payments. In March 1999, United Therapeutics entered into an agreement with Toray obtaining the exclusive right to develop and market beraprost in the United States and Canada for the treatment of peripheral vascular disease. United Therapeutics paid Toray cash and Common Stock and agreed to pay Toray certain milestone payments. Pursuant to the agreements, United Therapeutics has agreed to pay all costs and expenses associated with undertaking clinical trials, obtaining regulatory approvals and commercializing beraprost in the United States and Canada for the treatment of pulmonary hypertension and peripheral vascular disease. Toray has retained all manufacturing rights for beraprost. United Therapeutics has agreed to purchase beraprost solely from Toray at specified prices based on volume. The agreements each set forth a product development schedule. In the event that development by United Therapeutics falls significantly behind the schedule specified in either agreement, Toray may terminate that agreement. Furthermore, United Therapeutics is responsible under the agreements for achieving minimum annual product net sales as determined in advance by mutual agreement. In the event that United Therapeutics is unable to meet any minimum annual net sales requirement for two consecutive years, Toray may convert the exclusive license to a non-exclusive license. United Therapeutics would then be required to share any product marketing rights approved by the FDA with a third-party licensee chosen by Toray. Each agreement expires 10 years following FDA approval of beraprost for the particular disease indication. United Therapeutics may extend each agreement for unlimited one-year periods with Toray's consent. The United States patents licensed by United Therapeutics cover the compound beraprost and its method of synthesis and will expire in January 2003 and April 2010. The licensed Canadian patent expires in January 2003. There are no issued patents covering methods of treating any disease, including pulmonary hypertension and peripheral vascular disease, using beraprost. Toray is responsible for prosecuting and maintaining beraprost patents with United Therapeutics' reasonable assistance. CORTECH LICENSE In November 1998, United Therapeutics signed an agreement with Cortech, Inc. obtaining the exclusive right to develop and market a serine elastase inhibitor compound, now known as UT-77, for all indications worldwide, except for certain dermatological uses. In exchange, United Therapeutics made a cash payment and granted Cortech a warrant to purchase Common Stock (which vests only if United Therapeutics continues developing UT-77 after November 2000, and terminates in November 2004), and agreed to make substantial milestone payments and pay royalty fees which will not exceed a certain percentage of net sales. 32 36 Pursuant to the agreement, United Therapeutics is required to use reasonable efforts to develop and conduct research and pre-clinical and human clinical trials to obtain all regulatory approvals to manufacture, market and commercialize the products that United Therapeutics determines are commercially feasible. United Therapeutics may choose to discontinue the development of the products without penalty upon written notice to Cortech if the products do not satisfy United Therapeutics' clinical needs for targeted indications. If United Therapeutics terminates the agreement, however, Cortech will receive an exclusive royalty-free license to use any improvements, know-how, data, information or regulatory filings or any other intellectual property arising from United Therapeutics' performance under the agreement. Under the agreement, inventions or improvements to the technology for the manufacture or use of UT-77 are retained by the party whose employees conceive them. Cortech may terminate the agreement if United Therapeutics does not commence Phase II clinical trials of UT-77 before May 2001, subject to certain exceptions. UT-77 is patented in the United States and in 22 foreign countries. Patent applications are pending in six countries. The U.S. patent expires in June 2010 and foreign counterparts expire between August 2008 and December 2012. Cortech is responsible for patent prosecution and maintenance under the agreement. GLOBAL MEDICAL ENTERPRISES AGREEMENT In February 1999, United Therapeutics entered into an agreement with Global Medical Enterprises Ltd. and Global Medical Enterprises Ltd., LLC. This agreement gives to United Therapeutics the exclusive right to commercialize and sell Ketotop in the United States, Canada, Mexico, Central America and the Caribbean for treatment of all indications. Global Medical holds its rights under an exclusive sales and distribution agreement with Pacific Pharmaceuticals, Inc., the Korean manufacturer of Ketotop. Both the agreement between United Therapeutics and Global Medical and the agreement between Global Medical and Pacific Pharmaceuticals expire in July 2008. The agreement between United Therapeutics and Global Medical will be extended if Pacific Pharmaceuticals extends its agreement with Global Medical. The agreement is subject to early termination in the event of a material breach or bankruptcy of either party or if the underlying agreement between Global Medical and Pacific Pharmaceuticals is terminated. United Therapeutics has agreed to purchase Ketotop solely from Global Medical and will pay Global Medical a product purchase price equal to Global Medical's cost of obtaining Ketotop from Pacific Pharmaceuticals plus a profit percentage. United Therapeutics and Global Medical will jointly determine Global Medical's compensation for sales in additional territories. Ketotop is patented in the United States, but is not patented in any other territory where United Therapeutics has marketing rights. The Ketotop patent expires in April 2013. There are no issued U.S. patents covering methods of treating osteoarthritis with Ketotop. Global Medical and Pacific Pharmaceuticals are responsible for prosecuting and maintaining the Ketotop patent portfolio. In addition, United Therapeutics is obligated under its agreement with Global Medical to obtain trademark protection for Pacific Pharmaceuticals for the Ketotop mark in every jurisdiction where United Therapeutics has marketing rights. United Therapeutics has not yet filed trademark applications for Ketotop. PATENT TERM EXTENSIONS United Therapeutics believes that some of the patents to which it has rights may be eligible for extensions of up to five years based upon patent term restoration procedures in Europe and in the United States under the Waxman-Hatch Act. For instance, under Waxman-Hatch, the Toray U.S. patent relating to the compound beraprost could be extended by up to five years, giving the product patent protection until as late as January 2008 if approval in the United States is received before expiration of the original patent term in 2003. In addition, patent extensions are available under similar laws in Europe. United Therapeutics is considering which products it will seek to 33 37 extend under Waxman-Hatch and similar laws of other jurisdictions. See "-- Government Regulation." ORPHAN DRUG STATUS AND GRANTS In June 1997, United Therapeutics was notified by the FDA that UT-15 for primary pulmonary hypertension qualified for orphan drug status. The company believes that if UT-15 is approved by the FDA, no other treatment for primary pulmonary hypertension using prostacyclin will be approved by the FDA for seven years, unless such other treatment is significantly safer or more effective than UT-15. In November 1998, United Therapeutics received a $430,000 grant from the FDA's orphan drug grant program for the development of UT-15 for the treatment of primary pulmonary hypertension, $107,500 of which has been recognized as revenue through March 31, 1999. CLINICAL INVESTIGATOR NETWORK United Therapeutics has established a multi-center clinical investigation network with approximately 40 leading medical centers. This network consists of pulmonologists and cardiologists from centers in North America, Europe, Australia and Israel who collectively treat a majority of patients with advanced pulmonary hypertension. These physicians understand and have extensive experience in clinical research of severe pulmonary diseases. United Therapeutics is continually expanding its clinical investigator network by adding professionals who have demonstrated success in conducting clinical research required for regulatory approval. MANUFACTURING United Therapeutics contracts with qualified third-party manufacturers to produce its drugs. This manufacturing strategy enables United Therapeutics to direct financial resources to product licensing, clinical development and anticipated commercialization efforts rather than diverting resources to building manufacturing plants and establishing compliance with the FDA's good manufacturing practices regulations. SynQuest, Inc. manufactures and Cook Imaging Corporation formulates the bulk active ingredient in UT-15 for United Therapeutics. United Therapeutics has contracted with Schweizerhall, Inc. as a second source of manufacturing. An analytical testing laboratory, Magellan Laboratories Inc., tests the purity and stability of each batch of manufactured UT-15 for compliance with FDA standards. MARKETING AND SALES United Therapeutics has contracted with MiniMed to exclusively handle, on a commission basis, sales and marketing of UT-15 when formulated for subcutaneous delivery for pulmonary hypertension. MiniMed has extensive experience in marketing subcutaneous microinfusion systems. In addition, MiniMed maintains a sizable insurance assistance department to expedite claims processing and to assist patients in obtaining third-party reimbursement. United Therapeutics retains sales and marketing rights to UT-15 for all indications other than pulmonary hypertension. See "-- The MiniMed Strategic Alliance." United Therapeutics intends to contract with MiniMed or a similarly qualified organization for the sales and marketing of UT-15 for peripheral vascular disease and for its other products. The company believes that there are several qualified drug sales organizations that are capable of selectively marketing drugs for target diseases in North America and Europe. United Therapeutics does not intend to establish its own sales force, although it will actively collaborate and co-promote its products with the drug sales organizations with which it contracts. 34 38 COMPETITION Many drug companies engage in research and development to commercialize products to treat blood vessel and lung diseases. United Therapeutics competes with these companies for funding, access to licenses, personnel, third-party collaborators and product development. Almost all of these companies have substantially greater financial, marketing, sales, distribution and technical resources, and more experience in research and development, clinical trials and regulatory matters, than United Therapeutics. United Therapeutics is aware of existing treatments that will compete with its products, including the following: - UT-15 will compete with Flolan, the only FDA-approved treatment for primary pulmonary hypertension; - UT-15 and beraprost will compete with two FDA-approved drugs, pentoxifylline and cilostazol, for the treatment of peripheral vascular disease; - UT-77 will compete with one FDA-approved drug, Prolastin, for the treatment of chronic obstructive pulmonary disease; and - Ketotop will compete with existing oral drugs containing the FDA-approved pain reliever ketoprofen, as well as with a variety of other oral and transdermal pain relievers. Competitors may develop and commercialize additional products that compete with United Therapeutics' products and may do so more rapidly than United Therapeutics. For example, United Therapeutics understands that: - Schering AG may develop Iloprost (a stable form of prostacyclin) as a drug delivered through sustained inhalation to treat pulmonary hypertension; - Boehringer Ingelheim International GmbH was conducting a controlled study of a potentially competitive drug for early-stage pulmonary hypertension; - There are unpublished reports on the use of continuously inhaled nitric oxide as a therapy for pulmonary hypertension of the newborn; and - Several companies are developing other drugs and surgical methods for treating different aspects of peripheral vascular disease. GOVERNMENTAL REGULATION The research, development, testing, manufacture, promotion, marketing and distribution of drug products are extensively regulated by government authorities in the United States and other countries. Drugs are subject to rigorous regulation by the FDA in the United States and similar regulatory bodies in other countries. The steps ordinarily required before a new drug may be marketed in the United States (similar steps are required in most other countries) include: - Preclinical laboratory tests, preclinical studies in animals and formulation studies and the submission to the FDA of an investigational new drug application for a new drug or antibiotic; - Adequate and well-controlled clinical trials to establish the safety and efficacy of the drug for each indication; - The submission of a new drug application to the FDA; and - FDA review and approval of the new drug application prior to any commercial sale or shipment of the drug. Preclinical tests include laboratory evaluation of product chemistry toxicity and formulation, as well as animal studies. The results of preclinical testing are submitted to the FDA as part of an investigational new drug application. A 30-day waiting period after the filing of each 35 39 investigational new drug application is required prior to the commencement of clinical testing in humans. At any time during this 30-day period or at any time thereafter, the FDA may halt proposed or ongoing clinical trials until the FDA authorizes trials under specified terms. The investigational new drug application process may be extremely costly and substantially delay development of United Therapeutics' products. Moreover, positive results of preclinical tests will not necessarily indicate positive results in clinical trials. Clinical trials to support new drug applications are typically conducted in three sequential phases, but the phases may overlap. During Phase I, the initial introduction to the drug into healthy human subjects or patients, the drug is tested to assess metabolism, pharmacokinetics and pharmacological actions and safety, including side effects associated with increasing doses. Phase II usually involves studies in a limited patient population to: - Assess the efficacy of the drug in specific, targeted indications; - Assess dosage tolerance and optimal dosage; and - Identify possible adverse effects and safety risks. If a compound is found to be potentially effective and to have an acceptable safety profile in Phase II evaluations, Phase III trials, also called pivotal studies, major studies or advanced clinical trails, are undertaken to further demonstrate clinical efficacy and to further test for safety within an expanded patient population at geographically dispersed clinical study sites. After successful completion of the required clinical testing, generally a new drug application is submitted. The FDA may request additional information before accepting a new drug application for filing, in which case the application must be resubmitted with the additional information. Once the submission has been accepted for filing, the FDA has 180 days to review the application and respond to the applicant. The review process is often significantly extended by FDA requests for additional information or clarification. The FDA may refer the new drug application to an appropriate advisory committee for review, evaluation and recommendation as to whether the application should be approved, but the FDA is not bound by the recommendation of an advisory committee. If FDA evaluations of the new drug application and the manufacturing facilities are favorable, the FDA may issue either an approval letter or an approvable letter. An approvable letter will usually contain a number of conditions that must be met in order to secure final approval of the new drug application and authorization of commercial marketing of the drug for certain indications. The FDA may refuse to approve the new drug application or issue a not approvable letter, outlining the deficiencies in the submission and often requiring additional testing or information. The FDA may designate a product as an "orphan drug" if the drug is a drug intended to treat a rare disease or condition. A disease or condition is considered rare if it affects fewer than 200,000 people in the United States, or if it affects more than 200,000 people but will be sold for less money than it will cost to develop. If a sponsor obtains the first FDA marketing approval for a certain orphan drug, the sponsor will have a seven-year exclusive right to market the drug for the orphan indication. If regulatory approval of UT-15 or any of United Therapeutics' other products is granted, it will be limited to certain disease states or conditions. The manufacturers of approved products and their manufacturing facilities will be subject to continual review and periodic inspections. Because United Therapeutics intends to contract with third parties for manufacturing of its products, its control of compliance with FDA requirements will be incomplete. In addition, identification of certain side effects or the occurrence of manufacturing problems after any of its drugs are on the market could cause subsequent withdrawal of approval, reformulation of the drug, additional preclinical testing or clinical trials, and changes in labeling of the product. 36 40 The Waxman-Hatch Act provides that patent terms may be extended during the FDA regulatory review period for the related product. This period is generally one-half the time between the effective date of an investigational new drug application and the submission date of a new drug application, plus the time between the submission date of a new drug application and the approval of that application, subject to a maximum extension of five years. Similar patent term extensions are available under European laws. Outside the United States, United Therapeutics' ability to market its products will also be contingent upon receiving marketing authorizations from the appropriate regulatory authorities. The foreign regulatory approval process includes all of the risks associated with FDA approval set forth above. The requirements governing the conduct of clinical trials and marketing authorization vary widely from country to country. At present, foreign marketing authorizations are applied for at a national level, although within Europe procedures are available to companies wishing to market a product in more than one EU member state. Under a new regulatory system in the EU, marketing authorizations may be submitted at either a centralized, a decentralized or a national level. The centralized procedure is mandatory for the approval of biotechnology products and high technology products and available at the applicant's option for other products. The centralized procedure provides for the grant of a single marketing authorization that is valid in all EU member states. The decentralized procedure is available for all medicinal products that are not subject to the centralized procedure. The decentralized procedure provides for mutual recognition of national approval decisions, changes existing procedures for national approvals and establishes procedures for coordinated EU actions on products, suspensions and withdrawals. Under this procedure, the holder of a national marketing authorization for which mutual recognition is sought may submit an application to one or more EU member states, certify that the dossier is identical to that on which the first approval was based or explain any differences and certify that identical dossiers are being submitted to all member states for which recognition is sought. Within 90 days of receiving the application and assessment report, each EU member state must decide whether to recognize approval. The procedure encourages member states to work with applicants and other regulatory authorities to resolve disputes concerning mutual recognition. Lack of objection of a given country within 90 days automatically results in approval of the EU country. United Therapeutics will choose the appropriate route of European regulatory filing to accomplish the most rapid regulatory approvals. However, the chosen regulatory strategy may not secure regulatory approvals or approvals of the chosen product indications. United Therapeutics intends to secure European regulatory approval for the use of UT-15 for pulmonary hypertension and peripheral vascular disease in parallel with its United States and Canadian regulatory filings. The company has contracted with Quintiles (UK) Ltd., a contract research organization, to assist with its European clinical development and regulatory actions. PRODUCT LIABILITY INSURANCE United Therapeutics owns a Products/Clinical Trials Liability Insurance Policy with Federal Insurance Company. It is a master policy with limits of $5 million in the aggregate and $2 million per occurrence. In addition, United Therapeutics owns policies covering clinical trials in Austria, France, Spain and Italy. United Therapeutics believes this insurance is adequate. EMPLOYEES United Therapeutics had 20 employees as of December 31, 1998. The company also maintains active independent contractor relationships with various individuals with whom it has month-to-month consulting contracts. The company believes its employee relations are excellent. None of United Therapeutics' employees is subject to a collective bargaining agreement. 37 41 FACILITIES United Therapeutics maintains three facilities. The company's clinical development office is in Research Triangle Park, North Carolina in 5,000 square feet of leased office space. United Therapeutics' corporate office is in Silver Spring, Maryland in an 8,000 square foot building that it owns. The company's subsidiary, Unither Telemedicine Services Corporation, leases approximately 3,000 square feet of office space in the District of Columbia. The Research Triangle Park lease expires in June 2001, and the District of Columbia lease expires in February 2001 with an extension at United Therapeutics' option. United Therapeutics believes these facilities are adequate for its current and planned operations. LEGAL PROCEEDINGS United Therapeutics is not a party to any legal proceedings. 38 42 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth certain information regarding the executive officers and directors of United Therapeutics:
NAME AGE POSITION - ---- --- ---------------------------------------------------- Martine A. Rothblatt(1)(4)............. 44 Chairman, Chief Executive Officer and Director James W. Crow, Ph.D.(1)(4)............. 55 President, Chief Operating Officer and Director Gilles Cloutier, Ph.D.(1).............. 54 Executive Vice President, Business Development, Chief Financial Officer, Treasurer and Director Shelmer D. Blackburn, Jr.(1)........... 38 Director of Operations, Secretary and Director Paul A. Mahon.......................... 35 Assistant Secretary and General Counsel Olivia Giscard d'Estaing............... 37 Director David Gooray, M.D.(2)(3)............... 49 Director Jean-Guy Lambert(2).................... 58 Director Noah A. Samara(3)(4)................... 42 Director
- ------------------------- (1) Member of Executive Committee. (2) Member of Audit Committee. (3) Member of Compensation Committee. (4) Member of Nominating Committee. Martine A. Rothblatt, J.D., M.B.A., is a co-founder of United Therapeutics. She has served as Chairman of its Board of Directors and Chief Executive Officer since its inception in 1996. In 1995, Ms. Rothblatt endowed the PPH Cure Foundation to help find cures for pulmonary hypertension, which afflicts one of her daughters, and continues to manage the foundation. Since 1990, she has helped develop, as an independent consultant, satellite communications businesses, including CD Radio Inc., which she founded and served as Chairman and Chief Executive Officer until December 1992, WorldSpace Corp., which she co-founded and served as Chief Operating Officer from January 1993 through January 1995, and Sky Station International, Inc., where she served part-time as Executive Vice President from October 1996 through November 1997. Since February 1995 Ms. Rothblatt has also served as President of Beacon Projects, Inc., a company she incorporated for her satellite communications consulting and real estate management activities, and as Of Counsel to the law firm of Mahon Patusky Rothblatt & Fisher, Chartered. Ms. Rothblatt also serves as the Chairman of the Bioethics Subcommittee of the International Bar Association and President of the William Harvey Medical Research Foundation. Ms. Rothblatt devotes substantially all of her time to the affairs of United Therapeutics. James W. Crow, Ph.D., is a co-founder of United Therapeutics and has served as President and Chief Operating Officer and as a member of its Board of Directors since its inception in 1996. Prior to 1996, Dr. Crow worked for more than 18 years at Glaxo Wellcome Inc. (formerly Burroughs Wellcome Co.) in positions such as International Project Leader, Associate Medical Director and Senior Clinical Research Scientist. While he was associate director of the Pulmonary II Section, Dr. Crow led the team that developed and obtained FDA approval for Flolan for the treatment of primary pulmonary hypertension patients in September 1995. Gilles Cloutier, Ph.D., is a co-founder of United Therapeutics and has served as Executive Vice President, Business Development and Treasurer and as a member of its Board of Directors since its inception in 1996 and Chief Financial Officer since December 1997. Prior to 1996, Dr. Cloutier served as President of CatoPharma Canada, Inc. from April 1992 to February 1997. From April 1990 to April 1992, Dr. Cloutier was the Vice President of Clinical Operations at 39 43 Quintiles Transnational Corp. Dr. Cloutier has more than 24 years of experience in all phases of the drug development process in the United States, Canada and other international locations. Shelmer D. Blackburn, Jr., B.S., is a co-founder of United Therapeutics and has served as Director of Operations, Secretary and a member of its Board of Directors since its inception in 1996. Prior to 1996, Mr. Blackburn worked for eight years at Glaxo Wellcome Inc. (formerly Burroughs Wellcome Co.) where he was responsible for the design and management of clinical trials for Flolan, as well as for an artificial surfactant for the treatment of neonatal patients with respiratory distress syndrome. Paul A. Mahon has served as General Counsel and Assistant Secretary of United Therapeutics since its inception in 1996. He has been a principal and managing partner of Mahon Patusky Rothblatt & Fisher, Chartered since its formation in 1993. Jean-Guy Lambert, M.B.A., has served on the Board of Directors of United Therapeutics since July 1997. Since August 1996, Mr. Lambert has served as Chairman, President and Chief Executive Officer of Dacha Capital, Inc., a merchant bank. From June 1993 to August 1996, Mr. Lambert was President and Chief Executive Officer of Intermont Inc., an oil and gas corporation. From September 1991 to June 1993, Mr. Lambert acted as financial advisor to Hydro-Quebec. Mr. Lambert is a Director of several publicly traded companies, including QR Canada Capital, Inc., Enerplus Resources Fund and Explogas Ltd. Noah A. Samara, J.D., M.B.D., has served on the Board of Directors of United Therapeutics since 1997. He has served as Chairman and Chief Executive Officer of WorldSpace Corporation, a satellite communications company, since August 1990. David Gooray, M.D., has served on the Board of Directors of United Therapeutics since December 1997. Dr. Gooray has practiced cardiovascular medicine in Virginia, Maryland and the District of Columbia since July 1986. Since 1986, he has also served as an instructor in medicine at Howard University Medical School and principal investigator in a National Institutes of Health study. Olivia Giscard d'Estaing, M.S.B., has served on the Board of Directors since July 1998. She has been employed as Director of Asset Management Services at Banque Eurofin since 1988. She is in charge of mutual fund management with assets over $1 billion. The Amended and Restated Certificate of Incorporation of United Therapeutics provides that the Board of Directors is to consist of three classes, as nearly equal in size as the number of members permits. Each class of directors generally has a term of three years, except that the term of the initial Class I directors expires at the annual meeting of stockholders in 2000. At each annual stockholders meeting, the successors of the class of directors whose term expires at such meeting shall be elected to hold office for a term expiring in three years. United Therapeutics' Board of Directors is currently comprised of eight directors, with two classes of three directors and one class of two directors. Executive officers are elected by, and serve at the discretion of, the Board. BOARD COMMITTEES The Board of Directors has the following committees: an Executive Committee; a Compensation Committee, which approves salaries and incentive compensation for executive officers of the company and which administers the company's equity incentive plan; an Audit Committee, which reviews the results and scope of the audit and other services provided by United Therapeutics' independent auditors; and a Nominating Committee, which reviews and recommends candidates for the Board of Directors. 40 44 SCIENTIFIC ADVISORY BOARD United Therapeutics has assembled a team of scientific and medical advisors to advise it on issues related to specific pharmaceutical products. The current group of advisors are experts in pulmonary hypertension and vascular biology. United Therapeutics plans to assemble different advisory groups specific to other products under development. In certain cases, these advisors have agreed to be available for consultation for a specified number of days each year, but individuals may consult and meet informally with the company on a more frequent basis. All of these scientific and medical advisors are employed by major medical schools, research institutions, hospitals, or other institutions and may have other commitments that may limit their availability to United Therapeutics. United Therapeutics' Scientific Advisory Board consists of the following individuals: Sir John Vane, D.Sc., F.R.S., is the 1982 Nobel Laureate in Physiology or Medicine and discoverer of prostacyclin. Dr. Vane served as the Group Research and Development Director at the Wellcome Foundation, Ltd. from 1974 to 1986, and is President of the William Harvey Research Institute, The Medical School of Queen Mary and Westfield College, London, which he founded in 1986. Since 1987, he has been the non-executive Chairman of Technology Transfer Company of the Imperial Cancer Research Fund. Since 1993, he has been Chairman of England's Biomedical Research Education Trust. Throughout his distinguished career, Dr. Vane has received numerous honors, in addition to over 25 Distinguished Lectureships and 30 honorary memberships and degrees. He received his D. Phil. and D.Sc. from Oxford University and is the author of more than 800 publications. He serves on the Board of Directors of deCODE genetics Inc. and, until recently, served on the Board of Directors of Vanguard Medica Group plc, a pharmaceutical company which he founded in 1991 and which is traded on the London Stock Exchange. Salvador Moncada, M.D., Ph.D., D.Sc., has been a Director of the Cruciform Project at the University College, London, England since 1995. Dr. Moncada co-discovered prostacyclin and Flolan. He was a Director of Research at the Wellcome Foundation, Ltd. United Kingdom from 1986 to 1995. Dr. Moncada is also internationally recognized as one of the key discoverers of the role of nitric oxide in vascular biology. He is the author and editor of numerous scientific textbooks, and the recipient of over 50 scientific awards, honorary memberships and degrees. Sir Magdi Yacoub, M.D., F.A.C.S., is a leading cardiothoracic surgeon and developer of surgical techniques of heart and heart-lung transplantation. Dr. Yacoub has been a professor at the National Heart and Lung Institute in London since 1986. Lewis Rubin, M.D., is the Professor of Medicine and Head of Pulmonary and Critical Care Medicine, University of California, San Diego. Dr. Rubin is the author of Primary Pulmonary Hypertension and numerous other publications on pulmonary hypertension and pulmonary physiology. He is the recipient of the PPH Cure Foundation 1997 Scientific Progress Award. Robyn Barst, M.D., has been the Director since 1987 of the Children's Pulmonary Hypertension Center, Columbia Presbyterian Medical Center. Dr. Barst is an Associate Professor of Pediatrics and Medicine, Columbia University, College of Physicians and Surgeons. She is the recipient of the PPH Cure Foundation 1996 Scientific Progress Award and a leading expert on pulmonary hypertension in children. Urban Ramstedt, Ph.D., is the Director of Immunology at AVANT Immunotherapeutics, Inc., Needham, Massachusetts. Dr. Ramstedt has written over 40 articles on immunology and gene therapy. Tim Higenbottam, M.D., F.R.C.P., has been a Professor of Respiratory Medicine at Sheffield University since 1995. Dr. Higenbottam is a leading European expert on pulmonary hypertension. From 1981 to 1995, he was the Head of Pulmonary Hypertension Medicine at Papworth Hospital, Cambridge, England. 41 45 Jay H. Sanders, M.D., F.A.C.P., Dr. Sanders is the President and CEO of The Global Telemedicine Group, Founding President of the American Telemedicine Association, Professor of Medicine (Adjunct) at Johns Hopkins University School of Medicine, and Visiting Professor, Yale University School of Medicine. He is a member of the Executive Committee of the Board of Directors of the Universal Service Administrative Corporation and serves on the Department of Defense Telemedicine Board of Directors. Dr. Sanders is the Senior Editor of the Telemedicine Journal and is generally recognized as America's leading expert on telemedicine. In addition to serving on the United Therapeutics Scientific Advisory Board, Dr. Sanders is also Chairman of the Unither Telemedicine Advisory Board. DIRECTOR COMPENSATION United Therapeutics reimburses each member of its Board of Directors for out-of-pocket expenses incurred in connection with attending Board meetings. Each director who is not also an employee also receives a fee of $8,000 per year. SCIENTIFIC ADVISOR COMPENSATION Each of Drs. Vane, Moncada and Yacoub have agreements under which he is entitled to receive 1,666 shares of the company's Common Stock for each year of service on the Scientific Advisory Board, plus $3,000 per meeting attended. United Therapeutics granted 3,333 shares of Common Stock to each of Drs. Vane, Moncada and Yacoub for his service from October 1996 through October 1998. United Therapeutics granted Dr. Ramstedt options to purchase 1,666 shares of Common Stock for his service on the Scientific Advisory Board during 1997 and 1998. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION None of the Compensation Committee members has served as an officer or employee of United Therapeutics or its subsidiaries, except Martine A. Rothblatt, who has been Chairman and Chief Executive Officer of United Therapeutics since its inception in 1996. Effective March 1999, Ms. Rothblatt resigned from the Compensation Committee, which currently consists solely of non-employee directors. 42 46 EXECUTIVE COMPENSATION The following table sets forth certain summary information concerning the compensation awarded to or earned by United Therapeutics' Chief Executive Officer and the other executive officers who earned in excess of $100,000 in cash compensation during the year ended December 31, 1998: SUMMARY COMPENSATION TABLE
SECURITIES UNDERLYING NAME AND PRINCIPAL POSITION YEAR SALARY OPTIONS(#)(1) - --------------------------- ---- -------- ------------- Martine A. Rothblatt.................................... 1998 $120,000 83,333 Chairman and Chief Executive Officer James W. Crow........................................... 1998 150,000 69,999 President and Chief Operating Officer Gilles Cloutier......................................... 1998 150,000 50,000 Executive Vice President, Business Development, Chief Financial Officer and Treasurer Shelmer D. Blackburn, Jr................................ 1998 100,000 53,333 Director of Operations and Secretary
- ------------------------- (1) Information represents stock options awarded under United Therapeutics' Amended and Restated Equity Incentive Plan. STOCK OPTION GRANTS AND EXERCISES The following tables show for the year ended December 31, 1998, certain information regarding options granted to, and held at year end by, the named executive officers: OPTION GRANTS IN FISCAL YEAR
INDIVIDUAL GRANTS(1) ---------------------------------------------------- % OF TOTAL POTENTIAL REALIZABLE VALUE AT NUMBER OF OPTIONS ASSUMED ANNUAL RATES OF SECURITIES GRANTED TO STOCK PRICE APPRECIATION UNDERLYING EMPLOYEES IN EXERCISE FOR OPTION TERM(4) OPTIONS FISCAL PRICE PER EXPIRATION ----------------------------- NAME GRANTED(#) YEAR(2) SHARE(3) DATE 5% 10% - ---- ---------- -------------- --------- ---------- ------------- ------------- Martine A. Rothblatt... 83,333 13.6% $19.80 11/08 $1,037,672 $2,629,665 James W. Crow.......... 3,333 0.6 3.00 3/08 6,288 15,936 66,666 10.9 18.00 11/08 754,666 1,912,472 Gilles Cloutier........ 50,000 8.2 18.00 11/08 566,005 1,434,368 Shelmer D. Blackburn... 3,333 0.6 3.00 3/08 6,288 15,936 50,000 8.2 18.00 11/08 566,005 1,434,368
- ------------------------- (1) Each of the Options listed in the table above were granted pursuant to United Therapeutics' Equity Incentive Plan and vest upon the achievement of certain business milestones within certain specified time periods. (2) Based on an aggregate of 611,068 options granted to employees, directors and consultants in 1998, including the named executive officers. (3) The exercise price per share of each option was equal to the fair market value of the Common Stock on the date of grant, as determined by the Board of Directors. (4) The potential realizable value is calculated by assuming that the stock price on the date of grant as determined by the Board of Directors appreciates at the indicted annual rate compounded annually for the entire term of the option (10 years) and the option is exercised and sold on the last day of its term for the appreciated stock price. The 5% and 10% assumed rates of appreciation are mandated by the rules of the Securities and Exchange Commission and do not represent United Therapeutics' estimate or projection of the future Common Stock price. 43 47 FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT DECEMBER 31, 1998(#) DECEMBER 31, 1998($)(1) ----------------------------- ----------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ----------- ------------- ----------- ------------- Martine A. Rothblatt.............. 13,333 136,666 $ $ James W. Crow..................... 13,333 115,000 Gilles Cloutier................... 10,000 90,000 Shelmer D. Blackburn, Jr.......... 8,333 78,333
- ------------------------- (1) Based on the initial public offering price of $ , less the exercise price, without taking into account any taxes that may be payable in connection with the transaction, multiplied by the number of shares underlying the option. EXECUTIVE OFFICER EMPLOYMENT AGREEMENTS In April 1999, United Therapeutics entered into an Executive Employment Agreement with Martine A. Rothblatt, its Chief Executive Officer. The employment agreement provides for an initial five year term ending on December 31, 2004, and automatically renews for successive one-year periods unless either party terminates the agreement. The current annual salary specified in the agreement is $180,000. Ms. Rothblatt is entitled to bonuses for each year of the initial term of the agreement in the form of stock options, in addition to other discretionary bonuses that may be awarded by the Board of Directors. At the end of the first year of her agreement, Ms. Rothblatt will receive an option to purchase the number of shares of Common Stock equal to one percent of the increase in the company's market capitalization after United Therapeutics' initial public offering, divided by 18. At the end of each of the next four years, Ms. Rothblatt will receive an option to purchase the number of shares equal to one percent of the increase in United Therapeutics' market capitalization over the prior year, divided by 18. These options will be fully exercisable on the date of grant. The options will have an exercise price equal to or exceeding the fair market value of a share of United Therapeutics' Common Stock on the date of grant. The options are exercisable over five years if Ms. Rothblatt is a 10% or greater shareholder on the date of grant, or 10 years otherwise. If Ms. Rothblatt's employment is terminated due to her death or disability, the company will continue to pay to Ms. Rothblatt or her estate her current base salary through the end of the calendar year following such death or disability, and, if her employment is terminated for disability, United Therapeutics will pay for continued benefits under its short-term and long-term disability insurance programs. If Ms. Rothblatt's employment is terminated by United Therapeutics other than for cause, or if Ms. Rothblatt terminates her employment for good reason (as such terms are defined in the agreement), including circumstances involving a change in control of United Therapeutics, she will be entitled to a lump sum cash payment equal to the sum of (a) her current base salary plus any bonus and incentive payments which have been earned through the date of termination, (b) the greater of her bonus and incentive payments for the prior year or the average of such payments for the prior two years, on a prorated basis for the year of termination, (c) three times the sum of her highest annual base salary for the preceding 12 months and the greater of her previous year's bonus and incentive payment or the average of those payments for the previous two years, and (d) the difference between the fair market price and the exercise price of any non-vested options held by Ms. Rothblatt. In addition, Ms. Rothblatt will receive certain employee and retirement benefits. The agreement prohibits Ms. Rothblatt from engaging in activities competitive with the company for five years following termination of her employment. United Therapeutics has entered into employment agreements with each of Drs. Crow and Cloutier and Mr. Blackburn. The term of Dr. Crow's agreement ends on July 15, 2002, and 44 48 provides for an annual base salary of at least $150,000. The term of Mr. Blackburn's agreement ends on August 1, 2002, and provides for an annual base salary of at least $100,000. The term of Dr. Cloutier's agreement ends on April 7, 2003, and provides for an annual base salary of at least $150,000. Each of the agreements with Drs. Crow and Cloutier and Mr. Blackburn also provides for an automatic annual renewal unless either party terminates with at least 30 days notice to the other party. In addition, each of the agreements provides that if the employee is terminated by United Therapeutics other than for cause, or if the employee terminates the agreement for good reason (as those terms are defined in the agreements), the employee is entitled to his base salary through the full term of the agreement. In addition, each of these agreements prohibits Drs. Crow and Cloutier and Mr. Blackburn from accepting employment, consultancy or other business relationships with a competitor of United Therapeutics for twelve months following his last receipt of compensation from United Therapeutics. AMENDED AND RESTATED EQUITY INCENTIVE PLAN The company's Equity Incentive Plan originally became effective November 12, 1997, and was subsequently amended and restated effective April 9, 1999. The Plan provides for the grant of awards, including options, stock appreciation rights, restricted stock awards or performances share awards or any other right or interest relating to shares or cash to eligible directors, officers, key employees and consultants. As amended, a total of 14,939,517 shares of Common Stock has been reserved and is available for awards under the Plan, including 7,939,517 shares of Common Stock specifically reserved for stock option grants to the Chief Executive Officer in accordance with her Executive Employment Agreement. The maximum number of shares that may be granted to any one participant other than the Chief Executive Officer in any calendar year may not exceed 500,000 shares. The maximum number of shares that may be granted to the Chief Executive Officer in any one calendar year may not exceed 500,000 shares in 2000, 701,353 shares in 2001, 681,434 shares in 2002, 2,757,832 shares in 2003 and 3,298,898 shares in 2004. The Plan is administered by the Compensation Committee, which must consist of two or more non-employee directors approved by the Board. The committee has the power to determine the terms and conditions of awards, including but not limited to the exercise price, the number of shares of Common Stock subject to each award, the vesting provisions of each award and the form of consideration payable upon exercise. In addition, the committee has the authority to amend, modify or terminate the Plan, provided that no action may affect any shares previously issued and sold or any award previously granted under the Plan without the written consent of the participant. Options granted under the Plan are not generally transferable by the optionee. Options granted under the Plan must generally be exercised within 10 years, subject to earlier termination upon termination of the holder's employment, disability or death, but in no event later than the expiration of the option's term. The exercise price of all options granted under the Plan must be at least equal to the fair market value of the underlying shares of Common Stock on the date of the grant. Incentive stock options granted to any participant who owns 10% or more of United Therapeutics' outstanding Common Stock must have an exercise price equal to or exceeding 110% of the fair market value of a share of Common Stock on the date of the grant and must not be exercisable for longer than five years. Under the Plan, a participant may also be awarded a "performance award," which means that the participant may receive cash, stock or other awards which is contingent upon achieving performance goals established by the committee. The committee may also make "deferred share" awards under the Plan. A participant who receives a deferred share award is entitled to receive the company's stock in the future for services performed between the date of the award and the date the participant may receive the stock. 45 49 A participant who is granted a "stock appreciation right" under the Plan has the right to receive all or a percentage of the fair market value of a share of stock on the date of exercise of the stock appreciation right minus the grant price of the stock appreciation right determined by the committee. If a stock appreciation right is granted in connection with an incentive stock option, the grant price must not be less than the fair market value of the stock on the date of grant. Finally, the committee may make "restricted stock" awards under the Plan. Restricted stock granted under the Plan is subject to such terms and conditions as the committee determines when it makes the award, and carries voting, dividend and other ownership rights as set forth in the award agreement relating to the restricted stock. Unless the committee otherwise provides, upon termination of employment during the period when the restrictions apply, the participant's restricted stock is forfeited to United Therapeutics. In the event of certain changes of control of United Therapeutics, the Compensation Committee has discretion to provide that any award under the Plan that may be exercised will become fully exercisable, and/or that all restrictions on any awards under the Plan will lapse as the Compensation Committee determines, which may be prior to the change of control. As of April 9, 1999 options to purchase 881,985 shares of Common Stock were outstanding. There are 14,057,532 shares reserved for future grants or purchases under the Plan, including 7,939,517 shares of Common Stock reserved for issuance to the Company's Chairman and Chief Executive Officer pursuant to her employment agreement. No performance awards, deferred share awards, stock appreciation rights or restricted stock awards are outstanding under the Plan. The Plan will terminate in November 2007, unless terminated sooner by the Board. 46 50 CERTAIN TRANSACTIONS On April 29, 1998, United Therapeutics purchased an office building for its corporate headquarters from an entity owned by Martine A. Rothblatt, the Chairman and Chief Executive Officer of United Therapeutics, for approximately $581,000, including expenses. United Therapeutics leased office space from Beacon Projects, Inc. in 1997 and 1998 under a lease that was terminated when the company purchased its building. Ms. Rothblatt is the President and owner of Beacon Projects. Payments under that lease totaled $12,000 for the year ended December 31, 1998, and $15,000 for the year ended December 31, 1997. In addition, Unither Telemedicine Services Corporation, a subsidiary of United Therapeutics, entered into a lease for office space with Beacon Projects in March 1999. Payments under this lease will be approximately $30,000 annually until the lease expires in 2001. The Board of Directors approved these transactions based on independent appraisals and without the participation of Ms. Rothblatt. United Therapeutics believes that the terms of each of the transactions were at least as favorable as terms it could have obtained in arm's length transactions with an independent third party. Each of Ms. Rothblatt, Paul A. Mahon, General Counsel and Assistant Secretary of United Therapeutics, and Christopher Patusky, an officer of the company's telemedicine subsidiary, is a principal of the law firm Mahon Patusky Rothblatt & Fisher, Chartered, which United Therapeutics has retained in the past and intends to retain in the future. United Therapeutics paid the law firm $107,000 during the three months ended March 31, 1999, $157,000 during the year ended December 31, 1998, $81,000 during the year ended December 31, 1997 and $5,000 during the period from inception to December 31, 1996. In 1998, United Therapeutics entered into a cooperative drug discovery agreement with William Harvey Research Limited. United Therapeutics paid $162,273 during 1998 and $85,988 for the three months ended March 31, 1999 under this agreement. Under the agreement, United Therapeutics is required to pay William Harvey a royalty equal to 10% of net sales and license fees that the company earns from discoveries of William Harvey, Ms. Rothblatt is president of William Harvey Medical Research Foundation, an affiliate of William Harvey Research Limited. During 1997, Ms. Rothblatt loaned United Therapeutics $500,000 at an interest rate of 10% per annum. On August 19, 1997, principal and accrued interest totaling $508,334 was converted into Common Stock pursuant to the terms of the loan agreement. The company issued to Ms. Rothblatt 309,428 shares at approximately $1.62 per share. During 1996 and 1997, United Therapeutics earned substantially all of its revenue from the PPH Cure Foundation. Ms. Rothblatt is also a Director of the PPH Cure Foundation. United Therapeutics earned $115,909 for the year ended December 31, 1997, and $153,972 during the period from June 26, 1996 (date of inception) through December 31, 1996. The Amended and Restated Certificate of Incorporation and the Amended and Restated By-laws provide that United Therapeutics will indemnify each of its directors and officers to the fullest extent permitted by the Delaware General Corporation Law. In addition, United Therapeutics is entering into indemnity agreements with each of the directors, which provide that United Therapeutics will indemnify each director to the fullest extent permitted by law. 47 51 PRINCIPAL STOCKHOLDERS The following table sets forth certain information with respect to the beneficial ownership of United Therapeutics' Common Stock as of March 31, 1999, and as adjusted to reflect the sale of the shares of Common Stock offered hereby, by (a) each person who United Therapeutics knows owns more than 5% of its Common Stock, (b) each of its directors, (c) each of its named executive officers, and (d) all of its directors and executive officers as a group. Except as otherwise noted below, the address of each person listed below is the company's address.
PERCENTAGE OF OUTSTANDING SHARES(1) NUMBER OF SHARES ------------------- OF COMMON STOCK BEFORE AFTER NAME BENEFICIALLY OWNED(1) OFFERING OFFERING - ---- --------------------- -------- -------- Noah A. Samara........................................ 3,035,229 28.3% Martine A. Rothblatt(2)............................... 1,248,374 11.6% Credit Suisse Asset Mgmt Pharma Fund P.O. Box 800 CH 8070 Zurich Switzerland......................................... 666,666 6.2% Jean-Guy Lambert(3)................................... 571,944 5.3% Merrill Lynch KECALP 1997 225 Liberty Street New York, New York 10080-6123....................... 555,555 5.2% James W. Crow(4)...................................... 441,665 4.1% Gilles Cloutier(5).................................... 436,666 4.1% Shelmer D. Blackburn, Jr.(6).......................... 431,665 4.0% Olivia Giscard d'Estaing(7)........................... 207,666 1.9% David Gooray, M.D. ................................... 11,333 * All directors and executive officers as a group (9 persons)(8)...................................... 6,397,875 59.0%
- ------------------------- * Represents less than one percent. (1) Beneficial ownership is determined in accordance with the rules of the Commission and generally includes voting or investment power with respect to securities. Beneficial ownership also includes shares of stock subject to options and warrants currently exercisable or convertible, or exercisable or convertible within 60 days of the date of this table. Percentage of beneficial ownership is based on 10,726,967 shares of Common Stock outstanding as of March 31, 1999 and shares of Common Stock outstanding after completion of this offering (assuming the Underwriters do not exercise their over-allotment option). Unless otherwise indicated, to the knowledge of United Therapeutics, all persons listed have sole voting and investment power with respect to their shares of Common Stock, except to the extent authority is shares by spouses under applicable law. (2) Includes 35,556 shares held by Ms. Rothblatt's children and 413,204 shares held by her spouse. Ms. Rothblatt disclaims beneficial ownership of such shares. Also includes 26,666 shares of Common Stock issuable upon exercise of stock options within 60 days. (3) Includes 500,000 shares of Common Stock owned by Dacha Capital, Inc. Mr. Lambert is the President and Chief Executive Officer of Dacha Capital. Mr. Lambert disclaims beneficial ownership of shares held by Dacha Capital except to the extent of his proportionate interest therein. Also includes 33,333 shares of Common Stock issuable upon exercise of stock options within 60 days. (4) Includes 24,999 shares of Common Stock issuable upon exercise of stock options within 60 days. (5) Includes 416,666 owned by The Hammock House Inc., LLC. Dr. Cloutier is the Managing Director of Hammock House. Also includes 20,000 shares of Common Stock issuable upon exercise of stock options within 60 days. (6) Includes 14,999 shares of Common Stock issuable upon exercise of stock options within 60 days. (7) Includes 199,333 shares of Common Stock owned by Caisse Central des Banques Popularies, an affiliate of Banque Eurofin. Ms. Giscard d'Estaing is the Director of Asset Management at Banque Eurofin. Ms. Giscard d'Estaing disclaims beneficial ownership of shares held by Caisse Central des Banques Popularies. (8) Includes 120,330 shares of Common Stock issuable upon exercise of stock options within 60 days. 48 52 DESCRIPTION OF CAPITAL STOCK Upon the closing of this offering, United Therapeutics' authorized capital stock will consist of 100 million shares of Common Stock, par value $0.01, and 10 million shares of preferred stock, par value $0.01. COMMON STOCK Upon the closing of this offering, there will be shares of Common Stock outstanding. The holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of United Therapeutics' stockholders. The holders of Common Stock have no cumulative voting rights with respect to the election of directors or any other matter. Subject to preferences that may be applicable to any preferred stock outstanding at the time, the holders of outstanding shares of Common Stock are entitled to receive dividends out of assets legally available therefor at such time and in such amounts as the Board of Directors may from time to time determine. Upon the liquidation, dissolution, distribution of assets or winding up of United Therapeutics, holders of Common Stock are entitled to share ratably, in proportion to the number of shares of Common Stock held, all the assets remaining after distribution of the full preferential amounts due to the holders of the outstanding shares of preferred stock, if any. A consolidation, merger or reorganization of United Therapeutics with any other corporation, or a sale of all or substantially all of the assets shall not be considered a dissolution, liquidation or winding up of United Therapeutics. The Amended and Restated Certificate of Incorporation denies holders of Common Stock all preemptive rights and rights to covert their Common Stock into any other securities. There are no redemption or sinking fund provisions applicable to the Common Stock. All outstanding shares of Common Stock are, and all shares of Common Stock to be outstanding upon completion of this offering will be, fully paid and nonassessable. PREFERRED STOCK Pursuant to United Therapeutics' Amended and Restated Certificate of Incorporation, the Board of Directors will have the authority, without further action by the stockholders, to issue up to 10 million shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, without any further vote or action by the stockholders. The issuance of preferred stock could adversely affect the voting power of holders of Common Stock, and the likelihood that such holders will receive dividend payments and payments upon liquidation may have the effect of delaying, deferring or preventing a change in control of United Therapeutics, which could have a depressive effect on the market price of United Therapeutics' Common Stock. United Therapeutics has no present plan to issue any shares of preferred stock. REGISTRATION RIGHTS Upon completion of this offering, 797,222 shares of Common Stock will be entitled to certain rights with respect to the registration of such shares under the Securities Act of 1933, as amended. If United Therapeutics proposes to register any of its securities under the Securities Act, either for its own account or for the account of other security holders of such registration rights will be entitled to notice of the registration and will be entitled to include, at United Therapeutics' expense, such shares therein. In addition, certain of the holders may require 49 53 United Therapeutics, at its expense and on not more than two occasions at any time beginning approximately six months from the date of the closing of this offering, to file a registration statement under the Securities Act, with respect to their shares of Common Stock, and United Therapeutics will be required to use its best efforts to effect the registration, subject to certain conditions and limitations. Further, certain holders may require the company at its expense to register their shares on Form S-3 when such form becomes available to the company, subject to certain conditions and limitations. DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS United Therapeutics is subject to Section 203 of the Delaware General Corporation Law regulating corporate takeovers. Section 203, subject to certain exceptions, prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that such stockholder became an interested stockholder unless: - Prior to such date, the Board of Directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; - Upon consummation of the transaction that resulted in the stockholder's becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding those shares owned by persons who are directors and also officers, and employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or - On or subsequent to such date, the business combination is approved by the Board of Directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder. Section 203 defines "business combination" to include: - Any merger or consolidation involving the corporation and the interested stockholder; - Any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation; - Subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; or - The receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. In general, Section 203 defines an "interested stockholder" as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by such entity or person. See "Risk Factors -- A Third Party May Have Difficulty Acquiring United Therapeutics." LIMITATION OF LIABILITY AND INDEMNIFICATION United Therapeutics' Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws contain certain provisions permitted under Delaware law relating to the liability of directors. These provisions eliminate a director's personal liability for monetary damages resulting from a breach of fiduciary duty, except in circumstances involving certain wrongful acts, such as: - For any breach of the director's duty of loyalty to United Therapeutics or its stockholders; 50 54 - For acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; - For any acts under Section 174 of the Delaware General Corporation Law; or - For any transaction from which the director derives an improper personal benefit. These provisions do not limit or eliminate United Therapeutics' rights or any stockholder's rights to seek non-monetary relief, such as an injunction or rescission, in the event of a breach of director's fiduciary duty. These provisions will not alter a director's liability under federal securities laws. In addition, United Therapeutics is entering into separate indemnification agreements with United Therapeutics' directors that provide the directors indemnification protection. United Therapeutics believes that these provisions and agreements will assist it in attracting and retaining qualified individuals to serve as directors and officers. TRANSFER AGENT The transfer agent and registrar for United Therapeutics' Common Stock is The Bank of New York. LISTING United Therapeutics has applied to have its Common Stock quoted on the Nasdaq National Market under the symbol "UTHR." 51 55 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no public market for United Therapeutics' Common Stock. Future sales of substantial amounts of United Therapeutics' Common Stock in the public market could adversely affect prevailing market prices. Furthermore, since no shares will be available for sale shortly after this offering because of certain contractual and legal restrictions on resale as described below, sales of substantial amounts of Common Stock in the public market after these restrictions lapse could adversely affect the prevailing market price and United Therapeutics' ability to raise equity capital in the future. Upon completion of this offering, United Therapeutics will have outstanding an aggregate of shares of Common Stock, assuming no exercise of the Underwriters' over-allotment option, and excluding 1,174,458 shares issuable upon exercise of outstanding warrants and options. Of these shares, all of the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, unless such shares are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. The remaining 10,726,967 shares of Common Stock (excluding 1,174,458 shares issuable upon exercise of outstanding warrants and options) held by existing stockholders are "restricted securities" as that term is defined in Rule 144 under the Securities Act. Restricted shares may be sold in the public market only if registered or if they qualify for an exemption from registration described below under Rules 144, 144(k) or 701 promulgated under the Securities Act. Beginning 180 days after the date of this Prospectus, approximately 10,337,550 restricted shares subject to lock-up agreements between the Underwriters and certain stockholders, including officers and directors, will become eligible for sale in the public market pursuant to Rule 144(k), Rule 144 or Rule 701. The lock-up agreements provide that the stockholders will not sell or otherwise dispose of any shares of Common Stock without the prior written consent of BT Alex. Brown Incorporated for a period of 180 days from the date of this Prospectus. Bona fide gifts or distributions to the stockholders or limited partners of stockholders are excepted from the restrictions of the lock-up agreements, provided the transferee agrees to be bound by similar restrictions. BT Alex. Brown Incorporated, may release all or any portion of the securities subject to the lock-up agreements without notice. See "-- Registration Rights" and "Underwriting." Rule 144. Pursuant to Rule 144, beginning 90 days after the date the registration statement of which this Prospectus is a part is declared effective, a person (or persons whose shares are aggregated) who has beneficially owned restricted shares for at least one year (including the holding period of any prior owner other than an affiliate) would generally be entitled to sell within any three-month period a number of shares that does not exceed the greater of: - 1% of the outstanding shares of United Therapeutics' Common Stock then outstanding (which will equal approximately shares immediately after this offering); or - The average weekly trading volume of United Therapeutics' Common Stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. Sales under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about United Therapeutics. Rule 144(k). Under Rule 144(k), a person who was not an affiliate of United Therapeutics at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years (including the holding period of any prior owner except an affiliate), is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Rule 701. In general, under Rule 701 of the Securities Act, any of the company's employees, consultants or advisors, other than affiliates, who purchases or receives shares from 52 56 the company in connection with a compensatory stock purchase plan or option plan or other written agreement will be eligible to resell such shares beginning 90 days after the effective date of the registration statement of which this Prospectus is a part, subject only to the manner of sale provisions of Rule 144, and by affiliates under Rule 144 without compliance with its holding period requirements. Registration Rights. Upon completion of this offering, the holders of 797,222 shares of Common Stock, or their transferees, will be entitled to certain rights with respect to the registration of such shares under the Securities Act. Registration of such shares under the Securities Act would result in such shares becoming freely tradable without restriction under the Securities Act (except for shares purchased by affiliates) immediately upon the effectiveness of such registration. Stock Options. United Therapeutics intends to file a registration statement under the Securities Act covering 14,939,517 shares of Common Stock reserved for issuance under its Amended and Restated Equity Incentive Plan 180 days following completion of this offering. Thereafter, shares which are issued under the plan will, subject to Rule 144 volume limitations applicable to affiliates, be available for sale in the open market, beginning approximately 180 days after the effective date of the initial public offering. 53 57 UNDERWRITING Subject to the terms and conditions of the underwriting agreement, the Underwriters named below, through their representatives, BT Alex. Brown Incorporated, A.G. Edwards & Sons, Inc. and Vector Securities International, Inc. have severally agreed to purchase from United Therapeutics the following respective numbers of shares of Common Stock at the initial public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus.
NUMBER OF SHARES UNDERWRITER --------- BT Alex. Brown Incorporated................................. A.G. Edwards & Sons, Inc.................................... Vector Securities International, Inc........................ -------- Total.................................................. ========
The underwriting agreement provides that the obligations of the several Underwriters to purchase the shares of Common Stock offered hereby are subject to certain conditions. The Underwriters are obligated to purchase all of the shares of Common Stock offered hereby, other than those covered by the over-allotment option described below, if any of such shares are purchased. The Underwriters propose to offer the shares of Common Stock to the public at the public offering price set forth on the cover page of this Prospectus and to certain dealers at a price that represents a concession not in excess of $ per share under the public offering price. The Underwriters may allow, and such dealers may re-allow, a concession not in excess of $ per share to certain other dealers. After the initial public offering, the offering price and other selling terms may be changed by the representatives of the Underwriters. United Therapeutics has granted to the Underwriters an option, exercisable not later than 30 days after the effective date of the registration statement of which this Prospectus is a part, to purchase up to additional shares of United Therapeutics Common Stock at the initial public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus. The Underwriters may exercise such option only to cover over-allotments made in connection with the sale of the Common Stock offered hereby. To the extent that the Underwriters exercise such option, each of the Underwriters will become obligated, subject to certain conditions, to purchase approximately the same percentage of additional shares of Common Stock as the number of shares of Common Stock to be purchased by it in the above table bears to , and United Therapeutics will be obligated, pursuant to the option, to sell such shares to the Underwriters to the extent the option is exercised. If any additional shares of Common Stock are purchased, the Underwriters will offer additional shares on the same terms as those on which the shares are being offered. 54 58 United Therapeutics has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. United Therapeutics' officers, directors and stockholders, have agreed not to offer, sell, contract to sell or otherwise dispose of or enter into any transaction which is designed to, or could be expected to, result in the disposition of any portion of any Common Stock for period of 180 days after the effective date of the registration statement of which this Prospectus is a part without the prior written consent of BT Alex. Brown Incorporated. Such consent may be given at any time without public notice. United Therapeutics has entered into a similar agreement, except that it may issue shares of Common Stock pursuant to the exercise of outstanding options and warrants and it may grant options to purchase shares of Common Stock under the Equity Incentive Plan. The representatives of the Underwriters have advised us that the Underwriters do not intend to confirm sales to any account over which they exercise discretionary authority. In order to facilitate the offering of the Common Stock, the Underwriters may engage in transactions that stabilize, maintain or otherwise affect the market price of the Common Stock. Specifically, the Underwriters may over-allot shares of the Common Stock in connection with the offering, creating a short position in the Common Stock for their own account. Additionally, to cover such over-allotments or to stabilize the market price of United Therapeutics' Common Stock, the Underwriters may bid for, and purchase, shares of the Common Stock in the open market. Finally, the representatives, on behalf of the Underwriters may also reclaim selling concessions allowed to an Underwriter or a dealer if the underwriting syndicate repurchases shares distributed by that Underwriter or dealer. Any of these activities may maintain the market price of the Common Stock at a level above that which might otherwise prevail in the open market. The Underwriters are not required to engage in these activities, and if they do, they may end any of these activities at any time. PRICING OF THIS OFFERING Prior to this offering, there has been no public market for United Therapeutics' Common Stock. Consequently, the initial public offering price for the Common Stock will be determined by negotiation among the representatives of the Underwriters and United Therapeutics. Among the factors to be considered in determining the public offering price will be: - The company's results of operations in recent periods; - The company's present stage of development; - The market capitalizations and stages of development of other companies which United Therapeutics and the representatives of the Underwriters believe to be comparable to United Therapeutics; - Estimates of the company's business potential; and - Prevailing market conditions. LAWYERS The validity of the shares of Common Stock offered hereby will be passed upon for United Therapeutics by Bryan Cave LLP, Washington, D.C. James L. Nouss, Jr., a partner of Bryan Cave LLP, owns 8,333 shares of Common Stock of United Therapeutics and is one of three managers of a private investment fund which owns 133,333 shares of Common Stock of United Therapeutics. Certain legal matters in connection with this offering will be passed upon for the Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts. 55 59 EXPERTS The consolidated balance sheets of United Therapeutics, as of December 31, 1997 and 1998, and the consolidated statements of operations, stockholders' equity and cash flows for the period from June 26, 1996 (inception) to December 31, 1996 and for the years ended December 31, 1997 and 1998 included in this Prospectus and registration statement have been included herein in reliance upon the report of KPMG LLP, independent certified public accountants, appearing elsewhere in this Prospectus, given on the authority of that firm as experts in accounting and auditing. ADDITIONAL INFORMATION United Therapeutics has filed with the Securities and Exchange Commission, Washington, D.C. 20549, a Registration Statement on Form S-1 under the Securities Act with respect to the shares of Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedule filed therewith. Certain items are omitted in accordance with the rules and regulations of the Commission. For further information with respect to United Therapeutics and the Common Stock offered hereby, reference is made to the Registration Statement and the exhibits and schedule filed therewith. Statements contained in this Prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. A copy of the Registration Statement, and the exhibits and schedule filed therewith, may be inspected without charge at the public reference facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and the Commission's regional offices located at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York 10048, and copies of all or any part of the Registration Statement may be obtained from such offices upon the payment of the fees prescribed by the Commission. The Commission maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the site is http://www.sec.gov. The Registration Statement, including all exhibits thereto and amendments thereof, has been filed electronically with the Commission. 56 60 UNITED THERAPEUTICS CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of KPMG LLP, Independent Auditors.................... F-2 Consolidated Balance Sheets as of December 31, 1997 and 1998 and March 31, 1999 (unaudited)............................ F-3 Consolidated Statements of Operations for the period from inception (June 26, 1996) to December 31, 1996, the years ended December 31, 1997 and 1998 and the three months ended March 31, 1998 (unaudited) and 1999 (unaudited)..... F-4 Consolidated Statements of Stockholders' Equity for the period from inception (June 26, 1996) to December 31, 1996, the years ended December 31, 1997 and 1998 and the three months ended March 31, 1999 (unaudited)............. F-5 Consolidated Statements of Cash Flows for the period from inception (June 26, 1996) to December 31, 1996, the years ended December 31, 1997 and 1998 and the three months ended March 31, 1998 (unaudited) and 1999 (unaudited)..... F-6 Notes to Consolidated Financial Statements.................. F-7
F-1 61 When the one-for-three reverse stock split referred to in Note 12 of the Notes to the Consolidated Financial Statements is effected, we will be in a position to render the following report. KPMG LLP INDEPENDENT AUDITORS' REPORT The Board of Directors United Therapeutics Corporation: We have audited the accompanying consolidated balance sheets of United Therapeutics Corporation and subsidiaries (the Company) as of December 31, 1997 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for the period from inception (June 26, 1996) to December 31, 1996 and the years ended December 31, 1997 and 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of United Therapeutics Corporation and subsidiaries as of December 31, 1997 and 1998, and the results of their operations and their cash flows for the period from inception (June 26, 1996) to December 31, 1996 and the years ended December 31, 1997 and 1998 in conformity with generally accepted accounting principles. McLean, Virginia April 2, 1999, except for Note 12, which is as of June , 1999 F-2 62 UNITED THERAPEUTICS CORPORATION CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------ MARCH 31, 1997 1998 1999 ---------- ----------- ----------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents...................... $5,018,145 $ 6,779,067 $15,429,340 Investments (note 9)........................... -- 10,023,190 -- Accounts receivable............................ -- 53,750 107,500 ---------- ----------- ----------- Total current assets........................ 5,018,145 16,856,007 15,536,840 ---------- ----------- ----------- Property, plant, and equipment (notes 3 and 8): Land........................................... -- 134,370 134,370 Building and improvements...................... -- 866,322 965,402 Furniture and equipment........................ 66,489 416,881 444,245 Less - accumulated depreciation................ (14,568) (50,065) (73,847) ---------- ----------- ----------- Property, plant, and equipment, net......... 51,921 1,367,508 1,470,170 ---------- ----------- ----------- Certificate of deposit........................... -- 509,506 516,916 Deferred offering costs.......................... -- -- 206,050 Other............................................ 3,603 13,817 34,781 ---------- ----------- ----------- Total assets................................ $5,073,669 $18,746,838 $17,764,757 ========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................... $ 383,323 $ 1,707,103 $ 1,735,626 Accrued professional fees...................... 41,931 14,161 229,146 Payroll taxes withheld......................... 27,913 33,629 17,500 Current portion of note payable (note 8)....... -- 4,098 4,189 ---------- ----------- ----------- Total current liabilities................... 453,167 1,758,991 1,986,461 Note payable, excluding current portion (note 8)............................................. -- 310,262 309,181 Other liabilities................................ 3,319 1,759 1,339 ---------- ----------- ----------- Total liabilities........................... 456,486 2,071,012 2,296,981 ---------- ----------- ----------- Commitments and contingencies (notes 5 and 10) Stockholders' equity (note 6): Preferred stock, par value $.01, 10,000,000 shares authorized at December 31, 1997 and 1998, and March 31, 1999, no shares issued...................................... -- -- -- Common stock, par value $.01, 50,000,000 shares authorized at December 31, 1997 and 1998, and March 31, 1999, 5,882,833, 10,115,597, and 10,726,967 shares issued and outstanding at December 31, 1997 and 1998 and March 31, 1999, respectively.......................... 58,829 101,156 107,270 Additional paid-in capital..................... 7,489,655 32,341,370 43,365,199 Accumulated deficit............................ (2,931,301) (15,766,700) (28,004,693) ---------- ----------- ----------- Total stockholders' equity.................. 4,617,183 16,675,826 15,467,776 ---------- ----------- ----------- Total liabilities and stockholders' equity.................................... $5,073,669 $18,746,838 $17,764,757 ========== =========== ===========
See accompanying notes to consolidated financial statements. F-3 63 UNITED THERAPEUTICS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM JUNE 26, 1996 THREE MONTHS ENDED (INCEPTION) TO YEAR ENDED DECEMBER 31, MARCH 31, DECEMBER 31, -------------------------- -------------------------- 1996 1997 1998 1998 1999 --------------- ----------- ------------ ----------- ------------ (UNAUDITED) Grant revenue (note 3)........ $ 153,972 $ 115,909 $ 53,750 $ -- $ 53,750 ---------- ----------- ------------ ----------- ------------ Operating expenses: Research and development.... 99,642 2,026,718 11,015,053 1,739,683 11,611,458 General and administrative............ 84,876 1,006,354 2,366,494 572,788 847,949 ---------- ----------- ------------ ----------- ------------ Total operating expenses............... 184,518 3,033,072 13,381,547 2,312,471 12,459,407 ---------- ----------- ------------ ----------- ------------ Loss from operations...... (30,546) (2,917,163) (13,327,797) (2,312,471) (12,405,657) Other income (expense): Interest income............. 469 134,726 510,068 51,726 178,090 Interest expense............ -- (8,334) (14,570) -- (6,972) Write-down of investment (note 9).................. -- (110,453) -- -- -- ---------- ----------- ------------ ----------- ------------ Total other income........ 469 15,939 495,498 51,726 171,118 ---------- ----------- ------------ ----------- ------------ Net loss before income tax.................... (30,077) (2,901,224) (12,832,299) (2,260,745) (12,234,539) Income tax (note 7)........... -- -- 3,100 2,855 3,454 ---------- ----------- ------------ ----------- ------------ Net loss.................. $ (30,077) $(2,901,224) $(12,835,399) $(2,263,600) $(12,237,993) ========== =========== ============ =========== ============ Net loss per common share - basic and diluted........... $ (0.02) $ (0.87) $ (1.54) $ (0.38) $ (1.19) ========== =========== ============ =========== ============ Weighted average number of common shares outstanding -- basic and diluted........... 1,666,663 3,339,437 8,321,749 5,939,015 10,255,857 ========== =========== ============ =========== ============
See accompanying notes to consolidated financial statements. F-4 64 UNITED THERAPEUTICS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK ADDITIONAL --------------------- PAID-IN ACCUMULATED SHARES AMOUNT CAPITAL DEFICIT TOTAL ---------- -------- ----------- ------------ ------------ Balance, June 26, 1996............................. -- $ -- $ -- $ -- $ -- Issuance of common stock........................... 1,666,663 16,667 83,333 -- 100,000 Net loss........................................... -- -- -- (30,077) (30,077) ---------- -------- ----------- ------------ ------------ Balance, December 31, 1996......................... 1,666,663 16,667 83,333 (30,077) 69,923 Issuance of common stock........................... 3,900,078 39,001 6,881,149 -- 6,920,150 Conversion of loan principal and accrued interest into common stock................................ 309,428 3,094 505,240 -- 508,334 Stock issued in exchange for services.............. 6,664 67 19,933 -- 20,000 Net loss........................................... -- -- -- (2,901,224) (2,901,224) ---------- -------- ----------- ------------ ------------ Balance, December 31, 1997......................... 5,882,833 58,829 7,489,655 (2,931,301) 4,617,183 Issuance of common stock........................... 4,028,404 40,284 22,864,247 -- 22,904,531 Stock issued in exchange for services.............. 37,694 376 131,709 -- 132,085 Stock issued for exclusive license agreement....... 166,666 1,667 1,498,333 -- 1,500,000 Options and warrants issued for exclusive license agreements....................................... -- -- 353,000 -- 353,000 Options issued in exchange for services............ -- -- 4,426 -- 4,426 Net loss........................................... -- -- -- (12,835,399) (12,835,399) ---------- -------- ----------- ------------ ------------ Balance, December 31, 1998......................... 10,115,597 101,156 32,341,370 (15,766,700) 16,675,826 Issuance of common stock (unaudited)............... 111,370 1,114 1,994,202 -- 1,995,316 Stock issued for exclusive license agreement (unaudited)...................................... 500,000 5,000 8,995,000 -- 9,000,000 Options issued in exchange for services (unaudited)...................................... -- -- 34,627 -- 34,627 Net loss (unaudited)............................... -- -- -- (12,237,993) (12,237,993) ---------- -------- ----------- ------------ ------------ Balance, March 31, 1999 (unaudited)................ 10,726,967 $107,270 $43,365,199 $(28,004,693) $ 15,467,776 ========== ======== =========== ============ ============
See accompanying notes to consolidated financial statements. F-5 65 UNITED THERAPEUTICS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM JUNE 26, 1996 THREE MONTHS ENDED (INCEPTION) TO YEAR ENDED DECEMBER 31, MARCH 31, DECEMBER 31, --------------------------- --------------------------- 1996 1997 1998 1998 1999 --------------- ------------ ------------ ------------ ------------ (UNAUDITED) Cash flows from operating activities: Net loss........................................... $ (30,077) $ (2,901,224) $(12,835,399) $ (2,263,600) $(12,237,993) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation..................................... 1,168 13,400 35,497 5,929 23,782 Stock issued for exclusive license agreement..... -- -- 1,500,000 -- 9,000,000 Stock and options issued in exchange for services....................................... -- 20,000 136,511 -- 34,627 Options and warrants issued for exclusive license agreements..................................... -- -- 353,000 -- -- Interest accrued on convertible loan............. -- 8,334 -- -- -- Write-down of investment......................... -- 110,453 -- -- -- Amortization of discount on investments.......... -- -- (23,229) -- -- Changes in operating assets and liabilities: Accounts receivable.............................. -- -- (53,750) (4,409) (53,750) Other assets..................................... (3,721) 118 (10,214) 97 (20,964) Accounts payable................................. 23,127 363,515 1,323,601 303,268 28,475 Accrued professional fees........................ -- 41,931 (27,770) 64,442 214,985 Payroll taxes withheld........................... 9,353 18,560 5,716 (27,913) (16,129) ------------ ------------ ------------ ------------ ------------ Net cash used in operating activities............ (150) (2,324,913) (9,596,037) (1,922,186) (3,026,967) ------------ ------------ ------------ ------------ ------------ Cash flows used in investing activities: Purchases of property, plant, and equipment........ (5,838) (60,651) (1,033,953) (22,779) (126,444) Purchases of investments and certificate of deposit.......................................... -- (110,453) (10,509,467) -- (7,410) Sales and maturities of investments................ -- -- -- -- 10,023,190 ------------ ------------ ------------ ------------ ------------ Net cash (used in) provided by investing activities........................... (5,838) (171,104) (11,543,420) (22,779) 9,889,336 ------------ ------------ ------------ ------------ ------------ Cash flows from financing activities: Proceeds from issuance of common stock............. 100,000 6,920,150 22,904,531 2,450,034 1,995,316 Proceeds from convertible loan..................... -- 500,000 -- -- -- Payments of principal on note payable.............. -- -- (2,771) -- (990) Principal payments under capital lease obligations...................................... -- -- (1,381) (330) (372) Deferred offering costs............................ -- -- -- -- (206,050) ------------ ------------ ------------ ------------ ------------ Net cash provided by financing activities........ 100,000 7,420,150 22,900,379 2,449,704 1,787,904 ------------ ------------ ------------ ------------ ------------ Net increase in cash and cash equivalents........ 94,012 4,924,133 1,760,922 504,739 8,650,273 Cash and cash equivalents, beginning of period...... -- 94,012 5,018,145 5,018,145 6,779,067 ------------ ------------ ------------ ------------ ------------ Cash and cash equivalents, end of period............ $ 94,012 $ 5,018,145 $ 6,779,067 $ 5,522,884 $ 15,429,340 ============ ============ ============ ============ ============ Supplemental schedule of noncash investing and financing activities: Note payable issued for building................... $ -- $ -- $ 317,131 $ -- $ -- ============ ============ ============ ============ ============ Loan principal and accrued interest converted into common stock..................................... $ -- $ 508,334 $ -- $ -- $ -- ============ ============ ============ ============ ============ Supplemental cash flow information -- cash paid for interest........................................... $ -- $ -- $ 14,570 $ 140 $ 6,972 ============ ============ ============ ============ ============
See accompanying notes to consolidated financial statements. F-6 66 UNITED THERAPEUTICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BUSINESS DESCRIPTION United Therapeutics Corporation (the Company) was incorporated on June 26, 1996 under the laws of the State of Delaware. The Company is a pharmaceutical company based in Silver Spring, Maryland and Research Triangle Park, North Carolina, that is focused on clinical development and commercialization of in-licensed compounds for the treatment of life-threatening diseases characterized by high chronic care costs. The initial focus of the Company is the development of therapies to treat patients with pulmonary hypertension, a generally fatal disorder of the pulmonary arteries with no adequate long-term therapies. All of the Company's products are currently in clinical trial programs. The Company has three wholly owned subsidiaries: LungRx, Unither Pharmaceuticals, Inc. (UPI) and Unither Telemedicine Services Corporation (UTSC). UPI and UTSC were formed in 1998. None of these subsidiaries have commenced operations. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the financial statements of United Therapeutics Corporation and its three wholly owned subsidiaries. All significant intercompany balances were eliminated in combination. UNAUDITED INTERIM CONSOLIDATED FINANCIAL INFORMATION The interim consolidated financial statements of the Company for the three months ended March 31, 1998 and 1999 included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements. In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company at March 31, 1998 and 1999, and the results of its operations and its cash flows for the three months ended March 31, 1998 and 1999. CASH EQUIVALENTS Cash equivalents consist of highly liquid investments with original maturities of three months or less. Cash equivalents consist of money market funds and certificates of deposit and amount to $4,960,748, $6,769,034, and $6,286,683 at December 31, 1997 and 1998 and March 31, 1999, respectively. PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. F-7 67 UNITED THERAPEUTICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Estimated useful lives of the assets are as follows: Building and improvements................................... 39 years Furniture and equipment..................................... 3-7 years
RESEARCH AND DEVELOPMENT Research and product development costs are expensed as incurred. LICENSED TECHNOLOGY Costs incurred in obtaining the license rights to technology in the research and development stage are expensed as incurred and in accordance with the specific contractual terms of the applicable license agreements. INCOME TAXES Income taxes are accounted for in accordance with Financial Accounting Standards Board Statement No. 109 (SFAS No. 109). Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the tax rates and laws that are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. INVESTMENTS The Company's only investment at December 31, 1998 is considered a held-to-maturity security. Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity and are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Premiums and discounts are amortized or accreted over the life of the related held-to-maturity security as an adjustment to yield using the effective interest method. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash and cash equivalents, investments, accounts payable and payroll taxes withheld approximate fair value due to their short maturities. The fair value of the Company's note payable (see note 8) is estimated to be the carrying amount, since it is an adjustable rate note. LOSS PER COMMON SHARE Basic loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year. Common stock equivalents, consisting of options and warrants, are not included in the calculation as their effect would be anti-dilutive. Accordingly, diluted loss per common share is the same as basic loss per common share. F-8 68 UNITED THERAPEUTICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. STOCK OPTION PLAN The Company applies the provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to account for its stock options. SFAS No. 123 allows companies to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1996 and subsequent years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosures of SFAS No. 123. The Company accounts for non-employee stock option awards in accordance with SFAS No. 123. GRANT REVENUE Grant revenue is recognized ratably over the terms of the agreements. DEFERRED OFFERING COSTS Costs incurred in connection with the Company's initial public offering are deferred and reported as assets in the accompanying balance sheets. Upon successful completion of the initial public offering, these deferred offering costs will be netted against the additional paid-in capital resulting from the offering. 3. RELATED PARTY TRANSACTIONS REVENUE During 1996 and 1997, the Company earned substantially all of its revenue from a grant from the PPH Cure Foundation (the Foundation). A director of the Foundation is also the Chairman and CEO of the Company. This grant terminated at the end of March 1997. Total revenue earned from the Foundation's grant was $153,972 and $115,909 for the period ended December 31, 1996 and the year ended December 31, 1997, respectively. CONVERTIBLE LOAN In 1997, the Chairman and CEO loaned the Company $500,000. The principal and accrued interest, totaling $508,334 based on an interest rate of 10 percent, were converted on August 19, 1997 into 309,428 shares of common stock under the terms of the loan agreement. The conversion price was approximately $1.62 per share. BUILDING In 1998, the Company purchased an office building for its corporate headquarters from Beacon Projects, Inc., an entity owned by the Company's Chairman and CEO. The purchase price, including related expenses, was approximately $581,000. F-9 69 UNITED THERAPEUTICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) OFFICE LEASES During 1997 and 1998, the Company leased office space from Beacon Projects, Inc., a company owned by the Chairman and CEO of the Company. In August 1998, this lease was terminated when the Company purchased the office building from the Chairman and CEO of the Company. Payments made by the Company under this lease totaled $15,000 and $12,000 for the years ended December 31, 1997 and 1998, respectively, and $4,500 and $0 for the quarters ending March 31, 1998 and 1999, respectively. In March 1999, Unither Telemedicine Services Corporation leased office space from Beacon Projects, Inc. (see note 10). LEGAL SERVICES During 1996, 1997 and 1998, the Company obtained professional services from a law firm affiliated with the Chairman and CEO and two executive officers. The Company incurred expenses of approximately $5,000, $81,000 and $157,000 during the period ended December 31, 1996 and during years ended December 31, 1997 and 1998, respectively, for services rendered by the law firm. The Company incurred expenses of approximately $50,000 and $107,000 during the quarters ended March 31, 1998 and 1999, respectively, for services rendered by the law firm. 4. LICENSE AGREEMENTS GLAXO WELLCOME ASSIGNMENT In January 1997, Glaxo Wellcome Inc. assigned to the Company patents and patent applications for the use of the stable prostacyclin analog now known as UT-15 for the treatment of pulmonary hypertension and congestive heart failure. Glaxo Wellcome has a right to negotiate a license from the Company if the Company decides to license any part of the marketing rights to a third party. Glaxo Wellcome waived this right with respect to the agreement with MiniMed described below. Under the agreement, Glaxo Wellcome is entitled to certain royalties from the Company for a period of ten years from the date of the first commercial sale of any product containing UT-15 (see note 5). If the Company grants to a third party any license to UT-15, Glaxo Wellcome is also entitled to a percentage of all consideration payable to the Company by such licensee. The Company is responsible for all patent prosecution and maintenance for UT-15. PHARMACIA & UPJOHN LICENSE In December 1996, Pharmacia & Upjohn Company exclusively licensed to the Company patents and a patent application for the composition and production of the stable prostacyclin analog now known as UT-15. Under the Pharmacia & Upjohn agreement, the Company paid an initial license fee and must make additional milestone payments (see note 5) for orphan and non-orphan indications of the compound. The Company will make royalty payments based on a percentage of sales (see note 5) to Pharmacia & Upjohn until the later of the expiration of the applicable patent or ten years after the date of the first commercial sale of a product in a country defined as a milestone country under the agreement. The agreement may be terminated earlier by either party in certain circumstances, including upon a material breach by or bankruptcy of the other party, and by the Company at any time upon 60 days' notice to Pharmacia & Upjohn. Pursuant to the agreement, the Company is obliged to use its best efforts to conduct a research and development program in the United States relating to the use of the product containing the F-10 70 UNITED THERAPEUTICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) compound for at least one indication, and to obtain regulatory approvals and market a product in the United States and such other countries as the Company deems appropriate. MINIMED INC. The Company entered into an agreement with MiniMed in September 1997 to collaborate in the design, development, and implementation of therapies to treat pulmonary hypertension and peripheral vascular disease utilizing MiniMed products and UT-15. The term of the agreement is for seven years after the FDA grants a new drug approval for UT-15 and will be automatically extended for additional 12-month periods unless otherwise terminated. The agreement is subject to early termination in the event of a material breach or bankruptcy of either party. The Company and MiniMed have established a Management Committee comprised of two representatives from each company to implement the agreement. MiniMed has agreed to establish a dedicated sales force for UT-15 for advanced pulmonary hypertension. The Company has agreed to pay MiniMed the greater of a percentage of the revenues derived from commercial sales of UT-15 (see note 5) or a fixed amount per patient per year. TORAY INDUSTRIES LICENSES In September 1998, United Therapeutics entered into an agreement with Toray Industries, Inc. obtaining the exclusive right to develop and market beraprost in the United States and Canada for the treatment of pulmonary vascular disease, including pulmonary hypertension, plus certain additional rights of first refusal for other products, therapies or territories. In exchange, United Therapeutics paid Toray cash and Common Stock, and granted Toray an option to purchase additional Common Stock (see note 6). United Therapeutics also agreed to pay Toray milestone payments (see note 5). In March 1999, United Therapeutics entered into an agreement with Toray obtaining the exclusive right to develop and market beraprost in the United States and Canada for the treatment of peripheral vascular disease. United Therapeutics paid Toray cash and Common Stock and agreed to pay Toray certain milestone payments (see note 5). Pursuant to the agreements, United Therapeutics has agreed to pay all costs and expenses associated with undertaking clinical trials, obtaining regulatory approvals and commercializing beraprost in the United States and Canada for the treatment of pulmonary hypertension and peripheral vascular disease. Toray has retained all manufacturing rights for beraprost. United Therapeutics has agreed to purchase beraprost solely from Toray at specified prices based on volume. The agreements each set forth a product development schedule. In the event that development by United Therapeutics falls significantly behind the schedule specified in either agreement, Toray may terminate that agreement. Furthermore, United Therapeutics is responsible under the agreements for achieving minimum annual product net sales as determined in advance by mutual agreement. In the event that United Therapeutics is unable to meet any minimum annual net sales requirement for two consecutive years, Toray may convert the exclusive license to a non-exclusive license. United Therapeutics would then be required to share any product marketing rights approved by the FDA with a third-party licensee chosen by Toray. Each agreement expires 10 years following FDA approval of beraprost for the particular disease indication. United Therapeutics may extend each agreement for unlimited 12-month periods with Toray's consent. F-11 71 UNITED THERAPEUTICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CORTECH LICENSE In November 1998, United Therapeutics entered into an agreement with Cortech, Inc. to obtain the exclusive right to develop and market a serine elastase inhibitor compound, now known as UT-77, for all indications worldwide, except for certain dermatological uses. In exchange, United Therapeutics made a cash payment and granted Cortech a warrant to purchase Common Stock (which vests only if United Therapeutics continues developing UT-77 after November 2, 2000, and terminates in November 2004) (see note 6), and agreed to make substantial milestone payments and pay royalty fees which will not exceed a certain percentage of net sales (see note 5). Pursuant to the agreement, United Therapeutics is required to use reasonable efforts to develop and conduct research and pre-clinical and human clinical trials to obtain all regulatory approvals to manufacture, market and commercialize the products that United Therapeutics determines are commercially feasible. United Therapeutics may choose to discontinue the development of the products without penalty upon written notice to Cortech if the products do not satisfy United Therapeutics' clinical needs for targeted indications. If United Therapeutics terminates the agreement, however, Cortech will receive an exclusive royalty-free license to use any improvements, know-how, data, information or regulatory filings or any other intellectual property arising from United Therapeutics' performance under the agreement. Cortech may terminate the agreement if United Therapeutics does not commence Phase II clinical trials of UT-77 before May 2001, subject to certain exceptions. GLOBAL MEDICAL ENTERPRISES AGREEMENT In February 1999, United Therapeutics entered into an agreement with Global Medical Enterprises Ltd. and Global Medical Enterprises Ltd., LLC. This agreement gives to United Therapeutics the exclusive right to commercialize and sell Ketotop in the United States, Canada, Mexico, Central America and the Caribbean for treatment of all indications. Global Medical holds these rights under an exclusive sales and distribution agreement with Pacific Pharmaceuticals, Inc., the Korean manufacturer of Ketotop. Both the agreement between United Therapeutics and Global Medical and the agreement between Global Medical and Pacific Pharmaceuticals expire in July 2008. The agreement between United Therapeutics and Global Medical will be extended if Pacific Pharmaceuticals extends its agreement with Global Medical. The agreement is subject to early termination in the event of a material breach or bankruptcy of either party or if the underlying agreement between Global Medical and Pacific Pharmaceuticals is terminated. United Therapeutics has agreed to purchase Ketotop solely from Global Medical. United Therapeutics will pay Global Medical a product purchase price equal to Global Medical's cost of obtaining Ketotop from Pacific Pharmaceuticals plus a profit percentage. United Therapeutics and Global Medical will jointly determine Global Medical's compensation for sales in additional territories. 5. COMMITMENTS CLINICAL TRIALS AND OTHER RESEARCH The Company has contracted with universities and research organizations to perform clinical trials and other research related to UT-15 and other products. The Company generally pays all expenses incurred in carrying out the clinical trials and research activities. Total expenses under these agreements was approximately $0, $1,700,000 and $7,600,000 in 1996, 1997, and 1998, respectively. Total expenses for the quarters ended March 31, 1998 and 1999 was approximately $1,400,000 and $2,200,000, respectively. Total payments under these agreements in 1999 is not expected to exceed $13,000,000. F-12 72 UNITED THERAPEUTICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) UNIVERSITY COLLEGE LONDON In 1997, the Company entered into a cooperative drug discovery agreement with University College London (UCL) to identify and develop compounds with therapeutic effectiveness against pulmonary hypertension and other diseases treatable by potassium channel compounds. The agreement may be terminated by the Company if the Company decides not to fund further drug development. Annual funding by the Company is expected to be between $500,000 and $1,000,000 over the next several years. Under the agreement, the Company is required to pay UCL a royalty equal to a percentage of net sales and license fees that the Company earns from discoveries and products developed by UCL. This royalty obligation extends for 15 years or, if later, until any issued patents expire. WILLIAM HARVEY RESEARCH LIMITED In 1998, the Company entered into a cooperative drug discovery agreement with William Harvey Research Limited (WHR) to identify and develop an antisense therapy as a potential treatment for pulmonary hypertension. Funding by the Company under this agreement is expected to be between $600,000 and $700,000 annually over the next 30 months. The agreement may be terminated by the Company after 30 months. Under the agreement, the Company is required to pay UCL a royalty equal to a percentage of net sales and license fees that the Company earns from discoveries developed by WHR. This royalty obligation extends for 15 years or, if later, until any issued patents expire. MILESTONE AND ROYALTY PAYMENTS The Company has in-licensed certain products under agreements described in note 4. These agreements generally include milestone payments to be paid in cash by the Company upon the achievement of certain product development and commercialization goals set forth in each agreement. Total milestone payments under these agreements are approximately $5.4 million and are anticipated to be paid over the next 5 years. Additionally, certain agreements described in note 4 require the Company to pay royalties. The royalties are generally based on a percentage of net sales or other product fees earned by the Company. Royalties will become due when sales are generated and will range from 2.5 to 30 percent of net product revenues as defined in the respective agreements. EMPLOYMENT AGREEMENT In April 1999, the Company executed an employment agreement with its CEO. The agreement establishes minimum compensation and benefits for an initial period of five years. The agreement also requires the Company to issue options to the CEO at the end of each of the next five years to purchase a number of shares of common stock equal to one percent of the increase in the Company's market capitalization after the initial public offering over the prior year, divided by 18, subject to certain annual limitations. The exercise price of the options will be 110 percent of the fair market value of a share of common stock on the date of grant, or 100 percent of fair market value if the CEO owns less than 10 percent of the Company's outstanding common stock on the date of grant. If the CEO is terminated without cause or leaves with good reason, she will receive severance equal to three years of base salary plus the value of any vested options. F-13 73 UNITED THERAPEUTICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. STOCKHOLDERS' EQUITY COMMON STOCK The Company was originally capitalized through the issuance of 1,666,663 shares of common stock for $0.06 per share, with a par value of $0.01. In 1997, the number of authorized shares of common stock was increased from 20,000,000 to 50,000,000 shares. Also in 1997, 4,209,506 shares of common stock were issued at prices ranging from $1.20 to $3.00. Of this total, 309,428 shares were issued as a result of the conversion of a loan and accrued interest thereon from the Chairman and CEO of the Company totalling $508,334. On December 7, 1997, the Company's board of directors approved a one-for-two reverse stock split of the Company's common stock. All common shares and per share amounts in the accompanying financial statements have been retroactively adjusted to reflect this reverse stock split. Authorized shares and the par values of common and preferred stock were not affected. In 1998, the Company issued 4,028,404 shares of common stock for cash at prices ranging from $3.00 to $18.00. The Company sold 111,370 shares of common stock in January and February 1999 at a price of $18.00 per share. On April 5, 1999 and April 8, 1999, the Company's Board of Directors and shareholders approved an amendment to the Company's Certificate of Incorporation, which will become effective upon consummation of the initial public offering, increasing the number of authorized shares of common stock to 100,000,000 shares. PREFERRED STOCK A total of 10,000,000 shares of preferred stock with a par value of $0.01 were authorized in 1997. No preferred stock has been issued. STOCK AND OPTIONS ISSUED FOR EXCLUSIVE LICENSE AGREEMENTS AND IN EXCHANGE FOR SERVICES In 1998 the Company issued 166,666 shares of common stock and options to purchase 166,666 shares of common stock in exchange for an exclusive license agreement. The stock was valued at $1,500,000, based on prices of similar quantities of stock sold to unrelated parties during the period. The fair value of the options was estimated on the date of grant at $185,000 using the Black-Scholes option pricing model. The total of $1,685,000 was expensed as a research and development expense. In 1998, the Company issued warrants to purchase 116,666 shares of common stock in exchange for an exclusive license agreement. The fair value of the warrants was estimated on the date of grant at $168,000 using the Black-Scholes option pricing model and was expensed as a research and development expense. The Company issued a total of 37,694 shares of common stock in recognition of consulting services rendered during the year ended December 31, 1998. The stock's fair value and related compensation expense (ranging from $3.00 to $9.00) per share was estimated based on prices of similar quantities of stock sold to unrelated parties during the period. F-14 74 UNITED THERAPEUTICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In March 1999 the Company issued 500,000 shares of common stock in exchange for another exclusive license agreement. The stock was valued at $9,000,000 ($18.00 per share) by the Company based on recent sales at $18.00 per share. The total of $9,000,000 was expensed as a research and development expense. EMPLOYEE OPTIONS The Company's Board of Directors adopted an equity incentive plan (the Plan) effective November 12, 1997. On April 5, 1999 and April 8, 1999, the Company's Board of Directors and shareholders approved an amendment and restatement of the Plan to increase the total number of shares of Common Stock that may be issued pursuant to the Plan to 14,939,517 shares, including 7,939,517 shares reserved for issuance to the CEO under her employment agreement (see note 5). The Plan provides for the grant of awards, including options, stock appreciation rights, restricted stock awards and other rights as defined in the Plan, to eligible participants. Options granted under the Plan are not transferable and must generally be exercised within 10 years. The price of all options granted under the Plan must be at least equal to the fair market value of the common stock on the date of grant. With respect to any participant who owns 10 percent or more of the Company's outstanding common stock on the date of grant, the exercise price of any incentive stock option granted to that participant must equal or exceed 110 percent of the fair market value of the common stock on the date of grant and the option must not be exercisable for longer than five years. During the year ended December 31, 1997, options to purchase a total of 274,000 shares were granted under this Plan at exercise prices of $3.00 to $16.50. For the year ended December 31, 1998 and quarter ended March 31, 1999, options to purchase a total of 610,401 shares and 5,500 shares, respectively, were granted under this Plan at exercise prices of $3.00 to $19.80. Additional options have been granted to employees outside of the Plan which have terms between five and ten years. The Company applies APB Opinion No. 25 in accounting for options granted to employees and, accordingly, no compensation expense has been recognized in the financial statements with respect to such options. Had the Company determined compensation expense under SFAS No. 123 based on the fair value at the grant date for its stock options, the Company's net loss would have been increased to the pro forma amounts indicated below:
PERIOD FROM INCEPTION (JUNE 26, 1996) YEAR ENDED THREE MONTHS ENDED TO DECEMBER 31, MARCH 31, DECEMBER 31, -------------------------- -------------------------- 1996 1997 1998 1998 1999 --------------- ----------- ------------ ----------- ------------ (UNAUDITED) Net loss: As reported............................. $(30,077) $(2,901,224) $(12,835,399) $(2,263,600) $(12,237,993) Pro forma............................... (30,077) (2,905,862) (12,989,645) (2,263,775) (12,247,017) Basic and diluted loss per common share: As reported........................... $ (0.02) $ (0.87) $ (1.54) $ (0.38) $ (1.19) Pro forma............................. $ (0.02) $ (0.87) $ (1.56) $ (0.38) $ (1.19) -------- ----------- ------------ ----------- ------------
The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions generally used for grants F-15 75 UNITED THERAPEUTICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) in 1998 and quarter ending March 31, 1999: dividend yield of 0 percent, risk free interest rate of 4.73 and 5.30 percent, respectively, and expected lives of 7.5 years. A summary of the status of the Company's employee stock options as of December 31, 1997 and 1998 and March 31, 1999, and changes during the years and period then ended is presented below:
1997 1998 MARCH 31, 1999 ------------------- ------------------- ------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ------- --------- ------- --------- ------- --------- (UNAUDITED) Outstanding at beginning of period.... -- $ -- 274,000 $13.77 878,485 $12.69 Granted............................... 274,000 13.77 610,401 12.12 5,500 18.00 Exercised............................. -- -- -- -- -- -- Forfeited............................. -- -- (5,916) 3.00 (2,000) 3.00 ------- ------ ------- ------ ------- ------ Outstanding at end of period.......... 274,000 $13.77 878,485 $12.69 881,985 $12.75 ======= ====== ======= ====== ======= ====== Options exercisable at end of period.............................. 21,250 $ 7.80 180,318 $ 8.28 182,385 $ 8.40 ======= ====== ======= ====== ======= ====== Weighted-average fair value of options granted during the period........... $ 0.06 $ 3.30 $ 4.83 ======= ======= =======
The following table summarizes information about stock options outstanding at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE -------------------------------------- ------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE REMAINING EXERCISE EXERCISE EXERCISE PRICES NUMBER CONTRACTUAL LIFE PRICE NUMBER PRICE --------------- ------- ---------------- --------- ------- --------- $ 3.00 ................ 141,818 5.7 $ 3.00 68,318 $ 3.00 9.00 ................ 236,000 5.2 9.00 68,333 9.00 15.00 ................ 150,667 8.9 15.00 30,333 15.00 16.50 ................ 66,667 8.9 16.50 13,334 16.50 18.00 ................ 200,000 10.0 18.00 -- -- 19.80 ................ 83,333 10.0 19.80 -- -- ------------- ------- ------- ------- ------- ------- $3.00 - 19.80 ................ 878,485 7.75 $ 12.69 180,318 $ 8.28 ============= ======= ======= ======= ======= =======
F-16 76 UNITED THERAPEUTICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes information about stock options outstanding at March 31, 1999 (unaudited):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE -------------------------------------- ------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE REMAINING EXERCISE EXERCISE EXERCISE PRICES NUMBER CONTRACTUAL LIFE PRICE NUMBER PRICE --------------- ------- ---------------- --------- ------- --------- $ 3.00 ................ 139,818 5.41 $ 3.00 68,485 $ 3.00 9.00 ................ 236,000 4.98 9.00 68,333 9.00 15.00 ................ 150,667 8.65 15.00 30,333 15.00 16.50 ................ 66,667 8.65 16.50 13,334 16.50 18.00 ................ 205,500 9.75 18.00 1,900 18.00 19.80 ................ 83,333 9.75 19.80 -- -- ------------- ------- ------- ------- ------- ------- $3.00 - 19.80 ................ 881,985 7.52 $ 12.75 182,385 $ 8.40 ============= ======= ======= ======= ======= =======
In addition to options issued to employees, the Company also issued options to consultants during the year ended December 31, 1998 and the quarter ended March 31, 1999. A total of 6,333 shares and 9,141 shares, with exercise prices of $15.00 to $18.00, were outstanding at December 31, 1998 and March 31, 1999, respectively. F-17 77 UNITED THERAPEUTICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. INCOME TAXES A reconciliation of tax benefit computed at the statutory federal tax rate on losses from operations before income taxes to the actual income tax expense is as follows:
PERIOD FROM JUNE 26, 1996 THREE MONTHS ENDED (INCEPTION) TO YEAR ENDED DECEMBER 31, MARCH 31, DECEMBER 31, ------------------------- ------------------------- 1996 1997 1998 1998 1999 -------------- ----------- ----------- ----------- ----------- (UNAUDITED) Federal tax provision (benefit) computed at the statutory rate..... $(10,527) $(1,015,428) $(4,362,981) $ (768,653) $(4,160,918) State tax provision (benefit), net of federal tax provision (benefit).............. (595) (113,936) (842,180) (18,041) (821,400) Change in the beginning of the period valuation allowance for deferred tax assets allocated to tax expenses........... 11,023 1,127,859 7,564,698 1,724,744 5,379,070 General business credit generated.............. -- -- (3,005,476) (1,096,912) (655,958) Nondeductible expenses and other.............. 99 1,505 649,039 161,717 262,660 -------- ----------- ----------- ----------- ----------- Total income tax expense............. $ -- $ -- $ 3,100 $ 2,855 $ 3,454 ======== =========== =========== =========== ===========
F-18 78 UNITED THERAPEUTICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred income taxes reflect the net effect of net operating loss carryforwards and the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets as of December 31, 1997 and 1998 and March 31, 1999, respectively, are as follows:
DECEMBER 31, -------------------------- MARCH 31, 1997 1998 1999 ----------- ----------- ------------ (UNAUDITED) Deferred tax assets: Net operating loss carryforwards........... $ 973,412 $ 4,245,686 $ 8,922,662 General business credit.................... -- 3,640,146 4,296,104 Cumulative effect of using cash basis accounting for income tax purposes...... 165,311 690,302 726,943 Furniture and equipment principally due to differences in depreciation............. 159 (19,164) (24,028) Nonqualifed stock options.................. -- 146,610 160,970 ----------- ----------- ------------ Total deferred tax assets............... 1,138,882 8,703,580 14,082,651 Valuation allowance.......................... (1,138,882) (8,703,580) (14,082,651) ----------- ----------- ------------ Net deferred tax assets................. $ -- $ -- $ -- =========== =========== ============
The valuation allowance for deferred tax assets increased $1,127,859 and $7,564,698 for the years ended December 31, 1997 and 1998, respectively, and $5,379,071 for the period ended March 31, 1999. At December 31, 1998, the Company had net operating loss carryforwards of approximately $11,000,000 and business tax credit carryforwards of approximately $3,600,000 for federal income tax purposes which expire at various dates through 2018. The respective amounts at March 31, 1999 were approximately $22,400,000 and $4,300,000. Business tax credits can offset future tax liabilities and arise from qualified research expenditures. A portion of the net operating loss and tax credit carryforwards are subject to various utilization limitations under the Internal Revenue Code as a result of ownership changes experienced by the Company. 8. NOTE PAYABLE On April 29, 1998, the Company purchased an office building from a company owned by the Chairman and CEO of the Company for approximately $581,000. At that time, the Company assumed an existing adjustable rate mortgage on the building of approximately $318,000. The mortgage currently bears an interest rate of 8.75 percent, and is payable in monthly installments through 2022. The mortgage is collateralized by the deed of trust on the building. F-19 79 UNITED THERAPEUTICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Future minimum principal payments under the note payable are as follows: YEAR ENDING DECEMBER 31, 1999........................................................ $ 4,098 2000........................................................ 4,471 2001........................................................ 5,305 2002........................................................ 5,788 2003........................................................ 5,809 2004 and thereafter......................................... 288,889 -------- 314,360 Less current portion........................................ (4,098) -------- $310,262 ========
9. INVESTMENTS Investments at December 31, 1997 consisted of an equity investment in a joint venture totalling $110,453 which was carried at the lower of cost or net realizable value. Due to the speculative nature of this investment, it was deemed to have no realizable value for financial statement purposes, and was written down to $0 in 1997. During 1998, the Company terminated its involvement in the joint venture. No amounts were recovered. Investments at December 31, 1998 consisted of a single debt security issued by the Federal Home Loan Mortgage Corporation. This security matured at its face value of $10,049,000 on January 20, 1999. Its fair value at December 31, 1998 was $10,025,887. Its amortized cost was $10,023,190, with gross unrealized holding gains of $25,810, for the year ended December 31, 1998. After maturing on January 20, 1999, the face value of $10,049,000 was deposited into a money market account. 10. LEASES The Company leases office space for use in its research and development activities in North Carolina. The initial leases commenced in 1997 and had initial terms of six months. The leases are renewable semi-annually and were renewed in 1998. In March 1999, a subsidiary of the Company leased office space from a company owned by the Chairman and CEO of the Company (see note 3). The lease expires in 2001 and may be extended for two years. The subsidiary is responsible for base rentals and its proportionate share of common utilities and maintenance. Also in March 1999, the Company leased an automobile for its CEO. Approximate minimum annual rent payments due under these noncancelable leases are as follows: F-20 80 UNITED THERAPEUTICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEAR ENDING DECEMBER 31, 1999........................................................ $30,000 2000........................................................ 39,000 2001........................................................ 12,000 2002........................................................ 3,000
Total rent expense for the period ended December 31, 1996 and the years ended December 31, 1997 and 1998 was $0, $25,340 and $97,033, respectively. Total rent expenses for the quarters ended March 31, 1998 and 1999 were approximately $19,000 and $38,000, respectively. 11. INITIAL PUBLIC OFFERING In April 1999, the Board of Directors authorized the filing of a registration statement with the Securities and Exchange Commission for the sale of up to 6,000,000 shares of common stock. Direct costs associated with the offering have been deferred and will be recorded as a reduction of stockholders' equity if the offering is consummated. If the offering is not consummated, the deferred offering costs will be charged to operations. 12. REVERSE STOCK SPLIT (UNAUDITED) On April 5, 1999, the Company's Board of Directors approved a one-for-three reverse stock split of its outstanding common stock that is subject to the initial public offering being effective. Authorized shares and the par values of common and preferred stock were not affected. All share and per share amounts in the accompanying financial statements have been retroactively adjusted to reflect the reverse stock split for all periods presented. F-21 81 ------------------------------------------------------------ ------------------------------------------------------------ YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. UNITED THERAPEUTICS HAS NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR SALE OF COMMON STOCK MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE DATE OF THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY THESE SHARES OF COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH THE OFFER OR SOLICITATION IS UNLAWFUL. --------------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary...................... 1 Risk Factors............................ 5 Use of Proceeds......................... 13 Dividend Policy......................... 13 Capitalization.......................... 14 Dilution................................ 15 Selected Consolidated Financial Data.... 16 Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 17 Business................................ 21 Management.............................. 39 Certain Transactions.................... 47 Principal Stockholders.................. 48 Description of Capital Stock............ 49 Shares Eligible for Future Sale......... 52 Underwriting............................ 54 Lawyers................................. 55 Experts................................. 56 Additional Information.................. 56 Index to Consolidated Financial Statements............................ F-1
--------------------- DEALER PROSPECTUS DELIVERY OBLIGATION: UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS THAT BUY, SELL OR TRADE THESE SHARES OF COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ Shares [UNITED THERAPEUTICS CORPORATION LOGO] Common Stock ------------------ PROSPECTUS ------------------ BT ALEX. BROWN A.G. EDWARDS & SONS, INC. VECTOR SECURITIES INTERNATIONAL, INC. , 1999 ------------------------------------------------------------ ------------------------------------------------------------ 82 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth all expenses, other than the underwriting discounts and commissions, payable by the Registrant in connection with the sale of the Common Stock being registered. All the amounts are estimates except for the registration fee and the NASD filing fee. Registration fee............................................ $23,978 Nasdaq National Market listing fee.......................... 95,000 NASD filing fee............................................. 9,125 Blue sky qualification fees and expenses.................... * Printing and engraving expenses............................. * Legal fees and expenses..................................... * Accounting fees and expenses................................ * Transfer agent and registrar fees........................... * Directors' and Officers' Insurance.......................... * Miscellaneous............................................... * ------- Total............................................. * =======
- --------------- * To be provided by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. As permitted by Delaware law, the Registrant's Amended and Restated Certificate of Incorporation provides that no director of the Registrant will be personally liable to the Registrant or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (a) for any breach of duty of loyalty to United Therapeutics or to its stockholders, (b) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the Delaware General Corporation Law, or (d) for any transaction from which the director derived an improper personal benefit. The Registrant's Amended and Restated Certificate of Incorporation further provides that the Registrant must indemnify its directors and executive officers and may indemnify its other officers and employees and agents to the fullest extent permitted by Delaware law. The Registrant believes that indemnification under its Amended and Restated Certificate of Incorporation covers negligence and gross negligence on the part of indemnified parties. The Registrant has entered into indemnification agreements with each of its directors and officers. These agreements, among other things, require the Registrant to indemnify such directors and officers for certain expenses (including attorneys' fees), judgments, fines and settlement amounts incurred by any such person in any action or proceeding, including any action by or in the right of the Registrant, arising out of such person's services as a director or officer of the Registrant, any subsidiary of the Registrant or any other company or enterprise to which the person provides services at the request of the Registrant. The Underwriting Agreement (Exhibit 1) will provide for indemnification by the Underwriters of the Registrant, its directors, its officers who sign the Registration Statement, and the Registrant's controlling persons for certain liabilities, including liabilities arising under the Securities Act. II-1 83 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Since June 1996, the Registrant has sold and issued the following unregistered securities: (1) As of March 31, 1999, the Registrant had granted stock options to purchase 168,905 shares of its Common Stock to employees, consultants and directors pursuant to its Amended and Restated Equity Incentive Plan. Of these options to purchase, no shares have been exercised, 7,916 have been canceled, and the remainder are outstanding. (2) As of March 31, 1999, the Registrant had granted stock options to purchase an additional 730,137 shares of its Common Stock to employees, consultants and directors, all of which are outstanding. (3) In August 1996, the Registrant issued an aggregate of 1,666,663 shares of its Common Stock to its four co-founders for an aggregate consideration of $100,000. (4) From January 1, 1997 through December 31, 1997, the Registrant issued 3,906,742 shares of Common Stock for an aggregate consideration of $6,940,150. (5) In July 1997, the Registrant issued 309,428 shares of its Common Stock to Martine A. Rothblatt, in consideration for the conversion of a note, including accrued interest thereon, for an aggregate consideration of $508,334. (6) From January 1, 1998 through December 31, 1998, the Registrant issued 37,694 shares of its Common Stock in consideration for various consulting services valued at approximately $132,085. (7) From January 1, 1998 through December 31, 1998, the Registrant issued an aggregate of 3,472,849 shares of its Common Stock to directors and officers and several accredited investors (not including those reflected in item (5)) for an aggregate cash consideration of $17,904,530. (8) From January 1, 1998 through December 31, 1998 the Registrant issued an aggregate of options to purchase 2,500 shares of its Common Stock to a consultant in exchange for services. (9) In September 1998, the Registrant issued 166,666 shares of its Common Stock, and granted options to acquire an additional 166,666 shares of Common Stock in consideration of an exclusive license. (10) In October 1998, the Registrant issued an aggregate of 555,555 shares of Common Stock to two accredited investors for an aggregate consideration of $5,000,001. (11) In November 1998, the Registrant issued warrants to purchase 116,666 shares of Common Stock in consideration of an exclusive license agreement. (12) In March 1999, the Registrant issued 500,000 shares of its Common Stock in consideration of an exclusive license agreement. (13) In March 1999, the Registrant issued options to purchase 2,808 shares of its Common Stock in exchange for services. (14) From January 31, 1999, the Registrant issued an aggregate of 111,370 shares of its Common Stock to directors, employees and several accredited investors for an aggregate cash consideration of $11,995,316. The sales and issuances of securities described in paragraph (1) above were deemed to be exempt from registration under the Securities Act by virtue of Rule 701 of the Securities Act in that they were offered and sold either pursuant to a written compensatory benefit plan or pursuant to a written contract relating to compensation, as provided by Rule 701. The sales and issuances of securities described in paragraphs (2)-(14) above were deemed to be exempt from registration under the Securities Act by virtue of Rule 4(2), Regulation D or Regulation S promulgated thereunder. II-2 84 Appropriate legends are affixed to the stock certificates issued in the aforementioned transactions. Similar legends were imposed in connection with any subsequent sales of any such securities. All recipients either received adequate information about the Registrant or had access, through employment or other relationships, to such information. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) The following is a list of exhibits filed as a part of this Registration Statement:
EXHIBIT NO. DESCRIPTION - ----------- ----------- 1 Form of Equity Underwriting Agreement. 3.1 Amended and Restated Certificate of Incorporation of the Registrant. 3.2 Amended and Restated By-Laws of the Registrant. 4.1 Reference is made to Exhibits 3.1 and 3.2. 4.2 Registration Rights Agreement, dated as of October 30, 1998, by and among the Registrant, Merrill Lynch KECALP L.P. 1997, and Merrill Lynch KECALP International L.P. 1997. 4.3 Form of Common Stock Purchase Agreement, executed as of March, 1998, by and between the Registrant and each of Community Investment Partners III L.P., LLLP, Mary Ellen and Raul Evelio Perez, Trustees of the Mary Ellen Perez revocable trust dated October 28, 1993, Edward D. Jones & Co., Oakwood Investors I, L.L.C. and James L. Nouss, Jr. 4.4 Warrant to purchase shares of United Therapeutics' common stock, issued on November 2, 1998 to Cortech, Inc. 4.5 Stock Option Grant to purchase shares of United Therapeutics' common stock, issued on September 16, 1998 to Toray Industries, Inc. 5 Opinion of Bryan Cave LLP*. 10.1 Amended and Restated Equity Incentive Plan. 10.2 Form of Scientific Advisor Compensation Agreement. 10.3 Executive Employment Agreement (as amended) dated as of April 2, 1999 between the Registrant and Martine A. Rothblatt. 10.4 Employment Agreement dated July 15, 1996 between the Registrant and James W. Crow. 10.5 Employment Agreement dated April 7, 1997 between the Registrant and Gilles Cloutier. 10.6 Employment Agreement dated August 1, 1996 between the Registrant and Shelmer Blackburn, Jr. 10.7 First Flight Venture Lease Agreement dated July 1, 1997 between North Carolina Technological Development Authority, Inc. and the Registrant. 10.8 Exclusive License Agreement dated as of December 3, 1996 between the Registrant and affiliate of Pharmacia & Upjohn Company.** 10.9 Assignment Agreement dated as of January 31, 1997 between the Registrant and affiliates of Glaxo Wellcome Inc.** 10.10 Cooperation and Strategic Alliance Agreement dated as of September 3, 1997 between the Registrant and MiniMed Inc.** 10.11 Exclusive License Agreement dated as of September 24, 1998 between the Registrant and Toray Industries, Inc.** 10.12 Exclusive License Agreement dated as of November 4, 1998 between the Registrant and Cortech, Inc.**
II-3 85
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.13 Exclusive License and Distribution Agreement dated as of February 4, 1999 among the Registrant, Global Medical Enterprises Ltd. and Global Medical Enterprises Ltd., LLC.** 10.14 Exclusive License Agreement dated as of March 15, 1999 between the Registrant and Toray Industries, Inc.** 10.15 Manufacturing Agreement dated as of February 11, 1998 between the Registrant and Steroids, Ltd.** 10.16 Lease dated as of March 1, 1999 between the Unither Telemedicine Services Corp. and Beacon Projects, Inc. 10.17 UAI Technology, Inc. Office Lease dated as of July 1, 1998 between the Registrant and UAI Technology, Inc. 10.18 Form of Indemnification Agreement between the Registrant and each of its Directors. 21 Subsidiaries of the Registrant. 23.1 Consent of KPMG LLP. 23.2 Consent of Bryan Cave LLP. Reference is made to Exhibit 5.1. 24 Powers of Attorney. See Signature Page. 27 Financial Data Schedule.
- ------------------------- * To be filed by amendment. ** United Therapeutics has requested confidential treatment for certain portions of this exhibit pursuant to Rule 406 of the Securities Act of 1933, as amended. ITEM 17. UNDERTAKINGS. The Registrant hereby undertakes to provide the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the provisions described in Item 14 or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will governed by the final adjudication of such issue. The undersigned Registrant undertakes that: (1) for purposes of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of the registration statement in reliance upon Rule 430A and contained in the form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of the registration statement as of the time it was declared effective, and (2) for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 86 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, in the City of Silver Spring, County of Montgomery, State of Maryland on the 15th day of April, 1999. UNITED THERAPEUTICS CORPORATION By: /s/ MARTINE A. ROTHBLATT ------------------------------------------------- Martine A. Rothblatt Chairman of the Board and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints, jointly and severally, Martine Rothblatt and James W. Crow, and each of them, her or his attorneys-in-fact, with full power of substitution, for her or him in any and all capacities, to sign any and all amendments to this Registration Statement (including post-effective amendments), and any and all Registration Statements filed pursuant to Rule 462 under the Securities Act of 1933, as amended, in connection with or related to the offering contemplated by this Registration Statement and its amendments, if any, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by United Therapeutics' said attorney to any and all amendments to said Registration Statement. In accordance with the requirements of the Securities Act of 1933, this Registration Statement was signed below by the following persons in the capacities and on the dates stated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ MARTINE A. ROTHBLATT Chairman of the Board and April 15, 1999 - --------------------------------------------- Chief Executive Officer Martine A. Rothblatt /s/ JAMES W. CROW President, Chief Operating April 15, 1999 - --------------------------------------------- Officer and Director James W. Crow /s/ GILLES CLOUTIER Chief Financial Officer, April 15, 1999 - --------------------------------------------- Chief Accounting Officer, Gilles Cloutier Executive Vice President, Treasurer and Director /s/ SHELMER D. BLACKBURN, JR. Director of Operations, April 15, 1999 - --------------------------------------------- Secretary and Director Shelmer D. Blackburn, Jr. /s/ JEAN-GUY LAMBERT Director April 15, 1999 - --------------------------------------------- Jean-Guy Lambert
II-5 87 /s/ NOAH A. SAMARA Director April 15, 1999 - --------------------------------------------- Noah A. Samara /s/ DAVID GOORAY Director April 15, 1999 - --------------------------------------------- David Gooray /s/ OLIVIA GISCARD D'ESTAING Director April 15, 1999 - --------------------------------------------- Olivia Giscard d'Estaing
II-6 88 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ----------- ----------- 1 Form of Equity Underwriting Agreement. 3.1 Amended and Restated Certificate of Incorporation of the Registrant. 3.2 Amended and Restated By-Laws of the Registrant. 4.1 Reference is made to Exhibits 3.1 and 3.2. 4.2 Registration Rights Agreement, dated as of October 30, 1998, by and among the Registrant, Merrill Lynch KECALP L.P. 1997, and Merrill Lynch KECALP International L.P. 1997. 4.3 Form of Common Stock Purchase Agreement, executed as of March, 1998, by and between the Registrant and each of Community Investment Partners III L.P., LLLP, Mary Ellen and Raul Evelio Perez, Trustees of the Mary Ellen Perez revocable trust dated October 28, 1993, Edward D. Jones & Co., Oakwood Investors I, L.L.C. and James L. Nouss, Jr. 4.4 Warrant to purchase shares of United Therapeutics' common stock, issued on November 2, 1998 to Cortech, Inc. 4.5 Stock Option Grant to purchase shares of United Therapeutics' common stock, issued on September 16, 1998 to Toray Industries, Inc. 5 Opinion of Bryan Cave LLP*. 10.1 Amended and Restated Equity Incentive Plan. 10.2 Form of Scientific Advisor Compensation Agreement. 10.3 Executive Employment Agreement (as amended) dated as of April 2, 1999 between the Registrant and Martine A. Rothblatt. 10.4 Employment Agreement dated July 15, 1996 between the Registrant and James W. Crow. 10.5 Employment Agreement dated April 7, 1997 between the Registrant and Gilles Cloutier. 10.6 Employment Agreement dated August 1, 1996 between the Registrant and Shelmer Blackburn, Jr. 10.7 First Flight Venture Lease Agreement dated July 1, 1997 between North Carolina Technological Development Authority, Inc. and the Registrant. 10.8 Exclusive License Agreement dated as of December 3, 1996 between the Registrant and affiliate of Pharmacia & Upjohn Company.** 10.9 Assignment Agreement dated as of January 31, 1997 between the Registrant and affiliates of Glaxo Wellcome Inc.** 10.10 Cooperation and Strategic Alliance Agreement dated as of September 3, 1997 between the Registrant and MiniMed Inc.** 10.11 Exclusive License Agreement dated as of September 24, 1998 between the Registrant and Toray Industries, Inc.** 10.12 Exclusive License Agreement dated as of November 4, 1998 between the Registrant and Cortech, Inc.** 10.13 Exclusive License and Distribution Agreement dated as of February 4, 1999 among the Registrant, Global Medical Enterprises Ltd. and Global Medical Enterprises Ltd., LLC.** 10.14 Exclusive License Agreement dated as of March 15, 1999 between the Registrant and Toray Industries, Inc.** 10.15 Manufacturing Agreement dated as of February 11, 1998 between the Registrant and Steroids, Ltd.**
II-7 89
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.16 Lease dated as of March 1, 1999 between the Unither Telemedicine Services Corp. and Beacon Projects, Inc. 10.17 UAI Technology, Inc. Office Lease dated as of July 1, 1998 between the Registrant and UAI Technology, Inc. 10.18 Form of Indemnification Agreement between the Registrant and each of its Directors. 21 Subsidiaries of the Registrant. 23.1 Consent of KPMG LLP. 23.2 Consent of Bryan Cave LLP. Reference is made to Exhibit 5.1. 24 Powers of Attorney. See Signature Page. 27 Financial Data Schedule.
- ------------------------- * To be filed by amendment. ** United Therapeutics has requested confidential treatment for certain portions of this exhibit pursuant to Rule 406 of the Securities Act of 1933, as amended. II-8 EX-1 2 FORM OF UNDERWRITING AGREEMENT 1 EXHIBIT 1 _______________ Shares United Therapeutics Corporation Common Stock ($.01 Par Value) FORM OF EQUITY UNDERWRITING AGREEMENT _______________, 1999 BT Alex. Brown Incorporated A.G. Edwards & Sons, Inc. Vector Securities International, Inc. As Representatives of the Several Underwriters c/o BT Alex. Brown Incorporated One South Street Baltimore, Maryland 21202 Ladies and Gentlemen: United Therapeutics Corporation, a Delaware corporation (the "Company"), proposes to sell to the several underwriters (the "Underwriters") named in Schedule I hereto for whom you are acting as representatives (the "Representatives") an aggregate of __________ shares of the Company's Common Stock, $.01 par value (the "Firm Shares"). The respective amounts of the Firm Shares to be so purchased by the several Underwriters are set forth opposite their names in Schedule I hereto. The Company also proposes to sell at the Underwriters' option an aggregate of up to __________ additional shares of the Company's Common Stock (the "Option Shares") as set forth below. As the Representatives, you have advised the Company (a) that you are authorized to enter into this Agreement on behalf of the several Underwriters, and (b) that the several Underwriters are willing, acting severally and not jointly, to purchase the numbers of Firm Shares set forth opposite their respective names in Schedule I, plus their pro rata portion of the Option Shares if you elect to exercise the over-allotment option in whole or in part for the accounts of the several Underwriters. 2 -2- The Firm Shares and the Option Shares (to the extent the aforementioned option is exercised) are herein collectively called the "Shares." In consideration of the mutual agreements contained herein and of the interests of the parties in the transactions contemplated hereby, the parties hereto agree as follows: 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each of the Underwriters as follows: (a) A registration statement on Form S-1 (File No. 333-______) with respect to the Shares has been prepared by the Company in conformity with the requirements of the Securities Act of 1933, as amended (the "Act"), and the Rules and Regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder and has been filed with the Commission. Copies of such registration statement, including any amendments thereto, the preliminary prospectuses (meeting the requirements of the Rules and Regulations) contained therein and the exhibits, financial statements and schedules, as finally amended and revised, have heretofore been delivered by the Company to you and to the extent applicable, were identical to the electronically transmitted copies thereof filed with the Commission pursuant to the Commission's Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"), except to the extent permitted by Regulation S-T. Such registration statement, together with any registration statement filed by the Company pursuant to Rule 462 (b) of the Act, herein referred to as the "Registration Statement," which shall be deemed to include all information omitted therefrom in reliance upon Rule 430A and contained in the Prospectus referred to below, has become effective under the Act and no post-effective amendment to the Registration Statement has been filed as of the date of this Agreement. "Prospectus" means the form of prospectus first filed with the Commission pursuant to Rule 424(b). Each preliminary prospectus included in the Registration Statement prior to the time it becomes effective is herein referred to as a "Preliminary Prospectus." Any reference herein to any Prospectus shall be deemed to refer to and include any documents incorporated by reference therein and to include any supplements or amendments thereto filed with the Commission after the date of filing of the Prospectus under Rules 424(b) or 430A, and prior to the termination of the offering of the Shares by the Underwriters. For purposes of this Agreement, all references to the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement to any of the foregoing, shall be deemed to include the respective copies thereof filed with the Commission pursuant to EDGAR. (b) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement. Each of the subsidiaries of the Company as listed in Exhibit 21 to Item 16(a) of the Registration Statement (collectively, the "Subsidiaries") has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement. The Subsidiaries are the only subsidiaries, direct or indirect, of the Company. The Company and each of the Subsidiaries are duly qualified to transact 3 -3- business in all jurisdictions in which the conduct of their business requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company (as described in the Prospectus) and the Subsidiaries, taken as a whole (a "Material Adverse Effect"). The outstanding shares of capital stock of each of the Subsidiaries have been duly authorized and validly issued, are fully paid and non-assessable and are owned by the Company or another Subsidiary free and clear of all liens, encumbrances and equities and claims; and no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into shares of capital stock or ownership interests in the Subsidiaries are outstanding. (c) The Company has full legal right, power and authority to enter into this Agreement and perform the transactions contemplated hereby. This Agreement has been duly authorized, executed and delivered by the Company and is a valid and binding agreement on the part of the Company, enforceable against it in accordance with its terms, except as rights to indemnification hereunder may be limited by applicable law and except as the enforcement hereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles; the performance of this Agreement and the consummation of the transactions herein contemplated will not result in a material breach or violation of any of the terms and provisions of, or constitute a default under, (i) any bond, debenture, note or other evidence of indebtedness, or under any lease, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which the Company or any Subsidiary is a party, (ii) the charter or bylaws of the Company or any Subsidiary, each as currently in effect, or (iii) any law, order, rule, regulation, writ, injunction, judgment or decree of any court, government or governmental agency or body, domestic or foreign, having jurisdiction over the Company or any Subsidiary or over their respective properties, except in the case of clauses (i) and (iii) for such breaches, violations or defaults as would not have a Material Adverse Effect. No consent, approval, authorization or order of or qualification with any court, government or governmental agency or body, domestic or foreign, having jurisdiction over the Company or any Subsidiary or over their respective properties is required for the execution and delivery of this Agreement and the consummation by the Company of the transactions herein contemplated, except such as may be required under the Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act") or under state or other securities or Blue Sky laws, or under the rules and regulations of the National Association of Securities Dealers, Inc. (the "NASD") (including the Nasdaq Stock Market), and all of which requirements which pertain to the Company have been satisfied by the Company in all material respects. (d) The outstanding shares of Common Stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; the Shares to be issued and sold by the Company have been duly authorized and when issued and paid for as contemplated herein will be validly issued, fully paid and non-assessable; and no preemptive rights of stockholders exist with respect to any of the Shares or the issue and sale thereof. Neither the filing of the Registration Statement nor the offering or sale of the Shares as contemplated by this 4 -4- Agreement gives rise to any rights, other than those which have been waived or satisfied, for or relating to the registration of any shares of Common Stock. (e) The information set forth under the caption "Capitalization" in the Prospectus is true and correct. All of the Shares conform to the description thereof contained in the Registration Statement. The form of certificates for the Shares conforms to the corporate law of the jurisdiction of the Company's incorporation. (f) The Commission has not issued an order preventing or suspending the use of any Prospectus relating to the proposed offering of the Shares nor instituted proceedings for that purpose. The Registration Statement contains, and the Prospectus and any amendments or supplements thereto will contain, all statements which are required to be stated therein by, and will conform to, the requirements of the Act and the Rules and Regulations. The Registration Statement and any amendment thereto do not contain, and will not contain, any untrue statement of a material fact and do not omit, and will not omit, to state any material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus and any amendments and supplements thereto do not contain, and will not contain, any untrue statement of material fact; and do not omit, and will not omit, to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representations or warranties as to information contained in or omitted from the Registration Statement or the Prospectus, or any such amendment or supplement, in reliance upon, and in conformity with, written information furnished to the Company by or on behalf of any Underwriter through the Representatives, specifically for use in the preparation thereof. (g) The consolidated financial statements of the Company and the Subsidiaries, together with related notes and schedules as set forth in the Registration Statement, present fairly the financial position and the results of operations and cash flows of the Company and the consolidated Subsidiaries, at the indicated dates and for the indicated periods. Such financial statements and related schedules have been prepared in accordance with generally accepted principles of accounting, consistently applied throughout the periods involved, except as disclosed therein, and all adjustments necessary for a fair presentation of results for such periods have been made. The summary financial and statistical data included in the Registration Statement presents fairly the information shown therein and such data has been compiled on a basis consistent with the financial statements presented therein and the books and records of the company. (h) To the best of the Company's knowledge, KPMG LLP, who have certified certain of the financial statements filed with the Commission as part of the Registration Statement, are independent public accountants as required by the Act and the Rules and Regulations. (i) There is no action, suit, claim or proceeding pending or, to the knowledge of the Company, threatened against the Company or any of the Subsidiaries before any court or administrative agency or otherwise which if determined adversely to the Company or any of its Subsidiaries might result in any material adverse change in the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects (as described in 5 -5- the Prospectus) of the Company and of the Subsidiaries taken as a whole (a "Material Adverse Change") or to prevent the consummation of the transactions contemplated hereby, except as set forth in the Registration Statement. (j) The Company and the Subsidiaries have good and marketable title to all of the properties and assets reflected in the financial statements (or as described in the Registration Statement) herein above described, subject to no lien, mortgage, pledge, charge or encumbrance of any kind except those reflected in such financial statements (or as described in the Registration Statement) or which are not material in amount. The Company and the Subsidiaries occupy their leased properties under valid and binding leases conforming in all material respects to the description thereof set forth in the Registration Statement. (k) The Company and the Subsidiaries have filed all Federal, State, local and foreign tax returns which have been required to be filed and have paid all taxes indicated by said returns and all assessments received by them or any of them to the extent that such taxes have become due. All tax liabilities have been adequately provided for in the financial statements of the Company, and the Company does not know of any actual or proposed additional material tax assessments. (l) Since the respective dates as of which information is given in the Registration Statement, as it may be amended or supplemented, there has not been any Material Adverse Change or any development involving a prospective Material Adverse Change, whether or not occurring in the ordinary course of business, and there has not been any material transaction entered into or any material transaction that is probable of being entered into by the Company or the Subsidiaries, other than transactions in the ordinary course of business and changes and transactions described in the Registration Statement, as it may be amended or supplemented. The Company and the Subsidiaries have no material contingent obligations which are not disclosed in the Company's financial statements which are included in the Registration Statement. (m) Neither the Company nor any of the Subsidiaries is or with the giving of notice or lapse of time or both, will be, in violation of or in default under its Amended and Restated Certificate of Incorporation or Amended and Restated By-Laws or under any agreement, lease, contract, indenture or other instrument or obligation to which it is a party or by which it, or any of its properties, is bound and which default is of material significance in respect of the condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole or the business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and the Subsidiaries taken as a whole. (n) Each approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body necessary in connection with the execution and delivery by the Company of this Agreement and the consummation of the transactions herein contemplated (except such additional steps as may be required by the Commission, the NASD or such additional steps as may be necessary to qualify the Shares for public offering by the Underwriters under state securities or Blue Sky laws) has been obtained or made and is in full force and effect. 6 -6- (o) The Company and each of the Subsidiaries holds all material licenses, certificates and permits from governmental authorities which are necessary to the conduct of their businesses. The Company and each of the Subsidiaries are now and have been in material compliance with all United States Food and Drug Administration ("FDA") and any corresponding applicable foreign regulatory authority rules, regulations and requirements applicable to them, and have received no written notice of violations or alleged violations of such rules, regulations and requirements. The Company and each of the Subsidiaries are not aware of any violations of FDA rules, regulations and requirements by companies with which the Company or any of the Subsidiaries have contracts which might result in any Material Adverse Change. The Prospectus fairly reflects the FDA and foreign regulatory status of the Company's proposed products. (p) Neither the Company, nor to the Company's knowledge, any of its affiliates, has taken or will take, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the shares of Common Stock to facilitate the sale or resale of the Shares. (q) Neither the Company nor any Subsidiary is an "investment company" within the meaning of such term under the Investment Company Act of 1940, (as amended, the "1940 Act") and the rules and regulations of the Commission thereunder. (r) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (s) The Company and each of its Subsidiaries carry, or are covered by, insurance in such amounts and covering such risks as is adequate for the conduct of their respective businesses and the value of their respective properties and as is customary for companies engaged in the same industry. (t) The Company is in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for which the Company would have any liability; the Company has not incurred and does not expect to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the "Code"); and each "pension plan" for which the Company would have any liability that is intended to be 7 -7- qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification. (u) To the Company's knowledge, there are no affiliations or associations between any member of the NASD and any of the Company's officers, directors or securityholders, except as set forth in the Registration Statement. (v) The Company has not distributed and will not distribute prior to the later of (i) the Closing Date (as defined herein), or Option Closing Date (as defined herein), as the case may be, and (ii) completion of the distribution of the Shares, any offering material in connection with the offering and sale of the Shares other than any Preliminary Prospectuses, the Prospectus, the Registration Statement and other materials, if any, permitted by the Act. (w) Neither the Company nor any Subsidiary has at any time during the last five (5) years (i) made any unlawful contribution to any candidate for foreign office or failed to disclose fully any contribution in violation of law, or (ii) made any payment to any federal or state governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments required or permitted by the laws of the United States or any jurisdiction thereof. (x) Except as set forth in the Registration Statement and Prospectus, (i) the Company and each Subsidiary is in compliance with all rules, laws and regulations relating to the use, treatment, storage and disposal of toxic substances and protection of health or the environment ("Environmental Laws") which are applicable to its business except for noncompliance as would not have a Material Adverse Effect (ii) neither the Company nor any Subsidiary has received any notice from any governmental authority or third party of an asserted claim under Environmental Laws, which claim is required to be disclosed in the Registration Statement and the Prospectus, (iii) the Company does not currently foresee that it or its Subsidiaries will be required to make future material capital expenditures to comply with Environmental Laws and (iv) to the best of the Company's knowledge after due inquiry, no property which is owned, leased or occupied by the Company or its Subsidiaries has been designated as a Superfund site pursuant to the Comprehensive Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601, et seq), or otherwise designated as a contaminated site under applicable state or local law. (y) There are no outstanding loans, advances (except normal advances for business expenses in the ordinary course of business) or guarantees of indebtedness by the Company or its Subsidiaries to or for the benefit of any of the officers or directors of the Company or any of the members of the families of any of them, except as disclosed in the Registration Statement or the Prospectus. (z) Except as disclosed in the Prospectus, the Company and each of its Subsidiaries own or have the right to use any patents, patent applications, patent rights, inventions, trade secrets, know-how, manufacturing processes, trademarks, trademark applications, service marks, service mark applications, trade names, copyrights, software 8 -8- programs, or other information now used in, or which are necessary for fulfillment of, their respective obligations or the conduct of their respective businesses as now conducted or proposed to be conducted as described in the Prospectus (collectively, "Intellectual Property"), except where the failure to own or have the right to use such Intellectual Property would not have a Material Adverse Effect. (aa) As required for the conduct of their respective businesses as now conducted or proposed to be conducted as described in the Prospectus, all U.S. patents owned, assigned, or licensed by the Company and its Subsidiaries are currently in force and being maintained; annuities on all foreign patents and foreign patent applications have been paid; and all U.S. patent applications and foreign patent applications indicated as pending, are pending. (bb) All trademark applications, U.S. and foreign, indicated as pending in the Prospectus are pending, and all registration fees on trademarks which register on or before the Closing Date or the Option Closing Date will be paid. (cc) The Company and its Subsidiaries have no knowledge of infringement of its patents and trademarks, and neither the Company nor its Subsidiaries is aware that the Company's activities or products or the activities or products of the Company's Subsidiaries, infringe any third parties' intellectual property rights, including patents or trademarks, U.S. or foreign, and neither the Company nor any of its Subsidiaries has been notified that it is infringing any intellectual property or other similar rights of others. (dd) Neither the Company nor any of its Subsidiaries has been notified that administrative actions are pending with respect to patents (pending or issued, U.S. or foreign) and registered trademarks or trademark applications (U.S. or foreign), except for U.S. and foreign patent and trademark office actions issued in the normal course of prosecution of patents and trademarks. (ee) The Company and its Subsidiaries have no knowledge of any reason why the patents or trademarks (upon registration) owned, assigned, or licensed by the Company would be unenforceable or invalid. (ff) The Company has not terminated or breached, and is not in violation of any agreement with respect to its Intellectual Property rights. (gg) The Company has agreements in place with [all] employees, consultants or other persons or parties engaged by the Company or any Subsidiary providing for the assignment or exclusive license to the Company of all intellectual property rights in the work performed by such persons. The Company has agreements in place with [all] employees, consultants or other persons or parties engaged by the Company or any Subsidiary providing for the protection of the trade secrets and confidential information of the Company, each of its Subsidiaries, and of third parties. 9 -9- (hh) The Company has undertaken reasonable due diligence with respect to its existing patent licenses and patent assignment agreements, including reasonable due diligence to confirm licensors'/assignors' rights to transfer the corresponding intellectual property. (ii) The claims in the Company's accepted, granted or issued foreign patents are commensurate in scope with the claims in the Company's corresponding U.S. patents. 2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES. (a) On the basis of the representations, warranties and covenants herein contained, and subject to the conditions herein set forth, the Company agrees to sell to the Underwriters and each Underwriter agrees, severally and not jointly, to purchase, at a price of $_____ per share, the number of Firm Shares set forth opposite the name of each Underwriter in Schedule I hereof, subject to adjustments in accordance with Section 9 hereof. (b) Payment for the Firm Shares to be sold hereunder is to be made in New York Clearing House funds by Federal (same day) funds against delivery of certificates therefor to the Representatives for the several accounts of the Underwriters. Such payment and delivery are to be made through the facilities of the Depository Trust Company, New York, New York at 10:00 a.m., New York time, on the third business day after the date of this Agreement or at such other time and date not later than five business days thereafter as you and the Company shall agree upon, such time and date being herein referred to as the "Closing Date." (As used herein, "business day" means a day on which the New York Stock Exchange is open for trading and on which banks in New York are open for business and are not permitted by law or executive order to be closed.) (c) In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the several Underwriters to purchase the Option Shares at the price per share as set forth in the first paragraph of this Section 2. The option granted hereby may be exercised in whole or in part by giving written notice (i) at any time before the Closing Date and (ii) only once thereafter within 30 days after the date of this Agreement, by you, as Representatives of the several Underwriters, to the Company setting forth the number of Option Shares as to which the several Underwriters are exercising the option, the names and denominations in which the Option Shares are to be registered and the time and date at which such certificates are to be delivered. The time and date at which certificates for Option Shares are to be delivered shall be determined by the Representatives but shall not be earlier than three nor later than 10 full business days after the exercise of such option, nor in any event prior to the Closing Date (such time and date being herein referred to as the "Option Closing Date"). If the date of exercise of the option is three or more days before the Closing Date, the notice of exercise shall set the Closing Date as the Option Closing Date. The number of Option Shares to be purchased by each Underwriter shall be in the same proportion to the total number of Option Shares being purchased as the number of Firm Shares being purchased by such Underwriter bears to the total number of Firm Shares being purchased, adjusted by you in such manner as to avoid fractional shares. The option with respect to the Option Shares granted hereunder may be exercised only to cover over-allotments in the sale of the Firm Shares by the 10 -10- Underwriters. You, as Representatives of the several Underwriters, may cancel such option at any time prior to its expiration by giving written notice of such cancellation to the Company. To the extent, if any, that the option is exercised, payment for the Option Shares shall be made on the Option Closing Date in Federal (same day funds) through the facilities of the Depository Trust Company in New York, New York drawn to the order of the Company. 3. OFFERING BY THE UNDERWRITERS. It is understood that the several Underwriters are to make a public offering of the Firm Shares as soon as the Representatives deem it advisable to do so. The Firm Shares are to be initially offered to the public at the initial public offering price set forth in the Prospectus. The Representatives may from time to time thereafter change the public offering price and other selling terms. To the extent, if at all, that any Option Shares are purchased pursuant to Section 2 hereof, the Underwriters will offer them to the public on the foregoing terms. It is further understood that you will act as the Representatives for the Underwriters in the offering and sale of the Shares in accordance with a Master Agreement Among Underwriters entered into by you and the several other Underwriters. 4. COVENANTS OF THE COMPANY. The Company covenants and agrees with the several Underwriters that: (a) The Company will (A) use its best efforts to cause the Registration Statement to become effective or, if the procedure in Rule 430A of the Rules and Regulations is followed, to prepare and timely file with the Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form approved by the Representatives containing information previously omitted at the time of effectiveness of the Registration Statement in reliance on Rule 430A of the Rules and Regulations, and (B) not file any amendment to the Registration Statement or supplement to the Prospectus of which the Representatives shall not previously have been advised and furnished with a copy or to which the Representatives shall have reasonably objected in writing or which is not in compliance with the Rules and Regulations. To the extent applicable, the copies of the Registration Statement and each amendment thereto (including all exhibits filed therewith), any Preliminary Prospectus or Prospectus (in each case, as amended or supplemented) furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (b) The Company will advise the Representatives promptly (A) when the Registration Statement or any post-effective amendment thereto shall have become effective, (B) of receipt of any comments from the Commission, (C) of any request of the Commission for amendment of the Registration Statement or for supplement to the Prospectus or for any additional information, and (D) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the use of the Prospectus or of the institution of any proceedings for that purpose. The Company will use its best efforts to prevent the issuance of any 11 -11- such stop order preventing or suspending the use of the Prospectus and to obtain as soon as possible the lifting thereof, if issued. (c) The Company will cooperate with the Representatives in endeavoring to qualify the Shares for sale under the securities laws of such jurisdictions as the Representatives may reasonably have designated in writing and will make such applications, file such documents, and furnish such information as may be reasonably required for that purpose, provided the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction where it is not now so qualified or required to file such a consent. The Company will, from time to time, prepare and file such statements, reports, and other documents, as are or may be required to continue such qualifications in effect for so long a period as the Representatives may reasonably request for distribution of the Shares. (d) The Company will deliver to, or upon the order of, the Representatives, from time to time, as many copies of any Preliminary Prospectus as the Representatives may reasonably request. The Company will deliver to, or upon the order of, the Representatives during the period when delivery of a Prospectus is required under the Act, as many copies of the Prospectus in final form, or as thereafter amended or supplemented, as the Representatives may reasonably request. The Company will deliver to the Representatives at or before the Closing Date, four signed copies of the Registration Statement and all amendments thereto including all exhibits filed therewith, and will deliver to the Representatives such number of copies of the Registration Statement (including such number of copies of the exhibits filed therewith that may reasonably be requested), and of all amendments thereto, as the Representatives may reasonably request. (e) The Company will comply with the Act and the Rules and Regulations, and the Exchange Act, and the rules and regulations of the Commission thereunder, so as to permit the completion of the distribution of the Shares as contemplated in this Agreement and the Prospectus. If during the period in which a prospectus is required by law to be delivered by an Underwriter or dealer, any event shall occur as a result of which, in the judgment of the Company or in the reasonable opinion of the Underwriters, it becomes necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances existing at the time the Prospectus is delivered to a purchaser, not misleading, or, if it is necessary at any time to amend or supplement the Prospectus to comply with any law, the Company promptly will prepare and file with the Commission an appropriate amendment to the Registration Statement or supplement to the Prospectus so that the Prospectus as so amended or supplemented will not, in the light of the circumstances when it is so delivered, be misleading, or so that the Prospectus will comply with the law. (f) The Company will make generally available to its security holders, as soon as it is practicable to do so, but in any event not later than 15 months after the effective date of the Registration Statement, an earning statement (which need not be audited) in reasonable detail, covering a period of at least 12 consecutive months beginning after the effective date of the Registration Statement, which earning statement shall satisfy the requirements of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will advise you in writing when such statement has been so made available. 12 -12- (g) Prior to the Closing Date, the Company will furnish to the Underwriters, as soon as they have been prepared by or are available to the Company, a copy of any unaudited interim financial statements of the Company for any period subsequent to the period covered by the most recent financial statements appearing in the Registration Statement and the Prospectus. (h) No offering, sale, short sale or other disposition of any shares of Common Stock of the Company or other securities convertible into or exchangeable or exercisable for shares of Common Stock or derivative of Common Stock (or agreement for such) will be made for a period of 180 days after the date on the final Prospectus, directly or indirectly, by the Company otherwise than hereunder or with the prior written consent of BT Alex. Brown Incorporated, except for (i) option or other grants pursuant to the Company's Amended and Restated Equity Incentive Plan, as in effect on the date hereof; (ii) stock issued upon exercise of options granted pursuant to the Company's Amended and Restated Equity Incentive Plan or warrants outstanding on the date hereof, provided, however, that any individual receiving 3,333 or more shares of Common Stock signs a Lockup Agreement (as defined in clause (j) below) as a condition to receiving such Common Stock; (iii) strategic issuances of Common Stock for purposes other than capital raising provided that each individual or entity receiving any such shares of Common Stock signs a Lockup Agreement as a condition to the issuance; or (iv) the issuance and sale of the Firm Shares and any Option Shares. (i) The Company will use its best efforts to list, subject to notice of issuance, the Shares on The Nasdaq National Market. (j) The Company has caused each officer and director and shall use its best efforts to cause each shareholder holding 3,333 or more shares of Common Stock of the Company to furnish to you, on or prior to the date of this agreement, a letter or letters, in form and substance satisfactory to the Underwriters, pursuant to which each such person shall agree not to offer, sell, sell short or otherwise dispose of any shares of Common Stock of the Company or other capital stock of the Company, or any other securities convertible, exchangeable or exercisable for Common Stock or derivative of Common Stock owned by such person or request the registration for the offer or sale of any of the foregoing (or as to which such person has the right to direct the disposition of) for a period of 180 days after the date on the final Prospectus, directly or indirectly, except with the prior written consent of BT Alex. Brown Incorporated ("Lockup Agreements"). (k) The Company shall apply the net proceeds of its sale of the Shares as set forth in the Prospectus and shall include such information with respect thereto in such reports filed with the Commission as may be required in accordance with Rule 463 under the Act. (l) The Company shall not invest, or otherwise use the proceeds received by the Company from its sale of the Shares in such a manner as would require the Company or any of the Subsidiaries to register as an investment company under the 1940 Act. (m) The Company will maintain a transfer agent and, if necessary under the jurisdiction of incorporation of the Company, a registrar for the Common Stock. 13 -13- (n) The Company will not take, directly or indirectly, any action designed to cause or result in, or that has constituted or might reasonably be expected to constitute, the stabilization or manipulation of the price of any securities of the Company. 5. COSTS AND EXPENSES. The Company will pay all costs, expenses and fees incident to the performance of the obligations of the Company under this Agreement, including, without limiting the generality of the foregoing, the following: accounting fees of the Company; the fees and disbursements of counsel for the Company; the cost of printing and delivering to, or as requested by, the Underwriters copies of the Registration Statement, Preliminary Prospectuses, the Prospectus, this Agreement, [the Underwriters' Selling Memorandum,] the Underwriters' Invitation Letter, [the Listing Application,] the Blue Sky Survey and any supplements or amendments thereto; the filing fees of the Commission; the filing fees and expenses (including legal fees and disbursements) incident to securing any required review by the NASD of the terms of the sale of the Shares; [the Listing Fee of the Nasdaq National Market]; and the expenses, including the fees and disbursements of counsel for the Underwriters, incurred in connection with the qualification of the Shares under State securities or Blue Sky laws. The Company agrees to pay all costs and expenses of the Underwriters, including the fees and disbursements of counsel for the Underwriters, incident to the offer and sale of directed shares of the Common Stock by the Underwriters to employees and persons having business relationships with the Company and its Subsidiaries. The Company shall not, however, be required to pay for any of the Underwriters' expenses (other than those related to qualification under NASD regulation and State securities or Blue Sky laws) except that, if this Agreement shall not be consummated because the conditions in Section 6 hereof are not satisfied, or because this Agreement is terminated by the Representatives pursuant to Section 11 hereof, or by reason of any failure, refusal or inability on the part of the Company to perform any undertaking or satisfy any condition of this Agreement or to comply with any of the terms hereof on its part to be performed, unless such failure to satisfy said condition or to comply with said terms be due to the default or omission of any Underwriter, then the Company shall reimburse the several Underwriters for reasonable out-of-pocket expenses, including fees and disbursements of counsel, reasonably incurred in connection with investigating, marketing and proposing to market the Shares or in contemplation of performing their obligations hereunder; but the Company shall not in any event be liable to any of the several Underwriters for damages on account of loss of anticipated profits from the sale by them of the Shares. 6. CONDITIONS TO OBLIGATIONS OF THE UNDERWRITERS. The several obligations of the Underwriters to purchase the Firm Shares on the Closing Date and the Option Shares, if any, on the Option Closing Date are subject to the accuracy, as of the Closing Date or the Option Closing Date, as the case may be, of the representations and warranties of the Company contained herein, and to the performance by the Company of its covenants and obligations hereunder and to the following additional conditions: 14 -14- (a) The Registration Statement and all post-effective amendments thereto shall have become effective and any and all filings required by Rule 424 and Rule 430A of the Rules and Regulations shall have been made, and any request of the Commission for additional information (to be included in the Registration Statement or otherwise) shall have been disclosed to the Representatives and complied with to their reasonable satisfaction. No stop order suspending the effectiveness of the Registration Statement, as amended from time to time, shall have been issued and no proceedings for that purpose shall have been taken or, to the knowledge of the Company, shall be contemplated by the Commission and no injunction, restraining order, or order of any nature by a Federal or state court of competent jurisdiction shall have been issued as of the Closing Date, or Option Closing Date, as the case may be, which would prevent the issuance of the Shares. (b) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, the opinions of Bryan Cave LLP, counsel for the Company, dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriters (and stating that it may be relied upon by counsel to the Underwriters) to the effect set forth in Schedule II hereto. In rendering such opinion Bryan Cave LLP may rely as to matters governed by the laws of states other than Delaware or Federal laws on local counsel in such jurisdictions, provided that in each case Bryan Cave LLP shall state that they believe that they and the Underwriters are justified in relying on such other counsel. In addition to the matters set forth above, such opinion shall also include a statement to the effect that (A) such counsel knows of no material legal or governmental proceedings pending or threatened against the company or any of the Subsidiaries except as set forth in the Prospectus and (B) nothing has come to the attention of such counsel which leads them to believe that (i) the Registration Statement, at the time it became effective under the Act (but after giving effect to any modifications incorporated therein pursuant to Rule 430A under the Act) and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (ii) the Prospectus, or any supplement thereto, on the date it was filed pursuant to the Rules and Regulations and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements, in the light of the circumstances under which they are made, not misleading (except that such counsel need express no view as to financial statements, schedules and statistical information therein). With respect to such statement, Bryan Cave LLP may state that their belief is based upon the procedures set forth therein, but is without independent check and verification. (c) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, the opinion of Foley & Lardner, patent counsel for the Company, dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriters (and stating that it may be relied upon by counsel to the Underwriters) to the effect set forth on Schedule III hereto. In such opinion, Foley & Lardner shall state that, during the course of preparation of the Registration Statement, such counsel participated in certain discussions with officers of the Company as to the patent matters dealt with under the captions Risk Factors - Uncertainty Relating to Patents and Proprietary Rights" and "Business - Patents, Proprietary Rights and Licenses" in the Prospectus. While such counsel has not undertaken to determine independently and such counsel does not assume any responsibility for, the accuracy, completeness, 15 -15- or fairness of the statements under such captions in the Prospectus, such counsel shall state on the basis of these discussions that no facts have come to their attention which cause them to believe that the statements in the Prospectus under such captions, at the time the Registration Statement became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or at the Closing Date or the Option Closing Date, as the case may be, contains an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (d) The Representatives shall have received from Testa, Hurwitz & Thibeault, LLP, counsel for the Underwriters, an opinion dated the Closing Date or the Option Closing Date, as the case may be, substantially to the effect specified in subparagraphs (ii), (iii), (iv) and (ix) of Paragraph (b) of this Section 6, and that the Company is a duly organized and validly existing corporation under the laws of the State of Delaware. In rendering such opinion Testa, Hurwitz & Thibeault, LLP may rely as to all matters governed other than by the laws of the Commonwealth of Massachusetts, the General Corporation Law of the State of Delaware or Federal laws on the opinion of counsel referred to in Paragraph (b) of this Section 6. In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which leads them to believe that (i) the Registration Statement, or any amendment thereto, as of the time it became effective under the Act (but after giving effect to any modifications incorporated therein pursuant to Rule 430A under the Act) as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (ii) the Prospectus, or any supplement thereto, on the date it was filed pursuant to the Rules and Regulations and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact, necessary in order to make the statements, in the light of the circumstances under which they are made, not misleading (except that such counsel need express no view as to financial statements, schedules and statistical information therein). With respect to such statement, Testa, Hurwitz & Thibeault, LLP may state that their belief is based upon the procedures set forth therein, but is without independent check and verification. [(e) The Representatives shall have received at or prior to the Closing Date from Testa, Hurwitz & Thibeault, LLP a memorandum or summary, in form and substance satisfactory to the Representatives, with respect to the qualification for offering and sale by the Underwriters of the Shares under the State securities or Blue Sky laws of such jurisdictions as the Representatives may reasonably have designated to the Company.]1 (f) You shall have received, on each of the dates hereof, the Closing Date and the Option Closing Date, as the case may be, a letter dated the date hereof, the Closing Date or the Option Closing Date, as the case may be, in form and substance satisfactory to you, of KPMG LLP confirming that they are independent public accountants within the meaning of the Act and the applicable published Rules and Regulations thereunder and stating that in their opinion the financial statements and schedules examined by them and included in the Registration Statement comply in form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations; and containing such other statements and information as is ordinarily included in accountants' "comfort letters" to Underwriters with respect to the financial - ----------------------- 1 Confirm with Syndicate Department as to whether this is required. 16 -16- statements and certain financial and statistical information contained in the Registration Statement and Prospectus. (g) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, a certificate or certificates of the Chief Executive Officer and the Chief Financial Officer of the Company to the effect that, as of the Closing Date or the Option Closing Date, as the case may be, each of them severally represents as follows: (i) The Registration Statement has become effective under the Act and, to the best knowledge of such officers, no stop order suspending the effectiveness of the Registrations Statement has been issued, and no proceedings for such purpose have been taken or are, to his knowledge, contemplated by the Commission; (ii) The representations and warranties of the Company contained in Section 1 hereof are true and correct as of the Closing Date or the Option Closing Date, as the case may be; (iii) All filings required to have been made pursuant to Rules 424 or 430A under the Act have been made; (iv) She or he has carefully examined the Registration Statement and the Prospectus and, in his or her opinion, as of the effective date of the Registration Statement, the statements contained in the Registration Statement were true and correct, and such Registration Statement and Prospectus did not omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, and since the effective date of the Registration Statement, no event has occurred which should have been set forth in a supplement to or an amendment of the Prospectus which has not been so set forth in such supplement or amendment; and (v) Since the respective dates as of which information is given in the Registration Statement and Prospectus, there has not been any Material Adverse Change or any development involving a prospective Material Adverse Change, whether or not arising in the ordinary course of business. (h) The Company shall have furnished to the Representatives such further certificates and documents confirming the representations and warranties, covenants and conditions contained herein and related matters as the Representatives may reasonably have requested. 17 -17- (i) The Firm Shares and Option Shares, if any, have been approved for designation upon notice of issuance on the Nasdaq National Market. (j) The Lockup Agreements are in full force and effect. The opinions and certificates mentioned in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in all material respects reasonably satisfactory to the Representatives and to Testa, Hurwitz & Thibeault, LLP, counsel for the Underwriters. If any of the conditions hereinabove provided for in this Section 6 shall not have been fulfilled when and as required by this Agreement to be fulfilled, the obligations of the Underwriters hereunder may be terminated by the Representatives by notifying the Company of such termination in writing or by telegram at or prior to the Closing Date or the Option Closing Date, as the case may be. In such event, the Company and the Underwriters shall not be under any obligation to each other (except to the extent provided in Sections 5 and 8 hereof). 7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligations of the Company to sell and deliver the portion of the Shares required to be delivered as and when specified in this Agreement are subject to the conditions that at the Closing Date or the Option Closing Date, as the case may be, no stop order suspending the effectiveness of the Registration Statement shall have been issued and in effect or proceedings therefor initiated or threatened. 8. INDEMNIFICATION. (a) The Company agrees: (1) to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of the Act, against any losses, claims, damages or liabilities to which such Underwriter or any such controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any act or failure to act, or any alleged act or failure to act, by any Underwriter in connection with, or relating in any manner to, the Shares or the offering contemplated hereby, and which is included as part of or referred to in any loss, claim, damage, liability or action arising out of or based upon matters covered by clause (i) or (ii) above (provided, that the Company shall not be liable under this clause (iii) to the extent that it is determined in a 18 -18- final judgment by a court of competent jurisdiction that such loss, claim, damage, liability or action resulted directly from any such acts or failures to act undertaken or omitted to be taken by such Underwriter through its negligence or misconduct); provided, however, that the Company will not be liable in any such case to the extent that (i) any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement, or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Prospectus, or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Representatives specifically for use in the preparation thereof or (ii) any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement, or omission or alleged omission contained or made in any Preliminary Prospectus and corrected in the Prospectus and (1) any such loss, claim, damage or liability suffered or incurred by any Underwriter (or any person who controls any Underwriter) resulted from an action, claim or suit by any person who purchased Shares which are the subject thereof from such Underwriter in the offering and (2) such Underwriter failed to deliver or provide a copy of the Prospectus to such person at or prior to the confirmation of the sale of such Shares in any case where such delivery is required by the Act. This indemnity obligation will be in addition to any liability which the Company may otherwise have. (2) to reimburse each Underwriter and each such controlling person upon demand for any legal or other out-of-pocket expenses reasonably incurred by such Underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage or liability, action or proceeding or in responding to a subpoena or governmental inquiry related to the offering of the Shares, whether or not such Underwriter or controlling person is a party to any action or proceeding. In the event that it is finally judicially determined that the Underwriters were not entitled to receive payments for legal and other expenses pursuant to this subparagraph, the Underwriters will promptly return all sums that had been advanced pursuant hereto. (b) Each Underwriter severally and not jointly will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the Registration Statement and each person, if any, who controls the Company within the meaning of the Act, against any losses, claims, damages or liabilities to which the Company or any such director, officer, or controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; and will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, or controlling person in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; provided, however, that each Underwriter will be liable in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission has been made in the 19 -19- Registration Statement, any Preliminary Prospectus, the Prospectus or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Representatives specifically for use in the preparation thereof. This indemnity agreement will be in addition to any liability which such Underwriter may otherwise have. (c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to this Section 8, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing. No indemnification provided for in Section 8(a) or (b) shall be available to any party who shall fail to give notice as provided in this Section 8(c) if the party to whom notice was not given was unaware of the proceeding to which such notice would have related and was materially prejudiced by the failure to give such notice, but the failure to give such notice shall not relieve the indemnifying party or parties from any liability which it or they may have to the indemnified party for contribution or otherwise than on account of the provisions of Section 8(a) or (b). In case any such proceeding shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party and shall pay as incurred the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel at its own expense. Notwithstanding the foregoing, the indemnifying party shall pay as incurred (or within 30 days of presentation) the fees and expenses of the counsel retained by the indemnified party in the event (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them or (iii) the indemnifying party shall have failed to assume the defense and employ counsel acceptable to the indemnified party within a reasonable period of time after notice of commencement of the action. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm for all such indemnified parties. Such firm shall be designated in writing by you in the case of parties indemnified pursuant to Section 8(a) and by the Company in the case of parties indemnified pursuant to Section 8(b). The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment, except as otherwise provided in such settlement or judgment. In addition, the indemnifying party will not, without the prior written consent of the indemnified party, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding of which indemnification may be sought hereunder (whether or not any indemnified party is an actual or potential party to such claim, action or proceeding) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action or proceeding. 20 -20- (d) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under Section 8(a) or (b) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, (or actions or proceedings in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 8(d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 8(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to above in this Section 8(d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), (i) no Underwriter shall be required to contribute any amount in excess of the underwriting discounts and commissions applicable to the Shares purchased by such Underwriter and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this Section 8(d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) In any proceeding relating to the Registration Statement, any Preliminary Prospectus, the Prospectus or any supplement or amendment thereto, each party against whom contribution may be sought under this Section 8 hereby consents to the jurisdiction of any court having jurisdiction over any other contributing party, agrees that process issuing from such court may be served upon him or it by any other contributing party and consents to the service of such process and agrees that any other contributing party may join him or it as an additional defendant in any such proceeding in which such other contributing party is a party. 21 -21- (f) Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 8 shall be paid by the indemnifying party to the indemnified party as such losses, claims, damages, liabilities or expenses are incurred. The indemnity and contribution agreements contained in this Section 8 and the representations and warranties of the Company set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter, the Company, its directors or officers or any persons controlling the Company, (ii) acceptance of any Shares and payment therefor hereunder, and (iii) any termination of this Agreement. A successor to any Underwriter, or to the Company, its directors or officers, or any person controlling the Company, shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 8. 9. DEFAULT BY UNDERWRITERS. If on the Closing Date or the Option Closing Date, as the case may be, any Underwriter shall fail to purchase and pay for the portion of the Shares which such Underwriter has agreed to purchase and pay for on such date (otherwise than by reason of any default on the part of the Company), you, as Representatives of the Underwriters, shall use your reasonable efforts to procure within 36 hours thereafter one or more of the other Underwriters, or any others, to purchase from the Company such amounts as may be agreed upon and upon the terms set forth herein, the Firm Shares or Option Shares, as the case may be, which the defaulting Underwriter or Underwriters failed to purchase. If during such 36 hours you, as such Representatives, shall not have procured such other Underwriters, or any others, to purchase the Firm Shares or Option Shares, as the case may be, agreed to be purchased by the defaulting Underwriter or Underwriters, then (a) if the aggregate number of shares with respect to which such default shall occur does not exceed 10% of the Firm Shares or Option Shares, as the case may be, covered hereby, the other Underwriters shall be obligated, severally, in proportion to the respective numbers of Firm Shares or Option Shares, as the case may be, which they are obligated to purchase hereunder, to purchase the Firm Shares or Option Shares, as the case may be, which such defaulting Underwriter or Underwriters failed to purchase, or (b) if the aggregate number of shares of Firm Shares or Option Shares, as the case may be, with respect to which such default shall occur exceeds 10% of the Firm Shares or Option Shares, as the case may be, covered hereby, the Company or you as the Representatives of the Underwriters will have the right, by written notice given within the next 36-hour period to the parties to this Agreement, to terminate this Agreement without liability on the part of the non-defaulting Underwriters or of the Company except to the extent provided in Section 8 hereof. In the event of a default by any Underwriter or Underwriters, as set forth in this Section 9, the Closing Date or Option Closing Date, as the case may be, may be postponed for such period, not exceeding seven days, as you, as Representatives, may determine in order that the required changes in the Registration Statement or in the Prospectus or in any other documents or arrangements may be effected. The term "Underwriter" includes any person substituted for a defaulting Underwriter. Any action taken under this Section 9 shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. 22 -22- 10. NOTICES. All communications hereunder shall be in writing and, except as otherwise provided herein, will be mailed, delivered, telecopied or telegraphed and confirmed as follows: if to the Underwriters, to BT Alex. Brown Incorporated, One South Street, Baltimore, Maryland 21202, Attention: Russell T. Ray, Managing Director; with a copy to BT Alex. Brown Incorporated, One Bankers Trust Plaza, 130 Liberty Street, New York, New York 10006, Attention: General Counsel; if to the Company, to United Therapeutics Corporation, 1110 Spring Street, Silver Spring, MD 20910, Attention: Martine Rothblatt; with a copy to Bryan Cave LLP, 700 13th Street N.W., Suite 700, Washington, DC, Attention: LaDawn Naegle, Esq. 11. TERMINATION. This Agreement may be terminated: (a) by you by notice to the Company at any time prior to the Closing Date if any of the following has occurred: (i) since the respective dates as of which information is given in the Registration Statement and the Prospectus, any Material Adverse Change or any development involving a prospective Material Adverse Change, whether or not arising in the ordinary course of business, (ii) any outbreak or escalation of hostilities or declaration of war or national emergency or other national or international calamity or crisis or change in economic or political conditions if the effect of such outbreak, escalation, declaration, emergency, calamity, crisis or change on the financial markets of the United States would, in your reasonable judgment, make it impracticable or inadvisable to market the Shares or to enforce contracts for the sale of the Shares, or (iii) suspension of trading in securities generally on the New York Stock Exchange or Nasdaq-Amex or limitation on prices (other than limitations on hours or numbers of days of trading) for securities on either such Exchange, (iv) the enactment, publication, decree or other promulgation of any statute, regulation, rule or order of any court or other governmental authority which in your opinion materially and adversely affects or may materially and adversely affect the business or operations of the Company, (v) declaration of a banking moratorium by United States or New York State authorities, (vi) the suspension of trading of the Company's common stock by the Nasdaq National Market, the Commission, or any other governmental authority or, (vii) the taking of any action by any governmental body or agency in respect of its monetary or fiscal affairs which in your reasonable opinion has a material adverse effect on the securities markets in the United States; or (b) as provided in Sections 6 and 9 of this Agreement. 12. SUCCESSORS. This Agreement has been and is made solely for the benefit of the Underwriters the Company and their respective successors, executors, administrators, heirs and assigns, and the officers, directors and controlling persons referred to herein, and no other person will have any right or obligation hereunder. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign merely because of such purchase. 23 -23- 13. INFORMATION PROVIDED BY UNDERWRITERS. The Company, the Selling Shareholders and the Underwriters acknowledge and agree that the only information furnished or to be furnished by any Underwriter to the Company for inclusion in any Prospectus or the Registration Statement consists of the information set forth in the last paragraph on the front cover page (insofar as such information relates to the Underwriters), legends required by Item 502(d) of Regulation S-K under the Act and the information under the caption "Underwriting" in the Prospectus. 14. MISCELLANEOUS. The reimbursement, indemnification and contribution agreements contained in this Agreement and the representations, warranties and covenants in this Agreement shall remain in full force and effect regardless of (a) any termination of this Agreement, (b) any investigation made by or on behalf of any Underwriter or controlling person thereof, or by or on behalf of the Company or its directors or officers and (c) delivery of and payment for the Shares under this Agreement. This 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. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Maryland. If the foregoing letter is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicates hereof, whereupon it will become a binding agreement among the Company and the several Underwriters in accordance with its terms. 24 -24- Very truly yours, UNITED THERAPEUTICS CORPORATION By:____________________________________ Name:__________________________________ Title:_________________________________ The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. BT ALEX. BROWN INCORPORATED A.G. EDWARDS & SONS, INC. VECTOR SECURITIES INTERNATIONAL, INC. As Representatives of the several Underwriters listed on Schedule I By: BT Alex. Brown Incorporated By:______________________________ Authorized Officer EX-3.1 3 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION 1 Exhibit 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF UNITED THERAPEUTICS CORPORATION It is hereby certified that: 1. The present name of the corporation (hereinafter called the "corporation") is United Therapeutics Corporation. The name under which the corporation was originally incorporated was Lung Rx, Inc.; and the date of filing the original certificate of incorporation of the corporation with the Secretary of State of the State of Delaware is June 26, 1996. 2. The certificate of incorporation is hereby amended in its entirety as set forth in the Restated Certificate of Incorporation hereinafter provided for. 3. The provisions of the certificate of incorporation of the corporation as heretofore amended and/or supplemented, and as herein amended, are hereby restated and integrated into the single instrument which is hereinafter set forth, and which is entitled Amended and Restated Articles of Incorporation of United Therapeutics Corporation. 4. The amendments and the restatement of the certificate of incorporation herein certified have been duly adopted by the stockholders in accordance with the provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware. 5. The certificate of incorporation of the corporation, as amended and restated herein, shall at the effective time of this amended and restated certificate of incorporation, which shall not be the date of filing hereof but shall be a date no later than 90 days from the date of such filing as established by the Board of Directors, read as follows: ARTICLE I The name of the corporation (hereinafter referred to as the "Corporation") is United Therapeutics Corporation. ARTICLE II The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name and address of the Registered agent is Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington Delaware. ARTICLE III The period of duration of the Corporation is perpetual. 2 ARTICLE IV The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law ("DGCL"). ARTICLE V (a) The total number of shares of capital stock of all classes which the Corporation shall have the authority to issue is One Hundred Ten Million (110,000,000) shares, consisting of One Hundred Million (100,000,000) shares of Common Stock, par value $.01 per share, and Ten Million (10,000,000) shares of Preferred Stock, par value $.01 per share. (b) The designations, voting powers, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions of the above classes of stock are as follows: (i) Subject to the limitations hereinafter contained and to the requirements of the laws of the State of Delaware, authority is hereby vested in the Board of Directors of the Corporation to issue from time to time said Ten Million (10,000,000) shares of Preferred Stock in one or more series, with such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated in the resolution or resolutions providing for the issuance of such stock adopted by the Board of Directors. Without limiting the generality of the foregoing, in the resolution or resolutions providing for the issuance of such shares of each particular series of Preferred Stock, subject to the limitations hereinafter contained and to the requirements of the laws of the State of Delaware, the Board of Directors is also expressly authorized: (A) to fix the distinctive serial designation of the shares of any such series; (B) to fix the consideration for which the shares of any such series are to be issued; (C) to fix the rate or amount per annum, if any, at which the holders of the shares of any such series shall be entitled to receive dividends, the dates on which such dividends shall be payable, whether the dividends shall be cumulative or noncumulative, and if cumulative, to fix the date or dates from which such dividends shall be cumulative; (D) to fix the price or prices at which, the times during which, and the other terms, if any, upon which the shares of any such series may be redeemed; (E) to fix the rights, if any, which the holders of shares of any such series have in the event of dissolution or upon distribution of the assets of the Corporation; 2 3 (F) to determine whether the shares of any such series shall be made convertible into or exchangeable for other securities of the Corporation, including shares of the Common Stock of the Corporation or shares of any other series of the Preferred Stock of the Corporation, now or hereafter authorized, or any new class of preferred stock of the Corporation hereafter authorized, the price or prices or the rate or rates at which conversion or exchange may be made, and the terms and conditions upon which any such conversion right or exchange right shall be exercised; (G) to determine whether a sinking fund shall be provided for the purchase or redemption of shares of any series and, if so, to fix the terms and amount or amounts of such sinking fund; (H) to determine whether the shares of any such series shall have voting rights, and, if so, to fix the voting rights of the shares of such series; and (I) to fix such other preferences and rights privileges and restrictions applicable to any such series as may be permitted by law. (ii) Subject to the prior rights of the holders of any shares of Preferred Stock, the holders of the Common Stock shall be entitled to receive, to the extent permitted by law, such dividends as may be declared from time to time by the Board of Directors. In the event of any voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the Corporation, after the holders of the Preferred Stock then outstanding, if any, shall have received the full preferential amounts to which such holders may be entitled upon such voluntary or involuntary liquidation, dissolution, distribution of assets or winding up, the holders of Common Stock shall be entitled, to the exclusion of such holders of the Preferred Stock then outstanding, to receive all the remaining assets of the Corporation of whatever kind available for distribution to stockholders, ratably in proportion to the number of shares of Common Stock held by them respectively. A consolidation, merger or reorganization of the Corporation with any other corporation or corporations, or a sale of all or substantially all of the assets of the Corporation, shall not be considered a dissolution, liquidation or winding up of the Corporation within the meaning of the immediately preceding sentence. Except as may otherwise by required by law, the By-Laws of the Corporation or this Certificate of Incorporation, each holder of Common Stock shall be entitled to one vote for each share of Common Stock held of record in the name of such stockholder on all matters voted upon by the stockholders, including the election of directors. (c) The Corporation hereby declares that, as of the effective date of filing of this Amended and Restated Certificate of Amendment, each three outstanding shares of the Corporation's Common Stock, par value $.01 per share be converted and reconstituted into one share of Common Stock, par value $.01 per share. No fractional shares shall be issued upon such conversion and reconstitution, and the number of shares of Common Stock to be issued shall be 3 4 rounded down to the nearest whole share. ARTICLE VI All preemptive rights of shareholders are hereby denied, so that no shares of capital stock of the Corporation of any class whether now or hereafter authorized and no other security of the Corporation shall carry with it and no holder or owner of any share or shares of capital stock of the Corporation of any class whether now or hereafter authorized or of any other security of the Corporation shall have any preferential or preemptive right to acquire additional shares of capital stock of the Corporation of any class whether now or hereafter authorized or of any other security of the Corporation. All cumulative voting rights are hereby denied, so that none of the capital stock of the Corporation of any class whether now or hereafter authorized or of any other security of the Corporation shall carry with it and no holder or owner of any share or shares of capital stock of the Corporation of any class whether now or hereafter authorized or of any other security of the Corporation shall have any right to cumulative voting in the election of directors or for any other purpose. The foregoing provisions are not intended to modify or prohibit any provisions of any voting trust or agreement between or among holders or owners of shares of stock or other securities. ARTICLE VII (a) Except as may be otherwise provided by law or in this Certificate of Incorporation, the business and affairs of the Corporation shall be managed under the direction of the Board of Directors. The number of directors of the Corporation shall be fixed by, or in the manner provided in, the By-Laws of the Corporation. In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized and empowered: (i) to make, alter, amend or repeal the By-Laws of the Corporation in any manner not inconsistent with the laws of the State of Delaware or this Certificate of Incorporation, subject to the power of the stockholders, at the time entitled to vote, to alter, amend or repeal By-Laws made by the Board of Directors; (ii) to fix from time to time the amount of net profits of the Corporation or of its surplus to be reserved as working capital or for any other lawful purpose; (iii) to authorize and issue obligations of the Corporation, secured or unsecured, and to include therein such provisions as to redemption, conversion or other terms thereof as the Board of Directors in its sole discretion may determine, and to authorize the mortgaging or pledging, as security therefor, of any property of the Corporation, real or personal, including after-acquired property; 4 5 (iv) to determine whether any, and if any, what part, of the net profits of the Corporation or of its surplus shall be declared in dividends and paid to the stockholders, and to direct and determine the use and disposition of such net profits or such surplus; and (v) from time to time, without the vote or assent of the stockholders, to issue additional shares of authorized Common Stock. In addition to the powers and authorities herein or by law expressly conferred upon it, the Board of Directors may exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the laws of the State of Delaware, of this Certificate of Incorporation and of the By-Laws of the Corporation. (b) No contract or other transaction of the Corporation shall be affected by the fact that any of the directors of the Corporation are in any way interested in or connected with any other party to such contract or transaction, or are themselves parties to such contract or transaction, provided that at the meeting of the Board of Directors or of the committee there of authorizing or confirming such contract or transaction there shall be present a quorum of directors not so interested or connected, and such contract or transaction shall be approved by a majority of such quorum, which shall consist of directors not so interested or connected. (c) The Board of Directors shall be divided into three classes, designated Class I, Class II and Class III, as nearly equal in number as the then total number of directors constituting the whole Board permits. If the number of directors is changed, any increase or decrease shall be apportioned by the Board of Directors among the three classes so that the number in each class shall be as nearly equal as possible. The term of office of each class shall expire at the third annual meeting of stockholders for election of directors following the election of such class, except that the initial term of office of the Class I directors shall expire at the annual meeting of stockholders in 2001, the initial term of office of the Class II directors shall expire at the annual meeting of stockholders in 2002 and the initial term of office of the Class III directors shall expire at the annual meeting of stockholders in 2003. At each annual meeting of the stockholders of the Corporation, the successors of the class of directors whose term expires at such meeting shall be elected to hold office for a term expiring as of the third succeeding annual meeting. ARTICLE VIII (a) The Corporation shall to the fullest extent permitted by the laws of Delaware as the same now or may hereafter exist, indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and 5 6 reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. To the extent that a director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in this subsection (a) of this ARTICLE VIII or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith. (b) Any indemnification required under subsection (a) of this ARTICLE VIII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he or she has met the applicable standard of conduct set forth in subsection (a) of this ARTICLE VIII. Such determination shall be made (1) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. (c) Expenses (including attorneys' fees) incurred by an officer or a director in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation as authorized in or pursuant to this ARTICLE VIII. (d) The indemnification and advancement of expenses provided by, or granted pursuant to paragraph (c) of this ARTICLE VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any agreement, vote of stockholders or disinterested directors, the By-Laws of the Corporation or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. (e) Without limiting the provisions of this ARTICLE VIII, the Corporation is authorized from time to time, without further action by the stockholders of the Corporation, to enter into agreements with any director or officer of the Corporation providing such rights of indemnification as the Corporation may deem appropriate, up to the maximum extent permitted by law. Any agreement entered into by the Corporation with a director may be authorized by the other directors, and such authorization shall not be invalid on the basis that similar agreements may have been or may thereafter be entered into with other directors. 6 7 (f) The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this ARTICLE VIII. (g) The indemnification and advancement of expenses provided by, or granted pursuant to, this ARTICLE VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person. (h) For purposes of this ARTICLE VIII, references to a corporation shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which if its separate existence had continued, would have had power and authority to indemnify its directors or officers so that a person who is or was a director or officer of such constituent corporation, or is or was serving at the request of such constituent corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this ARTICLE VIII with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued. (i) For purposes of this ARTICLE VIII, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director or officer of the Corporation which imposes duties on, or involves services by such director or officer with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this ARTICLE VIII. (j) Persons who are not covered by the foregoing provisions of this ARTICLE VIII and who are or were employees or agents of the Corporation, or are or were serving at the request of the Corporation as employees or agents of another corporation, partnership, joint venture, trust or other enterprise, may be indemnified to the fullest extent permitted by the laws of Delaware as the same now or may hereafter exist or to such lesser extent as the Board of Directors of the Corporation, in its discretion, may from time to time deem appropriate. ARTICLE IX Except as otherwise provided in this Certificate of Incorporation, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected 7 8 by consent in writing by such stockholders. A special meeting of stockholders may be called only by the Board of Directors pursuant to a resolution adopted by the affirmative vote of a majority of the entire Board of Directors or by the Chairman of the Board of Directors, a Vice Chairman of the Board of Directors or the President. ARTICLE VIII Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors. ARTICLE XI A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director except (i) for breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL (providing for liability of directors for unlawful payment of dividends or unlawful stock purchases or redemptions), or (iv) for any transaction from which the director derived an improper personal benefit. Should the DGCL be amended hereafter so as to expand or limit the liability of a director, then the liability of a director of the Corporation shall be so expanded to the fullest extent required or so limited to the fullest extent permitted by such amendment without the need for amendment of this Certificate of Incorporation or further action on the part of the stockholders of the Corporation. * * * * * * 8 9 IN WITNESS WHEREOF, said United Therapeutics Corporation, has caused this certificate to be signed by its President and Secretary, this ______ day of April, 1999. UNITED THERAPEUTICS CORPORATION BY /s/ Martine Rothblatt ----------------------------- Martine Rothblatt, President ATTEST: BY /s/ Paul A. Mahon ------------------- Paul A. Mahon, Secretary 9 EX-3.2 4 AMENDED AND RESTATED BY-LAWS OF THE REGISTRANT 1 Exhibit 3.2 AMENDED AND RESTATED BY-LAWS OF UNITED THERAPEUTICS CORPORATION. ARTICLE I OFFICES Section 1.1 Registered Office. The registered office of United Therapeutics Corporation (the "Corporation") shall be in the State of Delaware at such location and with such registered agent in charge thereof as may be established by the Board of Directors from time to time. Section 1.2 Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II STOCKHOLDERS Section 2.1. Annual Meetings. An annual meeting of stockholders shall be held for the election of directors and to transact such other business as may properly be brought before the meeting at such date, time and place either within or without the State of Delaware as may be designated from time to time by the Board of Directors and stated in the notice of the meeting. Section 2.2. Special Meetings. A special meeting of the stockholders may be called only by the Board of Directors pursuant to a resolution adopted by the affirmative vote of a majority of the entire Board of Directors or by the Chairman of the Board of Directors, a Vice Chairman of the Board of Directors or the President. Only such business shall be conducted, and only such proposals shall be acted upon, as shall have been properly brought before the meeting as hereinafter provided. Section 2.3. Notice of Meetings. Whenever stockholders are required or permitted to take any action at a meeting, annual or special, a written notice of the meeting shall be given to such stockholder or stockholders which shall state the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the written notice of any meeting shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. 1 2 Section 2.4. Notice of Stockholder Business at Meetings. At any meeting of stockholders, annual or special, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been properly brought before the meeting as hereinafter provided. For a proposal to be properly brought before a meeting, each item of business must either (a) be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors or the persons calling the meeting as herein provided, (b) be otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) be otherwise properly brought before the meeting by a stockholder as hereinafter provided. For a proposal to be properly brought before a meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation, in the case of an annual meeting, not less than ninety (90) days nor more than one hundred and twenty (120) days prior to the meeting of stockholders and, in the case of a special meeting, not less than ten (10) days immediately following the giving of notice of such special meeting; provided, however, that in the event that less than one hundred (100) days notice or prior public disclosure of the date of the annual meeting of stockholders is given or made to the stockholders, to be timely, notice of a proposal delivered by the stockholder must be received by the Secretary not later than the close of business on the tenth day following the day on which notice of the date of the annual meeting of stockholders was mailed or such public disclosure was made to the stockholders. The provisions of this Section 2.4 shall also govern what constitutes timely notice for purposes of Rule 14a-4(c) under the Securities Exchange Act of 1934, as amended. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the meeting (a) a brief description of the proposal desired to be brought before the meeting and the reasons for conducting such business at the meeting, (b) the name and address of record of the stockholder proposing the business and any other stockholders known by such stockholder to be supporting the proposal, (c) the class or classes of stock and number of shares of such class or classes of stock which are beneficially owned by the proposing stockholder or stockholders on the date of the stockholder notice, and (d) any material interest of the proposing stockholder or stockholders in the proposal. Notwithstanding anything in these By-Laws to the contrary, no business shall be conducted at a meeting of stockholders except in accordance with the procedures set forth in this Section 2.4. The Board of Directors may reject any stockholder proposal submitted for consideration at a meeting of stockholders which is not made in accordance with the terms of this Section 2.4 or which is not a proper subject for stockholder action in accordance with provisions of applicable law. Alternatively, if the Board of Directors fails to consider the validity of any such stockholder proposal, the presiding officer of the meeting of stockholders may, if the facts warrant, determine and declare to the persons attending the meeting that the business was not properly brought before the meeting in accordance with the provisions of this Section 2.4, and he or she shall further declare that any such business not properly brought before such meeting shall not be transacted. The Board of Directors or, as the case may be, the presiding officer of the meeting shall have absolute authority to decide questions of compliance with the foregoing procedures and the Board of Directors' or, as the case may be, the presiding officer's ruling thereon shall be final and conclusive. This provision shall not prevent the consideration and approval or disapproval at the annual meeting of stockholders of reports of officers, directors and committees of the Board of Directors, but, in connection with such reports, no new business shall 2 3 be acted upon at such meeting unless stated, filed and received as herein provided. Section 2.5. Nomination of Director Candidates. To be qualified for election as a director, persons must be nominated in accordance with the procedures set forth in this Section 2.5. Nominations of candidates for election to the Board of Directors of the Corporation may be made only by or at the direction of the Board of Directors or by a stockholder entitled to vote at such meeting of stockholders. All such nominations, except those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received by the Secretary not less than ninety (90) days nor more than one hundred and twenty (120) days prior to the meeting of stockholders; provided, however, that in the event that less than one hundred (100) days' notice or prior public disclosure of the date of the meeting of stockholders is given or made to stockholders, to be timely, notice of a nomination delivered by such stockholder must be received by the Secretary not later than the close of business on the tenth day following the day on which notice of the date of the meeting of stockholders was mailed or such public disclosure was made to the stockholders. Such stockholder's notice shall set forth (a) the name, age, business address and residence address, and the principal occupation or employment of any nominee proposed in such notice, (b) the name and address of the stockholder or stockholders giving the notice as the same appears in the Corporation's stock ledger, (c) the number of shares of capital stock of the Corporation which are beneficially owned by any such nominee and by such nominating stockholder or stockholders, and (d) such other information concerning any such nominee as would be required, under the rules of the Securities and Exchange Commission, in a proxy statement soliciting proxies for the election of such nominee. At the request of the Board of Directors, any person nominated for election as a director shall furnish to the Secretary the information required by this Section 2.5 to be set forth in a stockholder's notice of nomination which pertains to the nominee. The Chairman of a meeting of stockholders shall, if the facts warrant, determine and declare at such meeting of stockholders that such nomination was not made in accordance with the procedures prescribed by this Section 2.5, and he or she shall further declare that the defective nomination shall be disregarded. The Chairman of a meeting of stockholders shall have absolute authority to decide questions of compliance with the foregoing procedures and his or her ruling thereon shall be final and conclusive. Section 2.6. Adjournments. Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 2.7. Quorum. At each meeting of stockholders, except where otherwise provided by law or the Certificate of Incorporation or these By-Laws, the holders of a majority of 3 4 the outstanding shares of each class of stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum. For purposes of the foregoing, two or more classes or series of stock shall be considered a single class if the holders thereof are entitled to vote together as a single class at the meeting. In the absence of a quorum, the stockholders so present may, by majority vote, adjourn the meeting from time to time in the manner provided by Section 2.6 of these By-Laws until a quorum shall be present or represented. The stockholders present or represented at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Shares of the Corporation's own capital stock belonging on the record date for the meeting to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation to vote stock, including, but not limited to, its own stock, held by it in a fiduciary capacity. Section 2.8. Organization. Meetings of stockholders shall be presided over by the Chairman of the Board, if any, or in his or her absence by the Vice Chairman of the Board, if any, or in his or her absence by the President, or in his or her absence by a Vice President, or in the absence of all of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 2.9. Voting; Proxies. Unless otherwise provided in the Certificate of Incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by him or her which has voting power upon the matter in question. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him or her by proxy, but no such proxy shall be voted or acted upon after three (3) years from the date of such proxy, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date than the original proxy with the Secretary of the Corporation. Voting at meetings of stockholders need not be by written ballot and need not be conducted by inspectors unless the holders of a majority of the outstanding shares of all classes of stock entitled to vote thereon present in person or by proxy at such meeting shall so determine. At all meetings of stockholders for the election of directors, a plurality of the votes cast shall be sufficient to elect. All other elections and questions shall, unless otherwise provided by law or by the Certificate of Incorporation or these By-Laws, be decided by the vote of the holders of a majority of the outstanding shares of all classes of stock entitled to vote thereon present in person or by proxy at the meeting, provided that (except as otherwise required by law or by the Certificate of Incorporation) the Board of Directors may require a larger vote upon any election or question. Section 2.10. Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any 4 5 meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If no record date is fixed by the Board of Directors: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. Section 2.11. List of Stockholders Entitled to Vote. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, annual or special, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order, and showing the address of each such stockholder and the number of shares registered in the name of each such stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. Section 2.12. Consent of Stockholders in Lieu of Meeting. Except as otherwise provided in the Certificate of Incorporation, any action required by law to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of stockholders, may not be effected by consent in writing in lieu of a meeting by such stockholders. ARTICLE III BOARD OF DIRECTORS Section 3.1. Powers; Number; Qualifications. Except as may be otherwise provided by law or in the Certificate of Incorporation, the business and affairs of the Corporation shall be managed under the direction of the Board of Directors. The number of directors which shall constitute the whole Board shall be not less than five (5) nor more than twenty (20). The exact number of directors within the minimum and maximum limitation specified in the preceding sentence shall be fixed from time to tome exclusively by resolution of a majority of the whole Board. Directors need not be stockholders or residents of the State of Delaware. The Board of Directors is specifically authorized to divide the Board into three 5 6 classes, as authorized by the Delaware General Corporation Law and the Certificate of Incorporation, designated Class I, Class II and Class III, as nearly equal in number as the then total number of directors constituting the whole Board permits. The term of office of each class shall expire at the third annual meeting of stockholders for election of directors following the election of such class, except that the initial term of office of the Class I directors shall expire at the annual meeting of stockholders in 2001, the initial term of office of the Class II directors shall expire at the annual meeting of stockholders in 2002 and the initial term of office of the Class III directors shall expire at the annual meeting of stockholders in 2003. At each annual meeting of stockholders, directors of the class whose term then expires shall be elected for a full term of three (3) years to succeed the directors of such class so that the term of office of the directors of one class shall expire in each year. Section 3.2. Election; Term of Office; Resignation; Removal; Vacancies. The members of each class of directors shall be elected at the annual meeting of the stockholders at which the term of office of such class expires, as provided herein. Each director shall hold office until the expiration of the term for which he or she was elected and shall continue in office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any director may resign at any time upon written notice to the Board of Directors or to the President or the Secretary of the Corporation. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein, no acceptance of such resignation shall be necessary to make it effective. A director may be removed from office only for cause and by the affirmative vote of the holders of not less than eighty percent (80%) of all the outstanding shares of stock of the Corporation entitled to vote generally in the election of directors at a special meeting of stockholders called expressly for that purpose. Unless otherwise provided in the Certificate of Incorporation or these By-Laws, any vacancies which exist following the election of the initial director shall be filled by the initial director and vacancies and newly created directorships resulting from any increase in the authorized number of directors or from any other cause shall be filled by a majority of the directors then in office, although less than a quorum, or by the sole remaining director, and directors so chosen shall hold office until the next annual election of the class for which such directors shall have been chosen, and until their successors shall be elected and qualified. The stockholders of the Corporation are expressly prohibited from cumulating their votes in any election of directors of the Corporation. Section 3.3. Regular Meetings. Regular meetings of the Board of Directors shall be held at such places within or without the State of Delaware and at such times as the Board may from time to time determine, and if so determined, notice thereof need not be given. Section 3.4. Special Meetings. Special meetings of the Board of Directors may be held at any time or place within or without the State of Delaware whenever called by the Chairman of the Board, if any, by the Vice Chairman of the Board, if any, by the President or by any two directors. Notice of any special meeting of the Board of Directors shall be given at least five (5) days prior to the date of the special meeting by written notice to each director. Section 3.5. Telephonic Meetings Permitted. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, members of the Board of Directors, or any committee designated by the Board, may participate in a meeting of the Board or of such 6 7 committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 3.5 shall constitute presence in person at such meeting. Section 3.6. Quorum; Vote Required for Action. At all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business. The vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board unless the Certificate of Incorporation or these By-Laws shall require a vote of a greater number. In case at any meeting of the Board a quorum shall not be present, the members of the Board present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 3.7. Organization. Meetings of the Board of Directors shall be presided over by the Chairman of the Board, if any, or in his or her absence by the Vice Chairman of the Board, if any, or in his or her absence by the President, or in their absence by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 3.8. Informal Action by Directors. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or of such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or such committee. Section 3.9. Compensation. The Board of Directors shall have the authority to fix compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. 7 8 ARTICLE IV COMMITTEES Section 4.1. Committees. The Board of Directors may, by resolution adopted by a majority of the entire Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting of such committee and not disqualified from voting, whether or not he or she or they constitute a quorum, may unanimously appoint another member of the Board to act at such meeting in place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of dissolution, removing or indemnifying directors or amending these By-Laws; and, unless the resolution expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Section 4.2. Committee Rules. Unless the Board of Directors otherwise provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of a provision by the Board of Directors or a provision in the rules of such committee to the contrary, a majority of the entire authorized number of members of such committee shall constitute a quorum for the transaction of business, the vote of a majority of the members present at a meeting at the time of such vote if a quorum is then present shall be the act of such committee, and in all other respects each committee shall conduct its business in the same manner as the Board of Directors of the Corporation conducts its business pursuant to Article III of these By-Laws. 8 9 ARTICLE V OFFICERS Section 5.1. Officers; Election; Qualification; Term of Office; Resignation; Removal; Vacancies. As soon as practicable after the annual meeting of stockholders in each year, the Board of Directors shall elect a President and a Secretary, and the Board of Directors may, if it so determines, elect from among its members a Chairman of the Board and a Vice Chairman of the Board. The Board may also elect one or more Vice Presidents, one or more Assistant Vice Presidents, one or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers and may give any of them such further designations or alternate titles as it considers desirable. Each such officer shall hold office until the first meeting of the Board of Directors after the annual meeting of stockholders next succeeding his or her election, and until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any officer may resign at any time upon written notice to the Board of Directors or to the President or the Secretary of the Corporation. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. The Board of Directors may remove any officer with or without cause at any time. Any such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation, but the election or appointment of an officer shall not of itself create contractual rights. Any number of offices may be held by the same person. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting of the Board. Section 5.2. Powers and Duties of Executive Officers. The officers of the Corporation shall have such powers and duties in the management of the Corporation as may be prescribed by the Board of Directors and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board of Directors. The Board may require any officer, agent or employee to give security for the faithful performance of his or her duties. ARTICLE VI STOCK Section 6.1. Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman or Vice Chairman of the Board of Directors, if any, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation, certifying the number of shares owned by him or her in the Corporation. If such certificate is manually signed by one officer or manually countersigned by a transfer agent or by a registrar, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer 9 10 agent or registrar at the date of issue. Section 6.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his or her legal representative, to give the Corporation a bond sufficient to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. ARTICLE VII INDEMNIFICATION Section 7.1. Indemnification of Officers and Directors. The Corporation shall to the fullest extent permitted by the laws of Delaware as the same now or may hereafter exist, indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. To the extent that a director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 7.1 of this ARTICLE VII or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith. Section 7.2. Determination. Any indemnification required under Section 7.1 of this ARTICLE VII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he or she has met the applicable standard of conduct set forth in Section 7.1 of this ARTICLE VII. Such determination shall be made (1) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. 10 11 Section 7.3. Advancement of Expenses. Expenses (including attorneys' fees) incurred by an officer or a director in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation as authorized in or pursuant to this ARTICLE VII. Section 7.4. Other Rights of Indemnification. The indemnification and advancement of expenses provided by, or granted pursuant to this ARTICLE VII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any By-Law of the Corporation, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. Section 7.5. Indemnification Agreements. Without limiting the provisions of this ARTICLE VII, the Corporation is authorized from time to time, without further action by the stockholders of the Corporation, to enter into agreements with any director or officer of the Corporation providing such rights of indemnification as the Corporation may deem appropriate, up to the maximum extent permitted by law. Any agreement entered into by the Corporation with a director may be authorized by the other directors, and such authorization shall not be invalid on the basis that similar agreements may have been or may thereafter be entered into with other directors. Section 7.6. Liability Insurance. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this ARTICLE VII. Section 7.7. Survival of Right to Indemnification. The indemnification and advancement of expenses provided by, or granted pursuant to, this ARTICLE VII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person. 11 12 Section 7.8. Definitions. For purposes of this ARTICLE VII, references to a "corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which if its separate existence had continued, would have had power and authority to indemnify its directors or officers so that a person who is or was a director or officer of such constituent corporation, or is or was serving at the request of such constituent corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this ARTICLE VII with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued. For purposes of this ARTICLE VII, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director or officer of the Corporation which imposes duties on, or involves services by such director or officer with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this ARTICLE VII. Section 7.9. Indemnification of Employees and Agents. Persons who are not covered by the foregoing provisions of this ARTICLE VII and who are or were employees or agents of the Corporation, or are or were serving at the request of the Corporation as employees or agents of another corporation, partnership, joint venture, trust or other enterprise, may be indemnified to the fullest extent permitted by the laws of Delaware as the same now or may hereafter exist or to such lesser extent as the Board of Directors of the Corporation, in its discretion, may from time to time deem appropriate. ARTICLE VIII MISCELLANEOUS Section 8.1. Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors. Section 8.2. Seal. The Corporation may have a corporate seal which shall have the name of the Corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. Section 8.3. Manner of Notice. Whenever, under the provisions of the statutes or of the Certificate of Incorporation or of these By-Laws, notice is required to be given to any stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such stockholder, at his or her address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at 12 13 the time when the same shall be deposited in the United States mail. Notice to directors or officers of the Corporation may be given by telegram, telephone, mailgram, telex, telecopier, courier or any other similar medium. Section 8.4. Waiver of Notice of Meetings of Stockholders, Directors and Committees. Whenever notice is required to be given by law or under any provision of the Certificate of Incorporation or these By-Laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting was not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these By-Laws. Section 8.5. Interested Directors; Quorum. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or her or their votes are counted for such purpose, provided: (1) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee and the Board or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. Section 8.6. Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, microphotographs or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. Section 8.7. Amendment of By-Laws. These By-Laws may be altered or repealed, and new By-Laws made, by the Board of Directors or by the affirmative vote of the holders of not less than eighty percent (80%) of the combined voting power of the outstanding shares of stock of the Corporation entitled to vote generally in the election of directors, voting 13 14 together as a single class. 14 EX-4.2 5 REGISTRATION RIGHTS AGREEMENT 10/30/98 1 EXHIBIT 4.2 REGISTRATION RIGHTS AGREEMENT October 30, 1998 To the several persons named at the foot hereof (each a "Buyer" and collectively, the "Buyers") Dear Sirs: This will confirm that in consideration of the purchase by you of an aggregate 1,666,667 shares of Common Stock, $.01 par value ("Common Stock"), of United Therapeutics Corporation, a Delaware corporation (the "Company"), pursuant to the Stock Purchase Agreement dated as of October 30, 1998 among the Company and the several Buyers named as parties thereto (the "Purchase Agreement"), the Company hereby covenants and agrees with each of you, and with each subsequent holder of Restricted Stock (as such term is defined herein) as follows: 1. Certain Definitions. As used herein, the following terms shall have the following respective meanings: "Commission" shall mean the Securities and Exchange Commission, or any other federal agency at the time administering the Securities Act. "Common Shares" shall mean the 1,666,667 shares of Common Stock issued and sold to the Buyers pursuant to the Purchase Agreement. "Common Stock" shall mean the Common Stock, $.01 par value, of the Company, as constituted as of the date of this Agreement, subject to adjustment pursuant to the provisions of Section 10 hereof. "Exchange Act" shall mean the Securities Exchange Act of 1934 or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. 2 "Public Sale" shall mean any sale of Common Stock to the public pursuant to an offering registered under the Securities Act or to the public pursuant to the provisions of Rule 144 (or any successor or similar rule) adopted under the Securities Act. "Registration Expenses" shall mean the expenses so described in Section 8 hereof. "Restricted Stock" shall mean, subject to the provisions of Section 10 hereof, (i) the Common Shares and (ii) any securities issued upon exchange, adjustment or transfer of any such shares, the certificates for which are required by the provisions of Section 2 hereof to bear the legend set forth in such Section. "Securities Act" shall mean the Securities Act of 1933 or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Selling Expenses" shall mean the expenses so described in Section 8 hereof. 2. Restrictive Legend. Each certificate representing the Common Shares and, other than in a Public Sale or as otherwise provided in Section 3 hereof, each certificate issued upon exchange or transfer of any Common Shares, shall be stamped or otherwise imprinted with a legend substantially in the following form: "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NEITHER THE SECURITIES EVIDENCED BY THIS CERTIFICATE, NOR ANY INTEREST THEREIN, MAY BE OFFERED, SOLD, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF UNLESS EITHER (I) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND THE LAWS RELATING THERETO OR (II) THE ISSUER HAS RECEIVED AN OPINION OF COUNSEL, REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE ISSUER, STATING THAT SUCH REGISTRATION IS NOT REQUIRED." 3. Notice of Proposed Transfer. Prior to any proposed transfer of any Restricted Stock (other than under the circumstances described in Section 4, 5 or 6 hereof), the holder thereof shall give written notice to the Company of its intention to effect such transfer. Each such notice shall describe the manner of the proposed transfer and, if requested by the Company, shall be accompanied by an opinion of counsel reasonably satisfactory to the Company (it being agreed that Reboul, MacMurray, Hewitt, Maynard & Kristol shall be satisfactory) to the effect 2 3 that the proposed transfer of such Restricted Stock may be effected without registration under the Securities Act, whereupon the holder of such Restricted Stock shall be entitled to transfer such Restricted Stock in accordance with the terms of its notice; provided, however, that in the case of any Buyer that is a partnership, no such opinion or other documentation shall be required if such notice shall cover a transfer by such partnership to its partners and provided, further, however, that the shares so transferred shall remain subject to this Agreement. Each certificate representing the Restricted Stock transferred as above provided shall bear the legend set forth in Section 2, unless (i) such transfer is in accordance with the provisions of Rule 144 (or any other rule permitting public sale without registration under the Securities Act) and is not made by an affiliate of the Company or (ii) the opinion of counsel referred to above is to the further effect that the transferee and any subsequent transferee (other than an affiliate of the Company) would be entitled to transfer such securities without registration under the Securities Act. Subject to the foregoing paragraph, the holders of Restricted Stock shall have the right to transfer shares of Restricted Stock, in whole or in part, and the rights associated therewith, at any time to any of their respective affiliates. The foregoing restrictions on transferability of Restricted Stock shall terminate as to any particular shares of Restricted Stock when such shares shall have been effectively registered under the Securities Act and sold or otherwise disposed of in accordance with the intended method of disposition by the seller or sellers thereof set forth in the registration statement concerning such shares. Whenever a holder of Restricted Stock is able to demonstrate to the Company (and its counsel) that the provisions of Rule 144(k) of the Securities Act are available to such holder without limitation, such holder of Restricted Stock shall be entitled to receive from the Company, without expense, a new certificate not bearing the restrictive legend set forth in Section 2 in exchange for the surrender of the existing certificate, which shall be marked canceled by the Company. 4. Required Registration; Purchase Option. (a) At any time following the earlier to occur of (i) the date six months after the date on which the Company shall have completed an initial public offering of shares of its Common Stock (hereinafter referred to as an "IPO") and (ii) the fifth anniversary of the date hereof, the holders of Restricted Stock constituting at least twenty-five percent (25%) of the total Restricted Stock outstanding at such time may request the Company to register under the Securities Act all or any portion of the Restricted Stock held by such requesting holder or holders for sale in the manner specified in such notice, provided, however, that the only securities which the Company shall be required to register pursuant hereto shall be shares of Common Stock and provided further, however, that the reasonably anticipated aggregate price to the public would equal at least $2 million. Notwithstanding anything in this Section 4(a) to the contrary, in the event that (x) an IPO shall not occur prior to the fifth anniversary of this Agreement and (y) the requisite holders of Restricted Stock request the Company to register Restricted Stock as 3 4 provided in clause (ii) of the preceding sentence, the Company shall have the right and option (the "Purchase Option"), in lieu of registering such Restricted Stock (including any additional shares of Restricted Stock for which registration is requested as provided in Section 4(b) below) (collectively, the "Specified Shares"), of offering to purchase all (but not less than all) of such Specified Shares on the terms and subject to the conditions set forth in, and for the purchase price determined in accordance with, Section 4(e) below. (b) Promptly following receipt of any notice under Section 4(a), the Company shall notify any holders of Restricted Stock from whom notice has not been received and shall use its best efforts to register under the Securities Act, for public sale in accordance with the method of disposition specified in such notice from requesting holders, the number of shares of Restricted Stock specified in such notice (and in any notices received from other holders of Restricted Stock within 20 days after their receipt of such notice from the Company). If such method of disposition shall be an underwritten public offering, (i) the Company may designate the managing underwriter of such offering, subject to the approval of the holders of a majority of the Restricted Stock proposed to be sold, which approval shall not be unreasonably withheld, and (ii) as and to the extent that, in the opinion of the managing underwriter, the Restricted Stock so requested to be registered would adversely affect the marketing of such Restricted Stock, the Company shall include in such registration, to the extent of the number which the Company is so advised can be sold in such offering, (x) first, Restricted Stock requested to be included in such registration by the holder or holders thereof, pro rata among the requesting holders of Restricted Stock based upon the number of shares of Restricted Stock requested to be registered and (y) second, securities the Company proposes to sell and other securities of the Company included in such registration by the holders thereof. The Company shall be obligated to register Restricted Stock pursuant to Section 4(a) on two occasions only and no more than once in any twelve-month period. Notwithstanding anything to the contrary contained herein, each obligation of the Company to register Restricted Stock under this Section 4 shall be deemed satisfied only when a registration statement covering all shares of Restricted Stock specified in notices received as aforesaid, for sale in accordance with the method of disposition specified by the requesting holder, shall have become effective and, if such method of disposition is a firm commitment underwritten public offering, at least 90% of such shares shall have been sold pursuant thereto. (c) In the event that the Board of Directors of the Company determines in good faith that the filing of a registration statement pursuant to Section 4(a) hereof would be detrimental to the Company, the Board of Directors may defer such filing for a period not to exceed sixty (60) days. The Board of Directors may not effect more than one such deferral during any twelve month period. The Board of Directors agrees to promptly notify all holders of Restricted Stock of any such deferral, and shall provide to such holders an explanation therefor. (d) The Company shall be entitled to include in any registration statement referred to in this Section 4, for sale in accordance with the method of disposition specified by the requesting holders, shares of Common Stock to be sold by the Company for its own account, 4 5 except as and to the extent that, in the opinion of the managing underwriter (if such method of disposition shall be an underwritten public offering), such inclusion would adversely affect the marketing of the Restricted Stock to be sold. Except as provided in this paragraph (d), the Company will not effect any other registration of its Common Stock, whether for its own account or that of other holders (except with respect to a registration statement filed on Form S-8 or any successor form),, from the date of receipt of a notice from requesting holders pursuant to this Section 4 until 90 days after the completion of the period of distribution of the registration contemplated thereby. (e) (1) In the event that the Company is entitled to exercise the Purchase Option described in Section 4(a) above and elects to exercise such Purchase Option, it shall give written notice of such election to all holders of Specified Shares requesting registration pursuant to said Section 4(a) no later than 30 days following receipt of such request for registration. The purchase price (the "Purchase Price") for the Specified Shares shall be (i) an amount representing the fair market value for such shares acceptable to the Company and to the holders of not less than a majority of the Specified Shares (the "Specified Majority") or, in the absence of agreement on such fair market value, (ii) an amount representing the fair market value for such shares as determined by an independent, nationally recognized investment banking firm mutually acceptable to the Company and the Specified Majority. The fees and expenses of such investment banking firm shall be paid one half by the Company and one half by the holders of the Specified Shares, pro rata on the basis of the number of Specified Shares held by such holders. (2) Once the Purchase Price for the Specified Shares has been determined as provided in clause (1) above, the Specified Majority shall have fifteen days to determine whether or not to go forward with the sale of the Specified Shares to the Company as provided in this Section 4(e). In the event that the Specified Majority does not wish to sell the Specified Shares to the Company for the Purchase Price, the Specified Majority shall give the Company written notice during such fifteen day period of its election not to sell, in which event the Company shall have no further obligations under this Section 4 to register any Restricted Shares or otherwise. In the event that the Specified Majority does not respond within such fifteen day period or indicates its acceptance of the Purchase Price, then the holders of the Specified Shares shall sell such shares to the Company for the Purchase Price at a closing to be held not more than fifteen days following the end of the prior fifteen day period. At such closing, the holders of the Specified Shares shall deliver certificates evidencing the Specified Shares to the Company, duly endorsed for transfer or accompanied by stock powers executed in blank, against payment of the Purchase Price therefor by wire transfer to the account or accounts specified by the party entitled to receive the same. The Purchase Price shall be payable in cash. 5. Form S-3 Registration. 5 6 (a) If the Company shall receive from any holder or holders of Restricted Stock, a written request or requests that the Company effect a registration on Form S-3, at any time that the Company is entitled to use such form, and any related qualification or compliance with respect to Restricted Stock owned by such holder or holders, the reasonably anticipated aggregate price to the public of which would equal at least $500,000, the Company will: i) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other holders of Restricted Stock from whom notice has not been received; and ii) as soon as practicable, effect such registration (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other government requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such holder's or holders' Restricted Stock as are specified in such request, together with all or such portion of the Restricted Stock of any holder or holders thereof joining in such request as are specified in a written request given within thirty (30) days after receipt of such written notice from the Company, provided, however, that the only securities which the Company shall be required to register pursuant hereto shall be shares of Common Stock. Subject to the foregoing, the Company shall file a registration statement covering the Restricted Stock so requested to be registered as soon as practicable after receipt of the request or requests of the holders of the Restricted Stock. (b) The Company shall be obligated to register Restricted Stock under Section 5(a) on an unlimited number of occasions but in no event more than twice in any twelve-month period and to cause any such registration to remain in effect for 90 days, after which time such registration may be terminated. Registrations effected pursuant to this Section 5 shall not be counted as requests for registration effected pursuant to Section 5. 6. Incidental Registration. If the Company at any time (other than pursuant to Section 4 or Section 5 hereof) proposes to register any of its Common Stock under the Securities Act for sale to the public, whether for its own account or for the account of other security holders or both (except with respect to registration statements on Form S-4 or S-8 or another form not available for registering the Restricted Stock for sale to the public), it will give written notice at such time to all holders of outstanding Restricted Stock of its intention to do so. Upon the written request of any such holder, given within 20 days after receipt of any such notice by the Company, to register any of its Restricted Stock (which request shall state the intended method of disposition thereof), the Company will use its best efforts to cause the Restricted Stock as to which registration shall have been so requested to be included in the securities to be covered by the registration statement proposed to be filed by the Company, all to the extent requisite to 6 7 permit the sale or other disposition by the holder (in accordance with its written request) of such Restricted Stock. In the event that any registration pursuant to this Section 6 shall be, in whole or in part, an underwritten public offering of Common Stock, any request by a holder pursuant to this Section 6 to register Restricted Stock shall specify that either (i) such Restricted Stock is to be included in the underwriting on the same terms and conditions as the shares of Common Stock otherwise being sold through underwriters under such registration or (ii) such Restricted Stock is to be sold in the open market without any underwriting, on terms and conditions comparable to those normally applicable to offerings of common stock in reasonably similar circumstances. In any such underwritten public offering of Common Stock, if, in the opinion of the managing underwriter, the Restricted Stock so requested to be registered would adversely affect the marketing of such Common Stock, the Company shall include in such registration, to the extent of the number which the Company is so advised can be sold in such offering, (x) first, securities proposed by the Company to be sold for its own account, (y) second, Restricted Stock requested to be included in such registration by the holder or holders thereof and other securities of the Company requested to be included in such registration pursuant to registration rights granted by the Company to the holders of such securities prior to the date hereof, pro rata among the requesting holders of Restricted Stock and such other securities based upon the number of shares of Restricted Stock and such other securities requested to be registered and (z) third, other securities of the Company requested to be included in such registration (other than as described in clause (y) above). Notwithstanding anything to the contrary contained in this Section 6, in the event of a firm commitment underwritten initial public offering of Common Stock of the Company, reasonably expected by the underwriters thereof to result in aggregate net proceeds to the Company of at least $20,000,000, and a holder of Restricted Stock does not elect, or is not allowed (at the discretion of the underwriters thereof), to sell his Restricted Stock to such underwriters of the Common Stock of the Company in connection with such offering, such holder shall refrain from selling such Restricted Stock so registered pursuant to this Section 6 during the period of distribution of the Common Stock of the Company by such underwriters and the period in which the underwriting syndicate participates in the after market; provided, however, that (i) each person or group having beneficial ownership of five percent (5%) or more of the Company's capital stock and each executive officer and director of the Company shall have executed a written "lock-up" agreement required by the managing underwriter of such public offering with the same "lock-up" restrictions as provided therein, and (ii) that such holder shall, in any event, be entitled to sell his Restricted Stock commencing on the 180th day after the effective date of such registration statement. 7. Registration Procedures. If and whenever the Company is required by the provisions of Section 4, 5 or 6 hereof to use its reasonable best efforts to effect the registration of any of the Restricted Stock under the Securities Act, the Company will, as expeditiously as possible: 7 8 (a) prepare (and afford counsel for the selling holders reasonable opportunity to review and comment thereon) and file with the Commission a registration statement (which, in the case of an underwritten public offering pursuant to Section 4 hereof, shall be on Form S-1 (or SB-1), S-3 or other form of general applicability satisfactory to the managing underwriter selected as therein provided) with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for the period of the distribution contemplated thereby (determined as hereinafter provided); (b) prepare (and afford counsel for the selling holders reasonable opportunity to review and comment thereon) and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for the period specified in paragraph (a) above and as shall comply with the provisions of the Securities Act with respect to the disposition of all Restricted Stock covered by such registration statement in accordance with the sellers' intended method of disposition set forth in such registration statement for such period; (c) furnish to each seller and to each underwriter such number of copies of the registration statement and the prospectus included therein (including each preliminary prospectus) as such persons may reasonably request in order to facilitate the public sale or other disposition of the Restricted Stock covered by such registration statement; (d) use its best efforts to register or qualify the Restricted Stock covered by such registration statement under the securities or blue sky laws of such jurisdictions as the sellers of Restricted Stock or, in the case of an underwritten public offering, the managing underwriter, shall reasonably request, and use its best efforts to list all Restricted Stock covered by such registration statement on any securities exchange on which any other securities of the same class as the Restricted Stock are then listed; (e) immediately notify each seller under such registration statement and each underwriter, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus contained in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (f) use its best efforts (if the offering is underwritten) to furnish, at the request of any seller, on the date that Restricted Stock is delivered to the underwriters for sale pursuant to such registration: (i) an opinion dated such date of counsel representing the Company for the purposes of such registration, addressed to the underwriters and to such seller, stating that such registration statement has become effective under the Securities Act and that (A) to the knowledge of such counsel, no stop order suspending the effectiveness thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under 8 9 the Securities Act, (B) the registration statement, the related prospectus, and each amendment or supplement thereof, comply as to form in all material respects with the requirements of the Securities Act and the applicable rules and regulations of the Commission thereunder (except that such counsel need express no opinion as to financial statements contained therein or any information provided by the underwriters or the sellers) and (C) to such other effects as may reasonably be requested by counsel for the underwriters or by such seller or its counsel, and (ii) a letter dated such date from the independent public accountants retained by the Company, addressed to the underwriters and to such seller, stating that they are independent public accountants within the meaning of the Securities Act and that, in the opinion of such accountants, the financial statements of the Company included in the registration statement or the prospectus, or any amendment or supplement thereof, comply as to form in all material respects with the applicable accounting requirements of the Securities Act, and such letter shall additionally cover such other financial matters (including information as to the period ending no more than five business days prior to the date of such letter) with respect to the registration in respect of which such letter is being given as such underwriters or seller may reasonably request; and (g) make available for inspection by each seller, any underwriter participating in any distribution pursuant to such registration statement, and any attorney, accountant or other agent retained by such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement and permit such seller, attorney, accountant or agent to participate in the preparation of such registration statement. For purposes of paragraphs (a) and (b) above and of Section 4(c) hereof, the period of distribution of Restricted Stock in a firm commitment underwritten public offering shall be deemed to extend until each underwriter has completed the distribution of all securities purchased by it, and the period of distribution of Restricted Stock in any other registration shall be deemed to extend until the earlier of the sale of all Restricted Stock covered thereby or six months after the effective date thereof. In connection with each registration hereunder, the selling holders of Restricted Stock will furnish to the Company in writing such information with respect to themselves and the proposed distribution by them as shall be reasonably necessary in order to assure compliance with federal and applicable state securities laws. In connection with each registration pursuant to Sections 4, 5 and 6 hereof covering an underwritten public offering, the Company agrees to enter into a written agreement with the managing underwriter selected in the manner herein provided in such form and containing such provisions as are customary in the securities business for such an arrangement between underwriters and companies of the Company's size and investment stature, provided that such agreement shall not contain any such provision applicable to the Company which is 9 10 inconsistent with the provisions hereof and provided, further, that the time and place of the closing under said agreement shall be as mutually agreed upon among the Company and such underwriter. 8. Expenses. All expenses incurred by the Company in complying with Sections 4, 5 or 6 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees of the National Association of Securities Dealers, Inc. or any successor thereto, transfer taxes, fees of transfer agents and registrars, costs of insurance and fees and expenses of one counsel for the sellers of Restricted Stock, but excluding any Selling Expenses, are herein called "Registration Expenses". All underwriting discounts and selling commissions applicable to the sale of Restricted Stock are herein called "Selling Expenses". The Company will pay all Registration Expenses in connection with each registration statement filed pursuant to Section 4, 5 or 6 hereof. All Selling Expenses and any Registration Expenses not required to be paid by the Company in connection with any registration statement filed pursuant to Section 4, 5 or 6 hereof shall be borne by the participating sellers in proportion to the number of shares sold by each, or by such persons other than the Company (except to the extent the Company shall be a seller) as they may agree. 9. Indemnification. In the event of a registration of any of the Restricted Stock under the Securities Act pursuant to Section 4, 5 or 6 hereof, to the extent permitted by law, the Company will indemnify and hold harmless each seller of such Restricted Stock thereunder and each underwriter of Restricted Stock thereunder and each officer, director and each other person, if any, who controls such seller or underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such seller or underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Restricted Stock was registered under the Securities Act pursuant to Section 4, 5 or 6, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each such seller, each such underwriter and each such controlling person for any legal or other expenses as and when reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in reliance upon and in conformity with information furnished by such seller, such underwriter or such controlling person in writing specifically for use in the preparation of such registration statement or prospectus and provided further, however, 10 11 that the indemnity contained in this Section 8 with respect to any preliminary prospectus shall not inure to the underwriter's benefit or to the benefit of any such other person in respect of any loss, claim, damage or liability asserted by a person who purchased the Restricted Stock from the underwriter if a copy of the final prospectus (as the same may be amended or supplemented) was not sent or given to such person with or prior to written confirmation of the sale to such person and if the untrue statement or omission or alleged untrue statement or omission of a material fact contained in such preliminary prospectus was corrected in the final prospectus (as the same may be amended or supplemented prior to such sale) and if the underwriter would not have been liable had a copy of the final prospectus (as the same may be amended or supplemented prior to such sale) been so sent or given. In the event of a registration of any of the Restricted Stock under the Securities Act pursuant to Section 4, 5 or 6 hereof, to the extent permitted by law, each seller of such Restricted Stock thereunder, severally and not jointly, will indemnify and hold harmless the Company and each officer, director and each other person, if any, who controls the Company within the meaning of the Securities Act, each officer of the Company who signs the registration statement, each director of the Company, each underwriter and each person who controls any underwriter within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such officer or director or underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such Restricted Stock was registered under the Securities Act pursuant to Section 4, 5 or 6, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and each such officer, director, underwriter and controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that such seller will be liable hereunder in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information pertaining to such seller, as such, furnished to the Company in writing specifically for use in such registration statement or prospectus; provided, further, however, that the liability of each seller hereunder shall be limited to the proportion of any such loss, claim, damage, liability or expense which is equal to the proportion that the proceeds of shares sold by such seller under such registration statement bears to the total proceeds of all securities sold thereunder, but not to exceed the proceeds received by such seller from the sale of Restricted Stock covered by such registration statement. Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be 11 12 made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission to so notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party other than under this Section 9. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel reasonably satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 9 for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected; provided, however, that, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the indemnifying party, or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified party (or, if there is more than one indemnified party, all of the indemnified parties collectively) shall have the right to select a separate counsel with the consent of the indemnifying party (which consent shall not be unreasonably withheld) and to assume such legal defenses and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred. Notwithstanding the foregoing, any indemnified party shall have the right to retain its own counsel in any such action, but the fees and disbursements of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party shall have failed to retain counsel for the indemnified person as aforesaid or (ii) the indemnifying party and such indemnified party shall have mutually agreed to the retention of such counsel. It is understood that the indemnifying party shall not, in connection with any action or related actions in the same jurisdiction, be liable for the fees and disbursements of more than one separate firm qualified in such jurisdiction to act as counsel for the indemnified parties hereunder. The indemnifying party shall not be liable for any settlement of any proceeding effected without its prior written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. If the indemnification provided for in the first two paragraphs of this Section 9 is unavailable or insufficient to hold harmless an indemnified party under such paragraphs in respect of any losses, claims, damages or liabilities or actions in respect thereof referred to therein, then each indemnifying party shall in lieu of indemnifying such indemnified party contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or actions in such proportion as appropriate to reflect the relative fault of the Company, on the one hand, and the sellers of such Restricted Stock, on the other, in connection 12 13 with the statements or omissions which resulted in such losses, claims, damages, liabilities or actions as well as any other relevant equitable considerations, including without limitation the failure to give any notice under the third paragraph of this Section 9. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement, or omission, of a material fact relates to information supplied by the Company, on the one hand, or the sellers of such Restricted Stock, on the other, and to the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the sellers of Restricted Stock agree that it would not be just and equitable if contributions pursuant to this paragraph were determined by pro rata allocation (even if all of the sellers of such Restricted Stock were treated as one entity for such purpose) or by any other method of allocation which did not take account of the equitable considerations referred to above in this paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or actions in respect thereof, referred to above in this paragraph, shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this paragraph, the sellers of Restricted Stock shall not be required to contribute any amount in excess of the amount, if any, by which the total proceeds from the Common Stock sold by each of them in an offering to the public exceeds the amount of any damages which they would have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission. No person guilty of fraudulent misrepresentations (within the meaning of Section 11(f) of the Securities Act), shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. The indemnification of underwriters provided for in this Section 9 shall be on such other terms and conditions as are at the time customary and reasonably required by such underwriters. In the event that such indemnification of underwriters is on such other terms and conditions, the indemnification of the sellers of Restricted Stock in such underwriting shall, at the sellers' request, be modified to conform to such terms and conditions. 10. Changes in Common Stock. If, and as often as, there are any changes in the Common Stock by way of stock split, stock dividend, combination or reclassification, or through merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment shall be made in the provisions hereof, as may be required, so that the rights and privileges granted hereby shall continue with respect to the Common Stock as so changed and shall apply to any securities received in any such transaction. 11. Representations and Warranties of the Company. The Company represents and warrants to you as follows: (a) The execution, delivery and performance of this Agreement by the Company have been duly authorized by all requisite corporate action and will not violate any provision of law, any order of any court or other agency of government, the Certificate of Incorporation or 13 14 By-laws of the Company, or any provision of any indenture, agreement or other instrument to which it or any of its properties or assets is bound, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Company. (b) This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws from time to time in effect affecting the enforcement of creditors rights generally and to general equitable principles. 12. Rule 144 Reporting. The Company agrees with you as follows: (a) The Company shall make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act (or any successor act, regulation or rule thereto), at all times from and after the date it is first required to do so. (b) The Company shall file with the Commission in a timely manner all reports and other documents as the Commission may prescribe under Section 13(a) or 15(d) of the Exchange Act (or any successor act, regulation or rule thereto) at any time after the Company has become subject to such reporting requirements of the Exchange Act. (c) The Company shall furnish to such holder of Restricted Stock forthwith upon request (i) a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after the date it first becomes subject to such reporting requirements), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), (ii) a copy of the most recent annual or quarterly report of the Company, and (iii) such other reports and documents so filed as a holder may reasonably request to avail itself of any rule or regulation of the Commission allowing a holder of Restricted Stock to sell any such securities without registration. 13. Miscellaneous. (a) All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto, including without limitation the rights to indemnification under Section 9 hereof, shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. Without limiting the generality of the foregoing, the registration rights conferred herein on the holders of Restricted Stock shall inure to the benefit of any and all subsequent holders from time to time of the Restricted Stock for so long as the certificates representing the Restricted Stock shall be required to bear the legend specified in Section 2 hereof. 14 15 (b) All notices, requests, consents and other communications hereunder shall be in writing and shall be mailed by first-class registered mail, postage prepaid, addressed as follows: if to the Company, to it at 1110 Spring Street, Silver Spring, Maryland 20910, Attention: Chief Executive Officer, with a copy to James L. Nouss, Jr., Esq., Bryan Cave LLP, One Metropolitan Square, 211 N. Broadway, Suite 3600, St. Louis, Missouri 63102-2750; if to any Buyer, at its address as set forth in Schedule I hereto, with a copy to John C. MacMurray, Esq., Reboul, MacMurray, Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York, New York 10111; and if to any subsequent holder of Restricted Stock, to it at such address as may have been furnished to the Company in writing by such holder; or, in any case, at such other address or addresses as shall have been furnished in writing to the Company (in the case of a holder of Restricted Stock) or to the holders of Restricted Stock (in the case of the Company). Any notice or other communication pursuant to this Agreement shall be deemed to have been duly given or made and to have become effective when delivered in hand to the party to which directed or if sent by first-class registered mail, postage prepaid and properly addressed as set forth above, at the earlier of (i) the time when received by the addressee or (ii) the fifth business day following the dispatch thereof. 14. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE. 15. This Agreement and the Schedules hereto and the other documents delivered pursuant hereto or in connection herewith constitute the full and entire understanding and agreement between the parties, and supersede all prior understandings, negotiations and prior agreements between the parties with regard to the subjects hereof and thereof. 16. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the parties shall negotiate in good faith with a view to the substitution therefor of a suitable and equitable solution in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid provision, provided, however, that the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law. 15 16 17. Headings of sections and paragraphs of this Agreement are inserted for convenience of reference only and shall not affect the interpretation or be deemed to constitute a part hereof. 18. This 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. 16 17 Please indicate your acceptance of the foregoing by signing and returning the enclosed counterpart of this letter, whereupon this letter (herein sometimes called "this Agreement") shall be a binding agreement between the Company and you. Very truly yours, UNITED THERAPEUTICS CORPORATION By: /s/ Martine Rothblatt ------------------------------------- Name: Title: AGREED TO AND ACCEPTED as of the date first above written: MERRILL LYNCH KECALP L.P. 1997 By: /s/ Robert F. Tully ---------------------------------- Name: Robert F. Tully Title: Vice President and Treasurer KECALP, Inc.: General Partner MERRILL LYNCH KECALP INTERNATIONAL L.P. 1997 By: /s/ Robert F. Tully ---------------------------------- Name: Robert F. Tully Title: Treasurer KECALP International Ltd.: General Partner 17 18 SCHEDULE I Buyers
No. of Shares ------------- MERRILL LYNCH KECALP L.P. 1997 1,250,000 World Financial Center South Tower - 23rd Floor 225 Liberty Street New York, New York 10080-6123 Attention: Mr. Andrew Kaufmann MERRILL LYNCH KECALP 416,667 INTERNATIONAL L.P. 1997 World Financial Center South Tower - 23rd Floor 225 Liberty Street New York, New York 10080-6123 Attention: Mr. Andrew Kaufmann
EX-4.3 6 FORM OF COMMON STOCK PURCHASE AGREEMENT 1 EXHIBIT 4.3 COMMON STOCK PURCHASE AGREEMENT This Common Stock Purchase Agreement (this "Agreement"), dated as of March 30, 1998, is entered into by and between United Therapeutics Corporation, a Delaware corporation (the "Company"), and the investor(s) signing below, ("Investor"). WITNESSETH: WHEREAS, the Company wishes to issue and sell to Investor, and Investor wishes to purchase from the Company, the number of shares of the Company's common stock, par value $.01 per share (the "Common Stock"), set forth opposite the name of Investor below in accordance with the terms and conditions set forth herein. NOW THEREFORE, in consideration of the foregoing premises and the mutual covenants contained in the Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE I PURCHASE AND SALE OF COMMON STOCK 1.1 Purchase of Common Stock. For and in consideration of a purchase price of US $1.00 per share of common stock delivered to the Company upon the execution of this Agreement or heretofore deposited with the Company, the Company hereby issues and sells to Investor, and Investor hereby purchases from the Company, the number of shares of Common Stock set forth opposite the name of Investor below. 1.2 Delivery of Certificates. Upon the execution of this Agreement, the Company shall forthwith deliver to Investor a certificate registered in the name of such Investor representing the number of shares of Common Stock purchased by Investor. ARTICLE II REPRESENTATIONS AND WARRANTIES 2.1 Representation and Warranties of the Company. The Company represents and warrants to each Investor that: (a) Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and is qualified to do business and is in good standing under the laws of each jurisdiction where the ownership of its property or the conduct of its business so requires. 2 (b) Authorization. The execution, delivery and performance of this Agreement is within the Company's corporate powers and has been duly authorized by all necessary corporate action of the Company. (c) Valid Issuance of Common Stock. The shares of Common Stock issued pursuant to this Agreement have been duly authorized and are validly issued, fully paid and nonassessable. (d) Capitalization. The authorized capital stock of the Company consists of 50,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock. As of the date hereof 17,675,108 shares of Common Stock are issued and outstanding. As of the date hereof, no shares of Preferred Stock are issued and outstanding. All of the outstanding shares of Common Stock have been duly authorized and validly issued and are fully paid and non-assessable. Except as may be described in the Company's offering memorandum for the offer and sale of up to 6,000,000 shares of Common Stock, which offering is expected to close on March 31, 1998 (the "Offering Memorandum"), (i) no subscription, warrant, option, convertible security or other right (contingent or otherwise) to purchase or acquire any shares of capital stock of the Company is authorized or outstanding, (ii) the Company has no obligation (contingent or otherwise) to issue any subscription, warrant, option, convertible security or other such right to distribute to holders of any shares of its capital stock any evidence of indebtedness or assets of the Company and (iii) the Company has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any shares of its capital stock or any interest therein or to pay any dividend or make any other distribution in respect thereof. Except as may be provided in this Agreement, no person or entity is entitled to (i) any preemptive or similar right with respect to the issuance of any capital stock of the Company, or (ii) any rights with respect to the registration of any capital stock of the Company under the Securities Act of 1933, as amended (the 'Securities Act"). All of the issued and outstanding shares of Common Stock have been offered, issued and sold by the Company in compliance with applicable federal and state securities laws. (e) Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any governmental authority is required on the part of the Company in connection with the execution and delivery of this Agreement, the offer, issuances, sale and delivery of the Common Stock purchased hereunder or the other transactions contemplated hereby, except such filings as shall have been made prior to and shall be effective on and as of the closing of the transactions contemplated hereby. Based on the representations and warranties of the Investor contained in Section 2.2 of this Agreement and based on the representations and warranties of any other investor purchasing shares of 3 Common Stock in the second round financing of the Company contemplated by the Offering Memorandum contained in Section 2.2 or corresponding provision of any Common Stock Purchase Agreement executed in connection therewith, the offer, sale and issuance of the Common Stock to each of the investors in the second round financing of the Company will be in compliance with applicable federal and state securities laws. (f) Litigation. There is no action, suit, proceeding or investigation pending or, to the best knowledge of the Company, threatened, against the Company which questions the validity of the second round financing offering, this Agreement or the right of the Company to enter into it, or which might result, either individually or in the aggregate, in any material adverse change in the assets, conditions (financial or otherwise), or business of the Company. (g) Compliance. The Company has, in all material respects, complied with all laws, regulations and orders applicable to its business and has all material permits and licenses required thereby. The Company is not in violation of any term or provision of its Certificate of Incorporation or By-Laws. The Company is not in violation of any material term or provision of any material indenture, lease, agreement or other instrument to which the Company is a party or by which it or any of its properties is bound or any decree, judgment or order applicable to the Company. (h) Full Disclosure. The representation and warranties of the Company contained in this Agreement and those statements made by the Company in the Offering Memorandum do not contain any untrue statement of a material fact or any omission of a material fact necessary to make the respective statements contained here or therein, in light of the circumstances under which the statements were made, not misleading. 2.2 Representations and Warranties of the Investor. Investor represents and warrant to the Company that: (a) Purchase Entirely for Own Account; Investment Experience: Disclosure of Information. Investor is purchasing the shares of Common Stock for its own account without a view to any distribution thereof in violation of the Securities Act of 1933, as amended (the "Securities Act") or any applicable state securities law, and the Investor is experienced in evaluation and making investments of this type, and has had access to, and has received, all information that she or he reasonably has required to evaluate this investment. (b) Accredited Investor. Investor is financially able to bear the risks of the investment and is an "accredited investor" within the meaning of Rule 501 of Regulation D under the Securities Act. Such Investor understands and 4 acknowledges that investment in the Common Stock is speculative and involves a high degree of risk. (c) Restricted Securities. Investor acknowledges that the Company is issuing and selling the shares of Common Stock in reliance upon the exemption from registration provided in Section 4(2) of the Securities Act and is relying upon Investor's representation, and agrees that said shares of Common Stock may only be pledged, offered, sold or transferred if registered under the Securities Act or pursuant to an exemption from the registration requirements thereunder. Investor understands that absent registration of the shares of Common Stock under the Securities Act, compliance with an applicable exemption under the Securities Act is required for a sale or other disposition of such shares of Common Stock. Investor further understands and acknowledges that there is not now available, and may not be available when he or she wishes to sell such shares of Common Stock, adequate current public information with respect to the Company which would permit offers or sales of the shares of Common Stock pursuant to Rule 144 promulgated under the Securities Act. (d) Legends. Investor agrees that the following legend shall be placed on any certificates evidencing the shares of Common Stock: "The shares represented by this certificate have not been registered under the Securities Act of 1933. Such shares have been acquired for investment and may not be pledged, offered, sold or transferred except in compliance with the registration requirements of the Securities Act of 1933 or an exemption therefrom, or upon delivery to the Company if requested, of an opinion of counsel, in form and substance reasonably satisfactory unto said corporation, that registration under such Act is not required." Investor understands that, so long as such legends may remain on the certificates representing the shares of Common Stock, the Company may maintain appropriate "stop transfer" orders with respect to such shares on its books and records and with its registrar and transfer agent. 2.3 Registration Rights of Investor (a) Registration Rights. Whenever the Company proposes to file a registration statement for a public offering and sale of the Common Stock of the Company with the Securities and Exchange Commission (a "Registration Statement"), at any time from and after the date hereof and from time to time, the Company shall, prior to such filing, give written notice to the Investor to do so and, upon the written request of the Investor given within 20 days after the Company provides such notice, the Company shall use its best efforts to cause all shares 5 of Common Stock which the Company has been requested by the Investor to register to be registered under the Securities Act. In connection with any underwritten public offering of Common Stock, if in the opinion of the managing underwriter the registration of all, or part of, the shares of Common Stock which the Investor has requested to be included would materially and adversely affect such public offering, then the Company shall be required to include in the underwriting only the number shares of Common Stock which the managing underwriter believes may be sold without causing such adverse effect. If the number of shares of Common Stock to be included in the underwriting in accordance with the foregoing is less than the total number of shares which the Investor, together with any other investors having similar registration rights, have requested to be included, then all such investors (including the Investor) who have requested registration in such registration shall participate in the underwriting pro rata based upon their total ownership of shares of Common Stock of the Company. If any investor would be entitled to include more shares of Common Stock than such investor requested to be registered, the excess shall be allocated among other requesting investors pro rata based upon their total ownership of shares of Common Stock. (b) Fee and Expenses. The Company will pay all expenses of all registrations under this Agreement, including, without limitation, all registration and filing fees, exchange listing fees, printing expenses, fees and disbursements of counsel for the Company and fees and expenses of counsel for the Investor, state blue Sky fees and expenses, and the expenses of any special audits incident to or required by any such registration, but excluding underwriting discounts and selling commissions in connection with the offer and sale of the shares of Common Stock by the Investor. (c) Indemnification of Investor. In the event of any registration of any of the shares of Common Stock under the Securities Act pursuant to this Agreement, the Company will indemnify and hold harmless the Investor, and each other person, if any, who controls the Investor within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act") against any losses, claims, damages or liabilities, joint or several, to which such Investor or controlling person may become subject under the Securities Act, the Exchange Act, state securities or Blue Sky laws or otherwise, insofar as such losses, claims, damages or liabilities are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement under which the shares of Common Stock were registered under the Securities Act, any preliminary prospectus or final prospectus contained in the Registration Statement under which the shares of Common Stock were registered under the Securities Act, any preliminary prospectus or final prospectus contained in the Registration Statement, or any amendment or supplement to such Registration Statement, or arise out of or are based upon the omission or alleged omission to state a material fact 6 required to be stated therein or necessary to make statements therein not misleading; and the Company will reimburse such Investor and each such controlling person for any legal or other expense reasonably incurred by such Investor or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company should not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any untrue statement or omission made in such Registration Statement, preliminary prospectus or final prospectus, or any such amendment or supplement, in reliance upon and in conformity with information furnished to the Company, in writing, by or on behalf of such Investor or controlling person specifically in use in the preparation thereof. 2.4 Rule 144 Requirements. After the earliest of (i) the closing of a sale of securities by the Company pursuant to a Registration Statement, (ii) the registration by the Company of a class securities under Section 12 of the Exchange Act of (iii) the issuance by the Company of an offering circular pursuant to Regulation A under the Securities Act, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in Rule 144 under the Security Act; (b) use its best efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); and (c) furnish to the trustee upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144, and of the Securities Act and Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company as such holder may reasonably request to avail itself of any similar rule or regulation of the SEC allowing it to sell any shares of Common Stock without registration. ARTICLE III MISCELLANEOUS 3.1 Expenses. All legal and other costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the person incurring such expenses. 3.2 Amendments; Waivers. Any provisions of the Agreement may be amended or waived between the Company and the Investor if, but only if, such amendment or waiver is in writing and is signed by the Company and the Investor affected thereby. No failure 7 or delay by any party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and exclusive of any rights or remedies provided by law. 3.3 No Third Party Beneficiaries. This Agreement is made solely for the benefit of the parties hereto and shall not confer any rights on any other person. 3.4 Notices. Any notice, request, consent, approval or other communication which is required or permitted to be given or made by a party to the other pursuant to any provision of this Agreement shall be given or made in writing and shall be served personally or sent by prepaid registered mail addressed to the party as follows: If to the Company: United Therapeutics Corporation 1826 R Street, NW Washington, DC 20009 Attention: Chief Executive Officer Fax: (202) 518-8200 If to an Investor, at the address provided below for such Investor; or to such other address as a party may from time to time advise the other party hereto by notice in writing. Every such notice so given shall be deemed to be received only upon delivery to the party to be charged with notice. Notwithstanding the foregoing, notices may be given by fax and shall, if receipt is confirmed electronically to the sender's equipment, be deemed to have been received the business day after sending. 3.5 Severability. Should any provision of this Agreement for any reason be declared invalid or unenforceable, such decision shall not affect the validity or enforceability of any of the other provisions of this Agreement. 3.6 Headings. The descriptive heading of the several Articles and Sections of this Agreement are inserted for convenience only, do not constitute a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement. 3.7 Applicable Law. The validity and interpretation of this Agreement and the performance by the parties of their respective obligations hereunder shall be governed by the laws of the State of Delaware. 3.8 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof 8 of this Agreement to produce or account for more than one counterpart signed by the party to be charged thereby. 3.9 Entire Agreement. This Agreement contains the entire agreement of the parties hereto with respect to the subject matters hereof, and supersedes all previous agreements and understandings among the parties with respect to such matters. 3.10 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns and transferees. This Agreement may not be assigned by any Investor without the prior written consent of the Company. 3.11 Survival of Representation and Warranties. All agreements, representations and warranties contained herein shall survive the execution and delivery of this Agreement and the closing of the transactions contemplated hereby. 3.12 Covenants of the Company (a) Inspection. The Company shall permit the Investor, or any authorized representative thereof, to visit and inspect the properties of the Company, including its corporate and financial records, and to discuss its business and finances with officers of the Company, during normal business hours following reasonable notice and as often as may be reasonably requested. (b) Financial Statements and Other Information. The Company will deliver to the Investor (i) within 120 days after the end of each fiscal year of the Company, an audited balance sheet of the Company as at the end of such year and audited statements of income and of cash flow of the Company for such year, certified by certified public accountants of established national reputation selected by the Company, and prepared in accordance with generally accepted accounting principles, applied on a consistent basis and (ii) within 60 days after the end of each fiscal quarter of the Company, an unaudited balance sheet of the Company as of the end of such fiscal quarter, and unaudited statements of income and cash flow of the company for such fiscal quarter and for the current fiscal year to the end of such fiscal quarter. (c) Termination of Covenants. The obligations of the Company under this Section 3.12 shall terminate upon occurrence of an initial public offering of the Company's Common Stock in which minimum of $10,000,000 in proceeds are raised by the Company. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. 9 Investor /s/ Daniel A. Burkhardt 100,000 - ---------------------------------------------- ----------------------------- Signature Number of Share Purchased Community Investment Partners III, L.P., LLLP --------------------------------------------- Name on Stock Certificate 12555 Manchester Road --------------------------------------------- Address of Record St. Louis MO 63131 --------------------------------------------- City, State, Zip Code 314-515-2664 --------------------------------------------- Fax Number 314-515-2000 --------------------------------------------- Phone Number Accepted By: United Therapeutics Corporation /s/ Martine Rothblatt ------------------------------ By Martine A. Rothblatt ------------------------------ Name Chairman and Chief ------------------------------ Title Executive Officer 10 SCHEDULE A TO EXHIBIT 4.3 The following Common Stock Purchase Agreements are identical in their terms to the Common Stock Purchase Agreement in this Exhibit 4.3, with the exception of the following terms: Common Stock Purchase Agreement between the Registrant and Oakwood Investors I, LLC - Investor's Signature: R. Perez Name on Certificate: Oakwood Investors I, LLC No. of Shares: 400,000 Address of Record: 890 Durrow Drive St. Louis, MO 63141 Fax No: 314-567-0978 Phone Number: 314-731-4600 Common Stock Purchase Agreement between the Registrant and James L. Nouss - Investor's Signature: James L. Nouss Name on Certificate: James L. Nouss No. of Shares: 25,000 Address of Record: Suite 3600, One Metropolitan Square St. Louis, MO 63102 Fax No: 314-259-2020 Phone Number: 314-259-2000 Common Stock Purchase Agreement between the Registrant and Daniel A. Burkhardt- Investor's Signature: Daniel A. Burkhardt Name on Certificate: Daniel A. Burkhardt No. of Shares: 100,000 Address of Record: 12555 Manchester Road St. Louis, MO 63131 Fax No: 314-515-2664 Phone Number: 314-515-2000 Common Stock Purchase Agreement between the Registrant and Mary Ellen Perez and Raul Evelio Perez, Trustees of the Mary Ellen Perez revocable trust dated October 28, 1993 - Investor's Signature: R. Perez and Mary Ellen Perez Name on Certificate: Mary Ellen Perez and Raul Evelio Perez, Trustees of the Mary Ellen Perez revocable trust dated October 28, 1993 No. of Shares: 100,000 Address of Record: 890 Durrow Drive St. Louis, MO 63141 Fax No: 314-567-0978 Phone Number: 314-731-4600 EX-4.4 7 WARRANT TO PURCHASE COMMON STOCK 1 EXHIBIT 4.4 THIS WARRANT, AND ANY SECURITIES WHICH MAY BE ACQUIRED UPON THE EXERCISE OF THIS WARRANT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, HYPOTHECATED OR OTHERWISE TRANSFERRED OR DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION, UNLESS AN EXEMPTION FROM THE REQUIREMENT OF SUCH REGISTRATION IS AVAILABLE UNDER THE CIRCUMSTANCES AT THE TIME OBTAINING (AND, IF REASONABLY REQUESTED BY THE COMPANY, DEMONSTRATED BY AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY). WARRANT TO PURCHASE 350,000 SHARES OF THE COMMON STOCK, PAR VALUE $00.01 PER SHARE, OF UNITED THERAPEUTICS CORPORATION For value received, CORTECH, INC., a Delaware corporation, or its permitted successors or assigns (collectively, the "INVESTOR"), are entitled to subscribe for and purchase from UNITED THERAPEUTICS CORPORATION, a Delaware corporation (the "COMPANY"), from and after November 2, 2000 (the "WARRANT EXERCISE DATE"), up to 350,000 fully paid and nonassessable shares (the "SHARES") of the Company's common stock, par value $00.01 per share ("COMMON STOCK"), at the purchase price of $3.00 per Share (the "EXERCISE PRICE"); provided however, that the Exercise Price shall be $6.00 per Share if (a) UT, prior to January 15, 1999, consummates an aggregate equity investment of not less than five million dollars ($5,000,000) in UT by one or more third party investors (the "Financing") at a purchase price per Share of at least $6.00 per Share with respect to such Financing, and (b) UT provides Cortech with notice and written evidence of such Financing reasonably acceptable to Cortech, which notice shall be postmarked no later than January 15, 1999. The Company agrees and acknowledges that no Financing shall be considered consummated unless and until the Financing has been received by the Company. The number and character of Shares issuable pursuant to this Warrant are subject to adjustment as provided herein. The Investor's right to purchase Shares pursuant to this Warrant shall terminate on November 2, 2004. Notwithstanding any other provision herein to the contrary, and with reference to that certain Exclusive License Agreement between Cortech, Inc. and the Company with an Effective Date as of November 2, 1998 (the "LICENSE AGREEMENT"), this Warrant shall terminate without any further rights for the Investor hereunder in the event that the Company, using its commercially reasonable discretion, has terminated all research, development and commercialization efforts regarding the Licensed Compound and the Products (as such terms are defined in the License Agreement), as set forth in Section 3.6 of the License Agreement, prior to the Warrant Exercise Date (and any such termination on or after the Warrant Exercise Date shall be without effect hereunder). 2 This Warrant is subject to the following additional provisions, terms and conditions: 1. Exercise of Warrant. a. Manner of Exercise. This Warrant may be exercised by the holder hereof, in whole or in part, by surrender of this Warrant, together with written notice of exercise (a sample form of exercise is attached hereto as Exhibit A1), to the Company at the principal office of the Company (which, for purposes of this Warrant, shall be deemed to be the Company's address for notice purposes as provided in Section 8 below) accompanied by payment (in cash, certified check or bank draft payable to the order of the Company) of the Exercise price multiplied by the number of Shares for which this Warrant is being exercised, or by exercise of the Net Exercise Right as provided in Section 1(b) below. b. Net Exercise Right. In lieu of payment of the Exercise Price pursuant to Section 1(a) above, this Warrant may also be exercised, in whole or in part, by surrender of this Warrant together with written notice of exercise specifying the holder's election to convert all, or any specified portion, of this Warrant (the "NET EXERCISE RIGHT") into the number of Shares equal to the quotient obtained by dividing: (x) the value of the Shares for which the Warrant is then being exercised (determined by subtracting the aggregate Exercise Price of such Shares in effect immediately prior to the exercise of the Net Exercise Right from the aggregate fair market value of the Shares immediately prior to the exercise of the Net Exercise Right) by (y) the fair market value of one Share immediately prior to the exercise of the Net Exercise Right. The fair market value of a Share as of a particular date shall be determined as follows: (1) If the Common Stock is publicly traded on a particular valuation date, fair market value on such date shall be: (i) the closing sale price of the Common Stock, as quoted on any national securities exchange on which such stock shall be listed and registered, on the business day immediately preceding the valuation date; (ii) the closing sale price of the Common Stock, if such stock is then quoted on the National Association of Securities Dealers, Inc. ("NASDAQ") National Market, on the business day immediately preceding the valuation date; or (iii) if the Common Stock is not then traded on a national securities exchange or on the NASDAQ National Market, but is quoted on NASDAQ, the average of the 2 3 closing bid and asked prices for the Common Stock as reported on NASDAQ on the business day immediately preceding the valuation date. (2) If the Common Stock is not publicly traded on a particular valuation date, fair market value on such date shall be determined by the Board of Directors of the Company acting in good faith (taking into account, as such Board of Directors acting in good faith deems appropriate, any recent corporate events involving a determination of value for the Company's securities (e.g., the closing of an offering of securities or the granting of incentive stock options)). c. When Exercise Effective. Each exercise of this Warrant shall be deemed to have been effected on the date on which the Investor provides the Company with the deliveries contemplated by Section 1(a) above. d. Delivery of Stock Certificates. Certificates representing the Shares purchased upon any exercise of this Warrant shall bear the restrictive legend set forth in Section 9 below and shall be delivered to the Investor promptly following such exercise. A new Warrant exercisable for the number of Shares, if any, with respect to which this Warrant shall not have been exercised shall also be delivered to the Investor. No fractional Shares shall be issued upon the exercise of this Warrant; rather, the Investor shall receive an amount, in cash, equal to the fair market value of any such fractional Shares (determined with reference to the provisions of Section 1(b) above). 2. Shares Issuable Upon Exercise. a. Reserved. The Company covenants and agrees that all Shares that may be issued upon the exercise of this Warrant shall, upon issuance pursuant to an exercise of this Warrant in accordance with its terms, be duly authorized and validly issued, fully paid and nonassessable Shares, free and clear of all preemptive rights. The Company will at all times reserve and keep available, solely for issuance and delivery upon the exercise of this Warrant, such number of Shares of the Company Stock as shall be issuable from time to time upon the exercise of this Warrant. b. Restricted Securities. Investor acknowledges that the Company is issuing this Warrant in reliance upon the exemption from registration provided under Section 4(2) of the Securities Act and is relying upon Investor's representation that it is an "accredited investor" within the meaning of Rule 501 of Regulation D under the Securities Act of 1933, as amended (the "1933 ACT"). Investor acknowledges that the Shares to be issued upon the exercise of this Warrant may be unregistered at the time of exercise and, in such event, Investor acknowledges that the Shares to be issued upon the exercise of this Warrant may only be pledged, offered, sold or transferred if registered under the 1933 Act or pursuant to an exemption from the registration requirements thereunder. Investor understands that absent registration of the Shares to be issued upon the exercise of this Warrant under the 1933 Act, compliance with an applicable exemption under the 1933 Act is required for a sale or other disposition of such shares. Investor further understands and acknowledges that there is not now available, and may 3 4 not be available when it wishes to sell such Shares to be issued upon the exercise of this Warrant, adequate current public information with respect to the Company which would permit offers or sales of the Shares pursuant to Rule 144 promulgated under the 1933 Act. Investor acknowledges that the Company is under no obligation to register the Shares to be issued upon the exercise of this Warrant. Investor understands that, so long as the legend provided in Section 9 below may remain on the certificates presenting the Shares to be issued upon the exercise of this Warrant, the Company may maintain appropriate "stop transfer" orders with respect to such shares on its books and records and with its registrar and transfer agent. Listed. Prior to the issuance of any Shares, the Company shall secure the listing or quotation of such Shares upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed or traded (subject to official notice of issuance upon exercise of this Warrant) and shall maintain, so long as any other shares of Common Stock shall be so listed or traded, such listing or quotation of all Shares from time to time issuable upon the exercise of this Warrant. The Company shall so list or secure quotation on each national securities exchange or automated quotation system, and shall maintain such listing or quotation of, any other shares issuable upon any exercise of this Warrant if and so long as any shares of the same class shall be listed or quoted on such national securities exchange or automated quotation system. 3. Adjustment. The Exercise Price and/or the number and type of securities issuable upon any exercise of this Warrant shall be subject to adjustment from time to time as hereinafter provided in this Section 3. a. If the Company, at any time, divides the outstanding shares of its Common Stock into a greater number of shares (whether pursuant to a stock split, stock dividend or otherwise), and conversely, if the outstanding shares of its Common Stock are combined into a smaller number of shares, the number of Shares available upon any exercise of this Warrant and the Exercise Price in effect immediately prior to such division or combination shall be proportionately adjusted to reflect the reduction or increase in outstanding shares. b. If any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of shares of Common Stock shall be entitled to receive stock, other securities or assets with respect to or in exchange for such shares of Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, the holder of this Warrant shall have the right to purchase and receive upon the basis and upon the terms and conditions specified in this Warrant and in lieu of the Shares immediately theretofore purchasable and receivable upon the exercise of this Warrant, such shares of stock, other securities or assets as would have been issued or delivered to the Investor if the Investor had exercised this Warrant and had received such 4 5 Shares prior to such reorganization, reclassification, consolidation, merger or sale. The Company shall not effect any such consolidation or merger unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or merger shall assume by written instrument executed and mailed to the Investor (i) the obligation to deliver to the Investor such shares of stock, other securities or assets as, in accordance with the foregoing provisions, the Investor may be entitled to purchase and (ii) the other obligations of the Company set forth or referred to in this Warrant. c. If, after the initial issuance of this Warrant to the Investor, the Company shall declare a dividend or distribution payable to holders of the Common Stock (whether payable in cash, securities or other assets of the Company), upon any exercise of this Warrant the Investor shall be entitled to receive, and the Company shall promptly pay to the Investor, any such dividend(s) and/or distribution(s) (as well as any other cash, securities or other assets which the Investor would have received had it held any securities received in any such dividend(s) and/or distribution(s)), also giving effect to the other provisions of this Section 3. d. Promptly following any adjustment under this Section 3, the Company shall give written notice thereof (by first class mail, postage prepaid) to the Investor (at the Investor's address as shown on the books of the Company), which notice shall state the Exercise Price and number of Shares (or other securities or assets) resulting from such adjustment, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. e. The terms of this Warrant shall be binding upon the successors of the Company. 4. No Rights as Stockholder; Notice. The Investor shall not by virtue of this Warrant be entitled to any rights of a stockholder of the Company. However, the Company shall give notice to the Investor if at any time prior to the expiration or exercise in full of this Warrant any of the following events shall occur: (a) the Company shall declare any dividend or distribution with respect to its capital stock; (b) a dissolution, liquidation or winding up of the Company shall be proposed; or (c) a capital reorganization or reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation, any transaction or series of transactions in which more than fifty percent (50%) of the voting securities of the Company are transferred to another person, or any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety. 5 6 Such giving of notice shall be effected at least fifteen (15) business days prior to the date fixed as a record date or effective date or the date of closing of the Company's stock transfer books for the determination of the stockholders entitled to such dividend or distribution, or for the determination of the stockholders entitled to vote on such proposed merger, consolidation, sale, conveyance, dissolution, liquidation or winding up. Such notice shall specify such record date or the date of closing the stock transfer books, as the case may be. 5. Registered Owner. The Company may treat the registered owner hereof as the owner for all purposes (notwithstanding any markings or notations on the face of this Warrant). 6. Loss, Theft, Destruction or Mutilation. Upon receipt of the Company of satisfactory evidence of the loss, theft, destruction or mutilation of this Warrant and either (in the case of loss, theft or destruction) indemnification satisfactory to the Company or (in the case of mutilation) the surrender of this Warrant for cancellation, the Company will execute and deliver to the Investor, without charge, a Warrant of like denomination. 7. Public Reporting. With a view to making available to the Investor the benefits of Rule 144 ("RULE 144") promulgated under the 1933 Act, and any other rule or regulation of the Securities and Exchange Commission (the "SEC") that may at any time permit the Investor to sell Shares to the public without registration, the Company agrees that, for so long as a class of its securities is registered under Section 12 of the Securities Exchange Act of 1934, as amended (the "1934 ACT"), the Company will: (i) make and keep public information available, as those terms are understood and defined in Rule 144, at all times; (ii) file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act; and (iii) furnish to the Investor, forthwith upon request, (a) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (b) a copy of the most recent annual or quarterly report of the Company filed with the SEC and such other reports and documents so filed by the Company which the Investor may reasonably request, and (c) such other information as may be reasonably requested in availing the Investor of any rule or regulation of the SEC which permits the selling of any Shares without registration under the 1933 Act. 8. Notices. Any notice or demand desired or required to be given hereunder shall be in writing and given (except as otherwise provided herein) by personal delivery, certified or registered mail or air courier addressed as follows: If to the Company: United Therapeutics Corporation 2 Davis Drive Research Triangle Park, North Carolina 27709 Attention: President 6 7 with a copy to: Mahon Patusky Rothblatt & Fisher 1735 Connecticut Avenue, N.W. Third Floor Washington, D.C. 20009 Attention: Paul A. Mahon, Esq. If to Cortech, Inc.: Cortech, Inc. 6850 North Broadway Denver, Colorado 80221 Attention: President with a copy to: Dechert Price & Rhoads Princeton Pike Corp. Center 997 Lennox Drive, Building 3 Lawrenceville, NJ 08648 Attention: Allen Bloom, Esq. or to such other address as the party to receive the notice or request shall designate by notice to the other. Any notice or request shall be deemed given when received. 9. Legend. The Company may cause each certificate representing Shares issued upon exercise of this Warrant to bear a legend in substantially the following form: "The securities represented by this certificate have not been registered or qualified under the Federal Securities Act of 1933 (the "1933 ACT") or applicable state securities laws and are "restricted securities" within the meaning of Rule 144 promulgated under the 1933 Act. The securities may not be sold or transferred without complying with Rule 144 in the absence of effective registration under the 1933 Act or other compliance under or exemption from the 1933 Act and applicable state securities laws." 10. Taxes. The Company agrees that it will pay, and will hold the Investor harmless from any and all liability with respect to, any stamp or similar taxes which may be determined to be payable to the State of Delaware in connection with the issuance, delivery or exercise of this Warrant (as well as the issuance or delivery of Shares upon any exercise of this Warrant). 11. Miscellaneous. Neither this Warrant nor any term hereof may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. The Section headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. 7 8 IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and delivered by its duly authorized officers as of November 2, 1998. UNITED THERAPEUTICS CORPORATION, a Delaware corporation By: /s/ Martine A. Rothblatt -------------------------- Its: Chief Executive Officer -------------------------- By:_____________________________ Its:____________________________ Witness: 8 9 EXHIBIT A1 WARRANT EXERCISE (To be signed only upon an exercise of the Warrant) The undersigned, the holder of the attached Warrant, hereby elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, __________ of the Shares of Common Stock of United Therapeutics Corporation to which such Warrant relates and herewith makes payment of $__________ therefor in cash or by certified check or bank draft [OR ELECTION IS MADE WITH RESPECT TO THE CURRENT EXERCISE OF THE WARRANT TO UTILIZE THE NET EXERCISE RIGHT AS DESCRIBED IN SUCH WARRANT] and requests that the certificate for such Shares be issued in the name of, and be delivered to ________________________, whose address is set forth below the signature of the undersigned. Dated:____________________________ ____________________________________ [SIGNATURE] ____________________________________ ____________________________________ ____________________________________ [ADDRESS] 9 EX-4.5 8 STOCK OPTION GRANT 1 EXHIBIT 4.5 THIS STOCK OPTION GRANT, AND ANY SECURITIES WHICH MAY BE ACQUIRED UPON THE EXERCISE OF THIS STOCK OPTION GRANT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, HYPOTHECATED OR OTHERWISE TRANSFERRED OR DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION, UNLESS AN EXEMPTION FROM THE REQUIREMENT OF SUCH REGISTRATION IS AVAILABLE UNDER THE CIRCUMSTANCES AT THE TIME OBTAINING (AND, IF REASONABLY REQUESTED BY THE COMPANY, DEMONSTRATED BY AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY). STOCK OPTION GRANT TO PURCHASE 500,000 SHARES OF THE COMMON PAR VALUE $0.01 PER SHARE, OF UNITED THERAPEUTICS CORPORATION For value received, Toray Industries, Inc. a Japan corporation, or its permitted successors or assigns (collectively, the "Investor"), are entitled to subscribe for and purchase from UNITED THERAPEUTICS CORPORATION, a Delaware corporation (the "Company"), from September 16, 1998 (the "Stock Option Grant Exercise Date"), up to 500,000 fully paid and nonassessable shares (the "Shares") of the Company's common stock, par value $0.01 per share ("Common Stock"), at the purchase price of $3.00 per share (the "Exercise Price"). The number and character of Shares issuable pursuant to this Stock Option Grant are subject to adjustment as provided herein. The Investor's right to purchase Shares pursuant to this Stock Option Grant shall terminate on that date which is thirty (30) days following the date of UT's first filing of a New Drug Application (NDA) in the United States for Beraprost Sodium. This Stock Option Grant is subject to the following additional provisions, terms and conditions: 1. Exercise of Stock Option Grant. a. Manner of Exercise. This Stock Option Grant may be exercised by the holder hereof, in whole or in part, by surrender of this Stock Option Grant, together with written notice of exercise (a sample form of exercise is attached hereto as Attachment A), to the Company at the principal office of the Company (which, for the purposes of this Stock Option Grant, shall be deemed to be the Company's address for notice purposes as provided in Section 8 below) accompanied by payment (in cash, certified check or bank draft payable to the order of the Company) of the Exercise Price multiplied by the number of Shares for which this Stock Option Grant is being exercised. 2 b. When Exercise Effective. Each exercise of this Stock Option Grant shall be deemed to have been effected on the date on which the Investor provides the Company with the deliveries contemplated by Section 1(a) above. c. Delivery of Stock Certificates. Certificates representing the Shares purchased upon any exercise of this Stock Option Grant shall bear the restrictive legend set forth in Section 9 below and shall be delivered to the Investor promptly following such exercise. A new Stock Option Grant exercisable for the number of Shares, if any, with respect to which this Stock Option Grant shall not have been exercised shall also be delivered to the Investor. 2. Shares Issuable Upon Exercise. a. Reserved. The Company covenants and agrees that all Shares that may be issued upon the exercise of this Stock Option Grant shall, upon issuance pursuant to an exercise of this Stock Option Grant in accordance with its terms, be duly authorized and validly issued, fully paid and nonassessable Shares, free and clear of all preemptive rights. The Company will at all times reserve and keep available, solely for issuance and delivery upon the exercise of this Stock Option Grant, such number Shares of the Common Stock as shall be issuable from time to time upon the exercise of this Stock Option Grant. b. Restricted Securities. Investor acknowledges that the Company is issuing this Stock Option Grant upon the exemption from registration provided in Section 4(2) of the Securities Act and is relying upon Investor's representation that it is an "accredited investor" within the meaning of Rule 501 of Regulation D under the Securities Act of 1933, as amended. Investor acknowledges that the Shares to be issued upon the exercise of this Stock Option Grant may be unregistered at the time of exercise and, in such event, Investor agrees that the Shares be issued upon the exercise of this Stock Option Grant may only be pledged, offered, sold or transferred if registered under the Securities Act or pursuant to an exemption from the registration requirements thereunder. Investor understands that absent registration of the Shares to be issued upon the exercise of this Stock Option Grant under the Securities Act, compliance with an applicable exemption under the Securities Act is required for a sale or other disposition of such shares. Investor further understands and acknowledges that there is not now available, and may not be available when it wishes to sell such Shares to be issued upon the exercise of this Stock Option Grant, adequate public information with respect to the Company which would permit offers or sales of the shares of Class A preferred stock pursuant to Rule 144 promulgated under the Securities Act. Investor acknowledges that the Company is under no obligation to register the Shares to be issued upon the exercise of this Stock Option Grant. Investor understands that, so long as the legend provided in Section 9 below may remain on the certificates representing the Shares to be issued upon the exercise of this Stock Option Grant, the Company may maintain appropriate "stop transfer" orders with respect to such shares on its books and records and with its registrar and transfer agent. 3. Adjustment. The Exercise Price and/or the number and type of securities issuable upon any exercise of this Stock Option Grant shall be subject from time to time as hereinafter provided in Section 3. 2 3 a. If the Company, at any time, divides the outstanding shares of its Common Stock into a greater number of shares (whether pursuant to a stock split, stock dividend or otherwise) and conversely, if the outstanding shares of its Common Stock are combined into a smaller number of shares, the number of Shares available upon any exercise of this Stock Option Grant and the Exercise Price in effect immediately prior to such division or combination shall be proportionately adjusted to reflect the reduction or increase in outstanding shares. b. If any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of shares of Common Stock shall be entitled to receive stock, other securities or assets with respect to or in exchange for such shares of Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, the holder of this Stock Option Grant shall have the right to purchase and receive upon the basis and upon the terms and conditions specified in this Stock Option Grant and in lieu of the Shares immediately theretofore purchasable and receivable upon the exercise upon the exercise of this Stock Option Grant, such shares of stock, other securities or assets as would have been issued or delivered to the Investor if the Investor had exercised this Stock Option Grant and had received such Shares prior to such reorganization, reclassification, consolidation, merger or sale. The Company shall not effect any such consolidation or merger unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or merger shall assume by written instrument executed and mailed to the Investor (i) the obligation to deliver to the Investor such shares of stock, other securities or assets as, in accordance with the foregoing provisions, the Investor may be entitled to purchase and (ii) the other obligations of the Company set forth or referred to in this Stock Option Grant. c. If, after the initial issuance of this Stock Option Grant to the Investor, the Company shall declare a dividend or distribution payable to holders of the Common Stock (whether payable in cash, securities or other assets of the Company), upon any exercise of this Stock Option Grant the Investor shall be entitled to receive, and the Company shall promptly pay to the Investor, any such dividend(s0 and/or distribution(s) (as well as any other cash, securities or other assets which the Investor would have received had it held any securities received in any such dividend(s) and/or distributions)), also giving to the other provisions of this Section 3. d. Promptly following any adjustment under this Section 3, the Company shall give written notice thereof (by first class mail, postage prepaid) to the Investor (at the Investor's address as shown on the books of the Company), which notice shall state the Exercise Price and number of Shares (or other securities or assets) resulting from such adjustment, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. e. The terms of this Stock Option Grant shall be binding upon the successors of the Company. 3 4 4. No Rights as Stockholder; Notice. The Investor shall not by virtue of this Stock Option Grant be entitled to any rights of a stockholder of the Company. However, the Company shall give notice to the Investor if at any time prior to the expiration or exercise in full of this Stock Option Grant any of the following events shall occur: (a) the Company shall declare any dividend or distribution with respect to its capital stock; (b) a dissolution, liquidation or winding up to the Company shall be proposed; or (c) a capital reorganization or reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation, any transaction or series of transactions in which more than fifty percent (50%) of the voting securities of the Company are transferred to another person, or any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety. Such giving of notice shall be effected at least fifteen (15) business days prior to the date fixed as a record date or effective date or the date of closing of the Company's stock transfer books for the determination of the stockholders entitled to such dividend or distribution, or for the determination of the stockholders entitled to vote on such proposed merger, consolidation, sale, conveyance, dissolution, liquidation or winding up. Such notice shall specify such record date or the closing date or the date of closing the stock transfer books, as the case may be. 5. Registered Owner. The Company may treat the registered owner hereof as the owner for all purposes (notwithstanding any markings or notations on the face of this Stock Option Grant). 6. Loss, Theft, Destruction, or Mutilation. Upon receipt by the Company of satisfactory evidence of the loss, theft, destruction or mutilation of this Stock Option Grant and either (in the case of loss, theft or destruction) indemnification satisfactory to the Company or (in the case of mutilation) the surrender of this Stock Option Grant for cancellation, the Company will execute and deliver to the Investor, without charge, a Stock Option Grant of like denomination. 7. Public Reporting. With a view to making available to the Investor the benefits of Rule 144 ("Rule 144") promulgated under the Securities Act of 1933, as amended (the "1933 Act"), and any other rule or regulation of the Securities and Exchange Commission (the "SEC") that may at any time permit the Investor to sell Shares to the public without registration, the Company agrees that, for so long as a class of its securities is registered under Section 12 of the Securities Exchange Act of 1934, as amended (the "1934 Act"), the Company will: (i) make and keep public information available, as those terms are understood and defined in Rule 144, at all times; (ii) file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act; and (iii) furnish to the Investor, forthwith upon request, (a) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (b) a copy of the most recent annual or 4 5 quarterly report of the Company filed with the SEC and such other reports and documents so filed by the Company which the Investor may reasonably request, and (c) such other information as may be reasonably requested in availing the investor of any rule or regulation of the SEC which permits the selling of any Shares without registration under the 1933 Act. 9. Notices. Any notice or demand desired or required to be given hereunder shall be in writing and given (except as otherwise provided herein) by personal delivery, certified or registered mail or air courier addressed as follows: If to the Company: United Therapeutics Corporation 1110 Spring Street Silver Spring, MD 20910 Attn: Martine Rothblatt, CEO If to Toray Industries: Toray Industries, Inc. Head Office 2-1, Nihonbashi-Muromachi 2-chome Chuo-ku Tokyo 103-8666 Japan Attn: Masanobu Naruto, Ph.D. General Manager Pharmaceuticals Planning Dept. or to such other address as the party to receive the notice or request shall designate by notice to the other. Any notice or request shall be deemed given when received. 9. Legend. The Company may cause each certificate representing Shares issued upon exercise of this Stock Option Grant to bear legend in substantially the following form: "The securities represented by this certificate have not been registered or qualified under the Federal Securities Act of 1933 (the "1933 Act") or applicable state securities laws and are "restricted securities" within the meaning of Rule 144 promulgated under the 1933 Act. The securities may not be sold or transferred without complying with Rule 144 in the absence of effective registration under the 1933 Act or other compliance under or exemption from the 1933 Act and applicable state securities laws." 10. Taxes. The Company agrees that it will pay, and will hold the Investor harmless from any and all liability with respect to, any stamp or similar taxes which may be determined to be payable to the State of Delaware in connection with the issuance, delivery or exercise of this Stock Option Grant (as well as the issuance or delivery of Shares upon any exercise of this Stock Option Grant). 5 6 11. Miscellaneous. Neither this Stock Option Grant nor any term hereof may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. The Section headings in this Stock Option Grant are for purposes of references only and shall not limit or otherwise affect the meaning hereof. IN WITNESS WHEREOF, the Company has caused this Stock Option Grant to be signed and delivered by its duly authorized officers as of September 16, 1998. UNITED THERAPEUTICS CORPORATION, a Delaware corporation /s/ Martine A. Rothblatt By: Martine A. Rothblatt Chief Executive Officer Witness: /s/ Theresa Bongartz - ----------------------- 6 7 Attachment A STOCK OPTION GRANT EXERCISE (To be signed only upon an exercise of the Stock Option Grant) The undersigned, the holder of the attached Stock Option Grant, hereby elects to exercise the purchase right represented by such Stock Option Grant for, and to purchase thereunder, _________________of the Shares of Common Stock of United Therapeutics Corporation to which such Stock Option Grant relates and herewith makes payment of $________________ therefor in cash or by certified check or bank draft [or election is made with respect to current exercise of the Stock Option Grant to utilize the Net Exercise Right as described in such Stock Option Grant] and requests that the certificate for such Shares be issued in the name of, and be delivered to_____________________ , whose address is set forth below the signature of the undersigned. Dated:____________________ ______________________________ Signature ______________________________ Title ______________________________ Address ______________________________ ______________________________ EX-10.1 9 AMENDED AND RESTATED EQUITY INCENTIVE PLAN 1 Exhibit 10.1 UNITED THERAPEUTICS CORPORATION AMENDED AND RESTATED EQUITY INCENTIVE PLAN (As amended effective April 9, 1999) 2 ARTICLE I PURPOSE 1.1 General. The purpose of the United Therapeutics Corporation Equity Incentive Plan (the "Plan") is to promote the success, and enhance the value, of United Therapeutics Corporation (the "Company"), by linking the personal interests of its qualified directors, officers and other key employees to those of Company stockholders and by providing its qualified directors, officers and other key employees with an incentive for outstanding performance. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of employees upon whose judgment, interest, and special effort the successful conduct of the Company's operation is largely dependent. Accordingly, the Plan permits the grant of incentive awards from time to time to selected directors, officers and key employees. ARTICLE 2 EFFECTIVE DATE 2.1 Effective Date. The Plan was originally effective November 12, 1997, subject to approval by the stockholders of the Company, which approval was duly obtained. Amendments to the Plan were approved by the Board of Directors on April 9, 1999, subject to the approval of the stockholders of the Company. The Plan as so amended and restated will be deemed to be approved by the stockholders if it receives the approval of the holders of a majority of the shares of stock of the Company in accordance with the applicable provisions of the Laws of the State of Delaware and the By-laws of the Company. Any Awards granted under the Plan as so amended prior to stockholder approval are effective when made (unless the Committee specifies otherwise at the time of grant), but no Award may be exercised or settled and no restrictions relating to any Award may lapse before stockholder approval. If the stockholders fail to approve the Plan as amended within twelve (12) months of April 9, 1999, any Award previously made pursuant to the amended Plan shall be automatically canceled without any further act. ARTICLE 3 DEFINITIONS 3.1 Definitions. When appearing in this Plan with the initial letter capitalized, and the word or phrase does not commence a sentence, the word or phrase shall generally be given the meaning ascribed to it in this Section or in Sections 1.1 or 2.1, unless a clearly different meaning is required by the context. The following words and phrases shall have the following meanings: (a) "Award" means any Option, Stock Appreciation Right, Restricted Stock Award, or Performance Share Award, or any other right or interest relating to Stock or cash, granted to a Participant under the Plan. (b) "Award Agreement" means any written agreement, contract, or other instrument or document evidencing an Award. 2 3 (c) "Board" means the Board of Directors of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (e) "Committee" means the committee of the Board described in Article 4. (f) "Company" means United Therapeutics Corporation. (g) "Disability" shall mean any illness or other physical or mental condition of a Participant that renders the Participant incapable of performing his customary and usual duties for the Company, or any medically determinable illness or other physical or mental condition resulting from a bodily injury, disease or mental disorder which, in the judgment of the Committee, is permanent and continuous in nature. The Committee may require such medical or other evidence as it deems necessary to judge the nature and permanency of the Participant's condition. Such disability determination shall be made in accordance with Code section 22(e)(3). (h) "Effective Date" has the meaning assigned such term in Section 2.1. (i) "Fair Market Value" means with respect to Stock or any other property, the fair market value of such Stock or other property determined by such methods or procedures as may be established from time to time by the Committee. (j) "Incentive Stock Option" means an Option that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto. (k) "Non-Qualified Stock Option" means an Option that is not an Incentive Stock Option. (l) "Option" means a right granted to a Participant under the Plan to purchase Stock at a specified price during specified time periods. An Option may be either an Incentive Stock Option or a Non-Qualified Stock Option. (m) "Participant" means a person who, as a director, officer or key employee of the Company, has been granted an Award under the Plan. (n) "Performance Award" means a right granted to a Participant under Article 9 to receive cash, Stock, or other Awards, the payment of which is contingent upon achieving certain performance goals established by the Committee (includes "Performance Shares" and "Performance Units"). (o) "Performance Share" means a right granted to a Participant under Article 9 to receive shares of Company Stock, the payment of which is contingent upon achieving certain performance goals. (p) "Performance Units" means a right granted to a Participant under Article 9 to receive units the value of which is equivalent to $1.00, the payment of which is contingent upon achieving certain performance goals. (q) "Plan" means the United Therapeutics Corporation Amended and Restated Equity Incentive Plan, as it may be further amended from time to time. 3 4 (r) "Restricted Stock Award" means Stock granted to a Participant under Article 10 that is subject to certain restrictions and to risk of forfeiture. (s) "Retirement" means a Participant's termination of employment with the Company after attaining any normal or early retirement age specified in any pension, profit sharing or other retirement program sponsored by the Company. (t) "Stock" means the United Therapeutics Corporation par value common stock of the Company and such other securities of the Company as may be substituted for Stock pursuant to Article 12. (u) "Stock Appreciation Right" or "SAR" means a right granted to a Participant under Article 8 to receive a payment equal to the difference between the Fair Market Value of a share of Stock as of the date of exercise of the SAR and the grant price of the SAR, as determined pursuant to Article 8. (v) "1933 Act" means the Securities Act of 1933, as amended from time to time. (w) "1934 Act" means the Securities Exchange Act of 1934, as amended from time to time. ARTICLE 4 ADMINISTRATION 4.1 Committee. The Plan shall be administered by the Compensation Committee of the Board. The Committee shall consist of two or more members of the Board who are (i) "outside directors" as that term is used in Section 162 of the Code and the regulations promulgated thereunder, and (ii) "non-employee directors," as such term is defined for purposes of Rule 16b-3 promulgated under Section 16 of the 1934 Act or any successor provision, except as may be otherwise permitted under Section 16 of the 1934 Act and the rules and regulations promulgated thereunder. 4.2 Action by the Committee. For purposes of administering the Plan, the following rules of procedure shall govern the Committee. A majority of the Committee shall constitute a quorum. The acts of a majority of the members present at any meeting who are, at which a quorum is present and acts approved in writing by a majority of the Committee in lieu of a meeting shall be deemed the acts of the Committee. Each member of the Committee is entitled, in good faith, to rely or act upon any report or other information furnished to that member by any officer or other employee of the Company, the Company's independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan. 4.3 Authority of Committee. The Committee has the exclusive power, authority and discretion to: (a) Designate Participants; (b) Determine the type or types of Awards to be granted to each Participant; 4 5 (c) Determine the number of Awards to be granted and the number of shares of Stock to which an Award will relate; (d) Determine the terms and conditions of any Award granted under the Plan, including but not limited to, the exercise price, grant price, or purchase price, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, based in each case on such considerations as the Committee in its sole discretion determines; (e) Determine whether, to what extent, and under what circumstances an Award may be granted, or the exercise price of an Award may be paid in (cash, Stock, other Awards, or other property), or an Award may be canceled, forfeited, or surrendered; (f) Prescribe the form of each Award Agreement, which need not be identical for each Participant; (g) Decide all other matters that must be determined in connection with an Award; (h) Establish, adopt or revise any rules and regulations as it may deem necessary or advisable to administer the Plan; and (i) Make all other decisions and determinations that may be required under the Plan or as the Committee deems necessary or advisable to administer the Plan. 4.4 Decisions Binding. The Committee is hereby granted discretionary authority to construe and interpret the provisions of the Plan. The Committee's interpretation of the Plan, any Awards granted under the Plan, any Award Agreement and all decisions and determinations by the Committee with respect to the Plan are final, binding, and conclusive on all parties. ARTICLE 5 SHARES SUBJECT TO THE PLAN 5.1 Number of Shares. Subject to adjustment as provided in Section 12.1, the aggregate number of shares of Stock reserved and available for Awards, except with respect to Options granted pursuant to Section 7.3, shall be 7,000,000. Subject to adjustment as provided in Section 12.1, the aggregate number of shares of Stock reserved and available for the Options granted pursuant to Section 7.3 shall be 7,939,517. 5.2 Lapsed Awards. To the extent that an Award is canceled, terminates, expires or lapses for any reason, any shares of Stock subject to the Award will again be available for the grant of an Award under the Plan and shares subject to SARs or other Awards settled in cash will be available for the grant of an Award under the Plan. 5 6 5.3 Stock Distributed. Any Stock distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Stock, treasury Stock or Stock purchased on the open market. 5.4 Limitation on Number of Shares Subject to Awards. Notwithstanding any provision in the Plan to the contrary, the maximum number of shares of Stock with respect to one or more Awards that may be granted to any one Participant over any one calendar year period during the term of the Plan shall not exceed 500,000; provided, however, that the maximum number of shares of Stock with respect to an Option granted to the Chief Executive Officer pursuant to Section 7.3 in 2000 shall not exceed 500,000; in 2001 shall not exceed 701,353; in 2002 shall not exceed 681,434; in 2003 shall not exceed 2,757,832; and in 2004 shall not exceed 3,298,898. ARTICLE 6 ELIGIBILITY 6.1 General. Awards may be granted only to individuals who are directors (including non-employee directors), officers or other key employees (including employees who also are directors or officers) of or consultants to the Company, as determined by the Committee. ARTICLE 7 STOCK OPTIONS 7.1 General. The Committee is authorized to grant Options to Participants in such amounts as it deems appropriate in its discretion and subject to such conditions and based on such criteria as it may deem advisable (including performance based criteria or conditions) consistent with the other terms of the Plan and the following: (a) Exercise Price. The exercise price per share of Stock under an Option shall be determined by the Committee. (b) Time and Conditions of Exercise. The Committee shall determine the time or times at which an Option may be exercised in whole or in part. The Committee also shall determine the performance or other conditions, if any, that must be satisfied before all or part of an Option may be exercised. (c) Payment. The Committee shall determine the methods by which the exercise price of an Option may be paid, the form of payment, including, without limitation, cash, shares of Stock, or other property (including "cashless exercise" arrangements), and the methods by which shares of Stock shall be delivered or deemed to be delivered to Participants. Without limiting the power and discretion conferred on the Committee pursuant to the preceding sentence, the Committee may, in the exercise of its discretion, but need not, allow a Participant to pay the Option price by directing the Company to withhold from the shares of Stock that would otherwise be issued upon exercise of the Option that number of shares 6 7 having a Fair Market Value on the exercise date equal to the Option price, all as determined pursuant to rules and procedures established by the Committee. (d) Evidence of Grant. All Options shall be evidenced by a written Award Agreement between the Company and the Participant. The Award Agreement shall include such provisions as may be specified by the Committee. (e) Dividend Equivalents. Any Option may provide for the payment of dividend equivalents to the Participant on a current, deferred or contingent basis or may provide that Dividend Equivalents be credited against the option price. The right to Dividend Equivalents, if so provided, shall be evidenced in the Award Agreement. 7.2 Incentive Stock Options. The terms of any Incentive Stock Options granted under the Plan must comply with the following additional rules: (a) Exercise Price. Subject to Section 7.2 (e) below, the exercise price per share of Stock shall be set by the Committee, provided that the exercise price for any Incentive Stock Option shall not be less than the Fair Market Value as of the date of the grant. (b) Exercise. Subject to Section 7.2(e) below, in no event may any Incentive Stock Option be exercisable for more than ten (10) years from the date of its grant. (c) Lapse of Option. An Incentive Stock Option shall lapse under the following circumstances: (1) The Incentive Stock Option shall lapse three months after the Participant's termination of employment, if the termination of employment was (i) attributable to Retirement or (ii) for any other reason, provided that the Committee has approved, in writing, the continuation of any Incentive Stock Option outstanding on the date of the Participant's termination of employment. (2) If the Participant becomes disabled within the meaning of Disability under Section 3.1(g) of the Plan, then the Option will lapse twelve (12) months after employment ceased due to the Disability. (3) If the Participant separates from employment other than as provided in paragraph (1) or (2), the Incentive Stock Option shall lapse at the time of the Participant's termination of employment. (5) If the Participant dies before the Option lapses pursuant to paragraph (1), (2) or (3) or before its original expiration as indicated above, the Incentive Stock Option shall lapse, unless it is previously exercised, on the date on which the Option would have lapsed had the Participant lived and had his employment status (i.e., whether the Participant was employed by the Company on the date of his death or had previously terminated employment) remained unchanged. Upon the Participant's death, any exercisable Incentive Stock Options may be exercised by the Participant's legal representative or representatives, by the person or persons entitled to 7 8 do so under the Participant's last will and testament, or, if the Participant shall fail to make testamentary disposition of such Incentive Stock Options or shall die intestate, by the person or persons entitled to receive such Incentive Stock Options under the applicable laws of descent and distribution. (d) Individual Dollar Limitation. The aggregate Fair Market Value (determined at the time an Award is made) of all shares of Stock with respect to which Incentive Stock Options are first exercisable by a Participant in any calendar year may not exceed $100,000.00. (e) Ten Percent Owners. No Incentive Stock Option shall be granted to any individual who, at the date of grant, owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company unless the exercise price per share of such Option is at least 110% of the Fair Market Value per share of Stock at the date of grant and the Option expires no later than five (5) years after the date of grant. (f) Expiration of Incentive Stock Options. No Award of an Incentive Stock Option may be made pursuant to the Plan after the day immediately prior to the tenth anniversary of the original Effective Date (i.e., November 12, 19977). (g) Right to Exercise. During a Participant's lifetime, an Incentive Stock Option may be exercised only by the Participant. (h) Grants only to Employees. Incentive Stock Options may be granted only to employees of the Company. 7.3 Incentive Stock Option Grants to Chief Executive Officer Pursuant to the terms of the Executive Employment Agreement entered into by and between the Company and its Chief Executive Officer, dated April 5, 1999, as amended, the Company shall make annual grants of Incentive Stock Options to the Chief Executive Officer. The number of shares subject to each Incentive Stock Option shall be determined in accordance with the Employment Agreement. The terms of the Award Agreement for such Option grants shall be in form and substance as attached to the Employment Agreement. ARTICLE 8 STOCK APPRECIATION RIGHTS 8.1 Grant of SARs. The Committee is authorized to grant SARs to Participants on the following terms and conditions: (a) Right to Payment. Upon the exercise of a SAR, the Participant to whom it is granted has the right to receive all or a percentage of: (1) The Fair Market Value of one share of Stock on the date of exercise, minus, (2) The grant price of the SAR as determined by the Committee. In the case of a SAR offered in tandem with an Incentive Stock Option, the grant 8 9 price of the SAR shall not be less than the Fair Market Value of one share of Stock on the date of grant. (b) Tandem Awards. SARs may be granted alone or in tandem with options. If a SAR is granted in tandem with an option, the SAR may only be exercised at a time when the related option is exercisable and the difference between the Fair Market Value and the grant price is a positive number. The exercise of the tandem SAR requires the surrender of the related option for cancellation. (c) Other Terms. All awards of SARs shall be evidenced by an Award Agreement. The terms, methods of exercise, methods of settlement, form of consideration payable in settlement, and any other terms and conditions of any SAR shall be determined by the Committee at the time of the grant of the Award and shall be reflected in the Award Agreement. The grant of any SAR may include the right to Dividend Equivalents as described in Section 7.1(e). ARTICLE 9 PERFORMANCE AWARDS 9.1 Grant of Performance Awards. The Committee is authorized to grant Performance Awards to Participants on such terms and conditions as may be selected by the Committee. The Committee shall have the complete discretion to determine the number of Performance Awards granted to each Participant. All grants of Performance Awards shall be evidenced by an Award Agreement. 9.2 Right to Payment. A grant of Performance Awards gives the Participant rights, valued as determined by the Committee, and payable to, or exercisable by, the Participant to whom the Performance Awards are granted, in whole or in part, as the Committee shall establish at grant or thereafter. The Committee shall set performance goals and other terms or conditions to payment of the Performance Awards in its discretion which, depending on the extent to which they are met, will determine the number and value of Performance Shares that will be paid to the Participant. 9.3 Other Terms. Performance Awards may be payable in cash, Stock, or other property, and have such other terms and conditions as determined by the Committee and reflected in the Award Agreement. ARTICLE 10 RESTRICTED STOCK AWARDS 10.1 Grant of Restricted Stock. The Committee is authorized to make Awards of Restricted Stock to Participants in such amounts and subject to such terms and conditions as may be selected by the Committee. All Awards of Restricted Stock shall be evidenced by a Restricted Stock Award Agreement. 9 10 10.2 Issuance and Restrictions. Restricted Stock shall be subject to such restrictions as the Committee may choose to impose. These restrictions may lapse separately or in combination at such times, under such circumstances, in such installments, or otherwise, as the Committee determines at the time of the grant of the Award or thereafter. An award of Restricted Stock will provide the Participant with voting, dividend and other ownership rights provided in the Award Agreement. 10.3 Forfeiture. Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, upon termination of employment during the applicable restriction period, Restricted Stock, that is at that time subject to restrictions, shall be forfeited and reacquired by the Company; provided, however, that the Committee may provide in any Award Agreement that restrictions or forfeiture conditions relating to Restricted Stock will be waived in whole or in part in the event of termination resulting from any specified cause, and the Committee may in other cases waive in whole or in part restrictions or forfeiture conditions relating to Restricted Stock. 10.4 Certificates for Restricted Stock. Restricted Stock granted under the Plan may be evidenced in such manner as the Committee shall determine. If certificates representing shares of Restricted Stock are registered in the name of the Participant, certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, and the Company shall retain physical possession of the certificate until such time as all applicable restrictions lapse. ARTICLE 10A DEFERRED SHARES 10A.1 Deferred Shares. The Committee is authorized to make Awards of Deferred Shares to Participants in such amounts and subject to such terms and conditions as may be selected by the Committee. A Deferred Share Award shall entitle the Participant to receive Stock from the Company in the future in consideration for services performed during the Deferral Period. All services required of the Participant for receipt of the Deferred Share shall be evidenced by an Award Agreement. 10A.2 Deferral Period. The "Deferral Period" means the time period mandated by the Award Agreement during which specified services are to be performed by the Participant that will merit receipt of the Deferred Shares. 10A.3 Other Conditions. The Committee may authorize Dividend Equivalents, defined under Section 7.1(e), to be provided on or after the date of any grant under this Section. During the 10 11 Deferral Period the Participant has no right to transfer any rights covered by the Award and no right to vote the Stock. The grant of any Deferred Shares may require the payment of additional consideration. However, in no case shall the additional consideration exceed the Fair Market Value of the Shares on the date of grant. ARTICLE 11 PROVISIONS APPLICABLE TO AWARDS 11.1 Stand-Alone, Tandem, and Substitute Awards. Awards granted under the Plan may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with, or in substitution for, any other Award granted under the Plan. If an Award is granted in substitution for another Award, the Committee may require the surrender of such other Award in consideration of the grant of the new Award. Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards. 11.2 Exchange Provisions. The Committee may at any time offer to exchange or buy out any previously granted Award for a payment in cash, Stock, or another Award (subject to Section 12.1), based on the terms and conditions the Committee determines and communicates to the Participant at the time the offer is made. 11.3 Term of Award. The term of each Award shall be for the period as determined by the Committee, provided that in no event shall the term of any Incentive Stock Option or a Stock Appreciation Right granted in tandem with the Incentive Stock Option exceed a period of ten years from the date of its grant. 11.4 Form of Payment for Awards. Subject to the terms of the Plan, the Award Agreement or any applicable law, payments or transfers to be made by the Company on the grant or exercise of an Award may be made in such form as the Committee determines at or after the time of grant, including without limitation, cash, Stock, other Awards, or other property, or any combination, and may be made in a single payment or transfer, in installments, or on a deferred basis, in each case determined in accordance with rules adopted by, and at the discretion of, the Committee. 11.5 Limits on Transfer. No right or interest of a Participant in any Award may be encumbered or pledged to or in favor of any party other than the Company , or shall be subject to any lien, obligation, or liability of such Participant to any other party other than the Company . No Award shall be assignable or transferable by a Participant other than by will or the laws of descent and distribution or, except in the case of an Incentive Stock Option, pursuant 11 12 to a qualified domestic relations order as defined in Section 414(p)(1)(B) of the Code, if the order satisfies Section 414(p)(1)(A) of the Code. 11.6 Beneficiaries. Notwithstanding Section 13.5, a Participant may, in the manner determined by the Committee, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant's death. A beneficiary, legal guardian, legal representative, or other person claiming any rights under the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Participant, except to the extent the Plan and Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee. If the Participant is married, a designation of a person other than the Participant's spouse as his beneficiary with respect to more than 50 percent of the Participant's interest in the Award shall not be effective without the written consent of the Participant's spouse. If no beneficiary has been designated or survives the Participant, payment shall be made to the person entitled thereto under the Participant's will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is filed with the Committee. 11.7 Stock Certificates. All Stock certificates delivered under the Plan are subject to any stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply with federal or state securities laws, rules and regulations and the rules of any national securities exchange or automated quotation system on which the Stock is listed, quoted, or traded. The Committee may place legends on any Stock certificate to reference restrictions applicable to the Stock. 11.8 Acceleration Upon Death or Disability. Notwithstanding any other provision in the Plan or any Participant's Award Agreement to the contrary, upon the Participant's death or Disability, all outstanding Options, Stock Appreciation Rights, and other Awards in the nature of rights that may be exercised shall become fully exercisable and all restrictions on outstanding Awards shall lapse. Any Option or Stock Appreciation Rights Awards shall then lapse in accordance with the other provisions of the Plan and the Award Agreement. To the extent that this provision causes Incentive Stock Options to exceed the dollar limitation set forth in Section 7.2(d), the excess Options shall be deemed to be Non-Qualified Stock Options. 11.9 Acceleration Upon Certain Events. In the event of (i) the commencement of a public tender offer for all or any portion of the Stock, (ii) a proposal to merge, consolidate or otherwise combine with another company is submitted to the stockholders of the Company for approval, or (iii) the Board approves any transaction or event that would constitute a change of control of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of the 1934 Act, the Committee may in its sole discretion declare all outstanding Options, Stock Appreciation Rights, and other Awards in the nature of rights that may be exercised to become fully exercisable, and/or all restrictions on all outstanding Awards to lapse, in each case as of such date as the Committee may, in its sole discretion, declare, which may be on or before the consummation of such tender offer or other transaction or event. To the extent that this provision causes Incentive 12 13 Stock Options to exceed the dollar limitation set forth in Section 7.2(d), the excess Options shall be deemed to be Non-Qualified Stock Options. ARTICLE 12 CHANGES IN CAPITAL STRUCTURE 12.1 General. In the event a stock dividend is declared upon the Stock, the shares of Stock then subject to each Award shall be increased proportionately without any change in the aggregate purchase price therefor. In the event the Stock shall be changed into or exchanged for a different number or class of shares of stock or securities of the Company or of another company, whether through reorganization, recapitalization, stock split, reverse stock split, combination of shares, merger or consolidation, there shall be substituted for each such share of Stock then subject to each Award the number and class of shares into which each outstanding share of Stock shall be so exchanged. The Committee shall make such adjustments to the aggregate purchase price for the shares then subject to each Award as it deems necessary or advisable to put Participants in the same relative position after such change in capital structure as before such change. ARTICLE 13 AMENDMENT, MODIFICATION AND TERMINATION 13.1 Amendment, Modification and Termination. With the approval of the Board, at any time and from time to time, the Committee may terminate, amend or modify the Plan; provided, however, that no amendment of the Plan may be made without approval of the stockholders of the Company as may be required by the Code, by the insider trading rules of Section 16 of the 1934 Act, by any national securities exchange or automated quotation system on which the Stock is listed or reported. 13.2 Awards Previously Granted. No termination, amendment, or modification of the Plan shall adversely affect any Award previously granted under the Plan, without the written consent of the Participant. ARTICLE 14 GENERAL PROVISIONS 14.1 No Rights to Awards. No Participant or employee shall have any claim to be granted any Award under the Plan, and neither the Company nor the Committee is obligated to treat Participants and employees uniformly. 14.2 No Stockholder Rights. No Award gives the Participant any of the rights of a stockholder of the Company unless and until shares of Stock are in fact issued to such person in connection with such Award. 13 14 14.3 Withholding. The Company shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes (including the Participant's FICA obligation) required by law to be withheld with respect to any taxable event arising as a result of the Plan. With respect to withholding required upon any taxable event under the Plan, the Committee may, at the time the Award is granted or thereafter, require that any such withholding requirement be satisfied, in whole or in part, by withholding shares of Stock having a Fair Market Value on the date of withholding equal to the amount to be withheld for tax purposes, all in accordance with such procedures as the Committee establishes. 14.4 No Right to Employment. Nothing in the Plan or any Award Agreement shall interfere with or limit in any way the right of the Company to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company. l4.5 Unfunded Status of Awards. The Plan is intended to be an "unfunded" plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the Company . 14.6 Indemnification. To the extent allowable under applicable law, each member of the Committee shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which such member may be a party or in which he may be involved by reason of any action or failure to act under the Plan and against and from any and all amounts paid by such member in satisfaction of judgment in such action, suit, or proceeding against him provided he gives the Company an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the By-Laws of the Company or as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless. 14.7 Relationship to Other Benefits. No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or benefit plan of the Company. 14.8 Expenses. The expenses of administering the Plan shall be borne by the Company. 14 15 14.9 Titles and Headings. The titles and headings of the Sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. 14.10 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural. 14.11 Fractional Shares. No fractional shares of Stock shall be issued and the Committee shall determine, in its discretion, whether cash shall be given in lieu of fractional shares or whether such fractional shares shall be eliminated by rounding up. 14.12 Securities Law Compliance. With respect to any person who is, on the relevant date, obligated to file reports under Section 16 of the 1934 Act, transactions under the Plan are intended to comply with Rule 16b-3(d) as transactions between the Company and its officers or directors. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be void to the extent permitted by law and voidable as deemed advisable by the Committee. 14.13 Government and Other Regulations. The obligation of the Company to make payment of awards in Stock or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by government agencies as may be required. The Company shall be under no obligation to register under the 1933 Act, any of the shares of Stock paid under the Plan. If the shares paid under the Plan may in certain circumstances be exempt from registration under the 1933 Act, the Company may restrict the transfer of such shares in such manner as it deems advisable to ensure the availability of any such exemption. 14.14 Governing Law. To the extent not governed by federal law, the Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the District of Columbia. 15 EX-10.2 10 FORM OF SCIENTIFIC ADVISOR COMPENSATION AGREEMENT 1 EXHIBIT 10.2 [LUNG LOGO] Lung Rx, Inc. Corporate Office Research Office 1826 R Street, NW 100 Europa Drive, Suite 599 Washington, DC Chapel Hill, NC 20009 27154 Tel: 202-518-0200 Tel: 919-942-3031 Fax: 202-518-0802 Fax: 919-942-3421 [Date] [Addressee/Member of Scientific Advisory Board] Dear ___________: Thank you so much for agreeing to serve on the Scientific Advisory Board of _________. For your information, I will outline the mission of our new company and enclose two informational brochures: (1) The PPH Cure Foundation and (2) Lung Rx. As we discussed, Lung Rx is a small, but I think important, Research and Development Company with a long term objective of disease management. Our company is dedicated to identifying, developing and bringing to market important therapies to treat patients who are suffering from severe pulmonary diseases. Our clinical testing, drug development and marketing will be international. With your help, our short-term goals will be to select and develop the best follow-on therapies for prostacyclin. These therapies should have all of the important safety and efficacy benefits of prostacyclin without the requirement for continuous intravenous therapy. Additionally, your ideas and direction will be most important in guiding us through and focusing our energies in the view of the several new, and perhaps important developments in nitric oxide, endothelin blockers, potassium channel agonists and gene therapy for prostacyclin synthase and/or NOS. Our company's medium term goals include identifying, developing and marketing one or several of these new candidates. Again, your assistance is most important. Though the long-term mission o Lung Rx is disease management for general pulmonary diseases including secondary pulmonary hypertension, ARDS and COPD, our current support is derived exclusively from the PPH Cure Foundation; Lung Rx is absolutely dedicated to developing these therapies in, and bringing these therapies to severely ill patients with primary pulmonary hypertension (PPH). Consistent with Lung Rx's mission, our development and marketing strategy in PPH will be international. Ms. Rothblatt and I are delighted that you will join our Scientific Advisory Board. As you can well imagine, a small company such as Lung Rx cannot afford to make mistakes in setting its direction; we need your assistance in setting and refining (when necessary) our strategies to effectively and efficiently carry out our mission to bring these much needed therapies to critically ill patients. With your agreement, compensation will cover business travel expenses $1,500 per Board meeting. All the best and many thanks. James W. Crow ------------------------ President Enclosure EX-10.3 11 EXECUTIVE EMPLOYMENT AGREEMENT - MARTINE ROTHBLATT 1 EXHIBIT 10.3 EXECUTIVE EMPLOYMENT AGREEMENT (AS AMENDED) This Executive Employment Agreement is entered into as of April 2, 1999 (the "Effective Date"), by and between United Therapeutics Corporation ("UT"), a company organized under the laws of the State of Delaware, having a place a business 1110 Spring Street, Silver Spring, MD 20910, and Martine A. Rothblatt ("Executive"), a resident of the State of Maryland. Whereas, UT is engaged in the development, implementation and operation of an international pharmaceutical business (the "UT Business"); Whereas, Executive currently serves as the Chairman and Chief Executive Officer of UT and her services and knowledge are valuable to UT in connection with the management of UT and the UT Business; Whereas, UT has determined that it is in the best interests of UT and its stockholders to secure Executive's continued services, to ensure Executive's continued dedication to UT, and to provide appropriate compensation, including incentive compensation to Executive, and in order to further such goals, UT is desirous of entering this Agreement; and Whereas, Executive is desirous of entering into an employment agreement with UT on the terms and conditions set forth herein, Now, Therefore, in consideration of the foregoing and the mutual covenants contained herein, UT and Executive agree as follows: ARTICLE 1 DEFINITIONS For purposes of this Agreement, the following terms shall have the respective meanings set forth below: 1.1 "Affiliate" means any corporation, partnership or other entity, controlling, controlled by, or under common control with UT, by virtue of direct or indirect beneficial ownership of voting securities of or voting interest in the controlled entity. 1.2 "Board" means the Board of Directors of UT. 1.3 "Cause" means (a) the willful and continued failure by Executive to substantially perform her duties with UT (other than any such failure resulting from Executive's incapacity due to physical or mental illness, or any such actual or anticipated failure resulting from Executive's termination for Good Reason) after a demand for substantial performance is delivered to Executive by the Board (which demand shall specifically identify the manner in which the Board 1 2 believes that Executive has not substantially performed her duties); or (b) the willful engaging by Executive in gross misconduct materially and demonstrably injurious to UT. For purposes of this definition, no act or failure to act on the part of Executive shall be considered "willful" unless done or omitted to be done by Executive not in good faith and without reasonable belief that her action(s) or omission(s) was in the best interests of UT. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause unless and until UT provides Executive with a copy of a resolution adopted by an affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to Executive and opportunity for Executive, with counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Executive has been guilty of conduct set forth in subsections (a) or (b) above, setting forth the particulars in detail. A determination of Cause by the board shall not be binding upon or entitled to deference by any finder of fact in the event of a dispute, it being the intent of the parties that such finder of fact in the event of a dispute shall make an independent determination of whether the termination was for "Cause" as defined in (a) and (b) above. 1.4 "Code" means the Internal Revenue Code of 1986, as amended. 1.5 "Confidential Information" means all information known to UT or learned by Executive during the term of employment and not generally known, including any and all general and specific knowledge, experience, information and data, technical or non-technical, including, without limitation and whether or not patentable, processes, skills, information, know-how, trade secrets, data, designs, formulae, algorithms, specifications, samples, methods, techniques, compilations, computer programs, devices, concepts, inventions, developments, discoveries, improvements, and commercial or financial information, in any form, including without limitation, oral, written, graphic, demonstrative, machine recognizable, specimen or sample form. 1.6 "Conflicting Product or Service" means any product or service of any person or organization other than UT, in existence or under development, which resembles or competes with a product or service of UT's which is then in existence or under development, excluding, however, the preclinical compound AFP-07 under development by the PPH Cure Foundation. 1.7 "Conflicting Organization" means any person or organization engaged in, or about to become engaged in, research on or development, production, marketing, or selling of a "Conflicting Product or Service." 1.8 "Date of Termination" means (a) the effective date on which Executive's employment by UT terminates as specified in a Notice of Termination by UT or Executive, as the case may be, or (b) if Executive's employment by UT terminates by reason of death, the date of death of Executive. Notwithstanding the previous sentence, (i) if the Executive's employment is terminated for disability as defined in Section 1.9, then such Date of Termination shall be no earlier than thirty (30) days following the date on which a Notice of Termination is received, and (ii) if the Executive's employment is terminated by UT other than for Cause, then such Date of 2 3 Termination shall be no earlier than thirty (30) days following the date on which Notice of Termination is received. 1.9 "Disability" means Executive's failure to substantially perform her duties with UT on a full-time basis for at least one hundred eighty (180) consecutive days as a result of Executive's incapacity due to mental or physical illness. 1.10 "Good Reason" means, without Executive's express written consent, the occurrence of any of the following events: (a) (i) The assignment to Executive of any duties inconsistent in any material adverse respect with Executive's position(s), duties, responsibilities or status with UT immediately prior thereto, (ii) a material adverse change in Executive's reporting responsibilities, titles or offices with UT as in effect immediately prior thereto, (iii) any removal or involuntary termination of Executive by UT otherwise than as expressly permitted by this Agreement (including any purported termination of employment which is not effected by a Notice of Termination), or (iv) any failure to re-elect Executive to any position with UT held by Executive immediately prior thereto; (b) A reduction by UT in Executive's rate of annual base salary as in effect immediately prior thereto or the failure of UT in any year (commencing with calendar year 1999) to increase the Executive's annual base salary by an amount equal to the average percentage increases in base salary for all officers of UT during the two full calendar years immediately preceding such year except for across-the-board salary reductions, freezes, or reduced increases similarly affecting all Executives of UT and all Executive or any person in control of UT; (c) Any requirement of UT that Executive (i) be based anywhere other than the facilities where Executive is located on the date of this Agreement or reasonably equivalent facilities within twenty five (25) miles of such facilities or (iii) travel for the business of UT to an extent substantially more burdensome than the travel obligations of Executive immediately prior to the date of this Agreement; (d) The failure of UT to continue the Executive's participation in any bonus or other incentive plans in which she was participating immediately prior thereto or any reduction in the amount of bonus or incentive compensation which she is able to receive, without replacement of such bonus or incentive plans with bonus, incentive or other compensation of at least substantially comparable value to the Executive; (e) The failure of UT to (i) to continue in effect any employee benefit plan or compensation plan in which Executive is participating immediately prior thereto, unless Executive is permitted to participate in other plans providing Executive with substantially comparable benefits, or the taking of any action by UT which 3 4 would adversely affect Executive's participation in or materially reduce Executive's benefits under any such plan, (ii) to provide Executive and Executive's dependents with welfare benefits (including without limitation, medical prescription drug, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) in accordance with the most favorable plans, practices, programs and policies of UT in effect for Executive immediately prior thereto or as is in effect for other senior Executive of UT, (iii) to provide fringe benefits and perequisites in accordance with the most favorable plans, practices, programs and policies of UT in effect for Executive immediately prior thereto or as is in effect for senior Executives of UT, or (iv) to provide Executive with paid vacation in accordance with the most favorable plans, policies, programs and practices of UT as in effect for Executive immediately prior thereto or as is in effect for other senior Executives of UT. (f) The failure of UT to pay on a timely basis any amounts owed Executive as salary, bonus, deferred compensation or other compensation; (g) The failure of UT to obtain an assumption agreement from any successor as contemplated in Section 8.8; (h) The refusal by UT to continue to allow Executive to attend to matters or engage in activities not directly related to the business of UT which were permitted by UT immediately prior thereto, including without limitation serving on the boards of directors of other companies or entities; (i) The purported termination of Executive's employment which is not effected pursuant to a Notice of Termination which satisfies the requirements of a Notice of Termination; or (j) Any other material breach by UT of its obligations under this Agreement. For the purposes of this Agreement, any good faith determination of Good Reasons made by Executive shall be conclusive on the parties; provided, however, that an isolated and insubstantial action taken in good faith and which is remedied by UT within ten (10) days after receipt of written notice thereof given by Executive shall not constitute Good Reason. 1.11 "Inventions" means inventions, designs, discoveries, developments, creations and improvements created, discovered, developed or conceived, regardless of whether reduced to practice. 1.12 "Nonqualifying Termination" means a termination of Executive's employment (a) by UT for Cause, (b) by Executive for any reason other than for Good Reason with Notice of Termination, (c) as a result of Executive's death, (d) by UT due to Executive disability, unless within thirty (30) days after Notice of Termination is provided to Executive following such disability Executive shall have returned to substantial performance of Executive duties on a full-time basis, or (e) as a result of Executive's Retirement. 4 5 1.13 "Notice of Termination" means a written notice by UT or Executive as the case may be, to the other, which (i) indicates the specific termination provision in this Agreement relied upon, (iii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated, and (iii) specifies the termination date. The failure by Executive or UT to set forth in such notice any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of Executive or UT hereunder or preclude Executive or UT from asserting such fact or circumstance in enforcing Executive's or UT's right hereunder. 1.14 "Positive Spread" means the spread between the exercise price of any non-vested options held by Executive to acquire common stock of UT under any stock option plan adopted by UT prior or subsequent hereto, and the average of the bid and asked price of the common stock as reported for the Date of Termination on the Automated Quotation System of the National Association of Securities Dealers or if no such trades are reported on that date, the last preceding date on which shares of UT or its Affiliates common stock were traded, or if such common stock of UT is not publicly traded, the "Fair Market Value" of such stock as determined pursuant to the applicable stock option plan or plans. 1.15 "Retirement" means termination of employment by either the Executive or UT on or after the Executive's attainment of age 65. 1.16 "Works of Authorship" means all computer software programs or other writings, including, without limitation, verbal works, designs, models, drawing, or audio, visual or audiovisual recordings. ARTICLE 2 EMPLOYMENT 2.1 Employment. UT agrees to employ Executive as Chief Executive Officer, and Executive agrees to accept such employment by UT on the terms and conditions set forth herein. Executive represents and warrants that the execution, delivery and performance by her of this Agreement will not violate any agreement, order, judgment or decree to which she is a party or by which she is bound. 2.2 Term. Subject to the provisions of Article 4 hereof, UT shall employ Executive for a term of five (5) years commencing as of the Effective Date and continuing to and including December 31, 2004. The term (as herein extended) shall automatically be extended by one (1) additional year at the end of each year unless at least six (6) months prior to the end of the term or any anniversary thereof, UT shall deliver to Executive or Executive shall deliver to UT, written notice that the term shall not be so extended. 2.3 Duties. As Chief Executive Officer of UT, Executive shall have the duties and responsibilities as may from time to time be assigned to or vested in Executive by UT's Board of Directors (the "Board"). 5 6 (a) Executive's employment with UT shall be full-time. During the term of employment, Executive shall, except during periods of vacation, sick leave or other duly authorized leave of absence, and except for not more than a few hours per week for the activities described in subparagraph 2.3(b) below, devote the whole of Executive's time, attention, skill and ability during usual business hours (and outside those hours when reasonably necessary to Executive's duties hereunder) to the faithful and diligent performance of Executive's duties hereunder. Executive acknowledges and agrees that Executive may be required, without additional compensation, to perform services for any Affiliates, and to accept such office or position with Affiliate as the Board may reasonably require. Executive shall comply with all applicable polices of UT and/or its Affiliates during her term of service to UT and/or its Affiliates. (b) During the term of employment, it shall not be a violation of this Agreement for Executive to serve as of Counsel to Mahon, Patusky, Rothblatt and Fisher, Chartered; President of Beacon Projects, Inc.; an officer of UT's telemedicine affiliates; to manage personal passive investments; to serve as an officer, manager and a member of the board of directors of PPH Cure Foundation or World Against Racism Foundation or William Harvey Medical Research Foundation or, with the prior approval of the Board, the board of directors of any other corporation or trade association; so long as such activities (individually or collectively) do not conflict or materially interfere with the performance of Executive's duties hereunder. ARTICLE 3 COMPENSATION 3.1 Base Salary. For services rendered by Executive pursuant to this Agreement, UT agrees to pay Executive a base annual salary ("Base Salary") commencing as of the Effective Date at the annual rate of One Hundred Eighty Thousand Dollars ($180,000) per year, payable in accordance with UT's then prevailing Executive payroll practices. Such Base Salary shall be subject to review and increase at least annually by the Board (with the first such review to occur not later than December 31, 1999) in the Board's sole discretion. In determining any such increase, the Board shall consider any increases in the cost of living and may provide for any performance, merit or other increase. The term "Base Salary" as used herein shall include any increases thereto made from time to time as permitted by this Section 3.1. 3.2 Bonuses. (a) Annual Incentive Compensation. During each year of the initial five-year term of this Agreement, an option to purchase such number of shares of UT's Common Stock shall be granted to Executive for the number of shares of Common Stock as is equal to, for the first year, the quotient of one percent of the difference in UT market capitalization from the date of UT's initial public offering ("IPO") to the 6 7 one year anniversary thereof divided by $18.00, and for each year thereafter, the quotient of one percent of the rise in market capitalization of UT during the preceding 365 days divided by $18.00, all as set forth more particularly in the Option Agreement attached hereto as Exhibit A. It is intended that each such option will be granted pursuant to the UT Equity Incentive Plan, which shall be amended to accommodate these grants, and will be incentive stock options. Incentive compensation shall be vested when earned. The maximum incentive compensation that may be earned shall be capped for each year as follows: 500,000 in 2000; 701,353 in 2001; 681,434 in 2002; 2,757,832 in 2003; and 3,298,898 in 2004. (b) Discretionary Bonuses. During the term of this Agreement, Executive shall be entitled to such bonuses as may be authorized, declared and paid by the Board, in its sole discretion. Factors which the Board may, in its sole discretion, and without limitation, consider with respect to any determination by the Board with respect to the payment or amount of such bonus or bonuses, include Executive's job performance and UT's financial performance. 3.3 Participation in Benefit Plans. Executive shall be eligible to participate in any long-term incentive, stock option, employee stock ownership, pension, thrift, profit sharing, group life or disability insurance, medical or dental coverage, education, or other retirement or employee benefit plan or program that UT has adopted or may adopt for the benefit of its employees, on the same basis as other Executive employees. Such participation shall be subject to the terms and conditions of such plans or programs, including, but not limited to, such generally applicable eligibility provisions as may be in effect from time to time. Executive shall be entitled to paid vacation (initially four (4) weeks per calendar year, paid sick leave, and holidays (initially eleven (11) days per calendar year) on the same basis as may from time to time apply to other UT Executive employees generally. 3.4 Expenses. UT shall reimburse Executive for all reasonable, ordinary and necessary business expenses actually incurred by Executive in connection with her performance hereunder, including ordinary and necessary expenses incurred by Executive in connection with travel on UT business, provided all such expenses have been approved in advance by UT in accordance with and subject to the terms and conditions of UT's then-prevailing expense policy. As a condition precedent to obtaining such reimbursement, Executive shall provide to UT any and all statements, bills or receipts evidencing the expenses for which Executive seeks reimbursement, and such other related information or materials as UT may from time to time reasonably require. Executive shall account to UT for any expenses that are eligible for reimbursement under this Section 3.4 in accordance with UT policy. 3.5 Automobile. During the term of this agreement, UT shall supply Executive with the use of an automobile, and shall pay the cost of maintenance and insurance for such automobile. 3.6 Withholding. Anything in this Agreement to the contrary notwithstanding, all payments required to be made by UT hereunder to Executive or Executive's estate or beneficiaries in 7 8 connection with Executive's employment hereunder shall be subject to the withholding of such amounts relating to taxes as UT may reasonably determine it should withhold pursuant to any applicable law or regulation. ARTICLE 4 TERMINATION 4.1 Nonqualifying Termination. (a) If the employment of Executive shall terminate during the term of this Agreement (including any extension of such term), by reason of a Nonqualifying Termination, then Executive shall be paid the Executive's unpaid base salary from UT through the Date of Termination at the rate in effect just prior to the time a Notice of Termination is given as well as any benefits to which Executive was entitled through the Date of Termination. In addition, in the event that termination of employment is due to Executive's death or Disability, UT shall continue to pay Executive's then current Base Salary to Executive (in the case of Disability) or Executive's legal representatives, estate, beneficiaries or heirs (in the case of death), in accordance with UT's then-prevailing Executive payroll practices, through the end of the calendar year following Executive's death or termination due to Disability, but shall have no further obligation to Executive or Executive's legal representatives, estate, beneficiaries or heirs for any compensation, benefits or other payments hereunder. (b) In the event that termination of employment is due to Executive's Disability, the payment of benefits under UT's short-term and long-term disability insurance programs, if any, to the extent payable with respect to any period prior to the Date of Termination, shall offset UT's obligations under Section 4.1(a). (c) Except as otherwise provided herein or as may be required by law, Executive's participation in any benefit plans of UT or any of its Affiliates shall terminate as of her Dated Termination. 4.2 Other Than Nonqualifying Termination. If the employment of Executive shall terminate during the term of this Agreement (including any extension of such term), other than by reason of a Nonqualifying Termination, then Executive shall receive the following severance as compensation for services rendered. (a) Lump Sum Cash Payment. Within five (5) days following the Date of Termination, Executive shall receive a lump sum cash payment in amount equal to the sum of the following. (i) Executive's Base Salary from UT through the Date of Termination at the rate in effect plus any benefit awards (including both 8 9 the cash and stock components), bonus payments and incentive awards which pursuant to the terms of any plans have been earned or become payable, to the extent not theretofore paid; (ii) As payment in lieu of a bonus or other incentive payment to be paid hereunder or under UT's annual bonus plan or other incentive or other comparable plan for the year of termination, an amount equal to the number of days Executive was employed during the year by UT prior to the Date of Termination divided by the number of days in the year multiplied by 100% of the greater of either (a) the bonus and/or other incentive payments awarded to Executive for the immediately preceding year, or (b) the average annual bonus and/or other incentive payments paid to Executive over the preceding two year period; (iii) Three (3) times (A) Executive's highest annual rate of Base Salary from UT in effect during the 12-month period prior to the Date of Termination, plus (B) the greater of the bonus and/or other incentive payments awarded to Executive for the immediately preceding year or the average bonus and/or other incentive payments awarded to the Executive for the previous two years. (iv) The Positive Spread for any non-vested options held by Executive, payable upon surrender by Executive of such options. (b) Loans. Any loans from UT that the Executive had outstanding shall remain payable according to their terms. (c) Benefits. UT shall maintain in full force and effect, in substantially all material respects, all employee benefit plans, programs and arrangements that the Executive was entitled to participate in immediately prior to the Date of Termination for the longer of thirty-six (36) months after the Date of Termination or the date upon which the Executive receives comparable benefits from a new employer. If the Executive's participation in any such plan or program is barred, UT shall arrange to provide comparable benefits substantially similar to those which the Executive received under such plans and programs. (d) Retirement Benefits. In addition to the benefits the Executive is entitled to receive under any retirement plan in which the Executive participates on the Date of Termination, UT shall pay the Executive a cash payment at the Executive's attainment of age 65 (or, if later, the Date of Termination), of an amount equal to the actuarial equivalent of the retirement pension, if any, the Executive would have been entitled to receive under the terms of any plan or program of UT in which Executive was participating at the time of his termination, without regard to any vesting requirements under the plan, had the Executive received three additional years of service following the Date of Termination. The rate of salary 9 10 for those three additional years of service shall equal the Executive's Base Salary that was in effect at the Date of Termination. (e) Out-Placement Services. UT shall provide the Executive with Executive out-placement services for a period of not less than twelve (12) months by entering into a contract with a company chosen by the Executive specializing in such services (f) Title to Automobile. Title to the automobile referred to in Section 3.5 shall be transferred to the Executive within five (5) days following the Date of Termination. 4.3 Certain Additional Payments by UT. (a) Anything in this Agreement to the contrary notwithstanding if any payment or distribution by UT to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to this terms Agreement or otherwise, but determined without regard to any additional payments required under this Section 4 (a "Payment") would be subject to the excise tax imposed by Section 4999 of the code, or any successor Code provision, or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such tax) including, without limitation any income and employment taxes (and any interest and penalties imposed with respect thereto) and Excise Tax, imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 4(c), all determinations required to be made under this Section 4, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized public accounting firm that is retained by UT (the "Accounting Firm") which shall provide detailed supporting calculations both to UT and Executive within fifteen (15) business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by UT (collectively, the "Determination"). All fees and expenses of the Accounting Firm shall be borne solely UT. Any Gross-Up determined pursuant to this Section 4 shall be paid by UT to Executive within five (5) days of the receipt of the Determination. If the Accounting Firm determines that no Excise Taxes are payable by Executive, it shall furnish Executive with a written opinion that failure to report the Excise Tax on Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. The Determination by the 10 11 Accounting Firm shall be binding upon UT and Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Gross-Up Payments which will not have been made by UT should have been made ("Underpayments") consistent with the calculations required to be made hereunder. In the event that UT exhausts its remedies pursuant to section 4(c) and Executive thereafter is required to make payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayments shall be promptly paid by UT to or for the benefit of Executive. (c) Executive shall notify UT in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by UT of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after Executive is informed in writing of such claim and shall apprise UT of the nature of such claim and the date on which such claim is requested to be paid. Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which Executive gives such notice to UT (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If UT notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive shall: (i) give UT any information reasonably requested by UT relating to such claim, (ii) take such action in connection with contesting such claim as UT shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by UT, (iii) cooperate with UT in good faith in order effectively to contest such claim, and (iv) permit UT to participate in any proceeding relating to such claim; provided, however, that UT shall bear and pay directly all costs and expenses (including attorneys' fees and any additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income or employment tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 4(c), UT shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings, and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the 11 12 claim in any permissible manner, and Executive agrees to prosecute such contest to a determination; before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as UT shall determine; provided further, that UT directs Executive to pay such claim and sue for a refund, UT shall advance the amount of such payments to Executive on an interest-free basis and shall indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income or employment tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to such advance; and provided further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, UT's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and Executive shall be entitled to settle or contest, as the case may be, any other issued raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by Executive of an amount advanced by UT pursuant to this Section 4, Executive becomes entitled to receive, and receives, any refund with respect to such claim, Executive shall (subject to UT's complying with the requirements of Section 4) promptly pay to UT the amount of such refund (together with any interest paid or credited thereon after tax applicable thereto). If, after the receipt by Executive of an amount advanced by UT pursuant to Section 4, a determination is made that Executive shall not be entitled to any refund with respect to such claim and UT does not notify Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. ARTICLE 5 RESTRICTIVE COVENANTS 5.1 Confidentiality. Except as authorized or directed by UT, Executive shall not, at any time during or subsequent to the term of this Agreement, directly or indirectly publish or disclose any Confidential Information of UT or of any of its Affiliates, or confidential information of others that has come into the possession of UT or of any of its Affiliates, or into Executive's possession in the course of her employment with UT or any of its Affiliates or of her services and duties hereunder (whether prior to or during the term of this Agreement), to any other person or entity, and Executive shall not use any such Confidential Information for Executive's own personal use or advantage or make it available to others for use. All Confidential Information, whether oral or written, regarding the business or affairs of UT or any of its Affiliates, including, without limitation, information as to their products, services, systems, designs, inventions, software, finance (including prices, costs and revenues), marketing plans, programs, methods of operation, prospective and existing contracts, customers and other business arrangements or 12 13 business plans, procedures, and strategies, shall all be deemed Confidential Information, except to the extent the same shall have been lawfully and without breach of confidential obligation made available to the general public without restriction. UT shall be under no obligation to identify specifically any information as to which the protection of this Section 5.1 extends by any notice or other action. Upon expiration or termination of this Agreement for any reason, Executive shall return all records of Confidential Information, including all copies thereof in Executive's possession, whether prepared by her or others, to UT. 5.2 Unfair competition. During the period in which Executive is receiving any payment under this Agreement and for a period of five (5) years thereafter, Executive shall not, directly or indirectly, and whether or not for compensation, as a stockholder owning beneficially or of record more than five percent (5%) of the outstanding shares of any class of stock of an issuer, or as an officer, director, employee, consultant, partner, joint venturer, proprietor or otherwise, engage in or become interested in any Conflicting Organization in connection with research, development, consulting, manufacturing, purchasing,, accounting, engineering, marketing, merchandising or selling of any Conflicting Product or Service. During the period in which Executive is receiving any payments under this Agreement and for a period of five (5) years thereafter, Executive shall not, without the prior written consent of UT, solicit or hire or induce the termination of employment of any employees or other personnel providing services to UT or any of its Affiliates, for any business activity, other than a business activity owned or controlled, directly or indirectly, by UT or any of its Affiliates. 5.3 Injunctive Relief. (a) Executive acknowledges and warrants that she will be fully able to earn an adequate livelihood for herself and her dependents if Section 5.2 should be specifically enforced against her, and that such Section 5.2 merely prevents unfair competition against UT for a limited period of time. Executive agrees and acknowledges that, by virtue of Executive's employment with UT, Executive shall have access to and maintain an intimate knowledge of UT's activities and affairs, including Confidential Information and other confidential matters. As a results of such access and knowledge, and because of the unique service that Executive is capable of performing for UT or one of its competitors, Executive acknowledges that the services to be rendered by Executive pursuant to this Agreement are of a character giving them a peculiar value, the loss of which cannot adequately or reasonably be compensated by money damages. Consequently, Executive agrees that any breach or threatened breach by Executive of Executive's obligations under this Article 5 would cause irreparable injury to UT, and that UT shall be entitled to (i) preliminary and permanent injunctions enjoining Executive from violating such provisions, and (ii) money damages in the amount of any fees, compensation, benefits, profits or other remuneration earned by Executive or any competitor of UT as a result of such breach, together with interest, and costs and attorneys' fees expended to collect such damages or secure such injunctions. Nothing in this Agreement, however, shall be construed to prohibit UT from pursuing any other remedy, UT and Executive having agreed that all such remedies shall be cumulative. 13 14 (b) The restrictions set forth in this Article 5 and the following Article 6 shall be construed as independent covenants, and shall survive the termination or expiration of this Agreement, and the existence of any claim or cause of action against UT, whether predicated upon this Agreement or otherwise, shall not constitute a defense to the enforcement by UT of the restrictions contained in this Article 5 or the following Article 6. Executive hereby consents and waives any objection to the jurisdiction over her person or the venue of any courts within the state of Maryland with respect to any proceedings in law or in equity arising out of this Article 5 or the following Article 6. If any court of competent jurisdiction shall hold that any of the restrictions contained in Section 5.2 are unreasonable as to time, geographical area or otherwise, said restrictions shall be deemed to be reduced to the extent necessary in the opinion of such court to make their application reasonable. ARTICLE 6 INVENTIONS, WORKS OF AUTHORSHIP, PATENTS AND COPYRIGHTS 6.1 Ownership of Inventions and Works of Authorship. Executive agrees that all Inventions made, conceived, discovered, developed or reduced to practice by Executive and all software and other Works of Authorship created by Executive, either alone or with others, at any time within or without normal working hours, during or prior to the term of this Agreement, arising out of Executive's employment with UT or based upon Confidential Information, or pertinent to any field of business or research in which, during such employment, UT or any Affiliate thereof is engaged or (if such is known or ascertainable by Executive) is considering engaging whether or not patented or patentable, shall be and remain the sole property of UT or its Affiliates with respect to all rights of Executive arising from any discovery, conception, development, reduction to practice, or creation by Executive. UT shall have the full right to assign, license or transfer all rights thereto. 6.2 Disclosure of Inventions and Works of Authorship. Executive shall promptly make full disclosure to UT or to an authorized representative thereof of all information relating to the making, conception, discovery, development, creation or reduction to practice of inventions, or of software and other Works of Authorship owned by UT pursuant to Section 6.1 above. 6.3 Patent and Copyright Applications. At the request of UT and at UT's expense, Executive shall execute such documents and perform such other acts as UT deems necessary to obtain patents or the like on such Inventions or copyright registrations for such software and other Works of Authorship in any jurisdiction or jurisdictions. Such obligations shall continue beyond the term of this Agreement. Executive further agrees not to file any patent applications relating to or describing or otherwise describing any Confidential Information or any such Inventions, or to claim any copyright or file any applications to register any copyright in such software or other Works of Authorship, except with the prior written consent of UT. 6.4 Assignment of Inventions and Works of Authorship. Executive agrees to assign to UT or its Affiliates all of Executive's right, title and interest in and to any and all such inventions and the patent applications and patents relating thereto and to the copyright in any and all such 14 15 software and other Works of Authorship and any copyright applications and registrations relating thereto conceived, reduced to practice, discovered, created or otherwise developed by Executive and owned by UT pursuant to Section 8.1 above. ARTICLE 7 DISPUTE RESOLUTION 7.1 General. The parties agree to perform the terms of this Agreement in good faith, and to attempt to resolve any disputes that may arise between them through good faith negotiations. 7.2 Binding Arbitration. Failing resolution by good faith negotiation between the parties as contemplated by Section 7.1, all claims, disputes, and controversies arising out of or in relation to the performance, interpretation, application or enforcement of this Agreement, including but not limited to breach thereof (except any dispute relating to Article 5 or 6 of this Agreement), not resolved by the parties shall be referred to arbitration before a single, independent third party arbitrator who will be selected by mutual agreement of the parties or, if such agreement is not reached within one week of either party seeking such agreement, then in accordance with Employment Dispute Resolution Rules of the American Arbitration Association. Judgment upon the award rendered by the arbitrator may be entered in any court or competent jurisdiction. Any arbitration pursuant to this Article 7 shall take place in the State of Maryland, or such other place as the parties shall mutually agree. ARTICLE 8 MISCELLANEOUS 8.1 Notice. For purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when hand delivered, sent by overnight courier, or mailed by first class, registered, or certified mail, return receipt requested, postage prepaid, or transmitted by telegram or telecopy, addressed as follows: If to Executive: Martine Rothblatt 2835 N. Hwy A1A, #801 Indiatlantic, FL 32903 If to UT: United Therapeutics Attn: General Counsel 1110 Spring Street Silver Spring, MD 20910 or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 15 16 8.2 Entire Agreement. From and after the Effective Date, this Agreement constitutes the entire agreement between the parties hereto, and expressly supersedes all prior oral or written agreements, commitments or understandings with respect to the matters provided for herein. 8.3 Heading. Article and Section headings contained in this Agreement are inserted for convenience of reference only, shall not be deemed to be a part of this Agreement for any purpose, and shall not in anyway define or affect the meaning construction or scope of any of the provisions hereof. 8.4 Severability. In the event any provision of this Agreement, or any portion thereof, is determined by any arbitrator or court of competent jurisdiction to be unenforceable as written such provision or portion shall be interpreted to be enforceable. In the event any provision of this Agreement, or any portion thereof is determined by any arbitrator or court of competent jurisdiction to be void, the remaining portions of this Agreement shall nevertheless be binding upon UT and Executive with the sum effect as though the void provision or portion thereof had been severed and deleted. 8.5 Governing Law. This Agreement, the rights and obligations of the parties hereto, and any claims or disputes relating thereto, shall be governed by and construed in accordance with the substantive laws of the State of Maryland (excluding the choice of law rules thereof). 8.6 Amendment Modification; Waiver. No amendment, modification or waiver of the terms of this Agreement shall be valid unless made in writing and duly executed by Executive and UT. No delay or failure at any time on the part of UT or Executive in exercising any right, power or privilege under this Agreement, or in enforcing any provision of this Agreement, shall impair any such right, power, or privilege, or be construed as a waiver of any default or as any acquiescence therein, or shall affect the right of UT or Executive thereafter to enforce each and every provision of this Agreement in accordance with its terms. 8.7 Additional Obligations. Both during and after the term of employment, Executive shall, upon reasonable notice, furnish UT with such information as may be in Executive's possession or control, and cooperate with UT, as may reasonably be requested by UT (and, after the term or employment, with due consideration for Executive's obligations with respect to any new employment or business activity) in connection with any litigation or other adversarial proceeding in which UT or any Affiliate is or may become a party. UT shall reimburse Executive for all reasonable expenses incurred by Executive in fulfilling Executive's obligations under this Article 8.7. 8.8 Successors; Binding Agreement (a) This Agreement shall not be terminated by any merger or consolidation of UT whereby UT is or is not the surviving or resulting corporation or as a result of any transfer of all or substantially all of the assets of UT. In the event of any such merger, consolidation, or transfer of assets, the provisions of this Agreement shall be binding upon the surviving or resulting corporation or the person or entity to which such assets are transferred. 16 17 (b) UT agrees that concurrently with any merger, consolidation or transfer of assets referred to in this Section 8.8, it will cause any successor or transferee unconditionally to assume, by written instrument delivered to Executive (or his beneficiary or estate), all of the obligations of UT hereunder. Failure of UT to obtain such assumption prior to the effectiveness of any such merger, consolidation, or transfer of assets shall be breach of this Agreement and shall constitute Good Reason hereunder and shall entitle Executive to compensation and other benefits from UT in the same amount and on the same terms as Executive would be entitled hereunder if Executive's employment were terminated other than by reason of a Nonqualifying Termination. For purposes of implementing the foregoing, the date on which any such merger, consolidation or transfer becomes effective shall be deemed the date Good Reason occurs and shall be the Date of Termination if requested by Executive. (c) This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrator, successors, heirs, distributees, devises and legatees. If Executive shall die while any amounts would be payable to Executive hereunder had Executive continued to live, any such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to such person or persons appointed in writing by Executive to receive such amounts or, if no person is so appointed, to Executive's estate. 8.9 Obligation to Make Payments (a) UT's obligation to make any payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which UT and/or its Affiliates may have against Executive or others. In no event shall Executive be obligated to seek other employment or take other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not Executive obtains other employment. (b) If there shall be any dispute between UT and Executive in the event of any termination of Executive's employment then, until there is a final, nonappealable determination pursuant to arbitration declaring that such termination was for Cause, that the determination by Executive of the existence of Good Reason was not made in good faith, or that UT is not otherwise obligated to pay any amount or provide any benefit to Executive and her dependents or other beneficiaries, as the case may be, under Article 4, UT shall pay all amounts, and provide all benefits, to Executive and her dependents or other beneficiaries, as the case may be, that UT would be required to pay or provide pursuant to Article 4 as though such termination were by UT without Cause or by Executive with Good Reason; provided, however, that UT shall not be required to pay any disputed amounts 17 18 pursuant to this Section 8.9 except upon receipt of an undertaking by or on behalf of Executive to reply all such amounts to which Executive is ultimately determined by the arbitrator not to be entitled. 8.10 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, UT has caused this Agreement to be executed by a duly authorized officer of UT. Executive has executed this Agreement as of the day and written below. ACCEPTED AND AGREED TO: UNITED THERAPEUTICS BY: /s/ Martine Rothblatt BY: /s/ James W. Crow --------------------------- ------------------------------ Martine Rothblatt James W. Crow President & Chief Operating Officer
18 EX-10.4 12 EMPLOYMENT AGREEMENT - JAMES CROW 1 EXHIBIT 10.4 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of July 15, 1996 by and between Lung Rx, Inc., a Delaware corporation having its principal offices at 1824 R Street, N.W., Washington, D.C. 20009 (the "Company") and James W. Crow (the "Employee"). WHEREAS, the Company desires to obtain the services of the Employee, and the Employee is willing to render such services to the Company, upon the terms and conditions herein set forth; NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows. 1. Employment. Upon the other terms and conditions hereinafter stated, the Company agrees to employ the Employee and the Employee agrees to accept employment by the Company for the term set forth in Section 2 hereof and in the position and with the duties and responsibilities set forth in Section 3 hereof. 2. Term. The employment of the Employee by the Company will commence on the date hereof and end on the third anniversary of such date (the "Initial Term"), and thereafter shall continue from year to year for additional one-year terms (the "Additional Terms"), unless and until either party shall give notice of such party's intent to terminate not less than 30 days prior to the end of the then-current Initial Term or Additional Term, which termination shall be effective at the expiration of said term, or until sooner terminated as hereinafter set forth. 3. Position and Duties. (a) The Employee shall serve as President reporting to Board of Directors of the Company, with such duties and responsibilities as the Board of Directors of the Company may from time to time determine and assign to the Employee. The Employee shall use the Employee's best efforts and full business time to perform the Employee's duties under this Agreement. (b) The Employee may remain a resident of North Carolina if he wishes to do so, based in a Company office to be established out of the Company's initial capital contribution. (c) The Employee shall have the authority to hire a Director of Operations of his choosing, compensation and related employment terms to be approved by the Company's Board of Directors. 4. Compensation and Related Matters. (a) For services rendered under this Agreement, the Company shall pay to the Employee an annual base salary of $150,000 (the "Base Salary"), subject to increase, as determined by the Board of Directors of the Company, in its sole discretion, on or before any anniversary date of this Agreement. The Base Salary shall be payable semi-monthly or in such other installments as shall be consistent with the Company's payroll procedures. The Company shall deduct and withhold all necessary social security and withholding taxes and 2 any other similar sums required by law or authorized by the Employee with respect to payment of the Base Salary and all other amounts and benefits payable under this Agreement. (b) The Employee shall be entitled to participate in any group life, disability and medical insurance or other benefit plan or arrangement available generally to the employees of the Company as determined by the Board of Directors. 5. Expenses. The Employee shall be reimbursed by the Company for reasonable travel and other expenses, as approved from time to time by the Board of Directors, which are incurred and accounted for in accordance with the Company's normal practices. 6. Vacation. The Employee shall be entitled during the term of employment hereunder to four weeks of vacation, or a pro rata amount thereof in the event that the term of employment hereunder is less than one year, which vacation shall be at such time or times and for such period or periods as shall be mutually agreed upon by the Employee and the Board of Directors. The Employee shall also be entitled to all public holidays observed by the Company. 7. Termination of Employment. (a) The Employee's employment hereunder shall terminate upon the Employee's death. (b) The Company may terminate the Employee's employment hereunder under the following circumstances: (i) If, as a result of the Employee's incapacity due to physical or mental illness, the Employee shall have been unable to perform all of the Employee's duties hereunder by reason of illness, or physical or mental disability or other similar capacity, which inability shall continue for more than four (4) consecutive months, the Company may terminate the Employee's employment hereunder. (ii) The Company may terminate the Employee's employment hereunder for "Cause." For purposes of this Agreement, the Company shall have "Cause" to terminate the Employee's employment hereunder upon the (A) failure of the Employee (other than for reasons described in Sections 7(a) and 7(b)(i) hereof) to perform or observe any of the material terms or provisions of this Agreement; (B) negligent or unsatisfactory performance of the Employee's duties under this Agreement and the failure of the Employee, within 30 days after receipt of notice from the Company setting forth in reasonable detail the nature of the Employee's negligent or unsatisfactory performance, (i) to provide the Company with a satisfactory explanation of the Employee's actions (or inaction) and (ii) to correct to the satisfaction of the Company any identified deficiencies; (C) misconduct or other similar action on the part of the Employee that is materially damaging or detrimental to the Company; (D) conviction of the Employee of a crime involving a felony, fraud, embezzlement or the like; or (E) misappropriation of the Company funds or misuse of the Company's assets by Employee. (c) The Employee may terminate the Employee's employment hereunder for "Good Reason." For purposes of this Agreement, the Employee shall have "Good Reason" to terminate the Employee's employment hereunder upon the (i) failure of the Company to perform or observe any of the material terms or provisions of the Agreement, and the continued failure of the Company to cure such default within fifteen (15) days after written notice of such default and demand for performance has been given to the Company 2 3 by the Employee, which notice and demand shall describe specifically the nature of such alleged failure to perform or observe such material terms or provisions; provided, however, that if cure is impossible within said fifteen (15) day period, it shall be sufficient for the Company to commence such cure within said fifteen (15) day period, and pursue such cure diligently to completion within the shortest possible reasonable time; or (ii) assignment of duties materially and adversely inconsistent with the Employee's position, duties, responsibilities and status with the Company without the Employee's consent. (d) Any termination of the Employee's employment by the Company or by the Employee (other than pursuant to Section 7(a) hereof) shall be communicated by written "Notice of Termination" to the other party hereto in accordance with Section 10(c) hereof, which shall indicate the specific termination provision in this Agreement relied upon, if any, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provision so indicated. (e) For purposes of this Agreement, the "Date of Termination" shall mean (i) if the Employee's employment is terminated by the Employee's death, the date of the Employee's death; (ii) if the Employee's employment is terminated pursuant to Section 7(b)(i) hereof, thirty (30) days after the Notice of Termination; provided, that the Employee shall not have returned to the performance of the Employee's duties on a full-time basis during such thirty (30) day period; (iii) if the Employee's employment is terminated pursuant to Section 7(b)(ii) or 7(c) hereof, the date specified in the Notice of Termination (which date, in the case of termination of Employee's employment solely pursuant to clause (B) of Section 7(b)(ii) by reason of inadequate performance, shall not be sooner than nine months from the date of the Notice of Termination); and (iv) if the Employee's employment is terminated for any other reason, the date on which the Notice of Termination is given. 8. Compensation Upon Termination. (a) If the Employee's employment is terminated by the Employee's death, the Company shall pay to the Employee's estate or as may be directed by the legal representatives of such estate, the Employee's full Base Salary through the Date of Termination at the rate in effect at the time of the Employee's death and all other unpaid amounts, if any, to which the Employee is entitled as of such date in connection with any fringe benefits or under any incentive compensation plan or program of the Company pursuant to Section 4(c) or 4(d) hereof, at the time such payments are due. (b) During any period that the Employee fails to perform the Employee's duties hereunder solely as a result of incapacity due to physical or mental illness ("disability period"), the Employee shall continue to receive the Employee's full base salary through the Date of Termination at the rate in effect at the time the Notice of Termination is given and all other unpaid amounts, if any, to which the Employee is entitled as of the Date of Termination in connection with any fringe benefits or under any incentive compensation plan or program of the Company pursuant to Section 4(c) or 4(d) hereof, at the time such payments are due; provided that payments so made to the Employee during the disability period shall be reduced by the sum of the amounts, if any, payable to the Employee at or prior to the time of any such payment under disability benefit plans of the Company and which amounts were not previously applied to reduce any such payment. (c) If the Employee shall terminate the Employee's employment other than for Good Reason, or the Company terminates the Employee's employment for Cause as provided in Section 7(b)(ii) hereof, the Company shall pay the Employee the Employee's full Base Salary through the Date of Termination at the rate in effect at the time the Notice of 3 4 Termination is given, and the Company shall have no further obligations to the to the Employee under this Agreement. (d) If the Company shall terminate the Employee's employment other than for Cause, or the Employee terminates the Employee's employment for Good Reason as provided in Section 7(c) hereof, the Company shall pay the Employee (i) the Employee's full Base Salary through the Date of Termination at the rate in effect at the time the Notice of Termination is given and all other unpaid amounts, if any, to which the Employee is entitled as of the Date of Termination in connection with any fringe benefits or under any compensation plan or program of the Company pursuant to Section 4(c) and 4(d) hereof, at the time such payments are due; and (ii) the full Base Salary and any other amounts that would have been payable to Employee under Sections 4(c) (but not Section 4(d)) hereof from the Date of Termination through the Expiration Date at the such payments are due. (e) The Employee shall not be required to mitigate amounts payable pursuant to this Section 8 by seeking other employment or otherwise. If, however, the Employee shall receive compensation from employment with any other employer during the relevant period set forth in this Section 8, the payments to be made under the provisions of this Section 8 shall be correspondingly reduced. 9. Obligation of Confidentiality and Non-Competition. Employee agrees that Employee has a fiduciary duty to Lung Rx and that Employee shall hold in confidence and shall not, except in the course of performing Employee's employment obligations or pursuant to written authorization from Lung Rx, at any time during or for three years after termination of Employee's relationship with Lung Rx (a) directly or indirectly reveal, report, publish, disclose or transfer the Confidential Information or any part thereof to any person or entity; (b) use any of the Confidential Information or any part thereof for any purpose other than for the benefit of Lung Rx; (c) assist any person or entity other than Lung Rx to secure any benefit from the Confidential Information or any part thereof or (d) solicit (on Employee's behalf or on behalf of any third party) any employee of Lung Rx for the purpose of providing services or products which Employee is prohibited from providing hereunder. Furthermore, Employee agrees that all Confidential Information, as defined below, shall belong exclusively and without any additional compensation to Lung Rx. For the purposes of this Agreement, "Confidential Information" shall mean each of the following: (a) any information or material proprietary to Lung Rx or designated as confidential either orally or in writing by Lung Rx; and (b) any information not generally known by non-Lung Rx personnel; and (c) any information which Employee should know Lung Rx would not care to have revealed to others or used in competition with Lung Rx; and (d) any information which Employee made or makes, conceived or conceives, developed or develops or obtained or obtains knowledge or access through or as a result of Employee's relationship with Lung Rx (including information received, originated, discovered or developed in whole or in part by Employee) from the initial date of Employee's employment with Lung Rx. Furthermore, Employee agrees (1) not to accept employment, consultancy or other business relationships with a business which competes with Lung Rx's business for twelve months following Employee's last receipt of compensation from Lung Rx, and (2) to the issuance of a Court Order restraining alleged violation of this section, and to waive any bond requirement that may arise, in addition to all other remedies available to Lung Rx.. 10. Miscellaneous. (a) Entire Agreement. This Agreement contains the entire agreement between the parties hereto relating to the subject matter hereof, and this Agreement 4 5 supersedes all prior understandings and agreements, whether oral or written, relating to the employment of the Employee by the Company. (b) Assignment. This Agreement shall not be assignable or otherwise transferable by either party hereto, but any amounts owing to Employee upon the Employee's death shall inure to the benefit of the Employee's heirs, legatees, legal representatives, executor or administrator. Notwithstanding the foregoing, this Agreement applies with the prior written consent of the Employee, which consent shall not be unreasonably withheld. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and any such respective heirs, legatees, executors, administrators, representatives, successors and assigns. (c) Notices. All notices, demands, requests or other communications which may be, or are required to be given, served or sent by any party to any party pursuant to this Agreement shall be in writing and shall be mailed by first class, registered or certified mail, return receipt requested, postage prepaid, or transmitted by hand delivery, telegram or telex and addressed as follows: If to the Employee: James W. Crow 415 N. Cameron Avenue Chapel Hill, North Carolina If to the Company: Lung Rx, Inc. 1824 R Street, N.W. Washington, D.C. 20009 (d) Amendment; Waiver. This Agreement shall not be amended, altered, modified or discharged except by an instrument in writing duly executed by the Employee and the Company. Neither the waiver by the parties hereto of a breach of, or default under, any of the provisions of this Agreement, nor the failure of either of the parties, on one or more occasions, to enforce any of the provisions of this Agreement or to exercise any right or privilege hereunder, shall thereafter be construed as a waiver of any such provisions, rights or privileges hereunder. (e) Severability. The invalidity or unenforceabilty of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect. (f) Applicable Law. This Agreement and the rights and obligations of the parties under this Agreement shall be construed, interpreted and enforced in accordance with the laws of the District of Columbia, exclusive of the choice-of-laws rules thereunder. (g) Survival. It is the express intention and agreement of the parties hereto that the Special Terms of Conditions of Employment Agreement referred to in Section 9 hereof shall survive the termination of employment of the Employee. In addition, all obligations of the Company to make payments hereunder shall survive any termination of this Agreement on the terms and conditions set forth. (h) Execution. To facilitate execution, this Agreement may be executed in as many counterparts as may be required; and it shall not be necessary that the signatures of, or on behalf of, each party, or that the signatures of all persons required to bind any party, appear on each counterpart; but it shall be sufficient that the signature of, or on behalf of, 5 6 each party, or that the signatures of the persons required to bind any party, appear on one or more of the counterparts. All counterparts shall collectively constitute a single agreement. It shall not be necessary in making proof of this Agreement to produce or account for more than a number of counterparts containing the respective signatures of, or on behalf of, all of the parties hereto. IN WITNESS WHEREOF, the undersigned have duly executed this Agreement, or have caused this Agreement to be duly executed on their behalf, as of the date first above written. LUNG RX, INC. /s/ James W. Crow /s/ Martine Rothblatt - ---------------------------- --------------------------------- James W. Crow By: Martine Rothblatt /s/ Lori B. Spivey - ---------------------------- Witness Printed: Lori B. Spivey 6 EX-10.5 13 EMPLOYMENT AGREEMENT GILLES CLOUTIER 1 EXHIBIT 10.5 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of April 7, 1997 by and between Lung Rx, Inc., a Delaware corporation having its principal offices at 1826 R Street, N.W., Washington, D.C. 20009 (the "Company") and Gilles Cloutier (the "Employee"). WHEREAS, the Company desires to obtain the services of the Employee, and the Employee is willing to render such services to the Company, upon the terms and conditions herein set forth; NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows. 1. Employment. Upon the other terms and conditions hereinafter stated, the Company agrees to employ the Employee and the Employee agrees to accept employment by the Company for the term set forth in Section 2 hereof and in the position and with the duties and responsibilities set forth in Section 3 hereof. 2. Term. The employment of the Employee by the Company will commence on the date hereof and end on the third anniversary of such date (the "Initial Term"), and thereafter shall continue from year to year for additional one-year terms (the "Additional Terms"), unless and until either party shall give notice of such party's intent to terminate not less than 30 days prior to the end of the then-current Initial Term or Additional Term, which termination shall be effective at the expiration of said term, or until sooner terminated as hereinafter set forth. 3. Position and Duties. (a) The Employee shall serve as Executive Vice President reporting initially to the President of the Company, with such duties and responsibilities as the Board of Directors of the Company may from time to time determine and assign to the Employee. The Employee shall use the Employee's best efforts and full business time to perform the Employee's duties under this Agreement. (b) The Employee will be located in North Carolina at the Company's R&D office. 4. Compensation and Related Matters. (a) For services rendered under this Agreement, the Company shall pay to the Employee an annual base salary of $150,000 (the "Base Salary"), subject to increase, as 2 determined by the Board of Directors of the Company, in its sole discretion, on or before any anniversary date of this Agreement. The Base Salary shall be payable semi-monthly or in such other installments as shall be consistent with the Company's payroll procedures. The Company shall deduct and withhold all necessary social security and withholding taxes and any other similar sums required by law or authorized by the Employee with respect to payment of the Base Salary and all other amounts and benefits payable under this Agreement. (b) The Employee shall be entitled to participate in any group life, disability and medical insurance or other benefit plan or arrangement available generally to the employees of the Company as determined by the Board of Directors. 5. Expenses. The Employee shall be reimbursed by the Company for reasonable travel and other expenses, as approved from time to time by the Board of Directors, which are incurred and accounted for in accordance with the Company's normal practices. 6. Vacation. The Employee shall be entitled during the term of employment hereunder to four weeks of vacation, or a pro rata amount thereof in the event that the term of employment hereunder is less than one year, which vacation shall be at such time or times and for such period or periods as shall be mutually agreed upon by the Employee and the Board of Directors. The Employee shall also be entitled to all public holidays observed by the Company. 7. Termination of Employment. (a) The Employee's employment hereunder shall terminate upon the Employee's death. (b) The Company may terminate the Employee's employment hereunder under the following circumstances: (i) If, as a result of the Employee's incapacity due to physical or mental illness, the Employee shall have been unable to perform all of the Employee's duties hereunder by reason of illness, or physical or mental disability or other similar capacity, which inability shall continue for more than four (4) consecutive months, the Company may terminate the Employee's employment hereunder. (ii) The Company may terminate the Employee's employment hereunder for "Cause." For purposes of this Agreement, the Company shall have "Cause" to terminate the Employee's employment hereunder upon the (A) failure of the Employee (other than for reasons described in Sections 7(a) and 7(b)(i) hereof) to perform or observe any of the material terms or provisions of this Agreement; (B) negligent or unsatisfactory performance of the Employee's duties under this Agreement and the failure of the Employee, within 30 days after receipt of notice from the Company setting forth in reasonable detail the nature of the Employee's negligent or unsatisfactory performance, (i) to provide the Company 2 3 with a satisfactory explanation of the Employee's actions (or inaction) and (ii) to correct to the satisfaction of the Company any identified deficiencies; (C) misconduct or other similar action on the part of the Employee that is materially damaging or detrimental to the Company; (D) conviction of the Employee of a crime involving a felony, fraud, embezzlement or the like; or (E) misappropriation of the Company funds or misuse of the Company's assets by Employee. (c) The Employee may terminate the Employee's employment hereunder for "Good Reason." For purposes of this Agreement, the Employee shall have "Good Reason" to terminate the Employee's employment hereunder upon the (i) failure of the Company to perform or observe any of the material terms or provisions of the Agreement, and the continued failure of the Company to cure such default within fifteen (15) days after written notice of such default and demand for performance has been given to the Company by the Employee, which notice and demand shall describe specifically the nature of such alleged failure to perform or observe such material terms or provisions; provided, however, that if cure is impossible within said fifteen (15) day period, it shall be sufficient for the Company to commence such cure within said fifteen (15) day period, and pursue such cure diligently to completion within the shortest possible reasonable time; or (ii) assignment of duties materially and adversely inconsistent with the Employee's position, duties, responsibilities and status with the Company without the Employee's consent. (d) Any termination of the Employee's employment by the Company or by the Employee (other than pursuant to Section 7(a) hereof) shall be communicated by written "Notice of Termination" to the other party hereto in accordance with Section 10(c) hereof, which shall indicate the specific termination provision in this Agreement relied upon, if any, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provision so indicated. (e) For purposes of this Agreement, the "Date of Termination" shall mean (i) if the Employee's employment is terminated by the Employee's death, the date of the Employee's death; (ii) if the Employee's employment is terminated pursuant to Section 7(b)(i) hereof, thirty (30) days after the Notice of Termination; provided, that the Employee shall not have returned to the performance of the Employee's duties on a full-time basis during such thirty (30) day period; (iii) if the Employee's employment is terminated pursuant to Section 7(b)(ii) or 7(c) hereof, the date specified in the Notice of Termination (which date, in the case of termination of Employee's employment solely pursuant to clause (B) of Section 7(b)(ii) by reason of inadequate performance, shall not be sooner than nine months from the date of the Notice of Termination); and (iv) if the Employee's employment is terminated for any other reason, the date on which the Notice of Termination is given. 8. Compensation Upon Termination. (a) If the Employee's employment is terminated by the Employee's death, the Company shall pay to the Employee's estate or as may be directed by the legal representatives of such estate, the Employee's full Base Salary through the Date of 3 4 Termination at the rate in effect at the time of the Employee's death and all other unpaid amounts, if any, to which the Employee is entitled as of such date in connection with any fringe benefits or under any incentive compensation plan or program of the Company pursuant to Section 4(c) or 4(d) hereof, at the time such payments are due. (b) During any period that the Employee fails to perform the Employee's duties hereunder solely as a result of incapacity due to physical or mental illness ("disability period"), the Employee shall continue to receive the Employee's full base salary through the Date of Termination at the rate in effect at the time the Notice of Termination is given and all other unpaid amounts, if any, to which the Employee is entitled as of the Date of Termination in connection with any fringe benefits or under any incentive compensation plan or program of the Company pursuant to Section 4(c) or 4(d) hereof, at the time such payments are due; provided that payments so made to the Employee during the disability period shall be reduced by the sum of the amounts, if any, payable to the Employee at or prior to the time of any such payment under disability benefit plans of the Company and which amounts were not previously applied to reduce any such payment. (c) If the Employee shall terminate the Employee's employment other than for Good Reason, or the Company terminates the Employee's employment for Cause as provided in Section 7(b)(ii) hereof, the Company shall pay the Employee the Employee's full Base Salary through the Date of Termination at the rate in effect at the time the Notice of Termination is given, and the Company shall have no further obligations to the to the Employee under this Agreement. (d) If the Company shall terminate the Employee's employment other than for Cause, or the Employee terminates the Employee's employment for Good Reason as provided in Section 7(c) hereof, the Company shall pay the Employee (i) the Employee's full Base Salary through the Date of Termination at the rate in effect at the time the Notice of Termination is given and all other unpaid amounts, if any, to which the Employee is entitled as of the Date of Termination in connection with any fringe benefits or under any compensation plan or program of the Company pursuant to Section 4(c) and 4(d) hereof, at the time such payments are due; and (ii) the full Base Salary and any other amounts that would have been payable to Employee under Sections 4(c) (but not Section 4(d)) hereof from the Date of Termination through the Expiration Date at the such payments are due. (e) The Employee shall not be required to mitigate amounts payable pursuant to this Section 8 by seeking other employment or otherwise. If, however, the Employee shall receive compensation from employment with any other employer during the relevant period set forth in this Section 8, the payments to be made under the provisions of this Section 8 shall be correspondingly reduced. 9. Obligation of Confidentiality and Non-Competition. Employee agrees that Employee has a fiduciary duty to Lung Rx and that Employee shall hold in confidence and shall not, except in the course of performing Employee's employment obligations or pursuant to written authorization from Lung Rx, at any time during or for three years after termination 4 5 of Employee's relationship with Lung Rx (a) directly or indirectly reveal, report, publish, disclose or transfer the Confidential Information or any part thereof to any person or entity; (b) use any of the Confidential Information or any part thereof for any purpose other than for the benefit of Lung Rx; (c) assist any person or entity other than Lung Rx to secure any benefit from the Confidential Information or any part thereof or (d) solicit (on Employee's behalf or on behalf of any third party) any employee of Lung Rx for the purpose of providing services or products which Employee is prohibited from providing hereunder. Furthermore, Employee agrees that all Confidential Information, as defined below, shall belong exclusively and without any additional compensation to Lung Rx. For the purposes of this Agreement, "Confidential Information" shall mean each of the following: (a) any information or material proprietary to Lung Rx or designated as confidential either orally or in writing by Lung Rx; and (b) any information not generally known by non-Lung Rx personnel; and (c) any information which Employee should know Lung Rx would not care to have revealed to others or used in competition with Lung Rx; and (d) any information which Employee made or makes, conceived or conceives, developed or develops or obtained or obtains knowledge or access through or as a result of Employee's relationship with Lung Rx (including information received, originated, discovered or developed in whole or in part by Employee) from the initial date of Employee's employment with Lung Rx. Furthermore, Employee agrees (1) not to accept employment, consultancy or other business relationships with a business which competes with Lung Rx's business for twelve months following Employee's last receipt of compensation from Lung Rx, and (2) to the issuance of a Court Order restraining alleged violation of this section, and to waive any bond requirement that may arise, in addition to all other remedies available to Lung Rx.. 10. Miscellaneous. (a) Entire Agreement. This Agreement contains the entire agreement between the parties hereto relating to the subject matter hereof, and this Agreement supersedes all prior understandings and agreements, whether oral or written, relating to the employment of the Employee by the Company. (b) Assignment. This Agreement shall not be assignable or otherwise transferable by either party hereto, but any amounts owing to Employee upon the Employee's death shall inure to the benefit of the Employee's heirs, legatees, legal representatives, executor or administrator. Notwithstanding the foregoing, this Agreement applies with the prior written consent of the Employee, which consent shall not be unreasonably withheld. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and any such respective heirs, legatees, executors, administrators, representatives, successors and assigns. (c) Notices. All notices, demands, requests or other communications which may be, or are required to be given, served or sent by any party to any party pursuant to this Agreement shall be in writing and shall be mailed by first class, registered or certified 5 6 mail, return receipt requested, postage prepaid, or transmitted by hand delivery, telegram or telex and addressed as follows: If to the Employee: Gilles Cloutier 100 Chestnut Road Chapel Hill, North Carolina 27514 If to the Company: Lung Rx, Inc. 1826 R Street, N.W. Washington, D.C. 20009 (d) Amendment; Waiver. This Agreement shall not be amended, altered, modified or discharged except by an instrument in writing duly executed by the Employee and the Company. Neither the waiver by the parties hereto of a breach of, or default under, any of the provisions of this Agreement, nor the failure of either of the parties, on one or more occasions, to enforce any of the provisions of this Agreement or to exercise any right or privilege hereunder, shall thereafter be construed as a waiver of any such provisions, rights or privileges hereunder. (e) Severability. The invalidity or unenforceabilty of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect. (f) Applicable Law. This Agreement and the rights and obligations of the parties under this Agreement shall be construed, interpreted and enforced in accordance with the laws of the District of Columbia, exclusive of the choice-of-laws rules thereunder. (g) Survival. It is the express intention and agreement of the parties hereto that the Special Terms of Conditions of Employment Agreement referred to in Section 9 hereof shall survive the termination of employment of the Employee. In addition, all obligations of the Company to make payments hereunder shall survive any termination of this Agreement on the terms and conditions set forth. (h) Execution. To facilitate execution, this Agreement may be executed in as many counterparts as may be required; and it shall not be necessary that the signatures of, or on behalf of, each party, or that the signatures of all persons required to bind any party, appear on each counterpart; but it shall be sufficient that the signature of, or on behalf of, each party, or that the signatures of the persons required to bind any party, appear on one or more of the counterparts. All counterparts shall collectively constitute a single agreement. It shall not be necessary in making proof of this Agreement to produce or account for more than a number of counterparts containing the respective signatures of, or on behalf of, all of the parties hereto. 6 7 IN WITNESS WHEREOF, the undersigned have duly executed this Agreement, or have caused this Agreement to be duly executed on their behalf, as of the date first above written. LUNG RX, INC. /s/ Gilles Cloutier /s/ Martine Rothblatt - -------------------------------- ----------------------------------- Gilles Cloutier By: Martine Rothblatt /s/ Gail W. Cannon - ------------------------------- Witness Printed: Gail W. Cannon 7 EX-10.6 14 EMPLOYMENT AGREEMENT SHELMER BLACKBURN JR 1 EXHIBIT 10.6 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of August 1, 1996 by and between Lung Rx, Inc., a Delaware corporation having its principal offices at 1824 R Street, N.W., Washington, D.C. 20009 (the "Company") and Shelmer Blackburn Jr. (the "Employee"). WHEREAS, the Company desires to obtain the services of the Employee, and the Employee is willing to render such services to the Company, upon the terms and conditions herein set forth; NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows. 1. Employment. Upon the other terms and conditions hereinafter stated, the Company agrees to employ the Employee and the Employee agrees to accept employment by the Company for the term set forth in Section 2 hereof and in the position and with the duties and responsibilities set forth in Section 3 hereof. 2. Term. The employment of the Employee by the Company will commence on the date hereof and end on the third anniversary of such date (the "Initial Term"), and thereafter shall continue from year to year for additional one-year terms (the "Additional Terms"), unless and until either party shall give notice of such party's intent to terminate not less than 30 days prior to the end of the then-current Initial Term or Additional Term, which termination shall be effective at the expiration of said term, or until sooner terminated as hereinafter set forth. 3. Position and Duties. (a) The Employee shall serve as Director of Operations reporting to the President of the Company, with such duties and responsibilities as the President of the Company may from time to time determine and assign to the Employee. The Employee shall use the Employee's best efforts and full business time to perform the Employee's duties under this Agreement. (b) The Employee may remain a resident of North Carolina if he wishes to do so, based in a Company office to be established out of the Company's initial capital contribution. 2 4. Compensation and Related Matters. (a) For services rendered under this Agreement, the Company shall pay to the Employee an annual base salary of $100,000 (the "Base Salary"), subject to increase, as determined by the Board of Directors of the Company, in its sole discretion, on or before any anniversary date of this Agreement. The Base Salary shall be payable semi-monthly or in such other installments as shall be consistent with the Company's payroll procedures. The Company shall deduct and withhold all necessary social security and withholding taxes and any other similar sums required by law or authorized by the Employee with respect to payment of the Base Salary and all other amounts and benefits payable under this Agreement. (b) The Employee shall be entitled to participate in any group life, disability and medical insurance or other benefit plan or arrangement available generally to the employees of the Company as determined by the Board of Directors. 5. Expenses. The Employee shall be reimbursed by the Company for reasonable travel and other expenses, as approved from time to time by the Board of Directors, which are incurred and accounted for in accordance with the Company's normal practices. 6. Vacation. The Employee shall be entitled during the term of employment hereunder to four weeks of vacation, or a pro rata amount thereof in the event that the term of employment hereunder is less than one year, which vacation shall be at such time or times and for such period or periods as shall be mutually agreed upon by the Employee and the Board of Directors. The Employee shall also be entitled to all public holidays observed by the Company. 7. Termination of Employment. (a) The Employee's employment hereunder shall terminate upon the Employee's death. (b) The Company may terminate the Employee's employment hereunder under the following circumstances: (i) If, as a result of the Employee's incapacity due to physical or mental illness, the Employee shall have been unable to perform all of the Employee's duties hereunder by reason of illness, or physical or mental disability or other similar capacity, which inability shall continue for more than four (4) consecutive months, the Company may terminate the Employee's employment hereunder. (ii) The Company may terminate the Employee's employment hereunder for "Cause." For purposes of this Agreement, the Company shall have "Cause" to terminate the Employee's employment hereunder upon the (A) failure of the Employee (other than for reasons described in Sections 7(a) and 7(b)(i) hereof) to perform or observe any of 2 3 the material terms or provisions of this Agreement; (B) negligent or unsatisfactory performance of the Employee's duties under this Agreement and the failure of the Employee, within 30 days after receipt of notice from the Company setting forth in reasonable detail the nature of the Employee's negligent or unsatisfactory performance, (i) to provide the Company with a satisfactory explanation of the Employee's actions (or inaction) and (ii) to correct to the satisfaction of the Company any identified deficiencies; (C) misconduct or other similar action on the part of the Employee that is materially damaging or detrimental to the Company; (D) conviction of the Employee of a crime involving a felony, fraud, embezzlement or the like; or (E) misappropriation of the Company funds or misuse of the Company's assets by Employee. (c) The Employee may terminate the Employee's employment hereunder for "Good Reason." For purposes of this Agreement, the Employee shall have "Good Reason" to terminate the Employee's employment hereunder upon the (i) failure of the Company to perform or observe any of the material terms or provisions of the Agreement, and the continued failure of the Company to cure such default within fifteen (15) days after written notice of such default and demand for performance has been given to the Company by the Employee, which notice and demand shall describe specifically the nature of such alleged failure to perform or observe such material terms or provisions; provided, however, that if cure is impossible within said fifteen (15) day period, it shall be sufficient for the Company to commence such cure within said fifteen (15) day period, and pursue such cure diligently to completion within the shortest possible reasonable time; or (ii) assignment of duties materially and adversely inconsistent with the Employee's position, duties, responsibilities and status with the Company without the Employee's consent. (d) Any termination of the Employee's employment by the Company or by the Employee (other than pursuant to Section 7(a) hereof) shall be communicated by written "Notice of Termination" to the other party hereto in accordance with Section 10(c) hereof, which shall indicate the specific termination provision in this Agreement relied upon, if any, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provision so indicated. (e) For purposes of this Agreement, the "Date of Termination" shall mean (i) if the Employee's employment is terminated by the Employee's death, the date of the Employee's death; (ii) if the Employee's employment is terminated pursuant to Section 7(b)(i) hereof, thirty (30) days after the Notice of Termination; provided, that the Employee shall not have returned to the performance of the Employee's duties on a full-time basis during such thirty (30) day period; (iii) if the Employee's employment is terminated pursuant to Section 7(b)(ii) or 7(c) hereof, the date specified in the Notice of Termination (which date, in the case of termination of Employee's employment solely pursuant to clause (B) of Section 7(b)(ii) by reason of inadequate performance, shall not be sooner than nine months from the date of the Notice of Termination); and (iv) if the Employee's employment is terminated for any other reason, the date on which the Notice of Termination is given. 8. Compensation Upon Termination. 3 4 (a) If the Employee's employment is terminated by the Employee's death, the Company shall pay to the Employee's estate or as may be directed by the legal representatives of such estate, the Employee's full Base Salary through the Date of Termination at the rate in effect at the time of the Employee's death and all other unpaid amounts, if any, to which the Employee is entitled as of such date in connection with any fringe benefits or under any incentive compensation plan or program of the Company pursuant to Section 4(c) or 4(d) hereof, at the time such payments are due. (b) During any period that the Employee fails to perform the Employee's duties hereunder solely as a result of incapacity due to physical or mental illness ("disability period"), the Employee shall continue to receive the Employee's full base salary through the Date of Termination at the rate in effect at the time the Notice of Termination is given and all other unpaid amounts, if any, to which the Employee is entitled as of the Date of Termination in connection with any fringe benefits or under any incentive compensation plan or program of the Company pursuant to Section 4(c) or 4(d) hereof, at the time such payments are due; provided that payments so made to the Employee during the disability period shall be reduced by the sum of the amounts, if any, payable to the Employee at or prior to the time of any such payment under disability benefit plans of the Company and which amounts were not previously applied to reduce any such payment. (c) If the Employee shall terminate the Employee's employment other than for Good Reason, or the Company terminates the Employee's employment for Cause as provided in Section 7(b)(ii) hereof, the Company shall pay the Employee the Employee's full Base Salary through the Date of Termination at the rate in effect at the time the Notice of Termination is given, and the Company shall have no further obligations to the to the Employee under this Agreement. (d) If the Company shall terminate the Employee's employment other than for Cause, or the Employee terminates the Employee's employment for Good Reason as provided in Section 7(c) hereof, the Company shall pay the Employee (i) the Employee's full Base Salary through the Date of Termination at the rate in effect at the time the Notice of Termination is given and all other unpaid amounts, if any, to which the Employee is entitled as of the Date of Termination in connection with any fringe benefits or under any compensation plan or program of the Company pursuant to Section 4(c) and 4(d) hereof, at the time such payments are due; and (ii) the full Base Salary and any other amounts that would have been payable to Employee under Sections 4(c) (but not Section 4(d)) hereof from the Date of Termination through the Expiration Date at the such payments are due. (e) The Employee shall not be required to mitigate amounts payable pursuant to this Section 8 by seeking other employment or otherwise. If, however, the Employee shall receive compensation from employment with any other employer during the relevant period set forth in this Section 8, the payments to be made under the provisions of this Section 8 shall be correspondingly reduced. 4 5 9. Obligation of Confidentiality and Non-Competition. Employee agrees that Employee has a fiduciary duty to Lung Rx and that Employee shall hold in confidence and shall not, except in the course of performing Employee's employment obligations or pursuant to written authorization from Lung Rx, at any time during or for three years after termination of Employee's relationship with Lung Rx (a) directly or indirectly reveal, report, publish, disclose or transfer the Confidential Information or any part thereof to any person or entity; (b) use any of the Confidential Information or any part thereof for any purpose other than for the benefit of Lung Rx; (c) assist any person or entity other than Lung Rx to secure any benefit from the Confidential Information or any part thereof or (d) solicit (on Employee's behalf or on behalf of any third party) any employee of Lung Rx for the purpose of providing services or products which Employee is prohibited from providing hereunder. Furthermore, Employee agrees that all Confidential Information, as defined below, shall belong exclusively and without any additional compensation to Lung Rx. For the purposes of this Agreement, "Confidential Information" shall mean each of the following: (a) any information or material proprietary to Lung Rx or designated as confidential either orally or in writing by Lung Rx; and (b) any information not generally known by non-Lung Rx personnel; and (c) any information which Employee should know Lung Rx would not care to have revealed to others or used in competition with Lung Rx; and (d) any information which Employee made or makes, conceived or conceives, developed or develops or obtained or obtains knowledge or access through or as a result of Employee's relationship with Lung Rx (including information received, originated, discovered or developed in whole or in part by Employee) from the initial date of Employee's employment with Lung Rx. Furthermore, Employee agrees (1) not to accept employment, consultancy or other business relationships with a business which competes with Lung Rx's business for twelve months following Employee's last receipt of compensation from Lung Rx, and (2) to the issuance of a Court Order restraining alleged violation of this section, and to waive any bond requirement that may arise, in addition to all other remedies available to Lung Rx.. 10. Miscellaneous. (a) Entire Agreement. This Agreement contains the entire agreement between the parties hereto relating to the subject matter hereof, and this Agreement supersedes all prior understandings and agreements, whether oral or written, relating to the employment of the Employee by the Company, except only for the following: Employee shall be elected each year to serve as Secretary of the Board of Directors until such time as he is elected to serve as a member of the Board of Directors. (b) Assignment. This Agreement shall not be assignable or otherwise transferable by either party hereto, but any amounts owing to Employee upon the Employee's death shall inure to the benefit of the Employee's heirs, legatees, legal representatives, executor or administrator. Notwithstanding the foregoing, this Agreement applies with the prior written consent of the Employee, which consent shall not be unreasonably withheld. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and 5 6 any such respective heirs, legatees, executors, administrators, representatives, successors and assigns. (c) Notices. All notices, demands, requests or other communications which may be, or are required to be given, served or sent by any party to any party pursuant to this Agreement shall be in writing and shall be mailed by first class, registered or certified mail, return receipt requested, postage prepaid, or transmitted by hand delivery, telegram or telex and addressed as follows: If to the Employee: If to the Company: Lung Rx, Inc. 1824 R Street, N.W. Washington, D.C. 20009 (d) Amendment; Waiver. This Agreement shall not be amended, altered, modified or discharged except by an instrument in writing duly executed by the Employee and the Company. Neither the waiver by the parties hereto of a breach of, or default under, any of the provisions of this Agreement, nor the failure of either of the parties, on one or more occasions, to enforce any of the provisions of this Agreement or to exercise any right or privilege hereunder, shall thereafter be construed as a waiver of any such provisions, rights or privileges hereunder. (e) Severability. The invalidity or unenforceabilty of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect. (f) Applicable Law. This Agreement and the rights and obligations of the parties under this Agreement shall be construed, interpreted and enforced in accordance with the laws of the District of Columbia, exclusive of the choice-of-laws rules thereunder. (g) Survival. It is the express intention and agreement of the parties hereto that the Special Terms of Conditions of Employment Agreement referred to in Section 9 hereof shall survive the termination of employment of the Employee. In addition, all obligations of the Company to make payments hereunder shall survive any termination of this Agreement on the terms and conditions set forth. (h) Execution. To facilitate execution, this Agreement may be executed in as many counterparts as may be required; and it shall not be necessary that the signatures of, or on behalf of, each party, or that the signatures of all persons required to bind any party, appear on each counterpart; but it shall be sufficient that the signature of, or on behalf of, 6 7 each party, or that the signatures of the persons required to bind any party, appear on one or more of the counterparts. All counterparts shall collectively constitute a single agreement. It shall not be necessary in making proof of this Agreement to produce or account for more than a number of counterparts containing the respective signatures of, or on behalf of, all of the parties hereto. IN WITNESS WHEREOF, the undersigned have duly executed this Agreement, or have caused this Agreement to be duly executed on their behalf, as of the date first above written. LUNG RX, INC. /s/ Shelmer D. Blackburn, Jr./ 7 July 96 /s/ Martine Rothblatt - ---------------------------------------- --------------------- Shelmer Blackburn, Jr. By: Martine Rothblatt /s/ James W. Crow - ---------------------------- Witness Printed: James W. Crow 7 EX-10.7 15 FIRST FLIGHT VENTURE LEASE AGREEMENT 1 FFVC Lease Agreement EXHIBIT 10.7 NORTH CAROLINA DURHAM COUNTY FIRST FLIGHT VENTURE CENTER LEASE AGREEMENT THIS LEASE AGREEMENT ("Lease or Lease Agreement"), made and entered into this 1st day of July, 1997, by and between the North Carolina Technological Development Authority, Inc., a North Carolina non-profit corporation ("LESSOR"), and LUNG Rx, Inc. ("LESSEE"); WITNESSETH: WHEREAS the Lessor manages the First Flight Venture Center, a small business incubator the mission of which is to increase the number of successful technology-based companies starting in or relocating to the Research Triangle Park area by providing business space and services on a temporary basis during the early stages of company development or expansion; and WHEREAS it is the philosophy of Lessor that a company as described above should occupy space in a small business incubator for no more than two years; and WHEREAS the Lessee wishes to occupy space in the First Flight Venture Center for purposes consistent with the mission and philosophy described above; and WHEREAS the parties hereto have mutually agreed to the terms of this Lease Agreement as hereinafter set out and the undersigned individuals are authorized to enter into this agreement on behalf of Lessor and Lessee. NOW, THEREFORE, in consideration of the premises, and the mutual promises contained herein, the parties hereto do hereby agree as follows: 1. AGENT(S). The duly authorized person(s) or entity/entities who shall have the authority to act on behalf of the Lessor or Lessee, as the case may be, in connection with all matters relating to this lease, are those initial agents as are identified below: For the Lessor: President North Carolina Technological Development Authority, Inc. 2 Davis Drive Post Office Box 13169 Research Triangle Park, North Carolina 27709 2 For the Lessee: Shelmer Blackburn LUNG Rx 2. LEASED PREMISES. Upon the terms, provisions, and conditions hereof, Lessor does hereby let and lease unto Lessee and Lessee hereby takes and leases from Lessor certain space in Durham County, North Carolina, more particularly described as approximately 800 square feet of interior space ("Leased Premises") in the First Flight Venture Center, located at 2 Davis Drive, Research Triangle Park, North Carolina 27709 ("Building"), as shown in a floor plan marked Exhibit "A", which is attached to and hereby made a part of this Lease Agreement. The use and occupancy by Lessee of the Leased Premises shall include the non-exclusive right to use the parking areas, service roads, sidewalks, and other areas owned by the Lessor adjacent to the Buildings, subject to reasonable restrictions on such use as may be promulgated by Lessor. 3. TERM. The term of this Lease Agreement shall be for a period of six (6) months commencing on the date first above written and ending at 11:50 p.m. on December 31, 1997, unless otherwise terminated or extended as set forth in this Lease Agreement. Upon the conclusion of the term hereof, unless either party has delivered to the other party notice of non-extension at least thirty (30) days prior to such conclusion of the term, such term shall be automatically extended for a period of six (6) months, subject, however, to a maximum term of this Lease Agreement of two (2) years from the commencement date of this Lease Agreement. 4. USAGE. The Leased Premises may be used by the Lessee for (a) research and development activities directly related to, and necessary for, Lessee's business, and (b) general office use necessary for Lessee's business. Lessee shall not use the Leased Premises or fail to maintain them in any manner constituting a violation of any ordinance, statute or regulation, or order of any governmental authority nor will Lessee maintain or permit any nuisance to occur on the Leased Premises. Lessee shall use, maintain and occupy the Leased Premises in a careful, safe, and proper manner, and shall not commit waste thereon. Lessee shall not use the Leased Premises in a manner so as to cause any fire or other hazard or impair the validity of any policy of insurance now or hereafter taken out upon the Leased Premises by Lessor, and if any such act or action on Lessee's part increases the rate of premium of any policy of insurance (in addition to all other remedies given to Lessor herein), Lessee shall pay to Lessor the amount by which such rate or premium is increased by Lessee's conduct aforesaid. 5. RENTAL. (a) Base Rental. As base rental for the Leased Premises, Lessee shall pay to Lessor the sum of One thousand one hundred twenty one and 40/100 2 3 (1,121.40) per month for the term and fraction of the term hereof. In the event the term of this Lease Agreement is extended pursuant to the provisions of Section 3 hereof, the base rental for each such six (6) month extension of the term shall be one hundred five percent (105%) of the base rental for the immediately preceding term (whether such immediately preceding term be the initial term or an extension of the initial term). The base rental per square foot of any additional space brought under this Lease Agreement, whether by verbal or written agreement or by occupancy thereof by Lessee, shall be equal to the base rental per square foot of the space then under this Lease Agreement, subject to adjustment in the manner provided herein. A pro rate amount of the monthly base rental shall be due and payable at the start of any partial month during the term hereof or if occupancy for the permitted use shall occur prior to the commencement date hereof. The monthly base rent shall be payable in advance on the first day of each month during the term hereof. (b) Other Provisions. Except as specifically provided in this Lease, all rent and sums to be paid to Lessor under the Lease are to paid without offset, abatement or deduction. Other remedies for nonpayment of rent notwithstanding, if any monthly rental is not received by Lessor within five (5) days of the date when due or if any other payment due Lessor by Lessee is not received by Lessor on or before the fifth (5th) day following the date it was due, a late charge of five percent (5%) of such past due amount shall become due and payable in addition to such amounts owned under this Lease. 6. SECURITY DEPOSITS. To assure adherence to the terms and conditions of this Lease, Lessee has paid to Lessor a sum of $1,281.00 as a Security Deposit. The Security Deposit shall be used for the payment of any uninsured damages to the Leased Premises, exclusive of normal wear and tear, which occur during the term of this Lease which are caused by or result from the wrongful or negligent act or omission of the tenant. No interest shall be paid on the Security Deposit. The balance of the Security Deposit will be returned to the Lessee within thirty (30) days of the payment of all amounts due under this lease agreement. 7. LESSEE PARTICIPATION IN PLANNING ACTIVITIES. As a condition of this Lease, Lessee agrees to devote such time as may be reasonably requested during the term of the Lease, to participating in Lessor's planning activities related to the organization, provision of services and operation procedures of the First Flight Venture Center. Lessee further agrees to participate in tenant meetings which may from time to time be called by the management of the First Flight Venture Center, it being agreed that reasonable notice, when possible, for such meetings is the responsibility of management. 3 4 8. REPORTING REQUIREMENTS. Lessee, as a company accessing First Flight Venture Center services and facilities for a limited time during the high-growth stage of development, will report to Lessor on a quarterly basis. Initial report, due at the beginning of occupancy, will take the form of a business plan including Lessee's current structure, personnel, product, market and opportunity together with a pert chart outlining development and growth expectations over a minimum two year period (including personnel and facility needs). Subsequent reports will update and supplement the initial report, and must include number of Lessee employees, grant and investment revenue figures, sales revenue figures, and documentation and explanation of significant changes in strategy for growth. Lessor agrees that reports are confidential and information contained therein will be used only in an aggregate form for purposes of measuring incubator performance and for the purpose of assisting Lessee in achieving independence from the incubator environment. Lessor may require, and Lessee agrees, to continue reporting for up to 48 months after leaving occupancy at the First Flight Venture Center. 9. LESSOR IMPROVEMENTS. Lessor shall, at the beginning of the Lease term, have the Leased Premises and common areas in the Building in a condition reasonably satisfactory to Lessee; including repairs, painting, partitioning, remodeling, plumbing, and electrical wiring suitable for the purpose for which the Leased Premises will be used by Lessee. By executing this Lease Agreement Lessee acknowledges that Lessee has inspected the Leased Premises and common areas in the Building and finds them to be in condition satisfactory to Lessee with respect to repairs, painting, partitioning, remodeling, plumbing, and electrical wiring. 10. ALTERATIONS. Lessee shall make no alterations or additions to the Leased Premises without the prior written consent of Lessor. At the time such consent is granted, the writing shall state whether Lessee may or shall remove such alteration or addition or whether such alteration or addition shall become the property of the Lessor. Lessee shall indemnify and save harmless Lessor from all loss, cost or expense in connection with the construction or installation of alterations or additions. In the event Lessee is permitted or required to remove any such alterations or additions, such removal shall be completed prior to the expiration of the term of this Lease Agreement and any damage to the Leased Premises caused by said removal shall be repaired by Lessee. 11. BUILDING SERVICES. (a) Utility Infrastructure: For the Leased Premises and common areas in the Building, Lessor shall provide 1) heating and cooling facilities, 2) existing electrical facilities, and 3) lighting fixtures and sockets; (b) Janitorial Service: Lessor shall provide janitor service, consisting only of routine dusting, vacuum cleaning or dust-mopping of floors. Lessor shall 4 5 also provide for the disposal of routine office garbage and trash as is reasonably created by the Lessee in the normal course of its business; (c) Common Area Access: Lessor shall furnish to Lessee, and its agents, employees and invitees, subject to reasonable restrictions on the use thereof as may be promulgated by Lessor, non-exclusive access to common areas in the Building, including the main foyer, the lunch room and kitchen, and toilet facilities adjacent to the common areas. By the execution of this Lease Agreement, Lessee acknowledges that Lessee has inspected the Leased Premises and common areas and finds the Leased Premises and common areas to be adjacent with respect to the recited equipment, facilities, and fixtures; (d) Parking: Lessor shall provide to Lessee one (1) unassigned parking space per employee of Lessee; (e) Conference Rooms: Lessor shall provide to Lessee reasonable use of the Building's conference room facilities on a first-scheduled, first-served basis in accordance with the policies specified by Lessor; (f) Business Equipment Access: Lessor shall provide to Less use of, on a reasonable per use charged basis as specified by Lessor, the Building's business equipment, including facsimile machine, copier and AV equipment on a first-scheduled, first-served basis in accordance with the policies specified by Lessor; (g) Receptionist Service: Lessor shall provide to Lessee, during normal business hours, telephone answering and message service in accordance with the policies and restrictions specified by Lessor; (h) Laboratory Equipment: Lessor provides on an "as is" basis such laboratory equipment as is currently in the lease space. Lessee assumes responsibility for the maintenance and repair of equipment for the duration of time that this lease remains in effect. 12. UTILITIES AND ENERGY. Lessor shall furnish heat and air-conditioning to the Leased Premises to provide conditions required, in Lessor's judgment, for comfortable occupancy of the Leased premises under normal business operations during the usual seasons thereof. Air-conditioning will be available daily from 8:30 a.m. to 5:00 p.m., weekends and holidays excepted, during the usual season thereof. Whenever heat generating machines or equipment are used in the Leased Premises which affect the air temperature otherwise maintained by the air-conditioning system, Lessor shall have the right to require Lessee to discontinue the use thereof unless Lessee shall agree to reimburse Lessor for its cost of furnishing and installing supplementary air-conditioning equipment for the Leased Premises and to pay for the cost of the operation and maintenance of such 5 6 equipment. Lessee shall give Lessor or its representative prompt written (and, in the case of an emergency, oral) notice of any accidents to, or defects in, any heating, air-conditioning, electrical or water system, pipe, apparatus or equipment in the Building. Lessee shall not use any method of heat or air-conditioning other than that approved by Lessor. Lessor will provide after hours heat and air-conditioning upon Lessee's request. Lessee must request such additional service 24 hours in advance in such manner as is specified by Lessor, and the charges therefore will be on an hourly basis and will be determined by Lessor. 13. RIGHT OF ENTRY. Lessor reserves and shall at all times have the right to re-enter the Leased Premises to inspect the same, to supply any service to be provided by Lessor to Lessee thereunder, to show the Leased Premises to prospective tenants, to post notices of non-responsibility, and to alter, improve or repair the Leased Premises and any portion of the Building without abatement of rent, and may for that purpose, erect, use and maintain scaffolding, pipes, conduits and other necessary structures in and through the Leased Premises where required by the character of their work to be performed, provided entrance to the Leased Premises shall not be denied Lessee, and further provided that the business of Lessee shall not be interfered with unreasonably. Lessee hereby waives any claim for damages for any injury or inconvenience to or interference with Lessee's business, any loss of occupancy or quiet enjoyment of the Leased Premises, and any other loss occasioned thereby. For each of the aforesaid purposes, Lessor shall at all times have and retain a key with which the unlock all the doors in, upon or about the Leased Premises, excluding Lessee's vaults and safes or special security areas (which must be designated in advance by Lessee, and approved in writing by Lessor) and Lessor shall have the right to use any and all means which Lessor may deem necessary or proper to open such doors in an emergency in order to obtain entry to any portion of the Leased Premises. Any entry to the Leased Premises or portions thereof obtained by Lessor by any such means, or otherwise, shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into, or a detainer of, the Leased Premises, or an eviction, actual or constructive, of Lessee from the Leased Premises or any portions thereof. Lessee shall permit Lessor (or its designees) to enter the Leased Premises to erect, use, maintain, replace and repair pipes, cables, conduits, plumbing, vents, and telephone, electric and other wires or the items in, to and through the Leased Premises, as and to the extent that Lessor may now or hereafter deem it necessary or appropriate for the proper operation and maintenance of the Building or any other portion of the Leased Premises. In the event Lessor needs access to any floor duct or duct in the walls or ceiling, Lessor's liability for carpet or wall covering or ceiling tile replacement shall be limited to replacement of the piece removed to gain such access. All such work shall be done, so far as practicable, in such manner as to minimize interference with Lessee's use of the Leased Premises. 6 7 14. MAINTENANCE AND REPAIRS. Lessor shall keep the Leased Premises, common areas in the Building, and parking area and grounds adjacent thereto in good repair and tenantable condition, to the end that all facilities are kept in operative condition. Maintenance shall include, but not be limited to, furnishing and replacing electrical light fixture ballasts, air conditioning and ventilating equipment filter pads, if applicable, and broken glass, pavement repair and snow and ice removal in parking areas; and regular grounds maintenance. Lessor reserves the right to enter and inspect the Leased Premises, at reasonable times, and to fulfill its maintenance obligation and to make necessary repairs or improvements to the Leased Premises and the Building. 15. TAXES AND ASSESSMENTS. Lessor shall, for each year during the term of this Lease Agreement, pay all ad valorem taxes, assessments, and charges levied or assessed upon the Building by any governmental body. 16. FIRE AND OTHER CASUALTY. If at any time during the term of this Lease Agreement the Leased Premises shall be totally destroyed by fire or other casualty; or if the Leased Premises or portion of the common area of Building should be so damaged so that rebuilding cannot reasonably be completed within one hundred twenty (120) working days, then this Lease Agreement may be terminated at the option of Lessee or Lessor, and if the damage or destruction was without fault of Lessee the rent shall be abated for the unexpired portion of the Lease. In the event of partial destruction or damage by fire or other casualty, without fault of Lessee, so as to render the Leased Premises untenantable in whole or in part, there shall be an apportionment of the said rent until damage has been repaired. 17. EMINENT DOMAIN. If the whole of the Leased Premises, or such portion thereof which will make the Leased Premises untenantable for the purpose herein leased, shall be condemned or acquired by any legally constituted authority for any public use or purpose, then this Lease Agreement shall terminate and the rent shall be abated for the unexpired portion of the Lease. 18. INSURANCE. (a) Lessee shall maintain, at its sole cost and expense, (i) general liability insurance during the term of this lease Agreement, in which the limits of public liability shall not be less than One Million Dollars ($1,000,000.00), with limits of at least Fifty Thousand Dollars ($50,000) single limit bodily injury for any number of persons injured or killed in one occurrence and One Hundred Thousand Dollars ($100,000) property damage (or such higher amounts as Lessor shall from time to time determine), and (ii) fire and lightning insurance, extended coverage, vandalism and malicious mischief, theft and mysterious disappearance endorsements, covering the contents of the Leased Premises and all alterations, additions and 7 8 leasehold improvements made by or for Lessee in the amount of their full replacement value. All of such policies shall cover both Lessor and Lessee, as their interest may appear, and all insurers thereon shall agree not to cancel or change same without at least thirty (30) days prior written notice to Lessor. A current certificate of Lessee's insurers evidencing such insurance shall be furnished to Lessor no later than thirty (30) days from the commencement date of this Lease, and shall be updated by Lessee as appropriate t verify uninterrupted coverage at all times during the duration of this Lease Agreement. (b) Lessor shall maintain, at its sole cost and expense, fire and extended coverage insurance as well as vandalism and malicious mischief insurance on the Leased Premises and Building only, and will not be required to protect Lessee's property on the Leased Premises in the event of damage however caused. Lessor shall maintain, at its sole cost and expense, general liability insurance during the term of this lease Agreement, in which the limits of public liability shall not be less than One Million Dollars ($1,000,000.00). (c) Whenever (i) any loss, cost, damage or expense resulting from any peril described in part (a)(ii) of this section is incurred by any party to this Lease in connection with the Leased Premises, any part or contents thereof, and (ii) such party is then covered in whole or in part by insurance with respect to such loss, cost damage or expense, then the party so insured hereby releases the other party from any liability it may have on account of such loss, cost, damage or expense to the extent of any amount recovered by reason of such insurance and waives any right of subrogation which might otherwise exist in or accrue to any person on account thereof, provided that such release of liability and waiver of the right of subrogation shall not be operative in any case where the effect thereof is to invalidate such insurance coverage (or increase the cost thereof, unless the other party reimburses the insured for any cost increase). If Lessee fails to maintain in force any insurance required by this Lease to be carried by it, then for purposes of this waiver of subrogation it shall be deemed to have been fully insured and to have recovered the entire amount of its loss. 19. INDEMNIFICATION. Lessee shall indemnify Lessor against and hold Lessor harmless from any and all liability arising from or out of or in any manner connected with Lessee's use or occupancy of the Leased Premises or the operation of any business thereon, except as to any and all such liability arising from or out of the acts or neglect of Lessor, its employees, agents or representatives acting for or on behalf of Lessor. Lessor shall indemnify Lessee against and hold Lessee harmless from and against any and all liability arising from or out of or in any manner connected with any property owned by Lessor other than the Leased Premises, except as to any and all such liability arising from or out of the acts or 8 9 neglect of Lessee, its employees, agents or representatives acting for or on the behalf of Lessee. 20. ENVIRONMENTAL. (a) Lessee shall not cause or permit any hazardous or toxic substances, materials, or waste ("Hazardous Substances") to be used, generated, stored or disposed of in, on or under, or transported to or from the Leased Premises ("Hazardous Substances Activities") unless (i) such Hazardous Substances are necessary for Lessee's business and (ii) Lessee first obtains the written consent of Lessor. If these conditions are satisfied, Lessee shall at all times and in all respects comply with all local, state, and federal laws, ordinances, regulations and orders relating to Hazardous Substances ("Hazardous Substances Law"). (b) Lessee shall indemnify, defend (by counsel acceptable to Lessor), protect, and hold Lessor harmless from and against forfeitures, losses, costs (including clean-up costs) or expenses (including attorney's fees, consultant's fees and expert's fees) for the death of or injury to any person or damage to any property whatsoever, arising from or caused in whole or in part, directly or indirectly, by (i) the presence in, on, under, or about the Leased Premises of any Hazardous Substances brought on the premises by Lessee; (ii) any discharge or release in or from the Leased Premises of any Hazardous Substances brought on the premises by Lessee; (iii) Lessee's use, storage, transportation, generation, disposal, release or discharge of Hazardous Substances to, in, on, under, about or from the Leased Premises; or (iv) Lessee's failure to comply with any Hazardous Substances Law. Lessee's obligations under this section shall survive the expiration or earlier termination of the term of this Lease. 21. ASSIGNMENT AND SUBLETTING. Lessee shall not assign, pledge, mortgage or otherwise encumber this Lease, or further sublet any part or all of the Leased Premises, by operation of law or otherwise, without the prior written approval by Lessor. Notwithstanding Lessor's consent to any of the foregoing, Lessee shall remain liable to Lessor for the payment of rental then due and thereafter to become due and the performance of all other obligations of Lessee thereunder for the balance of the term hereof. Lessor's consent to any of the foregoing shall not release or waive the prohibition against them thereafter or constitute a consent to any other assignment, pledge, mortgage, encumbrance, transfer or sublease. If this Lease be assigned, or if the Leased Premises or any part thereof be subleased or occupied by anybody other than Lessee, whether with or without Lessor's consent, Lessor may collect from the assignee, sublessee or occupant, any rental or other charges payable of Lessee under this Lease, and apply the amount collected to the rental and other charges here reserved, but such collection by Lessor shall not be deemed acceptance of assignee, sublessee or occupant nor a 9 10 release of Lessee from the performance by Lessor of this Lease. Lessor shall be entitled to all profit received by Lessee as a result of any assignment or subletting of this Lease. If Lessee is a corporation or partnership, then any transfer of this Lease by merger, consolidation, reorganization, liquidation or any change in the ownership of, or power to vote, the majority of its outstanding voting stock or partnership interests shall constitute an assignment of this Lease for the purposes of this section and other relevant sections herein. Lessor may assign this Lease without the consent to Lessee. 22. MISCELLANEOUS POLICIES/PROHIBITIONS. Lessee, its agents, employees and invitees, shall comply with the following terms and conditions of tenancy during the term of this Lease.: (a) Smoking Prohibition: No smoking shall be allowed anywhere within or about the Leased Premises or the Building, except in such areas as may be designated at the sole discretion of Lessor. (b) Proper Use: No animals, birds or other pets, and no bicycles, or other vehicles shall be brought or kept in or about the Building, temporarily or otherwise, except at such areas as Lessor may designate. The Leased Premises shall not be used for cooking, lodging purposes or for the storage of merchandise or other materials. (c) Nuisance Prohibition: Lessee, its agents, employees and invitees, shall at all times refrain from making loud, unseemly or improper noises or sounds or vibrations in the Leased Premises or elsewhere in the Building, and from in any other manner annoying, disturbing, or interfering with other lessees or their employees and invitees. (d) Freight and Package Delivery: Freight, business equipment, furniture, merchandise, and other large or bulky articles shall be delivered to and removed from the Building through such entrance, and in such manner and at such times as may be designated by Lessor. All damage to the Building or exterior property caused by the moving or carrying of articles therein or thereon shall be paid for by Lessee. Lessor shall not be responsible for damage to any property of Lessee delivered to or left in or handled anywhere in the Building by any representative of Lessor delivered to or left in or handled anywhere in the Building by any representative of Lessor as an accommodation to Lessee, Lessor being under no obligations to accept delivery of, or move or handle, any property of Lessee. (e) Recycling: Lessee shall establish and enforce a policy within his own company for the recycling of plain white paper, assorted paper, aluminum cans, magazines and newspapers, utilizing the recycling bins provided by Lessor. 10 11 23. DEFAULT AND REMEDIES. (a) Default of Lessee. Failure to perform any act to be performed by Lessee hereunder or to comply with any condition or covenant contained herein shall be deemed a default by Lessee. In the event of Lessee's default as provided above and the continuance of such a default after ten (10) days written notice is given to Lessee by Lessor, which notice shall state with specificity the nature of the default, such notice not be necessary in the event of a default due to the nonpayment of rent, Lessor may exercise all rights and remedies available to a Lessor under North Carolina law, including without limitation the following: (i) Lessor may terminate this Lease, in which event Lessee shall immediately surrender the Lease Premises to Lessor, and if Lessee fails to surrender the Leased Premises, Lessor may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Leased Premises, by picking or changing locks if necessary, and lock out, expel, or remove Lessee and any other person who may be occupying all or any part of the Leased Premises without being liable for prosecution of any claim for damages. Lessee shall pay Lessor on demand the amount of all loss and damage which Lessor may suffer by reason of the termination of the Lease under this subsection, whether through inability to relet the Leased Premises on satisfactory terms or otherwise. Lessor shall not be considered to have terminated this Lease unless written notice of such termination shall have been delivered to Lessee; (ii) Without terminating this Lease, enter upon and take possession of the Leased Premises, by picking or changing locks if necessary, and lock out, expel or remove Lessee and any other person who may be occupying all or any part of the Leased Premises without being liable for any claim for damages, and relet the Leased Premises on behalf of Lessee and receive directly the rent by reason of the reletting. Lessee shall pay Lessor on demand any deficiency that may arise by reason of any reletting of the Leased Premises; further, Lessee shall reimburse Lessor for any expenditures made by it for remodeling or repairing in order to relet the Leased Premises; or (iii) Without terminating this Lease, enter upon the Leased Premises, by picking or changing locks if necessary, without being liable for prosecution of any claim for damages, and do whatever Lessee is obligated to do under the terms of this Lease, with Lessee remaining liable to Lessor for all amounts payable to Lessor by 11 12 Lessee under this Lease. Lessee shall reimburse Lessor on demand for any expenses which Lessor may incur in effecting compliance with Lessee's obligations under this Lease; further, Lessee agrees that Lessor shall not be liable for any damages resulting to Lessee from effecting compliance with Lessee's obligations under this subsection caused by the negligence of Lessor or otherwise. (d) Default of Lessor. Lessor shall be in default thereunder in the event of the failure of Lessor to correct a condition or to cure a breach of this Lease within a reasonable time of receiving written notice of the condition or breach from Lessee. In the event of a default by Lessor thereunder, Lessor's sole remedy shall be to recover of Lessor any loss or damage suffered by Lessee which are a direct result of such default. (e) Costs and Expenses. Each party hereto shall be liable for and shall pay any and all expenses, including reasonable attorneys fees, incurred by the other party hereto in enforcing its rights thereunder in connection with any default by the other party hereto of the terms, covenants, and conditions contained in this Lease Agreement. 24. WAIVER. No waiver of any covenant or condition or the breach of any covenant or condition of this Lease Agreement shall be taken to constitute a waiver of any subsequent breach of such covenant or condition, nor justify or authorize a non-observance on any other occasion of such covenant or condition, nor shall the acceptance of rent by Lessor at any time when Lessee is in default of any covenant or condition hereof be construed as a waiver of such default or Lessor's right to terminate this Lease Agreement on account of such default. 25. SURRENDER. Upon the expiration or other termination of this Lease Agreement, Lessee shall quit and surrender to Lessor the Leased Premises, together with all other property affixed to the Leased Premises (with the exception of trade fixtures), broom clean, and in good order and condition, ordinary wear and tear and damage by the elements, fire or other unavoidable casualty excepted. Any damage to the Leased Premises by removal of any property of Lessee shall be promptly repaired by Lessee to the satisfaction of Lessor. Lessee shall remove all property of Lessee, and failing to do so, Lessor may cause all of said property to be removed at the expense of Lessee, and Lessee shall pay all costs and expenses thereby incurred. Lessee's obligation to observe or perform this covenant shall survive the expiration or other termination of this Lease Agreement. 26. HOLDOVER. Lessee shall pay Lessor for each day Lessee retains possession of the Leased Premises or any part thereof after termination hereof, by lapse of time or otherwise, at two (2) times the daily fixed rental for the last period prior to the date of such termination, and also pay all damages sustained by Lessor by reason of such retention, or, if Lessor gives written notice to Lessee of Lessor's election 12 13 thereof, such holding over shall constitute an extension of this Lease for a period from month to month, on the terms and conditions of this Lease. This provision shall not be deemed to waive Lessor's rights to re-entry or any other right thereunder or at law. 27. COVENANT OF QUIET ENJOYMENT. Lessor agrees that so long as Lessee shall not be in default as provided herein, Lessee shall have the peaceable and quiet enjoyment of possession of the Leased Premises without any manner of hindrance from Lessor or any persons lawfully claiming under Lessor. 28. LESSEE'S RIGHT TO TERMINATE. Lessor acknowledges that Lessee may terminate this lease at any time with thirty (30) days written notice to Lessor. In the event of termination in this manner, Lessee shall pay Lessor all amounts due for service fees and rental fees through the entire thirty day period regardless of whether or not leased premises are surrendered before the thirty day period expires. 29. LESSOR'S RIGHT TO RENEW OR TERMINATE. This Lease Agreement will automatically renew for six month intervals, at Lessor's sole discretion, for up to a two-year period of total occupancy, at which time this agreement will automatically renew on a month to month basis. In the event that Lessor chooses not to renew, thirty days written notice of nonrenewal will be provided to Lessee by Lessor. All other terms and conditions of this Agreement will remain in full effect at all times during renewal periods. 30. NOTICES. All notices herein provided to be given, or which may be given, by either party to the other, shall be deemed to have been fully given when made in writing and deposited in the United States mail, certified, postage prepaid, and addressed as follows: If to Lessor, to: North Carolina Technological Development Authority, Inc. Post Office Box 13169 Research Triangle Park, NC 27709 If to Lessee, to: Shelmer Blackburn LUNG Rx Post Office Box 13169 Research Triangle Park, NC 27709 Nothing herein contained shall preclude the giving of such notice by personal service. The address to which notices shall be mailed as foresaid to either party may be changed by written notice. 31. ENTIRE AGREEMENT. This Agreement is the sole and total agreement between the parties with respect to the subject matter hereof, and no agreement, understanding, 13 14 or operating procedure shall be binding upon the parties with respect to the Leased Premises unless contained herein, expressly referenced herein, or made applicable by reason of State law, policy, or regulation. IN TESTIMONY WHEREOF this Lease Agreement has been executed by the parties hereto, in duplicate originals, as of the date first above written. LESSOR: North Carolina Technological Development Authority, Inc. By: /s/ John C. Hogan --------------------- John Hogan Facility Manager (Corporate Seal) LESSOR: North Carolina Technological Development Authority, Inc. By: /s/ John Ciannamea ---------------------- John Ciannamea, President LESSEE: LUNG Rx By: /s/ James W. Crow --------------------- President By: /s/ Shelmer Blackburn, Jr., 4 June '97 (Corporate Seal) ---------------------------- Secretary 14 EX-10.8 16 EXCLUSIVE LICENSE AGREEMENT 1 CONFIDENTIAL TREATMENT REQUESTED FOR PORTIONS OF THIS DOCUMENT EXHIBIT 10.8 EXCLUSIVE LICENSE AGREEMENT THIS AGREEMENT effective as of this 3rd day of December, 1996, between LUNG RX, Inc., a corporation organized and existing under the laws of the State of Delaware, with its principal place of business at 100 Europa Drive, Suite 599, Chapel Hill, North Carolina 27514 (hereinafter referred to as "LUNG RX") and Pharmacia & Upjohn Company, a corporation organized and existing under the laws of the State of Delaware, with its principal office at 7000 Portage Road, Kalamazoo, Michigan 49001 (hereinafter referred to as "P&U"). WHEREAS, P&U holds valuable patent rights pertaining to 9-deoxy-13,14-dihydra-2', a-methano-3-oxa-4,5,6-trinor-3,7-(1',3"-interphenylene)-PGF, and the pharmaceutically acceptable salts and esters thereof (hereinafter referred to as "Compound"); WHEREAS, P&U is willing to license Compound to a party wishing to develop it; WHEREAS, LUNG RX has the capability and know-how to develop Compound and is desirous of licensing it from P&U; WHEREAS, P&U (formerly Upjohn) and Glaxo Wellcome (formerly Wellcome Foundation Limited), entered into a Basic Agreement dated December 14, 1976 (hereinafter referred to as the "Basic Agreement") relating to Compound; WHEREAS, P&U and Glaxo Wellcome entered an agreement on 10 February 1993 for the further development of Compound (hereinafter referred to as "Development Agreement"); and WHEREAS, Development Agreement has now terminated and LUNG RX wishes to develop Compound, using data and know-how generated under the Development Agreement. 2 NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: ARTICLE 1. DEFINITIONS As used in this Agreement, the following terms, whether used in the singular or the plural, shall have the following meanings: 1.1 "Affiliate" means any corporation or non-corporate business entity which controls, is controlled by, or is under common control with a party to this Agreement. A corporation or non-corporate business entity shall be regarded as in control of another corporation if it owns or directly or indirectly controls at least forty percent (40%) of the voting stock of the other corporation, or (a) in the absence of the ownership of at least forty percent (40%) of the voting stock of a corporation, or (b) in the case of a non-corporate business entity, if it possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the corporation or non-corporate business entity, as applicable. 1.2 "Agreement" means this exclusive license agreement. 1.3 "Compound" means (a)9-deoxy-13,14-dihydra-2,9a-methano-3-oxa-4, 56-trinor-3,7-(1',3"-interphenylene)-PGF, formerly referred to by the parties as C/A 585 or U-62840, and (b) the pharmaceutically acceptable salts and esters thereof. 1.4 "Dollars" or "$" means United States dollars. 1.5 "Effective Date" means the date set forth at the beginning of this Agreement. 1.6 "Europe" means all countries which are Member States, from time to time of the European Community. 2 3 1.7 "FDA" means the United States Food and Drug Administration. 1.8 "IND" means an Investigational New Drug Application or its equivalent. 1.9 "Know-How" means all data, information, know-how, methods, procedures, and processes and materials, including samples, whether or not patentable, which are possessed by P&U as of the Effective Date of this Agreement and which relates to the manufacture, use or sale of a Compound or a Product, including but not limited to, biological, chemical, biochemical, toxicological, pharmacological, metabolic, formulation, clinical, analytical and stability information and data. 1.10 "Milestone Country" means any one of the following countries: the United States, the United Kingdom, Japan, France, Italy, Spain, Germany or Canada. 1.11 "NDA" means a New Drug Application or its equivalent. 1.12 "Net Sales" with respect to any Product containing a Compound as the sole active ingredient, means the gross sales (i.e., gross invoice prices) of such Product billed by LUNG RX and its sublicensees to Third Party customers, less (i) actual credited allowances to such Third Party customers for spoiled, damaged, outdated and returned Product and for retroactive price reductions, (ii) the amounts of trade and cash discounts not already credited to such Third Party customers at the time of invoice, (iii) all transportation and handling charges, sales taxes, excise taxes, use taxes and import/export duties actually paid, and (iv) all other allowances and adjustments actually credited to customers (including, but not limited to rebates paid to Third Party payors), whether during a specific royalty period or not. 3 4 1.13 "Net Sales" with respect to any Product containing one or more active ingredient(s) in addition to a Compound means gross sales of such Product billed by LUNG RX and its sublicensees to Third Party customers, less the allowances, adjustments, reductions, discounts, taxes, duties, rebates, and other charges referred to in Section 1.12 above credited against sales of such Product multiplied by a fraction the numerator of which shall be the manufacturing or acquisition cost of all the active therapeutic ingredients in such Product, including the Compound, such costs to be determined by LUNG RX, or its sublicensees in accordance with such party's customary accounting procedures. 1.14 "Orphan Indication" means an indication to treat a disease or condition that meets the definition stated in the Orphan Drug Act of 1983, to include primary pulmonary hypertension. 1.15 "Non-Orphan Indication" means any indication to treat a disease or condition which does not meet the definition stated in the Orphan Drug Act of 1983, to perhaps include secondary pulmonary hypertension, peripheral vascular disease, congestive heart failure and chronic obstructive pulmonary disease. 1.16 "Patent Rights" means all United States and foreign patents and patent applications listed in Appendix A attached hereto and made a part hereof and any and all patents that may issue from said patent applications and all other patent applications now or hereafter owned by P&U, alone or jointly with LUNG RX which are filed or are entitled to priority or benefit of an application filed prior to the Effective Date and, which claim inventions relating to the Compound, a Product, the preparation of either, or relating to the Know-How, together with any and all patents that have issued or in the future issue therefrom; including any and all reissues, extensions, substitutions, confirmations, registrations, revalidations, renewals, 4 5 supplementary protection certificates, additions, continuations, continuations-in-part or divisions of or to any of the aforesaid patent applications and patents. 1.17 "Phase III Pivotal Trial" means a clinical study of a Product carried out by or under the control of LUNG RX as a Phase III clinical trial which is designed to demonstrate the efficacy of the chronic administration of such Product as a treatment for any disease or condition. 1.18 "Conclusion of Pivotal Phase III Trial" means sixty (60) days after completion of the treatment of one hundred percent (100%) of the specified number of patients described in the protocol for such study and the analysis of the data collected during the study. 1.19 "Product" means any Compound or any pharmaceutical product containing a Compound as the sole therapeutically active ingredient, or containing, in addition to a Compound, one or more other therapeutically active ingredients. 1.20 "Registration" in relation to any Product means such approvals by government authorities in a country of or community or association of countries included in the Territory (including, where applicable, price approvals) as may be legally required before such Product may be commercialized in such country. 1.21 "Territory" means the entire world. 1.22 "Third Party" means any party other than P&U or LUNG RX, or LUNG RX's Affiliates or sublicensees. 1.23 "Valid Claim" means a claim of an issued and unexpired patent included within the Patent Rights which has not been held unenforceable, unpatentable or invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed with in the time allowed for appeal, and which has not been admitted to be invalid or unenforceable through reissue or disclaimer or otherwise. 5 6 ARTICLE 2. REPRESENTATIONS AND WARRANTIES Each party warrants and represents to the other that it has the full right to enter into this Agreement, and that, to the best of its knowledge, there are no agreements, commitments or obstacles, technical or legal, including patent rights of others which could prevent it from carrying out all of its obligations hereunder, including, in the case of P&U, its grant to LUNG RX of the license described in Section 3.1. P&U warrants to LUNG RX that, to the best of its knowledge, the use of the Know-How and Patent Rights by or for LUNG RX, its Affiliates and sublicensees under the terms and conditions contemplated by this Agreement will not infringe upon any Third Party's know-how, patent or other intellectual property rights in the Territory or constitute misuse of confidential information by LUNG RX, it Affiliates or sublicensees, or Third Parties acting on their behalf. P&U further warrants that Appendix A is a complete list as of the Effective Date of all patents and patent applications included in the Patent Rights. ARTICLE 3. GRANT 3.1 Grant. P&U hereby grants LUNG RX an exclusive license, with a right to sublicense, under the Patent Rights and Know-How to make, have made, use and sell Products in the Territory. 3.2 Covenant Not to Sue. P&U agrees that during the term of this Agreement, it will not assert nor cause to be asserted against LUNG RX or its sublicensees any patent not included in the Patent Rights that is or might be infringed by reason of LUNG RX or its sublicensees' exercise of rights under the license granted to LUNG RX hereunder. 6 7 ARTICLE 4. SALE OF INTERMEDIATES In conducting research on the Compound LUNG RX shall obtain certain intermediates of the Compound and other materials related to the Compound (collectively, the "Intermediates") from Glaxo Wellcome under terms and conditions worked out between them. ARTICLE 5. LICENSE FEE: MILESTONE PAYMENTS 5.1 License Fee. In partial consideration of the rights granted to LUNG RX by P&U under Article 3 hereof, LUNG RX will pay P&U a nonrefundable license fee of [ ] within thirty (30) days after execution of this Agreement by both parties. 5.2 Milestone Payments. (a) LUNG RX will pay P&U a milestone payment ("Milestone Payment") during development of the first Orphan Indication in the amount specified below no later than thirty (30) days after the occurrence of the corresponding event designated below unless LUNG RX shall have given P&U notice of the termination of this Agreement on or before expiration of such thirty (30) days:
Milestone Event Milestone Payment First Orphan Indication [ ] - ----------------------- --------------------- The date the first NDA is filed in a Milestone Country by LUNG RX or its sublicensees for the first Product. [ ] Approval of the first NDA in a Milestone Country. [ ] One year from marketing commencement in a Milestone Country. [ ] Total Milestone Payments _______________ [ ]
7 8 (b) LUNG RX will pay P&U a milestone payment ("Milestone Payment") during development of the first Non-Orphan Indication in the amount specified below no later than thirty (30) days after the occurrence of the corresponding event designated below unless LUNG RX shall have given P&U notice of the termination of this Agreement on or before expiration of such thirty (30) days:
Milestone Event Milestone Payment First Non-Orphan Indication [ ] - --------------------------- --------------------- The date the first IND is filed in a Milestone Country. [ ] The conclusion of a pivotal Phase III clinical trial in a Milestone Country. [ ] The date the first NDA is filed in a Milestone Country by LUNG RX or its sublicensees for the first Product. [ ] Approval of the first NDA in a Milestone Country. [ ] Total Milestone Payments _______________ [ ]
(c) All Milestone Payments payable pursuant to clauses (a) and (b) of Section 5.2 shall be nonrefundable and only the Milestone Payment for a Non-Orphan Indication due upon the first NDA approval in a Milestone Country (i.e., the [ ] Milestone Payment) shall be fully creditable against earned royalties payable hereunder pursuant to Article 6. 8 9 ARTICLE 6. ROYALTIES 6.1 In consideration of the license granted to LUNG RX hereunder, LUNG RX shall pay or cause to be paid to P&U royalty equal to (a) (i) [ ] for Net Sales of the Product in the Territory, less than [ ], and (ii) [ ] of the Net Sales of a Product in a country of the Territory, so long as the manufacture, sale or use of such Product in such country would, but for the license granted herein, infringe a Valid Claim; or (b) [ ] of the Net Sales of Product in a country of the Territory for sales or uses of such Product other than those described in clause (a)(i) or (a)(ii) of this Section 6.1 for a period of ten (10) years commencing on the date of first commercial sale of the first Product sold in a Milestone Country. Notwithstanding the foregoing, with respect to Europe only, LUNG RX's obligation to pay royalties payable on Net Sales of a given Product by virtue of clause (b) of Section 6.1 shall cease as of the date on which the Know-How embodied in such Product becomes published or generally known to the public through no fault on the part of LUNG RX or its Affiliates or sublicensees. 6.2 Accrual of Royalties. No royalty shall be payable on a Product made, sold, or used for tests or development purposes or distributed as samples. No royalties shall be payable on sales among LUNG RX and its sublicensees, but royalties shall be payable on subsequent sales by LUNG RX or its sublicensees to a Third Party. No multiple royalty shall be payable because the manufacture, use or sale of a Product is covered by more than one Valid Claim or is subject to both Know-How and a Valid Claim. 9 10 6.3 Third-Party Royalties. If LUNG RX or its sublicensees determine, at LUNG RX's or its sublicensees' discretion, that it is necessary to pay royalties or other fees to any Third Party in order to market or develop a Product in a given country of the Territory, LUNG RX may deduct such royalties from royalties thereafter due P&U with respect to Net Sales of such Product in such country, but in no event shall the royalties due P&U on such Net Sales of such Product in such country on account of any reduction pursuant to this Section 6.3 be thereby reduced to less than [ ] of Net Sales of Product for which royalties are payable pursuant to clause (a) of Section 6.1 hereof or [ ] of Net Sales of Product for which royalties are payable pursuant to clause (b) of Section 6.1 hereof. 6.4 Compulsory Licenses. Should a compulsory license be granted to a Third Party under the applicable laws of any country in the Territory under the Patent Rights licensed hereunder to LUNG RX, the royalty rate payable hereunder for sales of Products in such country shall be adjusted to match any lower royalty rate granted to such Third Party for such country. 6.5 Commercial Hardship. If in any country of the Territory LUNG RX can demonstrate that for any reason beyond its or its sublicensees' control the royalty payable hereunder by LUNG RX causes or may cause LUNG RX a significant reduction in its or their sales of Product in that country, or otherwise causes or may cause hardship in the promotion or sale of Product in a country, the parties shall meet and in good faith endeavor to agree on a reduction in the royalty rate payable in that country. The negotiated royalty rate will be one which places LUNG RX or its sublicensees in a position to market competitively the Product in such country. 6.6 Reduction in Royalty Due to Invalid Claim. In the event that all applicable claims of a patent included within the Patent Rights under which LUNG RX is selling or actively 10 11 developing a Product shall be held invalid or not infringed by a court of competent jurisdiction in a given country of the Territory, whether or not there is a conflicting decision by another court of competent jurisdiction in such country, LUNG RX may cease payment of royalties which would have otherwise been due hereunder on Net Sales of Product covered by such claims in such country until such judgment shall be finally reversed by an unappealed or unappealable decree of a court of competent jurisdiction of higher dignity in such country; provided, however, that if such judgment is finally reversed by an unappealed or unappealable decree of a court of competent jurisdiction, the former royalty payments shall be resumed and the royalty payments not therefore made shall become due and payable. 6.7 Most Favored Licensee. Should LUNG RX's exclusive license hereunder become nonexclusive in any country of the Territory due to LUNG RX's failure to perform the obligations set forth in Article 9 or for any reason whatsoever and should P&U thereafter grant to a Third Party a license for the Products in such country containing more favorable terms than those granted to LUNG RX, then in such event, P&U promptly shall notify LUNG RX and LUNG RX shall have the benefit of such more favorable terms. ARTICLE 7. ROYALTY REPORTS AND ACCOUNTING 7.1 Royalty Reports; Records. During the term of this Agreement, LUNG RX shall furnish or cause to be furnished to P&U on a semiannual basis a written report or reports covering LUNG RX's fiscal half year (currently ending on or about the last day of February and August; each such fiscal half year being sometimes referred to herein as a royalty period) showing (a) the Net Sales of all Products in the Territory during the reporting period; (b) the royalties, payable in Dollars, which shall have accrued hereunder in respect of such sales with a 11 12 summary computation of such royalties; (c) withholding taxes, if any, required by law to be deducted in respect of such sales; and (d) the exchange rates used in determining the amount of Dollars. With respect to sales of Products invoiced in Dollars, the Net Sales and royalty payable shall be expressed in Dollars. With respect to sales of Products invoiced in a currency other than Dollars, the Net Sales and royalty payable shall be expressed in the domestic currency of the party making the sale together with the Dollar equivalent of the royalty payable, calculated using the simple average of the exchange rates published in the Midwest Edition of The Wall Street Journal. If any sublicensee makes any sales invoiced in a currency other than its domestic currency, the Net Sales shall be converted to its domestic currency in accordance with the sublicense's normal accounting principles. LUNG RX's shall have the option of making any royalty payment directly to P&U. LUNG RX sublicensees or its sublicensee making any royalty payment shall furnish to the other party appropriate evidence of payment of any tax or other amount deducted from any royalty payment. Reports shall be due on the ninetieth (90th) day following the close of each respective fiscal half year. In case no royalty is due for any royalty period hereunder, LUNG RX shall so report. LUNG RX shall keep accurate records in sufficient detail to enable the royalties payable hereunder to be determined. 7.2 Right to Audit. Upon written request of P&U, at P&U's expense and not more than once in each fiscal year nor more than once in respect of any LUNG RX fiscal year, LUNG RX shall permit an independent public accountant, selected by P&U but not regularly employed by P&U and acceptable to LUNG RX, which acceptance shall not be unreasonably refused, to have access during normal business hours to those records of LUNG RX as may be reasonably necessary to verify the accuracy of the royalty reports hereunder in respect of any fiscal year ending not more than twenty-four (24) months prior to the date of such request. LUNG RX shall 12 13 include in each sublicense granted by it pursuant to this Agreement a provision requiring the sublicensee to keep and maintain records of sales made pursuant to such sublicense and to grant access to such records by P&U's independent accountant. Upon the expiration of twenty-four (24) months following the end of any fiscal year, the calculation of royalties payable with respect to such year shall be binding and conclusive upon P&U, unless (a) an audit requested by P&U prior to expiration of such twenty-four (24) month period has not yet been completed, or (b) P&U has notified LUNG RX that such audit has revealed a discrepancy regarding such calculation prior to the expiration of such twenty-four (24) month period; and LUNG RX and its sublicensees shall be released from any liability or accountability with respect to royalties for such fiscal year. The report prepared by such independent accountants, a copy of which promptly shall be provided to LUNG RX, shall disclose only the amount of any underpayment or overpayment of royalties, if any, without disclosure of or reference to supporting documentation. If such independent public accountant's report shows any underpayment of royalties, LUNG RX shall remit or shall cause its sublicensees to remit to LUNG RX the amount of such underpayment within thirty (30) days after P&U's receipt of such report. Any overpayment of royalties shall be creditable against future royalties payable in subsequent royalty periods. In the event this Agreement is terminated or expires before such overpayment is fully credited, P&U shall pay LUNG RX the portion of such overpayment not credited within thirty (30) days after termination or expiration hereof. 7.3 Confidentiality of Records. P&U agrees that all information subject to review under this Article 6 or under any sublicense agreement is confidential and that P&U and its accountant shall retain all such information in confidence. 13 14 ARTICLE 8. ROYALTY AND OTHER PAYMENTS Royalties shown to have accrued by each royalty report provided for under Article 7 of this Agreement shall be due and payable on the date such royalty report is due. Payment of royalties in whole or in part may be made in advance of such due date. ARTICLE 9. DEVELOPMENT AND MARKETING PROGRAM 9.1 Diligence Obligations. Subject to the provisions of Section 9.2 below and in complete fulfillment of its development and marketing obligations hereunder and any such obligations implied by law, LUNG RX will undertake the activities set forth in this Article 9. 9.2 Development Program. LUNG RX shall, at its expense, use its best efforts (a) to conduct a research and development program in the United States relating to the use of a Product for treatment of at least one indication (the "Development Program"); and (b) if, in LUNG RX's opinion, the results of the Development Program so justify, to seek Registration for such Product in the United States. For purposes of this Agreement, "best efforts" shall mean that LUNG RX shall use reasonable efforts consistent with those used by it in its research and development projects with its own products deemed to have comparable commercial potential. The Development Program shall include such product development work as LUNG RX may, in its sole discretion, consider necessary for such Registration. 9.3 Business Judgment. LUNG RX's obligation to conduct a Development Program specified in Section 9.2 above and its obligation to market a Product in a country of the Territory upon obtaining Registration are expressly conditioned on the continuing absence of any event or condition (such as, but not limited to, a regulatory action affecting the Product or the existence of 14 15 an issue relating to the safety or efficacy of the Product, the introduction of a therapy which has superior safety and/or efficacy, or the existence of any circumstances, economic or otherwise, which make the development or marketing of the Product, in LUNG RX's judgment, commercially unrewarding) that would suggest to LUNG RX, in exercising prudent and reasonable business judgment, that development or marketing of the Product should be suspended or stopped altogether, and LUNG RX's obligation to develop or market the Product shall be suspended so long as any such condition or event exists. 9.4 Fulfillment; Conversion. Subject to the provisions of Section 9.3 above, LUNG RX's best efforts obligation set forth in this Article 8 and implied by law shall be deemed to have been fulfilled if LUNG RX (a) files an NDA for registration of a Product in the United States within [ ] after the Effective Date, and (b) commences marketing such Product in the United States within [ ] following approval of an NDA by the FDA. The time periods specified in clause (a) and (b) shall each be subject to up to four (4) six (6) month extensions at LUNG RX's election, by payment to P&U of [ ] for each such extension, in such payments to be made within the first thirty (30) days of each such extension and to be creditable against the payment of royalties by LUNG RX pursuant to Section 6.1 hereof. In the event LUNG RX fails to meet either deadline specified in clause (a) or (b) above, P&U may, upon at least sixty (60) days' prior written notice, convert the exclusive license granted to LUNG RX hereunder to a nonexclusive license, unless within such sixty (60) day period, LUNG RX meets such deadline. The foregoing conversion remedy shall be P&U's sole and exclusive remedy for LUNG RX's failure to meet such deadline. 9.5 Non-United States Development. No later than receipt of approval in the United States of an NDA for a Product or prior thereto in its discretion, LUNG RX shall use reasonable 15 16 efforts (a) to obtain Registration, itself or through a sublicensee, for such Product in such other countries of the Territory as LUNG RX deems appropriate, and (b) upon obtaining Registration for the Product in a particular country, to proceed in due course with the commercial introduction and marketing of such Product in such country. 9.6 Progress Reports. So long as LUNG RX is conducting one or more Development Programs hereunder, LUNG RX will provide annual reports to P&U summarizing in reasonable detail LUNG RX's activities related to the development of a Product and securing of the requisite marketing approvals during the annual period covered by such report. 9.7 Severability of Obligations. The parties agree that LUNG RX's obligations pursuant to this Article 9 shall be severable with regard to obligations within the United States and to obligations in other countries in the Territory. Any remedies available to P&U for LUNG RX's lack of diligence with regard to its obligations within the United States shall be limited to affecting LUNG RX's rights within the United States; any remedies available to P&U for LUNG RX's lack of diligence with regard to obligations in countries other than the United States shall be limited to affecting LUNG RX's rights outside of the United States. ARTICLE 10. PATENT RIGHTS 10.1 Patent Prosecution and Maintenance. P&U shall use its best efforts to prosecute any patent applications within the Patent Rights, to obtain patents thereon and to maintain such patents; provided, however, that P&U shall have the right to discontinue the prosecution of such patent application or to abandon any such patent. If P&U decides to abandon or allow to lapse any patent application or patent within the Patent Rights in any country of the Territory, P&U shall inform LUNG RX at least thirty (30) days prior to such abandonment or lapse and LUNG 16 17 RX shall be given the opportunity to prosecute such patent application and/or maintain such patent at its expense, and shall be entitled to deduct from royalties or any other payments due P&U hereunder, LUNG RX's or its sublicensees' out-of-pocket expenses in prosecuting or maintaining patent protection in such country. 10.2 Status of Patent Rights. Within thirty (30) days after the Effective Date and each anniversary thereof, P&U shall advise LUNG RX as to the current status of any patent applications and patents included within the Patent Rights and, to the extent it has not previously done so, shall provide LUNG RX with relevant documentation relating to such patent applications and patents including, but not limited to, copies thereof. ARTICLE 11. INFRINGEMENT 11.1 Applicability. Except as otherwise provided in Article 17, the provisions of this Article 11 shall govern the parties' rights and obligations, as between themselves, with respect to actions against Third Parties for infringement of patents licensed under this Agreement. 11.2 Third Party Infringement. In the event that any person other than LUNG RX or any of its sublicensees, shall sell a Product and thereby infringe or induce infringement of a Valid Claim with respect to a Product licensed to LUNG RX hereunder and P&U shall fail, within sixty (60) days after P&U otherwise learns of such infringement or after receipt of notice from LUNG RX advising P&U of the infringement of such patent, either (a) to terminate such infringement, or (b) to institute an action to prevent continuation thereof, and thereafter, to prosecute such action diligently, then LUNG RX or an Affiliate or sublicensee of LUNG RX shall have the right to do so at its own expense. P&U will cooperate with LUNG RX or its Affiliates or sublicensees in their respective efforts, including being joined as a party to such 17 18 action, if necessary. Any damages or costs recovered by P&U in connection with any action filed by it hereunder, after first reimbursing P&U for its out-of-pocket costs and expenses of litigation, shall be equally divided by P&U and LUNG RX. Any damages or costs recovered in connection with any action filed by LUNG RX, its Affiliate or sublicensees hereunder shall be retained by LUNG RX or its Affiliates or sublicensees. 11.3 Reduction in Payments Due to Infringement. Notwithstanding the provisions of Article 5, in the event of any such infringement by a Third Party and notice by LUNG RX pursuant to Section 11.2, if P&U shall fail within sixty (60) days either to terminate such infringement or to institute an action to prevent continuation thereof and thereafter to prosecute such action diligently, LUNG RX's royalty obligations hereunder with respect to such country or countries shall be reduced by [ ] until the termination of such infringement in such country or countries. If neither LUNG RX nor any LUNG RX sublicensee is selling any Product in such country or countries, LUNG RX may deduct [ ] of the expenses incurred in instituting and prosecuting such action from other payments due to P&U hereunder. Upon termination of such infringement, LUNG RX's obligations to pay royalties shall resume, but no back royalties shall be payable. ARTICLE 12. CONFIDENTIALITY 12.1 Treatment of Confidential Information. Except as otherwise provided in this Article 12, during the term of this Agreement and for a period of five (5) years thereafter, (a) P&U will retain in confidence and use only for purposes of this Agreement any information, data, and materials supplied by P&U or on behalf of P&U to LUNG RX under this Agreement; and 18 19 (b) LUNG RX will retain in confidence and use only for purposes of this Agreement any information, data, and materials supplied by LUNG RX or on behalf of LUNG RX to P&U under this Agreement. For purposes of this Article 12, all such information and data which a party is obligated to retain in confidence shall be called "Information". All information disclosed in written form will be marked "Confidential" or with a similar designation. 12.2 Right to Disclose. To the extent it is reasonably necessary or appropriate to fulfill its obligations or exercise its rights under this Agreement or any rights which survive termination or expiration hereof, LUNG RX may disclose Information to its Affiliates, sublicensees, consultants, outside contractors, clinical investigators or other Third Parties on condition that such entities or persons agree (a) to keep the information confidential for the same time periods and to the same extent as LUNG RX is required to keep the Information confidential, and (b) to use the Information only for such purposes as LUNG RX is entitled to use the Information. Each party or its Affiliates or sublicensees may disclose such Information to government or other regulatory authorities to the extent that such disclosure (i) is reasonably necessary to obtain patents or authorizations to conduct clinical trials with and to market commercially the Products provided such party is otherwise entitled to engage in such activities under this Agreement; or (ii) is otherwise legally required. 12.3 Release From Restrictions. The foregoing obligations in respect of disclosure and use of Information shall not apply to any part of such Information that (a) is or becomes patented, published or otherwise part of the public domain other than by acts of the party obligated not to disclose such Information (for purposes of this Article 12, the "receiving party") or its Affiliates or sublicensees in contravention of this Agreement; or (b) is disclosed to the receiving party or its 19 20 Affiliates or sublicensees by a Third Party, provided such Information was not obtained by such Third Party directly or indirectly from the other party under this Agreement; or (c) prior to disclosure under this Agreement, was already in the possession of the receiving party or its Affiliates or sublicensees, provided such Information was not obtained, directly or indirectly, from the other party under this Agreement; or (d) results from research and development by the receiving party or its Affiliates or sublicensees independent of disclosures from the other party under this Agreement. 12.4 Confidentiality of Agreement. Except as otherwise required by law or the terms of this Agreement or mutually agreed upon by the parties hereto, each party shall treat as confidential the terms, conditions and existence of this Agreement, except that LUNG RX may disclose such terms and conditions and the existence of this Agreement to its Affiliates and sublicensees. ARTICLE 13. TERM; TERMINATION 13.1 Term; Termination. Unless terminated sooner pursuant to Sections 13.2 or 13.3 below, this Agreement shall become effective as of the Effective Date and shall continue in full force and effect until the expiration of LUNG RX's obligation to pay royalties hereunder. Upon expiration or termination of this Agreement, the rights and obligations of the parties shall cease, except as follows: (a) Upon expiration or termination for any reason, the obligations of confidentiality and use of Information under Article 12 shall survive for the period provided therein; 20 21 (b) Upon expiration or termination for any reason, the right of LUNG RX to continue to use the Know-How (subject to the fulfillment, in the case of termination, of all of its royalty and other related obligations hereunder) to which it is licensed under this Agreement shall survive. (c) Upon termination by LUNG RX pursuant to Section 13.3, all license rights of LUNG RX pursuant to Section 13.3, all license rights of LUNG RX shall survive, subject to the fulfillment of all of its royalty obligations hereunder, if any; and (d) Expiration or termination of this Agreement shall not relieve the parties of any obligation accruing prior to such termination. 13.2 LUNG RX's Right to Terminate. LUNG RX may terminate this Agreement at any time upon at least sixty (60) days' prior written notice to P&U. Such termination may be made with respect to one or more countries of the Territory without affecting the rest of this Agreement or the licenses granted hereunder in any other country of the Territory. 13.3 Bankruptcy; Uncured Breach. Either party may terminate this Agreement upon the occurrence of any of the following: (a) Upon or after the bankruptcy, insolvency, dissolution or wind up of the other party (other than dissolution or winding up for the purposes of reconstruction or amalgamation); or (b) Upon or after the breach of any material provision of this Agreement by the other party if the breach is not cured within ninety (90) days after written notice thereof to the party in default. 21 22 ARTICLE 14. TRANSFER OF KNOW-HOW Within sixty (60) days following the Effective Date and as far as it has not already done so, P&U will supply LUNG RX with all available Know-How it possesses. In addition, P&U agrees to provide such technical assistance as LUNG RX may reasonably request to enable it to utilize the Know-How; provided, however, that it is understood that LUNG RX will obtain the majority of the Know-How from Glaxo Wellcome which Glaxo Wellcome obtained or generated under the 1993 Development Agreement. P&U will also grant LUNG RX a right of reference under its Drug Master File No. 6804 at the U.S. FDA for Compound. ARTICLE 15. ASSIGNMENT This Agreement may not be assigned or otherwise transferred by LUNG RX without the written consent of P&U; provided, however, that LUNG RX may, without such consent, assign this Agreement in connection with the transfer or sale of all or substantially all of its business to which this Agreement pertains or in the event of its merger or consolidation with another company. Any purported assignment in violation of the preceding sentence shall be void. Any permitted assignee shall assume all obligations of its assignor under this Agreement. No assignment shall relieve either party of responsibility for the performance of any accrued obligation which such party then has hereunder. ARTICLE 16. NOTIFICATION AND AUTHORIZATION UNDER DRUG COMPETTION AND PATENT TERM RESTORATION ACT 16.1 Notices Relating to the Act. P&U shall notify LUNG RX of (a) the issuance of each U.S. patent included within the Patent Rights, giving the date of issue and patent number for 22 23 each such patent, and (b) each notice pertaining to any patent included within the Patent Rights which P&U receives as patent owner pursuant to the Drug Price Competition and Patent Term Restoration Act of 1984 (hereinafter called the "Act"), including, but not necessarily limited to, notices pursuant to ss.ss. 101 and 103 of the Act from persons who have filed an abbreviated NDA ("ANDA") or a "paper" NDA. Such notices shall be given promptly, but in any event within ten (10) days of each such patent's date of issue or receipt of each such notice pursuant to the Act, whichever is applicable. 16.2 Authorizations Relating to Patent Term Extension. P&U hereby authorized LUNG RX (a) to include in any NDA for a Product, as LUNG RX may deem appropriate under the Act, a list of patents included within the Patent Rights that relate to such Product and such other information as LUNG RX in its reasonable discretion believe is appropriate to be filed pursuant to the Act; (b) notwithstanding the provisions of Article 10, to commence suit for any infringement of the Patent Rights under ss. 271(e)(2) of Title 35 of the United States Code occasioned by the submission by a Third Party of an Abbreviated New Drug Application ("ANDA") or a paper NDA for a Product pursuant to ss.ss. 101 or 103 of the Act; and (c) in consultation with P&U, to exercise any rights that may be exercisable by P&U as patent owner under the Act to apply for an extension of the term of any patent included within the Patent Rights, as LUNG RX in its discretion deems appropriate. In the event that applicable law in any other country of or community or associations of countries in the Territory hereafter provides for the extension of the term of any patent included in the Patent Rights in such country; upon request by LUNG RX, P&U shall obtain such extension or, in lieu thereof, authorize LUNG RX, or if requested by LUNG RX, its sublicensees to apply for such extension, in consultation with P&U. P&U agrees to cooperate with LUNG RX or its sublicensees, as applicable, in the exercise 23 24 of the authorization granted herein or which may be granted pursuant to this Section 16.2 and will execute such documents and take such additional action as LUNG RX may reasonably request in connection therewith, including, if necessary, permitting itself to be joined as a proper party in any suit for infringement brought by LUNG RX under clause (b) above. Counsel shall be selected by LUNG RX. In the event, LUNG RX decides not to commence suit for infringement under clause (b) above, LUNG RX will notify P&U of its decision within thirty (30) days so that P&U may institute such litigation itself, if it wishes, at its own cost and expense. ARTICLE 17. REGISTRATION OF LICENSE LUNG RX may, at its expense, register the license granted under this Agreement in any country of, or community or association of countries in, the Territory where the use, sale or manufacture of a Product in such country would be covered by a Valid Claim. Upon request by LUNG RX, P&U agrees promptly to execute any "short form" licenses in a form submitted to it by LUNG RX from time to time in order to effect the foregoing registration in such country. ARTICLE 18. FORCE MAJEURE Neither party shall be held liable or responsible to the other party nor be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or performing any term of this Agreement when such failure or delay is caused by or results from fire, floods, embargoes, government regulations, prohibitions or interventions, war, acts of war (whether war be declared or not), insurrections, riots, civil commotions, strikes, lockouts, acts of God or any other cause beyond the reasonable control of the affected party. 24 25 ARTICLE 19. SEVERABILITY Both parties hereby expressly agree and contract that it is the intention of neither party to violate any public policy, statutory or common laws, rules, regulations, treaty or decision of any government agency or executive body thereof of any country or community or association of countries, that if any word, sentence, paragraph, clause or combination thereof in this Agreement is found by a court or executive body with judicial powers having jurisdiction over this Agreement or any of the parties hereto in a final unappealed order, to be in violation of any such provisions in any country or community or association of countries, such words, sentences, paragraphs, clauses or combination shall be inoperative in such country or community or association of countries and the remainder of this Agreement shall remain binding upon the parties hereto. ARTICLE 20. NOTICES Any notice required or permitted to be given hereunder shall be in writing and shall be deemed to have been properly given if delivered in person, or if mailed by registered or certified mail (return receipt requested), postage prepaid, or by telex or facsimile (and promptly confirmed by such registered or certified mail), to the addresses given below or such other addresses as may be designated in writing by the parties from time to time during the term of this Agreement. Any notice sent by registered or certified mail as aforesaid shall be deemed to have been given when mailed. 25 26 In the case of P&U: Pharmacia & P&U Company 7000 Portage Road Kalamazoo, Michigan 49001 Attention: Business Development Facsimile No.: (616) 833-4775 In the case of LUNG RX: Lung RX 100 Europa Drive Suite 599 Chapel Hill, North Carolina 27514 Attention: Mr. James W. Crow, C.E.O. Facsimile No.: (919) 942-3421 ARTICLE 21. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of Michigan, exclusive of its choice-of-law rules. ARTICLE 22. ENTIRE AGREEMENT; MODIFICATION This Agreement contains the entire understanding of the parties with respect to the subject matter hereof. All express or implied agreements and understandings, either oral or written, heretofore made are expressly merged in and made a part of this Agreement. The parties hereto may alter any of the provisions of this Agreement, but only by a written instrument duly executed by both parties hereto. 26 27 ARTICLE 23. WAIVER The failure of a party to enforce at any time for any period any of the provisions hereof shall not be construed as a waiver of such provisions or of the rights of such party thereafter to enforce each such provisions. ARTICLE 24. COUNTERPARTS This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same document. ARTICLE 25. CAPTIONS The captions to the several Articles and Sections hereof are not a part of this Agreement, but are merely guides or labels to assist in locating and reading the several Articles and Sections hereof. IN WITNESS HEREOF, the parties have executed this Agreement as of the Effective Date. PHARMACIA & UPJON COMPANY LUNG RX, INC. /s/ Douglas R. Morton /s/ James W. Crow - ------------------------------ ------------------------------ Douglas R. Morton James W. Crow 11/25/96 3 December `96 - ------------------------------ ------------------------------ Vice President, Research President and C.E.O. 27 EX-10.9 17 ASSIGNMENT AGREEMENT DATED AS OF JANUARY 31, 1997 1 CONFIDENTIAL TREATMENT REQUESTED FOR PORTIONS OF THIS DOCUMENT EXHIBIT 10.9 ASSIGNMENT AGREEMENT THIS ASSIGNMENT AGREEMENT is effective as of the 31st day of January, 1997, by and among The Wellcome Foundation Ltd. Of Glaxo Wellcome House, Berkeley Avenue, Greenford, Middlesex, UB6 ONN ("WFL"), and Glaxo Wellcome Inc., having an address at Five Moore Drive, Research Triangle Park, North Carolina 27709 ("GWUSA" and together with WFL, "GW') and Lung Rx, Inc., having an address at 100 Europa Drive, Suite 599, Chapel Hill, North Carolina 27154 ("Lung Rx"). WHEREAS, GW owns all right, title and interest in certain patent rights and has the right to use certain know-how relating to the Compound (as herein defined) in the Territory (as herein defined); WHEREAS, Lung Rx desires to obtain an assignment of such patent rights and know-how in order to make, have made, use and sell products containing the Compound; and WHEREAS, GW is willing to make such an assignment to Lung Rx; NOW, THEREFORE, in consideration of the foregoing and the mutual promises and covenants set forth herein, the parties hereto mutually agree as follows: ARTICLE 1 - DEFINITIONS As used in this Agreement, the following terms, whether used in the singular or the plural, shall have the following meanings: 1.1 "Affiliate" means any corporation or non-corporate entity which controls, is controlled by, or is under common control with a party to this Agreement. A corporation or non-corporate entity shall be regarded as in control of another corporation if it owns or directly or indirectly controls at least forty percent (40%) of the voting stock of the other corporation, or (i) in the absence of the ownership of at least forty percent (40%) of the voting stock of a corporation or (ii) in the case of a non-corporate entity, if it possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation or non-corporate entity, as applicable. 1.2 "Agreement" means this Assignment Agreement. 1.3 "Compound" means (a) 9-deoxy-13, 14-dihydra-2', 9a-methano-3-oxa- 4,5,6.4 trinor-3, 7-(1',3'-interphenylene)-PGF, referred to by the parties as 15AU81, and (b) the pharmaceutically acceptable salts and esters thereof. 1.4 "Dollars" or "S" means United States dollars. 1.5 "Effective Date" means the date appearing at the beginning of this Agreement. 2 1.6 "FDA" means the United States Food and Drug Administration or any successor entity. 1.7 "IND" means an Investigational New Drug application or any equivalent successor application. 1.8 "Know-How" means all technical information and data, whether or not patentable, which is owned by GW or which GW has the right to use and assign as of the Effective Date and which relates solely to the Compound, the IND filed with respect thereto, and its use as described in the claims of the patents and patent applications listed in Appendix I attached hereto and made a part hereof or any other patents or patent applications comprising the Patent Rights, it being understood that a substantial portion of the foregoing has been disclosed, by GW to Lung Rx prior to the Effective Date. Know-How shall include, without limitation, the information and data described in Appendix II attached hereto and made a part hereof. 1.9 "NDA" means a New Drug Application or any equivalent successor application. 1.10 "Net Sales," with respect to any Product containing the Compound as the sole active ingredient, means the gross sales (i.e., gross invoice prices) of such Product billed by Lung Rx and its licensees to Third Party customers, less: (i) actual credited allowances to such Third Party customers for spoiled, damaged, outdated and returned Product and for retroactive price reductions in lieu of returned Product; (ii) customary trade and cash discounts, to the extent such trade and cash discounts are not deducted by Lung Rx or its licensees at the time of invoice in order to arrive at the gross invoice prices; (iii) all transportation and handling charges, sates taxes, excise taxes, use taxes or import/export duties actually paid; and (iv) all other invoiced allowances and adjustments actually credited to customers including, but not limited to, rebates paid to Third Party payors, whether during the specific royalty period or not. 1.11 "Net Sales," with respect to any Product containing one or more active ingredients in addition to the Compound, means the gross sales of such Product billed by Lung Rx and its licensees to Third Party customers, less all the allowances, adjustments, reductions, discounts, taxes, duties and other charges referred to in Section 1.10, multiplied by a fraction, the numerator of which shall be the manufacturing cost or acquisition cost, as applicable, of the Compound included in such Product and the denominator of which shall be the manufacturing cost or acquisition cost, as applicable, of all active ingredients in such Product, including the Compound. In no event, however, shall the foregoing fraction be less than one-half (1/2) 1.12 "Patent Rights" means all domestic and foreign patents and patent applications listed in Appendix I attached hereto and made a part hereof, and any extensions, continuations, continuations-in-part, divisions, substitutions, foreign equivalents, renewals or reissues thereof. 1.13 "Product" means any pharmaceutical product containing the Compound as an active ingredient. 2 3 1.14 "Registration" means, in relation to any Product, such approvals by government authorities as may be legally required before such Product may be commercialized in the Territory. 1.15 "Territory" means the entire world. 1.16 "Third Party" means any party other than Lung Rx, GW, their respective Affiliates and Lung Rx' licensees. 1.17 "Valid Claim" means a claim of an issued and unexpired patent included within the Patent Rights which has not been held unenforceable, unpatentable or invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been admitted to be invalid or unenforceable through reissue, disclaimer or otherwise. ARTICLE 2 - WARRANTIES 2.1 Warranties by GW - GW represents and warrants to Lung Rx that: (i) GW is the sole owner of the Patent Rights and has the right and authority to use the Know-How and to assign the Patent Rights and the Know-How; and (ii) As of the Effective Date, GW is not aware of any action or claim of infringement brought by a Third Party under any Third Party patent, trade secret or other Third Party proprietary right in respect of GW's exploitation of the Patent Rights or use of the Know-How. 2.2 Warranties of Each Party - Each party hereto represents and warrants to the other that: (i) it is free to enter into this Agreement and to carry out its obligations hereunder, including, in the case of GW, the right to make the assignment made by it pursuant to Article 3 hereof (ii) this Agreement constitutes its legal, valid and binding obligation; and (iii) execution, delivery and performance of this Agreement will not constitute a violation or breach of any agreement or contract to which it is a party or by which it is bound or the terms of any judicial or administrative decree or order to which it is subject. 2.3 Disclaimers by GW - Other than the warranties set forth in Sections 2.1 and 2.2, GW makes no representation and extends no warranties whatsoever, either express or implied: (i) that the Patent Rights and Know-How may be utilized to create any Product; or (ii) that a Product manufactured, used, sold or otherwise marketed under the Patent Rights and Know-How, or a method provided or practiced in accordance with the Patent Rights and Know-How, shall be free from infringement of any United States or other patent, whether presently issued or 3 4 which may issue in the future. GW makes no representations and extends no warranties, either express or implied, that any Know-How comprises inventions which will mature into issued United States or foreign patents having valid and enforceable claims. Lung Rx acknowledges that GW has not designed any Product and that, as between Lung Rx and GW, Lung Rx shall bear all responsibility for the design, development, manufacture and marketing of Products. Lung Rx further acknowledges that GW has made no warranties or representations to Lung Rx regarding the usefulness or confidential nature of the Know-How. ARTICLE 3 - ASSIGNMENT; LICENSES 3.1 Lung Rx Assignment - In consideration of One Dollar ($1.00), the receipt of which is hereby acknowledged, and subject to Sections 3.3 and 3.4 hereof, GW hereby assigns to Lung Rx all right, title and interest in and to the Patent Rights and the Know-How. GW will, where appropriate, execute all necessary documents to effect such assignment and to perfect relevant patent rights upon the reasonable written request of Lung Rx. 3.2 Lung Rx License - GW hereby grants Lung Rx a non-exclusive, royalty-free license in the Territory to any GW patents not included in the Patent Rights, the infringement of which is necessary to carry out the making, using, selling or importation of Product, the sale of which Product is subject to the payment of royalties under Section 4.1 hereof. 3.3 Limitation on Assignment - Except as provided in Section 3.2, the assignment made pursuant to Section 3.1 shall not include rights under any patents, patent applications, know-how or other intellectual property of GW or its Affiliates other than the Patent Rights and Know-How. 3.4 Reservation of Rights - GW hereby reserves the perpetual, royalty-free right to practice the Patent Rights and to use the Know-How for research and development purposes only. ARTICLE 4 - ROYALTIES 4.1 Earned Royalties (i) Subject to the terms hereof, Lung Rx shall pay GW, an Net Sales of Products in the Territory in excess of [ ] per annum (the "Threshold Amount"), a royalty often [ ] on Net Sales by Lung Rx, its Affiliates and Third Party licensees in the Territory. Royalties shall be paid in respect of Net Sales in the Territory in excess of the Threshold Amount for a period of ten years from the date of first commercial sale of Product in the Territory. Thereafter royalties shall be paid in respect of a given Product only so long as the manufacture, sale or use of such Product in the Territory would, but for the assignment made herein, infringe a Valid Claim or any period of orphan drug or other exclusivity granted by the FDA or other government agency with respect to any Product ("Exclusivity Period"). Notwithstanding the foregoing, in the event the Patent Rights and any Exclusivity Periods expire prior to the end of 4 5 such ten (10) year period, the royalty rate set forth above shall be reduced to [ ] or the remainder of such ten (10) year period. (ii) If Lung Rx grants any licenses hereunder, then in addition to the royalties payable pursuant to Subsection 4.1(i), Lung Rx shall pay GW [ ] of all consideration payable by each licensee, within thirty (30) days after receipt by Lung Rx of payment from such licensee. 4.2 Accrual of Royalties - No royalty shall be payable on a Product made, sold, or used for tests or development purposes or distributed as samples, provided such samples are not furnished in consideration of monies paid to Lung Rx. No royalties shall be payable on sales among Lung Rx and its licensees, but royalties shall be payable on the initial subsequent sale by Lung Rx or its licensees to a Third Party. No multiple royalty shall be payable because the manufacture, use or sale of a Product is covered by more than one Valid Claim or is subject to both Know-How and a Valid Claim. 4.3 Third Party Royalties - If Lung Rx or its licensees determine, after discussion with GW, that it or they are required to pay royalties to any Third Party because the manufacture, use or sale of the Compound infringes any patent or other intellectual property rights of such Third Party in the Territory, Lung Rx or its licensees may deduct from royalties thereafter due to GW with respect to Net Sales of the Product containing such Compound up to [ ] of the royalties or such other fees paid to such Third Party, subject to the limitation in the immediately following sentence. In no event shall the royalties due to GW on such Net Sales of such Product on account of any reduction pursuant to this Section 4.3 be thereby reduced by more than [ ] of the royalties which otherwise would have been due hereunder on such Net Sales of such Product in the Territory. 4.4 Limitation on Royalty Reductions - After Net Sales exceed the Threshold Amount, in no event shall any reductions in royalties afforded by any provision of this Agreement, when taken alone or in combination, result in GW's receiving less than [ ] of Net Sales in any calendar year. ARTICLE 5 - ROYALTY REPORTS AND ACCOUNTING 5.1 Royalty Reports: Records - Lung Rx shall notify GW promptly when Lung Rx or its licensees commence selling any Products in the Territory. Within sixty (60) days after the end of the calendar quarter in which Lung Rx or its licensees commence selling any Product and within sixty (60) days after the end of each calendar quarter thereafter, Lung Rx shall furnish to GW a written report or reports covering each calendar quarter (a "royalty period") showing (i) the Net Sales of all Products in the Territory during the royalty period; (ii) the royalties, payable in Dollars, which shall have accrued hereunder in respect of such sales; (iii) withholding taxes, if any required by law to be deducted in respect of such sales; and (iv) the exchange rates, if any, used in determining the amount of Dollars. With respect to sales of Products invoiced in Dollars, the Net Sales and royalties payable shall be expressed in Dollars With respect to sales of Products invoiced in a currency other than Dollars, the Net Sales and royalties payable shall be 5 6 expressed in the domestic currency of the party making the sale together with the Dollar equivalent of the royalty payable, calculated using the simple average of the exchange rates published in the New York Times on the last day of each month during the royalty period. If any licensee makes any sales invoiced in a currency other than Dollars, the Net Sales shall be converted to Dollars in accordance with the licensee's normal accounting principles. Lung Rx shall furnish to GW appropriate evidence of payment of any tax or other amount required by applicable laws or regulations to be deducted from any royalty payment. Lung Rx shall keep accurate records in sufficient detail to enable the royalties payable hereunder to be determined. Lung Rx shall be responsible for all royalties and late payments that are due to GW but have not been paid by Lung Rx' licensees. 5.2 Right to Audit - Upon the written request of GW, at least ten (10) business days in advance, at GW's expense and not more than once in each calendar year, Lung Rx shall permit an independent public accountant, selected by GW, and acceptable to Lung Rx, which acceptance shall not be unreasonably refused, to have access during normal business hours to those records of Lung Rx as may be reasonably necessary to verify the accuracy of the royalty reports furnished by Lung Rx to GW pursuant to Section 5.1 of this Agreement in respect of any calendar year ending not more than thirty-six (36) months prior to the date of such request. Lung Rx shall include in each license granted by it pursuant to this Agreement a provision requiring the licensee to keep and maintain records of sales made pursuant to such license and to grant access to such records by GW's independent public accountant. If such independent public accountant's report shows any underpayment of royalties, within thirty (30) days after Lung Rx' receipt of such report, Lung Rx shall remit to GW (i) the amount of such underpayment and (ii) if such underpayment exceeds five percent (5%) of the total royalties owed to GW for the calendar year then being audited, the reasonable and necessary fees and expenses of such independent public accountant performing the audit, subject to reasonable substantiation thereof. Any overpayment of royalties shall be fully creditable against future royalties payable to GW in subsequent royalty periods. 5.3 Confidentiality of Records - GW agrees that all information subject to review under this Article 5 or under any license agreement granted pursuant to this Agreement is confidential and that it and its accountant shall retain all such information in confidence. ARTICLE 6 - ROYALTY AND OTHER PAYMENTS 6.1 Payment Due Dates - Royalties shown to have accrued in each royalty report provided for under Article 5 of this Agreement shall be due and payable on the date such royalty report is due. Payment of royalties in whole or in part may be made in advance of such due date. 6.2 Interest - Royalties and other payments required to be paid by Lung Rx pursuant to this Agreement shall, if overdue, bear interest at a per annum rate of twelve percent (12%) or the maximum rate allowed by raw, whichever is less, until paid. The payment of such interest shall not preclude GW from exercising any other rights it may have because any payment is overdue. 6 7 ARTICLE 7 - DEVELOPMENT AND COMMERCIALIZATION PROGRAM 7.1 GW Right of First Refusal - Notwithstanding anything in this Agreement to the contrary, in the event that Lung Rx shall decide to license any aspect of the commercialization of any Product anywhere in the Territory, or be solicited by a Third Party to grant such a license, Lung Rx shall give GW an exclusive option and right of first refusal to negotiate a license agreement covering such matters with Lung Rx. GW shall have sixty (60) days from receipt of written notice from Lung Rx of its intent to enter into a license agreement, which such notice shall describe in reasonable detail the material terms of any proposed license to a Third Party, to deliver its decision as to whether it shall exercise such option and right. Upon Lung Rx' receipt of written notice from GW of its desire to enter into negotiations, the parties shall have one hundred twenty (120) days, or such longer period as the parties shall mutually agree (the "Negotiation Period"), to negotiate in good faith and enter into a definitive license agreement. The terms of such agreement shall be commercially reasonable under the circumstances; then in existence. In the event that GW shall decline to exercise its option or right hereunder or the: parties fail in good faith enter into a license agreement prior to the expiration of the Negotiation Period. Lung Rx shall be free to enter into a license agreement covering the same matters with a Third Party, provided, however that the material terms of any such agreement shall no more favorable than the terms offered to GW. 7.2 Progress Reports - Until commercial introduction of the first Product. Lung Rx shall provide a semiannual report to GWUSA summarizing Lung Rx' activities related to the development of the Products and securing of the requisite registrations during .the semiannual period covered by such report. ARTICLE 8 - PATENT RIGHTS 8.1 Patent Prosecution Costs - GW shall have no responsibility to maintain or take any other action concerning the Patent Rights. Lung Rx expressly acknowledges and agrees that it shall be solely responsible for such activities. 8.2 Patent Prosecution Costs - Lung Rx shall reimburse GW for the reasonable out-of-pocket expenses incurred by GW to prosecute or maintain any of the Patent Rights during the period this Agreement was under negotiation by the parties. ARTICLE 9 - INDEMNIFICATION: INSURANCE 9.1 Indemnification by Lung Rx - Subject to GW's compliance with its obligations set forth in Section 9.3 below, Lung Rx agrees to indemnify and hold GW, its Affiliates, and its and their directors, officers, employees and agents harmless from and against any liabilities or damages or expenses in connection therewith (including reasonable attorneys' fees and costs and other expenses of litigation) resulting from (i) claims arising out of Lung Rx1 or its licensees' testing, use manufacture or sale of the Products; (ii) the breach by Lung Rx of any of its warranties. representations or covenants contained in this Agreement; or (iii) the successful enforcement (i.e., a judgment issued by a court of competent jurisdiction against Lung Rx, 7 8 unappealable or unappealed by Lung Rx within the time allowed therefor) by GW of its indemnification rights set forth in clauses (i) and (ii) of this Section 9.1. 9.2 Indemnification by GW - Subject to Lung Rx' compliance with its obligations set forth in Section 9.3 below, GW agrees to indemnify and hold Lung Rx, its Affiliates and its and their directors, officers, employees and agents harmless from and against any liability, or damages or expenses in connection therewith (including reasonable attorneys' foes and costs and other expenses of litigation) resulting from (i) the breach by GW of any of its representations, warranties or covenants contained in this Agreement; or (ii.) the successful enforcement (i.e., a judgment issued by a court of competent jurisdiction against GW, unappealable or unappealed by GW within the time allowed therefor) by Lung Rx of its indemnification rights set forth in clause (i) of this Section 9.2. 9.3 Indemnification Procedures - A party (the "indemnitee") which intends to claim indemnification under this Article 9 shall promptly notify the other party (the "indemnitor) in writing of any action, claim or liability in respect of which the indemnitee or any of its Affiliates, directors, officers, employees or agents intend to claim such indemnification. The indemnitee shall permit, and shall cause its Affiliates, directors, officers, employees and agents to permit, the indemnitor, at its discretion, to settle any such action; claim or liability and. agrees to the complete control of such defense or settlement by the indemnitor provided, however, that such settlement does not adversely affect the indemnitee's rights hereunder or impose any obligations on the indemnitee in addition to those set forth herein in order for it to exercise such rights. No such action, claim or liability shall be settled without the prior written consent of the indemnitor and the indemnitor shall not be responsible for any legal fees or other costs incurred other than as provided herein. The indemnitee and its Affiliates, directors, officers, employees and agents shall cooperate fully with the indemnitor and its legal representatives in the investigation and defense of any action, claim or liability covered by this indemnification. The indemnitee shall have the right, but not the obligation, to be represented by counsel of its own selection and expense. 9.4 Insurance (i) Lung Rx shall take out and maintain, at its own expense, during the term of this Agreement, and for a minimum of two (2) years following the expiration, termination or cancellation of this Agreement, product liability coverage from an insurance company or companies reasonably satisfactory to GW. During the clinical development of Products, such coverage shall be at least $2,000,000 per occurrence. Promptly upon commercial introduction of the initial Product, the parties shall negotiate in good faith an increase in such coverage. The insurance policy relating to such coverage shall name GW as additional insured by way of endorsement or otherwise as its interests may appear. (ii) Within thirty (30) days after the Effective Date, Lung Rx shall cause to be delivered to GW an insurance certificate evidencing the insurance coverage required by Subsection 9.4(i). Such insurance certificate shall name GW as additional insured as its interests 8 9 may appear and shall include a certification that such insurance coverage includes contractual coverage for Lung Rx' liability under this Agreement. ARTICLE 10 - CONFIDENTIALITY 10.1 Treatment of Confidential Information - Except as otherwise provided in Article 10, during the term of this Agreement and for a period of five (5) years thereafter: (i) Lung Rx will retain in confidence and use only for purposes of this Agreement any information and data supplied GW to Lung Rx under this Agreement; and (ii) GW wiIl retain in confidence and use only for purposes Agreement :any information and data supplied by or on for purposes of this by or on behalf of Lung Rx to GW under this Agreement. For purposes of this Agreement, all such information and data which a party is obligated to retain in confidence shall be called "information." 10.2 Right to Disclose - To the extent it is seasonably necessary or appropriate to fulfill its obligations or exercise its rights under this Agreement or any rights which survive termination or expiration hereof, a party may disclose Information to its Affiliates, licensees, consultants, outside contractors and clinical investigators on condition that such entities or persons agree (I) to keep the Information confidential for at least the same time periods and to the same extent as each party is required to keep the Information confidential and (ii) to use the Information only for such purposes as such party is entitled to use the Information. Each party or its Affiliates or, if applicable, the licensees may disclose such Information to government or other regulatory authorities to the extent that such disclosure 9a) is reasonably necessary to obtain patents or authorizations, to conduct clinical trials and to market commercially the Product, provided such party is otherwise entitled to engage in such activities under this Agreement or (b) is otherwise required by applicable laws or regulations. 10.3 Release From Restrictions - The obligation not to disclose Information shall not apply to any part of such Information that (i) is or becomes patented, published or otherwise part of the public domain other than by acts of the party obligated not to disclose such Information (for purposes of this Article 10, the "receiving party") or its Affiliates or licensees in contravention of this Agreement; or (ii) is disclosed to the receiving party or its Affiliates or licensees by a Third Party, provided such Information was not obtained by such Third Party directly or indirectly from the other party under this Agreement; or (iii) prior to disclosure under this Agreement, was already in the possession of the receiving party or its Affiliates or licensees, provided such Information was not obtained, directly or indirectly, from the other party under this Agreement; or (iv) results from research and development by the receiving party or its Affiliates or licensees independent of disclosures from the other party under this Agreement. 9 10 10.4 Confidentiality of Agreement - Except as otherwise required by applicable jaw-or regulation or permitted by the terms of this Agreement or otherwise mutually agreed upon by the-parties hereto, each party shall treat as confidential the terms, conditions and existence of this Agreement. Notwithstanding the foregoing, a party may disclose such terms, conditions and existence to an Affiliate or, in the case of Lung Rx, a licensee, which agrees to be bound by the terms of this Section 10.4 to the same extent as such party. Notwithstanding the foregoing, Lung Rx may disclose the terms of this Agreement for the purpose of obtaining debt and/or equity financing. 10.5 Publications.- Except for such disclosure as is deemed necessary, in the reasonable judgment of the responsible party, to comply with applicable law or regulation, no announcement, news release, public statement, publication or other public presentation relating to the existence of this Agreement, the subject matter herein, or either party's performance hereunder (collectively, a "Publication") will be made without the other party's prior approval. Each party agrees to submit each Publication it proposes to make to the other party for purposes of such other party's review and comment or, if required pursuant to this Subsection 10.5, approval. Each party further agrees to respond as promptly as reasonably practicable but, in any event, within ten (10) days following receipt from the other party of such proposed Publication, and likewise agrees that it will not unreasonably withhold approval of such Publication. Lung Rx will develop, subject to the reasonable prior approval of GW, publication and communication literature which credits GW as the pharmaceutical company currently marketing FLOLAN(R) and dedicated to the discovery, development and marketing of additional lifesaving medicines for the treatment of PPH patients. ARTICLE 11 - TERM; TERMINATION This Agreement shall become effective as of the-Effective Date and shall continue in-full force and-effect until the expiration of Lung Rx' obligation to pay royalties hereunder. Upon expiration or-termination of this Agreement with respect to all countries within the Territory, the rights and obligations of the parties shall cease, except as follows: (i) the rights and obligations of the parties under Article 9 shall survive termination or expiration; (ii) upon expiration or termination for any reason, the obligations of confidentiality and use of Information under Article 10 shall survive for the period-provided therein; and (iii) expiration or termination of this Agreement shah not relieve the other obligation accruing prior to such termination. ARTICLE 12 - DELIVERY OF KNOW-HOW To the extent it has not previously done so, within ninety (90) days following the Effective Date, GW shall supply Lung Rx with all the Know-How. GW shall, upon request by 10 11 Lung Rx which must be given, if at, all within sixty (60) days after delivery of one (1) day of consultation regarding the use or application of the Know-How at GW's Research Triangle Park, North Carolina facilities. GW shall not be obligated to provide any consultation other than as set forth in this Article 12. GW shall have no responsibility for the accuracy or use by any person of any portion of the Know-How. ARTICLE 13 - ASSIGNMENT This Agreement may not be assigned or otherwise transferred by Lung Rx without the written consent of GW; provided, however, that Lung Rx may, without such consent, assign this Agreement in connection with the transfer or sale of all or substantially all of its business or in the event of its merger or consolidation with another company. Any purported assignment in violation of the preceding sentence shall be void. Any permitted assignee shall assume all obligations of its assignor under this Agreement. No assignment shall relieve Lung Rx of responsibility for the performance of any accrued obligation which Lung Rx then has hereunder. ARTICLE 14 - FORCE MAJEURE A party shall not be held liable or responsible to another party nor be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or performing nay term of this Agreement, other than an obligation to make a payment, when such failure or delay is caused by or results from fires, floods, embargoes, government regulations, prohibitions or interventions, wars, acts of war (whether war be declared or not), insurrections, riots, civil commotions, strikes, lockouts, acts of God, or any other cause beyond the reasonable control of the affected party. ARTICLE 15 - SEVERABILITY Each party hereby expressly agrees and contracts that it is not the intention of any party to violate any public policy, statutory or common laws, rules, regulations, treaty or decision of any government agency or executive body thereof of any country or community or association of countries; that if any word, sentence, paragraph, clause or combination thereof in this Agreement is found by a court or executive body with judicial powers having jurisdiction over this Agreement or any of the parties hereto in a final unappealed order, to be in violation of any such provisions in any country or community association of countries, such words, sentences, paragraphs, clauses or combination shall be inoperative in such country or community or association of countries and the remainder of this Agreement shall remain binding upon the parties hereto. ARTICLE 16 - NOTICES Any notice required or permitted to be given hereunder shall be in writing and shall be deemed to have been properly given if delivered in person, or if mailed by registered or certified mail (return receipt requested), postage prepaid, or by facsimile (and promptly confirmed by such 11 12 registered or certified mail), to the addresses given below or such other addresses as may be designated in writing by the parties from time to time during the term of this Agreement. Any notice sent by registered or certified mail as aforesaid shall be deemed to have been given when mailed. In the case of Lung Rx: Lung Rx, Inc. 100 Europa Drive, Suite 599 Chapel Hill, North Carolina 27514 Attention: President Facsimile No.: (919) 942-342~ In the case of GW: Glaxo Wellcome Inc. Five Moore Drive Research Triangle Park, NC 27709 Attention: Corporate Secretary Facsimile No.: (919) 549-9074 ARTICLE 17 - INDEPENDENT CONTRACTORS The relationship between GW and Lung Rx is that of independent contractors. Neither party has any actual or apparent authority, express or implied, to act on behalf of the other party or to bind the other party to any obligations. Neither party shall be deemed to be an agent or servant of the other party or a partner or venturer with the other party. GW shall not control, or have any right to control, the manner, method and means by which Lung Rx makes, has made, uses, sells, leases or otherwise provides or markets its products and services. Neither party shall have the right to utilize the name, patent rights, know-how, trademarks or service marks of the other party to this Agreement, except, in the case of the patent Rights and Know-How, as otherwise expressly assigned pursuant to Section 3.1. ARTICLE 18 - GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina, exclusive of its choice-of-law rules. ARTICLE 19 - ENTIRE AGREEMENT; MODIFICATION This Agreement contains the entire understanding of the parties with respect to the subject matter hereof. All express or implied agreements and understandings, either oral or written, heretofore made are expressly merged in and made a part of this Agreement. The parties 12 13 hereto may alter any of the provisions of this Agreement, but only by a written instrument duly executed by both parties hereto. ARTICLE 20 - WAIVER The failure of a party to enforce at any time for any period any of the provisions hereof shall not be construed as a waiver of such provisions or of the rights of such party thereafter to enforce each such provision. ARTICLE 21 - COUNTERPARTS This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same document. ARTICLE 22 - CAPTIONS The captions to the several Articles and Sections hereof are not a part of this Agreement, but are merely guides or labels to assist in locating and reading the several Articles and Sections hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date. LUNG RX, INC. GLAXO WELLCOME INC. By:/s/ James W. Crow By: /s/ Robert M. Bell ----------------------------- ------------------------------- Name: James W. Crow Name: Robert M. Bell, Ph.D. ------------------------- ------------------------------- Title: President Title: Vice President, Research, ------------------------- ------------------------------- Glaxo Wellcome Inc. ------------------------------- THE WELLCOME FOUNDATION LTD. By:/s/ Simon Bicknell ----------------------------- Name: Simon Bicknell ------------------------- Title: Assistant Secretary ------------------------- 13 EX-10.10 18 COOPERATION AND STRATEGIC ALLIANCE AGREEMENT 1 CONFIDENTIAL TREATMENT REQUESTED FOR PORTIONS OF THIS DOCUMENT EXHIBIT 10.10 COOPERATION AND STRATEGIC ALLIANCE AGREEMENT This Cooperation and Strategic Alliance Agreement (this "Agreement) is entered into as of September 3, 1997, by and between LRX Pharmaceuticals, Inc., a Delaware corporation ("LRX"), and MiniMed Inc., a Delaware corporation ("MiniMed"). RECITALS A. LRX has rights to, and is further developing, a pharmaceutical compound for the treatment of certain pulmonary hypertension and other vascular conditions. B. MiniMed is a leader in the design, development, manufacturing and marketing of advanced microinfusion systems for delivery of a variety of drugs. C. MiniMed and LRX wish to cooperate in the development, establishment and worldwide delivery of therapies for the treatment of targeted medical conditions by taking advantage of the respective technologies and other resources and assets of MiniMed and LRX, on the terms and subject to the conditions of this Agreement. AGREEMENT In consideration of the terms and conditions contained herein, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows. 1. DEFINITIONS. (a) "Affiliate" means any person, directly or indirectly, controlling, controlled by or under common control with any other person. "Control" shall mean the direct or indirect ownership of 50% or more of the voting interest in, or 50% or more of the interest in the income 2 of, such other person, or the ability to appoint, elect or direct at least 50% of the governing body of any such person. (b) "Alliance Coordinator" means the person designated by a Party pursuant to Section 3(e) of this Agreement, to be the primary contact person for such Party for purposes of this Agreement. (c) "FDA" means the United States Food and Drug Administration, and any successor entity that may be established hereafter which has substantially the same authority or responsibility currently vested in the United States Food and Drug Administration. (d) "15-AU" means that certain prostacyclin analog licensed exclusively to LRX and being developed by LRX for treatment of targeted medical conditions, particularly, primary pulmonary hypertension ("PPH"), secondary pulmonary hypertension ("SPH"), and peripheral vascular disease ("PVD"). (e) "Governing Rules" means the general guidelines established by the Managing Committee pursuant to Section 3(d) of this Agreement, which will be used to guide generally the activities of the Managing Committee and the Parties which are undertaken pursuant to this Agreement. (f) "Joint Intellectual Property" means any intellectual property rights which arise from the joint activities conducted pursuant to this Agreement, and which shall be jointly owned as set forth in Section 7 of this Agreement. (g) "Law" means any local, state or federal rule, regulation, statute or law relevant to the activities undertaken pursuant to this Agreement or applicable to either of the Parties with respect to any matters set forth herein. (h) "Losses" means any liabilities, damages, costs or expenses, including without limitation, reasonable attorneys' fees (including the allocable cost of in-house counsel), which arise from any claim, lawsuit, demand or other action by any Party other than one of the Parties or an Affiliate of one of the Parties. 2 3 (i) "Managing Committee" means the committee established pursuant to Section 3 which is responsible for the development and oversight of all activities pursuant to this Agreement, in accordance with the terms of this Agreement. (j) "MiniMed Products" means any products, supplies or other goods which are designed, developed, manufactured or marketed by MiniMed, whether existing on the date of this Agreement or subsequently developed, acquired or otherwise obtained by MiniMed. (k) "Party" or "Parties" means MiniMed or LRX, or MiniMed and LRX, collectively, as appropriate. (1) "Senior Management Representative" means an executive officer of each Party designated to facilitate the resolution of disputes hereunder, as described in Section 3 of this Agreement. (m) "Target Therapy" means a comprehensive health care therapy which utilizes 15-AU and MiniMed Products and which is to be delivered through the cooperative efforts of the Parties as contemplated by this Agreement. 2. GENERAL AGREEMENT. MiniMed and LRX shall collaborate and cooperate in the design, development and implementation of therapies for the treatment of PPH, SPH and PVD, utilizing MiniMed Products and 15-AU, as set forth herein. The specific terms regarding the scope and type of the collaborative efforts (including, without limitation, the economic terms with respect to the parties), shall be determined from time to time in accordance with Sections 3 and 4 of this Agreement. In addition to PPH, SPH, and PVD, LRX and MiniMed may, in their discretion and subject to mutual agreement, identify other medical conditions to be targeted by the Parties hereunder. 3 4 3. MANAGING COMMITTEE. (a) MiniMed and LRX shall establish a Managing Committee hereunder, which shall consist of two (2) representatives from each of MiniMed and LRX. The initial designees are set forth in Schedule A hereto. MiniMed and LRX may each from time to time replace its respective representatives on the Managing Committee, in its sole and absolute discretion, by notice to the other Party. (b) It is among the objectives of the Parties to design, develop and implement the Target Therapy in a reasonably practicable fashion, subject, however, to the respective corporate regulatory, financial and other obligations and considerations of each of the Parties from time to time determined. To achieve this objective, the Managing Committee shall be responsible for establishing an implementation strategy to carry out the intent of this Agreement, and ultimately to commercialize the Target Therapy. (c) The Managing Committee shall meet at such times and places as it shall determine appropriate to carry out its responsibilities hereunder. Such meetings may be in person or by means of telephonic communication. Either Party may designate an alternate member of the Managing Committee to act on behalf of a member on a temporary or interim basis, in the reasonable discretion of such Party. Either Party, through its Managing Committee members, may call a meeting of the Managing Committee by giving written notice thereof to the members of the other Party. (d) The Managing Committee shall establish guidelines to govern the strategic activities, co-development and related activities of the Parties; the Managing Committee shall also establish such guidelines with respect to operational matters at such time as the Target Therapy is commercialized or in a pre-commercial phase, as contemplated by this Agreement. All such guidelines shall be subject to the qualification of Section 3(g) hereof. The Managing Committee shall be responsible for taking such other actions as may be provided for or contemplated by this Agreement, subject at all times to the requirements of Section 3(g), including the establishment and implementation of the "Governing Rules." 4 5 (e) The Parties shall each name one (1) of its Managing Committee members as its Alliance Coordinator, who shall be the primary contact for purposes of this Agreement, except to the extent the parties may otherwise agree. Either Party may change its designation of Alliance Coordinator, in its sole and absolute discretion, upon written notice to the other Party. (f) If a disagreement arises between the Parties as to any matters within the scope of this Agreement, either Party may give written notice to the other. If the Alliance Coordinators are unable to resolve the dispute satisfactorily, despite their good faith efforts, within (30) days of receipt of such notice, either Alliance Coordinator may request a meeting of the Managing Committee, which will, in good faith, diligently seek to resolve the dispute. If the Managing Committee is unable to resolve the dispute, notwithstanding the exercise of good faith efforts, within (30) days after such meeting, then, unless otherwise agreed by the Alliance Coordinators, the matter shall thereafter formally be referred to a Senior Management Representative of each of the Parties, the initial designations of which are set forth in Schedule A. Either Party may, in its sole discretion, change its designee of the Senior Management Representative by written notice to the other. Except as expressly provided in the immediately following sentence, neither Party shall initiate any formal action against the other including, without limitation, the formal commencement of arbitration proceedings or the formal filing of legal action, until at least thirty (30) days have elapsed since the first communication between the Senior Management Representatives hereunder. Notwithstanding the foregoing, either Party may initiate proceedings to seek injunctive relief before the time period otherwise required hereunder shall elapse, if such Party in good faith believes that it will suffer irreparable harm without the initiation of such proceedings. (g) Notwithstanding anything to the contrary contained in this Agreement, the authority of the Managing Committee shall at all times be subject to the respective requirements and obligations of the quality systems and regulatory policies and procedures, and internal corporate governance requirements, of each of LRX and MiniMed. The Managing Committee shall establish Governing Rules, which shall serve as guidelines for the general activities under this Agreement, which Governing Rules shall supplement the terms hereof, but which procedures and systems shall satisfy and be consistent with the respective policies, procedures, and systems 5 6 of MiniMed and LRX. In that regard, the Parties shall reasonably cooperate in an attempt to assure their respective systems do not unduly impede the carrying out of the intent of this Agreement. Without limiting the generality of the foregoing, the operations and authority of the Managing Committee shall be consistent with the underlying corporate policies of each of MiniMed and LRX with respect to the operation of clinical trials and studies, regulatory studies relating to development, promotion, worldwide distribution and servicing of the delivery of the Target Therapy, quality assurance activities, medical device and adverse event reporting requirements, patent strategies, and the like. The Managing Committee shall establish a proposed approach for the Governing Rules within ninety (90) days of the execution of this Agreement that shall consider the relevant respective obligations of the parties. 4. JOINT ACTIVITIES The Parties shall diligently pursue the design, development and ultimate commercialization of the Target Therapy as from time to time determined by Managing Committee, and the Managing Committee shall develop a comprehensive plan with respect to such activities. It is the intention of the Parties that they will cooperate jointly in such activities, as from time to time mutually determined by the Managing Committee and agreed to by the Parties. The Parties currently contemplate that the joint pursuit of the Target Therapy may be developed in one or more phases. The Parties further contemplate preliminarily that the respective responsibilities of the Parties will be as described in Schedule B hereto, it being understood by the Parties, however, that such schedule reflects only the initial understanding of the Parties, and the Managing Committee shall be responsible for finalizing such strategy in a definitive manner. It is the intention of the Parties that they will participate in the investment, contribution, commitment and risks associated with the design, development and commercialization of the Target Therapy. Accordingly, the parties intend generally to allocate the financial costs and profits of the Target Therapy commercialized hereunder. It is currently contemplated, however, that: (i) MiniMed shall be responsible generally for all development and regulatory expenses relating to the MiniMed Products, and (ii) LRX shall be responsible for all development and 6 7 regulatory expenses relating to 15-AU. The Parties may from time to time agree to allocate such costs and expenses differently in certain circumstances. In furtherance of the foregoing, the Parties intend to establish an appropriate strategy to carry out the intent of the cooperative relationship contemplated hereby, and intend to consider appropriate provisions for revenue sharing, which may include, without limitation, the following: (i) determination of an appropriate transfer price for 15-AU (in circumstances in which the Managing Committee determines that MiniMed is the appropriate party to undertake distribution, and on such terms as the Parties may agree), (ii) allocation for costs and expenses associated with formulation and packaging of 15-AU and, to the extent required, the MiniMed Products, (iii) costs associated with the delivery of the Target Therapy, (iv) costs associated with clinical and technical support associated with the Target Therapy and (v) an appropriate formula or basis to determine the profits derived from the delivery of the Target Therapy. Notwithstanding the foregoing, however, the parties recognize and agree that an unanticipated disparity may occur or eventuate in the actual contribution of each Party with respect to the design, development, distribution and commercialization of the Target Therapy. With respect thereto, to the extent a Party in good faith concludes that the financial return to such Party is inconsistent with this Agreement and the reasonable expectations of such Party, then it may give notice thereof to the other Party (which shall include supporting documentation for its position), to be reviewed and considered by the other Party. The Parties shall engage in good faith negotiations relative to the financial arrangement then applicable as between the Parties with respect to the Target Therapy to the extent a notice is given as contemplated by this provision. 5. REPRESENTATIONS AND WARRANTIES. (a) MiniMed Representations and Warranties. MiniMed represents and warrants to LRX as follows: (i) MiniMed is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, is duly qualified to do 7 8 business as a foreign corporation and is in good standing in each jurisdiction in which the nature of its business or the ownership of its property makes such qualification necessary, except where the failure to so qualify or be in good standing would not have a material adverse effect on MiniMed or its ability to perform hereunder. (ii) MiniMed has the full power and authority to execute and deliver this Agreement and to consummate the transactions contemplated herein. The execution, delivery and performance of this Agreement have been duly and validly authorized and approved by all necessary corporate action on the part of MiniMed. This Agreement has been duly executed and the provisions hereof constitute the valid and legally binding obligations of MiniMed and do not require the consent, approval or authorization of, or registration, qualification, designation, declaration or filing with, any person, public or governmental authority or other entity, except for any of the foregoing which have been received or obtained or, either individually or in the aggregate, do not and would not have a material adverse effect upon MiniMed or its ability to perform its obligations hereunder. (iii) The execution and delivery of this Agreement by MiniMed, and the performance of its obligations hereunder, are not in violation or breach of, and will not conflict with or constitute a default under, the Certificate of Incorporation or Bylaws of MiniMed, or any material agreement, contract, commitment or obligation to which MiniMed is a Party or by which it is bound, and will not conflict with or violate any applicable Law or any order or decree of any governmental agency or court having jurisdiction over MiniMed or its assets or properties. (iv) MiniMed has and, at the time the Targeted Therapy is commercialized will have, all right, title and interest in and to the MiniMed Products used in connection with the Targeted Therapy. (b) LRX- Representations and Warranties. LRX represents and warrants to MiniMed as follows: 8 9 (i) LRX is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the nature of its business or the ownership of its property makes such qualification necessary, except where the failure to so qualify or be in good standing would not have a material adverse effect on LRX or its ability to perform hereunder. (ii) LRX has full power and authority to execute and deliver this Agreement and to consummate the transactions contemplated herein. The execution, delivery and performance of this Agreement have been duly and validly authorized and approved by all necessary corporate action on the part of LRX. This Agreement has been duly executed and the provisions hereof constitute the valid and legally binding obligations of LRX and do not require consent, approval or authorization of, or registration, qualification, designation, declaration or filing with, any person, public or governmental authority or other entity, except for any of the foregoing which have been received or obtained or, either individually or in the aggregate, do not and would not have a material adverse effect upon LRX or its ability to perform its obligations hereunder. (iii) The execution and delivery of this Agreement by LRX, and the performance of its obligations hereunder, are not in violation or breach of, and will not conflict with or constitute a default under, the Articles or Certificate of Incorporation or Bylaws of LRX, or any material agreement, contract, commitment or obligation to which LRX is a Party or by which it is bound, and will not conflict with or violate any applicable Law or any order or decree of any governmental agency or court having jurisdiction over LRX or its assets or properties. (iv) LRX has and, at the time the Targeted Therapy is commercialized will have, the sole and exclusive right to exploit 15-AU for the Targeted Therapy, which right is not subject to any restrictions or encumbrances whatsoever. 9 10 6. COMPLIANCE WITH LAWS. In performing their obligations hereunder, MiniMed and LRX shall comply in all material respects with all Laws regarding or relevant to the performance of their respective obligations hereunder, except for any noncompliance which, individually or in the aggregate, do not and would not have a material adverse affect upon either Party hereto, or the agreements contemplated hereby. Without limiting the generality of the foregoing, each Party shall comply in all respects with all of the rules, regulations, statutes and laws under the jurisdiction of the FDA, comparable regulatory bodies of any state or any foreign jurisdiction, or such other regulatory authority which may from time to time exercise jurisdiction over the activities of either MiniMed or LRX, or which affect, impact or otherwise relate to this Agreement or the activities conducted hereunder or contemplated hereby. MiniMed and LRX shall cooperate with each other during any inspection, investigation or other inquiry by any governmental agency exercising any such jurisdiction or authority, including providing appropriate information and/or documentation, as may be lawfully requested by such governmental entity. Notwithstanding the foregoing, each Party expressly reserves its rights to in good faith challenge the activities of any such governmental agency, to the extent such Party deems appropriate. Further notwithstanding the foregoing, neither MiniMed nor LRX shall be under any obligation to disclose information hereunder if, and to the extent, such Party in good faith is seeking to protect the attorney-client privilege with respect to any such activity or event. 7. INTELLECTUAL PROPERTY. (a) Joint Developments. Each Party shall disclose to the other any and all useful ideas, concepts, methods, procedures, processes, improvements, invention, discoveries, and the like which arise from the joint activities conducted by the Parties hereunder ("Discoveries") of any nature, made, conceived or first reduced to practice as result of the Parties' activities hereunder relating to the delivery of the Target Therapy. The Parties shall jointly own any and all rights, title and interest in and to all Discoveries that are a result of this Agreement, and such property shall constitute Joint Intellectual Property hereunder. The parties contracting for any work performed under this Agreement by a subcontractor or contract employee shall ensure all 10 11 Discoveries vest with LRX and MiniMed. The Parties shall in good faith consider the inclusion of procedures relative to patent filings and related matters with respect to Discoveries which constitute Joint Intellectual Property, which procedures would be considered for inclusion in the Governing Rules. (b) Sole Property. All existing LRX intellectual property (including all aspects of 15-AU), and all intellectual property developed solely by or on behalf of LRX independent from activities pursuant to this Agreement (which must be independently verifiable), shall be and remain the sole and exclusive property of LRX. All existing MiniMed intellectual property (including all aspects of the MiniMed Products), and all intellectual property developed solely by or on behalf of MiniMed independent from activities undertaken pursuant to this Agreement (which must be independently verifiable), shall be and remain the sole and exclusive property of MiniMed. 8. COVENANT NOT TO COMPETE; EXCLUSIVITY. (a) Except as provided for herein, during the term of this Agreement, the Parties shall deal exclusively with one another with respect to the delivery of the Target Therapy, subject to the inclusion of additional collaborative parties as the Parties may from time to time agree. (b) Except as provided in subsection (d) below, during the term of this Agreement and for a period of one (1) year thereafter, LRX shall not, without the prior written consent of MiniMed, enter into any agreement or arrangement with any person or entity with respect to the design, development or distribution of 15-AU for administration in a comprehensive subcutaneous, intravenous or transdermal medication delivery system. (c) Except as provided in subsection (d) below, during the term of this Agreement and for a period of one (1) year thereafter, MiniMed shall not, without the prior written consent of LRX, enter into any agreement or arrangement with any person or entity with respect to the infusion of a medicinal compound for the treatment of PPH or SPH. (d) Notwithstanding the foregoing, the Parties acknowledge that unforeseen circumstances may eventuate wherein a Party is materially and adversely affected because of the 11 12 exclusivity and noncompetition provisions contained herein. In the event such were to occur, the Parties so affected may terminate its obligations hereunder with respect to therapy delivery relative to PPH and/or SPH, in which case the terminating party shall be obligated to pay the other party royalties of [ ] of the net proceeds. For purposes herein, "Net Proceeds" shall mean the gross revenue derived from sales of 15-AU for the treatment of PPH or SPH (in the event LRX is the terminating party) or sales of the MiniMed Products (relative to delivery of therapy to treat PPH or SPH), less (i) applicable taxes and other governmental charges, (ii) allowances for credits, returns, discounts, rebates, cancellations, and (iii) actual freight costs. The obligation to pay such royalties shall terminate on the sixth (6th) anniversary of the date the FDA grants a new drug approval. The non-terminating party shall have reasonable audit rights to verify such royalty payments, which shall be paid quarterly (within 60 days of the end of each calendar quarter), and all be accompanied by a royalty report setting forth the basis for the royalty calculation. 9. TERM, EXTENSION AND TERMINATION. (a) Term. The term of this Agreement shall commence as of the date hereof and continue until the date seven (7) years after the FDA grants a New Drug Approval for 15-AU to be used in the Target Therapy hereunder ("Initial Term"), unless sooner terminated as set forth herein. Unless sooner terminated in accordance with the terms of this Agreement, the term of this Agreement shall automatically be extended for additional successive 12-month periods, unless a Party gives notice of nonrenewal at least six (6) months prior to the end of the Initial Term or any renewal term. (b) Termination. (i) Breach. If a Party materially defaults in its performance of any of its material obligations under this Agreement, and such default is not cured or resolution of a disputed breach pursuant to Subsection 3(f) is not demanded within sixty (60) days of written notice of such default by the other Party, this Agreement may be terminated at the end of such 60-day period by the Party not in default by written notice of termination to 12 13 the defaulting Party, such written notice to be given not later than seventy-five (75) days after the first written notice. (ii) Bankruptcy. In the event of the institution by or against either Party of insolvency, receivership or bankruptcy proceedings or any other proceedings for the settlement of a Party's debts which are not dismissed within sixty (60) days, or upon a Party's making an assignment for the benefit of creditors, or upon a Party's dissolution or ceasing to do business, the other Party may terminate this Agreement upon written notice. (c) Effect of Termination. The provisions of Section 8 (Covenant Not to Compete), Section 10 (Confidentiality), Section 11 (Indemnification), and Section 12 (General), shall survive the termination of this Agreement. 10. CONFIDENTIALITY (a) Disclosure of Confidential Information. Except as otherwise expressly provided in this Agreement or as may be agreed to by the Managing Committee in writing, both MiniMed and LRX shall retain in confidence and not use for its own benefit (other than as expressly contemplated by this Agreement) all confidential and proprietary information received from the other as a result of this Agreement during the term of this Agreement and continuing thereafter for a period of five (5) years after termination. Such information may, however, be disclosed insofar as such disclosure is necessary (where possible, with adequate safeguards for confidentiality) to allow either Party to defend against litigation, to file and prosecute patent applications or to comply with governmental regulations, or rules or regulations of applicable self-regulatory organizations (including, without limitation, any exchange or stock market on which the securities of a Party are listed or traded, or qualified for trading), or otherwise as required by Law. Such obligation of confidentiality and non-use shall also not apply to information which: (i) is in the public domain as of the date of receipt, (ii) comes into the public domain through no fault of the Party claiming waiver, (iii) was known by the Party claiming waiver prior to disclosure, as shown by such Party's written records, (iv) is disclosed to the Party claiming waiver by a third party having a lawful right to make such disclosure, (v) is independently developed by the Party claiming waiver, or (vi) disclosed to a third party that has 13 14 agreed in writing to be bound by obligations of confidentiality similar to those set forth herein. Nothing contained herein shall prevent either Party from disclosing information to its Affiliates or to the FDA or other regulatory authorities where necessary. (b) Press Release and Public Announcements. MiniMed and LRX shall not issue any press release or public announcement with respect to this Agreement without the prior consent of the other Party as to the form and content of such release, except for any such release or announcement that may be required by Law or the rules or regulations of any exchange on which the securities of a Party are listed, traded or qualified for trading. To the extent practical, the parties shall consult with each other in advance as to the form, content and timing of all releases or announcements. It is the present intention of the parties to issue a joint press release announcing the execution of this Agreement. (c) Existing Mutual Nondisclosure Agreement. The Mutual Nondisclosure Agreement entered into by the Parties and effective as of March 18, 1997 is superseded by Section 10 of this Agreement; provided, however, that any confidential information disclosed by one Party to the other pursuant to such Mutual Nondisclosure Agreement shall be treated as if it had been disclosed after the Effective Date of this Agreement shall therefore be subject to the terms of this Section. 11. INDEMNIFICATION. (a) Indemnification by MiniMed. MiniMed shall indemnify, defend and hold LRX harmless from and against any and all Losses resulting from or arising out of the negligence or willful misconduct of MiniMed in the performance of its obligations under this Agreement. Without limiting the generality of the foregoing, MiniMed shall indemnify, defend and hold LRX harmless from and against Losses relating to product liability claims solely with respect to MiniMed Products which are designed, developed and manufactured solely and independently by MiniMed. (b) Indemnification by LRX. LRX shall indemnify, defend and hold MiniMed harmless from and against any Losses resulting from or arising out of negligence or willful 14 15 misconduct of LRX in performing its obligations under Agreement. Without limiting the generality of the foregoing, LRX shall indemnify, defend and hold MiniMed harmless from and against any Losses resulting solely from any design defect or other claim with respect to AU-15. (c) Indemnification Procedures. A Party seeking indemnification (the "Indemnified Party") pursuant to this Section 11 shall notify, in writing, the other Party (the "Indemnifying Party") within fifteen (15) days of the assertion of any claim or discovery of any fact upon which the Indemnified Party intends to base a claim for indemnification. An Indemnified Party's failure to so notify the Indemnifying Party shall not, however, relieve the Indemnifying Party from any liability under this Agreement to the Indemnified Party with respect to such claim except to the extent that such Indemnifying Party is actually denied, during the period of delay in notice, or materially prejudiced with respect to, the opportunity to remedy or otherwise mitigate the event or activity(ies) giving rise to the claim for indemnification and thereby suffers or otherwise incurs additional quantifiable damages as a result of such failure. The Indemnifying Party, while reserving the right to contest its obligations to indemnify hereunder, shall be responsible for the defense of any claim, demand, lawsuit or other proceeding in connection with which the Indemnified Party claims indemnification hereunder. The Indemnified Party shall have the right at its own expense to participate jointly with the Indemnifying Party in the defense of any such claim, demand, lawsuit or other proceeding, but with respect to any issue involved in such claim, demand, lawsuit or other proceeding with respect to which the Indemnifying Party has acknowledged its obligation to indemnify the Indemnified Party hereunder, the Indemnifying Party shall have the right to select counsel, settle, or otherwise dispose of or handle such claim, demand, lawsuit or other proceeding on such terms as the Identifying Party shall deem appropriate, subject to any reasonable objection of the Indemnified Party. (d) Insurance. The Parties, through the Managing Committee, shall pursue purchase of appropriate liability insurance which would jointly insure both of the Parties for the activities undertaken pursuant to this Agreement, to the extent such insurance is available to the Parties on commercially reasonable terms. The Managing Committee shall in good faith determine the most efficient and effective way to obtain such insurance and shall in good faith negotiate an appropriate allocation of the cost of acquiring any such insurance. 15 16 12. GENERAL. (a) Entire Agreement. This Agreement, including any Schedules, Exhibits and Appendices, constitutes the entire agreement and understanding relating to the subject matter of this Agreement and supersedes all previous communications, proposals, representations and agreements, whether oral or written, including that certain Letter Agreement between the parties dated May 20, 1997 relating to the subject matter of this Agreement. (b) Counterparts and Headings. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. Headings of sections and subsections of this Agreement are for convenience only and the construction of this Agreement shall not be affected by reference to such headings. (c) Notices. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been sufficiently given for all purposes if personally delivered or mailed by first class certified or registered mail, postage prepaid, hand delivered, or sent by telecopy or by reputable courier. Notices sent by U.S. mail shall be deemed delivered three (3) days after deposit with postal authorities or upon confirmed delivery if personally delivered, sent by confirmed fax or courier service. Unless otherwise specified in writing, the mailing addresses of the parties shall be as described below: For LRX: LRX Pharmaceuticals, Inc. 2 Davis Drive Research Triangle Park, North Carolina 27709 Attention: President Fax Number: (202) 518-8200 16 17 For MiniMed: MiniMed Inc. 12744 San Fernando Road Sylmar, California 91342 Attention: President Fax Number: (818) 362-6928 Copy to: General Counsel at same address Fax Number (818) 367-1460 (d) Amendment and Waiver. This Agreement may be modified, amended and supplemented only by written agreement signed by the Parties. The waiver by any Party to this Agreement of any breach or violation of any provision of this Agreement by the other Party shall not operate or be construed to be a waiver of any subsequent breach or violation of the same or any other provision of this Agreement. (e) Assignment. Neither Party may assign its rights and obligations under this Agreement without the prior written consent of the other Party. This Agreement shall be binding upon, and inure to the benefit of, the legal successors to the Parties hereto. (f) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California. (g) Partial Invalidity. If any provision of this Agreement is held to be invalid, then the remaining provisions shall nevertheless remain in full force and effect. The Parties agree to renegotiate in good faith any term held invalid and be bound by the mutually agreed substitute provision. (h) Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the 17 18 provisions of this Agreement. When this Agreement uses the word "including" such word shall be deemed to be followed by the words "without limitation." (i) Force Majeure. Both Parties to this Agreement shall be excused from the performance of their obligations hereunder if such performance is prevented by force majeure and the nonperforming Party promptly provides notice of the prevention to the other Party. Such excuse shall be continued so long as the condition constituting force majeure continues and the nonperforming Party takes reasonable efforts to remove the condition. For purposes of this Agreement, "force majeure" shall include conditions beyond the control of the Parties and not resulting from the negligence of the Party seeking excuse, including an act of God, war, civil commotion, epidemic, failure or default of public utilities or common carriers, destruction of production facilities or materials by fire, earthquake, storm or like catastrophe. (j) Independent Contractors. The relationship of LRX and MiniMed established by this Agreement is that of independent contractors, and nothing contained in this Agreement shall be construed to give either Party the power to direct and control the day-to-day activities of the other or allow one Party to create or assume any obligation on behalf of the other of any purpose whatsoever. (k) Limitation of Liability. Except as may be elsewhere herein specifically provided for, neither Party shall be liable to the other for indirect, special, incidental, consequential or punitive damages, or for any lost profits of the other Party, however caused and on any theory of liability, arising out of the performance or failure to perform any obligations set forth herein. IN WITNESS WHEREOF, this Agreement is executed and effective as of the date first above written. LRX PHARMACEUTICALS, INC. MINIMED INC. /s/ GILLES CLOUTIER /s/ ERIC S. KENTOR - -------------------------- ------------------- Gilles Cloutier, Ph.D. Eric S. Kentor Executive Vice President Senior Vice President 18 19 SCHEDULE B The following sets forth the allocation of responsibilities between the Parties with respect to the development and ultimate commercialization of the delivery of the Target Therapy. While the following sets forth the current intention of the Parties, the Parties further recognize and agree that the actual development of the Target Therapy, and, assuming such developmental efforts are successful, the ultimate commercialization thereof, remains subject to a number of contingencies and considerations, some of which are not at this time predictable. Accordingly, the following only expresses the present intention of the Parties, and it is anticipated to be subject to further refinement, clarification, modification and other considerations prior to definitive implementation. In this regard, the Management Committee should recognize that, with regard to this 15-AU pulmonary hypertension project, the expertise of LRX is in the fields of CMC and clinical development of pharmaceuticals while the expertise of MiniMed is in the field of drug delivery. Subject to the foregoing, the Parties currently contemplate that the Target Therapy may be developed in one or more phases, which may include or address, without limitation, the following: (a) Cooperative efforts between the Parties relating to the formulation of 15-AU for delivery via the MiniMed Products, including, without limitation, chemical stability, concentration, preservative, and materials compatibility issues. (b) Clinical research, including the design, development, implementation and analysis of clinical trials and protocols, feasibility studies and similar studies from time to time agreed to by the Parties. It is currently contemplated that MiniMed will be responsible for distribution of the Target Therapy system in clinical trials conducted in North America and Europe. The parties will evaluate the appropriate mechanism for the compounding and distribution vehicle for 15-AU in connection with such clinical activities. The Parties will evaluate personnel and other resources necessary to conduct clinical trials, including consideration of utilizing MiniMed 19 20 SCHEDULE B (CONTINUED) personnel in Europe and/or the United States or, alternatively, contracting with an independent clinical research organization to conduct the trials; the ultimate structure of such trials, and financial responsibility, shall be determined by the Managing Committee. (c) Strategies and physical requirements for the manufacture, packaging, storage, and shipment of 15-AU relative to the Target Therapy, and related activities constituting pharmacy services. (d) Market research activities. (e) Patent strategies with respect to any Joint Intellectual Property. (f) Strategies and activities relative to the requisite regulatory approvals and post-market regulatory compliance for the components of the Target Therapy. Currently, the Parties generally anticipate that LRX will be responsible for the regulatory approval of 15-AU and MiniMed will generally be responsible for the regulatory approval of the MiniMed Products relative to the Target Therapy. Notwithstanding the foregoing, however, the Managing Committee may from time to time determine joint regulatory strategies which may include joint or coordinated meetings and/or submissions to the FDA and other appropriate regulatory authorities. (g) Market development activities, which may include, without limitation, educational and other programs for health care professionals and third parties-payors, and related marketing activities which may include, without limitation, activities directed to patients, health care professionals and third party payors. It is currently anticipated that MiniMed will assume primary responsibility for this function. (h) Clinical and technical services to provide support relative to the delivery systems for the Target Therapy, which may be based upon the current MiniMed model of providing 24-hour clinical services and technical services for the MiniMed products. The Parties currently 20 21 SCHEDULE B (CONTINUED) anticipate that a system will be developed whereby adverse drug events relative to 15-AU will generally be the responsibility of LRX, and the need for a system whereby such adverse events which come to the attention of MiniMed shall be reported to LRX; similarly, to the extent LRX becomes aware of any adverse events involving the MiniMed Products, a companion communication system may be developed. (i) Sales and related worldwide distribution activities relating to the Target Therapy. Currently, the Parties envision that it is in their mutual best interest to package and commercialize the Target Therapy as a comprehensive product. Accordingly, it is anticipated that MiniMed shall generally assume primary responsibility for the sales, marketing and related activities with respect to the distribution and commercial activities of the Target Therapy, which is anticipated to include component elements of each of the Party's products. (j) Warranty, product service and similar matters relative to the component elements of the Target Therapy. 21 22 September 3, 1997 LRX Pharmaceuticals, Inc. 1826 R Street, N.W, Washington D.C. 20009 Re: Letter Agreement Ladies and Gentlemen: Reference is made to that certain Cooperation and Strategic Alliance Agreement (the "Agreement") of even date between LRX Pharmaceuticals, Inc., a Delaware corporation ("LRX") and MiniMed Inc., a Delaware corporation ("MiniMed"). Capitalized terms used but not otherwise described herein have the meanings set forth in the Agreement. The purpose of this Letter Agreement is to memorialize certain agreements and understandings between LRX and MiniMed which relate to the Agreement but which supplement the terms thereof. Pursuant to the Agreement, it is anticipated that the Parties will participate in the economic costs and returns/profits of the Target Therapy commercialized under the Agreement, pursuant to an allocation to be agreed upon through the developmental process and ultimate commercialization of the Target Therapy. In the event that the Parties are not able to agree on provisions for revenue sharing for PPH and SPH, then the Parties shall allocate revenues such that MiniMed shall receive the greater of (a) [ ] of revenues derived from commercialization of the Target Therapy or (b) [ ] per patient per year. The Parties recognize and agree that the flexibility of economic terms contemplated by the Agreement are appropriate, and the Parties shall endeavor to cooperate in good faith to allocate revenues on the basis of the criteria set forth in the Agreement. The allocation set forth in this Letter Agreement provides a mechanism by which the Parties shall allocate revenues if,-despite good faith efforts, the Parties are unable to so agree. The Parties further agree that the Managing Committee shall establish a mutually agreeable, reasonable criteria whereby the Agreement shall be subject to termination in the event the Target Therapy (a) is determined not to be clinically feasible, (b) does not receive regulatory approval or (c) otherwise is not commercially viable. Such provisions shall be deemed to be an amendment to the Agreement. If this letter is in agreement with your understanding of our discussions on the subject, please so indicate by countersigning below where your name appears. 22 23 Thank you for your continued cooperation in connection with this matter. We look forward to a long and mutually rewarding business arrangement. Sincerely, MINIMED INC. By: /s/ Eric S. Kentor Date: 9/3/97 ---------------------------------- ------------------- Eric S. Kentor Senior Vice President ACCEPTED AND AGREED TO: LRX Pharmaceuticals, Inc. By: /s/ Gilles Cloutier Date: 9/4/97 ---------------------------------- ------------------- Gilles Cloutier, Ph.D. Executive Vice President for Business Development 23 EX-10.11 19 EXCLUSIVE LICENSE AGREEMENT 1 CONFIDENTIAL TREATMENT REQUESTED FOR PORTIONS OF THIS DOCUMENT EXHIBIT 10.11 EXCLUSIVE LICENSE AGREEMENT This Exclusive License Agreement ("Agreement") is effective as of September 16, 1998 (the "Effective Date"), by and between United Therapeutics Corporation, a Delaware corporation, having an address at 68 T.W. Alexander Drive, Research Triangle Park, North Carolina 27709, USA ("UT"), and Toray Industries, Inc., a Japanese corporation, having an address at 2-1, Nihonbashi-Muromachi 2-chome, Chou-ku, Tokyo 103-8666, Japan ("Toray"). WHEREAS, Toray owns all right, title and interest in certain patent rights, trademark and the right to use certain know-how relating to the Product (as herein defined) in the Territory (as herein defined); WHEREAS, UT desires to obtain an exclusive license of such patent rights, trademark and know-how in order to develop, use and sell the Product within the Territory; and WHEREAS, Toray is willing to grant such an exclusive license to UT according to the terms and conditions herein below. NOW, THEREFORE, in consideration of the foregoing and the mutual promises and covenants set forth in this Agreement, the parties to this Agreement mutually agree as follows. 1. Definitions. As used in this Agreement, the following terms, whether used in the singular or the plural, shall have the following meanings: a. "Affiliate" means any corporation or non-corporate entity which controls, is controlled by, or is under common control with a party to this Agreement. A corporation or non-corporate entity shall be regarded as in control of another corporation if it owns or directly or indirectly controls at least fifty percent (50%) of the voting stock of the other corporation, or (i) in the absence of the ownership of at least fifty percent (50%) of the voting stock of a corporation or (ii) in the case of a non-corporate entity, if it possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation or non-corporate entity, as applicable b. "Dollars" or "$" means United States dollars. c. "FDA" means the United States Food and Drug Administration or any successor entity. d. "Indication" means Pulmonary Vascular Disease, including Pulmonary Hypertension. e. "Improvements" means modifications, variations and revisions of the Know-How as well as all processes, machines, manufactures or compositions of matter directly pertaining to the Patent Rights. f. "Patent Rights" means all domestic and foreign patents and patent applications listed 2 in Appendix A attached hereto and made a part hereof, and any Improvements, extensions, continuations, continuations-in-part, divisions, substitutions, foreign equivalents, renewals, modifications, variations, new models, or reissues thereof; as well as all processes, machines, manufactures or compositions of matter directly pertaining to the patents which come into existence during the term of this Agreement. g. "Know-How" means all technical information and data, including but not limited to ideas, concepts, methods, procedures, processes, compounds, inventions, discoveries, whether or not patentable, which are owned by Toray, or which Toray has the right to use and license as of the Effective Date and which relates to the Product and its use as described in the claims of the patents and patent applications listed in Appendix A attached hereto and made a part hereof; or any other patents or patent applications comprising the Patent Rights. h. "Trademark" means the trademark selected by both parties and registered by Toray for the Product in accordance with Section 6.b. i. "Product" means immediate release (not sustained or controlled) oral formulation of TRK-100 (Beraprost Sodium) which includes what has been developed in the USA by HMR. j. "Licensed Technology" means, collectively, the Product, the Patent Rights, the Trademark, the Know-How and the Improvements. k. "Net Sales", with respect to any Product, means the gross sales (i.e., gross invoice prices) of such Product billed by UT or its distributor to final wholesaler or, if and when UT or its distributor sells the Product directly to hospital, clinic, HMO Hospital Management Organization) or other end users (hereinafter collectively referred to as the "End Users", and final wholesaler or the End Users, as the case may be, being hereinafter referred to the "Third Party Customers"), the gross sales of such Product billed by UT or its distributor to the End Users, less : (i)actual credited allowances to the Third Party Customers for spoiled, damaged, out dated and returned Product and for retroactive price reductions in lieu of returned Product; (ii)customary trade and cash discount, to the extent such trade and cash discounts are not deducted by UT at the time of invoice in order to arrive at the gross invoice prices; (iii)all transportation, packaging, handling and insurance charges, sales taxes, excise taxes, use taxes or import/export duties actually paid; (iv)any tax or other government charge on the sale, transportation, or delivery of Product; and (v)all other invoiced allowances and adjustments actually credited the Third Party Customers including, but not limited to, rebates paid to the Third Party Customers, whether during the specific royalty period or not. All the deduction shall be reasonable, customary and certified with evidence. In this Section 1k, final wholesaler means the firm, corporation or individual which sells Product directly to the End Users. l. "NDA" means a New Drug Application or any equivalent successor application. m. "Registration" means, in relation to any Product, such approvals by government authorities as may be legally required before such Product may be commercialized in the Territory. 3 n. "Territory" means the United States of America and Canada. o. "Third Party" means any party other than UT and Toray. p. "Valid Claim" means a claim of an issued and unexpired patent included within the Patent Rights which has not been held unenforceable, unpatentable or invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been admitted to be invalid or unenforceable through reissue, disclaimer or otherwise. 2. Grant of Exclusive License. a. Grant. Toray hereby grants to UT an exclusive license, without a right to sublicense, under the Licensed Technology to develop, use, import, offer for sale and sell Products in the Territory for use in treatment of the Indication. b. Covenant Not to Sue. Toray agrees that it will not assert nor cause to be asserted against UT any patent not included in the Patent Rights that is or might be infrin8ed by reason of UT exercise of rights under the license granted to UT hereunder. 3. Consideration for the Grant. a. License Fees. In consideration for the exclusive license granted to UT under this Agreement, UT shall on execution of this Agreement: 1. pay to Toray a non-refundable license fee of [ ]; 2. deliver to Toray a certificate representing [ ] shares of UT common stock; and 3. execute and deliver to Toray a Stock Option Grant issuing to Toray options to acquire [ ] shares of UT common stock at a purchase price of [ ] per share, exercisable by Toray upon the date of UT's first filing of an NDA in the United States for the Product. b. Milestone Payments. As further consideration for the exclusive license granted to UT under this Agreement, UT shall make the following payments upon completion of the following milestones: 1. UT shall pay to Toray a non-refundable milestone payment of [ ] in cash upon UT's written notice to Toray that it is proceeding with its first Phase III Studies. 2. UT shall pay to Toray a non-refundable milestone payment of [ ] in cash upon UT's first filing of an NDA in the United States for the Product. 4 3. UT shall pay to Toray a non-refundable milestone payment of [ ] in cash upon the date of first FDA approval of the Product. c. Purchase of Product. 1. UT shall purchase commercial Product according to United States current OMP solely from Toray during the term of this Agreement. UT shall neither manufacture Product nor purchase Product from a Third Party. Toray will be responsible for the manufacture and delivery to UT of the amount of United States current OMP Product that UT reasonably requires from time to time during the term of this Agreement. 2. Toray will supply commercial Product to UT at the prices which are inclusive of all costs and revenues) including but not limited to) costs of formulation, manufacture, bulk materials, as well as a royalty stream on Net Sales. The price of the Product shall be the sum of(1) and (2), in which (1) is "Tile Amount" per 120 micrograms determined by using the following formula and (2) is $ 1.00 per 320 micrograms: (a) If Net Sales within the Territory are below [ ], then The Amount shall be the greater of either the amount per 120 micrograms converted from [ ] of Net Sales or Japanese Yen [ ] per 120 micrograms. (b) If Net Sales within the Territory are between [ ] and [ ], then The Amount shall be (i) the amount determined according to (a) above for the portion up to [ ], plus (ii) the greater of either the amount per 120 micrograms convened from [ ] of the portion of over [ ] of the Net Sales or Japanese Yen [ ] per 120 micrograms. (c) If Net Sales within the Territory are between [ ] and [ ], then The Amount shall be (i) the amount determined according to (b) above for the portion up to [ ], plus (ii) the greater of either the amount per 120 micrograms converted from [ ] of the portion or over [ ] of the Net Sales- ~ Japanese Yen [ ] per 120 micrograms. (d) If Net Sales within the Territory are over [ ], then The Amount shall be (i) the amount determined according to (c) above for the portion up to [ ], plus (ii) the greater of either the amount per 120 micrograms converted from [ ] of the portion of over [ ] of the Net Sales or Japanese Yen [ ] per 120 micrograms. Toray and UT shall consult with each other and decide provisional sales price of the Product sold to UT for the next sales year, and after the said sales year) adjust the amount already paid by UT on the basis of provisional sales price in the said sales year (hereinafter referred to as "Paid Price") by defining and paying or paying back the difference between the Paid Amount and the total amount calculated according to the above method for the Product sold to UT in the said sales year. 5 3. In the event that UT determines after discussion with Toray, that (a) UT is required to pay royalties to any Third Party because the development, manufacture, use or sale of the Product infringes any patent or other intellectual property rights of such Third Party in the Territory; or (b) the development, manufacture, use or sale of the Product in any country in the Territory no longer infringes a Valid Claim with respect to any Product and Third Party starts the sale of the same compound with Beraprost in chemical structure in the Territory; or (c) a compulsory license has been granted to a Third Party under the applicable laws of any country in the Territory under the Licensed Technology licensed to UT hereunder Third Party starts the sale of the same compound with Beraprost in chemical structure in the Territory; or (d) the price for Product under this Paragraph 3(c) causes or may cause UT a significant reduction in its sales of Product in any country in the Territory; then, in any such event, UT and Toray shall meet and in good faith endeavor to agree on how to deal with the situation in order to place UT in a position to market competitively the Product in such country. 4 Payment for Product shall be made in Dollars by UT in accordance with the terms and conditions as designated by the mutual agreement of UT and Toray. d. Minimum Annual Product Net Sales. UT shall be responsible for achieving minimum annual Product Net Sales as determined in advance by mutual agreement of Toray and UT for the duration of this Agreement . Toray and UT agree that the minimum Net Sales amount for the first two commercial sales years shall be [ ] and [ ] respectively. In the event that UT is unable to meet any minimum annual Net Salts amount as designated by the parties for a period of two consecutive years, then Toray may convert the exclusive license granted under this Agreement to be non-exclusive, in which event UT shall thereafter share the Product marketing rights approved by the FDA with such Third Party designated by Toray. e. Non-Competition. UT shall not engage in the development of an immediate release (not sustained or controlled) orally available stable prostacyclin analog compound including UT-15 for the duration of this Agreement plus five years. Notwithstanding the foregoing, in the event that immediate release TRK- 100 (Beraprost Sodium) failure has been demonstrated in clinical trials) then the period of noncompetition shall only extend for six months after the date the failure was demonstrated. 4. Development and Commercialization Program. 6 a. UT shall be responsible for all costs and expenses for obtaining regulatory approval and commercializing Products for treatment of the Indication, including all costs of clinical trials. UT will solely and exclusively own all regulatory applications and approvals obtained by UT with respect to Products. UT will closely consult with Toray with regard to its participation in important clinical development meetings. b. UT and Toray shall establish a Management Committee, comprised of two persons from UT and two persons from Toray, which will meet at least once a year at each party's expense to coordinate the development and marketing of Products under this Agreement, to determine the Product development schedule, and to take such other actions as required under this Agreement. 1. The initial Product development schedule, subject to revision by the Management Committee, is as follows: Action Date - ------ ---- Orphan-IND QIS) [ ] Phase II start [ ] Phase III start [ ] NDA filing [ ] FDA approval [ ] In the event that the Product development schedule falls more than six months behind the above initial development schedule, then Toray may at its discretion terminate this Agreement without any additional penalty to UT. 2. The initial quantity of Product provided by Toray to UT free of charge for use in clinical studies, subject to revision by the Management Committee, is up to 100g. The Management Committee will decide from time to time the appropriate product sample requirements and the price on quantities exceeding 100g, to support UT's development and commercialization approval of the Product. c. Toray shall provide UT on a timely basis and without charge all information concerning the Product which is available to Toray and which is reasonably required by UT to fulfill its obligations under this Agreement, including but not limited to, information relating to preclinical and clinical research, safety, use, pharmacokinetics and efficacy, access through Toray to HMR European data and authority to use and submit such data to the FDA to the extent legally required, etc. In the event that UT uses information from other licensees of Toray, UT will be responsible for payment of reasonable compensation to such licensee through Toray. d. UT shall disclose to Toray on a timely basis and without charge all Product information (including but not limited to, clinical studies, ADR, GCP, preparation for registration, NDA filing, FDA approval, US market PMS, safety issues) which UT acquires or will acquire during the term of this Agreement UT agrees that Toray may use such information 7 outside the Territory free of charge. In the event that Toray grants the right to use such information to a Third Party except Yamanouchi Pharmaceutical Co., LTD. and Kaken Pharmaceutical Co., LTD. outside the Territory or uses such information itself within the Territory, Toray will be responsible for payment of reasonable compensation to UT e. Neither UT nor Toray shall appoint a Third Party to promote or distribute Product under UT's marketing rights approved by the FDA, without the other's approval. Notwithstanding the foregoing, in the event that UT fails to achieve at least [ ] annual Net Sales of Product in each year in and after the third fill sales year, then the Management Committee shall have the right, after frill discussion, to appoint a promoting company. In the event that the Management Committee is unable to reach agreement on the identity of such Third Party promoting company, Toray shall have the right to appoint such company. f. In the event that UT desires to market and/or advertise the Product for off-label use, UT shall discuss with Toray such off-label use and get the approval of it from Toray in advance. 5. Rights of First Refusal. a. Toray agrees to enter into a separate negotiation with UT for the first refusal right to co-promote the non-immediate release formulation of TRK-100 (Beraprost Sodium) for the Indication when it is developed or marketed in the Territory. b. Toray agrees to enter into a separate negotiation with UT for the first refusal right to develop and sell the Product in other therapeutic areas than the medication, including peripheral vascular disease in the Territory. c. Toray agrees to enter into a separate negotiation with UT for the first opportunity to develop and sell the Product in Mexico once Toray's other licensee indicates that it does not want to commence development in Mexico. d. UT agrees to enter into a separate negotiation with Toray for the first refusal right to develop and sell in Japan up to two compounds which UT is developing or will develop and which UT has the right to license or sublicense. 6. Intellectual Property. a. Patents. Toray will be responsible for taking all necessary action to maintain and/or extend the Patents Right in the Territory. UT will render reasonable assistance to Toray in this effort. b. Trademarks. UT will be responsible for selecting an enforceable trademark(s) for the Product acceptable to Toray and Toray will be responsible for registering and maintaining such registrations within all countries in the Territory. UT will market the Product using such trademark(s) to identify the Product within the Territory. Toray hereby grants to UT the exclusive right to use the trademark within the Territory during the term of this Agreement. 8 7. Warranties. a. Toray represents and warrants to UT that: (i) Toray is the sole owner of the Licensed Technology and has the exclusive right and authority to use the Know-How and to license the Patent Rights and the Know-How; (ii) as of the Effective Date, Toray is not aware of any action or threatened claim of infringement brought by a Third Party under any Third Party intellectual property right in respect of Toray's exploitation of the Licensed Technology; and (iii) Toray will make available to UT all material technical information in its possession or of which it is aware that is pertinent to development and commercialization of the rights licensed under this Agreement. b. Toray and UT each represents and warrants to the other that: (i) it is free to enter into this Agreement and to carry out its obligations hereunder; (ii) this Agreement constitutes its legal, valid and binding obligation; and (iii) execution, delivery and performance of this Agreement will not constitute a violation or breach of any agreement or contract to which it is a party or by which it is bound or the terms of any judicial or administrative decree or order to which it is subject. 8. Indemnification. UT agrees to indemnify and hold Toray, its Affiliates, and its and their directors, officers, employees and agents harmless from and against any liabilities or damages or expenses in connection therewith (including reasonable attorney's fees and costs and other expenses of litigation) resulting from Third Party claims arising out of UT's clinical development of Products, defectiveness of Product PPI (information to doctors, pharmacists and patients), and the use, storage or sales of the Product within the Territory 9. Confidentiality a. Treatment of Confidential Information. Except as otherwise provided in this Section 9.a, during the term of this Agreement and thereafter: for a period of seven (7) years 1. UT will retain in confidence and use only for purposes of this Agreement any information and data supplied by or on behalf of Toray to UT under this Agreement; and 2. Toray will retain in confidence and use only for purposes of this Agreement any information and data supplied by or on behalf of UT to Toray under this Agreement. For purposes of this Agreement, all such information and data which a Party is obligated to retain in confidence shall be called "Information." b. Right to Disclose. To the extent it is reasonably necessary or appropriate to fulfill its obligations or exercise its rights under this Agreement or any rights which survive termination or expiration hereof, a party may disclose Information to its Affiliates, licensees, consultants, outside contractors and clinical investigators on condition that such entities or persons agree (i) 9 to keep the Information confidential for at least the same time periods and to the same extent as each party is required to keep the Information confidential and (ii) to use the Information only for such purposes as such party is entitled to use the Information. Each party or its Affiliates may disclose such Information to government or other regulatory authorities to the extent that such disclosure (a) is reasonably necessary to obtain patents or authorizations, to conduct clinical trials and to market commercially the Product, provided such party is otherwise entitled to engage in such activities under this Agreement, or (b) is otherwise required by applicable laws or regulations. c. Release from Restrictions. The obligation not to disclose Information shall not apply to any part of such Information that (i) is or becomes patented, published or otherwise part of the public domain other than by acts of the party obligated not to disclose such Information (for purposes of this Section 9, the "Receiving Parry"') or its Affiliates or licensees in contravention of this Agreement, or (ii) is disclosed to the Receiving Party or its Affiliates or licensees by a Third Party, provided such Information was not obtained by such Third Party directly or indirectly from the other party under this Agreement; or (iii) prior to disclosure under this Agreement, was already in the possession of the Receiving Party or its Affiliates or licensees, provided such Information was not obtained, directly or indirectly, from the other party under this Agreement; or (iv) results from research and development by the Receiving party or its Affiliates or licensees independent of disclosures from the other party under this Agreement. d. Publications. No announcement, news release, public statement, publication or other public presentation relating to the existence of this Agreement, the subject matter herein, or either party's performance hereunder including any written or oral publication, any manuscript, abstract or the like which includes data or any other information generated and provided by the development effort hereunder, shall be made without the other party's prior approval as to form and content. An acceptable joint press release announcing the execution of this Agreement is required to be agreed by both Parties. 10. Term and Termination. a. Term and Expiration. This Agreement shall become effective as of the Effective Date and shall continue in full force and effect until that date ten years after FDA approval of the Product. UT may extend the term of this Agreement by successive one-year periods by giving written notice of each such extension to Toray no later than two-hundred ten (210) days prior to the end of the term set forth in the previous sentence or the end of each extension one-year period with written consent of Toray, which shall not be withheld without reasonable reason. b. Termination. 1. Product Development Delay. In the event that the Product development schedule falls six months or more behind the schedule initially determined under Section 4.b.1 by the Management Committee without a reasonable justification, then Toray may terminate this Agreement as provided in Section 4.b.1. 10 2. Infringement. UT may terminate this Agreement if a court of competent jurisdiction from which no further appeal can be taken has entered a final order indicating that the Licensed Technology infringes the rights of a Third Party. 3. Default. If a party materially defaults in its performance of any of its material obligations under this Agreement, and such default is not cured within sixty (60) days of written notice of such default by the other party, this Agreement may be terminated at the end of such 60-day period by the party not in default by written notice of termination to the defaulting party, such written notice to be given not later than seventy-five (75) days after the first written notice. Termination under this provision does not limit any remedies for breach. 4. Bankruptcy. In the event of the institution by or against either party of insolvency, receivership or bankruptcy proceedings or any other proceedings for the settlement of a party's debts which are not dismissed within sixty (60) days, or upon a party's making an assignment for the benefit of creditors, or upon a party's dissolution or ceasing to do business, the other party may terminate this Agreement upon written notice. 5. Mergers and Acquisitions ("M&A") If M&A is anticipated, in which UT merges a Third Party company or is merged by a Third Party company, or acquires more than 50% of the shares of a Third Party company or more than 50% of the shares of UT is acquired by a Third Party ("M&A"), and if such M&A is anticipated to affect badly the development and marketing of the Product, then UT agrees that, in order to minimize the inconvenience of Toray caused by such M&A, UT shall promptly inform Toray thereof and in good faith endeavor to agree with Toray about how to continue the development and marketing of the Product. If UT and Toray can not reach an agreement about how to continue the development and marketing of the Product according to this Agreement, then Toray has a right to terminate this Agreement. For the purposes of this Section 10.b.5, "to affect badly the development and marketing of the Product" means "to result in UT actually missing a milestone date in this Agreement, or failing to achieve a minimum Net Sales specified in this Agreement". Furthermore, if the M&A is reasonably expected to result in access to any information defined in Section 9 by a Third Party with very competitive products or pipelines to the Product Beraprost), then, prior to the M&A, UT shall reach agreement with Toray on how to prevent such access to any Information. No such M&A shall be completed until reasonable measures are in place to prevent access to Information as a result of any M&A by any Third Party with very competitive products or pipelines to the Product (Beraprost). c. Continuing Obligations. Upon expiration or termination of this Agreement with respect to all countries within the Territory, the rights and obligations of the parties shall cease, except as follows. 1 the rights and obligations of the Parties under Section 8 shall survive termination or expiration, 2. upon expiration or termination for any reason, the obligations of 11 confidentiality and use of Information under Section 9 shall survive for the period provided therein; and 3. expiration or termination of this Agreement shall not relieve the parties of any other obligation accruing prior to such termination. d. Outstanding Inventory. Only upon termination of this Agreement caused by the reason not attributable to UT, UT shall have the right and option to sell any completed inventory of Product, as if licensed under this Agreement, which remains on hand as of thc date of the termination, so long as UT pays to Toray as required under this Agreement. 11. General. a, Entire Agreement. This Agreement constitutes the entire agreement and understanding relating to the subject matter of this Agreement and supersedes all previous communications, proposals, representations and agreements, whether oral or written relating to the subject matter of this Agreement. b. Assignment. This Agreement is personal to UT and neither this Agreement nor any particular rights or obligations under this Agreement may be assigned or otherwise transferred by UT without the prior written consent of Toray. Any purported assignment in violation of the preceding sentence shall be void and shall constitute a material default of this Agreement. c. Force Majeure. A party shall not be held liable or responsible to another party nor be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or performing any term of this Agreement when such failure or delay is caused by or results from fires, floods, embargoes, government regulations, prohibitions or interventions, wars, acts of war (whether war be declared or not), insurrections, riots, civil commotion's, strikes, lockouts, acts of God, or any other cause beyond the reasonable control of the affected party. d. Notices. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been sufficiently given for all purposes if personally delivered or mailed by first class certified or registered mail, postage prepaid, hand delivered, or sent by telecopy or by reputable overnight courier service which requires signature upon delivery. Notices sent by U.S. mail shall be deemed delivered three days after deposit with postal authorities or upon confirmed delivery if personally delivered, sent by confirmed fax or courier service. Unless otherwise specified in writing, the mailing addresses of the Parties shall be as described below: For UT: United Therapeutics Corporation 68 T.W. Alexander Drive P0 Box 14186 Research Triangle Park, NC 27709, USA Attention; Dr. Gilles Cloutier, Ph.D. 12 Fax Number: 919-485-8352 For Toray: Toray Industries, Inc. 2-1,Nihonbashi-Muromachi 2-chome, Chou-ku, Tokyo 103-8666, JAPAN Attention: Dr. Masanobu Naruto, Ph.D. Pharmaceuticals Planning Department. Fax Number: 81-3-3245-5421 e. Amendment and Waiver. This Agreement may be modified, amended and supplemented only by written agreement signed by the parties. The waiver by any party to this Agreement of any breach or violation of any provision of this Agreement by the other party shall not operate or be construed to be a waiver of any subsequent breach or violation of the same or any other provision of this Agreement, f. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts between residents of New York which are wholly executed and performed in New York, except that questions affecting the validity, construction and effect of any patent shall be determined by the laws of the country in which the patent was granted. g. Arbitration All claims, controversies, disputes or differences arising between Toray and UT in connection with, arising from, or with respect to this Agreement, which shall not be resolved within thirty (30) days after either party notify the other in writing of such claim, controversy, dispute or difference, shall be submitted for arbitration to the American Arbitration Association on demand of Toray and shall be submitted for arbitration to the Japan Commercial Arbitration Association on demand of UT. Such arbitration proceedings shall be conducted in Washington D.C., USA in accordance with the then current Commercial Arbitration Rules of the American Arbitration Association if initiated by Toray and shall be conducted in Tokyo, Japan in accordance with the then current Commercial Arbitration Rules of the Japan Commercial Arbitration Association if initiated by UT. The award and decision of the arbitrator(s) shall be conclusive and binding upon all parties hereto and judgment upon the award may be entered into any court of general jurisdiction. This Agreement to arbitrate shall continue in full force and effect subsequent to and notwithstanding the expiration or termination of this Agreement. h. Partial Invalidity. If any provision of this Agreement is found to be invalid, illegal, or otherwise unenforceable, then the remaining provisions shall nevertheless remain in full force and effect and shall not be affected by the modification of striking of the involved or unenforceable provision. The parties agree to renegotiate in good faith any term held invalid and be bound by the mutually agreed substitute provision. j. Independent Contractors. The relationship between Toray and UT is that of independent contractors. Neither party has any actual or apparent authority, express or implied, to act on behalf of the other party or to bind the other party to any obligations. Neither party shall be deemed to be an agent or servant of the other party or a partner or venturer with the other party. 13 IN WITNESS WHEREOF, this Agreement is executed and effective as of the date first above written. TORAY INDUSTRIES, INC. UNITED THERAPEUTICS CORPORATION /s/ Kiyoteru Wakasugi /s/ Martine Rothblatt - ----------------------- ---------------------- By: Kiyoteru Wakasugi By: Martine Rothblatt Managing Director of the Board Chief Executive Officer Date: Sept. 16, 1998 Date: Sept. 24, 1998 ----------------- ------------------ EX-10.12 20 EXCLUSIVE LICENSE AGREEMENT 1 CONFIDENTIAL TREATMENT REQUESTED FOR PORTIONS OF THIS DOCUMENT EXHIBIT 10.12 EXCLUSIVE LICENSE AGREEMENT This Exclusive License Agreement ("Agreement") is made this 30th day of October, effective as of the date of the last signature below (the "Effective Date"), by and between United Therapeutics Corporation, a Delaware corporation, having an address at 1826 R Street, N.W., Washington, D.C. 20009 ("UT"), and Cortech, Inc., a Delaware corporation, having an address at 6850 N. Broadway, Denver, Colorado 80221 ("Cortech"). WITNESSETH: WHEREAS, Cortech owns or has rights in certain technology relating to CE-1037, a serine-elastase inhibitor as described in Exhibit A attached hereto. WHEREAS, UT desires to obtain an exclusive license under Cortech's rights in such technology to develop and commercialize products for use in the Field. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the parties hereby agree as follows: ARTICLE 1 DEFINITIONS For purposes of this Agreement, the terms defined in this Article 1 shall have the respective meanings set forth below: 1.1 "Advisory Committee" shall mean the committee composed of representatives of Cortech and UT described in Section 3.4.1 below. 1.2 "Affiliate" shall mean, with respect to any Person, any other Person which directly or indirectly controls, is controlled by, or is under common control with, such Person. A Person shall be regarded as in control of another Person if it owns, or directly or indirectly controls, at least fifty percent (50%) of the voting stock or other ownership interest of the other Person, or if it directly or indirectly possesses the power to direct or cause the direction of the management and policies of the other Person by any means whatsoever. 1.3 "Consideration" shall mean any cash or non-cash consideration of any kind whatsoever, whether tangible or intangible, direct or indirect. 1.4 "Cortech Future Improvements" shall mean all improvements to the Licensed Compound for use in the Field, including without limitation, all data, know-how, methods, compositions or information, whether or not patentable, which Cortech develops pursuant to its 2 obligations under Sections 3.4 and 3.7 of this Agreement during the term of this Agreement and in which Cortech has an ownership or licensable interest; all to the extent and only to the extent that that Cortech has the right to grant licenses, immunities or other rights thereunder during the term of this Agreement. 1.5 "Dollars" or "$" means United States dollars. 1.6 "FDA" shall mean the United States Food and Drug Administration or any successor entity. 1.7 "Field" shall mean the treatment of all indications other than the treatment of dermatological conditions through the use of a topical preparation administered to the skin. 1.8 "First Commercial Sale" shall mean, with respect to any Product, the first sale for use or consumption by the general public of such Product. A transfer of the Product by UT or its sublicensees (a) solely for research and development purposes and for the purpose of directly enabling UT and its permitted sublicensees to research and develop Products under this Agreement and (b) prior to UT's receipt of approval of an NDA by the FDA (or from the governing health authority of any other country) for use of such Product in humans, shall not be considered a First Commercial Sale. 1.9 "Law" means any local, state or federal rule, regulation, statute or law relevant to the activities undertaken pursuant to this Agreement or applicable to either of the parties with respect to any matters set forth herein. 1.10 "Licensed Compound" means CE-1037, a serine-elastase inhibitor with such biochemical structure as described in Exhibit A, and all salts and esters thereof that are claimed under the Licensed Patent Rights. 1.11 "Licensed Know-How" shall mean all information and data (i) which are not generally known including, but not limited to, formulae, procedures, protocols, techniques and results of experimentation and testing, (ii) which are set forth on Exhibit B attached hereto, (iii) which are necessary or useful for UT to make, use, develop, sell or seek regulatory approval to market a Product, and (iv) in which Cortech has an ownership or licensable interest in the Licensed Know-How as of the date of this Agreement. 1.12 "Licensed Patent Rights" shall mean (a) all issued patents and patent applications set forth in Exhibit B attached hereto which are owned by or licensed to Cortech which claim (i) a Product, (ii) the process of manufacture or use of a Product or (iii) a congener described within the patents or patent applications set forth in Exhibit B, together with any and all patents that issue or in the future issue therefrom, including utility and design patents and certificates of invention, and (b) all divisionals, continuations, reissues, renewals and extensions to any such patents and patent applications. 2 3 1.13 "Licensed Technology" shall mean, collectively, the Licensed Compound, Licensed Patent Rights, Licensed Know-How, Cortech Inventions, Joint Inventions and the Cortech Future Improvements. Without expanding the foregoing and notwithstanding anything to the contrary in this Agreement, the foregoing shall not include any technology, know-how, patent rights, trade secrets, information, data, inventions, improvements or any intellectual property rights arising from or relating to (a) Cortech's current or future oral elastase program or (b) the treatment of dermatological conditions through the use of a topical preparation administered to the skin. 1.14 "NDA" shall mean a New Drug Application or any equivalent successor application. 1.15 "Net Sales" shall mean, with respect to any Product, the invoiced sales price of such Product billed to independent customers who are not Affiliates, less to the extent included in the invoiced sales price, (a) credits, allowances, discounts and rebates to, and chargebacks from the account of, such independent customers for spoiled, damaged, out-dated, rejected or returned Product; (b) actual shipping and handling, freight and insurance costs incurred in transporting such Product in final form to such customers; (c) cash, quantity and trade discounts; and (d) sales, use, value-added and other taxes or governmental charges incurred in connection with the exportation or importation of such Product in final form. 1.16 "Orphan Indication" shall mean diseases or conditions affecting 200,000 or fewer people in the United States. 1.17 "Person" shall mean an individual, corporation, partnership, trust, business trust, association, joint stock company, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein. 1.18 "Product" shall mean any product for use in the Field which contains, incorporates, is based upon or is derived in whole or in part from the Licensed Compound. 1.19 "Royalty Term" shall mean, with respect to each Product in each country, the period of time equal to the longer of (a) ten (10) years from the date of the First Commercial Sale of such Product in such country or (b) if the manufacture, use, import, offering for sale or in sale of such Product in such country was at the time of the First Commercial Sale in such country covered by a Valid Patent Claim, the term for which such Valid Patent Claim remains in effect and would, if in an issued patent, be infringed but for the license granted by this Agreement. 1.20 "Third Party" shall mean any Person other than Cortech, UT and their respective Affiliates. 1.21 "Valid Patent Claim" shall mean either (a) a claim of an issued and unexpired patent included within the Licensed Patent Rights, which has not been held permanently revoked, unenforceable, unpatentable or invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and 3 4 which has not been admitted to be invalid or unenforceable through reissue or disclaimer or otherwise or (b) a claim of a pending patent application included within the Licensed Patent Rights, which claim has not been abandoned or finally disallowed without the possibility of appeal or refiling of such application. ARTICLE 2 REPRESENTATIONS AND WARRANTIES 2.1 Each party hereby represents and warrants to the other party as follows: 2.1.1 Corporate Existence and Power. Such party (a) is a corporation duly organized, validly existing and in good standing under the laws of the state in which it is incorporated; (b) has the corporate power and authority and the legal right to own and operate its property and assets, to lease the property and assets it operates under lease, and to carry on its business as it is now being conducted and (c) is in compliance with all requirements of applicable law, except to the extent that any noncompliance would not have a material adverse effect on the properties, business, financial or other condition of it and would not materially adversely affect its ability to perform its obligations under this Agreement. 2.1.2 Authorization and Enforcement of Obligations. Such party (a) has the corporate power and authority and the legal right to enter into this Agreement and to perform its obligations hereunder and (b) has taken all necessary corporate action on its part to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder. This Agreement has been duly executed and delivered on behalf of such party, and constitutes a legal, valid, binding obligation, enforceable against such party in accordance with its terms. 2.1.3 No Consents. All necessary consents, approvals and authorizations of all governmental authorities and other Persons required to be obtained by such party in connection with this Agreement have been obtained. 2.1.4 No Conflict. As of the Effective Date, the execution and delivery of this Agreement and the performance of such party's obligations hereunder (a) do not conflict with or violate any requirement of applicable laws or regulations, and (b) do not conflict with, or constitute a default under, any contractual obligation of it. 2.2 Warranties by Cortech. Cortech represents and warrants to UT as of the Effective Date that to Cortech's actual knowledge: 2.2.1 Cortech is the sole and exclusive licensor or licensee of the Licensed Technology and has the right to grant the licenses hereunder; 4 5 2.2.2 Cortech has provided UT access to all information reasonably available to Cortech which materially addresses the safety profile of compound CE-1037; and 2.2.3 Cortech is not aware of (a) any pending or threatened claims of litigation brought by a Third Party under any Third Party patent, trade secret or other Third Party intellectual property right regarding the Licensed Technology or compound CE-1037 or (b) any federally-funded research that directly led to the development of the Licensed Patent Rights or the Licensed Compound. 2.2.4 Except for arrangements already in place pursuant to which rights will be transferred by Cortech to UT under this Agreement, Cortech is not aware of any required third party patent or other intellectual property licenses to make, sell, use, offer for sale or import compound CE-1037. 2.2.5 Cortech has provided UT with copies of all material agreements relating to CE-1037, as listed on the attached Exhibit H, and this Agreement is subject to all relevant provisions of such agreements. 2.2.6 If Cortech receives a notice of default ("Notice of Default") under Section 5.2 of the License Agreement dated November 2, 1998 between Cortech and Hoechst Marion Roussel, Inc. ("HMR") relating to elastase inhibitors (the "HMR Agreement"), Cortech shall notify UT in writing within two (2) business days. 2.3 Warranties by UT. UT represents and warrants to Cortech that as of the Effective Date: 2.3.1 UT will use commercially reasonable good faith efforts and resources to research, develop, seek regulatory approval, commercialize and market Products for one or more indications; and 2.3.2 UT has delivered to Cortech (i) a complete and correct copy of UT's Certificate of Incorporation and By-laws, each as amended to date (which Certificate of Incorporation and By-laws so delivered are in full force and effect); 2.3.3 UT has the requisite corporate power and authority and has taken all corporate action necessary in order to execute and deliver the Warrant (as defined below) and to consummate the transactions contemplated thereby; 2.3.4 The Warrant is a valid and binding agreement of UT enforceable against UT in accordance with its terms; 2.3.5 No notices, reports or other filings are required to be made by UT with, nor are any consents, registrations, approvals, permits or authorizations required to be obtained 5 6 by UT from, any governmental entity in connection with the execution and delivery of the Warrant by UT and the consummation by UT of the transactions contemplated thereby; 2.3.6 The execution and delivery of the Warrant by UT do not, and the consummation of the transactions contemplated thereby by UT will not, constitute or result in (i) a breach or violation of, or a default under, the Certificate of Incorporation or By-Laws of UT or (ii) a breach or violation of, a default under, the acceleration of or the creation of a lien, pledge, security interest or other encumbrance on assets (with or without the giving of notice or the lapse of time) pursuant to, any provision of any contract, agreement, lease, note, or mortgage, indenture, arrangement or other obligation of UT (or by which its assets or properties are bound) or any law, ordinance, rule or regulation or judgment, decree, order, award or governmental or non-governmental permit or license to which UT (or its assets or properties) is subject; 2.3.7 The authorized capital stock of UT consists of fifty million (50,000,000) shares of common stock, par value $0.01 per share ("Common Stock"), and ten million (10,000,000) shares of preferred stock, par value $0.01 per share ("Preferred Stock"). As of the date hereof, (i) twenty-eight million four hundred and fourteen thousand nine hundred and thirteen (28,414,913) shares of Common Stock and no shares of Preferred Stock were issued and outstanding, (ii) no shares of Common Stock were held by UT in its treasury, (iii) five million (5,000,000) shares of Common Stock were reserved for issuance pursuant to outstanding stock options to purchase shares of Common Stock ("Stock Options") granted pursuant to UT's Employee Stock Option Plan and an additional one million (1,000,000) shares of Common Stock were reserved for the grant of other Stock Options. 2.3.8 All outstanding shares of Common Stock are, and all shares of Common Stock to be issued upon any exercise of the Warrant will be, when so issued, duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights; 2.3.9 As of the date hereof, except for the Warrant and as disclosed in Section 2.3.7, there are no options, warrants, calls, rights, commitments or agreements of any character to which UT is a party or by which it is bound obligating UT to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of UT or obligating UT to grant, extend or enter into any such option, warrant, call, right, commitment or agreement; 2.3.10 UT has provided Cortech with (i) UT's audited balance sheet as of December 31, 1997 and the related statements of operations, changes in stockholders' equity and cash flows for the period June 26, 1996 to December 31, 1996 and year then ended, and (ii) UT's unaudited balance sheet as of August 31, 1998 and the related statements of operations, changes in stockholders' equity and cash flows for the one month and eight-month period then ended (the audited balance sheet at December 31, 1997 is hereinafter referred to as the "BALANCE SHEET," and all such financial statements are hereinafter referred to collectively as the "FINANCIAL STATEMENTS"); 6 7 2.3.11 The audited Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis during the periods involved and are in accordance with UT's books and records, and fairly present the financial position of UT and the results of its operations as of the date and for the periods indicated thereon, subject in the case of the unaudited portion of the Financial Statements to (i) normal year-end audit adjustments which will not be material and (ii) the absence of certain footnote disclosures; 2.3.12 At the date of the Balance Sheet (the "BALANCE SHEET DATE") and as of the date hereof, UT had and has no liabilities or obligations, secured or unsecured (whether accrued, absolute, contingent or otherwise - collectively, "LIABILITIES") not reflected on the Balance Sheet except for Liabilities (i) as may have arisen in the ordinary course of business prior to the date of the Balance Sheet and which, under GAAP, would not have been required to be reflected on the Balance Sheet and (ii) incurred in the ordinary course of business since the date of the Balance Sheet which are usual and normal in amount, but in any event not greater than $50,000.00 in the aggregate (inclusive of clauses (i) and (ii)); 2.3.13 On or about July 31, 1998, UT closed a private placement of Common Stock resulting in gross proceeds to UT of not less than $5,000,000.00 at a selling price of not less than $3.00 per share of Common Stock; and 2.3.14 There are no schedules of exceptions to any of the private placements or stock offerings conducted by UT as of the date of this Agreement which have not been provided to Cortech and UT is not aware of any material information which has not been provided to Cortech which would reasonably be the subject of inclusion on a schedule of exceptions with respect to the Warrant. 2.3.15 In connection with the private placements or stock offerings conducted by UT as of the date of this Agreement, no third party has been granted any material rights in connection with the stock which is the subject of such private placements or stock offerings not granted to Cortech with respect to the Warrant. UT has shared information with Cortech regarding warrant grants as set forth in Exhibit G. 2.3.16 Any and all financial information or financial data pertaining to UT, at the time such information or data was furnished by or on behalf of UT to Cortech, does not contain any untrue statement of a material fact and does not omit to state any material fact necessary to make any statement, in light of the circumstances under which such statement was made, not misleading. 2.4 Disclaimer by Cortech. EXCEPT AS EXPRESSLY SET FORTH IN THIS ARTICLE 2, CORTECH MAKES NO OTHER REPRESENTATIONS, WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE LICENSED TECHNOLOGY OR THE LICENSED COMPOUND AND CORTECH DISCLAIMS ALL OTHER REPRESENTATIONS, WARRANTIES, EXPRESS AND IMPLIED, INCLUDING WITHOUT 7 8 LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT. EXCEPT AS EXPRESSLY SET FORTH IN THIS ARTICLE 2, CORTECH MAKES NO REPRESENTATION AND EXTENDS NO WARRANTIES WHATSOEVER, EITHER EXPRESS OR IMPLIED, (A) THAT THE LICENSED TECHNOLOGY MAY BE UTILIZED TO CREATE ANY PRODUCT, (B) THAT THE LICENSED TECHNOLOGY OR A PRODUCT MANUFACTURED, USED, SOLD OR OTHERWISE MARKETED UNDER THE LICENSED TECHNOLOGY SHALL BE FREE FROM INFRINGEMENT OF ANY THIRD PARTY PATENT (WHETHER PRESENTLY ISSUED OR WHICH MAY ISSUE IN THE FUTURE) OR OTHER INTELLECTUAL PROPERTY RIGHT OR (C) THAT THE LICENSED TECHNOLOGY COMPRISES INVENTIONS WHICH WILL MATURE INTO ISSUED PATENTS HAVING VALID AND ENFORCEABLE CLAIMS OR (D) THAT THE LICENSED TECHNOLOGY COMPRISES PATENTS WHICH WILL REMAIN VALID AND ENFORCEABLE. ARTICLE 3 DEVELOPMENT AND COMMERCIALIZATION PROGRAM 3.1 Research and Development Efforts. UT shall use its commercially reasonable efforts to develop and conduct such research, development and preclinical and human clinical trials to obtain all regulatory approvals to manufacture, market and commercialize such Products as UT determines are commercially reasonably feasible, and diligently obtain necessary approvals to commence marketing and market each such Product in such countries as UT determines are commercially feasible; provided however, that UT shall have the right to distribute (without receipt of Consideration and without payment of a royalty to Cortech) in any calendar year for compassionate purposes to indigent patients, an aggregate of up to ten percent (10%) of the total number of Products sold in units (with the receipt of Consideration) in such calendar year by UT, its Affiliates and sublicensees. UT, at its sole expense, shall fund the costs of all such research, development, preclinical and clinical trials, regulatory approval, manufacture of the Products and commercialization and marketing of the Products. UT shall use its commercially reasonable efforts to conduct such research, development, clinical trials, manufacturing and commercialization and marketing of Products pursuant to the development plan and timeline attached hereto as Exhibit C. UT will solely and exclusively own all regulatory applications and approvals obtained by UT with respect to Products. 3.2 Records. UT shall maintain records, in sufficient detail and in good scientific manner appropriate for patent purposes, which shall reflect all work done and results achieved in the performance of its research and development regarding the Licensed Technology and the Products (including all data in the form required under all applicable laws and regulations). 3.3 Reports. On a yearly basis, within ninety (90) days following the end of each calendar year during the term of this Agreement, UT shall prepare and deliver to Cortech a 8 9 written report which shall describe, in reasonably sufficient detail (a) the research performed by UT to date employing the Licensed Technology, (b) the progress of the development and testing of Products in clinical trials and (c) the status of obtaining the necessary approvals to market Products. In addition, UT shall use its best efforts to provide Cortech with a minimum of three (3) months' advance written notice of the contemplated filing of an Investigational New Drug application ("IND") in the United States (or similar application in any other country), written notice of all other regulatory filings and submissions prior to the date of such submissions, and written notice of all approvals obtained promptly after obtaining such approvals. UT shall keep Cortech reasonably apprised of all written information or feedback provided by regulatory authorities to UT during the term of this Agreement. 3.4 Advisory Committee. 3.4.1 Composition of the Advisory Committee. The Advisory Committee shall be comprised of two (2) named representatives of Cortech and two (2) named representatives of UT. Each party shall appoint its respective representatives to the Advisory Committee from time to time, and may substitute one or more of its representatives, in its sole discretion, effective upon notice to the other party of such change. Notwithstanding anything to the contrary in this Agreement, if Cortech is unable, for any material reason, to appoint such representatives to the Advisory Committee or to participate in such Advisory Committee meetings, such inability shall not be considered a breach of this Agreement by Cortech. 3.4.2 Meetings. The Advisory Committee shall meet not less than once each calendar quarter during the term of this Agreement on such dates and at such times and places as agreed to by Cortech and UT, alternating between Cortech's principal offices and UT's principal offices, or such other locations as the parties shall agree, unless both parties mutually determine that a meeting should not take place. At such meetings, the Advisory Committee shall discuss UT's research, development and commercialization efforts under this Agreement and establish priorities therefor, and shall discuss any actual regulatory filings regarding Products together with any anticipated regulatory filings with respect to possible Products. Each party shall bear its own expenses in connection with travel and attendance at such meetings. 3.5 Purchase of Compound. UT, at UT's sole expense, shall have the right to purchase the compound CE-1037 from Cortech's existing inventory in such intermediate and bulk forms, amounts and prices set forth on Exhibit D hereto. From time to time, upon the request of UT, Cortech may sell to UT additional amounts of compound CE- 1 03 7 in such form and in such amounts as UT requests and Cortech agrees to provide to UT; provided however, that (a) such compound CE-1037 is reasonably available to Cortech in the forms and amounts requested by UT and (b) Cortech shall have no obligations regarding Cortech's ability to supply compound CE-1037 to UT or with respect to the quality, quantity, viability or purity of compound CE-1037. UT will be solely responsible for all costs and expenses relating to shipping, handling and delivery of compound CE-1037 to UT. UT shall have the right to purchase the Licensed Compound from a cGMP supplier, provided that, the royalty reduction under Section 5.7 shall not apply to any royalty paid by UT to such supplier. 9 10 3.6 Cessation of Development by UT. UT may choose to discontinue development of Products under this Agreement at any time without penalty upon written notice to Cortech if, in UT's commercially reasonable discretion, the Products do not satisfy the clinical needs for UT's targeted clinical indications; provided that, upon such discontinuation of development by UT (a) all rights and licenses to the Licensed Technology granted by Cortech to UT under this Agreement shall terminate and revert to Cortech; and (b) Cortech shall have an unrestricted royalty-free exclusive license (with the right to grant sublicenses) to conduct research and development and to make, use, sell, offer for sale and import products (the "Cortech Products") utilizing or incorporating inventions, improvements, compositions, know-how, data, information, materials, regulatory filings and any intellectual property arising out of or relating to UT's performance under this Agreement or UT's use of the Licensed Technology (collectively, the "UT Improvements"). Upon such discontinuation, UT shall promptly provide and deliver to Cortech the UT Improvements. If such discontinuation of Product development by UT occurs during or after UT's initiation of Phase III clinical studies, the license to Cortech under subparagraph (b) above shall bear a [ ] royalty on Net Sales of Cortech Products by Cortech to Third Parties, on a country-by-country basis, for the longer of (x) ten (10) years from the date of Cortech's first commercial sale of Cortech Products or (y) if the manufacture, use, import, offering for sale or sale of Cortech Products was at the time of Cortech's first commercial sale of Cortech Products covered by a patent owned by UT, the term for which such patent remains in effect and would, if in an issued patent, be infringed. UT shall promptly provide Cortech with all UT Improvements within thirty (30) days after UT's discontinuation of Product development. 3.7 Cortech Obligations. 3.7.1 Within thirty (30) days following the execution of this Agreement, Cortech shall supply UT with the information, items and other materials relating to the Licensed Technology set forth on Exhibit E attached hereto. 3.7.2 Cortech shall, upon the reasonable request of UT and subject to the availability of Cortech personnel, provide UT with such reasonable assistance and consultation that is mutually agreed to by Cortech and UT regarding the Licensed Compound and the Licensed Technology, such agreement of Cortech not to be unreasonably withheld or delayed. UT shall compensate Cortech for such assistance and consultation at an hourly rate which shall be agreed to by the parties in good faith. UT shall also reimburse Cortech for all reasonable costs and expenses incurred by Cortech in connection with Cortech's assistance and consultation under this Section 3.7.2. Cortech makes no representations, warranties or covenants regarding the assistance or consulting services (if any) provided by Cortech to UT under this Section 3.7.2. 10 11 ARTICLE 4 LICENSE GRANT 4.1 Licensed Technology. Cortech hereby grants to UT and its Affiliates a worldwide, exclusive, royalty-bearing license (with the right to grant sublicenses as set forth in Section 4.2 below) under the Licensed Technology to develop, make, have made, use, import, offer for sale and sell Products for use in the Field. 4.2 Sublicenses. UT shall have the right to grant sublicenses under the licenses in Section 4.1 above to any Third Party or Affiliate. UT shall deliver a copy of each sublicense under this Agreement to Cortech promptly after execution of the same. Each sublicense shall be subject to the terms and conditions of this Agreement. 4.3 Cortech Future Improvements. Cortech shall notify UT within ninety (90) days of Cortech's development (if any) of a Cortech Future Improvement. ARTICLE 5 LICENSE FEES, ROYALTIES AND MILESTONE PAYMENTS 5.1 License Fees, Common Stock, Warrants. In consideration for the exclusive license granted to UT herein, UT shall on the Effective Date: 5.1.1 Pay to Cortech a non-refundable license fee of [ ]; 5.1.2 Execute and deliver to Cortech the Stock Purchase Warrant (the "Warrant") attached hereto as Exhibit F which provides for the issuance to Cortech of warrants to acquire three hundred and fifty thousand (350,000) shares of UT common stock. The Warrant shall be exercisable by Cortech twenty-four (24) months after the Effective Date (the "Warrant Exercise Date") at a purchase price as described in Exhibit F, provided that, UT, using its commercially reasonable discretion, has not terminated all research, development and commercialization efforts regarding the Licensed Compound and the Products as set forth in Section 3.6 above prior to the Warrant Exercise Date. UT's execution and delivery of the Warrant shall be a condition precedent to this Agreement. 5.2 Royalty. In further consideration for the exclusive license granted to UT herein, during the Royalty Term, UT shall pay to Cortech the following royalties: 5.2.1 A royalty of [ ] of Net Sales of Products (or Consideration received) by UT, its Affiliates and sublicensees, where Net Sales (or Consideration received) for the quarter in which such royalties are due are [ ] or less; 11 12 5.2.2 A royalty of [ ] Of Net Sales of Products (or Consideration received) by UT, its Affiliates and sublicensees, where Net Sales (or Consideration received) for the quarter in which such royalties are due are greater than [ ] but less than [ ]; and 5.2.3 A royalty of [ ] of Net Sales of Products (or Consideration received) by UT, its Affiliates and sublicensees, where Net Sales (or Consideration received) for the quarter in which such royalties are due are greater than [ ]. 5.3 Accrual of Royalties. No royalty shall be payable on a Product distributed to Third Parties solely for marketing and advertising purposes or as a sample for testing or evaluation purposes; provided however, that UT shall be obligated to pay royalties as set forth in Section 5.2 above if UT receives Consideration for such distribution. No multiple royalty shall be payable on a Product because the manufacture, use or sale of such Product is covered by more than one Licensed Patent Right. 5.4 General Milestone Payments. As further consideration for the exclusive license granted to UT under this Agreement, UT shall pay Cortech a non-refundable milestone payment of [ ] on the earlier of (a) enrollment of the first patient in the first clinical study in any country, using the Licensed Compound, which is designed and "statistically powered" to demonstrate a beneficial effect on a primary efficacy endpoint, or (b) the date two (2) years and six (6) months after the Effective Date; provided that, with respect to this clause (b), (i) a governmental regulatory agency has not imposed a material restriction on UT's Product regulatory approval activities under this Agreement, which restriction has delayed or prevented UT from commencing such clinical trial, (ii) a governmental regulatory agency has not required UT to materially change the development plan and timeline set forth in Exhibit C, which change has delayed or prevented the commencement of such clinical trial or (iii) negative or equivocal study results have not arisen which necessitate a material and significant change in the development plan and timeline set forth in Exhibit C, which change has delayed or prevented the commencement of such clinical trial, and provided further in any event, such milestone payment shall be due and payable as set forth in clause (a) above. 5.5 Milestone Payments for Orphan Indications. As further consideration for the exclusive license granted to UT under this Agreement, UT shall pay Cortech the following non-refundable milestone payments upon the first occurrence of each event set forth below with respect to the first Product developed by or for UT for an Orphan Indication which achieves such milestone set forth below: 5.5.1 [ ] upon filing an NDA in the United States; 5.5.2 [ ] upon the filing of a marketing authorization application (MAA) in any country outside of the United States; 5.5.3 [ ] upon receipt of the required marketing approval from the FDA; 12 13 5.5.4 [ ] upon receipt of MAA approval from the governing health authority of any country (other than the United States); and 5.5.5 [ ] on the date which is one year after the date of UT's First Commercial Sale. 5.6 Milestone Payments for Non-Orphan Indications. As further consideration for the exclusive license granted to UT under this Agreement, UT shall pay Cortech the following non-refundable milestone payments upon the first occurrence of each event set forth below with respect to the first Product developed by or for UT for a non-Orphan Indication which achieves such milestone set forth below: 5.6.1 [ ] upon commencement of Phase III clinical trials in the United States (or their equivalent in any other country); 5.6.2 [ ] upon filing an NDA in the United States; 5.6.3 [ ] upon the filing of an MAA in any country outside the United States; 5.6.4 [ ] upon receipt of the required marketing approval from the FDA; and 5.6.5 [ ] upon receipt of MAA approval from the governing health authority of any country (other than the United States). 5.7 Third Party Royalties. If UT is required during any quarter, with respect to any Product in any country, to pay to Third Parties a royalty greater than [ ] of Net Sales (the "Threshold Royalty") in order to exercise its rights hereunder to practice any process or method, or to make, use or sell any composition which is the subject of a Valid Claim in such country, the royalties owning from UT to Cortech shall be offset as set forth below. 5.7.1 If such Net Sales of Products by UT, its Affiliates and sublicensees are equal to or greater than [ ] for such quarter, then UT shall have the right to credit the amount of such Third Party royalty payments in such country against the royalties owing to Cortech under Section 5.2 above as set forth in this Section 5.7.1. If the royalties payable by UT to such Third Parties in such country exceeds the Threshold Royalty, the royalties payable by UT to Cortech under Section 5.2 above for Products sold by UT in such country shall be reduced by [ ] for each [ ] royalty payable by UT over the Threshold Royalty; provided however that such royalty reductions shall not exceed [ ]. By way of explanation and illustration only, if during a quarter UT has total quarterly Net Sales greater than [ ] and UT is required in a particular country to pay to Third Parties a total aggregate royalty of [ ] of Net Sales in such country, the royalties owed by UT to Cortech for UT's Net Sales in such country would be reduced by a total of [ ] (i.e., a [ ] reduction in the royalties payable to Cortech for each [ ] royalty payable to the Third Parties over the Threshold Royalty, up to a maximum reduction of [ ], and the total royalty amount payable by UT to Cortech in such country would be equal to [ ] instead of [ ]. 13 14 5.7.2 If such Net Sales of Products by UT, its Affiliates and sublicensees are equal to or greater than [ ] but less than [ ] for such quarter, then UT shall have the right to credit the amount of such Third Party royalty payments in such country against the royalties owing to Cortech under Section 5.2 above as set forth in this Section 5.7.2. If the royalties payable by UT to such Third Parties in such country exceeds the Threshold Royalty, the royalties payable by UT to Cortech under Section 5.2 above for Products sold by UT in such country shall be reduced by [ ] for each [ ] royalty payable by UT over the Threshold Royalty; provided however that such royalty reductions shall not exceed [ ]. 5.7.3 If such Net Sales of Products by UT, its Affiliates and sublicensees are less than [ ] for such quarter, then UT shall have the right to credit the amount of such Third Party royalty payments in such country against the royalties owing to Cortech under Section 5.2 above as set forth in this Section 5.7.3. If the royalties payable by UT to such Third Parties in such country exceeds the Threshold Royalty, the royalties payable by UT to Cortech under Section 5.2 above for Products sold by UT in such country shall be reduced by [ ] for each [ ] royalty payable by UT over the Threshold Royalty; provided however that such royalty reductions shall not exceed [ ]. 5.8 HMR Agreement. In the event that Cortech fails to cure a Notice of Default within forty-five (45) days of receipt, upon UT's written request, Cortech shall assign the HMR Agreement to UT. In the event that such an assignment is made, Cortech shall provide a credit to UT against the royalties UT is required to pay to Cortech under Section 5.2 above equivalent to twice the amount of the reasonable and direct expenses incurred by UT as a result of the assignment, including but not limited to, payment of royalties to HMR required under the Agreement. ARTICLE 6 ROYALTY REPORTS AND ACCOUNTING 6.1 Reports, Exchange Rates. UT shall notify Cortech in writing promptly upon the First Commercial Sale of a Product by UT, its Affiliates or its sublicensees. During the term of this Agreement following the First Commercial Sale of a Product, UT shall furnish to Cortech a quarterly written report showing in reasonably specific detail, on a country by country basis, (a) the gross sales of each Product sold by UT, its Affiliates and its sublicensees during the reporting period and the calculation of Net Sales from such gross sales; (b) the royalties payable in Dollars, if any, which shall have accrued hereunder based upon Net Sales of each Product; (c) the withholding taxes, if any, required by law to be deducted in respect of such sales, (d) the date of the First Commercial Sales of each Product in each country during the reporting period; and (e) the exchange rates used in determining the amount of Dollars. With respect to sales of Products invoiced in Dollars, the gross sales, Net Sales, and royalties payable shall be expressed in Dollars. With respect to sales of Products invoiced in a currency other than Dollars, the gross sales, Net Sales and royalties payable shall be expressed in the domestic currency of the party 14 15 making the sale together with the Dollar equivalent of the royalty payable. The Dollar equivalent shall be calculated using the average exchange rate (local currency per US$1) published in The Wall Street Journal Western Edition, under the heading "Currency Trading," on each of the last business day of each month during the applicable calendar quarter. Reports shall be due on the seventy-fifth (75th) day following the close of each quarter. UT, its Affiliates and its sublicensees shall keep complete and accurate records in sufficient detail to properly reflect all gross sales and Net Sales and to enable the royalties payable hereunder to be determined. 6.2 Audits. 6.2.1 Upon the written request of Cortech, and not more than twice in each calendar year, UT shall permit an independent certified public accounting firm of globally recognized standing, selected by Cortech, at Cortech's expense, to have access during normal business hours to such of the records of UT as may be reasonably necessary to verify the accuracy of the royalty reports hereunder for the last three (3) full fiscal years prior to the date of such request. The accounting firm shall disclose to Cortech or its licensors only whether the records are correct or not and the specific details concerning any discrepancies. No other information shall be shared. 6.2.2 If such accounting firm concludes that additional royalties were owed during such period, UT shall pay the additional royalties within thirty (30) days of the date Cortech delivers to UT such accounting firm's written report so concluding. The fees charged by such accounting firm shall be paid by Cortech; provided however, if the audit discloses that the royalties payable by UT for the audited period are more than one hundred five percent (105%) of the royalties actually paid for such period, then UT shall pay the reasonable fees and expenses charged by such accounting firm. 6.2.3 UT shall include in each permitted sublicense granted by it pursuant to this Agreement a provision requiring the sublicensee to make reports to UT, to keep and maintain records of sales made pursuant to such sublicense and to grant access to such records by Cortech's independent accountant to the same extent required of UT under this Agreement. Upon the expiration of twenty-four (24) months following the end of any year, the calculation of royalties payable with respect to such year shall be binding and conclusive upon Cortech and UT, its Affiliates and sublicensees. 6.3 Confidential Financial Information. Cortech shall treat all financial information subject to review under this Article 6 or under any sublicense agreement as confidential, and shall cause its accounting firm to retain all such financial information in confidence. 15 16 ARTICLE 7 PAYMENTS 7.1 Payment Terms. Royalties shown to have accrued by each royalty report provided for under Article 6 above shall be due and payable on the date such royalty report is due. Payment of royalties in whole or in part may be made in advance of such due date. 7.2 Payment Method. Except as provided in this Section 7.2, all payments by UT to Cortech under this Agreement shall be paid in Dollars, and all such payments shall be originated from a United States bank located in the United States and made by bank wire transfer in immediately available funds to such account as Cortech shall designate before such payment is due. Upon Cortech's election made in writing not less than thirty (30) days prior to any payment date, UT shall pay all royalties owing to Cortech hereunder in the currency in which such royalties accrued, without conversion into Dollars. 7.3 Exchange Control. If at any time legal restrictions prevent the prompt remittance of part or all royalties with respect to any country where the Product is sold, payment shall be made through such lawful means or methods as Cortech reasonably shall determine. 7.4 Withholding Taxes. All amounts owing from UT to Cortech under this Agreement are net amounts, and shall be grossed-up to account for any withholding taxes, value-added taxes or other materially similar taxes, levies or charges with respect to such amounts, other than United States taxes, payable by UT, its Affiliates or sublicensees, or any taxes required to be withheld by UT, its Affiliates or sublicensees having a permanent establishment in any country or otherwise being subject to taxation by such country (except solely by reason of the license granted under this Agreement). 16 17 ARTICLE 8 INFRINGEMENT ACTIONS BY THIRD PARTIES If UT, or any of its Affiliates, sublicensees or customers shall be sued by a Third Party for infringement of a Third Party's patent because of the manufacture, use or sale of Products, UT shall promptly notify Cortech in writing of the institution of such suit. If the alleged infringing process, method or composition is claimed under the Licensed Patent Rights, UT shall promptly cease the manufacture, use, sale, offering for sale or importation of the allegedly infringing process, method or composition claimed under the Licensed Patent Rights and UT shall have the right, subject to the reasonable approval of Cortech, to control the defense of such suit at UT's own expense, in which event Cortech shall have the right to be represented by advisory counsel of its own selection, at its own expense, and shall cooperate fully in the defense of such suit and furnish to UT all evidence and assistance in its control. If UT does not elect within thirty (30) days after such notice to so control the defense of such suit, Cortech may undertake such control at its own expense, and UT shall then have the right to be represented by advisory counsel of its own selection, at its own expense, and UT shall cooperate fully in the defense of such suit and otherwise furnish to Cortech all evidence and assistance in UT's control. The party controlling the suit may not settle the suit or otherwise consent to an adverse judgment in such suit that diminishes the rights or interests of the non-controlling party without the express written consent of the non-controlling party. Any judgments, settlements or damages payable with respect to legal proceedings covered by this Article 8 shall be paid by the party which controls the litigation. ARTICLE 9 CONFIDENTIALITY 9.1 Confidential Information. During the term of this Agreement, and for a period of five (5) years following the expiration or earlier termination hereof, each party shall maintain in confidence all information of the other party (including samples) disclosed by the other party and identified as, or acknowledged to be, confidential (the "Confidential Information"), and shall not use, disclose or grant the use of the Confidential Information except on a need-to-know basis to those directors, officers, affiliates, employees, permitted licensees, permitted assignees and agents, consultants, lawyers, bankers, clinical investigators or contractors, to the extent such disclosure is reasonably necessary in connection with such party's activities as expressly authorized by this Agreement. To the extent that disclosure is authorized by this Agreement, prior to disclosure, each party hereto shall obtain agreement of any such Person to hold in confidence and not make use of the Confidential Information for any purpose other than those permitted by this Agreement. Each party shall notify the other promptly upon discovery of any unauthorized use or disclosure of the other party's Confidential Information. 9.2 Permitted Disclosures. The confidentiality obligations contained in Section 9.1 above shall not apply to the extent that (a) any receiving party (the "Recipient") is required (i) to 17 18 disclose information by law, order or regulation of a governmental agency or a court of competent jurisdiction, or (ii) to disclose information to any governmental agency for purposes of obtaining approval to test or market a product, provided in either case that the Recipient shall provide written notice thereof to the other party and sufficient opportunity to object to any such disclosure or to request confidential treatment thereof, or (b) the Recipient can demonstrate that (i) the disclosed information was public knowledge at the time of such disclosure to the Recipient, or thereafter became public knowledge, other than as a result of actions of the Recipient in violation hereof; (ii) the disclosed information was rightfully known by the Recipient (as shown by its written records) prior to the date of disclosure to the Recipient by the other party hereunder; (iii) the disclosed information was disclosed to the Recipient on an unrestricted basis from a source unrelated to any party to this Agreement and not under a duty of confidentiality to the other party or (iv) the disclosed information was independently developed by the Recipient without use of the Confidential Information disclosed by the other party. 9.3 Terms of this Agreement. Except as otherwise provided in Section 9.2 above and subject to either party's reporting obligations under applicable state and federal laws, Cortech and UT shall not disclose any terms or conditions of this Agreement to any Third Party without the prior consent of the other party. Notwithstanding the foregoing, prior to execution of this Agreement, UT and Cortech shall agree upon the substance of information that can be used to describe the terms of this transaction in a press release or other similar publication, and UT and Cortech may disclose such information, as modified by mutual agreement from time to time, without the other party's consent. 9.4 Publication. Neither party shall submit for written or oral publication or presentation any manuscript, abstract, writing, printed material or the like which includes data or any other information generated and provided solely by the other party without first obtaining the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed, provided, however, that valid commercial reasons may exist for withholding such consent. Nothing contained herein shall be construed as precluding either party from making, in its discretion, any disclosures of information of any type which relate to the safety, efficacy, toxicology or pharmacokinetic characteristics of the Products to the extent that either party may be required by law to make disclosures of such information. ARTICLE 10 PATENTS 10.1 Ownership of Inventions and Patents. The entire right and title in all inventions, discoveries, improvements or other technology for the manufacture or use of a Product, and all methods and processes relating thereto, whether or not patentable, and any patent applications or patents based thereon, made or conceived during and pursuant to the obligations of the parties set forth in this Agreement (collectively, the "Inventions") (a) by employees or others acting solely on behalf of Cortech or its Affiliates shall be owned solely by Cortech (the "Cortech 18 19 Inventions"), (b) by employees or others acting solely on behalf of UT, its Affiliates or its sublicensees shall be owned solely by UT (the "UT Inventions"), and (c) by employees or others acting jointly on behalf of Cortech and UT or their respective Affiliates and sublicensees, shall be owned jointly by Cortech and UT (the "Joint Inventions"). Each party promptly shall disclose to the other party the making, conception or reduction to practice of Inventions by employees or others acting on behalf of such party. Cortech and UT each hereby represents that all employees and other Persons acting on its behalf in performing its obligations under this Agreement shall be obligated under a binding written agreement to assign to it, or as it shall direct, all Inventions made or developed by such employees or other Persons; provided however that in the case of an arrangement between UT and a university whereby Inventions arise during the course of such university's performance of research or development work with respect to a Product, UT shall have the right to enter into a binding written agreement with such university for such Inventions to be either assigned to UT or exclusively licensed to UT (on a worldwide basis with the right to sublicense) by such university, provided that, all university employees performing such research or development are under binding written agreements with such university to assign to such university all Inventions made or developed by such university employees. 10.2 Prosecution and Maintenance. Cortech and UT each shall have the right, at its discretion and using commercially reasonable practices, control the prosecution, grant and maintenance of its patent rights on its Inventions, and to select all patent counsel or other professionals to advise, represent or act for it in all matters relating to the prosecution and maintenance of its patent rights on its Inventions. All costs incurred in connection therewith shall be borne by the party taking action with respect to such patent rights on such Inventions. UT shall control the prosecution, grant and maintenance of patent rights regarding Joint Inventions, and UT and Cortech shall bear all costs incurred in connection therewith. With respect to the costs of prosecution and maintenance, Cortech shall bear [ ] of such costs and UT shall bear [ ] of such costs. UT shall inform Cortech at regular intervals, or on request, about the status of joint patent applications or joint patents for which it is responsible. In the event that Cortech or UT elects not to file a patent application or decides to abandon any pending application or granted patent under its patent rights (or Cortech, in the case of the Licensed Patent Rights), the UT Inventions or the Joint Inventions in any country, it shall provide adequate notice to the other party and give the other party the opportunity to file or maintain such application or patent at its own expense; provided, however, that except for the right to file and maintain such patent rights, the ownership rights of Cortech and UT to such patent rights shall not be affected by reason of this paragraph. 10.3 Cooperation. Each party shall make available to the other party or its authorized attorneys, agents, consultants or representatives, if available, such information necessary or appropriate to enable the appropriate party (at the appropriate party's cost and expense) to file, prosecute and maintain patent applications and resulting patents with respect to Inventions, as set forth in Section 10.2 above, for a period of time reasonably sufficient for such party to obtain the assistance it needs from such personnel. Where appropriate, each party shall sign or cause to have signed all documents relating to said patent applications or patents at no charge to the other. 19 20 10.4 No Other Technology Rights. Except as otherwise provided in this Agreement, under no circumstances shall a party, as a result of this Agreement, obtain any ownership interest or other right in any technology, Licensed Technology, Licensed Compound, know-how, patents, pending patent applications, products, compounds, materials, vaccines, antibodies, cell lines or cultures, or animals of the other party, including items owned, controlled or developed by the other, or transferred by the other to such party at any time pursuant to this Agreement. It is understood and agreed by the parties that this Agreement does not grant to either party any license or other right in basic technology of the other party except to the extent necessary to enable the parties to carry out their obligations under this Agreement or the research, development, commercialization and marketing of Products. 10.5 Notification of Infringement. Each party shall notify the other party of any significant and continuing infringement known to such party of any joint patent rights on Joint Inventions or patent rights of the other party and shall provide the other party with the available evidence, if any, of such infringement. 10.6 Enforcement of Licensed Patent Rights and Joint Inventions. UT, in the case of Joint Inventions and Cortech, in the case of Licensed Patent Rights (the "Enforcing Party") shall in good faith use its commercially reasonable discretion and efforts to enforce such patent rights against infringers, and to consult with the other party both prior to and during such enforcement. The Enforcing Party shall have six (6) months from the date of receipt of notice under this Section 10.6 to abate the infringement, or to file suit against at least one of the infringers, at its sole expense, following consultation with the other party; provided, however, that within thirty (30) days after receipt of notice from the party whose patent rights allegedly are being infringed of its intent to file such suit, the other party shall have the right to fund up to one-half (1/2) of the costs of such suit. If the Enforcing Party does not within six (6) months of receipt of such notice, abate the infringement or file suit to enforce the patent rights against at least one infringing party in a country, the other party shall have the right to take whatever action it deems appropriate in its own name or, if required by law, in the name of the party whose patent rights allegedly are being infringed, to enforce the patent rights, provided that, the foregoing provisions of this sentence shall not apply if the board of directors of UT or Cortech, in their commercially reasonable discretion, has made a good faith determination that such infringement should not be abated and provided, further, that, within sixty (60) days after receipt of notice of the other party's intent to file such suit, the Enforcing Party shall have the right to jointly prosecute such suit and to fund up to one-half (1/2) the costs of such suit. The party controlling the action may not settle the action or otherwise consent to an adverse judgment in such action that diminishes the rights or interests of the non-controlling party without the express written consent of the non-controlling party. All monies recovered upon the final judgment or settlement of any such suit shall be shared, after reimbursement of 20 21 expenses, by Cortech and UT pro rata according to the respective percentages of costs borne by each party in such suit pursuant to this Section 10.6. Notwithstanding the foregoing, Cortech and UT shall fully cooperate with each other in the planning and execution of any action to enforce the patent rights. ARTICLE 11 INDEMNITY 11.1 Indemnity. 11.1.1 By Cortech. Cortech shall indemnify and hold UT harmless, and hereby forever releases and discharges UT, from and against all losses, liabilities, damages and expenses (including reasonable attorneys' fees and costs) resulting from all claims, demands, actions and other proceedings by any Third Party to the extent arising from (a) the breach of any representation, warranty or covenant of Cortech under this Agreement or (b) the gross negligence or willful misconduct of Cortech in the performance of its obligations and its permitted activities under this Agreement. 11.1.2 By UT. UT shall indemnify and hold Cortech harmless, and hereby forever releases and discharges Cortech, from and against all losses, liabilities, damages and expenses (including reasonable attorneys' fees and costs) resulting from all claims, demands, actions and other proceedings by any Third Party to the extent arising from (a) the breach of any representation, warranty or covenant of UT under this Agreement, (b) the research, development, manufacturing, commercialization or marketing of Products (without regard to culpable conduct), or (c) the gross negligence or willful misconduct of UT or its Affiliates or sublicensees in the performance of its or their obligations, and its or their permitted activities under this Agreement. 11.2 Procedure. A party (the "Indemnitee") that intends to claim indemnification under this Article 11 shall promptly notify the other party (the "Indemnitor") of any claim, demand, action or other proceeding for which the Indemnitee intends to claim such indemnification, The Indemnitor shall have the right to participate in, and to the extent the Indemnitor so desires jointly with any other indemnitor similarly noticed, to assume the defense thereof with counsel selected by the Indemnitor; provided, however, that the Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitor, if representation of the Indemnitee by the counsel retained by the Indemnitor would be inappropriate due to actual or potential differing interests between the Indemnitee and any other party represented by such counsel in such proceedings. The indemnity obligations under this Article 11 shall not apply to amounts paid in settlement of any claim, demand, action or other proceeding if s settlement is effected without the prior express written consent of the Indemnitor, which consent shall not be unreasonably withheld or delayed. The failure to deliver notice to the Indemnitor within a reasonable time after notice of any such claim or demand, or the commencement any such action 21 22 or other proceeding, if prejudicial to its ability to defend such claim, demand, action or other proceeding, shall relieve such Indemnitor of any liability to the Indemnitee under this Article 11 with respect thereto, but the omission so to deliver notice to the Indemnitor shall not relieve it of any liability that it may have to the Indemnitee otherwise than under Article 11. The Indemnitor may not settle or otherwise consent to an adverse judgment in such claim, demand, action or other proceeding, that diminishes the rights or interests of Indemnitee without the prior express written consent of the Indemnitee, which consent shall be unreasonably withheld or delayed. The Indemnitee, its employees and agents, shall reasonably cooperate with the Indemnitor and its legal representatives in the investigation of any claim, demand, action or other proceeding covered by this Article 11. 11.3 Insurance. UT, at its own expense, shall maintain comprehensive general liability insurance, including contractual liability insurance and product liability insurance against claims regarding the research, development, manufacture, commercialization or marketing of the Products under this Agreement. UT shall maintain such insurance for so long as it continues to research, develop, manufacture, commercialize, market, use or sell Products, and thereafter for so long as it customarily maintains insurance for itself covering similar activities with its other similar products. During the clinical development of Products, such coverage shall be at least [ ] per occurrence. Promptly upon commercial introduction of the initial Product, the parties shall negotiate in good faith the level to which UT shall increase such insurance coverage. ARTICLE 12 TERMINATION 12.1 Expiration. Subject to the provisions of Sections 12.2 and 12.3 below, this Agreement shall expire on the expiration of UT's obligation to pay royalties to Cortech under Section 5.2 above. 12.2 Termination for Cause 12.2.1 By Either Party. Except as otherwise provided in Article 13, either party may terminate this Agreement upon or after the breach of any material provision of this Agreement by the other party if the other party has not cured such breach within thirty (30) day after notice thereof by the non-breaching party. 12.2.2 By Cortech. Except as otherwise provided in Article 13, Cortech may terminate this Agreement if UT has not commenced Phase II clinical trials of a Product within two (2) years and six (6) months after the Effective Date, provided that, (a) a governmental regulatory agency has not imposed a material restriction on UT's Product regulatory approval activities under this Agreement, which restriction has delayed or prevented the commencement of such clinical trial, or (b) negative or equivocal study results have not arisen which necessitated 22 23 a material and significant change in the development plan and timeline set forth in Exhibit C, which change delayed or prevented the commencement of such clinical trial. 12.2.3 By UT. UT may terminate this Agreement at any time and without penalty, if UT, using commercially reasonable efforts, is unable to develop and commercialize Products. 12.3 Bankruptcy. In the event of the institution by or against either party of insolvency, receivership or bankruptcy proceedings or any other proceedings for the settlement of such party's debts which are not dismissed within sixty (60) days, or upon such party's making an assignment for the benefit of creditors, or upon such party's dissolution or ceasing to do business, the other party shall have the right to terminate this Agreement upon written notice to the other party. 12.4 Effect of Expiration or Termination. Expiration or termination of this Agreement shall not relieve the parties of any obligation accruing prior to such expiration or termination, and the provisions of Section 6.2 and Articles 9, 10 and 11 shall survive the expiration or termination of this Agreement. Except in the cases of a termination of this Agreement (a) by Cortech due to a material breach of this Agreement by UT or (b) in connection with a Product's infringement on the intellectual property rights of a Third Party, upon any termination of this Agreement, UT shall have the right and option to promptly sell any remaining UT inventories of Product using UT's best efforts. ARTICLE 13 FORCE MAJEURE Neither party shall be held liable or responsible to the other party nor be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or performing any term of this Agreement to the extent, and for so long as, 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, floods, embargoes, war, acts of war (whether war be declared or not), insurrections, riots, commotions, strikes, lockouts or other labor disturbances, acts of God or acts, omissions or delays in acting by any governmental authority or other party. ARTICLE 14 MISCELLANEOUS 14.1 Notices. Any consent, notice or report required or permitted to be given or made under this Agreement by one of the parties hereto to the other party shall be in writing, delivered personally or by facsimile (and promptly confirmed by personal delivery, U.S. first class mail or 23 24 courier), U.S. first class mail or courier, postage prepaid (where applicable), addressed to such other party at its address indicated below, or to such other address as the addressee shall have last furnished in writing to the addressor and (except as otherwise provided in this Agreement) shall be effective upon receipt by the addressee. If to Cortech: Cortech, Inc. 6850 North Broadway Denver, Colorado 80221 Attention: President with a copy to: Dechert Price & Rhoads Princeton Pike Corp. Center 997 Lennox Drive, Building 3 Lawrenceville, NJ 08648 Attention: Allen Bloom, Esq. If to UT: United Therapeutics Corporation 2 Davis Drive Research Triangle Park North Carolina 27709 Attention: President with a copy to: Mahon Patusky Rothblatt & Fisher 1735 Connecticut Avenue, N.W. Third Floor Washington, D.C. 20009 Attention: Paul A. Mahon, Esq. 14.2 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflicts of law principles thereof. 14.3 Assignment. UT shall not assign its rights or obligations under this Agreement, in whole or in part, by operation of law or otherwise, without the prior written consent of Cortech; provided however, that either party may, without such consent, assign this Agreement and its rights and obligations thereunder in connection with the transfer or sale of all or substantially all of its business, or in the event of its merger, consolidation, change in control or similar transaction. Any purported assignment in violation of this Section 14.3 shall be void. 14.4 Waivers and Amendments. No change, modification, extension, termination or waiver of this Agreement, or any of the provisions herein contained, shall be valid unless made in writing and signed by duly authorized representatives of the parties hereto. 24 25 14.5 Entire Agreement. This Agreement embodies the entire understanding between the parties and supersedes any prior understanding and agreements between and among them respecting the subject matter hereof. There are no representations, agreements, arrangements or understandings, oral or written, between the parties hereto relating to the subject matter of this Agreement which are not fully expressed herein. 14.6 Severability. Any of the provisions of this Agreement which are determined to be invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability in such jurisdiction, without rendering invalid or unenforceable the remaining provisions hereof and without affecting the validity or enforceability of any of the terms of this Agreement in any other jurisdiction. 14.7 Waiver. The waiver by either party hereto of any right hereunder or the failure to perform or of a breach by the other 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 otherwise. 14.8 Construction. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. 14.9 Independent Contractors. The relationship between Cortech and UT is that of independent contractors. Neither party has any actual or apparent authority, express or implied, to act on behalf of the other party or to bind the other party to any obligations. Neither party shall be deemed to be an agent or servant of the other party or a partner or venturer with the other party. Neither party shall control, or have any right to control, the manner, method and means by which the other party makes, has made, uses, sells, leases or otherwise provides or markets its products and services. 14.10 LIMITATION OF LIABILITY. EXCEPT AS MAY BE ELSEWHERE HEREIN SPECIFICALLY PROVIDED FOR, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES, OR FOR ANY LOST PROFITS OF THE OTHER PARTY, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, ARISING OUT OF THE PERFORMANCE OR FAILURE TO PERFORM ANY OBLIGATIONS SET FORTH HEREIN. 14.11 Counterparts. This 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. 25 26 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth below. CORTECH, INC. /s/ Diarmuid Boran ----------------------------- Diarmuid Boran Chief Operating Officer Dated: 11/4/98 -------------------- UNITED THERAPEUTICS CORPORATION /s/ Martine A. Rothblatt ----------------------------- Martine A. Rothblatt Chief Executive Officer Dated: 10/30/98 -------------------- 26 EX-10.13 21 EXCLUSIVE LICENSE & DISTRIBUTION AGREEMENT 1 CONFIDENTIAL TREATMENT REQUESTED FOR PORTIONS OF THIS DOCUMENT EXHIBIT 10.13 EXCLUSIVE LICENSE AND DISTIBUTION AGREEMENT This Exclusive License and Distribution Agreement ("Agreement") is made and entered into this 4th day of February, 1999, by and among Global Medical Enterprises Ltd., a British Virgin Islands corporation ("GMEL/BVI"), Global Medical Enterprises Ltd., LLC, a California limited liability company having a principal place of business at 16161 Ventura Boulevard, Suite 706, Encino, California 91436 (hereinafter referred to as "GMEL/LLC") and United Therapeutics Corporation, a corporation organized and existing under the laws of the State of Delaware having a principal place of business at 1110 Spring Street, Silver Spring, Maryland 20910 (hereinafter referred to as "UT"). RECITALS WHEREAS, GMEL/BVI has obtained an exclusive license from Pacific Pharmaceutical Co., Ltd. (hereinafter referred to as "Pacific"), attached at Appendix A and incorporated herein, to commercialize Ketotop, an advanced medicinal patch with analgesic efficacy, described in Appendix B attached hereto and incorporated herein, in certain parts of the world, including the Territory (as defined hereinafter); and WHEREAS, GMEL/BVI has assigned the United States rights under the Pacific Agreement to GMEL/LLC under the Assignment and Assumption Agreement dated July 24, 1998, described in Appendix A and incorporated herein; and WHEREAS, UT desires to obtain an exclusive license under both GMEL, BVI's rights to Ketotop and GMEL/LLC's rights to Ketotop in order to obtain regulatory approvals, market and distribute Ketotop in the Territory for all indications. NOW, THEREFORE, in consideration of the foregoing promises and the mutual covenants herein contained, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: ARTICLE 1 DEFINITIONS For purposes of this Agreement, the terms defined in this Article 1 shall have the respective meanings set forth below: 1.1 "Affiliate" shall mean, with respect to any Person, any other Person which controls, is controlled by, or is under common control with, such Person. A Person shall be regarded as in control of another Person if it owns, or controls, at least fifty percent (50%) of the voting stock or other ownership interest of the other Person, or if it posesses the power to direct or cause the direction of the management and policies of the other Person by any means whatsoever. 2 1.2 "cGMP" means the United Stated Food and Drug Administration "current Good Manufacturing Practices" as defined in 21 C.F.R parts 210-211. 1.3 "Dollars" or "$" means United States dollars. 1.4 "Effective Date" means the date appearing at the beginning of this Agreement. 1.5 "FDA" means the United States Food and Drug Administration or any successor entity. 1.6 "Field" shall mean the treatment of all indications for which the Product (as defined hereinafter) offers therapeutic effectiveness. 1.7 "First Commercial Sale" shall mean, with respect to any Product, the first sale for use or consumption by the general public of such Product. A transfer of the Product by UT or its permitted sublicensees solely for the purpose of directly enabling UT and its permitted sublicensees to obtain approval of an NDA by the FDA (or similar approvals from the governing health authority of any other country within the Territory) shall not be considered a First Commercial Sale. 1.8 "GMEL" shall mean both GMEL/BVI and GMEL/LLC, to the extent of their respective interests in the subject matter hereof, unless otherwise indicated herein. 1.9 "IND" means an Investigational New Drug application or its equivalent successor application. 1.10 "NDA" means a New Drug Application or any equivalent successor application. 1.11 "Person" shall mean an individual, corporation, partnership, trust, business trust, association, joint stock company, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, governmental authority, or any other form of entity not specifically listed herein. 1.12 "Product" shall mean "Ketotop", an advanced medicinal patch with analgesic efficacy as described in the attached Appendix B incorporated herein, and any derivatives, successors, improvements, modifications, variations, revisions thereof to which GMEL has the right to distribute pursuant to its agreement with Pacific. 1.13 "Registration" shall mean, in relation to any Product, such approvals by government authorities as may be legally required before such Product may be commercialized. 2 3 1.14 "Territory" unless otherwise indicated herein shall mean (i) the United States of America, its territories and possessions under the grant from GMEL, LLC, together with (ii) Canada, Mexico, Central America (Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama) and the Caribbean nations under the grant from GMEL, BVI. 1.15 "Third Party" shall mean any Person other than GMEL and its Affiliates and UT and its Affiliates and permitted sublicensees. ARTICLE 2 REPRESENTATIONS AND WARRANTIES 2.1 By Both Parties. Each party represents and warrants to the other that it has the full right to enter into this Agreement, this Agreement constitutes its legal, valid and binding obligation, and that, to the best of its knowledge, there are no agreements, commitments or obstacles, technical or legal, including patent rights of others, which could prevent it from carrying out all of its obligations hereunder, including, in the case of GMEL, its grant to UT of the license described in Section 3.1 below. 2.2 By GMEL. GMEL represents and warrants to UT that: 2.2.1 GMEL has the sole and exclusive right to distribute the Product within the Territory. 2.2.2 As of the Effective Date, to the best of GMEL's knowledge, there are no (i) pending or threatened claims or litigation brought by a Third Party under any Third Party patent, trade secret or other Third Party proprietary right in respect of GMEL's distribution of the Product or as a result of Pacific's manufacture or distribution of the Product, (ii) basis upon which sale of the Product under this Agreement would infringe on the rights of Third Parties; or (iii) licenses or other restrictions on the ability to usesell or otherwise distribute the Product. 2.2.3 GMEL has made or will make available to UT all material technical information in its possession or of which it is aware that is pertinent to development, regulatory approval and commercialization of the Product and GMEL shall use its best efforts to ensure that Pacific will assist GMEL in achieving GMEL's obligations hereunder. 2.2.4 The price that GMEL pays to Pacific for Products under Article V of this Agreement shall be the true and accurate price reflecting all refunds, rebates, discounts, offsets and any other consideration of any kind paid or transferred by or on behalf of Pacific to GMEL or at GMEL's direction. In the event that any such compensation has been paid or transferred to or at GMEL's direction, GMEL shall promptly notify UT in order to adjust payments UT has made or will make pursuant to Article V of this Agreement. 3 4 2.3 By UT. UT warrants to GMEL that it will use its best efforts to develop, seek regulatory approval, commercialize and market Products within the Territory for one or more indications within the Field and that UT is adequately capitalized to undertake the obligations under this Agreement. ARTICLE 3 GRANT 3.1 Grant. GMEL hereby grants to UT and its Affiliates an exclusive license and exclusive distributorship (with the right to grant sublicenses and subdistributorships as set forth in Section 3.2 below) to use, import, offer for sale and sell Products in the Territory for use in the Field. Notwithstanding anything to the contrary herein, UT shall not have the right to manufacture or have others manufacture the Product. 3.2 Sublicenses and Subdistributorships. Subject to GMEL's prior written consent, which consent shall not be unreasonably withheld or delayed, UT may grant sublicenses and subdistributorships under the grant in Section 3.1 above to any Third Party or Affiliate. UT shall deliver a copy of each sublicense and subdistributorship under this Agreement to GMEL promptly after execution of the same. Each sublicensee and subdistributor shall be subject to the terms and conditions of this Agreement. ARTICLE 4 DEVELOPMENT AND COMMERCIALIZATION PROGRAM 4.1 Development and Commercialization by UT. 4.1.1 Development Program. Subject to the satisfactory performance of GMEL's obligations under Section 4.3 below, UT shall, at its sole expense, use its best efforts to conduct research, development and clinical trials to obtain the necessary regulatory approvals to import, market and commercialize such Products as UT determines are commercially feasible for at least one indication, and diligently obtain necessary approvals to commence marketing and market one or more Products in the United States and Canada and such other countries of the Territory as UT determines are commercially feasible (hereinafter the "Development Program"). 4.1.2 Development Milestones. The Development Program shall achieve the following key milestones in the United States: IND Submission by [ ] NDA Submission by [ ] 4 5 NDA Approval by [ ] In the event that UT is unable to meet any of the above key milestones, GMEL may, in its sole discretion, terminate this Agreement; provided, however, that UT's inability to meet any key milestone is not the result of (i) the imposition by a governmental regulatory agency of a material restriction on UT's Product regulatory approval activities under this Agreement, which restriction has delayed or prevented the Development Program, (ii) the requirement of a governmental regulatory agency that UT materially change the Development Program and timeline, (iii) negative or equivocal study results which necessitate a material and significant change in the Development Program and timeline, which change has delayed the Development Program, or (iv) delays in the performance of GMEL's obligations under Section 4.3 below. In the event that UT's inability to meet any key milestone is the result of (i) - (iii) above, then in such event, GMEL and UT shall reasonably extend the key milestones accordingly. In the event that UT's inability to meet any key milestone is the result of (iv) above, then in such event, the above milestone dates shall be extended by a day for each day of delay. 4.1.3 Regulatory Efforts. UT shall have the final authority to make all clinical and regulatory decisions in its sole and reasonable discretion and UT shall solely and exclusively own all regulatory applications, approvals and clinical data obtained by UT with respect to Products. Notwithstanding the foregoing, UT shall closely consult with GMEL with regard to its participation in important clinical development meetings. 4.1.4 Marketing and Distribution. Subject to GMEL's prior written consent, which consent shall not be unreasonably withheld or delayed, UT may contract with a drug marketing organization that has demonstrated competence and ability, based on sales in excess of $25 million annually for similar products, to market and distribute Products throughout the Territory. 4.1.5 Records. UT shall maintain records, in sufficient detail and in good scientific manner, which shall reflect all work done and results achieved in the performance of its research and development regarding the Products (including all data in the form required under all applicable laws and regulations.) 4.1.6 Reports. So long as UT is engaged in the Development Program, UT will provide semi-annual reports to GMEL within sixty (60) days following the end of every two calendar quarters, summarizing in reasonable detail UT's activities related to the development of a Product and securing of the requisite marketing approvals during the period covered by such report. In addition, UT shall provide GMEL with written notice of all regulatory filings and submissions prior to the date of such submissions, and written notice of all approvals obtained promptly after obtaining such approvals. UT shall keep GMEL reasonably apprised of all written information or feedback provided by regulatory authorities to UT during the term of this Agreement. 5 6 4.1.7 Compliance with Laws. UT shall comply with all applicable international, national, state, regional and local laws and regulations in performing its duties hereunder and in any of its dealings with respect to the Product. 4.1.8 Costs. Any and all costs associated with the clinical development, regulatory approval, and commercialization of the Product shall be borne solely by UT. 4.2 Advisory Committee. 4.2.1 Composition of the Advisory Committee. The Advisory Committee shall be comprised of two representatives of GMEL and two representatives of UT. The initial representatives for GMEL shall be Tom Kim and Dr. Howard Fullman. The initial representatives for UT shall be Martine Rothblatt and Dr. Gilles Cloutier. Each party may substitute one or more of its representatives, in its sole dicretion, effective upon agreement of the other party of such change, such agreement not to be unreasonably withheld or delayed. 4.2.2 Meetings. The Advisory Committee shall meet not less than twice each year during the term of this Agreement on such dates and at such time and places as agreed to by the parties, alternating between GMEL's principal offices and UT's principal offices, or such other locations as the parties shall agree, unless both parties mutually determine that a meeting should not take place. At such meetings, the Advisory Committee shall discuss UT's research and prospective development and commercialization efforts under this Agreement, UT's requirements from GMEL and Pacific, any actual regulatory filings regarding Products together with any anticipated regulatory filings with respect to possible products, pricing of Product both to UT and to patients, UT's fiscal status, patent filings, and, in general, shall coordinate the development and marketing of Products. The Advisory Committee shall also review on an ongoing basis the viability and economic expectations of the commercialization effort in countries within the Territory. Each party shall bear its own expenses in connection with travel and attendance at such meetings. 4.3 GMEL Obligations. 4.3.1 Clinical Supplies. GMEL, at its sole expense, shall be responsible for providing UT with an adequate and timely supply of the Products for use during clinical trials. 4.3.2 Information. GMEL, at its sole expense, shall be responsible for the timely delivery to UT of all pre-clinical information available to GMEL and reasonably necessary to support UT's preparation and filing of an IND with the FDA including, but not limited to, information relating to acute toxicity and repeat-dose toxicity, and the translation into English of summaries of all foreign language reports. In addition, GMEL shall provide UT on a timely basis and without charge all information concerning the Product which is available to GMEL and which is reasonably required by UT to fulfill its obligations under this Agreement, including but not limited to, information, compilations, analyses, reports, 6 7 studies, data, copies of regulatory filings and proceedings which GMEL and Pacific have developed or acquired which may be related to the licensed rights and which concerns or relates to preclinical and clinical research, safety, use, efficacy, and copies of findings or reports which are required by the FDA or similar regulatory agencies. 4.3.3 Cooperation. GMEL shall, upon the request by UT, provide UT with reasonable assistance and consultation regarding the Product, including reasonable access to sample materials and data. GMEL shall ensure the cooperation of Pacific with the FDA's normal and customary requirements for the approval of drugs such as Ketotop. 4.3.4 cGMP Requirements. GMEL shall exercise its best efforts to ensure that Pacific provides a manufacturing process and facility for the Licensed Products that complies with United States cGMP requirements during the term of this Agreement. 4.4 Registration of License. UT may, at its expense, register the exclusive license granted under this Agreement in any country, or community or association of countries, where the use, sale or manufacture of a Product in such country would be covered by a Valid Patent Claim. Upon request of UT, GMEL agrees promptly to execute any "short form" licenses in a form submitted to it by UT from time to time in order to effect the foregoing registration in such country. ARTICLE 5 PAYMENTS TO GMEL 5.1 Purchase of Product. 5.1.1 Exclusive Source. In partial consideration for the exclusive license granted to UT herein, UT shall purchase U.S. cGMP commercial Product solely from GMEL during the term of this Agreement following the First Commercial Sale of Product by UT, its Affiliates or permitted sublicensees. UT shall neither manufacture Product nor purchase Product from a Third Party without the prior written consent of GMEL. GMEL shall be responsible for the timely delivery to UT of the amount of U.S. cGMP Product that UT reasonably requires from time to time during the term of this Agreement. UT shall notify GMEL in writing promptly upon the First Commercial Sale of a Product by UT, its Affiliates or its sublicensees in each country of the Territory. 5.1.2 Purchase by UT. 5.1.2.1 Purchase. In further consideration of the exclusive license granted herein and the performance of GMEL's obligations under Section 4.3 above, and following the First Commercial Sale of Product by UT, its Affiliates or permitted sublicensees, GMEL shall timely deliver to UT such amounts of cGMP commercial Product ordered by UT which GMEL will obtain from Pacific pursuant to the pricing schedule 7 8 issued by Pacific to GMEL attached at Appendix C to this Agreement and incorporated herein (the "Pacific Price"). 5.1.2.2 Pricing. 5.1.2.2.1 United States. UT shall purchase from GMEL/ LLC Products for distribution within the United States of America, its territories and possessions, at a [ ] mark-up over the Pacific Price for all prescription sales and at a [ ] mark-up over the Pacific Price for all Over the Counter (OTC) sales. 5.1.2.2.2 Canada. UT shall purchase from GMEL/BVI Products for distribution within Canada at a [ ] mark-up over the Pacific Price for all prescription sales and at a [ ] mark-up over the Pacific PRICE for all Over the Counter (OTC) sales. 5.1.2.2.3 Other Countries. For all countries in the Territory other than the United States, its territories and possessions, and Canada, the Advisory Committee shall determine the terms upon which UT and GMEL/BVI shall form a joint venture to commercialize Products in each country of the Territory, recognizing that the spirit is to consider the parties as equal venturers. In determining the terms of each such joint venture, including without limitation provisions relating to the payment of expenses of the venture (including the cost of Products purchased from Pacific) and the calculation and division of profits, the Advisory Committee shall take into account relevant market and financial information relating to the commercialization of comparable products in each country. 5.1.2.3 Pricing Stability. The Pacific Price in Appendix C shall be the base price upon which the above escalating cost of Products purchased by UT will be calculated. Notwithstanding the foregoing, the Pacific Price shall be adjusted on each anniversary of the NDA Approval based upon an actual, direct and verifiable increase or decrease in Pacific's cost of goods sold for Products sold to GMEL in the preceding annual period. GMEL shall exercise its best efforts to negotiate with Pacific such annual price adjustments so that the maximum increase or decrease in the adjusted Pacific Cost in any annual adjustment shall not exceed (i) [ ] above or below the Pacific Price set for the preceding annual period (the "Annual Cap") and (ii) the total of all annual adjustments to the Pacific Price shall not exceed a [ ] increase over the term of this Agreement (the "Term Cap"). The parties shall closely consult with each other and Pacific and review relevant documentation to ensure that each annual adjustment of the Pacific Price is fair and reasonable given the underlying costs of goods, currency fluctuations, and other variables in pricing imported pharmaceuticals. 5.1.3 Shipping. All Products shall be shipped by GMEL F.O.B. GMEL's point of shipment. UT shall be responsible for and shall pay any sales, use, excise or other taxes directly relating to the importation and transfer of Products (excluding income taxes 8 9 and similar for which GMEL shall be solely responsible) imposed by the laws of any jurisdiction on GMEL's sale of Products to UT. 5.2 Pricing Adjustment. Notwithstanding any other provision of this Agreement to the contrary, in the event that UT determines, after discussion with GMEL, that (i) it or they are required to pay royalties to any Third Party because the development, use or sale of the Product infringes any patent or other intellectual property rights of such Third Party in the Territory; or (ii) the development, use or sale of the Products in any country in the Territory no longer infringes a valid patent claim or any period of orphan drug or other exclusivity granted by the FDA or other government agency with respect to any Product; or (iii) a compulsory license to manufacture and/or distribute Products has been granted to a Third Party under the applicable laws of any country in the Territory; or (iv) the price for Product under Section 5.1.2 causes or may cause UT a significant reduction in its sales of Product in any country in the Territory; then, in any such event, UT and GMEL shall meet and in good faith endeavor to agree on an appropriate and reasonable reduction in the pricing of the Product under Section 5.1.2.2 in order to place UT in a position to market competitively the Product in such country. 5.3 Payment. 5.3.1 United States and Canada. Payment for Products to GMEL/ LLC under Section 5.1.2.2.1 above and payment for Products to GMEL/BVI under Section 5.1.2.2.2 above shall be made in Dollars by irrevocable 30-day sight letter of credit confirmed by a first class international bank following the date of delivery of Products to UT or at UT's request. All such payments shall be free of set-off, counter-claims or any taxes imposed by the laws of any jurisdiction and shall be made in accordance with written instructions from GMEL. 5.3.2 Other Countries. Payment for Products to GMEL/BVI under Section 5.1.2.2.3 above shall be made in such manner as determined by the Advisory Committee. 5.4 Exchange Control. If at any time legal restrictions prevent the prompt remittance of part or all royalties with respect to any country where the Product is sold, payment shall be made through such lawful means or methods as UT reasonably shall determine. 9 10 ARTICLE 6 PROHIBITED SALES AND ADDITIONAL RIGHTS 6.1 Prohibited Sales. UT shall not sell, directly or indirectly, any of the Products outside the Territory or sell any of the Products to any Person whom UT knows, or reasonably should know, will resell the Products outside the Territory or who will ship the Products from the Territory. 6.2 Third Party Distribution. To the extent that GMEL has the right to distribute Products in any countries outside of the Territory as of the date hereof, UT may present to GMEL potential Third Parties which are qualified to distribute Products in any such country. Upon the presentation by UT of a detailed proposal identifying a qualified Third Party distributor, reasonably acceptable to GMEL, with whom UT desires to partner to distribute Products in countries outside of the Territory, GMEL and UT shall negotiate in good faith to extend the Territory to include such countries and Third Party distributors. 6.3 Right of First Refusal. Notwithstanding anything in this Agreement to the contrary, in the event that, subsequent to the date hereof, GMEL shall acquire from Pacific the right to distribute the Product in any countries outside of the Territory and shall decide to license any aspect of the commercialization of the Product in any such country to a Third Party, GMEL shall give UT an exclusive option and right of first refusal to negotiate a license agreement covering such matters with UT; provided, however, that such option and right shall not be granted in cases where Pacific requires GMEL to license to a particular Third Party other than UT or its Affiliates. UT shall have sixty (60) days from receipt of written notice from GMEL of its intent to enter into a license agreement, which notice shall describe in reasonable detail the material terms of any proposed license to a Third Party, to deliver its decision as to whether it shall exercise such option and right. Upon GMEL's receipt of written notice from UT of its desire to enter into negotiations, the parties shall have one hundred twenty (120) days, or such longer period as the parties shall mutually agree (the "Negotiation Period"), to negotiate in good faith and enter into a definitive license agreement. The terms of such agreement shall be commercially reasonable under the circumstances then in existence. In the event that UT shall decline to exercise its option or right hereunder or the parties fail in good faith to enter into a license agreement prior to the expiration of the Negotiation Period, GMEL shall be free to enter into a license agreement covering the same matters with a Third Party, provided, however that the material terms of any such agreement shall be no more favorable than the terms offered to UT. 6.4 Medicinal Patch. To the extent that GMEL has rights in and to the use of the medical patch other than in connection with the delivery of ketoprofen, UT shall have the right to present to GMEL proposals it develops for the use of such patch for the delivery of other drugs and for other indications. Upon the presentation by UT of a detailed proposal identifying a proposed drug and indication(s), GMEL and UT shall negotiate in good faith to exclusively license the medicinal patch for such other drugs and indications. 10 11 ARTICLE 7 CONFIDENTIALITY 7.1 Confidential Information. During the term of this Agreement, and for a period of five (5) years following the expiration or earlier termination hereof, each party shall maintain in confidence all information of the other party (including samples) disclosed by the other party and identified as, or acknowledged to be, confidential (the "Confidential Information"), and shall not use, disclose or grant the use of the Confidential Information except on a need-to-know basis to those directors, officers, affiliates, employees, permitted licensees, permitted assignees and agents, consultants, lawyers, bankers, clinical investigators or contractors, to the extent such disclosure is reasonably necessary in connection with such party's activities as expressly authorized by this Agreement. To the extent that disclosure is authorized by this Agreement, prior to disclosure, each party hereto shall obtain agreement of any such Person to hold in confidence and not make use of the Confidential Information for any purpose other than those permitted by this Agreement. Each party shall notify the other promptly upon discovery of any unauthorized use or disclosure of the other party's Confidential Information. 7.2 Permitted Disclosures. The confidentiality obligations contained in Section 7.1 shall not apply to the extent that (i) any receiving party (the "Recipient") is required (a) to disclose information by law, order, or regulation of a government agency or a court of competent jurisdiction, or (b) to disclose information to any governmental agency for purposes of obtaining approval to test or market a product, provided in either case that the Recipient shall provide written notice thereof to the other party and sufficient opportunity to object to any such disclosure or to request confidential treatment thereof; or (ii) the Recipient can demonstrate that (a) the disclosed information was public knowledge at the time of such disclosure to the Recipient, or thereafter became public knowledge, other than as a result of action of the Recipient in violation hereof; (b) the disclosed information was rightfully known by the Recipient (as shown by its written records) prior to the date of disclosure to the Recipient by the other party hereunder; (c) the disclosed information was disclosed to the Recipient on an unrestricted basis from a source unrelated to any party to this Agreement and not under a duty of confidentiality to the other party; or (d) the disclosed information was independently developed by the Recipient without use of Confidential Information disclosed by the other party. 7.3 Terms of this Agreement. Except as otherwise provided in Section 7.2 above and subject to either party's reporting obligations under applicable state and federal laws, GMEL and UT shall not disclose any terms or conditions of this Agreement (or GMEL's agreement with Pacific) to any Third Party without the prior written consent of the other party. Notwithstanding the foregoing, GMEL and UT shall agree upon the substance of information that can be used to describe the terms of this transaction in a press release or other similar publication, and UT and GMEL may disclose such information, as modified by mutual agreement from time to time, without the other party's consent. 11 12 7.4 Publication. From time to time it may be to the mutual interest of the parties to publish articles relating to data generated or analyzed as a part of this Agreement. Neither party shall submit for written or oral publication or presentation any manuscript, abstract, writing, printed material or the like which includes data or any other information generated and provided solely by the other party without first obtaining the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed, provided however, that valid commercial reasons may exist for withholding such consent. Nothing contained herein shall be construed as precluding either party from making, in its discretion, any disclosures of information of any type which relate to the safety, efficacy, toxicology, or pharmacokinetic characteristics of the Products to the extent that either party may be required by law to make disclosures of such information. ARTICLE 8 INTELLECTUAL PROPERTY RIGHTS 8.1 Trademarks. 8.1.1 Ownership. UT acknowledges that Pacific owns the "Ketotop" trademarks and all goodwill associated with or symbolized by the trademarks and that GMEL has been granted the right to use Pacific's trademarks solely in connection with the distribution, sale and promotion of the Product in the Territory. GMEL hereby grants to UT a royalty-free license to use the trademarks free of charge in connection with the regulatory approval process, distribution, sale and promotion of the Products in the Territory during the terms of this Agreement. Upon expiration or earlier termination of this Agreement, UT shall cease using the trademarks and shall remove all references to said mark from its stationary, advertising and all other property in its possession or control and shall cease using said mark in any other manner, other than in connection with the disposition of outstanding inventory under Section 10.5 below. 8.1.2 Registration. Unless otherwise agreed to by the parties, UT shall be responsible for taking all necessary action to register and maintain trademark protection for Ketotop trademarks in Pacific's name within all countries in the Territory at UT's sole expense. UT shall use its best efforts to provide GMEL with written notice of (i) all trademark filings and submissions in countries within the Territory prior to the date of such submissions, and (ii) all approvals obtained promptly after obtaining such approvals. UT shall keep GMEL reasonably apprised of all written information or feedback provided by trademark authorities to GMEL during the term of this Agreement. 8.2 Patents. GMEL and/or Pacific will be responsible for taking all necessary action to maintain and/or extend patent registrations relating to Products in the Territory. UT will render reasonable assistance to GMEL in this effort. GMEL shall use its best eforts to provide UT with written notice of (i) all patent filings and submissions in countries within the Territory prior to the date of such submissions, and (ii) all approvals obtained promptly after obtaining such approvals. GMEL shall keep UT reasonably apprised of all written 12 13 information or feedback provided by patent authorities to GMEL during the term of this Agreement. ARTICLE 9 INDEMNIFICATION 9.1 Indemnity. 9.1.1 By GMEL. GMEL shall indemnify and hold UT and its directors, officers, employees and agents harmless, and hereby forever releases and discharges UT, from and against all losses, liabilities, damages and expenses (including reasonable attorney's fees and costs) resulting from all claims, demands, actions and other proceedings by any Third Party to the extent arising from (i) the breach of any representation, warranty or covenant of GMEL under this Agreement or (ii) the gross negligence or willful misconduct of GMEL in the performance of its obligations and its permitted activities under this Agreement. 9.1.2 By UT. UT shall indemnify and hold GMEL and its trustees, directors, officers, employees and agents harmless, and hereby forever releases and discharges GMEL, from and against all losses, liabilities, damages and expenses (including reasonable attorney's fees and costs) resulting from all claims, demands, actions and other proceedings by any Third Party to the extent arising from (i) the breach of any representation, warranty or covenant of UT under this Agreement, (ii) the research, development, commercialization or marketing of Products (without regard to culpable conduct), or (iii) the gross negligence or willful misconduct of UT or its Affiliates or permitted sublicensees in the performance of its or their obligations and its or their permitted activities under this Agreement. 9.2 Procedure. A party (the "Indemnitee") that intends to claim indemnification under this Article 9 shall promptly notify the other party (the "Indemnitor") in writing of any claim, demand, action or other proceeding for which the Indemnitee intends to claim such indemnification. The Indemnitor shall have the right to participate in, and to the extent the Indemnitor so desires jointly with any other Indemnitor similarly noticed, to assume the defense thereof with counsel selected by the Indemnitor; provided, however, that the Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitor, if representation of the Indemnitee by the counsel retained by the Indemnitor would be inappropriate due to actual or potential differing interests between the Indemnitee and any other party represented by such counsel in such proceedings. The indemnity obligations under this Article 9 shall not apply to amounts paid in settlement of any claim, demand, action or other proceeding if such settlement is effected without the prior express written consent of the Indemnitor, which consent shall not be unreasonably withheld or delayed. The failure to deliver notice to the Indemnitor within a reasonable time after notice of any such claim or demand, or the commencement of any such action or other proceeding, if prejudicial to its ability to defend such claim, demand, action, or other 13 14 proceeding, shall relieve such Indemnitor of any liability to the Indemnitee under this Article 9 with respect thereto, but the omission to so deliver notice to the Indemnitor shall not relieve it of any liability that it may have to the Indemnitee otherwise than under this Article 9. The Indemnitor may not settle or otherwise consent to an adverse judgment in any such claim, demand, action or other proceeding, that diminishes the rights or interests of the Indemnitee without the prior express written consent of the Indemnitee, which consent shall not be unreasonably withheld or delayed. The Indemnitee, its employees and agents, shall reasonably cooperate with the Indemnitor and its legal representatives in the investigation of any claim, demand, action or proceeding covered by this Article 9. 9.3 Insurance. UT, at its own expense, shall maintain comprehensive general liability insurance, including product liability insurance, against claims regarding the research, development, commercialization or marketing of the Products under this Agreement. UT shall maintain such insurance for so long as it continues to research, develop, commercialize, and market Products, and thereafter for so long as it customarily maintains insurance for itself covering similar activities with its other similar products. During the clinical development of Products, such coverage shall be at least $2,000,000 per occurrence. Promptly upon commercial introduction of the Product, the parties shall negotiate in good faith the level to which UT shall increase such insurance coverage. ARTICLE 10 TERMINATION 10.1 Term and Expiration. Subject to the provisions of Sections 10.2, 10.3, 10.4 and Article 11 below, this Agreement shall become effective as of the Effective Date and shall expire on July 23, 2008, unless earlier terminated pursuant to the terms of this Agreement and to the terms of the Pacific Agreement. In the event that GMEL is able to extend the term of its agreement with Pacific which it will endeavor to do with its best efforts, GMEL shall renew this Agreement on the same terms and conditions herein for such additional period of time as Pacific grants to GMEL under its agreement with GMEL. 10.2 Termination for Cause. 10.2.1 Breach. Except as provided elsewhere in this Agreement, either party may terminate this Agreement upon or after the breach of any material provision of this Agreement by the other party if the other party has not cured such breach within sixty (60) days after notice thereof by the non-breaching party. In the event that this Agreement is terminated as the result of a material breach by GMEL/BVI, then in such event, GMEL/BVI grants to UT the exclusive right to all of GMEL/BVI's rights under the Pacific Agreement so that UT may continue its commercialization efforts hereunder, provided however, that UT shall be obligated to perform all corresponding obligations GMEL/BVI has under the Pacific Agreement. In the event that this Agreement is terminated as the result of a material breach by GMEL/LLC, then in such event, GMEL/LLC grants to UT the exclusive right to all of GMEL/LLC's rights under its Assignment and Assumption Agreement with 14 15 GMEL/BVI so that UT may continue its commercialization efforts hereunder, provided however, that UT shall be obligated to perform all corresponding obligations GMEL/LLC has under its Assignment and Assumption Agreement with GMEL/BVI. 10.2.2 Regulatory and Material Adverse Change. UT may terminate this Agreement at its sole option upon thirty (30) days written notice to GMEL in the event that in UT's commercially reasonable discretion either (i) the Product is unlikely to achieve contemplated regulatory approval within the development milestones provided under Section 4.1.2 above through no fault of UT, or (ii) a material adverse change has occured in UT's financial expectations for its return on investment in commericalizing the Product hereunder through no fault of UT. 10.3 Bankruptcy. In the event of the institution by or against either party of insolvency, receivership, bankruptcy proceedings, or any other proceedings for the settlement of a party's debts which are not dismissed within sixty (60) days, or upon a party's making an assignment for the benefit of creditors, or upon a party's dissolution or ceasing to do business, the other party may terminate this Agreement upon written notice. 10.4 Effect of Expiration or Termination. Expiration or termination of this Agreement shall not relieve the parties of any obligation accruing prior to such expiration or termination, and the provisions of Articles 7, 8, and 9 shall survive the expiration or termination of this Agreement. 10.5 Outstanding Inventory. Upon any termination of this Agreement, UT shall have the right and option to sell any completed inventory of Product, as if licensed under this Agreement, which remains on hand as of the date of the termination, so long as UT pays to GMEL as required under this Agreement. ARTICLE 11 FORCE MAJEURE Neither party shall be held liable or responsible to the other party nor be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or performing any term of this Agreement to the extent, and for so long as, 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, floods, embargoes, war, acts of war (whether war is declared or not), insurrections, riots, civil commotions, strikes lockouts or other labor disturbances, acts of God or acts, omissions or delays in acting by any governmental authority or other party. When such circumstances arise, the parties shall discuss what, if any modification of the terms of this Agreement may be required to arrive at an equitable solution. 15 16 ARTICLE 12 MISCELLANEOUS 12.1 Notices. Any consent, notice or report required or permitted to be given under this Agreement by one of the parties hereto to the other party shall be in writing, delivered personally or by facsimile (and promptly confirmed by personal delivery, first class mail, or courier, postage prepaid where applicable), addressed to such other party at its address indicated below, or to such other address as the addressee shall have last furnished in writing to the addressor and, except as otherwise provided in this Agreement, shall be effective upon receipt by the addressee. If to GMEL/BVI: Global Medical Enterprises, Ltd. c/o Global Medical Enterprises, Ltd., LLC 16161 Ventura Boulevard Suite 706 Encino, California 91436 Attention: Howard J. Fullman, M.D. Phone Number: (818) 981-1211 Fax Number: (818) 981-2408 If to GMEL/LLC: Global Medical Enterprises, Ltd., LLC 16161 Ventura Boulevard Suite 706 Encino, California 91436 Attention: Howard J. Fullman, M.D. Phone Number: (818) 981-1211 Fax Number: (818) 981-2408 If to UT: United Therapeutics Corporation 1110 Spring Street Silver Spring, Maryland 20910 Attention: Gilles Cloutier, Ph.D. Phone Number: (301) 608-9292 Fax Number: (301) 608-9291 12.2 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California, without regard to conflicts of laws principles thereof, except that questions affecting the validity, construction and effect of any patent shall be determined by the laws of the country in which the patent was granted. 12.3 Assignment. Neither party may assign its rights and obligations under this Agreement, in whole or in part, by operation of law or otherwise, without the prior written consent of the other party, provided however, that either party may, without such consent, assign this Agreement to a wholly-owned subsidiary. Any purported assignment in violation of this Section 12.3 shall be void. No assignment shall relieve either party of 16 17 responsibility for the performance of any accrued obligation which the such party then has hereunder. 12.4 Waivers and Amendments. No change, modification, extension, termination or waiver of this Agreement, or any of the provisions herein contained, shall be valid unless made in writing and signed by duly authorized representatives of the parties. 12.5 Entire Agreement. This Agreement constitutes the entire understanding between the parties and supersedes any prior understanding and agreements between them respecting the subject matter hereof, including the Letter of Agreement dated September 8, 1998 with respect North American Marketing Rights in Ketotop, which is hereby terminated. There are no representations, agreements, arrangements or understandings, oral or written, between the parties relating to the subject matter of this Agreement which are not fully expressed in this Agreement. This Agreement shall be binding upon, and inure to the benefit of, the legal successors to the parties hereto. 12.6 Severability. If any provision of this Agreement is found to be invalid or unenforceable in any jurisdiction, it shall be ineffective to the extent of such invalidity or unenforeceability in such jurisdiction, without rendering invalid or unenforceable the remaining provisions hereof and without affecting the validity or unenforceability of any of the terms of this Agreement in any other jurisdiction. The parties agree to renegotiate in good faith any term held invalid and be bound by the mutually agreed substitute provision. 12.7 Waiver. The waiver by either party of any right hereunder or the failure to perform or of a breach by the other party shall not be deemed a waiver of any other right under this Agreement or of any other breach or failure by said party whether of a similar nature or otherwise. 12.8 Construction. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event of an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or buden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. 12.9 Settlement of Disputes. 12.9.1 All disputes arising between the parties in connection with this Agreement shall be resolved exclusively by arbitration in Los Angeles, California in accordance with the rules of the American Arbitration Association, and judgment upon the award entered by the arbitrator(s) may be enetered in any court having jurisdiction thereof. 12.9.2 If any arbital or judicial proceedings shall be commenced to enforce this Agreement or any abitral award issued pursuant to this Section 12.9, the prevailing party in such proceedings shall be entitled to recover the reasonable attorneys' 17 18 fees, costs and expenses incurred by the prevailing party in connection with such proceedings. 12.10 Independent Contractors. The relationship between GMEL and UT is that of independent contractors. Neither party has any actual or apparent authority, express or implied, to act on behalf of the other party or to bind the other party to any obligations. Neither party shall be deemed to be an agent or servant of the other party or a partner or venturer with the other party. Neither party shall control, or have any right to control, the manner, method, an means by which the other party makes, has made, uses, sells, leases or otherwise provides or markets its products and services. 12.11 LIMITATION OF LIABILITY. EXCEPT AS MAY BE ELSEWHERE HEREIN SPECIFICALLY PROVIDED FOR, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES, OR FOR ANY LOST PROFITS OF THE OTHER PARTY, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, ARISING OUT OF THE PERFORMANCE OR FAILURE TO PERFORM ANY OBLIGATIONS SET FORTH HEREIN. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. Global Medical Enterprises, Ltd. /s/ Tom Kim -------------------------------- Tom Kim Chairman Date: February 5, 1999 18 19 Global Medical Enterprises, Ltd., LLC /s/ Howard J. Fullman -------------------------------- Howard J. Fullman, M.D. President and CEO Date: February 5, 1999 UNITED THERAPEUTICS CORPORATION /s/ Gilles Cloutier -------------------------------- Gilles Cloutier, Ph.D. Executive Vice President and COO Date: February 4, 1999 19 EX-10.14 22 EXCLUSIVE LICENSE AGREEMENT 1 CONFIDENTIAL TREATMENT REQUESTED FOR PORTIONS OF THIS DOCUMENT EXHIBIT 10.14 EXCLUSIVE LICENSE AGREEMENT This Exclusive License Agreement ("Agreement") is effective as of March 15, 1999 (the "Effective Date"), by and between United Therapeutics Corporation, a Delaware corporation, having an address at 68 T.W. Alexander Drive, Research Triangle Park, North Carolina 27709, USA ("UT"), and Toray Industries, Inc., a Japanese corporation, having an address at 2-1, Nihonbashi-Muromachi 2-chome, Chou-ku, Tokyo 103-8666, Japan ("Toray"). WHEREAS, Toray owns all right, title and interest in certain patent rights, trademark and the right to use certain know-how relating to the Product (as herein defined) in the Territory (as herein defined); WHEREAS, Toray granted UT an exclusive license of patent rights, trademark and know-how in order to develop, use and sell the Product within the Territory for use in treatment of Pulmonary Vascular Disease, including Pulmonary Hypertension, under the Exclusive License Agreement dated September 16, 1998 ("PH Agreement"). WHEREAS, UT also desires to obtain an exclusive license of such patent rights, trademark and know-how in order to develop, use and sell the Product within the Territory for use in treatment of the Indication (as herein defined); and WHEREAS, Toray is willing to grant such an exclusive license to UT according to the terms and conditions herein below. NOW, THEREFORE, in consideration of the foregoing and the mutual promises and covenants set forth in this Agreement, the parties to this Agreement mutually agree as follows. 1. DEFINITIONS. As used in this Agreement, the following terms, whether used in the singular or the plural, shall have the following meanings: a. "Affiliate" means any corporation or non-corporate entity which controls, is controlled by, or is under common control with a party to this Agreement. A corporation or non-corporate entity shall be regarded as in control of another corporation if it owns or directly or indirectly controls at least fifty percent (50%) of the voting stock of the other corporation, or (i) in the absence of the ownership of at least fifty percent (50%) of the voting stock of a corporation or (ii) in the case of a non-corporate entity, if it possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation or non-corporate entity, as applicable. b. "Dollars" or "$" means United States dollars. 1 2 c. "FDA" means the United States Food and Drug Administration or any successor entity. d. "Indication" means Peripheral Vascular Disease. e. "Improvements" means modifications, variations and revisions of the Know-How as well as all processes, machines, manufactures or compositions of matter directly pertaining to the Patent Rights. f. "Patent Rights" means all domestic and foreign patents and patent applications listed in Appendix A attached hereto and made a part hereof, and any Improvements, extensions, continuations, continuations-in-part, divisions, substitutions, foreign equivalents, renewals, modifications, variations, new models, or reissues thereof, as well as all processes, machines, manufactures or compositions of matter directly pertaining to the patents which come into existence during the term of this Agreement. g. "Know-How" means all technical information and data, including but not limited to ideas, concepts, methods, procedures, processes, compounds, inventions, discoveries, whether or not patentable, which are owned by Toray, or which Toray has the right to use and license as of the Effective Date and which relates to the Product and its use as described in the claims of the patents and patent applications listed in Appendix A attached hereto and made a part hereof, or any other patents or patent applications comprising the Patent Rights. h. "Trademark" means the trademark selected by both parties and registered by Toray for the Product in accordance with Section 6.b. i. "Product" means immediate release (not sustained or controlled) oral formulation of TRK-100 (Beraprost Sodium) which includes what has been developed in the USA by HMR. j. "Licensed Technology" means, collectively, the Product, the Patent Rights, the Trademark, the Know-How and the Improvements. k. "Net Sales", with respect to any Product, means the gross sales (i.e., gross invoice prices) of such Product billed by UT or its distributor to final wholesaler or, if and when UT or its distributor sells the Product directly to hospital, clinic, HMO (Hospital Management Organization) or other end users (hereinafter collectively referred to as the "End Users", and final wholesaler or the End Users, as the case may be, being hereinafter refereed to the "Third Party Customers") , the gross sales of such Product billed by UT or its distributor to the End Users, less : (i)actual credited allowances to the Third Party Customers for spoiled, damaged, out dated and returned Product and for retroactive price 2 3 reductions in lieu of returned Product; (ii)customary trade and cash discount, to the extent such trade and cash discounts are not deducted by UT at the time of invoice in order to arrive at the gross invoice prices; (iii)all transportation, packaging, handling and insurance charges, sales taxes, excise taxes, use taxes or import/export duties actually paid; (iv)any tax or other government charge on the sale, transportation, or delivery of Product; and (v)all other invoiced allowances and adjustments actually credited the Third Party Customers including, but not limited to, rebates paid to the Third Party Customers, whether during the specific royalty period or not. All the deduction shall be reasonable, customary and certified with evidence. In this Section 1.k, final wholesaler means the firm, corporation or individual which sells Product directly to the End Users. l. "NDA" means a New Drug Application or any equivalent successor application. m. "Registration" means, in relation to any Product, such approvals by government authorities as may be legally required before such Product may be commercialized in the Territory. n. "Territory" means the United States of America and Canada. o. "Third Party" means any party other than UT and Toray . p. "Valid Claim" means a claim of an issued and unexpired patent included within the Patent Rights which has not been held unenforceable, unpatentable or invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been admitted to be invalid or unenforceable through reissue, disclaimer or otherwise. q. "IND" means Investigational New Drug. r. "Other Product" means non-immediate release formulation (including, but not limited to, oral and dermal) of TRK-100 (Beraprost Sodium). 2. GRANT OF EXCLUSIVE LICENSE. a. Grant. Toray hereby grants to UT an exclusive license, without a right to sublicense, under the Licensed Technology to develop, use, import, offer for sale and sell Products in the Territory for use in treatment of the Indication. b. Covenant Not to Sue. Toray agrees that it will not assert nor cause to be asserted against UT any patent not included in the Patent Rights that is or might be infringed by reason of UT exercise of rights under the license granted to UT hereunder. 3 4 c. Other Formulation UT and Toray understand that the FDA orphan drug exclusivity of the Product for the Indication has no effect for Toray and Toray's licensee to develop, manufacture, use, import, offer for sale and sell the Other Product in the Territory. UT and Toray understand that all orphan drug exclusivity are only for the same molecule, the same delivery and the same pharmokinetics (i.e.generic of the Product). In the event that Toray and Toray's licensee have any difficulties from the laws, the regulations or the guidelines in the Territory to develop, manufacture, use, import, offer for sale and sell the Other Product because of UT's orphan drug exclusivity of the Product, then UT shall cooperate with Toray to make possible for Toray and Toray's licensee to develop, manufacture, use, import, offer for sale and sell the Other Product in the Territory. 3. CONSIDERATION FOR THE GRANT. a. License Fees. In consideration for the exclusive license granted to UT under this Agreement, UT shall, on the day on which UT concludes that all the information related to the Indication is provided by Toray to UT for IND filing, or on thirty (30) days after the effective date of this Agreement, whichever comes earlier: 1. pay to Toray a non-refundable license fee of $100,000; and 2. deliver to Toray a certificate representing [ ] shares of UT common stock. b. Milestone Payments. As further consideration for the exclusive license granted to UT under this Agreement, UT shall make the following payments upon completion of the following milestones: 1. UT shall pay to Toray a non-refundable milestone payment of [ ] in cash upon UT's written notice to Toray that it is proceeding with its first Phase III Studies. 2. UT shall pay to Toray a non-refundable milestone payment of [ ] in cash upon UT"s first filing of an NDA in the United States for the Product. 3. UT shall pay to Toray a non-refundable milestone payment of [ ] in cash and upon the date of first FDA approval of the Product. c. Purchase of Product. 1. UT shall purchase commercial Product according to United Statescurrent GMP solely from Toray during the term of this Agreement. UT shall neither 4 5 manufacture Product nor purchase Product from a Third Party. Toray will be responsible for the manufacture and delivery to UT of the amount of United States cGMP Product that UT reasonably requires from time to time during the term of this Agreement. 2. Toray will supply commercial Product to UT at the prices which are inclusive of all costs and revenues, including but not limited to, costs of formulation, manufacture, bulk materials, as well as a royalty stream on Net Sales. The price of the Product shall be the sum of (1) and (2), in which (1) is "The Amount" per 120 micrograms determined by using the following formula and (2) is [ ] per 120 micrograms: (a) If Net Sales within the Territory are below [ ], then The Amount shall be the greater of either the amount per 120 micrograms converted from [ ] of Net Sales or Japanese Yen [ ] per 120 micrograms. (b) If Net Sales within the Territory are between [ ] and [ ], then The Amount shall be (i) the amount determined according to (a) above for the portion up to [ ], plus (ii) the greater of either the amount per 120 micrograms converted from [ ] of the portion of over [ ] of the Net Sales or Japanese Yen [ ] per 120 micrograms. (c) If Net Sales within the Territory are between [ ] and [ ], then The Amount shall be (i) the amount determined according to (b) above for the portion up to [ ], plus (ii) the greater of either the amount per 120 micrograms converted from [ ] of the portion of over [ ] of the Net Sales or Japanese Yen [ ] per 120 micrograms. (d) If Net Sales within the Territory are over [ ] then The Amount shall be (i) the amount determined according to (c) above for the portion up to [ ], plus (ii) the greater of either the amount per 120 micrograms converted from [ ] of the portion of over [ ] of the Net Sales or Japanese Yen [ ] per 120 micrograms. In the event the Product for both Pulmonary Vascular Disease and the Indication is approved, the price of the Product for Pulmonary Vascular Disease is calculated according to the above formulation and Net Sales includes Net Sales of the Product for Pulmonary Vascular Disease. In such case, the provision of the Section 3. c. 2. of PH Agreement shall not be applied. Toray and UT shall consult with each other and decide provisional sales price of the Product sold to UT for the next sales year, and after the said sales year, adjust the amount already paid by UT on the basis of provisional sales price in the said sales year (hereinafter referred to as "Paid Price") by defining and paying or paying back the difference between the Paid Amount and the total amount calculated according to the above method for the Product sold to UT in the said sales year. 3. In the event that UT determines, after discussion with Toray that (a) UT is required to pay royalties to any Third Party because the 5 6 development, manufacture, use or sale of the Product infringes any patent or other intellectual property rights of such Third Party in the Territory; or (b) the development, manufacture, use or sale of the Product in any country in the Territory no longer infringes a Valid Claim with respect to any Product and Third Party starts the sale of the same compound with Beraprost in chemical structure in the Territory; or (c) a compulsory license has been granted to a Third Party under the applicable laws of any country in the Territory under the Licensed Technology licensed to UT hereunder Third Party starts the sale of the same compound with Beraprost in chemical structure in the Territory; or (d) the price for Product under this Paragraph 3(c) causes or may cause UT a significant reduction in its sales of Product in any country in the Territory; then, in any such event, UT and Toray shall meet and in good faith endeavor to agree on how to deal with the situation in order to place UT in a position to market competitively the Product in such country. 4. Payment for Product shall be made in Dollars by UT in accordance with the terms and conditions as designated by the mutual agreement of UT and Toray. d. Minimum Annual Product Net Sales. UT shall be reponsible for achieving minimum annual Product Net Sales as determined in advance by mutual agreement of Toray and UT for the duration of this Agreement . Toray and UT agree that the minimum Net Sales amount for the first two commercial sales years shall be [ ] and [ ] respectively. In the event that UT is unable to meet any minimum annual Net Sales amount as designated by the parties for a period of two consecutive years, then Toray may convert the exclusive license granted under this Agreement to be non-exclusive, in which event UT shall thereafter share the Product marketing rights approved by the FDA with such Third Party designated by Toray. e. Non-Competition. UT shall not engage in the development of an immediate release (not sustained or controlled) orally available stable prostacyclin analog compound including UT-15 for the duration of this Agreement plus five years. Notwithstanding the foregoing, in the event that immediate release TRK-100 (Beraprost Sodium) failure has been demonstrated in clinical trials, then the period of non-competition shall only extend for six months after the date the failure was demonstrated. 4. DEVELOPMENT AND COMMERCIALIZATION PROGRAM. a. UT shall be responsible for all costs and expenses for obtaining regulatory approval and commercializing Products for treatment of the Indication, including all costs of clinical trials. UT will solely and exclusively own all regulatory applications and approvals 6 7 obtained by UT with respect to Products. UT will closely consult with Toray with regard to its participation in important clinical development meetings. b. UT and Toray shall establish a Management Committee, comprised of two persons from UT and two persons from Toray, which will meet at least once a year at each party's expense to coordinate the development and marketing of Products under this Agreement, to determine the Product development schedule, and to take such other actions as required under this Agreement. 1. The initial Product development schedule, subject to revision by the Management Committee, is as follows:
Action Date ------ ---- Orphan-IND (US) [ ] Phase II start [ ] Phase III start [ ] NDA filing [ ] FDA approval [ ]
In the event that the Product development schedule falls more than six months behind the above initial development schedule, then Toray may at its discretion terminate this Agreement without any additional penalty to UT. 2. The initial quantity of Product provided by Toray to UT free of charge for use in clinical studies, subject to revision by the Management Committee, is up to 100g. The Management Committee will decide from time to timethe appropriate product sample requirements and the price on quantities exceeding 100g, to support UT's development and commercialization approval of the Product. c. Toray shall provide UT on a timely basis and without charge all information concerning the Product which is available to Toray and which is reasonably required by UT to fulfill its obligations under this Agreement, including but not limited to, information relating to preclinical and clinical research, safety, use, pharmacokinetics and efficacy, access through Toray to HMR European data and authority to use and submit such data to the FDA to the extent legally required, etc. In the event that UT uses information from other licensees of Toray, UT will be responsible for payment of reasonable compensation to such licensee through Toray. d. UT shall disclose to Toray on a timely basis and without charge all Product information (including but not limited to, clinical studies, ADR, GCP, preparation for registration, NDA filing, FDA approval, US market, PMS, safety issues) which UT acquires or will acquire during the term of this Agreement. UT agrees that Toray may use such information outside the Territory free of charge. In the event that Toray grants the right to use such information to a Third Party except Yamanouchi Parmaceutical Co.,LTD. and 7 8 Kaken Parmaceutical Co.,LTD. outside the Territory or uses such information itself and grants the right to use such Information to a Third Party within the Territory, Toray will be responsible for payment of reasonable compensation to UT. e. Neither UT nor Toray shall appoint a Third Party to promote or distribute Product under UT's marketing rights approved by the FDA, without the other's approval. Notwithstanding the foregoing, in the event that UT fails to achieve at least [ ] annual Net Sales of Product in each year in and after the third full sales year, then the Management Committee shall have the right, after full discussion, to appoint a promoting company. In the event that the Management Committee is unable to reach agreement on the identity of such Third Party promoting company, Toray shall have the right to appoint such company. f. In the event that UT desires to market and/or advertise the Product for off-label use, UT shall discuss with Toray such off-label use and get the approval of it from Toray in advance . 5. RIGHTS OF FIRST REFUSAL. a. Toray agrees to enter into a separate negotiation with UT for the first refusal right to co-promote the non-immediate release formulation of TRK-100 (Beraprost Sodium) for the Indication when it is developed or marketed in the Territory. b. Toray agrees to enter into a separate negotiation with UT for the first refusal right to develop and sell the Product in other therapeutic areas than the Indication in the Territory. c. Toray agrees to enter into a separate negotiation with UT for the first opportunity to develop and sell the Product in Mexico once Toray's other licensee indicates that it does not want to commence development in Mexico. d. UT agrees to enter into a separate negotiation with Toray for the first refusal right to develop and sell in Japan up to two compounds which UT is developing or will develop and which UT has the right to license or sublicense. 6. INTELLECTUAL PROPERTY. a. Patents. Toray will be responsible for taking all necessary action to maintain and/or extend the Patents Right in the Territory. UT will render reasonable assistance to Toray in this effort. b. Trademarks. UT will be responsible for selecting an enforceable trademark(s) for the Product acceptable to Toray and Toray will be responsible for registering and maintaining such registrations within all countries in the Territory. UT will market the Product 8 9 using such trademark(s) to identify the Product within the Territory. Toray hereby grants to UT the exclusive right to use the trademark within the Territory during the term of this Agreement. 7. WARRANTIES. a. Toray represents and warrants to UT that: (i) Toray is the sole owner of the Licensed Technology and has the exclusive right and authority to use the Know-How and to license the Patent Rights and the Know-How; (ii) as of the Effective Date, Toray is not aware of any action or threatened claim of infringement brought by a Third Party under any Third Party intellectual property right in respect of Toray's exploitation of the Licensed Technology; and (iii) Toray will make available to UT all material technical information in its possession or of which it is aware that is pertinent to development and commercialization of the rights licensed under this Agreement. b. Toray and UT each represents and warrants to the other that: (i) it is free to enter into this Agreement and to carry out its obligations hereunder; (ii) this Agreement constitutes its legal, valid and binding obligation; and (iii) execution, delivery and performance of this Agreement will not constitute a violation or breach of any agreement or contract to which it is a party or by which it is bound or the terms of any judicial or administrative decree or order to which it is subject. 8. INDEMNIFICATION. UT agrees to indemnify and hold Toray, its Affiliates, and its and their directors, officers, employees and agents harmless from and against any liabilities or damages or expenses in connection therewith (including reasonable afforney's fees and costs and other expenses of litigation) resulting from Third Party claims arising out of UT's clinical development of Products, defectiveness of Product PPI (information to doctors, pharmacists and patients), and the use, storage or sales of the Product within the Territory. 9. CONFIDENTIALITY. a. Treatment of Confidential Information. Except as otherwise provided in this Section 9.a, during the term of this Agreement and for a period of seven (7) years thereafter: 1. UT will retain in confidence and use only for purposes of this Agreement any information and data supplied by or on behalf of Toray to UT under this Agreement; and 2. Toray will retain in confidence and use only for purposes of this Agreement any information and data supplied by or on behalf of UT to Toray under this Agreement. For purposes of this Agreement, all such information and data which a Party is obligated to retain in confidence shall be called "Information." 9 10 b. Right to Disclose. To the extent it is reasonably necessary or appropriate to fulfill its obligations or exercise its rights under this Agreement or any rights which survive termination or expiration hereof, a party may disclose Information to its Affiliates, licensees, consultants, outside contractors and clinical investigators on condition that such entities or persons agree (i) to keep the Information confidential for at least the same time periods and to the same extent as each party is required to keep the Information confidential and (ii) to use the Information only for such purposes as such party is entitled to use the Information. Each party or its Affiliates may disclose such Information to government or other regulatory authorities to the extent that such disclosure (a) is reasonably necessary to obtain patents or authorizations, to conduct clinical trials and to market commercially the Product, provided such party is otherwise entitled to engage in such activities under this Agreement, or (b) is otherwise required by applicable laws or regulations. c. Release from Restrictions. The obligation not to disclose Information shall not apply to any part of such Information that (i) is or becomes patented, published or otherwise part of the public domain other than by acts of the party obligated not to disclose such Information (for purposes of this Section 9, the "Receiving Party") or its Affiliates or licensees in contravention of this Agreement, or (ii) is disclosed to the Receiving Party or its Affiliates or licensees by a Third Party, provided such Information was not obtained by such Third Party directly or indirectly from the other party under this Agreement; or (iii) prior to disclosure under this Agreement, was already in the possession of the Receiving Party or its Affiliates or licensees, provided such Information was not obtained, directly or indirectly, from the other party under this Agreement; or (iv) results from research and development by the Receiving party or its Affiliates or licensees independent of disclosures from the other party under this Agreement. d. Publications. No announcement, news release, public statement, publication or other public presentation relating to the existence of this Agreement, the subject matter herein, or either party's performance hereunder including any written or oral publication, any manuscript, abstract or the like which includes data or any other information generated and provided by the development effort hereunder, shall be made without the other party's prior approval as to form and content. An acceptable joint press release announcing the execution of this Agreement is required to be agreed by both Parties. 10. TERM AND TERMINATION. a. Term and Expiration. This Agreement shall become effective as of the Effective Date and shall continue in full force and effect until that date ten years after FDA approval of the Product. UT may extend the term of this Agreement by successive one-year periods by giving written notice of each such extension to Toray no later than two-hundred ten (210) days prior to the end of the term set forth in the previous sentence or the end of each extension one-year period with written consent of Toray, which shall not be withheld without reasonable reason. 10 11 b. Termination. 1. Product Development Delay. In the event that the Product development schedule falls six months or more behind the schedule initially determined under Section 4.b.1 by the Management Committee without a reasonable justification, then Toray may terminate this Agreement as provided in Section 4.b.1. 2. Infringement. UT may terminate this Agreement if a court of competent jurisdiction from which no further appeal can be taken has entered a final order indicating that the Licensed Technology infringes the rights of a Third Party. 3. Default. If a party materially defaults in its performance of any of its material obligations under this Agreement, and such default is not cured within sixty (60) days of written notice of such default by the other party, this Agreement may be terminated at the end of such 60-day period by the party not in default by written notice of termination to the defaulting party, such written notice to be given not later than seventy-five (75) days after the first written notice. Termination under this provision does not limit any remedies for breach. 4. Bankruptcy. In the event of the institution by or against either party of insolvency, receivership or bankruptcy proceedings or any other proceedings for the settlement of a party's debts which are not dismissed within sixty (60) days, or upon a party's making an assignment for the benefit of creditors, or upon a party's dissolution or ceasing to do business, the other party may terminate this Agreement upon written notice. 5. Mergers and Acquisitions. ("M&A"). If M&A is anticipated, in which UT merges a Third Party company or is merged by a Third Party company, or acquires more than 50 % of the shares of a Third Party company or more than 50% of the shares of UT is acquired by a Third Party ("M&A"), and if such M&A is anticipated to affect badly the development and marketing of the Product, then UT agrees that, in order to minimize the inconvenience of Toray caused by such M&A, UT shall promptly inform Toray thereof and in good faith endeavor to agree with Toray about how to continue the development and marketing of the Product. If UT and Toray can not reach an agreement about how to continue the development and marketing of the Product according to this Agreement, then Toray has a right to terminate this Agreement. For the purposes of this Section 10.b.5, " to affect badly the development and marketing of the Product" means "to result in UT actually missing a milestone date in this Agreement, or failing to achieve a minimum Net Sales specified in this Agreement". Furthermore, if the M&A is reasonably expected to result in access to any Information defined in Section 9 by a Third Party with very competitive products or pipelines to the Product (Beraprost), then, prior to the M&A, UT shall reach agreement with Toray on how to prevent such access to any Information. No such M&A shall be completed until reasonable measures are in place to prevent access to Information as a result of any M&A by any Third Party with very competitive products or pipelines to the Product (Beraprost)." 11 12 c. Continuing Obligations. Upon expiration or termination of this Agreement with respect to all countries within the Territory, the rights and obligations of the parties shall cease, except as follows: 1. the rights and obligations of the Parties under Section 8 shall survive termination or expiration; 2. upon expiration or termination for any reason, the obligations of confidentiality and use of Information under Section 9 shall survive for the period provided therein; and 3. expiration or termination of this Agreement shall not relieve the parties of any other obligation accruing prior to such termination. d. Outstanding Inventory. Only upon termination of this Agreement caused by the reason not attributable to UT, UT shall have the right and option to sell any completed inventory of Product, as if licensed under this Agreement, which remains on hand as of the date of the termination, so long as UT pays to Toray as required under this Agreement. 11. GENERAL. a. Entire Agreement. This Agreement constitutes the entire agreement and understanding relating to the subject matter of this Agreement and supersedes all previous communications, proposals, representations and agreements, whether oral or written relating to the subject matter of this Agreement. b. Assignment. This Agreement is personal to UT and neither this Agreement nor any particular rights or obligations under this Agreement may be assigned or otherwise transferred by UT without the prior written consent of Toray. Any purported assignment in violation of the preceding sentence shall be void and shall constitute a material default of this Agreement. c. Force Majeure. A party shall not be held liable or responsible to another party nor be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or performing any term of this Agreement when such failure or delay is caused by or results from fires, floods, embargoes, government regulations, prohibitions or interventions, wars, acts of war (whether war be declared or not), insurrections, riots, civil commotions, strikes, lockouts, acts of God, or any other cause beyond the reasonable control of the affected party. d. Notices. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been sufficiently given for all purposes if personally delivered or mailed by first class certified or registered mail, postage prepaid, hand delivered, or sent by telecopy or by reputable overnight courier service which requires signature 12 13 upon delivery. Notices sent by U.S. mail shall be deemed delivered three days after deposit with postal authorities or upon confirmed delivery if personally delivered, sent by confirmed fax or courier service. Unless otherwise specified in writing, the mailing addresses of the Parties shall be as described below: For UT: United Therapeutics Corporation 68 T.W. Alexander Drive PO Box 14186 Research Triangle Park, NC 27709, USA Attention: Dr. Gilles Cloutier, Ph.D. Fax Number: 919-485-8352 For Toray: Toray Industries, Inc. 2-1, Nihonbashi-Muromachi 2-chome, Chou-ku, Tokyo 103-8666, JAPAN Attention: Dr. Masanobu Naruto, Ph.D. Pharmaceuticals Planning Department. Fax Number: 81-3-3245-5421 e. Amendment and Waiver. This Agreement may be modified, amended and supplemented only by written agreement signed by the parties. The waiver by any party to this Agreement of any breach or violation of any provision of this Agreement by the other party shall not operate or be construed to be a waiver of any subsequent breach or violation of the same or any other provision of this Agreement. f. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts between residents of New York which are wholly executed and performed in New York, except that questions affecting the validity, construction and effect of any patent shall be determined by the laws of the country in which the patent was granted. g. Arbitration. All claims, controversies, disputes or differences arising between Toray and UT in connection with, arising from, or with respect to this Agreement, which shall not be resolved within thirty (30) days after either party notify the other in writing of such claim, controversy, dispute or difference, shall be submitted for arbitration to the American Arbitration Association on demand of Toray and shall be submitted for arbitration to the Japan Commercial Arbitration Association on demand of UT. Such arbitration proceedings shall be conducted in Washington D.C., USA in accordance with the then current Commercial Arbitration Rules of the American Arbitration Association if initiated by Toray and shall be conducted in Tokyo, Japan in accordance with the then current Commercial Arbitration Rules of the Japan Commercial Arbitration Association if initiated by UT. The award and decision of the arbitrator(s) shall be conclusive and binding upon all parties hereto and judgment upon the award may be entered into any court of general jurisdiction. This Agreement to arbitrate shall 13 14 continue in full force and effect subsequent to and notwithstanding the expiration or termination of this Agreement. h. Partial Invalidity. If any provision of this Agreement is found to be invalid, illegal, or otherwise unenforceable, then the remaining provisions shall nevertheless remain in full force and effect and shall not be affected by the modification of striking of the involved or unenforceable provision. The parties agree to renegotiate in good faith any term held invalid and be bound by the mutually agreed substitute provision. i. Independent Contractors. The relationship between Toray and UT is that of independent contractors. Neither party has any actual or apparent authority, express or implied, to act on behalf of the other party or to bind the other party to any obligations. Neither party shall be deemed to be an agent or servant of the other party or a partner or venturer with the other party. IN WITNESS WHEREOF, this Agreement is executed and effective as of the date first above written. TORAY INDUSTRIES, INC. UNITED THERAPEUTICS CORPORATION /s/ Kiyoteru Wakasugi /s/ Martine Rothblatt - ------------------------------------------ ------------------------------------------- By: Kiyoteru Wakasugi Martine Rothblatt Managing Director of the Board Chief Executive Officer Date: March 15, 1999 Date: March 15, 1999 ------------------------------------- --------------------------------
14 EX-10.15 23 MANUFACTURING AGREEMENT WITH STEROIDS 1 CONFIDENTIAL TREATMENT REQUESTED FOR PORTIONS OF THIS DOCUMENT EXHIBIT 10.15 MANUFACTURING AGREEMENT AGREEMENT dated as of February 11, 1998 by and between UNITED THERAPEUTICS CORPORATION ("UNITED THERAPEUTICS"), a Delaware corporation with principal offices at 1826 R Street NW, Washington DC 20009 and Steroids, Ltd. ("STEROIDS") an Illinois corporation with principal offices at 2201 West Campbell Park Drive, Chicago, Illinois 60612. WHEREAS, STEROIDS has the expertise, personnel, and facilities for the manufacture of active pharmaceutical ingredients (API's), and desires to provide such service to contracting parties; WHEREAS, UNITED THERAPEUTICS has worldwide exclusive rights to make and sell the stable prostacyclin analog formerly known as 15AU81 and now known as UT-15; WHEREAS, UNITED THERAPEUTICS and STEROIDS are parties to an agreement ("EXISTING AGREEMENT') consisting of STEROIDS' Proposal for Process Development Program for Synthesis of 15AU81 dated February 7, 1997, and UNITED THERAPEUTICS' acceptance of STEROIDS' aforementioned proposal, dated March 14" 1997, and of STEROIDS' proposal for process development dated November 4, 1997 and UNITED THERAPEUTICS' acceptance of STEROIDS' proposal dated November 11, 1997 and of STEROIDS' letter quotation for the cGMP synthesis of 300 grams of 15AU81 dated October 8, 1997 and UNITED THERAPEUTICS's acceptance of STEROIDS' proposal dated October 21, 1997. NOW, THEREFORE, STEROIDS and UNITED THERAPEUTICS wish to continue, expand and further formalize their EXISTING AGREEMENT with this Manufacturing Agreement and thus hereby agree as follows: 1. DEFINITIONS The Defined terms used in this Agreement shall have the following meanings: 1.01 "Affiliate" means (a) any company owned or controlled to the extent of more than fifty percent (50%) of its issued and voting capital by a party to this Agreement and any other company so owned or controlled, directly or indirectly, by any such company or the owner of any such company, or (b) any partnership, joint venture or other entity directly or indirectly controlled by, controlling, or under common control of, to the extent of more than fifty percent (50%) of voting power, or otherwise having power to control its general activities, a party to this Agreement, but in each case only for so long as such ownership or control shall continue. 1.02 "API" means the active pharmaceutical ingredient manufactured by STEROIDS in accordance with the procedures developed under Exhibit A and provided to UNITED THERAPEUTICS pursuant to this Agreement. 2 1.03 "Confirmed Purchase Order" means a purchase order issued by UNITED THERAPEUTICS and received by STEROIDS for the manufacturing of the API, for which a completion date has been scheduled. 1.04 "CDER" means FDA's Center for Drugs Evaluation and Research. 1.05 "API Substance" means the chemical entity UT-15. 1.06 "FDA" means the U.S. Food and Drug Administration. 1.07 "Facility" means STEROIDS' or its authorized agent's manufacturing facility. 1.08 "Manufacturing Date" means scheduled date on which STEROIDS intends to begin manufacturing UNITED THERAPEUTICS' API pursuant to a Confirmed Purchase Order. 1.09 "Good Manufacturing Practices" or "GMP" means current good manufacturing practices, as specified in regulations promulgated from time to time by the FDA for the manufacture and testing of pharmaceutical materials and the corresponding requirements of the European Union, Member States of the European Union, and Canada. 1.10 "Incoming Acceptance Test" means those analytical tests requested by UNITED THERAPEUTICS to be performed on a received shipment of API, which tests will be identified by a separate letter between the parties. 1.11 "Lot" means the API produced in a single production run, which may be contained in one or more containers thereof. 1.12 "New Procedure" means a method, process, or test that is not included within STEROIDS' SOPS, but which is requested by UNITED THERAPEUTICS in writing that STEROIDS perform. 1.13 "Sensitive Regulatory Submission Period" means the period between six (6) months prior and subsequent to a defining date set forth by UNITED THERAPEUTICS, in which period UNITED THERAPEUTICS intends to file an Investigational New Drug amendment or a NDA. 1.14 "SOPS" means written standard operating procedures and methods of STEROIDS. 2. MANUFACTURE, STORAGE AND DISTRIBUTION OF API. The following provisions relate to the manufacture, storage and distribution of API for UNITED THERAPEUTICS by STEROIDS. 2 3 2.01 Terms of Supply. The following terms relate to categories of manufacturing: 2.01.1 Subject to the terms and conditions hereof, during the Term and any Renewal Terms of the Agreement, STEROIDS agrees to provide and UNITED THERAPEUTICS agrees to accept from STEROIDS manufacturing services provided that such services are performed in accordance with STEROIDS' SOPS and UNITED THERAPEUTICS's written instructions, including, but not limited to those contained in Exhibit A. 2.01.2 Subject to the terms and conditions of this Agreement, during the Term and any Renewal Terms of this Agreement, STEROIDS agrees to sell and UNITED THERAPEUTICS agrees to purchase from STEROIDS API manufactured under this Agreement in accordance with the terms of Attachment A: 2.02 Terms of Storage and Distribution. The following terms relate to storage and distribution of API: 2.02.1 STEROIDS will maintain the appropriate storage conditions throughout holding and shipping of the manufactured API in accordance with Sections 7.01 and 7.02, and UNITED THERAPEUTICS's written instructions. 2.02.2 UNITED THERAPEUTICS will be responsible for order entry and return material authorization, including all costs attendant thereto. Such costs include, but are not limited to return postage, telephone-related services, storage of returned API and other material, and disposal of returned API and other material. 2.02.3 STEROIDS will only ship API Substance per written instructions from UNITED THERAPEUTICS, via Facsimile and confirming originals. STEROIDS will track all shipments, and record and maintain GMP documentation, including Lot traceability. (a) STEROIDS may ship API Substance for testing purposes pursuant to written requests by UNITED THERAPEUTICS. 2.02.4 If requested, STEROIDS will conduct shipping validation in accordance with a plan to be developed jointly with UNITED THERAPEUTICS and written by STEROIDS, including a cost estimate. Upon the conclusion of the shipping validation, STEROIDS will prepare and submit a report detailing the shipping validation program and its results. STEROIDS will invoice UNITED THERAPEUTICS therefore at STEROIDS' reasonable cost. 2.02.5 Unless otherwise instructed by UNITED THERAPEUTICS, STEROIDS will dispose of all returned API and invoice UNITED THERAPEUTICS for STEROIDS' cost of disposal; however, costs of handling and disposing API returned due to an FDA or UNTIED THERAPEUTICS mandated recall of an entire Lot of API Substance will be invoiced to UNITED THERAPEUTICS at 3 4 STEROIDS' cost plus [ ]. The cost of return shipping will be invoiced to UNITED THERAPEUTICS at STEROIDS' cost. Labor and costs relating to investigation of returned API Substance are not included in this Agreement. 3. PAYMENT FOR SERVICES STEROIDS will invoice UNITED THERAPEUTICS for charges related to manufacturing API as specified in the Proposal in Attachment A with a goal of [ ] per kilogram. Payment for services will be in accordance with Attachment A. Payments shall be due within 30 days of receipt of STEROIDS invoice. 3.01 Late Payments. For any payment owed under this Agreement and not received by the applicable Due Date, interest will accrue at the monthly rate of 1.5% (18% per year) calculated on daily outstanding balance, and compounded monthly, on all outstanding balances starting from the applicable Due Date. Any subsequent payments received will first be applied to the outstanding interest and then to any then current balance. UNITED THERAPEUTICS agrees to pay for the costs of collecting any payments due STEROIDS under this Agreement, including the costs of reasonable collection costs and attorney's fees. If UNITED THERAPEUTICS does not pay an invoice in full, including interest charges, after three (3) months of mailing, then UNITED THERAPEUTICS will be in breach of this Agreement and STEROIDS, at its discretion, may terminate this Agreement under the provisions of Section 11. 03 hereof. 4. SUPERVISION BY UNITED THERAPEUTICS 4.01 UNITED THERAPEUTICS will be responsible for Quality Control testing and approval/release of the API unless otherwise provided in writing. 4.02 The following employee of UNITED THERAPEUTICS is hereby designated as having the responsibility for Quality Control and Quality Assurance and ensuring that STEROIDS' activities hereunder are carried out in accordance with UNITED THERAPEUTICS's written instructions and GMP: Name: Shelmer D. Blackburn, Jr. Title: Director of Operations Address: UNITED THERAPEUTICS CORPORATION 2 Davis Drive Research Triangle Park, NC 27709 Telephone: 919-485-8350 Other employees of UNITED THERAPEUTICS may be designated from time to time, provided STEROIDS is notified in advance in writing of his or her name, title, address and telephone number. At no time, however, shall there be more than two UNITED THERAPEUTICS employees sharing this responsibility. 4.03 The individual(s) designated by UNITED THERAPEUTICS pursuant to Section 4.02 shall carry out his/her responsibilities through periodic on-site visits, observation of 4 5 STEROIDS' Facility and activity therein through its observation window, telephonic reports and written memoranda. UNITED THERAPEUTICS will continue to monitor STEROIDS' operations as they relate to API by conducting periodic audits of STEROIDS' facility to assure ongoing compliance with UNITED THERAPEUTICS's written instructions and GMP. Such individuals as designated shall use due diligence and best efforts in conducting such Quality Control activities so as not to delay STEROIDS ability to release Bulk Substance or Product and secure payment therefore on a regularly scheduled basis. 5. STANDARD OPERATING PROCEDURES AND FORMS 5.01 All activities conducted hereunder by STEROIDS will be conducted in accordance with Standard Operating Procedures prepared by STEROIDS that comply with Sections 7.01 and 7.02, and any other written specifications or procedures provided by UNITED THERAPEUTICS and accepted by STEROIDS. 5.02 STEROIDS agrees that for each Lot of API filled and packaged hereunder, STEROIDS will complete and furnish to UNITED THERAPEUTICS one (1) copy of the Batch production records, the originals of which will be retained by STEROIDS to the extent required by federal regulation. Both parties acknowledge that such records will include in-process test data for each Lot. 5.02.1 The aforementioned original Batch production records shall be retained as noted herein, and while so retained shall be available for inspection by regulatory authorities, UNITED THERAPEUTICS, and UNITED THERAPEUTICS' authorized representatives, 5.02.2 Sections 5.02 and 5.02.1 shall survive termination of this Agreement for such period as such records are required to be maintained by federal regulation. 5.03 STEROIDS and UNITED THERAPEUTICS both agree to maintain a complete record of information for each Lot and Batch for the period required by law, including the information referred to in Section 5.02. Each of STEROIDS and UNITED THERAPEUTICS acknowledges that maintenance of summaries of such information, as opposed to complete copies of the original records themselves, will not constitute fulfillment of the obligation referred to in the immediately preceding sentence. 6. PERMISSION TO INSPECT 6.01 STEROIDS hereby agrees and acknowledges that upon prior reasonable written notice it will permit authorized representatives of the FDA or comparable foreign regulatory authority, including, without limitation, authorized representatives of CDER, to inspect those portions of the STEROIDS Facility in which STEROIDS performs the activities provided for in this Agreement. 6.01.1 To the extent STEROIDS has prior notice, STEROIDS agrees to notify UNITED THERAPEUTICS of any inspection by the FDA that relates specifically 5 6 to STEROIDS API and give UNITED THERAPEUTICS timely updates on the inspection. UNITED THERAPEUTICS may send a representative to STEROIDS on the day of the inspection, however UNITED THERAPEUTICS's representative may not participate in or observe the inspection itself or have any substantive written or verbal communication with the FDA inspectors, unless so requested by STEROIDS. STEROIDS agrees to provide a timely verbal update to UNITED THERAPEUTICS regarding any such inspection. 6.02 STEROIDS will provide in a timely manner copies of written communications from such FDA inspections that pertain to API, including but not limited to documents entitled Observations. Any such written communications shall be redacted with respect to information relating to STEROIDS' APIs and any third party. 6.03 This Article 6 shall survive termination of this Agreement in perpetuity. 7. COMPLIANCE WITH CURRENT GMP 7.01 STEROIDS agrees that, in performing the activities provided for in this Agreement, it will comply with GMP. 7.02 STEROIDS agrees to perform all of the activities provided for in this Agreement in accordance with written instructions provided by UNITED THERAPEUTICS, unless STEROIDS has previously advised UNITED THERAPEUTICS that it is not able to do so. In the event UNITED THERAPEUTICS desires to modify its instructions, UNITED THERAPEUTICS agrees to notify STEROIDS of the planned modifications in writing and to provide a reasonable period of time before submitting such modifications to the FDA, if necessary, so that STEROIDS has sufficient time to implement those modifications that affect its activities hereunder. 8. FDA REGISTRATION OF THE FACILITY STEROIDS will perform the activities provided for in this Agreement at its Facility, unless otherwise specified or approved in advance by UNITED THERAPEUTICS and the appropriate regulatory authorities. The current Facility will be registered with the FDA and any new facility where API is synthesized will also be registered. 9. LABEL CONTROL 9.01 In-process labels are to be used by STEROIDS in performing the activities provided for in this Agreement. The parties agree that STEROIDS has the right to modify said labels to the extent permitted by law, upon written notice to UNITED THERAPEUTICS and, where required, after authorization by CDER. 6 7 10. TERM 10.01 This Agreement will be effective as of the date first set forth above and will remain in effect for a term of five (5) years ("Term") subject to early termination in accordance with the terms of the provisions of Section 11. The parties agree to renew this Agreement automatically for renewal terms of one (1) year ("Renewal Term") unless either party objects to doing so in writing no later than four (4) months prior to the expiration of a Term or Renewal Term. 11. TERMINATION 11.01 UNITED THERAPEUTICS will have the right, exercisable in its sole discretion, with or without cause, to terminate this Agreement by giving to STEROIDS four (4) months advance written notice of termination. After giving notice of termination and throughout the period ending on the date the notice of termination becomes effective, UNITED THERAPEUTICS agrees to continue to perform all of its obligations hereunder. 11.02 If either STEROIDS or UNITED THERAPEUTICS materially breaches or defaults in the performance or observance of any of the provisions of this Agreement and such breach or default is not cured within two (2) months after the giving of notice by the other party specifying such breach or default, the other party will have the right to terminate this Agreement in full upon a further one (1) month's notice. Each party shall also have the right to terminate this Agreement in full upon a one (1) month's notice in the event that there has been a loss, destabilization, alteration or contamination of API while in STEROIDS' possession, wherein the loss, etc. resulted in a material adverse effect. Termination under this Section 11.04 shall relieve the parties of all future obligations relating to purchase and performance of services under Article 2 from and after such termination date. 11.03 Upon termination of this Agreement, whether or not for cause, STEROIDS will provide written notice to UNITED THERAPEUTICS of any inventory of API and other materials either provided by or purchased, invoiced and paid for by UNITED THERAPEUTICS and request written instructions from UNITED THERAPEUTICS as to where to ship same. Such shipment shall be at UNITED THERAPEUTICS's expense, and UNITED THERAPEUTICS shall be responsible for all storage costs, payable prior to release of the inventory and associated materials. 12. WARRANTIES 12.01 Mutual Representations and Warranties. Each Party hereby represents and warrants to the other Party that this Agreement constitutes the legal, valid and binding obligation of such Party, enforceable in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium and similar laws affecting creditors' rights generally, and that the execution, delivery and performance of this Agreement does not conflict with any material agreement, instrument or understanding, oral or written, to which such Party may be bound, nor violates any law or regulation of any court, governmental body or administrative or 7 8 other agency having jurisdiction over it, except for such conflicts or violations that would not have a material adverse effect on the business, properties or financial condition of the other party. 12.02 UNITED THERAPEUTICS Warranties. 12.02.1 UNITED THERAPEUTICS warrants: (a) that all activities of UNITED THERAPEUTICS under this Agreement will be accomplished in accordance with the terms of this Agreement; (b) that, to the best of its knowledge, there are no intellectual property rights, such as, but not limited to valid United States patents, that would be infringed by the manufacture, use or sale of API or the use of any New Procedure. Notwithstanding the preceding sentence, UNITED THERAPEUTICS makes no warranty with respect to intellectual property rights relating to any processes performed by STEROIDS hereunder, except for a New Procedure. 12.03 STEROIDS Warranties. 12.03.1 STEROIDS warrants: (a) that all activities of STEROIDS under this Agreement will be accomplished in accordance with (i) the terms of this Agreement and all Attachments, (ii) all written manufacturing instructions received from UNITED THERAPEUTICS and accepted by STEROIDS, (iii) GMP, and (iv) other applicable laws, rules and regulations; (b) that, upon delivery of API to a carrier on behalf of UNITED THERAPEUTICS or UNITED THERAPEUTICS's designee, API will not be misbranded or otherwise of a nature that may not be introduced in United States interstate commerce, unless so directed by UNITED THERAPEUTICS in writing, however, this warranty of Section 12.03.1 (b) shall not apply if and to the extent that such condition obtains because UNITED THERAPEUTICS has breached its warranties in Section 12.02.1; (c) that it shall not knowingly ship API that has not passed USP sterility testing or is beyond its labeled expiration date, or is materially adversely affected due to misbranding, contamination, having been handled contrary to GMP, or having been subjected to negligence, unless so instructed in writing by UNITED THERAPEUTICS, STEROIDS shipping of API is not intended for any further "Commercial Purpose" 8 9 (d) that, to the best of its knowledge, there are no intellectual property rights, such as, but not limited to valid United States patents, that would be infringed by any processes performed by STEROIDS under this Agreement 12.04 No Other Warranties. The express warranties made in this Agreement are made in lieu of all other warranties, express or implied, including, without limitation, the warranties of merchantability and fitness for a particular purpose. 13. INDEMNIFICATION 13.01 Subject to the provisions of Section 13.05, UNITED THERAPEUTICS will defend, indemnify and hold harmless STEROIDS and its directors, officers, employees, agents, successors, and assigns from and against all suits, claims, liabilities, losses, and expenses, including reasonable attorneys' fees and expenses, arising directly or indirectly out of injury to persons or property alleged to have been caused by the design, manufacture, testing, instructions or warnings accompanying API, or use or unavailability of API or UNITED THERAPEUTICS breach of this Agreement, except to the extent that the injury is alleged to have been caused solely by STEROIDS' breach of this Agreement, intentional action, willful inaction, or gross negligence while providing the services described herein, provided, however, that the indemnity provisions of this section 13.01 remain m effect where STEROIDS' allegedly injury-causing behavior was effected pursuant to specific instructions of UNITED THERAPEUTICS. The aforementioned injury to persons or property specifically includes, without limitation, alleged infringement of patent or other intellectual property rights of third parties by the manufacture, use, or sale of API or the use of a New Procedure. UNITED THERAPEUTICS shall have full control over the defense of any such litigation, and agrees to bear all costs and expenses thereof. STEROIDS, at its own expense, will be entitled to be represented by its own counsel in any such litigation. 13.02 UNITED THERAPEUTICS agrees that STEROIDS' liability resulting from the loss, destabilization, alteration or contamination of API of a particular Lot, wherein such API is lost, destabilized, altered or contaminated such that it cannot be used in clinical trials or is not placed into commerce, shall not exceed the amount of any insurance recoveries net of any applicable deductible realized by STEROIDS in respect to the foregoing plus the value of services provided with respect to the Lot in question. 13.03 Subject to the provisions of Section 13.02 and 13.05, STEROIDS will defend, indemnify and hold harmless UNITED THERAPEUTICS and its directors, officers, employees, agents, successors, and assigns from and against all suits, claims, liabilities, losses, and expenses, including reasonable attorneys' fees and expenses, arising directly or indirectly out of injury to persons or property alleged to have been caused in whole or in part by STEROIDS' breach of this Agreement, intentional action, willful inaction, or gross negligence while providing the services described herein to UNITED THERAPEUTICS; provided, however, that such indemnity shall not apply if such breach, intentional action, willful inaction, or gross negligence resulted from specific instructions of UNITED THERAPEUTICS or in part from any breach, intentional 9 10 action, willful action or gross negligence of UNITED THERAPEUTICS. The aforementioned injury to persons or property specifically includes, without limitation, alleged infringement of patent or other intellectual property rights of third parties by STEROIDS' manufacturing procedures, irrespective of API, performed under this Agreement provided, however, STEROIDS performance of a New Procedure is specifically excluded from such indemnity. STEROIDS shall have full control over the defense of any litigation, and agrees to bear all costs and expenses therefor. UNITED THERAPEUTICS, at its own expense, will be entitled to be represented by its own counsel in any such action. 13.04 In the event that a suit, claim, liability, loss or expense, including reasonable attorneys' fees and expenses, arises out of injury to persons or property alleged to have been caused by both events or circumstances for which (i) both UNITED THERAPEUTICS and STEROIDS have indemnity obligations under Sections 13.01 and 13.04, or (ii) UNITED THERAPEUTICS or STEROIDS have indemnity obligations under Sections 13.01 and 13.04 and one or more third parties are alleged to be liable for the injury, then the parties agree to pay losses and expenses arising from such suit claim, liability, loss or expense in proportion to each party's respective liability for the injury, as adjudged by a court of competent jurisdiction or, if a settlement is reached, negotiation between the parties, wherein the parties agree to negotiate their respective liability for the injury in good faith. UNITED THERAPEUTICS further agrees that the liability of any such third party shall be attributed solely to UNITED THERAPEUTICS and that UNITED THERAPEUTICS shall pay any losses and expenses in proportion to the sum of UNITED THERAPEUTICS's and the third party or parties' combined liability relative to the total liability. 13.05 No indemnity under Article 13 shall be applicable unless the indemnified Party (ii) gives the indemnifying Party prompt notice of any claim, suit or action brought against the indemnified Party, (ii) allows the indemnifying Party to defend the same, without prejudice to the right of the indemnified Party to participate at its expense through counsel of its own choosing, (iii) renders the indemnifying Party all assistance reasonably necessary in defending against such claim, suit or action at the indemnifying Party's expense, and (iv) does not compromise or settle such claim, suit or action without the indemnifying Party's prior written consent. The indemnifying party shall not settle such claim, suit or action without the indemnified party's consent if such settlement results in any obligation or liability on the part of the indemnified party. 14. CONFIDENTIALITY 14.01 Nondisclosure and Nonuse. 14.01.1 STEROIDS and UNITED THERAPEUTICS shall each retain in confidence information obtained from the other under this Agreement and shall not disclose such information to any third party except (a) consultants and Affiliates who are obligated to maintain it in confidence pursuant to a written agreement that incorporates by reference 10 11 the terms of Article 14, or that incorporates substantially similar terms having equivalent scope of protection as those of this Article 14. (b) as necessary to obtain approval from a governmental agency in order to market and sell the API; (c) as reasonably may be required in a patent application covering subject matter that is encompassed with this Agreement; or (d) as otherwise may be required by law, regulation or judicial order. 14.01.2 STEROIDS and UNITED THERAPEUTICS each agree that information that subject to this Article 14 shall be used only for those purposes contemplated by this Agreement. 14.01.3 Each party shall take all reasonable precautions to safeguard the confidentiality of the information. 14.02 Exceptions. 14.02.1 The obligations of nondisclosure and nonuse of this Article 14 shall not apply to information that (a) is known to the receiving party, as evidenced by written records maintain by the receiving party, or to the public, or is in the public domain, prior to its disclosure under this Agreement; (b) is hereafter lawfully disclosed to the receiving party by a third party not under an obligation of confidence to the other party; or (c) subsequently enters the public domain or becomes known to the public some means other than a breach of this Agreement. 14.03 Each party acknowledges that the restrictions contained in this Article 14 are necessary and reasonable to protect the legitimate interests of the parties and a violation of this Article 14 by a party may result in irreparable harm to the other party. 14.04 The provisions of this Article 14 shall survive the expiration or terminate of this Agreement and continue for ten (10) years thereafter. 14.05 All prior confidentiality agreements between the parties hereto are hereby superseded Article 14 of this Agreement, such that any information previously disclosed between parties under any such prior agreement shall henceforth by treated as if disclosed under this Agreement. 11 12 15. MISCELLANEOUS 15.01 Force Majeure. No party will be liable for failure of or delay in performing obligations set forth in this Agreement, and no party will be deemed in breach of its obligations if such failure or delay is due to natural disasters or any causes reasonably beyond the control or anticipation of such party. Each party agrees to use its best efforts to mitigate the impact on its performance under this Agreement caused by a force majeure. 15.02 The parties agree that their rights (except for the rights to receive and obtain payments owed in accordance with this Agreement) and obligations under this Agreement may not be delegated, transferred or assigned to a third party without the prior consent of the other party; whether by operation of law or contract. Nevertheless, either party may transfer or assign its rights and obligations under this Agreement to any entity which acquires substantially all of its assets and business, or is an Affiliate of the assigning party. 15.03 Status of Parties. For the purpose of carrying out this Agreement each party will act an independent contractor and not as partner, joint venturer, or agent with respect to the other party, and neither party will bind nor attempt to bind the other party to any contract. 15.04 Notice. Any notice, consent or approval required under this Agreement will be in writing sent by registered or certified mail, postage prepaid, or by facsimile, confirmed by such registered or certified mail, and addressed as follows: If to STEROIDS: Steroids Ltd 2201 West Campbell Park Drive Chicago, Illinois 60612 Attn: Robert Moriarty Ph.D. President If to UNITED THERAPEUTICS: UNITED THERAPEUTICS CORPORATION 2 Davis Drive Research Triangle Park, NC 27709 Attn: James Crow, PhD President (919) 485-8350 All notices shall be deemed effective on the date of mailing, unless otherwise stated herein. In case either party changes its address or facsimile number at which notice is be received, written notice of such change will be given without delay to the other party. 15.05 Entire Agreement. This Agreement and the exhibits attached hereto set forth the entire agreement and understanding among the parties hereto as to the subject matter hereof has 12 13 priority over all documents, verbal consents or understandings made between STEROIDS and UNITED THERAPEUTICS with respect to the subject matter hereof. None of the terms of this Agreement may be amended or modified except in writing signed by both parties hereto. 15.06 Waivers. A waiver by either party of any term or condition of this Agreement in any one instance will not be deemed or construed to be a waiver of such term or condition for similar instance in the future or of an subsequent breach hereof. 15.07 Applicable Law. This Agreement will be governed by and construed in accordance the laws of the District of Columbia without regard to the conflicts of laws provisions thereof. 15.08 Remedies. The rights and remedies of a party set forth herein with respect to failure of the other to comply with the terms of this Agreement, including, without limitation, rights of full or partial termination of this Agreement are not exclusive, the exercise thereof will not constitute an election of remedies and the aggrieved party will in all events be entitled to seek whatever additional remedies may be available in law or in equity. 15.09 Headings. Headings in this Agreement are included herein for case of reference only and will have no legal effect. References to sections are to sections of this Agreement unless otherwise specified. 15.10 Title and Intellectual Property to API. UNITED THERAPEUTICS will retain title to API and all intellectual property in the API, including but not limited to the agreed initial process to make the API and any New Procedure, shall belong solely to UNITED THERAPEUTICS. STEROIDS agrees to cooperate fully in assigning all patent and other intellectual property rights in or related to the API to UNITED THERAPEUTICS. STEROIDS agrees to cooperate fully in the preparation of patent applications related to the synthesis of the API. STEROIDS will retain title and rights to all inventions, concepts, ideas, proprietary information, manufacturing processes or chemical synthesis not directly and solely related to the Product, the agreed initial process to make the API and any new procedure. UNITED THERAPEUTICS shall have the rights to a perpetual, fully paid, non-exclusive license to any discovery, invention, etc. to which STEROIDS retain title. 15.11 Use of API. STEROIDS use of the API shall be limited to the activities described in this Agreement. 15.12 Assignment. Neither this Agreement nor any of its rights or obligations may be assigned, delegated or otherwise transferred, in whole or in part, by either Party without the prior written consent of the other, except that, without securing such prior consent, any Party shall have the right to assign this Agreement to any successor of such party by way of merger or consolidation or the acquisition of substantially all of the entire assets of such Party relating to the subject matter of this Agreement, provided, however, that such successor shall expressly assume all of the obligations of such Party under this Agreement. The Parties agree that this Agreement shall be binding upon and inure to the benefit of their respective successors and approved assigns. 13 14 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their duly authorized officers. UNITED THERAPEUTICS CORPORATION STEROIDS, LTD. /s/ James W. Crow /s/ Robert M. Moriarty - ------------------------------ ------------------------------ James W. Crow, Ph.D. Robert M. Moriarty Dated: Dated: 14 EX-10.16 24 BEACON PROJECTS, INC. OFFICE LEASE 1 EXHIBIT 10.16 LEASE THIS LEASE ("Lease") is made this 1st day of March, 1999 by and between BEACON PROJECTS, INC., a Maryland corporation (the "Landlord") and UNITHER TELEMEDICINE SERVICES CORP., a Delaware corporation (the "Tenant"). WITNESSETH: 1. Premises and Rent. That Landlord for and in consideration of Ten Dollars ($10.00) received in hand, the covenants and agreements hereinafter set forth and the rent hereinafter specifically reserved, has leased, and does hereby lease, unto said Tenant: -- approximately 2,000 rentable sq. ft. of office space located in the basement; -- approximately 1,000 rentable sq. ft. of office space on the second floor; and -- shared access to the second floor conference room, together referred to as the "Premises", in that certain building located at 1824-1826 R Street, N.W., Washington, D.C. (the "Building"), together with the right to use the front entrance to the Building for a term commencing on March 1, 1999 for Tenant's occupancy of the Premises (the "Commencement Date") and ending on February 28, 2001, both dates inclusive, except as extended in accordance with the terms hereof, the said Tenant yielding and paying as rent for said term an amount equal to Two Thousand Five Hundred Dollars ($2,500.00) per month, without deduction or demand, payable in advance on the first day of each month during said term, at the office of Landlord, or at such other place as Landlord may hereafter designate in writing. Rent for the first month of the term shall be due and payable on or before the date Tenant executes this Lease. Rent shall be prorated for any partial month during the term at this Lease based on a 365-day year. Rent shall be increased ten percent (10%) on each anniversary of the Commencement Date. Rent checks are to be payable to Landlord or such other person, firm or corporation as Landlord may designate in writing. Tenant does hereby take and hold the Premises at the rent hereinabove specifically reserved and payable as aforesaid, and upon and subject to the terms and conditions herein contained. For each day that the commencement of the term is delayed beyond March 1, 1999, the term shall be extended by one (1) day beyond February 28, 2001. 2. Use of Premises. Tenant may use and occupy the Premises for general office and administrative purposes or for such other purposes as may be permitted by law including, specifically, a 24-hour telemedicine facility. 3. Parking. Tenant shall have, and is hereby granted, the right to use up to four (4) parking spaces located in the rear of the Building during the term for an additional charge of Two Hundred Dollars ($200.00) per month, per parking space. It is understood and agreed that there are eight (8) parking spaces currently available for use in the rear of the Building. 2 4. Use of Common Elements of the Building. For the rent stipulated to be paid hereunder, Tenant shall have the non-exclusive right to use all entrances, lobbies and sidewalks not specifically demised to Landlord or another tenant. 5. Utilities, Maintenance and Taxes. Landlord shall furnish all utilities to the Building and the cleaning services set forth in Paragraph 22 of this Lease, and Tenant shall pay Landlord within thirty (30) days of Tenant's receipt of an invoice therefor its proportionate share (agreed to be 20%) of the cost thereof, unless separately metered. Landlord shall pay all real property taxes on the land, Building, and Premises during the term. Landlord shall be responsible for all repairs and maintenance to the Building's systems (including those serving the Premises), to the roof and to other structural portions of the Building, to the common areas and to the exterior of the Building. Tenant shall keep the Premises (except for Building systems and structural components of the Building located therein) in good order and condition and will, at the expiration or other termination of the term hereof, surrender and deliver up the same in like good order and condition as the same now is or shall be at the commencement of the term hereof, ordinary wear and tear, repairs and maintenance which are Landlord's responsibility hereunder and damage by the elements, fire, and other unavoidable casualty excepted. 6. Subletting and Assignment. Tenant shall not sublet the Premises or any part thereof or transfer possession or occupancy thereof to any person, firm or corporation, or transfer or assign this Lease or any rights hereunder. Notwithstanding the foregoing, Tenant shall have the right to assign this Lease or sublet all or any portion of the Premises or permit the same to be used by its parent company, subsidiaries, or affiliates upon prior written notice to Landlord. 7. Fire Insurance. Tenant shall not do or permit anything to be done in or about the Premises or bring or keep anything therein which shall in any way increase the rate of fire or other insurance on the Premises or conflict with the fire laws or regulations, or with any insurance policy upon said premises or with any statutes, rules or regulations enacted or established by the appropriate governmental authority. 8. Alterations. Tenant shall not make any alterations, installments, changes, replacements, additions, or improvements (structural or otherwise) in or to the Premises or any part thereof, without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed, provided the same do not affect the Building's exterior or structure or adversely affect the mechanical, plumbing or electrical systems of the Building. Notwithstanding the foregoing, Tenant shall be permitted to make such alterations necessary to ensure an uninterruptible power supply to its telemedicine operations, at Tenant's sole cost. 9. Access. Tenant further agrees that it shall permit Landlord, its agent or employees, to enter upon the Premises at all reasonable times after reasonable notice (except in the event of an emergency when no advance notice shall be required) to inspect the same, to show the same to prospective purchasers and mortgagees and, during the last 2 3 ninety (90) days of the term, to prospective tenants. However, any entry shall not unreasonably disturb or interfere with Tenant's business operations. 10. Signage. Tenant shall not place any sign in or on any part of the Premises visible from the exterior of the Premises or elsewhere in or on the Building without Landlord's prior written approval. Notwithstanding the foregoing, Tenant shall have the right to install a brass plaque on the Building identifying itself provided that Landlord's approval of the size, color and style of such signage is first obtained, which approval Landlord agrees not to unreasonably withhold, condition or delay. 11. Personal Property. All personal property of Tenant upon the Premises shall be at the sole risk of Tenant. Tenant hereby expressly releases Landlord from any liability incurred or claimed by reason of damage to Tenant's property unless such damage is caused by Landlord's negligence. 12. Default and Remedies. It is agreed that if Tenant shall fail to pay the rent, or any other charges due and owing hereunder, at the time the same shall become due and payable, although no demand shall have been made for the same; or if Tenant shall violate or fail or neglect to keep and perform any of the covenants, conditions and agreements herein contained on the part of Tenant to be kept and performed and such violation, failure or neglect is not cured within sixty (60) days after receipt by Tenant of Landlord's notice of default in each and every such event from thenceforth, and at all times thereafter, at the option of Landlord, Tenant's right of possession shall thereupon cease and determine, and Landlord shall be entitled to possession of the Premises and to re-enter the same without demand of rent or demand of possession and may forthwith proceed to recover possession of the Premises by process of law or otherwise, any notice to quit, or notice of intention to re-enter the same being hereby expressly waived by Tenant. And, in the event of such reentry by process of law or otherwise, Tenant nevertheless agrees to remain answerable for any and all damage, deficiency or loss of rent which Landlord may sustain by such re-entry, including reasonable attorneys' fees and court costs; and in such case, Landlord reserves full power, which is hereby acceded to by Tenant, to relet the Premises for the benefit of Tenant, in liquidation and discharge, in whole or in part, as the case may be, of the liability of Tenant under the terms and provisions of this Lease. Landlord may exercise its rights hereunder by one or more actions against Tenant. 13. Subordination. This Lease is subject to all ground or underlying leases and to all mortgages and/or deeds at trust which may now or hereafter affect the Premises, and to all renewals, modifications, consolidations, replacements and extensions thereof. This clause shall be self-operative and no further instrument of subordination shall be required by any mortgagee or trustee. In confirmation of such subordination, Tenant shall execute promptly any certificate that Landlord may request. Provided, however, that notwithstanding the foregoing, the party secured by any such deed of trust shall have the right to recognize this Lease and, in the event of any foreclosure sale under such deed of trust, this Lease shall continue in full force and effect at the option of the party secured by such deed of trust or the purchaser under any such foreclosure sale; and 3 4 Tenant covenants and agrees that it shall, at the written request of the party secured by any such deed of trust, execute, acknowledge and deliver any instrument that has for its purpose and effect the subordination of said deed of trust to the lien of this Lease. At the option of any landlord under any ground or underlying lease to which this Lease is now or may hereafter become subject or subordinate, Tenant agrees that neither cancellation nor termination of such ground or underlying lease shall by operation of law or otherwise, result in cancellation or termination of this Lease or the obligations of Tenant hereunder, and Tenant covenants and agrees to attorn to such landlord or to any successor to landlord's interest in such ground or underlying lease, and in that event, this Lease shall continue as a direct lease between the Tenant herein and such landlord or its successor; and, in any case, such landlord or successor under such ground or underlying lease shall not be bound by any prepayment on the part of Tenant of any rent for more than one month in advance, so that rent shall be payable under this Lease in accordance with its terms, from the date of the termination of the ground or underlying lease, as if such prepayment had not been made; and provided, further, such landlord or successor under such ground or underlying lease shall not be bound by this Lease or any amendment or modification of this Lease unless, prior to the termination of such ground or underlying lease, a copy of this Lease or amendment or modification thereof, as the case may be, shall have been delivered to such landlord or successor. Notwithstanding the foregoing, Tenant's subordination and attornment as set forth in this Paragraph 13 with respect to Landlord's current mortgagee shall be conditioned upon Landlord obtaining for Tenant a subordination, nondisturbance and attornment agreement from such mortgagee on the mortgagee's standard form, subject to any changes thereto as Tenant may request that are reasonably necessary so that such agreement is in a customary commercially reasonable form. 14. Casualty and Condemnation. In the event that the Premises or the Building are damaged by fire or other cause and in Landlord's reasonable estimation such damage can be materially restored within ninety (90) days, Landlord shall forthwith repair the same and this Lease shall remain in full force and effect, except that Tenant shall be entitled to a proportionate abatement in rent from the date of such damage. Such abatement of rent shall be made pro rata in accordance with the extent to which the damage and the making of such repairs shall interfere with the use and occupancy by Tenant of the Premises from time to time. Within forty-five (45) days from the date of such damage, Landlord shall notify Tenant, in writing, of Landlord's reasonable estimation of the length of time within which material restoration can be made, and Landlord's determination shall be binding on Tenant. For purposes of this Lease, the Building or Premises shall be deemed "materially restored" if they are restored to substantially the same condition as existed immediately before such damage. If such repairs cannot, in Landlord's reasonable estimation, be made within ninety (90) days, Landlord and Tenant shall each have the option of giving the other, at any time within sixty (60) days after such damage, notice terminating this Lease as of the date of such damage. In the event of the giving of such notice, this Lease shall expire and all interest of the Tenant in the Premises shall terminate as of the date of such damage as if such date had been originally fixed in this Lease for the expiration of the Lease term. In the event that neither Landlord nor Tenant exercises its option to terminate this Lease, then 4 5 Landlord shall repair or restore such damage, this Lease continuing in full force and effect, and the rent hereunder shall be proportionately abated as provided above. In the event that Landlord should fail to complete such repairs and material restoration within sixty (60) days after the date estimated by Landlord therefor as extended below, Tenant may at its option and as its sole remedy terminate this Lease by delivering written notice to Landlord, within fifteen (15) days after the expiration of said period of time, whereupon the Lease shall end on the date of such notice or such later date fixed in such notice as if the date of such notice was the date originally fixed in this Lease for the expiration of the Lease term; provided, however, that if construction is delayed because of changes, deletions or additions in construction requested by Tenant, strikes, lockouts, casualties, Acts of God, war, material or labor shortages, government regulation or control or other causes beyond the reasonable control of Landlord, the period for restoration, repair or rebuilding shall be extended for the amount of time Landlord is so delayed. Tenant agrees that if the Premises, or any material part thereof, shall be taken or condemned for public or quasi public use or purpose by any competent authority, Tenant shall have no claim against Landlord and shall not have any claim or right to any portion of the amount that may be awarded as damages or paid as a result of any such condemnation; and all right of Tenant to damages therefor, if any, are hereby assigned by Tenant to Landlord. And upon such condemnation or taking, at Landlord's option, the term of this Lease shall cease and terminate from the date of such governmental taking or condemnation, and Tenant shall have no claim against Landlord for the value of any unexpired term of this Lease. Notwithstanding the foregoing, Tenant may apply to the condemning authority for a separate award for its trade fixtures and moving expenses. 15. Successors. It is agreed that except as provided in Paragraph 6 of this Lease, all rights, remedies and liabilities herein given to or imposed upon either of the parties hereto, shall extend to their respective heirs, executors, administrators, successors, and assigns. 16. Tenant Holdover. If Tenant shall, with the knowledge and prior written consent of Landlord, continue to remain in the Premises after the expiration of the term of this Lease, then and in that event, Tenant shall, by virtue of this agreement become a tenant by the month at the monthly installment of rent agreed by Tenant to be paid as aforesaid, commencing said monthly tenancy with the first day next after the end of the term above demised; and said Tenant shall give to Landlord at least thirty (30) days' written notice of any intention to quit the Premises, and Tenant shall be entitled to thirty (30) days' written notice to quit the Premises, except in the event of nonpayment of rent or of the breach of any other covenant by Tenant, in which event Tenant shall not be entitled to any notice to quit, the usual thirty (30) days' notice to quit being hereby expressly waived. If Tenant shall continue to remain in the Premises after the expiration of the term of this Lease without Landlord's prior written consent, Tenant shall pay Landlord one hundred and twenty-five percent (125%) of the amount of rent then in effect for each month Tenant remains in all or any part of the Premises, and Tenant shall 5 6 also pay Landlord for any damages, loss, cost and expense Landlord incurs by reason of such holding over by Tenant. 17. Limitation of Liability. Redress of any claim against Landlord under this Lease shall be limited to and enforceable only against and to the extent of Landlord's interest in the Building. Neither the obligations of Landlord nor Tenant under this Lease shall be binding upon nor shall any resort be had to the private properties of any directors, officers, partners, stockholders, employees, or agents of Landlord or Tenant, as the case may be. 18. Entire Agreement. This Lease contains the entire and final agreement of and between the parties hereto, and they shall not be bound by any statements, conditions, representations, inducements or warranties, oral or written, not herein contained, unless there is written amendment hereto signed by all the parties hereto. 19. Liability and Liability Insurance. Landlord assumes no liability or responsibility whatsoever with respect to the conduct and operation of the business to be conducted on the Premises. Landlord shall not be liable for any accident to or injury to any person or persons or property on or about the Premises which are caused by the conduct and operation of said business or by virtue of equipment or property of Tenant on the Premises. Tenant agrees to protect, indemnify and save harmless Landlord, of and from any and all expense, loss, damage and liability incurred pursuant to any claims for injury to persons or to personal property by reason of any accident, or happening in, upon, or about the Premises, and Tenant agrees to carry public liability and property damage insurance with limits of at least $l,000,000.00 bodily injury per person, $2,000,000.00 bodily injury per accident, and $500,000.00 property damage in the name of Landlord and Tenant, and to furnish Landlord, prior to the Commencement Date, with a certificate, or copy of the policy, showing such insurance to be in force. 20. Compliance with Law. Landlord shall be responsible for all changes or improvements that are necessary to the Building (including the Premises) for the same to comply with all legal requirements of any governmental authority having jurisdiction over the Building not relating to Tenant's specific use of the Premises or the business conducted therein. Tenant shall comply with all legal requirements of any governmental authority having jurisdiction over the Premises relating to Tenant's specific use of the Premises or the business conducted therein. In the event that Tenant is unable to use the Premises for the conduct of its business because of a change in the zoning classification for the Building or a revocation of the certificate of occupancy, Tenant shall have the right to terminate this Lease upon five (5) days' prior written notice to Landlord. 21. Condition of Premises. The Premises shall be delivered to Tenant in the condition in which it currently exists. 22. Clean Premises. Landlord at its sole cost and expense shall keep the sidewalks in front of the Premises as well as the Building free from obstructions of any and all nature, shall promptly remove all snow and ice from said sidewalks, shall provide 6 7 suitable receptacles for trash and refuse, and shall promptly remove or cause to be removed from the Building all accumulations of snow, trash and refuse. In the event Landlord fails to perform any of said covenants contained in this paragraph, then and in that event, Tenant, at its option, may cause the work provided for herein to be performed at the cost and expense of Landlord, who agrees to reimburse Tenant promptly for any casts so incurred. 23. Waiver. It is further provided that if, under the provisions hereof, a seven (7) days' summons or other applicable summary process shall be served, and a compromise or settlement thereof shall be made, it shall not constitute a waiver of any covenant herein contained; and that no waiver of any breach of any covenant, condition or agreement herein contained shall operate as a waiver of the covenant, condition or agreement itself, or of any subsequent breach thereof. No provision of this Lease shall be deemed to have been waived by Landlord unless such waiver shall be in writing signed by Landlord. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly installment of rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy provided for in this Lease. 24. Attorneys' Fees. In the event of the employment of any attorney by Landlord or Tenant because of the violation by the other party of any term or provision of this Lease, including non-payment of rent as due, the defaulting party shall pay and hereby agrees to pay reasonable attorneys' fees and all other costs incurred by the non-defaulting party. 25. No Partnership. Nothing contained in this Lease shall be deemed or construed to create a partnership or joint venture of or between Landlord and Tenant, or to create any other relationship between the parties hereto other than that of Landlord and Tenant. 26. Paragraph Headings. Paragraph headings are for purpose of convenience only and are not to be considered a part of this Lease. 27. Pronouns. Feminine or neuter pronouns shall be substituted for those of the masculine form, and the plural shall be substituted for the singular number, in any place or places herein in which the context may require such substitution or substitutions. Landlord herein for convenience has been referred to in neuter form. 28. Notices. All notices required or desired to be given hereunder by either party to the other shall be personally delivered, sent by an established overnight courier service for next business day delivery or given by certified or registered mail and shall be deemed effective upon receipt or refusal to accept receipt. Notices to the respective parties shall be addressed as follows: 7 8 If to Landlord: c/o Beacon Projects 1824 R Street, N.W. Washington, D.C. 20009 Attn: Martine Rothblatt If to Tenant: Unither Telemedicine Services Corp. 1110 Spring Street Silver Spring, Maryland 20910 Attn: Christopher Patusky Any party may, by like written notice, designate a new address to which such notices shall be directed. 29. Quiet Enjoyment. Landlord represents and warrants that it has full right and authority to enter into this Lease and that Tenant, while paying the rental and performing its other covenants and agreements contained in this Lease, shall peaceably and quietly have, hold and enjoy the Premises for the term without hindrance or molestation from or through Landlord subject to the terms and provisions of this Lease. 30. Waiver of Jury Trial. The parties hereby waive trial by jury in any action, proceeding or counterclaim arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant or Tenant's use and occupancy of the Premises. 31. Applicable Law. This Lease and the rights and obligations of the parties hereunder shall be construed in accordance with the laws of the District of Columbia. 32. Broker's Commission. Each of the parties represents and warrants that it has not dealt with any broker or finder in connection with this Lease and agrees to indemnify the other against, and hold it harmless from, all liability arising from claims by any other broker or finder for brokerage commissions or finder's fees in connection with this Lease, including, without limitation, the cost of attorneys' fees in connection therewith. 33. Option to Extend. Tenant shall have the right to renew this Lease for two consecutive one-year terms by giving Landlord notice to such effect at least sixty (60) days prior to the expiration of the initial term or first renewal term, as applicable, or at any time prior to receipt of written notice from Landlord that it intends to sell the Building after February 2001 or has entered into a lease with another party. Upon giving of such notice by Tenant, this Lease shall be automatically extended for the first renewal term or second renewal term, as applicable, upon the same terms, covenants and conditions of this Lease, except that the rent shall be increased on each anniversary of the Commencement Date as set forth in Paragraph 1 of this Lease. IN TESTIMONY WHEREOF, the parties have hereunto signed their names and affixed their seals, on the day and year first hereinabove written. 8 9 ATTEST/WITNESS: LANDLORD: BEACON PROJECTS, INC. __________________________ By: /s/ M. Rothblatt [SEAL] Its: President ATTEST/WITNESS TENANT: UNITHER TELEMEDICINE SERVICES CORP /s/ Ruth Bowler By: /s/ Chris Patusky [seal] Its: President and CEO 9 EX-10.17 25 UAI TECHNOLOGY, INC. OFFICE LEASE 1 EXHIBIT 10.17 UAI TECHNOLOGY, INC. OFFICE LEASE THIS LEASE ("Lease") is made 7/1/98, 199_, between UAI TECHNOLOGY, INC. ("Landlord") and UNITED THERAPEUTICS CORPORATION ("Tenant"). Landlord is a Corporation, organized under the laws of Delaware, with principal offices at 68 Alexander Drive, Research Triangle Park, NC 27709 (the "Premises"). Tenant is a Corporation, organized under the laws of DELAWARE , with principal offices located at 2 DAVIS DRIVE, RESEARCH TRIANGLE PARK, NC 27709. ARTICLE 1 PREMISES 1.01 PREMISES. Landlord leases to Tenant offices in the Premises as outlined on the Floor Plan attached as Exhibit A. The Rental Space consists of approximately 4,600 square feet of rentable space. Tenant will have primary access to space identified in Exhibit A and identified as Section I or Section II. Tenant shall have shared access to space identified as Section III. Primary access shall mean access which is available for the exclusive use of Tenant. Shared access shall mean space which will be shared by the Tenant and the Landlord and available for use by both. The Building is shown as Exhibit B and is located on the land described in Exhibit C ("Land"). The Premises contain the fixtures, improvements, and other property now installed plus any Landlord Improvements required by Section 4.05 and Exhibit D. 1.02 COMMON AREAS. Tenant and its agents, employees, and invitees have the non-exclusive right with others designated by Landlord to the free use of the common areas ("Common Areas") in the Building and on the Land for the Common Areas' intended and normal purpose. Common Areas include, sidewalks, parking areas and driveways located outside Building I, as identified in Exhibit B, and hallways, public bathrooms, common entrances, lobby, and other similar public areas and access ways identified in Sections I, II and III on Exhibit A. Landlord may change the Common Areas if the changes do not materially and unreasonably interfere with Tenant's access to or use of the Premises. ARTICLE II USE Tenant shall use the Premises for general office use, unless Landlord gives its advance written consent to another use. Landlord warrants that applicable laws, ordinances, regulations, and restrictive covenants permit the Premises to be used for general offices. Tenant shall not create a nuisance or use the Premises for any immoral or illegal purposes. Tenant shall not use the space for any scientific experimentation, except for such processes that are performed completely by computer, without the use of any prohibited substances, as referenced in section 7.04 below. Tenant will inform all its employees, and when applicable, visitors, of appropriate usage of space as defined in this section and in other sections of this Lease. Tenant will be directly responsible for any violation of any terms of usage of Premises by any parties associated with Tenant. ARTICLE III TERM The Lease begins ("Commencement Date") on the earlier of: (a) The date Tenant takes possession and occupies the Premises; or (b) After (i) the Premises are substantially completed according to Section 4.01, (ii) Landlord gives the notice required by Section 4.02, (iii) Landlord is ready, willing and able to deliver actual possession of the Premises, and (ii) the Target Date set in Section 4.01 has arrived. 1 2 Except as provided in Section 5.02 below, the Lease ends ("Expiration Date") at 11:59 p.m. on the last day of the calendar month of June, three (3) years following the Commencement Date, unless terminated earlier under this Lease. Within thirty (30) days after the Commencement Date, the parties shall confirm in writing the Commencement and Expiration Dates. ARTICLE IV COMPLETION OF PREMISES 4.01 SUBSTANTIAL COMPLETION. Landlord shall use its best efforts to substantially complete the Premises by July 1, 1998 ("Target Date"). Substantially complete means completing Landlord's Improvements (Section 4.05 and Exhibit D) so that Tenant can use the Premises for their intended purposes. 4.02 NOTICE. Landlord shall give Tenant at least ten (10) days advance notice of the estimated substantial completion date if different from the Target Date. If the estimated substantial completion date changes at any time after Landlord gives notice, then Landlord shall give ten (10) days advance notice of the new estimated substantial completion date. 4.03 INSPECTION AND PUNCHLIST. Within 30 days after the Commencement Date, the parties shall inspect the Premises, have all systems demonstrated, and prepare a punchlist. The punchlist shall list incomplete, minor, or insubstantial details of construction; necessary mechanical adjustments; and needed finishing touches. Tenant's acceptance of possession of the Premises after such inspection shall be conclusive evidence that the Premises were in good order and satisfactory condition, except for any punchlist items. Landlord reserves the right to inspect and reasonably approve Tenant's improvements. 4.04 DELAYED POSSESSION. Tenant may cancel this Lease if Landlord cannot deliver actual possession of the substantially complete Premises by ninety (90) days after the Target Date. To cancel, Tenant must give notice to Landlord within sixty (60) days after the expiration of such ninety (90) day period and before Landlord gives notice to Tenant that the Premises are substantially complete. The ninety (90) day period above shall be extended in the time equal to any period of delay caused by Tenant. Within thirty (30) days after cancellation, Landlord shall return to Tenant prepaid consideration including Rent and deposits, and neither party shall have any further rights or obligations under this Lease. 4.05 LANDLORD IMPROVEMENTS. Landlord, at its expense, shall make improvements to the Premises in accord with Exhibit D ("Landlord Improvements"). The Landlord Improvements shall be completed in a good and workmanlike manner and comply with all applicable laws, ordinances, rules, and regulations of governmental authorities. ARTICLE V RENT AND SECURITY 5.01 BASE RENT. Tenant shall pay to Landlord Base Rent during the Term, as follows: Section I, consisting of approximately 2,800 square feet, including allocated shared space shown on Exhibit A Annual rent of $46,200, monthly rent of $3,850 Section II, consisting of approximately 1,800 square feet, including allocated shared space shown on Exhibit A Annual rent of $29,700, monthly rent of $2,475 The Base Rent shall be paid: (a) without advance notice, demand, offset, or deduction; (b) by the first day of each month during the Term; and (c) to Landlord at its address set forth in Section 13.03 or as Landlord may specify in writing to Tenant. 2 3 If the Term does not begin on the first day or end on the last day of a month, the Base Rent for that partial month shall be prorated by multiplying the monthly Base Rent by a fraction, the numerator of which is the number of days of the partial month included in the Term and the denominator of which is the total number of days in the full calendar month. If Tenant fails to pay part or all of the Base Rent by the fifth (5th) day of the month due, it is past due, the Tenant shall also pay: (a) a late charge equal to four percent (4%) of the unpaid Base Rent and Additional Rent, plus (b) interest at eighteen percent (18%) per annum or the maximum then allowed by applicable law, whichever is less, on the remaining unpaid balance, retroactive to the date originally due until paid. 5.02 SPECIAL TERMINATION PROVISION FOR SECTION II. Upon six (6) months written notice from Landlord to Tenant, Landlord may require Tenant to vacate offices and associated common areas located in Section II of Exhibit A. All obligations of Tenant for renting such space would be terminated upon Tenant's vacating said space as of such termination date, or earlier date if agreed to by Landlord. 5.03 CPI ADJUSTMENT. The Base Rent shall be subject to upward adjustments, based on the Consumer Price Index, one year after the Commencement Date of this Lease and at the end of each subsequent year, during the term of this Lease in accordance with the following provisions: (a) The index to be used for this adjustment shall be the Consumer Price Index (U.S., All Urban Consumers, All Items, 1982-84 equaling a base of 100, as published by the U.S. Department of Labor, Bureau of Labor Statistics, Washington, D.C.). (b) The Base Period Consumer Price Index shall be subtracted from the Adjustment Period Consumer Price Index; the difference shall be divided by the Base Period Consumer Price Index. This quotient shall then be multiplied by the Base Rent. The result shall added to the Base Rent. This arithmetical sum shall then be the Adjusted Base Rent for such immediately succeeding leasehold year which shall be paid in monthly installments. (c) If the Consumer Price Index is, at any time during the term of this Lease, discontinued or no longer published, then the most nearly comparable published measure of inflation, as determined by Landlord in its sole discretion, shall be substituted for the purpose of this calculation. 5.04 EXPENSE AND TAX ESCALATIONS. Base Rent shall be adjusted on each anniversary of the Commencement Date by increasing the Base Rent paid during the preceding year by an amount equal to the Tenant's pro rata share of the increase of Operating Expenses and Real Estate Taxes as defined hereinafter. (a) TAXES. Should the percentage rate for Real Estate Taxes on the space occupied by Tenant increase in any calendar year, then Tenant shall pay to Landlord, as additional rent, an amount equal to Tenant's Proportion of the amount by which Taxes for any calendar year were in excess of the amount that said Taxes would have been had it not been for such increase.. (b) OTHER EXPENSES. Should the per-square-foot cost for Other Expenses associated with operating the Premises (including but not limited to Janitorial Services, Utilities, Building Maintenance, Grounds Maintenance, Insurance, and other services directly related to the operations of the Premises) increase, then Tenant shall pay to Landlord, as additional rent, an amount equal to Tenant's Proportion of the amount by which Other 3 4 Expenses for any calendar year were in excess of the amount that said Other Expenses would have been if the increase had not taken place. 5.05 PERSONAL PROPERTY TAX. Before delinquency Tenant shall pay taxes assessed during the Term against trade fixtures or personal property placed by Tenant in the Premises. If these taxes are assessed against the Building, Tenant shall pay its share of the taxes to Landlord within ten (10) days after receiving Landlord's written statement setting forth the amount of taxes applicable to Tenant's property and the basis for the charge to Tenant. Tenant's failure to pay within the ten-day period shall entitle Landlord to the same remedies it has upon Tenant's failure to pay Base Rent or Additional Rent. 5.06 SECURITY DEPOSIT. The Tenant has deposited one month's rent, as defined in Section 5.01 above (Security Deposit) with Landlord to secure Tenant's performance of its Lease obligations. If Tenant defaults Landlord may, after giving five (5) days advance notice to Tenant, without prejudice to Landlord's other remedies, apply part or all of the Security Deposit to cure Tenant's default. If Landlord so uses part or all of the Security Deposit, then Tenant shall within ten (10) days after written demand, pay Landlord the amount used to restore the Security Deposit to its original amount. Landlord may mix the Security Deposit with its own funds, and the Security Deposit shall not earn interest thereon. Any part of the Security Deposit not used by Landlord as permitted by this paragraph shall be returned to Tenant within thirty (30) days after the Lease ends. ARTICLE VI AFFIRMATIVE OBLIGATIONS 6.01 COMPLIANCE WITH LAWS. (a) LANDLORD'S COMPLIANCE. Landlord warrants, that on the Commencement Date, the Premises will comply with all applicable laws, ordinances, rules, and regulations of governmental authorities ("Applicable Laws"). During the Term, Landlord shall comply with all Applicable Laws regarding the Premises and Building except to the extent Tenant must comply under Section 6.01(b). (b) TENANT'S COMPLIANCE. Tenant shall comply with all Applicable Laws (i) regarding the physical condition of the Premises, but only to the extent the Applicable Laws pertain to the particular manner in which Tenant uses the Premises; or (ii) that do not relate to the physical condition of the Premises but relate to the lawful use of the Premises and with which only the occupant can comply, such as laws governing maximum occupancy, workplace smoking, and illegal business operations, such as gambling. Notwithstanding the foregoing, Tenant shall comply with any requirements imposed under the Americans with Disabilities Act of 1990 ("ADA") which relate exclusively to the Premises. 6.02 SERVICES AND UTILITIES. (a) SERVICES. Landlord shall provide at its expense, subject to reimbursement under Section 5.04: (i) Heating, ventilation, and air conditioning ("HVAC") for the Premises during business hours to maintain temperatures for comfortable use and occupancy; (ii) Janitorial services to the Premises (all business days, Monday through Friday); (iii) Hot and cold water sufficient for drinking, lavatory, toilet, and ordinary cleaning purposes; (iv) Electricity to the Premises at all times that provides electric current in reasonable amounts necessary for normal office use, lighting, and HVAC; (v) Replacement of lighting tubes, lamp ballasts, and bulbs; 4 5 (vi) Extermination and pest control when necessary; and (vii) Maintenance of Common Areas in a manner consistent with other comparable office buildings in the Raleigh, North Carolina area. The maintenance shall include cleaning, HVAC, illumination, snow shoveling, deicing, repairs, replacements, lawn care, and landscaping. (b) BUSINESS HOURS. "Business Hours" means: (i) Monday through Friday, 8:00 a.m. through 5:30 p.m., and (ii) excludes the following holidays or the days on which the holidays are designated for observance: New Year's Day, Memorial Day, July Fourth, Labor Day, Thanksgiving Day, and Christmas Day. (c) 24 HOUR ACCESS. Tenant, its employees, agents, and invitees shall have access to the Premises, twenty-four (24) hours a day, seven (7) days a week. During non business hours Landlord may restrict access by requiring persons to show a badge or identification card issued by Landlord. Landlord shall not be liable for denying entry to any person unable to show the proper identification. Landlord may temporarily close the Building if required in an emergency. Landlord shall use its best efforts to close the Building during non business hours only. If, however, the Building must be closed during business hours, then the Base Rent and Additional Rent shall abate during any closing that lasts more than twenty-four (24) hours. (d) EXTRA SERVICES. Landlord, shall have the right to monitor the Tenant's use of electricity consumption within the Premises. Whenever Landlord knows that any tenant (including Tenant) is using extra services because of either non business-hours use or high electricity consumption installations, Landlord may directly charge that tenant for the extra use and exclude those charges from Operating Expenses. Extra services include: (i) NON BUSINESS-HOURS USE. Electricity required by Tenant during non business hours shall be supplied upon reasonable advance verbal notice. If more than one tenant directly benefits from these services then the cost shall be allocated proportionately between or among the benefiting tenants based upon the amount of time each tenant benefits and the square footage each leases. (ii) EXCESS UTILITY USE. Tenant shall not place or operate in the Premises any electrically operated equipment or other machinery, other than typewriters, personal computers, adding machines, reproduction machines, and other machinery and equipment normally used in offices, unless Tenant receives Landlord's advance written consent. Landlord shall not unreasonably withhold or delay its consent, but Landlord may require payment for the extra use of electricity caused by operating this equipment or machinery. Landlord may require that special, high electricity consumption installations of Tenant such as computer or reproduction facilities (except personal computers or normal office photocopy machines) be separately sub-metered for electrical consumption at Tenant's cost. (iii) PAYMENT. Tenant's charges for the utilities provided under (i) and (ii) above shall be one hundred percent (100%) of Landlord's actual cost of labor and utilities and shall be Additional Rent. Tenant's failure to pay the charges in (i) and (ii) above within thirty (30) days of receiving a proper and correct invoice shall entitle Landlord to the same remedies it has upon Tenant's failure to pay Base Rent. (e) INTERRUPTION OF SERVICES. Landlord does not warrant that any services Landlord supplies will not be interrupted. Services may be interrupted because of accidents, repairs, alterations, improvements, or any reason beyond the reasonable control of Landlord, and such an interruption shall not: (i) be considered an eviction or disturbance of Tenant's use and possession of the Premises; 5 6 (ii) make Landlord liable to Tenant for damages; (iii) abate Base Rent or Additional Rent; or (iv) relieve Tenant from performing Tenant's Lease obligations. 6.03 REPAIRS AND MAINTENANCE. (a) TENANT'S CARE OF PREMISES. Tenant shall: (i) keep the Premises and fixtures in good order; (ii) make repairs or replacements to the Premises or Building needed because of Tenant's misuse or negligence, except to the extent that the repairs or replacements are covered by Landlord's insurance or the insurance Landlord is required to carry under this Lease, whichever is greater; (iii) repair and replace special equipment or decorative treatments installed by or at Tenant's request and that serve the Premises only, except (1) to the extent the repairs or replacements are needed because of Landlord's misuse or primary negligence, and are not covered by Tenant's insurance or the insurance Tenant is required to carry under this Lease, whichever is greater; or (2) if the Lease is terminated under Article IX (Loss of Premises); and (iv) not commit waste. (b) LANDLORD'S REPAIRS. Except for repairs and replacements that Tenant must make under paragraph 6.03(a), Landlord shall pay for and make all other repairs and replacements to the Premises, Common Areas and Building (including Building fixtures and equipment). Landlord shall make the repairs and replacements to maintain the Building in a condition consistent with other comparable office buildings in the Raleigh, North Carolina area. This maintenance shall include the roof, foundation, exterior walls, interior structural walls, all structural components, and all systems, such as mechanical, electrical, HVAC, and plumbing. (c) TIME FOR REPAIRS. Repairs or replacements required under Sections 6.03(a) or 6.03(b) shall be made within a reasonable time (depending on the nature of the repair or replacement needed) after receiving notice or having actual knowledge of the need for a repair or replacement. (d) SURRENDERING THE PREMISES. Upon the Expiration Date or earlier termination of this Lease, Tenant shall surrender the Premises to Landlord in the same condition that the Premises were in on the Commencement Date except for: (i) ordinary wear and tear; (ii) damage by the elements, fire, and other casualty unless Tenant would be required to repair under paragraph 6.03(a); (iii) condemnation; (iv) damage arising from any cause not required to be repaired or replaced by Tenant; and (v) alterations as permitted by this Lease unless consent was conditioned on their removal. 6 7 On surrender Tenant shall remove from the Premises its personal property, trade fixtures, and any alterations required to be removed under Section 7.01 and repair any damage to the Premises caused by the removal. Any items not removed by Tenant as required above shall be considered abandoned. Landlord may dispose of abandoned items as Landlord chooses and bill Tenant for the cost of their disposal, minus any revenues received by Landlord for their disposal. Should Premises not be in the same condition as they were on the Commencement Date, except as provided above, Tenant shall be required to take steps necessary to restore said condition. Should Tenant not perform such measures, Landlord reserves the right to perform any required repairs to bring Premises back to said condition at Tenant's expense. Landlord may use funds held as Tenant's Security Deposit for payment of such repair. However, if such repairs are in excess of the amount of Security Deposit, Tenant will be responsible for paying to Landlord the amount still owed. ARTICLE VII NEGATIVE OBLIGATIONS 7.01 ALTERATIONS. (a) DEFINITIONS. "Alterations" means alterations, additions, substitutions, installations, changes, and improvements, but excludes minor decorations and the Improvements Landlord is to make under Section 4.05 and Exhibit D. (b) CONSENT. Tenant shall not make Alterations without the Landlord's advance written consent. (c) CONDITIONS OF CONSENT. Landlord may condition its consent in Section 7.01(b) on all or any part of the following: (i) Tenant shall furnish Landlord with reasonably detailed plans and specifications of the alterations as requested by Tenant. (ii) The Alterations shall be performed and completed- (1) in accord with the submitted plans and specifications approved by Tenant and Landlord. (2) in a workmanlike manner, (3) in compliance with all applicable laws, regulations, rules, ordinances, and other requirements of governmental authorities, (4) using new materials and installations at least equal in quality to the original Building materials and installations, (5) by not disturbing the quiet possession of the other tenants, (6) by not interfering with the construction, operation, or maintenance of the Building, and (7) with due diligence; (iii) tenant shall use workers and contractors who Landlord employs or approves in writing, which approval shall not be unreasonably withheld or unduly delayed; 7 8 (iv) Tenant shall modify plans and specifications because of reasonable conditions set by Landlord after reviewing the plans and specifications; (v) Tenant's contractors shall carry builder's risk insurance in an amount then customarily carried by prudent contractors and workers' compensation insurance for its employees in statutory limits, naming Landlord as an additional insured, to the extent its interest may appear; (vi) Tenant's workers or contractors shall work in harmony and not unreasonably interfere with Landlord's workers or contractors or other tenants and their workers or contractors; (vii) Tenant shall, at Landlord's sole option, supply a lien and completion bond, bank letter of credit, or other security satisfactory to Landlord, in an amount equal to the estimated cost to insure Landlord against materials and mechanics' liens and against completion of the Alterations; (viii) Tenant shall give Landlord at least fifteen (15) days advance notice before beginning any alterations so that Landlord may post or record notices of nonresponsibility; (ix) Upon demand Tenant shall give Landlord evidence that it complied with any condition set by Landlord; (x) If Tenant completes alterations, Tenant shall give Landlord complete as-built mylar drawings of the Alterations after they are finished; and (xi) Tenant shall remove any unusual additions, alterations and repair any damage from their removal by the Expiration Date. (d) PAYMENT AND OWNERSHIP OF THE ALTERATIONS. Alterations made under this paragraph shall be at Tenant's expense. The Alterations shall belong to Landlord when this Lease ends except for those Alterations required by Landlord to be removed by Tenant, if any, under Section 7.01(c)(xi). Nevertheless, Tenant may remove its trade fixtures, furniture, equipment, and other personal property if Tenant promptly repairs any damage caused by their removal. 7.02 ASSIGNMENT AND SUBLEASING. (a) CONSENT REQUIRED. Tenant shall not transfer, mortgage, encumber, assign, or sublease all or part of the Premises without Landlord's advance written consent. Notwithstanding the foregoing, Tenant may assign or sublease all or part of the Premises without first obtaining Landlord's consent to (i) any entity, directly controlling, controlled by or under common control of Tenant, or (ii) to any corporation with which Tenant may merge or consolidate or to any corporation with which it may transfer all or substantially all of its assets. 7.03 EMPLOYMENT LAW REQUIREMENTS (a) Tenant shall take such precautions as to ensure business practices appropriate with all applicable employment laws. Tenant shall promptly respond to any charges by Landlord, other tenants of the Premises, or civil authorities in regard to complaints against any and all types of employment law violations. Tenant agrees to hold Landlord harmless from any and all claims or violations of employment law by employees or agents of Tenant. 7.04 HAZARDOUS MATERIALS AND ANIMAL TESTING. (a) No hazardous materials of any kind, including but not limited to any biochemical materials, anything regarded as a toxic material, and anything radioactive, are permitted within the Premises or on any property owned by Landlord. 8 9 (b) No animal testing or experimentation is permitted on the Premises or on any property owned by Landlord. ARTICLE VIII INSURANCE 8.01 INSURANCE. (a) LANDLORD'S BUILDING INSURANCE. Landlord shall keep the Building, including the Landlord Improvements insured against damage and destruction by fire, earthquake, vandalism, and other perils in the amount of the full replacement value of the Building, as the value may exist from time to time. (b) PROPERTY INSURANCE. Each party shall keep its personal property and trade fixtures in the Premises and Building insured with "all risks" insurance in an amount to cover one hundred percent (100%) of the replacement cost of the property and fixtures. Tenant shall also keep any non-Building-standard improvements made to the Premises at Tenant's request insured to the same degree as Tenant's personal property. Tenant's property insurance shall also provide for business interruption/extra expense coverage in sufficient amounts. (c) LIABILITY INSURANCE. Each party shall maintain contractual and comprehensive general liability insurance, including limits of no less than $1,000,000 per occurrence/$2,000,000 aggregate per location subject to no deductible contractual liability covering the indemnities specified herein. This policy must be written on an occurrence basis. Policy shall be endorsed to name Landlord as additional insured. Definition of additional insured shall include all Partners, Officers, Directors, Employees, agents and representatives of the named entity including its managing agent. Further, coverage for the additional insured shall apply on a primary basis irrespective of any other insurance, whether collectible or not. (d) WORKERS COMPENSATION AND EMPLOYEE LIABILITY INSURANCE. Affording coverage under the Workers Compensation laws of the State of North Carolina and Employers Liability coverage subject to a limit of no less than $100,000 each employee, $100,000 each accident, $500,000 policy limit. (e) UMBRELLA LIABILITY INSURANCE. Tenant shall maintain umbrella liability insurance at not less than a $3,000,000 limit providing excess coverage over all limits and coverage noted in Sections 8.01.c and 8.01.d above. This policy shall be written on an occurrence basis. (f) WAIVER OF SUBROGATION. Anything in this Lease to the contrary notwithstanding, Landlord and Tenant hereby waive and release each other of and from any and all right of recovery, claim, action or cause of action, against each other, their agents, officers and employees, for any loss or damage that may occur to the Premises, improvements to the Building, or personal property within the Building, by reason of fire or the elements, regardless of cause or origin, including negligence of Landlord or Tenant and their agents, officers and employees. Landlord and Tenant agree immediately to give their respective insurance companies which have issued policies of insurance covering all risk of direct physical loss, written notice of the terms of the mutual waivers contained in this Section, and to have the insurance policies properly endorsed, if necessary, to prevent the invalidation of the insurance coverage by reason of the mutual waivers. The waiver does not apply to claims caused by a party's willful misconduct. If despite a party's best efforts it cannot find an insurance company meeting the criteria in Section 8.01(f) that will give the waiver at reasonable commercial rates, then it shall give notice to the other party within thirty (30) days after the Commencement Date. The other party shall then have thirty (30) days to find an insurance company that will issue the waiver. If the other party also cannot find such an insurance company, then both parties shall be released from their obligations to obtain the waiver. 9 10 (g) INCREASE IN INSURANCE. If due to Tenant's particular use of the Premises, Landlord's insurance rates are increased, Tenant shall pay the reasonable and direct increase. In addition, the amounts of coverage required by this Lease are subject to review by Landlord at the end of each Adjustment Period. At each review, if necessary to maintain the same level of coverage that existed on the Commencement Date, the amounts of coverage shall be increased to the lesser of: (i) the amounts of coverage carried by prudent landlords and tenants of comparable office buildings in the Raleigh, North Carolina area; or (ii) twenty-five percent (25%) higher than the previous insurance amounts. (h) INSURANCE CRITERIA. Insurance policies required by this Lease shall: (i) be issued by insurance companies licensed to do business in the state of North Carolina with general policyholder's ratings of at least A and a financial rating of at least XI in the most current Best's Insurance Reports available on the date of this Lease; (ii) name the non procuring party as an additional insured as its interest may appear (other landlords or tenants may also be added as additional insurers in a blanket policy); (iii) provide that the insurance not be canceled or materially changed in the scope or amount of coverage unless thirty (30) days' advance notice is given to the non procuring party; (iv) be primary policies - not as contributing with, or in excess of, the coverage that the other party may carry; (v) be permitted to be carried through a "blanket policy" or "umbrella" coverage; (vi) have property deductibles not greater than $5,000; and (vii) be maintained during the entire Term. (i) EVIDENCE OF INSURANCE. By the Commencement Date and upon each renewal of its insurance policies, Tenant shall give copies of certificates of insurance to Landlord. The certificate shall specify amounts, types of coverage, the waiver of subrogation, and the insurance criteria listed in Section 8.01(f). The policies shall be renewed or replaced and maintained by Tenant. If Tenant fails to give the required certificate within thirty (30) days after the notice of demand for it, Landlord may obtain and pay for that insurance, but is not obligated to do so, and receive reimbursement from the party required to have the insurance. 8.02 INDEMNIFICATION. (a) TENANT'S INDEMNITY. Tenant indemnifies, defends, and holds Landlord harmless from claims, including but not limited to claims: (i) for personal injury, death, or property damage; (ii) for incidents occurring in or about the Premises or Building; and (iii) caused by the negligence or willful misconduct of Tenant, its agents, employees, or invitees. When the claim is caused by the joint negligence or willful misconduct of Tenant and Landlord or Tenant and a third party unrelated to Tenant, except Tenant's agents, employees, or invitees, Tenant's duty to defend, indemnify, and hold Landlord harmless shall be in proportion to Tenant's allocable share of the joint negligence or willful misconduct. 10 11 (b) LANDLORD'S INDEMNITY. Landlord indemnifies, defends, and holds Tenant harmless from claims: (i) for personal injury, death, or property damage; (ii) for incidents occurring in or about the Premises or Building; and (iii) caused by the negligence or willful misconduct of Landlord, its agents, employees, or invitees. When the claim is caused by the joint negligence or willful misconduct of Landlord and Tenant or Landlord and a third party unrelated to Landlord, except Landlord's agents, employees, or invitees, Landlord's duty to defend, indemnify, and hold Tenant harmless shall be in proportion to Landlord's allocable share of the joint negligence or willful misconduct. (c) RELEASE OF CLAIMS. Notwithstanding Section 8.02(a) and (b), the parties release each other from any claims either party ("Injured Party") has against the other to the extent the claim is covered by the Injured Party's insurance. 8.03 LIMITATION OF LANDLORD'S LIABILITY. (a) TRANSFER OF PREMISES. If the Building is sold or transferred, voluntarily or involuntarily, Landlord's Lease obligations and liabilities accruing after the transfer shall be the sole responsibility of the new owner, and (i) the new owner expressly agrees in writing to assume Landlord's obligations; and (ii) the Tenant's funds in the hands of Landlord, such as the Security Deposit, shall be given to the new owner. (b) LIABILITY FOR MONEY JUDGMENT. If Landlord, its employees, officers, directors or partners are ordered to pay Tenant a money judgment because of Landlord's default, Tenant's sole remedy to satisfy the judgment shall be to execute against Landlord's interest in the Building and Land. Under no circumstance will Landlord, or its officers, directors, partners or employees be personally liable for any money judgment. ARTICLE IX LOSS OF PREMISES 9.01 DAMAGES. (a) DEFINITION. "Relevant Space" means: (i) the Premises, excluding Tenant's fixtures installed by or at the request of Tenant; (ii) access to the Premises; and (iii) any part of the Building that provides essential services to the Premises. (b) REPAIR OF DAMAGE. If the Relevant Space is damaged in part or whole from any cause and the Relevant Space can be substantially repaired and restored within sixty (60) days from the date of the damage using standard working methods and procedures, Landlord shall at its expense promptly and diligently repair and restore the Relevant Space to substantially the same condition as existed before the damage. This repair and restoration shall be made within sixty (60) days from the date of the damage unless the delay is due to causes beyond Landlord's reasonable control. If the Relevant Space cannot be repaired and restored within the sixty (60) day period, then either party, 11 12 may, within thirty (30) days after determining that the repairs and restoration cannot be made within sixty (60) days, cancel the Lease by giving notice to the other party. Nevertheless, if the Relevant Space is not repaired and restored within one year from the date of the damage, then Tenant may cancel the Lease at any time within thirty (30) days after the sixty (60) day period. Tenant shall not be able to cancel this Lease if its willful misconduct causes the damage unless Landlord is not promptly and diligently repairing and restoring the Relevant Space. (c) DETERMINING THE EXTENT OF DAMAGE. If the parties cannot agree in writing whether the repairs and restoration will take more than one year to make, then the determination will be made by Landlord's architect. Landlord will make its best effort to determine damage within ten (10) business days of an occurrence. (d) ABATEMENT. Unless the damage is caused by Tenant's willful misconduct, the Base Rent and Additional Rent shall abate in proportion to that part of the Premises that is unfit for use in Tenant's business. The abatement shall consider the nature and extent of interference to Tenant's ability to conduct business in the Premises and the need for access and essential services. The abatement shall continue from the date the damage occurred until ten (10) business days after Landlord completes the repairs and restoration to the Relevant Space or the part rendered unusable and notice to Tenant that the repairs and restoration are completed, or until Tenant again uses the Premises or the part rendered unusable, whichever is first. (e) TENANT'S PROPERTY. Notwithstanding anything else in this Article IX, Landlord is not obligated to repair or restore damage to Tenant's trade fixtures, furniture, equipment, or other personal property, or any Tenant improvements. (f) DAMAGE TO BUILDING. If: (i) more than twenty percent (20%) of the Building is damaged and the Landlord decides not to repair and restore the Building; (ii) any mortgagee of the Building shall not allow adequate insurance proceeds for repair and restoration; (iii) the damage is not covered by Landlord's insurance; or (iv) the Lease is in the last twelve (12) months of its Term, then Landlord may cancel this Lease. To cancel, Landlord must give notice to Tenant within thirty (30) days after the Landlord knows of the damage. The notice must specify the cancellation date, which shall be at least thirty (30) but not more than sixty (60) days after the date notice is given. (g) CANCELLATION. If either party cancels this Lease as permitted above, then this Lease shall end on the day specified in the cancellation notice. The Base Rent, Additional Rent, and other charges shall be payable up to the cancellation date and shall account for any abatement. Landlord shall promptly refund to Tenant any prepaid, unaccrued Base Rent and Additional Rent, accounting for any abatement, plus Security Deposit, if any, less any sum then owing by Tenant to Landlord. 9.02 CONDEMNATION. (a) DEFINITIONS. The terms "eminent domain," "condemnation," "taken," and the like in Section 9.02 include takings for public or quasi-public use and private purchases in place of condemnation by any authority authorized to exercise the power of eminent domain. (b) ENTIRE TAKING. If the entire Premises or the portions of the Building required for reasonable access to, or the reasonable use of, the Premises are taken by eminent domain, this Lease shall automatically end on the earlier of: 12 13 (i) the date title vests; or (ii) the date Tenant is dispossessed by the condemning authority. (c) PARTIAL TAKING. If the taking of a part of the Premises materially interferes with Tenant's ability to continue its business operations in substantially the same manner and space then Tenant may terminate this Lease on the earlier of: (i) the date when title vests; (ii) the date Tenant is dispossessed by the condemning authority; or (iii) sixty (60) days following notice to Tenant of the date when vesting or dispossession is to occur. If there is a partial taking and this Lease continues, then the Lease shall end as to the part taken and the Base Rent and Additional Rent shall abate in proportion to the part of the Premises taken and Tenant's pro rata share shall be equitably reduced. (d) TERMINATION BY LANDLORD. If title to a part of the Building other than the Premises is condemned, and in the Landlord's reasonable opinion, the Building should be restored in a manner that materially alters the Premises, Landlord may cancel this Lease by giving notice to Tenant. Cancellation notice shall be given within sixty (60) days following the date title vested. This Lease shall end on the date specified in the cancellation notice, which date shall be at least thirty (30) days but not more than ninety (90) days after the notice is given. (e) RENT ADJUSTMENT. If the Lease is canceled as provided in Sections 9.02(b), (c), or (d), then the Base Rent, Additional Rent, and other charges shall be payable up to the cancellation date, and shall account for any abatement. Landlord, considering any abatement, shall promptly refund to Tenant any prepaid, unaccrued Base Rent and Additional Rent plus Security Deposit, if any, less any sum then owing by Tenant to Landlord. (f) REPAIR. If the Lease is not canceled as provided for in Sections 9.02(b), (c), or (d), then Landlord at its expense shall promptly repair and restore the Premises to the condition that existed immediately before the taking, except for the part taken, to render the Premises a complete architectural unit, but only to the extent of the: (i) condemnation award received for the damage; and (ii) the Landlord's original obligation under Section 4.05 and Exhibit D. (g) AWARDS AND DAMAGES. Landlord reserves all rights to damages paid because of any partial or entire taking of the Premises. Tenant assigns to Landlord any right Tenant may have to the damages or award. Further, Tenant shall not make claims against Landlord or the condemning authority for damages. Notwithstanding anything else in this Paragraph 9.02(g), Tenant may claim and recover from the condemning authority a separate award for Tenant's moving expenses, business dislocation damages, Tenant's personal property and fixtures, the unamortized costs of leasehold improvements paid for by Tenant, excluding the Landlord's Improvements, and any other award that would not substantially reduce the award payable to Landlord. Each party shall seek its own award, as limited by this provision, at its own expense, and neither shall have any right to the award made to the other. (h) TEMPORARY CONDEMNATION. If part or all of the Premises are condemned for a limited period of time ("Temporary Condemnation"), this Lease shall remain in effect. The Base Rent and Additional Rent and Tenant's obligations for the part of the Premises taken shall abate during the Temporary Condemnation in 13 14 proportion to the part of the Premises that Tenant is unable to use in its business operations as a result of the Temporary Condemnation. Landlord shall receive the entire award for any Temporary Condemnation. ARTICLE X DEFAULT 10.01 TENANT'S DEFAULT. (a) DEFAULTS. Each of the following constitutes a default ("Default"): (i) Tenant's failure to pay Base Rent or Additional Rent within five (5) days after it is past due and payable; (ii) Tenant's failure to pay Base Rent or Additional Rent by the due date, at any time during a calendar year in which Tenant has already received two (2) notices of its failure to pay Base Rent or Additional Rent by the due date; (iii) Tenant's failure to observe any of the material terms of the Lease Agreement. If Tenant shall violate any of the material terms of Section 7.04 above, Tenant will be required to immediately cure such violation. If such violation is not cured, Landlord may require Tenant to evacuate space, and may have the option to terminate this Lease Agreement. Tenant will be responsible for all costs incurred by Landlord in attempting to cure any violation under Section 7.04 above. (iv) Tenant's failure to perform or observe any other material Tenant obligation after a period of thirty (30) business days or the additional time, if any, that is reasonably necessary to promptly and diligently cure the failure, after it receives notice from Landlord setting forth in reasonable detail the nature and extent of the failure and identifying the applicable Lease provision(s); (v) Tenant's abandoning or vacating the Premises; (vi) Tenant's failure to vacate or stay any of the following within sixty (60) days after they occur: (1) a petition in bankruptcy is filed by or against Tenant; (2) Tenant is adjudicated as bankrupt or insolvent; (3) a receiver, trustee, or liquidator is appointed for all or a substantial part of Tenant's property; or (4) Tenant makes an assignment for the benefit of creditors. 10.02 LANDLORD'S REMEDIES. (a) REMEDIES. Landlord in addition to the remedies given in this Lease or under the law, may do any one or more of the following if Tenant commits a material Default under Section 10.01: (i) end this Lease, and Tenant shall then surrender the Premises to Landlord; (ii) enter and take possession of the Premises either with process of law and remove Tenant, with or without having ended the Lease; and (iii) alter locks and other security devices at the Premises with process of law. 14 15 Tenant waives claims for damages by reason of Landlord's reentry, repossession, or alteration of locks or other security devices and for damages by reason of any legal process. (b) NO SURRENDER. Landlord's exercise of any of its remedies or its receipt of Tenant's keys shall not be considered an acceptance or surrender of the Premises by Tenant. A surrender must be agreed to in writing signed by both parties. (c) RENT. If Landlord terminates this Lease or Tenant's right to possess the Premises because of a material Default, Landlord may hold Tenant liable for Base Rent, Additional Rent, and other indebtedness accrued to the date the Lease expires or is terminated. Tenant shall also be liable for the Base Rent, Additional Rent and other indebtedness that otherwise would have been payable by Tenant during the remainder of the Term had there been no material default, reduced by any sums Landlord receives by reletting the Premises during the Term. (d) OTHER EXPENSES. Tenant shall also be liable for that part of the following sums paid by Landlord and attributable to that part of the Term ended due to Tenant's Default: (i) reasonable broker's fees incurred by Landlord for reletting part or all of the Premises prorated for that part of the reletting Term ending concurrently with the then current Term of this Lease; (ii) the cost of removing and storing Tenant's property; (iii) other necessary, reasonable and direct expenses incurred by Landlord in enforcing its remedies, including, without limitation, reasonable attorneys fees. (e) PAYMENT. Tenant shall pay the sums due in Sections 10.02(c) and (d) within thirty (30) days of receiving Landlord's proper and correct invoice for the amounts. (f) RELETTING. Landlord may relet for a shorter or longer period of time than the Lease Term and make any necessary repairs or alterations. Landlord may relet on any reasonable terms including a reasonable amount of free rent. 10.03 SELF-HELP. If Tenant defaults, Landlord may, without being obligated and without waiving the Default, cure the Default, and may enter the Premises to do so. Tenant shall pay Landlord, upon demand, as Additional Rent, all costs, expenses and disbursements incurred by Landlord. 10.04 SURVIVAL. The remedies permitted by this Article X and the parties' indemnities in Section 8.02 shall survive the Expiration Date or earlier termination of this Lease. 10.05 TENANT'S REMEDIES. If Landlord shall default in the performance of any material covenant to be performed under this Lease, then (i) if the default is not cured by Landlord within five days of written request from Tenant, Landlord shall be responsible for the necessary, reasonable and direct expenses incurred by Tenant in correcting such default and (ii) if, in connection with the enforcement of the Tenant's rights or remedies, the Tenant shall incur fees and expenses for services rendered, and Tenant shall prevail in litigation, then such fees and expenses shall be immediately reimbursed by Landlord. If Landlord shall prevail in litigation then such fees and expenses shall be immediately reimbursed by Tenant. ARTICLE XI NON DISTURBANCE 15 16 11.01 SUBORDINATION. (a) MORTGAGES. Subject to Section 11.01(b), this Lease is subordinate to prior or subsequent mortgages covering the Building. (b) FORECLOSURES. If any mortgage is foreclosed, then: (i) This Lease shall continue; (ii) Tenant's quiet possession shall not be disturbed if Tenant is not in Default; (iii) Tenant will attorn to and recognize the mortgagee or purchaser at foreclosure sale (Successor Landlord) as Tenant's landlord for the remaining Term; and (iv) The Successor Landlord shall not be bound by: (1) any payment of Base Rent or Additional Rent for more than one month in advance, except the Security Deposit and free rent, if any, specified in the Lease, (2) any amendment, modification, or ending of this Lease without Successor Landlord's consent after the Successor Landlord's name is given to Tenant unless the amendment, modification, or ending is specifically authorized by the original Lease and does not require Landlord's prior agreement or consent, and (3) any liability for any act or omission of a prior Landlord. (c) SELF-OPERATING. This Section 11.01 is self-operating. However, Tenant shall promptly execute and deliver any documents needed to confirm this arrangement. 11.02 ESTOPPEL CERTIFICATE. (a) OBLIGATION. Tenant shall from time to time, within ten (10) business days after receiving a written request from Landlord, execute and deliver to Landlord a written statement which may be relied upon by Landlord and any third party with whom the Landlord is dealing and which shall certify: (i) the accuracy of the Lease document; (ii) the Commencement and Expiration Dates of the Lease; (iii) that the Lease is unmodified and in full effect or in full effect as modified, stating the date and nature of the modification; (iv) whether to the Tenant's knowledge the Landlord is in default or whether the Tenant has any claims or demands against Landlord, and, if so, specifying the Default, claim, or demand; and (v) to other correct and reasonably ascertainable facts that are covered by the Lease terms. (b) REMEDY. The Tenant's failure to comply with its obligations in Section 11.02(a) shall be a Default, except that the cure period for this Default shall be five (5) business days after the Tenant receives notice of the Default. 11.03 QUIET POSSESSION. If Tenant is not in default, and subject to the Lease terms, Landlord warrants that Tenant's peaceable and quiet enjoyment of the Premises shall not be disturbed by anyone claiming by or through Landlord. 16 17 ARTICLE XII LANDLORD'S RIGHTS 12.01 RULES. (a) RULES. Tenant, its employees and invitees, shall comply with: (i) the Rules attached as Exhibit E; and (ii) reasonable modifications and additions to the Rules adopted by Landlord. (b) CONFLICT WITH LEASE. If a Rule issued under Section 12.01(a) conflicts with or is inconsistent with any Lease provision, the Lease provision controls. (c) ENFORCEMENT. Although Landlord is not responsible for another tenant's failure to observe the Rules, Landlord shall not unreasonably enforce the Rules against Tenant. 12.02 MECHANIC'S LIENS. (a) DISCHARGE LIEN. Tenant shall, within twenty (20) days after receiving notice of any mechanic's lien for material or work claimed to have been furnished to the Premises on Tenant's behalf and at Tenant's request: (i) discharge the lien; or (ii) post a bond equal to the amount of the disputed claim with companies reasonably satisfactory to Landlord. If Tenant posts a bond, it shall contest the validity of the lien. Tenant shall indemnify, defend, and hold Landlord harmless from losses incurred from these liens. (b) LANDLORD'S DISCHARGE. If Tenant does not discharge the lien or post the bond within the twenty (20) day period, Landlord may pay any amounts, including interest and legal fees, to discharge the lien. Tenant shall then be liable to Landlord for the amounts paid by Landlord as Additional Rent. (c) CONSENT NOT IMPLIED. This Section 12.02 is not a consent to subject Landlord's property to these liens. 12.03 RIGHT TO ENTER. (a) PERMITTED ENTRIES. Landlord and its agents, servants, and employees may enter the Premises at reasonable times, and at any time if an emergency, without charge, liability, or abatement of Base Rent, to: (i) examine the Premises; (ii) make repairs, alterations, improvements, and additions either required by the Lease or advisable to preserve the integrity, safety, and good order of part or all of the Premises or Building; (iii) provide janitorial and other services required by the Lease; (iv) comply with Applicable Laws; (v) show the Premises to prospective lenders or purchasers; (vi) post notices of non responsibility; 17 18 (vii) remove any Alterations made by Tenant in violation of Section 7.01; and (viii) post "For Sale" signs and, during the one hundred twenty (120) days immediately before this Lease ends, post "For Lease" signs. (b) ENTRY CONDITIONS. Notwithstanding Section 12.03(a), entry is conditioned upon Landlord: (i) giving Tenant at least twenty-four (24) hours advance notice, except in an emergency; (ii) promptly finishing any work for which it entered; and (iii) causing the least practical interference to Tenant's business. 12.04 HOLDOVER. (a) HOLDOVER STATUS. If Tenant continues occupying the Premises after the Term ends ("Holdover") then: (i) if the Holdover is with Landlord's written consent, it shall be a month-to-month tenancy, terminable on thirty (30) days advance notice by either party. (ii) if the Holdover is without Landlord's written consent, then Tenant shall be a tenant-at-sufferance. Tenant shall pay by the first day of each month twice the amount of Base Rent and Additional Rent due in the last full month immediately preceding the Holdover period and shall be liable for any damages suffered by Landlord because of Tenant's Holdover, Landlord shall retain its remedies against Tenant who holds over without written consent. (b) HOLDOVER TERMS. The Holdover shall be on the same terms and conditions of the Lease except: (i) the Term; (ii) Base Rent and Additional Rent; (iii) the extension Term is deleted; (iv) the Quiet Possession provision is deleted; (v) Landlord's obligation for services and repairs is deleted; and (vi) consent to an assignment or sublease may be unreasonably withheld and delayed. 12.05 SIGNS. Tenant shall not place or have placed any other signs, listings, advertisements, or any other notices anywhere in the Building or on the Premises without Landlord's prior written consent, such consent not to be unreasonably withheld or delayed. Landlord will provide direction signs for Tenant on the 68 Alexander Drive campus. 12.06 RIGHT TO RELOCATE. If the demised Premises comprise less than fifty percent (50%) of the floor where located, Landlord, at its option, may substitute for the Demised Premises other space (hereafter called "Substitute Premises") within the project before the commencement date or at any time during the term or any extension of their lease. Insofar as reasonably possible, the Substitute Premises shall have a comparable square foot area, configuration, and amenities substantially similar to the Demised Premises. Landlord shall give Tenant at least ninety (90) days written notice of its intention to relocate Tenant to the Substitute Premises. This notice will be accompanied by a floor plan of the Substitute Premises. After such notice, Tenant Shall have ten (10) days within which to agree with Landlord on the proposed new space and reasonable rent adjustments as may 18 19 be appropriate and unless such agreement is reached within such period of time, this lease shall terminate at the end of the ninety (90) day period of time following the aforesaid notice. In the event suitable substitute space is not available after Landlord's written notice then either party may terminate this lease with sixty (60) days advance written notice. Landlord agrees to construct or alter, at its own expense, the Substitute Premises as expeditiously as possible so that they are in substantially the same condition that the Demised Premises were in immediately prior to the relocation. Landlord shall have the right to reuse the fixtures, improvements, and alterations used in the Demised Premises. Tenant agrees to occupy the Substitute Premises as soon as Landlord's work is substantially completed. Landlord shall pay Tenant's reasonable cost of moving Tenant's furnishings, trade fixtures, and inventory to the Substitute Premises. Except as provided herein, Tenant agrees that all of the obligations of this lease, including the payment of rent, will continue despite Tenant's location. Tenant's rent shall abate from the date the Demised Premises are closed until the date the Substitute Premises are open for business. Tenant agrees to use all reasonable efforts to open for business in the Substitute Premises as quickly as is reasonably possible under the circumstance. Except as provided above, Landlord shall not be liable or responsible in any way for damages or injuries suffered by Tenant pursuant to the relocation in accordance with this provision including, but not limited to, loss of goodwill, business, or profits. ARTICLE XIII MISCELLANEOUS 13.01 BROKER'S WARRANTY. The parties warrant that ANTHONY AND CO. is the only broker they dealt with on this Lease. The party who breaches this warranty shall defend, hold harmless, and indemnify the non breaching party from any claims or liability arising from the breach. Landlord is solely responsible for paying the commission of ANTHONY & CO. 13.02 ATTORNEY'S FEES. In any litigation between the parties regarding this Lease, the losing party shall pay to the prevailing party all reasonable expenses and court costs including attorneys' fees incurred by the prevailing party. A party shall be considered the prevailing party if: (a) it initiated the litigation and substantially obtains the relief it sought, either through a judgment or voluntary action before (after it is scheduled) trial or judgment; (b) the other party withdraws its action without substantially obtaining the relief it sought; or (c) it did not initiate the litigation and judgment is entered for either party, but without substantially granting the relief sought. 13.03 NOTICES. Unless a Lease provision expressly authorizes verbal notice, all notices under this Lease shall be in writing and sent by registered or certified mail, postage prepaid, as follows: To Tenant: United Therapeutics Corporation (mailing address) ATTN: Dr. Gilles Cloutier P.O. Box 13169 Research Triangle Park, NC 27709 and 19 20 To Landlord: UAI Technology, Inc. ATTN: Steven F. Maier PO Box 13628, 68 Alexander Drive Research Triangle Park, NC 27709 Either party may change these persons or addresses by giving notice as provided above. Tenant shall also give required notices to Landlord's mortgagee after receiving notice from Landlord of the mortgagee's name and address. Notice shall be considered given and received on the latest original delivery or attempted delivery date as indicated on the postage receipt(s) of all persons and addresses to which notice is to be given. 13.04 PARTIAL INVALIDITY. If any Lease provision is invalid or unenforceable to any extent, then except that provision, the remainder of this Lease shall continue in effect and be enforceable to the fullest extent permitted by law. 13.05 WAIVER. The failure of either party to exercise any of its rights is not a waiver of those rights. A party waives only those rights specified in writing and signed by the party waiving its rights. 13.06 BINDING ON SUCCESSORS. This Lease shall bind the parties' heirs, successors, representatives, and permitted assigns. 13.07 GOVERNING LAW. This Lease shall be governed by the laws of the state in which the Building is located. 13.08 LEASE NOT AN OFFER. Landlord gave this Lease to Tenant for review. It is not an offer to lease. This Lease shall not be binding unless signed by both parties and an originally signed counterpart is delivered to Tenant by JUNE 30, 1998. 13.09 RECORDING. Recording of this Lease is prohibited except as allowed in this paragraph. At the request of either party, the parties shall promptly execute and record, at the cost of the requesting party, a short form memorandum describing the Premises and stating this Lease's Term, its Commencement and Expiration Dates, and other information the parties agree to include. 13.10 SURVIVAL OF REMEDIES. The parties' remedies shall survive the expiration or termination of this Lease when caused by the Default of the other party. 13.11 AUTHORITY OF PARTIES. Each party warrants that it is authorized to enter into the Lease, that the person signing on its behalf is duly authorized to execute the Lease, and that no other signatures are necessary. 13.12 BUSINESS DAYS. Business day means Monday through Friday inclusive, excluding holidays identified at Section 6.02(b). Throughout this Lease, wherever "days" are used the term shall refer to calendar days. Wherever the term "business days" is used the term shall refer to business days. 13.13 ENTIRE AGREEMENT. This Lease contains the entire agreement between the parties about the Premises and Building. Except for the Rules for which Section 12.01(a) controls, this Lease shall be modified only by a writing signed by both parties. 13.14 DEFINITION OF LEASE. This Lease consists of the following: (a) Title Page; (b) Table of Contents; (c) Articles I through XIII; 20 21 (d) Signature Page; (e) Exhibits A through E. IN WITNESS WHEREOF, the parties hereto have duly executed this Lease the day and year first above written. LANDLORD: UAI TECHNOLOGY, INC. ------------------------------------ SIGNATURE: /s/ Mark E. Friedman ------------------------------------ MARK E. FRIEDMAN DATE: 7/2/98 ------------------------------- WITNESS: NAME: /s/ J.D. ------------------------------- TITLE: Controller ------------------------------- DATE: 7/2/98 ------------------------------- TENANT: UNITED THERAPEUTICS CORPORATION ------------------------------------ SIGNATURE: /s/ Gilles Cloutier ------------------------------------ DR. GILLES CLOUTIER DATE: 6/22/98 ------------------------------- WITNESS: NAME: /s/ Denise Corbisiero ------------------------------- TITLE: Admin. Assistant ------------------------------ DATE: 7/7/98 -------------------------------- 21 22 EXHIBIT C LAND BEGINNING at an existing iron pipe located in the westernmost right-of-way line of T.W. Alexander Drive, marking the northeasternmost corner of the property described herein and having the North Carolina Grid Coordinates of N 787, 877.83, E 2, 035, 943.91; thence along and with the westernmost right-of-way line to T.W. Alexander Drive South 00(Degree) 49' 42" East 157.40 feet to an existing iron pipe; thence along with the westernmost right-of-way line to T.W. Alexander Drive South 01(Degree) 29' 40" East 527.60 feet to an existing concrete monument marking the easternmost point of the former southern border of a 10.462 acre tract, the property of UAI Technology, Inc.; thence along and with the westernmost right-of-way line of T.W. Alexander Drive South 01(Degree) 29' 40" East 316.40 feet to an existing concrete monument; thence along and with the northernmost line of other property of the Research Triangle Foundation of North Carolina South 88(Degree) 30' 20" West 695.60 feet to an existing concrete monument located in the easternmost line of the aforesaid property now or formerly of W.L. Lowe; thence along and with the easternmost line of the aforesaid property of W.L. Lowe, North 01(Degree) 07' 15" East 316.73 feet to an existing iron pipe marking the westernmost point of the former southern border of a 10.462 acre tract, the property of UAI Technology, Inc.; thence along and with the eastern line of the property now or formerly of W.L. Lowe, North 01(Degree) 04' 57" East 270.96 feet to an existing iron pipe; thence along and with the eastern line of other property of Research Trianlge Foundatin of North Carolina North 01(Degree) 23' 04" East 414.83 feet to an existing iron pipe; thence along and with the southern line of other property of Research Triangle Foundation of North Carolina North 88(Degree) 30' 20" East 649.96 feet to the point and place of BEGINNING, as shown on a plat and survey thereof entitled "Recombination and Foundation Survey - U.A.I. Technology, Inc." date May 3, 1991 by Boney and Associates, Inc. Engineering and Surveying, Raleigh, N.C. The southern five acres of this property is shown on a plat and survey recorded in Plat Book 124, Page 200 Durham County Registry. The northern 10.462 acres of this property is shown on a plat and survey recorded in Plat Book 106, Page 32, Durham County Registry. And Plat Book 124, Page 200 Durham County Registry. 22 23 EXHIBIT D LANDLORD IMPROVEMENTS - Locks on office doors, to be provided at Tenant's expense. - Landlord will provide keys for entry into main door of building. - A separate agreement regarding existing furniture and phone system will be made between Landlord and Tenant. 23 24 EXHIBIT E RULES AND REGULATIONS (1) ACCESS TO COMMON AREAS OF THE PROPERTY. Landlord may from time to time establish security controls for the purpose of regulating access to the common areas of the property. Tenant shall abide by all such security regulations so established and agrees to always leave clear access for vehicular traffic through all parking lots, loading areas and driveways. (2) PROTECTING DEMISED PREMISES. Before leaving the Demised Premises unattended, Tenant shall close and securely lock all doors or other means of entry to the Demised Premises. (3) BUILDING DIRECTORIES. The directories of the building shall be used exclusively for the display of the name and location of tenants only and will be provided at the expense of Landlord. Any company names and/or name changes requested by Tenant to be displayed in the directories must be approved by Landlord and, if approved, will be provided at the sole expense of Tenant. (4) LARGE ARTICLES. Furniture, freight and other large or heavy articles may be brought into the building in a manner so as to not damage the property and always at Tenant's sole responsibility. All damage done to the building, its furnishings, fixtures or equipment by moving or maintaining such furniture, freight or articles shall be repaired at the expense of Tenant. (5) SIGNS. Tenant shall not paint, display, inscribe, maintain or affix any sign, placard, picture, advertisement, name, notice, lettering or direction on any part of the outside or inside of the building or on the Premises, or on any part of the inside of the Demised Premises which can be seen from the outside of the Demised Premises, without the written consent of Landlord, and then only such name or names or matter and in such color, size, style, character and material as shall be first approved by Landlord in writing. Landlord reserves the right to remove at Tenant's expense all matter other than that above provided for without notice to Tenant. (6) COMPLIANCE WITH LAWS. Tenant shall comply with all applicable laws, ordinances, governmental orders or regulations and applicable orders or directions from any public office or body having jurisdiction, whether now existing or hereinafter enacted with respect to the Demised Premises and the use or occupancy thereof. Tenant shall not make or permit any use of the Demised Premises which directly or indirectly is forbidden by law, ordinance, governmental regulations or order or direction of applicable public authority, or which may be dangerous to person or property. (7) HAZARDOUS MATERIALS. Tenant shall not use or permit to be brought into the Demised Premises or the building any flammable oils or fluids, or any explosive or other articles deemed hazardous to persons or property, or do or permit to be done any act or thing which will invalidate or which if brought in would be in conflict with any insurance policy covering the building or its operation, or the Demised Premises, or any part of either, and will not do or permit to be done anything in or upon the Demised Premises, or bring or keep anything therein, which shall not comply with all rules, orders, regulations or requirements of any organization, bureaus, department or body having jurisdiction with respect thereto (and Tenant shall at all times comply with all such rules, orders, regulations or requirements), or which shall increase the rate of insurance on the building, its appurtenances, contents or operation. Tenant shall not bring onto the Premises any biological, radioactive, or chemical substances. (8) DEFACING DEMISED PREMISES AND OVERLOADING. Tenant shall not place anything or allow anything to be placed in the Demised Premises near the glass or any door, partition, wall or window which may be unsightly from outside the Demised Premises. Tenant shall not place or permit to be placed any article of any kind on any window ledge or on the exterior walls; blinds, shades, awnings or other forms of inside or outside window ventilators or similar devices shall not be placed in or about the outside windows in the Demised Premises except to the extent that the character, shape, color material and make thereof is approved by Landlord. Tenant shall not do any painting or decorating in the Demised Premises or install any floor coverings in the Demised Premises or make, paint, cut or drill into, or in any way deface any part of the Demised Premises or building without in each instance obtaining the prior written consent of Landlord. Tenant shall not overload any floor or part thereof in the Demised Premises, or any facility in the building or 24 25 any public corridors or elevators therein by bringing in or removing any large or heavy articles and, Landlord may direct and control the location of safes, files, and all other heavy articles and, if considered necessary by Landlord, require supplementary supports at Tenant's expense of such material and dimensions necessary to properly distribute the weight. (9) OBSTRUCTION OF PUBLIC AREAS. Tenant shall not, whether temporarily, accidentally or otherwise, allow anything to remain in, place or store anything in, or obstruct in any way, any sidewalk, court, passageway, entrance, or shipping area. Tenant shall lend its full cooperation to keep such areas free from all obstruction and in a clean and sightly condition, and move all supplies, furniture and equipment as soon as received directly to the Demised Premises, and shall move all such items and waste (other than waste customarily removed by building employees) that are at any time being taken from the Demised Premises directly to the areas designated for disposal. All courts, passageways, entrances, exits, elevators, escalators, stairways, corridors, halls and roofs are not for the use of the general public and Landlord shall in all cases retain the right to control and prevent access thereto by all persons whose presence in the judgment of Landlord shall be prejudicial to the safety, character, reputation and interest of the building and its tenants provided, however, that nothing herein contained shall be construed to prevent such access to persons with whom Tenant deals within the normal course of Tenant's business unless such persons are engaged in illegal activities. (10) ADDITIONAL LOCKS. Tenant shall not attach or permit to be attached additional locks or similar devices to any door or window, change any existing locks or the mechanism thereof, or make or permit to be made any keys for any door other than those provided by Landlord. Upon termination of this lease or of Tenant's possession, Tenant shall surrender all keys to the Demised Premises. Tenant shall be solely responsible for the costs of all locks and keys other than the original set in the premises as of the date of occupancy. (11) COMMUNICATIONS OR UTILITY CONNECTIONS. If Tenant desires signal, alarm or other utility or similar service connections installed or changed, Tenant must first obtain approval of Landlord, and such installation shall be at Tenant's expense. Tenant shall not install in the Demised Premises any equipment which requires a substantial amount of electrical current without the advance written consent of Landlord. Tenant shall ascertain from Landlord the maximum amount of load or demand for or use of electrical current which can safely be permitted in the Demised Premises, taking into account the capacity of the electric wiring in the building and the Demised Premises, taking into account the capacity of the electric wiring in the building and the Demised Premises and the needs of other tenants in the building, and shall not in any event connect a greater load than that which is safe. (12) OFFICE OF THE BUILDING. Service requirements of Tenant will be attended to only upon application at the Landlord Services office. Employees of Landlord shall not perform any work outside of their duties unless under special instructions from Landlord. Tenant shall appoint a single person to serve as liaison between Tenant and Landlord for purposes of service requirements. (13) RESTROOMS. The restrooms, toilets, urinals, vanities and the other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein and the expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by Tenant who, or whose employees or invitees, shall have caused it. (14) INTOXICATION. Landlord reserves the right to exclude or expel from the building any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of the rules and regulations of the building. (15) NUISANCES AND CERTAIN OTHER PROHIBITED USES. Tenant shall not (a) install or operate any internal combustion engine, boiler, machinery, refrigerating, heating or air conditioning apparatus in or about the Demised Premises; (b) engage in any mechanical business, utilize any article or thing, or engage in any service in or about the Demised Premises or building, except those ordinarily embraced within the permitted use of the Demised Premises specified in Article 7; (c) use the Demised Premises for housing, lodging, or sleeping purposes; (d) place any antennae on the roof or on or in any part of the inside or outside of the building other than the inside of the Demised Premises, or place a musical or sound producing instrument or device inside or outside the Demised Premises which may be heard outside the Demised Premises; (e) use any illumination or power for the operation of any equipment or device other than electricity; (f) 25 26 operate any electrical device from which may emanate electrical waves which may interfere with or impair radio or television broadcasting or reception from or in the building or elsewhere; (g) bring or permit to be in the building complex any bicycle or other vehicle, or dog (except in the company of a blind person) or other animal or bird; (h) make or permit any objectionable noise or odor to emanate from the Demised Premises; (i) disturb, solicit or canvass any occupant of the building; (j) do anything in or about the Demised Premises tending to create or maintain a nuisance or do any act tending to injure the reputation of the building; (k) perform any scientific experimentation or other processes, whether or not these experiments or processes required any laboratory equipment. (16) SOLICITATION. Tenant shall not make any room-to-room canvass to solicit business from other tenants in the building and shall not exhibit, sell or offer to sell, use, rent or exchange any products or services in or from the Demised Premises unless ordinarily embraced within the Tenant's use of the Demised Premises specified herein and specific authority granted in the lease agreement. (17) ENERGY CONSERVATION. Tenant shall not waste electricity, water, heat or air conditioning and agrees to cooperate fully with Landlord to assure the most effective operation of the building's heating and air conditioning, and shall not allow the adjustment (except by Landlord's authorized building personnel) or any controls. (18) BUILDING SECURITY. Tenant must follow routine security procedures as set forth by Landlord, and inform all employees of such policies. (19) PARKING. Parking is in designated parking areas only. There should be no vehicles in "no parking" zones or at curbs. Handicapped spaces are for handicapped persons and the Police Department will ticket unauthorized (unidentified) cars in handicapped spaces. No vehicles may be abandoned or repaired on the property, and vehicles requiring extended parking should be identified to Landlord. (20) JANITORIAL SERVICE. Tenants will remove excessive trash from inside and outside their premises and shall deposit same in the dumpsters provided by Landlord. Any large volume of trash resulting from delivery of furniture, equipment, etc., should be removed by the delivery company, Tenant, or Landlord at Tenant's expense. Any requests for extraordinary trash removal should be directed to Landlord Services office. (21) Landlord reserves the right to make such other reasonable Rules and Regulations as in its judgment may from time to time be needed for the safety, care and cleanliness of the Building and the Land, and for the preservation of good order therein. (22) TENANTS USE RESTRICTED TO AREAS RENTED. Tenant shall inform all employees that its use of the Premises is restricted to those areas listed in Section 1.01 above. No employees, agents, visitors, or any other persons affiliated with Tenant shall have access to areas except those specifically listed in Section 1.01. (23) WEAPONS. No weapons or firearms may be carried onto the Premises at any time. (24) SMOKING. Smoking is not allowed on the Premises. 26 EX-10.18 26 FORM OF INDEMNIFICATION AGREEMENT 1 EXHIBIT 10.18 INDEMNIFICATION AGREEMENT This Indemnity Agreement, dated as of ____________ ___, 1999, is made by and between UNITED THERAPEUTICS CORPORATION, a Delaware corporation (the "Company"), and ____________________ (the "Indemnitee"), an "agent" (as hereinafter defined) of the Company. RECITALS A. The Company recognizes that competent and experienced persons are increasingly reluctant to serve as directors or executive officers of corporations unless they are protected by comprehensive liability insurance or indemnification, or both, due to increased exposure to litigation costs and risks resulting from their service to such corporations, and due to the fact that the exposure frequently bears no reasonable relationship to the compensation of such directors and executive officers; B. The statutes and judicial decisions regarding the duties of directors and executive officers are often difficult to apply, ambiguous or conflicting, and therefore fail to provide such directors and executive officers with adequate, reliable knowledge of legal risks to which they are exposed or information regarding the proper course of action to take; C. The Company and the Indemnitee recognize that plaintiffs often seek damages in such large amounts and the costs of litigation may be so enormous (whether or not the case is meritorious), that the defense and/or settlement of such litigation is often beyond the personal resources of directors and executive officers; D. The Company believes that it is unfair for its directors and executive officers to assume the risk of huge judgments and other expenses which may occur in cases in which the director or executive officer received no personal profit and in cases where the director or executive officer was not culpable; E. The Company, after reasonable investigation, has determined that the liability insurance coverage presently available to the Company is inadequate to cover all possible exposure for which the Indemnitee should be protected. The Company believes that the interests of the Company and its stockholders would best be served by a combination of such insurance and the indemnification by the Company of the directors and executive officers of the Company, F. Section 145 of the General Corporation Law of Delaware ("Section 145"), under which the Company is organized, empowers the Company to indemnify its directors, officers, employees and agents by agreement and to indemnify persons who serve, at the request of the Company, as the directors, officers, employees or agents of other corporations or 2 enterprises, and expressly provides that the indemnification provided by Section 145 is not exclusive; G. The Board of Directors has determined that contractual indemnification as set forth herein is not only reasonable and prudent but necessary to promote the best interests of the Company and its stockholders; H. The Company desires and has requested the Indemnitee to serve or continue to serve as a director or executive officer of the Company free from undue concern for claims for damages arising out of or related to such services to the Company, and I. The Indemnitee is willing to serve, or to continue to serve, the Company, only on the condition that he is furnished the indemnity provided for herein. AGREEMENT NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Definitions (a) Agent. For purposes of this Agreement, "agent" of the Company meansany person who is or was a director, officer, employee or other agent of the Company or a subsidiary of the Company, or is or was serving at the request of, for the convenience of, or to represent the interest of the Company or a subsidiary of the Company as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise. (b) Expenses. For purposes of this Agreement, "expenses" includes all direct and indirect costs of any type or nature whatsoever (including, without limitation, all attorneys' fees and related disbursements and other out-of-pocket costs), actually and reasonably incurred by the Indemnitee in connection with either the investigation, defense or appeal of a proceeding or establishing or enforcing a right to indemnification under this Agreement, Section 145 or otherwise, and amounts paid in settlement by or on behalf of the Indemnitee, but shall not include any final judgments, fines or penalties actually levied against the Indemnitee. (c) Proceedings. For the purposes of this Agreement, "proceeding" means any threatened, pending or completed action, suit or other proceeding, whether civil, criminal, administrative or investigative. (d) Subsidiary. For purposes of this Agreement, "subsidiary" means any corporation of which more than 50% of the outstanding voting securities are owned directly or indirectly by the Company, by the Company and one or more other subsidiaries or by one or more other subsidiaries. 2 3 (e) Other Enterprise. For purpose of this Agreement, "other enterprise" shall include employee benefit plans; references to "fines" shall include any excise tax assessed with respect to any employee benefit plans; references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and any person who acts in good faith and in a manner he reasonably believes to be in the best interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. 2. Agreement to Serve. The Indemnitee agrees to serve and/or continue to serve as an agent of the Company, at the will of the Company (or under separate agreement, if such agreement exists), in the capacity the Indemnitee currently serves as an agent of the Company, so long as he is duly appointed or elected and qualified in accordance with the applicable provisions of the By-Laws of the Company or any subsidiary of the Company or until such time as he tenders his resignation in writing; provided, however, that nothing contained in this Agreement is intended to create any right to continued employment by the Indemnitee in any capacity. 3. Indemnity in Third Party Proceeding. The Company shall indemnify the Indemnitee if the Indemnitee is a party to or threatened to be made a party to or otherwise involved in any proceeding (other than a proceeding by or in the right of the Company) by reason of the fact that the Indemnitee is or was an agent of the Company, including any proceeding based upon any act or inaction by the Indemnitee in his capacity as an agent of the Company, against any and all expenses, judgments, fines and penalties actually and reasonably incurred by him in connection with such proceeding, but only if the Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any proceeding by judgment, order of court, settlement, conviction or on plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that the Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal proceedings, that such person had reasonable cause to believe that his conduct was unlawful. 4. Indemnity in Derivative Actions; Indemnification as Witness. (a) The Company shall indemnify the Indemnitee if the Indemnitee is a party to or threatened to be made a party to or otherwise involved in any proceeding by or in the right of the Company to procure a judgment in its favor by reason of the fact that the Indemnitee is or was an agent of the Company, including any proceeding based upon any act or inaction by the Indemnitee in his capacity as an agent of the Company, against all expenses actually and reasonably incurred by the Indemnitee in connection with such proceeding, but only if the Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, except that no indemnification under this Section 4 shall be made in respect of any claim, issue or matter as to which the Indemnitee shall have been finally 3 4 adjudged to be liable to the Company by a court of competent jurisdiction for gross negligence or misconduct in the performance of his duty to the Company, unless and only to the extent that any court in which such proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as such court shall deem proper. (b) Notwithstanding any other provisions of this Agreement, to the extent the Indemnitee is, by reason of the fact that he is or was an agent of the Corporation, involved in any investigative proceeding, including but not limited to testifying as a witness or furnishing documents in response to a subpoena or otherwise, the Indemnitee shall be indemnified against any and all expenses actually and reasonably incurred by or for him in connection therewith. 5. Idemnification of Expenses of Successful Party. Notwithstanding any other provisions of this Agreement, to the extent that the Indemnitee has been successful on the merits or otherwise in defense of any proceeding or in defense of any claim, issue or matter therein, the Company shall indemnify the Indemnitee against all expenses actually and reasonably incurred in connection with such proceeding. 6. Partial Idemnification. If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any expenses, judgments, fines or penalties, actually and reasonably incurred by him in a proceeding but is not entitled, however, to indemnification for the total amount thereof, the Company shall nevertheless indemnify the Indemnitee for the portion thereof to which the Indemnitee is entitled. 7. Advancement of Expenses. Subject to Section 11(a) hereof, the Company shall advance all expenses incurred by the Indemnitee in connection with any proceeding to which the Indemnitee is a party or is threatened to be made a party by reason of the fact that the Indemnitee is or was an agent of the Company. The Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Company as authorized by this Agreement. The advances to be made hereunder shall be paid by the Company to or on behalf of the Indemnitee within thirty (30) days following delivery of a written request therefor by the Indemnitee to the Company. 8. Notice and Other Idemnification Procedures. (a) Promptly after receipt by the Indemnitee of notice of the commencement of or the threat of commencement of any proceeding, the Indemnitee shall, if the Indemnitee believes that indemnification with respect thereto may be sought from the Company under this Agreement, notify the Company of the commencement or threat of commencement thereof, provided the failure to provide such notification shall not diminish the Indemnitee's indemnification hereunder. (b) Any indemnification requested by the Indemnitee under Section 3, 4, 5 or 6 hereof shall be made no later than forty-five (45) days after receipt of the written request of the Indemnitee unless a determination is made within said forty-five (45) day period (i) by the 4 5 Board of Directors of the Company by a majority vote of a quorum thereof consisting of directors who are not parties to such proceeding, or (ii) in the event such a quorum is not obtainable, at the election of the Company, either by independent legal counsel in a written opinion or by a panel of arbitrators (selected in the manner set forth in Section 8(c) hereof) that the Indemnitee has not met the relevant standards for indemnification set forth in Section 3, 4, 5 or 6 hereof. (c) Except as set forth herein, the right of indemnification under this Agreement and any dispute arising hereunder, including but not limited to matters of validity, interpretation, application and enforcement, shall be determined exclusively by and through final and binding arbitration in Washington, D.C. each party hereto expressly and conclusively waiving his right to proceed to a judicial determination with respect to such matter. Such arbitration shall be conducted in accordance with the commercial arbitration rules then in effect of the American Arbitration Association before a panel of three arbitrators, one of whom shall be selected by the Company, the second of whom shall be selected by the Indemnitee and the third of whom shall be selected by the other two arbitrators. If for any reason arbitration under the arbitration rules of the American Arbitration Association cannot be initiated, the necessary arbitrator or arbitrators shall be selected by the presiding judge of the local court of general jurisdiction in Washington, D.C.. Each arbitrator selected as provided hereto is required to be serving or to have served as a director or an executive officer of a corporation whose shares of common stock, during at least one year of such service, were quoted in the Nasdaq National Market System or listed on the New York Stock Exchange. It is expressly understood and agreed by the parties that a party may compel arbitration pursuant to this Section 8(c) through an action for specific performance and that any award entered by the arbitrators may be enforced, without further evidence or proceedings, in any court of competent jurisdiction. (d) The provisions of Section 8(c) hereof shall not apply if, and to the extent that, they may be inconsistent with an undertaking given by the Company (including an undertaking given after the date of this Agreement) to the Securities and Exchange Commission to submit to a court of competent jurisdiction the question whether indemnification for liabilities under the Securities Act of 1933, as amended (the "Securities Act"), by the Company is against public policy as expressed in the Securities Act, and to be governed by the final adjudication of such issue. In such case, the determination by such court shall be deemed, for purposes of this Agreement, to be a determination pursuant to Section 8(c) hereof. (e) The Company shall reimburse the Indemnitee for the expenses incurred in prosecuting or defending such arbitration unless the arbitrator finds that each of the claims and/or defenses of the Indemnitee in any such proceeding was frivolous or in bad faith. 9. Assumption of Defense. In the event the Company shall be obligated to pay the expenses of any proceeding against the Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel reasonably acceptable to the Indemnitee, upon the delivery to the Indemnitee of written notice of its election to do so. After delivery of such notice, approval of such counsel by the Indemnitee and the retention of such counsel by the Company, the Company will not be liable to the Indemnitee under this Agreement 5 6 for any fees of counsel subsequently incurred by the Indemnitee with respect to the same proceeding, provided that (a) the Indemnitee shall have the right to employ his counsel in such proceeding at the Indemnitee's expense and (b) if (i) the employment of counsel by the Indemnitee has been previously authorized in writing by the Company, (ii) the Company shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of any such defense, or (iii) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, the fees and expenses of the Indemnitee's counsel shall be at the expense of the Company. 10. Insurance. The Company may, but is not obligated to, obtain directors' and officers' liability insurance ("D&O Insurance") as may be or become available in reasonable amounts from established and reputable insurers with respect to which the Indemnitee is named as an insured. Notwithstanding any other provision of the Agreement, the Company shall not be obligated to indemnify the Indemnitee for expenses, judgments, fines or penalties which have been paid directly to the Indemnitee by D&O Insurance. If the Company has D&O Insurance in effect at the time the Company receives from the Indemnitee any notice of the commencement of a proceeding, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the policy. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policy. 11. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: (a) Claims Initiated by the Indemnitee. To indemnify or advance expenses to the Indemnitee with respect to proceedings or claims initiated or brought voluntarily by the Indemnitee and not by way of defense, except to the extent set forth in Section 8(e) hereof; provided, however, that such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors finds it to be appropriate; or (b) Unauthorized Settlements. To indemnify the Indemnitee under this Agreement for any amounts paid in settlement of a proceeding effected without the Company's written consent; the Company shall not settle any proceeding without the Indemnitee's written consent; neither the Company nor the Indemnitee will unreasonably withhold consent to any proposed settlement; or (c) Certain Matters. To indemnify the Indemnitee on account of any proceeding with respect to (i) payments made to the Indemnitee if it is determined by final judgment or other final adjudication that such payments were in violation of law or (ii) which it is determined by final judgment or other final adjudication that the conduct of the Indemnitee constituted bad faith or active and deliberate dishonesty; or (d) Section 16. To indemnify the Indemnitee on account of any claim by or on behalf of the Company for recovery of profits resulting from the purchase and sale or 6 7 sale and purchase by the Indemnitee of equity securities of the Company pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended; or (e) Unlawful. To indemnify the Indemnitee to the extent such indemnification has been determined pursuant to Section 8(c) hereof to be unlawful. 12. Nonexclusivity. The provisions for indemnification and advancement of expenses set forth in this Agreement shall not be deemed exclusive of any other rights which the Indemnitee may have under any provision of law, the Company's Certificate of Incorporation or By-Laws, the vote of the Company's stockholders or disinterested directors, other agreements or otherwise, both as to action in his official capacity and to action in another capacity while occupying his position as an agent of the Company, and the Indemnitee's rights hereunder shall continue after the Indemnitee has ceased acting as an agent of the Company and shall inure to the benefit of the heirs, executors and administrators of the Indemnitee. 13. Suboragation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights. 14. Interpretation of Agreement. It is understood that the parties hereto intend this Agreement to be interpreted and enforced so as to provide indemnification to the Indemnitee to the fullest extent now or hereafter permitted by law. 15. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, (a) the validity, legality and enforceability of the remaining provisions of the Agreement (including without limitation all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby, and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable and to give effect to Section 14 hereof. 16. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 17. Successors and Assigns. The terms of this Agreement shall bind, and shall inure to the benefit of, the successors and assigns of the parties hereto. 7 8 18. Notice. All notices, claims, requests, demands and other communications hereunder shall be in writing and shall be duly given if: (a) personally delivered or sent via telecopy, (b) sent by certified mail, return receipt requested, or (c) sent by nationally recognized overnight courier service (for next business day delivery), shipping prepaid to the addresses shown on the signature page of this Agreement or such other address or addresses as the person to whom notice is to be given may have previously furnished to the other party in writing in the manner set forth above. Notices shall be deemed given at the time of personal delivery or completed telecopy, or, if sent by certified mail, three (3) business days after such sending, or, if sent by nationally recognized overnight courier service, one (1) business day after such sending. 19. Governing Law. This Agreement shall be governed exclusively by and construed according to the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely within Delaware, without giving effect to conflict of laws principles. If a court of competent jurisdiction shall make a final determination that the provisions of the law of any state other than Delaware govern indemnification by the Company of its directors and executive officers, then the indemnification provided under this Agreement shall in all instances be enforceable to the fullest extent permitted under such law, notwithstanding any provision of this Agreement to the contrary. The parties hereto have entered into this Indemnity Agreement effective as of the date first above written. UNITED THERAPEUTICS CORPORATION By _____________________________ 1110 Spring Street Silver Spring, Maryland 20910 INDEMNITEE: ________________________________ [Name] Address: _______________________ _______________________ _______________________ EX-21.1 27 SUBSIDIARIES OF THE REGISTRANT 1 Exhibit 21 Subsidiaries of the Registrant Unither Pharmaceuticals, Inc., a Delaware corporation Lung Rx, Inc., a Delaware corporation Unither Telemedicine Services, Inc., a Delaware corporation EX-23.1 28 CONSENT OF KPMG LLP 1 EXHIBIT 23.1 The Board of Directors United Therapeutics Corporation: We consent to the use of our report included herein and to the reference to our firm under the headings "Selected Financial Data" and "Experts" in the prospectus. KPMG LLP McLean, Virginia April 15, 1999 EX-27.1 29 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998 AND UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS YEAR DEC-31-1999 DEC-31-1998 JAN-01-1999 JAN-01-1998 MAR-31-1999 DEC-31-1998 15,429 6,779 0 10,023 108 54 0 0 0 0 15,537 16,856 1,544 1,418 74 50 17,765 18,747 1,984 1,758 313 314 107 101 0 0 0 0 15,361 16,578 17,765 18,747 54 54 54 54 0 0 12,459 13,382 171 0 0 0 7 15 (12,406) (12,832) 3 3 0 0 0 0 0 0 0 0 (12,238) (12,835) (1.19) (1.54) (1.19) (1.54)
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