UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934

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Peplin, Inc.

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September 30, 2009

 

Dear Stockholder (and holder of Peplin CDIs):

 

You are cordially invited to attend a special meeting of stockholders of Peplin, Inc. (“Peplin”) to be held on November 5, 2009, at 4:00 p.m., California, USA time (on November 6, 2009, at 10:00 a.m., Brisbane, Australia time), at the offices of Fenwick & West, 555 California Street, 12^th Floor, San Francisco, California 94104 with videoconferencing at the Marriott Hotel, 515 Queen Street, Brisbane, Queensland 4000, Australia.

 

At the special meeting, you will be asked to adopt an agreement and plan of merger, or merger agreement, that we entered into on September 2, 2009, providing for the merger of a wholly owned subsidiary of LEO Pharma A/S (“LEO”) with and into Peplin, with Peplin continuing as the surviving corporation and a wholly owned subsidiary of LEO. If the merger is completed, each share of Peplin common stock issued and outstanding immediately prior to the merger (other than shares held by LEO or any wholly owned subsidiary of LEO, Peplin or any wholly owned subsidiary of Peplin (or in Peplin’s treasury) and shares for which appraisal rights have been properly exercised under Delaware law), will be converted into the right to receive US$16.99 in cash, without interest, as more fully described in the accompanying proxy statement. If the merger is completed, each Peplin CHESS Depositary Interest, which we refer to as a Peplin CDI, and is exchangeable at the option of the holder of the Peplin CDI into shares of Peplin common stock at a ratio of one share of common stock for every 20 Peplin CDIs held by such holder, will be entitled to receive US$0.8495 in cash, without interest.

 

We cannot complete the merger unless the conditions to closing specified in the merger agreement, as more fully described in the accompanying proxy statement, are satisfied, including obtaining the adoption of the merger agreement by our stockholders.

 

At a meeting held on August 31, 2009, our board of directors unanimously determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement are advisable, fair to, and in the best interests of, Peplin and its stockholders, and has unanimously approved the merger agreement and the transactions contemplated by the merger agreement. The adoption of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Peplin common stock entitled to vote. Holders of Peplin CDIs have a right to direct CHESS Depositary Nominees Pty Limited, the stockholder of record and which we refer to as CDN, on how CDN should vote such holder’s shares and are being requested to give directions to CDN to vote in accordance with the instructions set forth in this proxy statement. Alternatively, a holder of Peplin CDIs may instruct CDN to appoint a nominated proxy to vote the shares underlying their CDls in person at the special meeting. The nominated proxy may be the holder of Peplin CDIs. Our board of directors unanimously recommends that Peplin stockholders and holders of Peplin CDIs vote “FOR” the proposal to adopt the merger agreement.

 

The attached notice of the special meeting and accompanying proxy statement explain the proposed merger and the terms of the merger agreement, and provide specific information concerning the special meeting. Please read the accompanying proxy statement (including the annexes) carefully to learn more about these and related matters.

 

Your participation and vote are important. Whether or not you plan to attend the special meeting, you should read the proxy statement (including the annexes) and follow the instructions on your proxy card to vote by Internet or mail to ensure that your shares will be represented at the special meeting. If your shares are held in an account at a brokerage firm, bank or other nominee, you should instruct your broker, bank or other nominee how to vote your shares using the separate voting instruction form furnished by your broker, bank or other nominee. The enclosed proxy card contains instructions regarding voting. If you hold Peplin CDIs, you should instruct CDN how to vote your shares, or to appoint a nominated proxy to vote your shares, using the enclosed CDI Voting Instruction Form. Please vote your shares before the meeting, even if you plan to attend.

 

Thank you for your support of Peplin, Inc.

 

Sincerely,

 

Thomas Wiggans

Chief Executive Officer

 

The accompanying proxy statement is dated September 30, 2009 and is first being mailed, along with the attached proxy card (or CDI Voting Instruction Form, if applicable), to Peplin stockholders and holders of Peplin CDIs on or about October 6, 2009.

 

This transaction has not been approved or disapproved by the Securities and Exchange Commission, nor has the Securities and Exchange Commission passed upon the fairness or merits of this transaction or the accuracy or adequacy of the information contained in the accompanying proxy statement. Any representation to the contrary is unlawful.

 

PEPLIN, INC.

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
November 5, 2009 (California time)
November 6, 2009 (Brisbane time)

 

 

To the Stockholders (and the holders of Peplin CDIs) of Peplin, Inc.:

 

A special meeting of stockholders of Peplin, Inc., a Delaware corporation (“Peplin”), will be held on November 5, 2009, at 4:00 p.m., California, USA time (on November 6, 2009, at 10:00 a.m., Brisbane, Australia time), at the offices of Fenwick & West, 555 California Street, 12^th Floor, San Francisco, California 94104 with videoconferencing at the Marriott Hotel, 515 Queen Street, Brisbane, Queensland 4000, Australia, to consider and vote upon a proposal to adopt the Agreement and Plan of Merger dated as of September 2, 2009, by and among LEO Pharma A/S, Plant Acquisition Sub, Inc., and Peplin, Inc.

 

The Peplin board of directors has unanimously determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement are advisable, fair to, and in the best interests of, Peplin and its stockholders, and has unanimously approved the merger agreement and the transactions contemplated by the merger agreement. The Peplin board of directors unanimously recommends that Peplin stockholders and holders of Peplin CDIs vote “FOR” the proposal to adopt the merger agreement.

 

The proposal to adopt the merger agreement is more fully described in the proxy statement accompanying this notice. The Peplin board of directors has fixed 5:00 p.m. on September 25, 2009 California time (on September 26, 2009, at 10:00 a.m., Brisbane time) as the record date for the meeting. On the record date, there were 15,371,121 shares of Peplin common stock outstanding and entitled to vote. Only stockholders of record on the record date are entitled to notice of, and to vote at, the meeting or any adjournment, postponement or continuation thereof.

 

Holders of Peplin common stock in “street name” are entitled to receive notice of, and may attend the Peplin special meeting, but cannot vote their shares of Peplin common stock at the special meeting. Each holder of Peplin common stock in “street name” has the right to direct the broker, bank, or nominee of record on how it should vote on the proposal to adopt the merger agreement.

 

Holders of Peplin CHESS Depositary Interests, which we refer to as Peplin CDIs, are entitled to receive notice of, and may attend the special meeting, but cannot personally vote the shares underlying their Peplin CDIs at the special meeting unless they instruct CHESS Depositary Nominees Pty Limited, the stockholder of record and which we refer to as CDN, to appoint them as proxy for the purposes of voting at the special meeting. Otherwise, each holder of Peplin CDIs has the right to direct CDN or a nominated proxy on how it should vote on the proposal.

 

Please carefully read the proxy statement (including the annexes) with this notice for a more complete statement regarding the matters to be acted upon at the special meeting. This notice also constitutes notice of appraisal rights under Delaware law in connection with the merger, as described in the proxy statement and Annex C to the proxy statement.

 

You are cordially invited to attend the special meeting. To ensure that your shares are represented and voted, however, you should complete, sign, date and return the enclosed proxy card in the enclosed postage-prepaid envelope as promptly as possible. If you hold Peplin common stock in “street name” you should complete, sign, date and return the enclosed voting instruction form to your broker, bank or nominee as promptly as possible. If you hold Peplin CDIs, you should complete the enclosed CDI Voting Instruction Form and return by mail or fax to Peplin’s Australian share registry, Computershare Investor Services Pty Limited, as promptly as possible. You may also vote electronically by the Internet per the Instructions contained in section “The Special Meeting — Voting of Proxies” of the attached proxy statement. Your shares will be voted in accordance with the instructions you provide.

 

By Order of the Board of Directors

 

David J.B. Smith
Chief Financial Officer and Secretary

 

Emeryville, California

September 30, 2009

 

 

 

PEPLIN, INC.

 

 

PROXY STATEMENT

FOR

SPECIAL MEETING OF STOCKHOLDERS

To Be Held on November 5, 2009 (California time)/November 6, 2009 (Brisbane time)

 

 

TABLE OF CONTENTS

 

 

The following questions and answers, or Q&A, are intended to address some commonly asked questions regarding the merger. This Q&A may not address all questions that may be important to you as a Peplin stockholder or as a holder of Peplin CHESS Depositary Interests (which we refer to as a Peplin CDI or Peplin CDIs), Peplin options granted under the Peplin, Inc. 2007 Incentive Plan (the “2007 Plan”) or Peplin warrants (including Peplin warrants represented by Peplin CDIs and sometimes referred to as “quoted options” in Australia). We urge you to read carefully the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement, and the materials we refer to in this proxy statement.

 

Except as otherwise specifically noted in this proxy statement, “Peplin,” “we,” “our,” “us” and similar words in this proxy statement refer to Peplin, Inc. In addition, we refer to LEO Pharma A/S as “LEO.”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Peplin, Inc.
6475 Christie Ave., Suite 300
Emeryville, California 94608
Attn: Investor Relations
Telephone: +1-510-653-9700
Facsimile: +1-510-653-9704

 

or

 

Peplin, Inc.

PO Box 3325
Newstead LPO
QLD, 4006, Australia
Attn: Secretary
Telephone: +61-7-3250-1200
Facsimile: +61-7-3250-1299

 

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the merger, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosures in this proxy statement. Any representation to the contrary is a criminal offense.

 

This summary highlights selected information from this proxy statement and may not contain all of the information that is important to you. To understand the merger fully and for a more complete description of the legal terms of the merger agreement, you should read carefully this entire proxy statement, the annexes to this proxy statement and the documents we refer to in this proxy statement. See “Where You Can Find More Information” on page 69. The merger agreement is attached as Annex A to this proxy statement. We encourage you to read the merger agreement, the legal document that governs the merger, in its entirety.

 

Peplin, Inc.

6475 Christie Ave., Suite 300

Emeryville, California 94608

Telephone: +1-510-653-9700

Facsimile: +1-510-653-9704

 

and

 

PO Box 3325

Newstead LPO

QLD, 4006, Australia

Telephone: +61-7-3250-1200

Facsimile: +61-7-3250-1299

 

Peplin, Inc., a Delaware corporation (herein, “Peplin”), is a development stage specialty pharmaceutical company focused on advancing and commercializing innovative medical dermatology products. Peplin is currently developing ingenol mebutate, or PEP005, which is a novel compound derived from the sap of Euphorbia peplus, or E. peplus, a rapidly growing, readily available plant commonly referred to as petty spurge or radium weed. E. peplus has a long history of traditional use for a variety of conditions, including the topical self treatment of various skin disorders, including skin cancer and pre-cancerous skin lesions. Peplin CHESS Depositary Interests (herein, “Peplin CDIs”) trade on the Australian Securities Exchange, or ASX, under the symbols “PLI” and “PLIO.”

 

LEO Pharma A/S

Industriparken 55

DK — 2750 Bellerup

Telephone: +45-4494-5888

Facsimile: +45-7226-3295

 

LEO Pharma A/S (herein, “LEO”) is an independent, research-based pharmaceutical company based in Bellerup, Denmark, near Copenhagen. LEO is wholly owned by the LEO Foundation and is one of the world’s leading companies focused on dermatology (skin diseases) and critical care, including the parenteral treatment of thromboembolisms (thrombosis).

 

Plant Acquisition Sub, Inc.

Industriparken 55

DK — 2750 Bellerup

Telephone: +45-4494-5888

Facsimile: +45-7226-3295

 

Plant Acquisition Sub, Inc., a Delaware corporation and a wholly owned subsidiary of LEO (herein, “Merger Sub”), was formed solely for the purpose of completing the merger and has not conducted any business operations to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the merger agreement.

 

If the merger is completed, you will receive US$16.99 in cash, without interest (the “per share merger consideration”), in exchange for each share of Peplin common stock that you own and for which you have not properly exercised appraisal rights. If you hold Peplin CDIs, you will receive US$0.8495 in cash, without interest, in exchange for each Peplin CDI that you own.

 

The per share merger consideration of US$16.99 is set forth in the merger agreement and denominated in United States dollars. Payment to the holders of Peplin CDIs will be made in Australian dollars at the exchange rate of the United States dollar to the Australian dollar as of the date of payment. Fluctuations in the exchange rate of the United States dollar to the Australian dollar through the date of payment will affect the amount of Australian dollars into which Peplin CDIs are converted upon the effectiveness of the merger.

 

In the event that during the period commencing on September 2, 2009 and ending at the completion of the merger, there are stock splits or similar transactions with respect to the Peplin common stock, then the per share merger consideration will be adjusted to the extent appropriate to provide the same economic effect as contemplated by the merger agreement prior to such action.

 

Also, in the event that Peplin has breached its representations and warranties regarding the outstanding shares of Peplin common stock and outstanding options, warrants and other securities, then LEO at its election may adjust the per share merger consideration to be instead an amount determined by dividing US$287.5 million by the actual numbers of shares and such securities outstanding, giving effect to the exercise prices of Peplin options and warrants.

 

After the merger is completed, you will have the right to receive the merger consideration, but you will no longer have any rights as a Peplin stockholder as a result of the merger. Peplin stockholders will receive the merger consideration after exchanging their Peplin stock certificates in accordance with the instructions contained in the letter of transmittal to be sent to the Peplin stockholders shortly after completion of the merger. Holders of Peplin CDIs do not need to exchange their holding statements in order to receive the merger consideration. Computershare will arrange for the merger consideration to be sent to holders of Peplin CDIs on behalf of CHESS Depositary Nominees Pty Limited, the stockholder of record and which we refer to as CDN, after the merger is completed. Payment to the holders of Peplin CDIs will be made in Australian dollars at the exchange rate of the United States dollar to the Australian dollar as of the date of payment and fluctuations in the exchange rate of the United States dollar to the Australian dollar through the date of payment will affect the amount of Australian dollars into which Peplin CDIs are converted.

 

At the completion of the merger, all stock options granted under the Peplin, Inc. 2007 Incentive Award Plan (the “2007 Plan”) that are not exercised prior to the completion of the merger (whether or not then vested), and that have a per share exercise price less than the per share merger consideration (an “In-the-Money Option”) will automatically be cancelled and converted into the right to receive an amount in cash equal to the difference between (a) the number of shares underlying the In-the-Money Option multiplied by the per share merger consideration, and (b) the aggregate exercise price of the In-the-Money Option, subject to any applicable withholding tax. The merger agreement provides that each In-the-Money Option, to the extent not vested, will accelerate and become fully vested and exercisable as of immediately prior to the completion of the merger.

 

All options granted under the 2007 Plan that are not exercised prior to the completion of the merger (whether or not then vested), and that are not In-the-Money Options will automatically be cancelled at the completion of the merger and will not be entitled to any consideration.

 

At the completion of the merger, all warrants (including certain Peplin warrants that are quoted on ASX under the code “PLIO” and are represented by CDIs, which are sometimes referred to as “quoted options” in Australia) that are not exercised prior to the completion of the merger (whether or not then vested), and that have a per share purchase price less than the per share merger consideration (an “In-the-Money Warrant”) will automatically be

cancelled and converted into the right to receive an amount in cash equal to the difference between (a) the number of shares underlying the In-the-Money Warrant multiplied by the per share merger consideration, and (b) the aggregate purchase price of the In-the-Money Warrant. The merger agreement provides that each In-the-Money Warrant, to the extent not vested, will accelerate and become fully vested and exercisable as of immediately prior to the completion of the merger.

 

All warrants that are not exercised prior to the completion of the merger (whether or not then vested), and that are not In-the-Money Warrants will automatically be cancelled at the completion of the merger and will not be entitled to any consideration.

 

The exchange of shares of Peplin common stock for the per share cash merger consideration will be a taxable transaction to our stockholders for U.S. federal income tax purposes.

 

Tax matters can be complicated, and the tax consequences of the merger to you will depend on the facts of your own situation. We recommend that you consult your own tax advisor to fully understand the tax consequences of the merger to you.

 

The exchange of shares of Peplin common stock for the per share cash merger consideration will be a taxable transaction to our stockholders for Australian income tax purposes.

 

Tax matters can be complicated, and the tax consequences of the merger to you will depend on the facts of your own situation. We recommend that you consult your own tax advisor to fully understand the tax consequences of the merger to you.

 

After careful consideration, the Peplin board of directors (the “Peplin Board”) unanimously determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement are advisable, fair to, and in the best interests of, Peplin and its stockholders. Accordingly, the Peplin Board unanimously recommends that you vote “FOR” the proposal to adopt the merger agreement.

 

On August 31, 2009, each of Goldman, Sachs & Co., or Goldman Sachs, and Leerink Swann LLC, or Leerink Swann, delivered to the Peplin Board its oral opinion, subsequently confirmed by delivery of a written opinion, that as of the date of its respective opinion and based upon and subject to the factors, assumptions, qualifications and limitations set forth therein, the US$16.99 per share in cash to be paid to the holders (other than LEO, Merger Sub and any other wholly owned subsidiary of LEO) of the outstanding shares of Peplin common stock pursuant to the merger agreement was fair from a financial point of view to such holders.

 

The full text of the written opinions of Goldman Sachs, dated September 2, 2009, and Leerink Swann, dated August 31, 2009, which set forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinions, are attached to this proxy statement as Annex B-1 and Annex B-2, respectively. Holders of Peplin common stock and Peplin CDIs are urged to read the opinions in their entirety. The summary of the written opinions of Goldman Sachs and Leerink Swann set forth herein are qualified in their entirety by reference to the full text of such opinions. Goldman Sachs’ and Leerink Swann’s analyses and opinions were addressed to, and provided for the information and assistance of, the Peplin Board in connection with its evaluation of the consideration to be received by holders of Peplin common stock (other than LEO, Merger Sub and any other wholly owned subsidiary of LEO) in the merger. The Goldman Sachs opinion and the Leerink Swann opinion are not a recommendation as to how any holder of Peplin common stock should vote with respect to the merger or any other matter. The consideration to be received in the merger was determined through negotiations between LEO and Peplin and not pursuant to recommendations of Goldman Sachs or Leerink Swann.

 

When considering the recommendation of the Peplin Board in favor of the adoption of the merger agreement, you should be aware that the members of the Peplin Board and Peplin’s executive officers have interests in the merger in addition to their interests as Peplin stockholders generally. These interests may be different from, or in addition to, the interests of Peplin stockholders generally. These interests include the payment of benefits upon the completion of the merger pursuant to arrangements existing prior to the start of Peplin’s strategic process described in “The Merger — Background of the Merger” beginning on page 14, the payment of severance upon the completion of the merger and termination of employment pursuant to arrangements existing prior to the start of Peplin’s strategic process, interests associated with the closing condition that certain executive officers enter into new offer letters with LEO prior to closing and the maintenance of indemnification rights and insurance coverage.

 

The members of the Peplin Board were aware of these additional interests, and considered them, when they approved the merger agreement, the merger and the other transactions contemplated by the merger agreement.

 

As more fully described in this proxy statement and in the merger agreement, the completion of the merger depends on a number of conditions being satisfied or, where legally permissible, waived. These conditions include, among others, approval of the merger proposal by Peplin stockholders, the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (referred to as the “HSR Act”), no material adverse effect with respect to Peplin having occurred since September 2, 2009 and certain employees of Peplin having executed an offer letter agreeing to remain employed by Peplin or become employed by LEO following the completion of the merger, provided that they have been offered a base salary and target cash incentive compensation immediately following the completion of the merger that is not less than the base salary and target cash incentive compensation as of the date of the merger agreement, and such employees not having terminated or rescinded such offer letters prior to the completion of the merger.

 

We have agreed that we will not solicit, initiate or knowingly encourage, induce or facilitate the making, submission or announcement of any inquiry or proposal for an alternative acquisition transaction with a party other than LEO or take certain other actions regarding any acquisition inquiry or acquisition proposal. In response to certain unsolicited acquisition proposals, we may provide information regarding Peplin to, and enter into negotiations regarding an acquisition of Peplin with, the party making such proposal, subject to a number of limitations.

 

At any time prior to the adoption of the merger agreement by the Peplin stockholders, the recommendation of the Peplin Board that the Peplin stockholders adopt the merger agreement may be withdrawn or modified in a manner adverse to LEO if either (i) a superior offer is made and is not withdrawn, LEO does not match the terms of such offer, and the Peplin Board determines in good faith, after consultation with its outside legal counsel and its financial advisor, or (ii) after the date of the merger agreement there is a material development or material change in circumstances that relates to Peplin or its subsidiaries but does not relate to any acquisition proposal or inquiry, and in the case of both (i) and (ii) that the failure to take such action would be reasonably likely to constitute a breach of its fiduciary duties to the Peplin stockholders under applicable law and certain other requirements specified in the merger agreement are met.

 

Either Peplin or LEO may terminate the merger agreement under certain circumstances, which if it occurred, would prevent the merger from being completed.

 

All fees and expenses incurred in connection with the merger agreement will be paid by the party incurring such expenses. However, under certain circumstances in connection with the termination of the merger agreement, up to US$2 million of LEO’s expenses may be payable by Peplin. A termination fee of US$10 million, less any expense reimbursements previously paid, may be payable by Peplin to LEO upon or following the termination of the merger agreement under certain circumstances.

 

To complete the merger, we must obtain or make all material federal and state approvals, consents and filings. Other than the expiration or termination of the waiting period applicable to the completion of the merger under the HSR Act, the receipt by LEO of a notice of no objection to LEO acquiring the shares of Peplin common stock in the merger under the Australian Foreign Acquisitions and Takeovers Act 1975 (Cth) and certain customary ASX approvals, we are not currently aware of any material federal or state approvals, consents or filings that are required to be obtained or made for the completion of the merger. If any such approvals, consents or filings are required to complete the merger, we will seek or make such consents, approvals and filings.

 

Under Delaware law, stockholders of Peplin (a Delaware corporation) are entitled to exercise appraisal rights in connection with the merger, subject to certain restrictions.

 

If you do not vote in favor of adoption of the merger agreement, you will have the right to seek a judicial appraisal of the “fair value” of your shares in connection with the approved merger. This value could be more than, less than, or the same as the per share merger consideration payable pursuant to the merger agreement, and would be paid to the stockholder by the surviving corporation at the direction of the Court of Chancery of the State of Delaware.

 

In order to preserve your appraisal rights, you must take all of the steps required under Delaware law within the given time periods. Failure to follow exactly the procedures specified under Delaware law may result in the loss of your appraisal rights. The provisions of Delaware law regarding appraisal rights are reproduced and attached as Annex C to this proxy statement. We encourage you to read these provisions carefully and in their entirety.

 

You must have been a holder of Peplin common stock on the record date for the Peplin special meeting in order to have appraisal rights in connection with the merger. Holders of Peplin CDIs are not entitled to exercise appraisal rights in connection with the merger and therefore must have converted their Peplin CDIs into shares of Peplin common stock prior to the record date for the Peplin special meeting in order to have appraisal rights in connection with the merger.

 

ANY PEPLIN STOCKHOLDER WHO WISHES TO EXERCISE APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE HIS OR HER RIGHT TO DO SO SHOULD REVIEW ANNEX C CAREFULLY AND SHOULD CONSULT HIS OR HER LEGAL ADVISOR, SINCE FAILURE TO COMPLY IN A TIMELY MANNER WITH THE PROCEDURES SET FORTH IN ANNEX C WILL RESULT IN THE LOSS OF SUCH RIGHTS.

 

As a condition and inducement to LEO entering into the merger agreement, certain of our directors, executive officers and their affiliates, in their capacities as Peplin stockholders, optionholders and warrantholders (each a “Signatory” and together, “Signatories”), entered into voting agreements with LEO, pursuant to which each such Signatory agreed, among other things, to vote or cause to be voted all outstanding shares of Peplin common stock beneficially owned by such Signatories in favor of adoption of the merger agreement and against any competing acquisition proposals. The parties that have entered into voting agreements beneficially owned and exercised voting control over an aggregate of 5,125,675 shares of Peplin common stock outstanding as of 5:00 p.m., California time on September 25, 2009 (at 10:00 a.m., Brisbane time on September 26, 2009) (such date, the “record date”), which constitutes approximately 33.35% of the shares of Peplin common stock outstanding on that date.

 

As a condition and inducement to LEO entering into the merger agreement, three of our executive officers entered into noncompetition agreements with LEO, dated as of September 2, 2009, pursuant to which each such officer agreed not to engage in certain actions that would be considered competitive to Peplin or its business or solicit or take certain actions with respect to certain employees or business contacts of LEO, Peplin or any affiliate of LEO for a period of two or three years (depending on the executive officer) from the completion of the merger. LEO did not pay the executive officers any consideration for their execution and delivery of the noncompetition agreements other than the consideration they may receive pursuant to the merger agreement in respect of their equity securities in Peplin and any agreements to which such executive officers are otherwise entitled in connection with the merger.

 

As a condition and inducement to Peplin entering into the merger agreement, Peplin and LEO entered into a loan agreement, dated as of September 2, 2009, pursuant to which LEO agreed to provide loans to Peplin of up to an aggregate principal amount of US$24 million between September 2, 2009 and the earlier of the completion of the merger or the termination of the merger agreement. Peplin may request no more than one advance in any 15-day period, and each advance cannot exceed the lesser of (a) US$2 million and (b) the amount of Peplin’s budgeted cash expenditures and transaction expenses for the month (less any amounts previously borrowed under the loan agreement for such month), but in no event shall the aggregate principal amount of all outstanding advances exceed the aggregate amount available under the loan agreement. The principal of, and accrued interest on, the advances must be repaid on that date which is the earlier to occur of: (i) April 1, 2011; (ii) the date that is seven days after the effective date of the merger; (iii) the date that is seven days after the completion of an acquisition by Peplin by a third party other than LEO; and (iv) the date that is six months after the termination of the GE loan agreement.

 

This proxy statement and the documents incorporated by reference herein contain “forward-looking statements,” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are based on our current expectations, assumptions, beliefs, estimates and projections about our company, LEO, the combined company and our industry. The forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “project,” “should” and similar expressions, but the absence of this terminology does not necessarily mean that a statement is not forward-looking. The forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Risks and uncertainties, over which we may have little or no control, that may affect those forward-looking statements include, among other things:

 

 

We caution you that reliance on any forward-looking statement involves risks and uncertainties, and that although we believe that the assumptions on which our forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and, as a result, the forward-looking statements based on those assumptions could be incorrect. In light of these and other uncertainties, you should not conclude that we will necessarily achieve any plans and objectives or projected financial results referred to in or implied by any of the forward-looking statements. We do not undertake to release any revisions of these forward-looking statements to reflect future events or circumstances.

 

The enclosed proxy is solicited on behalf of the Peplin Board for use at the special meeting of stockholders or at any adjournment, postponement or continuation thereof.

 

We will hold the special meeting on November 5, 2009, at 4:00 p.m., California time (on November 6, 2009, at 10:00 a.m., Brisbane time), at the offices of Fenwick & West, 555 California Street, 12th Floor, San Francisco, California 94104 with videoconferencing at the Marriott Hotel, 515 Queen Street, Brisbane, Queensland 4000, Australia.

 

At the special meeting, we will ask holders of shares of Peplin common stock to consider and vote upon the proposal to adopt the merger agreement and to transact such other business as may properly come before the special meeting and any adjournment, postponement or continuation thereof.

 

Only holders of record of Peplin common stock at as of the record date are entitled to notice of, and to vote at, the special meeting. As of the record date, 15,371,121 shares of Peplin common stock were issued and outstanding and held by approximately 100 holders of record. Holders of record of shares of Peplin common stock on the record date are entitled to one vote per share at the special meeting on all matters to be considered at the special meeting.

 

Holders of Peplin common stock in “street name” are entitled to notice of, and to direct their broker, bank or nominee to vote their shares at the special meeting and any adjournment or postponement thereof, by following the procedures set forth under the heading “The Special Meeting — Voting of Proxies” beginning on page 9.

 

Holders of Peplin CDIs at the record date are entitled to notice of, and to direct CDN, to vote the underlying shares of Peplin common stock on their behalf in connection with the Peplin special meeting and any adjournment or postponement thereof by following the procedures set forth under the heading “The Special Meeting — Voting of Proxies” beginning on page 9. Holders of Peplin CDIs cannot vote their CDIs in person at the special meeting unless: (i) such Peplin CDI holders have completed the conversion of their Peplin CDIs into shares of Peplin common stock prior to the record date for the Peplin special meeting set forth above, or (ii) such Peplin CDI holders instruct CDN to appoint themselves as proxy for the purposes of voting at the special meeting. In respect of the voting instructions it receives, CDN, on behalf of the holders of Peplin CDIs, will vote the underlying shares of Peplin common stock represented by the Peplin CDIs on an aggregate basis by (i) determining the total number of Peplin CDIs “FOR” the proposal to adopt the merger agreement, (ii) determining the total number of Peplin CDIs “AGAINST” the proposal to adopt the merger agreement, (iii) determining the total number of Peplin CDIs abstaining from voting on the proposal to adopt the merger agreement, (iv) applying the ratio of one (1) share of Peplin common stock for every twenty (20) Peplin CDIs and (v) submitting the resultant number of shares of Peplin common stock “FOR” or “AGAINST” the proposal to adopt the merger agreement and the number of shares abstaining from voting on the proposal to adopt the merger agreement, as appropriate.

 

A quorum of stockholders is necessary to hold a valid special meeting. A quorum is present at the special meeting if holders of a majority of shares of Peplin common stock entitled to vote on the record date, including shares represented by Peplin CDIs, are present in person or represented by proxy. In the event that a quorum is not present at the special meeting, it is expected that the meeting will be adjourned or postponed to solicit additional proxies. Pursuant to the terms of the merger agreement, if Peplin has not received proxies representing sufficient shares to adopt the merger agreement, the chair of the meeting shall adjourn the special meeting for purposes of soliciting additional proxies. For purposes of determining the presence or absence of a quorum, votes withheld, abstentions and “broker non-votes” (where a broker or nominee, other than CDN, cannot exercise discretionary authority and does not receive voting instructions from the beneficial owners to vote on a matter) will be counted as present, but will not be considered to have been voted in favor of any of the matters to be considered at the special meeting.

 

The adoption of the merger agreement requires the affirmative vote of a majority of the shares of Peplin common stock outstanding on the record date. Adoption of the merger agreement is a condition to the completion of the merger.

 

Shares with respect to which stockholders abstain from voting on a particular matter, shares held in “street name” by brokers or nominees who indicate on their voting instruction form that they do not have discretionary authority to vote such shares and have not received voting instructions from the beneficial owners with respect to such matter, will not be counted as votes in favor of such matter, but will be counted to determine whether a quorum is present at the special meeting and will be counted as voting power present at the special meeting.

 

Holders of Peplin CDIs who instruct CDN to abstain from voting on their behalf will have their underlying shares of Peplin common stock counted toward a quorum at the special meeting. However, holders of Peplin CDIs who fail to provide instructions to CDN will not have their underlying shares of Peplin common stock counted towards a quorum at the special meeting.

 

Abstentions, broker non-votes and the failure to provide voting instructions to CDN, will have the effect of a vote “AGAINST” the proposal to adopt the merger agreement because approval of this proposal requires the affirmative vote of a majority of all shares of Peplin common stock outstanding on the record date.

 

As of the record date, our directors and executive officers and certain stockholders affiliated with directors that entered into voting agreements with LEO as described elsewhere in this proxy statement beneficially owned and were entitled to vote 5,125,675 shares of Peplin common stock, which represented approximately 33.35% of the shares of Peplin common stock outstanding on that date. All of our directors and executive officers and certain such affiliated stockholders, who together beneficially owned and were entitled to vote 5,125,675 shares of Peplin common stock outstanding on the record date, have entered into such voting agreements, under which, among other things, they have agreed to vote those shares in favor of adoption of the merger agreement and against any competing acquisition proposal.

 

If your shares are registered in your name, you may vote by:

 

 

 

If you plan to attend the special meeting and wish to vote in person, you will be given a ballot at the meeting. If your shares are registered in your name, you are encouraged to vote by proxy even if you plan to attend the special meeting in person.

 

Voting instructions are included on your proxy card. All shares represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in accordance with the instructions of the stockholder. Properly executed proxies that do not contain voting instructions will be voted “FOR” the proposal to adopt the merger agreement. In addition, while the Peplin Board does not know of any matter that is not described in this proxy statement to be presented for action at the special meeting, the persons named as proxies by a stockholder are authorized to vote on such other business as may properly come before the special meeting.

Holders of Peplin CDIs may give directions to vote the underlying shares of Peplin common stock by submitting instructions to CDN to:

 

 

Holders of Peplin CDIs may submit voting instructions:

 

 

To submit voting instructions by mail or fax, holders of Peplin CDIs may send the CDI Voting Instruction Form to Computershare Investor Services Pty Limited (“Computershare”), in accordance with the instructions on the CDI Voting Instruction Form. Instructions on how to fill out the CDI Voting Instruction Form are set out on the form. To submit voting instructions via the Internet, holders of Peplin CDIs will need their Holder Identification Number or Security Holder Reference Number, which is shown on the enclosed CDI Voting Instruction Form. Holders of Peplin CDIs will be taken to have signed the CDI Voting Instruction Form if instructions are submitted in accordance with the directions on the website www.investorvote.com.au. The latest time for receipt of CDI Voting Instruction Forms (and any necessary supporting documents) via mail or fax, and voting instructions via the Internet is on November 3, 2009, at 4:00 p.m., California time (on November 4, 2009, at 10:00 a.m., Brisbane time).

 

Holders of Peplin common stock in “street name” may vote their shares by submitting instructions to their broker, bank or nominee to vote the shares on their behalf at the special meeting. Holders of Peplin common stock in “street name” may submit their instructions by returning the enclosed voting instruction form to their broker, bank or nominee. The latest time for receipt of such voting instruction forms via mail or internet is indicated on the voting instruction form but in any event must be no later than on November 3, 2009, at 4:00 p.m., California time (on November 4, 2009, at 10:00 a.m., Brisbane time).

 

For purposes of voting to adopt the merger agreement, brokers or banks who hold shares of Peplin common stock in “street name” and CDN may not give a proxy to vote those shares in the absence of specific instructions from their customers who beneficially own those shares. As a result, you should carefully follow the instructions given to you on the CDI Voting Instruction Form or by your broker or other nominee to assure that your shares are properly voted.

 

If no instructions are given to the broker or bank holding shares, or if instructions are given to the broker or bank indicating that the broker or bank does not have authority to vote on the proposal to adopt the merger agreement, then the shares will be counted as present for purposes of determining whether a quorum exists, but will have the same effect as votes “AGAINST” the adoption of the merger agreement.

 

Abstentions, broker non-votes and the failure to provide voting instructions to CDN, will have the effect of a vote “AGAINST” the proposal to adopt the merger agreement because approval of this proposal requires the affirmative vote of a majority of all shares of Peplin common stock outstanding on the record date.

 

Please note that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the special meeting, you must bring to the meeting a letter from the broker, bank or other nominee confirming your beneficial ownership of the shares and that the broker, bank or other nominee is not voting the shares at the special meeting. If your shares are held of record by CDN and you wish to vote at the special meeting, you must direct CDN on your CDI Voting Instruction Form to appoint you as proxy for the purposes of voting your shares at the special meeting.

 

Any proxy you give pursuant to this solicitation may be revoked by you at any time before it is voted. Proxies of stockholders of record may be revoked by one of three ways:

 

 

 

 

Any written notice of revocation or subsequent proxy should be delivered to our principal executive offices located at 6475 Christie Ave., Suite 300, Emeryville, California 94608, Attention: Secretary, or hand-delivered to our Secretary at or before the taking of the vote at the special meeting.

 

If you have instructed a broker or bank to vote your shares, you must follow directions received from your broker or bank to change those instructions.

 

Holders of Peplin CDIs who have completed and returned a CDI Voting Instruction Form (in the manner described in the section entitled “The Special Meeting — Voting of Proxies” beginning on page 9) may revoke or change their directions to CDN relating to such Peplin CDIs at any time prior to 4:00 p.m. California time on November 3, 2009 (10:00 a.m., Brisbane time on November 4, 2009) by providing written notice of revocation or change to Computershare bearing a later date than the CDI Voting Instruction Form previously sent. Any written revocation or change should be delivered to Computershare Investor Services Pty Limited, Level 19, 307 Queen Street, Brisbane, Queensland 4000, Australia or mailed to Computershare Investor Services Pty Limited, GPO Box 242, Melbourne, Victoria 3001, Australia or faxed to +1800-783-447 (within Australia) or +61-3-9473-4000 (outside Australia) before the submission of an additional CDI Voting Instruction Form. Any additional CDI Voting Instruction Forms must be submitted via mail, fax or the Internet by 4:00 p.m., California time on November 3, 2009 (10:00 a.m., Brisbane time on November 4, 2009).

 

The expense of soliciting proxies in the enclosed form will be borne by Peplin. We may reimburse brokers, banks and other custodians, nominees and fiduciaries representing beneficial owners of shares for their expenses in forwarding soliciting materials to such beneficial owners. Proxies may also be solicited by certain of our directors, officers and employees, personally or by telephone, facsimile or other means of communication. No additional compensation will be paid for such services.

 

Peplin stockholders should not send stock certificates with their proxies. A transmittal form with instructions for the surrender of Peplin common stock certificates will be mailed to Peplin stockholders shortly after completion of the merger. Similarly, holders of Peplin CDIs should not send their holding statement(s) with their CDI Voting Instruction Form. Computershare will arrange for the merger consideration to be sent to holders of Peplin CDIs on behalf of CDN.

 

Some banks, brokers and other nominee record holders may be participating in the practice of “householding” proxy statements and special reports. This means that only one copy of this proxy statement may have been sent to multiple stockholders in each household. We will promptly deliver a separate copy of either document to any stockholder upon written or oral request to Secretary, Peplin, Inc., 6475 Christie Ave., Suite 300, Emeryville, California 94608, +1-510-653-9700. If multiple stockholders sharing the same household who receive multiple

copies of this proxy statement would like to receive a single copy instead, they should contact their banks, brokers or other nominee record holders for appropriate instructions.

 

A list of our stockholders entitled to vote at the special meeting will be available for examination by any Peplin stockholder for any purpose germane to the meeting. For ten days prior to the special meeting, this stockholder list will be available for examination during ordinary business hours at our principal executive offices located at 6475 Christie Ave., Suite 300, Emeryville, California 94608. This stockholder list will also be available for inspection at the special meeting by any stockholder who is present in person at the meeting.

 

As of the date of this proxy statement, the Peplin Board does not know of any matter that will be presented for consideration at the special meeting, other than as described in this proxy statement.

 

After careful consideration, the Peplin Board has unanimously determined and believes that the merger agreement, the merger and the other transactions contemplated by the merger agreement are advisable and fair to, and in the best interests of, Peplin and its stockholders. The Peplin Board unanimously recommends that Peplin stockholders (including holders of Peplin CDIs) vote “FOR” the proposal to adopt the merger agreement.

 

Peplin, Inc., a Delaware corporation, is a development stage specialty pharmaceutical company focused on advancing and commercializing innovative medical dermatology products. Peplin is currently developing ingenol mebutate, or PEP005, which is a novel compound derived from the sap of Euphorbia peplus, or E. peplus, a rapidly growing, readily available plant commonly referred to as petty spurge or radium weed. E. peplus has a long history of traditional use for a variety of conditions, including the topical self treatment of various skin disorders, including skin cancer and pre-cancerous skin lesions. Peplin’s lead product candidate is a patient-applied topical gel containing ingenol mebutate, a compound the use of which Peplin has patented for the treatment of actinic (solar) keratosis, or AK. This product candidate referred to as PEP005 (ingenol mebutate) Gel is currently in Phase 3 clinical trials, having completed their first Phase 3, known as REGION-I. Peplin CDIs representing shares of Peplin common stock trade on the ASX under the symbol “PLI.” In addition, Peplin has warrants represented by CDIs that trade on the ASX under the symbol “PLIO.”

 

Our principal executive offices are located at 6475 Christie Ave., Suite 300, Emeryville, California 94608. Our telephone number is +1-510-653-9700. Additional information regarding Peplin is contained in our filings with the SEC. See “Where You Can Find More Information” on page 69.

 

LEO Pharma A/S is an independent, research-based pharmaceutical company based in Bellerup, Denmark, near Copenhagen. LEO is wholly owned by the LEO Foundation and is one of the world’s leading companies focused on dermatology (skin diseases) and critical care, including the parenteral treatment of thromboembolisms (thrombosis).

 

LEO discovers, develops, manufactures and markets safe and efficacious drugs globally. Approximately 96% of LEO’s turnover (5.7 billion DKK, approximately US$1.1 billion, in 2008) stems from outside Denmark. LEO is represented in more than 90 countries and has approximately 3,000 employees, of whom 1,200 work in Denmark.

 

Plant Acquisition Sub, Inc., a Delaware corporation and a wholly owned subsidiary of LEO, was formed solely for the purpose of completing the merger and has not conducted any business operations to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the merger agreement.

 

The following discussion summarizes the material terms of the merger. We urge you to carefully read the merger agreement, which is attached as Annex A to this proxy statement, in its entirety.

 

As its lead product, PEP005 (ingenol mebutate) has advanced through clinical trials for the treatment of AK, and basal cell carcinoma, the Peplin Board has periodically reviewed Peplin’s strategic alternatives in order to further create and enhance stockholder value.

 

On February 9, 2009, the Peplin Board convened a meeting, with its counsel, Fenwick & West LLP, or Fenwick & West, present, to discuss Peplin’s current operations, the status of its clinical program, plans for the commercial launch of PEP005 Gel for AK following approval of the Food and Drug Administration, or FDA, and financial budgeting scenarios. At this meeting, representatives of Leerink Swann, a financial advisor to Peplin, discussed the potential markets for Peplin’s products under development. The Peplin Board discussed parties that had previously contacted Peplin regarding a potential strategic transaction, including licenses to Peplin products in certain territories or a potential acquisition of Peplin’s outstanding securities. The Peplin Board also discussed investors that would potentially be interested in participating in the next round of equity financing to fund Peplin’s operations through FDA approval of PEP005 for the treatment of AK and its commercial launch. The Peplin Board determined that in order to maximize Peplin’s opportunities to maximize stockholder value, both on a stand-alone basis, or in a potential change of control acquisition of Peplin, Peplin management should commence contacting potential strategic partners to assess their interest in pursuing an acquisition of Peplin or a license of Peplin products outside of the United States, as well as to begin planning for a potential equity financing.

 

Between February 11, 2009 and March 24, 2009, Peplin executed confidential disclosure agreements with fifteen parties, including the third parties referred to herein as “Company A,” “Company B,” “Company C,” “Company D,” “Company E,” “Company F” and “Company G,” that the Peplin Board and management determined would potentially be interested in a strategic acquisition of Peplin or a license to its products outside of the United States.

 

Between February 25, 2009 and March 26, 2009, Peplin sent to the fifteen parties that entered into confidential disclosure agreements, an invitation to submit preliminary indications of interest for an acquisition of all of the outstanding equity interests of Peplin and to commence due diligence, with certain of these parties also invited to submit preliminary indications of interest for a strategic partnering transaction, such as a license of Peplin products outside of the United States.

 

On March 18, 2009, the Peplin Board convened a meeting, with counsel present, to discuss Peplin’s current operations and clinical program, as well as the status of the parties performing due diligence on Peplin.

 

On March 30, 2009, Company A sent to Peplin a written non-binding preliminary proposal for an acquisition of all of the outstanding equity interests of Peplin for US$250 million in cash, adjusted for any debt that would remain in Peplin following the closing.

 

Also on March 30, 2009, LEO sent to Peplin a written non-binding preliminary indication of interest in an exclusive license to PEP005 in Europe, Canada, Mexico, Central America, the Middle East and North Africa, providing for upfront payments of Euro 5 million, milestone-based payments upon specified events, and royalties payable on net sales.

 

On April 1, 2009, Company B sent to Peplin a written preliminary non-binding indication of interest in a worldwide exclusive license to PEP005, providing for an upfront payment, milestone-based payments upon specified events, and royalties payable on net sales.

 

On April 2, 2009, the Peplin Board convened a special meeting, with counsel present, to discuss Peplin’s current operations as well as plans for further exploration of a potential strategic transaction or equity financing. At this meeting, the Peplin Board determined to have Peplin engage separate investment banks to assist with the strategic process and with the equity financing in order to motivate each bank fully on its own objective. The Peplin

Board determined to use Goldman Sachs as its financial advisor for the potential acquisition transaction and Leerink Swann as its financial advisor and agent for a potential equity financing.

 

On April 6, 2009, Company C sent to Peplin a written non-binding preliminary proposal for an acquisition of all of the outstanding equity interests of Peplin for an upfront cash payment and an earn-out payment upon FDA approval of PEP005 Gel for AK that in the aggregate was significantly below the valuation in Company A’s indication of interest. The proposal stated that it was subject to certain financial and business assumptions. On April 9, 2009, Company C was informed that due to the valuation provided in its proposal, it would not be further participating in Peplin’s strategic process.

 

On April 7, 2009, Company D sent to Peplin a written preliminary non-binding indication of interest in an exclusive license to PEP005 in Europe and North Africa, providing for an upfront payment, milestone-based payments upon specified events, and royalties payable on net sales.

 

On April 9, 2009, Company E sent to Peplin a written non-binding proposal for a cross-licensing joint venture between Company E and Peplin in which each company would license to the other its products for development and commercialization in its respective territories — Peplin in the United States, Canada and Australia, and Company E in Europe and the rest of the world. The proposal provided for an upfront fee payable to Peplin, milestone-based payments upon specified events, and royalties payable on net sales of a party’s products by the other party in the other party’s territory.

 

On April 15, 2009, Peplin signed an engagement letter with Goldman Sachs to act as Peplin’s financial advisor in connection with evaluating a potential strategic acquisition transaction.

 

On April 22, 2009, representatives of Company D informed representatives of Goldman Sachs that Company D was terminating its participation in Peplin’s process.

 

On April 23, 2009, the Peplin Board convened a special meeting, with counsel and representatives of Goldman Sachs present, to discuss Peplin’s recent clinical trial results and the current status of discussions with parties interested in pursuing a strategic acquisition transaction or strategic licensing transaction.

 

Between April 24, 2009 and May 29, 2009, four additional confidential disclosure agreements were executed between Peplin and other parties contacted by Goldman Sachs, including third parties referred to herein as “Company H” and “Company I.”

 

On April 26, 2009, Company F sent to Peplin a written preliminary non-binding indication of interest in an exclusive license to PEP005 in Europe and Mexico, providing for upfront and pre-commercial development milestone payments of US$15-20 million, post-commercial milestone-based payments upon specified events, and royalties payable on net sales.

 

On April 28, 2009, Company B, which had made a licensing proposal on April 1, 2009, sent to Peplin a written preliminary non-binding proposal to acquire all of the outstanding equity interests of Peplin at a valuation significantly below the valuation in Company A’s indication of interest, with a portion of the consideration to be paid contingent upon the achievement of certain regulatory approvals. Shortly following receipt of this proposal, representatives of Goldman Sachs contacted Company B to terminate further discussions regarding a Peplin transaction.

 

On April 29, 2009, Peplin contacted each of LEO and Company F with counterproposals for the terms of an exclusive license to PEP005 in Europe and other specified territories outside of the United States.

 

On April 30, 2009, Company G sent to Peplin a written non-binding expression of interest for an acquisition of all outstanding securities of Peplin for a valuation below the valuation in Company A’s indication of interest, subject to certain assumptions regarding the cash and debt positions of Peplin at the closing of such transaction.

 

On May 5, 2009, the Peplin Board convened a special meeting, with counsel and representatives of Goldman Sachs present, to discuss the current status of discussions with parties interested in pursuing a strategic acquisition transaction or strategic licensing transaction.

On May 7, 2009, Peplin signed engagement letters with Leerink Swann to act as Peplin’s agent for a potential equity financing transaction, and in the event that Peplin determined to enter into a potential strategic acquisition transaction, to provide an independent opinion to the Peplin Board regarding the fairness, from a financial point of view, of the consideration to be paid to Peplin’s stockholders, in such a transaction. Through May, June and July of 2009, Peplin and Fenwick & West continued to work with Leerink Swann and its counsel on the structure of, and plans for, an equity financing to be pursued following the execution and announcement of a potential strategic licensing transaction. During this period, Leerink Swann assembled prioritized lists of parties that would be potentially interested in making an equity investment in Peplin.

 

On May 8, 2009, a draft merger agreement providing for the acquisition of all outstanding securities of Peplin was sent to Company A and Company G.

 

On May 18, 2009, Christian Scheuer, senior director of business development of LEO, contacted Thomas Wiggans, Peplin’s chief executive officer, to propose new terms for LEO’s license of PEP005, and the parties determined to commence negotiations of a definitive license agreement.

 

On May 19, 2009, following discussions with Dr. Eugene Bauer, president and chief medical officer of Peplin, representatives of Company H contacted representatives of Goldman Sachs to state their interest in actively participating in Peplin’s process.

 

On May 27, 2009, Peplin sent to LEO a draft definitive license agreement for the exclusive license to PEP005 in Europe, Canada, Mexico, Central America, the Middle East and North Africa. On May 28, 2009, Peplin sent to Company F a draft definitive license agreement for the exclusive license to PEP005 in Europe and Mexico. Also on May 28, 2009, representatives of Goldman Sachs spoke with representatives of Company E and confirmed that Company E was not participating further in Peplin’s process.

 

On June 3, 2009, counsel to Company A sent to Fenwick & West proposed revisions to the draft merger agreement that had been provided to Company A on May 8.

 

On June 4, 2009, the Peplin Board convened a special meeting, with representatives of Goldman Sachs and counsel present, to discuss Peplin’s clinical program as well as the status of discussions with Company A, Company G, Company H and Company I regarding an acquisition of Peplin, the status of the discussions with LEO and Company F regarding a strategic licensing transaction, and the potential structure and terms of an equity financing to be pursued following the execution and announcement of a strategic licensing transaction.

 

Also on June 4, 2009, LEO sent to Peplin proposed revisions to the draft definitive license agreement that had been provided to LEO on May 27. From June 8, 2009 through August 19, 2009, representatives of Peplin, LEO, Fenwick & West, and LEO’s outside counsel, Cooley Godward Kronish LLP, or Cooley Godward, negotiated the terms of the license agreement.

 

On June 5, 2009, a draft merger agreement providing for the acquisition of all outstanding securities of Peplin was sent to Company I.

 

On June 9, 2009, Company A sent to Peplin a written non-binding expression of interest, providing further details with respect to the written non-binding preliminary proposal sent on March 30, 2009, for an acquisition of all outstanding securities of Peplin for US$250 million, subject to certain assumptions regarding the cash and debt positions of Peplin at the closing of such transaction. Also on June 9, 2009, counsel to Company A sent to Fenwick & West additional proposed revisions to the draft merger agreement counsel to Company A sent to Fenwick & West on June 3, and Fenwick & West and counsel to Company A discussed these proposed revisions.

 

On June 10, 2009, the Peplin Board convened a special meeting, with representatives of Goldman Sachs and counsel present, to discuss Peplin’s current operations as well as the status of discussions with Company A, Company G, Company H and Company I regarding an acquisition of Peplin, as well as the status of the discussions with LEO and Company F regarding a strategic license transaction.

 

On June 16, 2009, representatives of Company G informed representatives of Goldman Sachs that Company G was unwilling to increase its proposed acquisition valuation of Peplin and would be terminating its participation in Peplin’s process.

On June 18, 2009, Company I sent to Peplin a written non-binding expression of interest for an acquisition of all outstanding securities of Peplin for US$230 million to US$270 million, net of transaction costs and subject to certain assumptions regarding the cash and debt positions of Peplin at the closing of such transaction.

 

On June 18, 2009, the Peplin Board convened a special meeting, with representatives of Goldman Sachs and counsel present, to discuss Peplin’s current operations as well as the status of discussions with Company A, Company G, Company H and Company I regarding an acquisition of Peplin, as well as the status of the discussions with LEO and Company F regarding a strategic license transaction.

 

On June 22, 2009, Company F sent to Peplin proposed revisions to the draft definitive license agreement that has been provided to it on May 28. From June 24, 2009 through August 19, 2009, Peplin, Company F and their respective counsel negotiated the terms of the license agreement.

 

On June 23, 2009, a draft merger agreement providing for the acquisition of all outstanding securities of Peplin was sent to Company H.

 

On June 25, 2009, Company H sent to Peplin a written non-binding expression of interest for an acquisition of all outstanding securities of Peplin for up to US$275 million.

 

On June 30, 2009, Goldman Sachs sent to Company A, Company H and Company I a written request to submit final definitive proposals to acquire Peplin together with a revised version of the merger agreement showing final proposed changes.

 

On July 1, 2009, counsel to Company I sent to Fenwick & West proposed revisions to the draft merger agreement, which Fenwick & West and counsel to Company I subsequently discussed. On July 8, 2009, Fenwick & West sent to counsel to Company I a revised version of the draft merger agreement.

 

On July 15, 2009, Company I sent to Peplin a written non-binding proposal to acquire the equity interests only of Peplin stockholders owning five percent or more of Peplin’s stock and of Peplin’s directors and officers, based upon “a valuation of US$300 million on a fully-diluted basis for 100% of the equity interests in Peplin, or a per share amount of US$15.80,” but that in no event would Company I purchase more than 50% of Peplin’s outstanding equity. The proposal further provided that Peplin would enter into an exclusive, worldwide license and collaboration agreement with Company I with regard to Peplin’s products.

 

On July 17, 2009, representatives of Company H notified representatives of Goldman Sachs that Company H would not be continuing in Peplin’s process.

 

On July 20, 2009, Company A sent to Peplin a written non-binding proposal to acquire all of the outstanding securities of Peplin for a cash amount to be paid at closing that was significantly below that contained in its March 30 and June 9 expressions of interest and which would be reduced by Peplin’s net debt at closing in excess of a specified amount and all transaction expenses incurred by Peplin in the transaction, as well as for post-closing contingent payments in connection with the filing with, and approval by, the FDA of PEP005 Gel for AK, and potential additional payments in four tranches, based upon the achievement of specified annual net sales generated by PEP005 over the seven years following closing. Also on July 20, 2009, counsel to Company A sent to Fenwick & West further proposed revisions to the draft merger agreement.

 

On July 20 and 21, 2009, the Peplin Board held a two-day special meeting. The Peplin Board discussed Peplin’s products, research and development activities, clinical and regulatory program, finances, stand-alone operating plan and budget, and potential long-term stand-alone value. Representatives of Fenwick & West discussed with the Peplin Board its fiduciary duties in considering strategic alternatives, including a potential change of control acquisition of Peplin. The Peplin Board reviewed in detail the current terms of the potential licensing transactions with LEO and Company F. The Peplin Board reviewed with representatives of Leerink Swann potential structures for, and terms of, an equity financing that could be pursued following the execution and announcement of a strategic license transaction, including the equity dilution resulting from a financing transaction at various potential valuations. A representative of Peplin’s Australian counsel, Corrs Chambers Westgarth, advised the Peplin Board on Australian corporate and securities law issues in connection with these alternatives. The Peplin Board reviewed with representatives of Goldman Sachs the acquisition proposals received from Company A and Company I. The representatives of Goldman Sachs reviewed with the Peplin Board a financial analysis of Peplin

and preliminary financial analyses of the proposed transactions. The Peplin Board discussed the issues raised by the structure and terms proposed by each of Company A and Company I, including the earn-out payments in Company A’s proposal and the fact that Company I’s proposal did not treat all Peplin stockholders equally. The Peplin Board discussed with Peplin management and its financial and legal advisors next steps in the discussions with LEO, Company A, Company F and Company I.

 

Between July 21 and July 28, Peplin and its advisors continued discussions with each of LEO, Company A, Company F and Company I and their respective advisors.

 

On July 28, 2009, the Peplin Board convened a special meeting, with representatives of Goldman Sachs and counsel present, to discuss Peplin’s current operations as well as the status of discussions with Company A and Company I regarding an acquisition of Peplin, as well as the status of the discussions with LEO and Company F regarding a strategic license transaction.

 

Between July 28, 2009 and August 3, 2009, representatives of Goldman Sachs discussed with representatives of Company A potential changes in the structure and financial terms of Company A’s July 20 proposal in order to improve the attractiveness of that potential transaction from Peplin’s perspective.

 

On July 30, 2009, Company I sent to Peplin a written non-binding proposal to acquire from Peplin 50.1% of the outstanding equity interests of Peplin for US$16.70 per share, subject to a maximum aggregate consideration of US$156 million. Company I’s proposal stated that the cash raised by this investment would be used by Peplin to pay all of Peplin’s transaction costs, redeem all Peplin convertible securities including stock options then outstanding, and redeem 50.1% of the outstanding shares of Peplin held by Peplin securityholders with the amount of cash remaining in Peplin after the payment of transaction costs and the redemption of convertible securities (determined to be approximately US$16.70 per share), such that following such redemption, Company I would hold 50.1%, and other stockholders would hold 49.9%, of Peplin’s outstanding equity. The proposal provided that Peplin would amend its corporate charter to provide that the shares remaining outstanding after these transactions would be mandatorily redeemable by Peplin at US$21.70 per share if and when PEP005 was approved by the FDA for marketing in the United States for the treatment of AK on the face and scalp. The proposal provided that Peplin would enter into an exclusive, worldwide license and collaboration agreement with Company I for Company I to develop, obtain regulatory approval for and commercialize Peplin’s products. The proposal further provided that Peplin would amend its charter to provide that Company I would control the Peplin Board, but that the Peplin Board would contain at least two non-Company I directors who would oversee any dealings between Peplin and Company I.

 

On July 31, 2009, representatives of Goldman Sachs spoke with Company I and requested that Company I increase the upfront purchase price for 50.1% of Peplin’s outstanding equity and the redemption price to be paid contingent upon FDA approval of PEP005. On August 1, 2009, a representative of Company I spoke with representatives of Goldman Sachs and stated that Company I’s offer remained at US$16.70 per share for the upfront payment for 50.1% of Peplin’s outstanding securities and US$21.70 per share for the redemption price, contingent upon and subject to FDA approval of PEP005 Gel for AK on the face and scalp, for the remaining outstanding securities.

 

On August 3, 2009, the Peplin Board convened a special meeting, with representatives of Goldman Sachs and counsel present, to discuss Peplin’s current operations as well as the status and terms of the potential transaction with Company I and Goldman Sachs’ efforts to have Company A improve the terms of its July 20 proposal.

 

On August 5, 2009, Mr. Wiggans and representatives of Goldman Sachs and Fenwick & West met in a live meeting and by teleconference with representatives of Company I and their counsel to discuss the terms of the potential two-step transaction the parties had previously discussed. Also on August 5, 2009, representatives of Goldman Sachs communicated with Company A and informed it that unless its proposal was to be substantially improved, that it was inferior to other strategic alternatives under consideration by Peplin and not likely to be further pursued.

 

On August 6, 2009, the Peplin Board convened a special meeting, with representatives of Goldman Sachs and counsel present, to discuss the status and terms of the potential transaction with Company I.

Between August 6, 2009 and August 25, 2009, representatives of Fenwick & West and representatives of Company I’s outside counsel discussed the terms of the documents that would implement the potential two-step transaction, including a merger agreement, a worldwide license agreement, a governance agreement, and an amended certificate of incorporation for Peplin. Among the key terms which were the subject of these negotiations were the efforts that Company I would be contractually required to apply to seek and obtain FDA approval for PEP005 Gel for AK, the structural protections that would be created to protect the rights of Peplin stockholders other than Company I following the completion of the merger but prior to a redemption, the mechanism to ensure adequate funding for the second-step redemption, the relationship between Peplin and Company I on a long-term basis should FDA approval of PEP005 Gel for AK not be obtained and the second-step redemption not occur, and Company I’s requirement that the vote to approve the transactions be obtained by majority written consent at the time of the signing of the merger agreement rather than at a stockholder meeting following distribution of a proxy statement, and issues of Delaware corporate law, United States securities laws, Australian securities laws, and the rules of the ASX, related to this proposed structure.

 

On August 13, 2009, the Peplin Board convened a special meeting, with representatives of Goldman Sachs and U.S. and Australian counsel present, to discuss the status and terms of the potential transaction with Company I. The Peplin Board also discussed the fact that the license with LEO was essentially in executable form if the transaction with Company I could not be satisfactorily completed or if the Peplin Board determined that the licensing transaction, with a subsequent equity financing, was determined by the Peplin Board to be a superior strategic alternative.

 

On August 17, 2009, counsel to Company I provided a proposed exclusivity agreement to Peplin, which would require that Peplin deal exclusively with Company I for an unspecified period of time with respect to acquisitions of Peplin securities or assets, or merger, joint venture, license, distribution or similar strategic transactions. Peplin did not enter into this, or any other, exclusivity arrangement during its strategic review process.

 

On August 18, 2009, Mr. Scheuer called George Mahaffey, chief commercial officer of Peplin, regarding LEO’s continued interest in entering into the exclusive license for Peplin products in European and certain other non-United States territories. During this discussion, Mr. Scheuer proposed that he would discuss with LEO management the possibility of LEO making a proposal to Peplin for an acquisition, and that he would revert to Peplin after these internal discussions. Mr. Scheuer also requested that Peplin provide LEO with the draft merger agreement that it was utilizing in its strategic evaluation process.

 

Later on August 18, 2009, Fenwick & West sent to LEO the draft merger agreement that had been provided to other parties during the acquisition bidding and evaluation process.

 

On August 19, 2009, Mr. Scheuer spoke with Mr. Mahaffey, and stated LEO’s interest in making an offer to acquire all of the outstanding equity of Peplin for cash at a valuation of up to US$300 million.

 

On August 20, 2009, Mr. Wiggans spoke with Gitte Aabo, president and chief executive officer of LEO, regarding LEO’s potential interest in an acquisition of Peplin at a valuation of approximately US$300 million.

 

Early in the morning, California time, on August 24, 2009, LEO sent to Peplin a written non-binding proposal providing for a one-step acquisition of all outstanding securities of Peplin for US$250 million, as well as the repayment of all of Peplin’s debt outstanding following the closing of such transaction, the funding of all payments under Peplin’s existing change of control arrangements, and the payment of all of Peplin’s transaction fees and disbursements, subject to finalizing due diligence and negotiating definitive agreements. The LEO proposal noted that LEO required no external financing and would not be subject to any financing condition. In the proposal, LEO also noted its willingness to provide Peplin with financing during the period of pendency of an acquisition transaction, on terms to be determined.

 

Later in the morning, California time, on August 24, 2009, Mr. Wiggans discussed with Ms. Aabo that Peplin would be unwilling to proceed with LEO, and potentially put at risk its potential transaction with the party with whom it had been negotiating definitive acquisition agreements, unless LEO increased the proposed one-step all-cash acquisition transaction consideration to US$300 million and, requested that LEO execute that morning (but that Peplin would not execute at that time) the exclusive license for Peplin products in European and other certain non-United States territories that had been previously negotiated with LEO but with an increased upfront payment

under such license of Euro 30 million (an increase of Euro 17.5 million over the previously-negotiated upfront payment for the license) and corresponding reductions in certain milestone payments, together with a binding, irrevocable offer to enter into such license on September 3, 2009, if Peplin had not by such date entered into a definitive change of control acquisition agreement with either LEO or another party.

 

Early in the afternoon, California time, on August 24, 2009, LEO sent to Peplin a revised written non-binding proposal, increasing its US$250 million proposal to US$300 million, but that was otherwise identical to its earlier letter. Together with this proposal, LEO sent to Peplin the exclusive license for Peplin products in European and certain other non-United States territories that had been previously negotiated with an increased upfront payment under such license of Euro 30 million and corresponding reductions in certain milestone payments, which license was executed by LEO, together with an executed binding, irrevocable offer to enter into such license on September 3, 2009, if Peplin had not by such date entered into a definitive change of control acquisition agreement with either LEO or another party.

 

Later in the afternoon, California time, on August 24, 2009, the Peplin Board met with representatives of Goldman Sachs and counsel to discuss the status of both LEO’s interest in a potential acquisition of Peplin and the status and terms of the potential transaction with Company I.

 

On August 25, 2009, Peplin notified Company I that because it had received a compelling acquisition proposal from another party, it would not enter into exclusive acquisition negotiations with Company I but was willing to proceed to negotiate transaction documents providing for the two-step transaction with Company I on a non-exclusive basis.

 

During the period from August 25, 2009 through September 1, 2009, LEO, and its legal and accounting advisors conducted a due diligence investigation of Peplin. During this period, representatives of Goldman Sachs and representatives of Morgan Stanley & Co., or Morgan Stanley, financial advisor to LEO, discussed financial and other terms of the proposed transaction.

 

On August 26, 2009, Fenwick & West sent to Cooley Godward, a draft loan agreement, providing for LEO to fund loans to Peplin during the period of pendency of an acquisition transaction.

 

Also on August 26, 2009, a representative of Company I contacted Mr. Wiggans to notify him that while Company I remained interested in an acquisition of Peplin, it would not pursue continued negotiations as long as Peplin was in discussions with another party regarding an acquisition and that it was directing its legal advisors to discontinue working on transaction documents.

 

On August 27, 2009, Cooley Godward sent to Fenwick & West proposed revisions to the draft merger agreement.

 

During the period from August 27, 2009 through September 1, 2009, representatives of Fenwick & West and Cooley Godward negotiated the terms of the merger agreement, the loan agreement, the voting agreements and related transaction documents, as well as the terms of a subordination agreement among LEO, Peplin and Peplin’s senior secured lenders.

 

In the afternoon, California time, on August 30, 2009, Ms. Aabo contacted Mr. Wiggans to inform him that LEO was reducing its proposed acquisition price to US$275 million.

 

Later in the afternoon, California time, on August 30, 2009, the Peplin Board convened for a meeting, with representatives of Goldman Sachs and counsel present, to review and discuss the proposed transaction with LEO. Mr. Wiggans discussed with the Peplin Board the reduction in LEO’s proposed transaction valuation. Representatives of Fenwick & West reviewed with the Peplin Board the current transaction terms and conditions.

 

Throughout the afternoon and the evening, California time, on August 30, 2009, Mr. Wiggans spoke with Ms. Aabo multiple times to discuss the transaction price, and the Peplin Board’s unwillingness to proceed with the transaction at the US$275 million valuation. Representatives of Goldman Sachs also discussed the transaction price with representatives of Morgan Stanley.

 

In the morning, Copenhagen time, on August 31, 2009, the LEO board convened to discuss the Peplin transaction. At the conclusion of such meeting, the LEO board authorized LEO management to propose an

acquisition of Peplin for US$287.5 million for all Peplin securities, or US$16.99 per share. Following this meeting, Ms. Aabo contacted Mr. Wiggans to convey such proposal, and representatives of Morgan Stanley and Goldman Sachs discussed this revised proposal.

 

In the afternoon, California time, on August 31, 2009, the Peplin Board convened for a meeting to review and discuss the proposed transaction with LEO. Mr. Wiggans reported to the Peplin Board that the LEO board had approved a merger transaction that valued Peplin at US$287.5 million, or US$16.99 per share, as well as on his discussions with Ms. Aabo. Representatives of Fenwick & West described the results of the previous evening’s negotiations on the transaction documents and the proposed final terms of the transactions. Representatives of Goldman Sachs presented various financial analyses related to Peplin and the proposed transaction and delivered an oral opinion, which was subsequently confirmed by delivery of a written opinion, that as of the date of its opinion and based upon and subject to the factors, assumptions, qualifications and limitations set forth therein, the US$16.99 per share in cash to be paid to the holders of Peplin common stock (other than LEO, Merger Sub or any other wholly owned subsidiary of LEO) in the proposed merger with LEO was fair, from a financial point of view, to such holders. The full text of the written opinion of Goldman Sachs, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with such opinion, is attached to this proxy statement as Annex B-1. Representatives of Leerink Swann then presented various financial analyses related to Peplin and the proposed transaction and delivered an oral opinion, which was subsequently confirmed by delivery of a written opinion, that as of the date of its opinion and based upon and subject to the factors, assumptions, qualifications and limitations set forth therein, the US$16.99 per share in cash to be paid to the holders of Peplin common stock (other than LEO, Merger Sub, Peplin and any other wholly owned subsidiary of LEO or Peplin or held in Peplin’s treasury) in the proposed merger with LEO was fair, from a financial point of view, to such holders. The full text of the written opinion of Leerink Swann, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with such opinion, is attached to this proxy statement as Annex B-2. Representatives of Fenwick & West discussed with the Peplin Board their fiduciary duties in connection with the evaluation and approval of the LEO transaction. After deliberations and consideration, the Peplin Board unanimously determined that the terms and conditions of the merger and the related transactions with LEO, and of the merger agreement and related transaction documents, are advisable, fair to, and in the best interests of, Peplin and its stockholders, and authorized and approved the merger, merger agreement and related transactions and documents, directed that the merger agreement be submitted for adoption by Peplin stockholders and unanimously recommended that Peplin stockholders adopt the merger agreement.

 

Prior to the opening of the ASX on the morning of September 1, 2009, Brisbane time, and the afternoon of August 31, 2009, California time, Peplin requested, and the ASX granted, a temporary halt to trading of Peplin securities due to a pending announcement concerning a potential significant corporate transaction.

 

Through the evening of August 31, 2009 and during September 1, 2009, representatives of Fenwick & West and Cooley Godward implemented minor changes to finalize all transaction documents. After midnight, California time, on September 2, 2009, Peplin, LEO and Merger Sub entered into the merger agreement, Peplin and LEO entered into the loan agreement, Peplin, LEO and Peplin’s senior secured lender entered into the subordination agreement, and the voting agreements and non-competition agreements were entered into by the respective signatories to such agreements.

 

Prior to the opening of the ASX on the morning of September 3, 2009, Brisbane time, and the afternoon of September 2, 2009, California time, Peplin publicly announced the transactions.

 

The Peplin Board unanimously determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement are advisable, fair to, and in the best interests of Peplin and its stockholders, authorized and approved the merger agreement, and unanimously recommends that Peplin stockholders vote “FOR” adoption of the merger agreement.

 

In the course of reaching its unanimous determination, the Peplin Board consulted with Peplin’s management and its financial advisors. The Peplin Board also consulted with outside legal counsel regarding the fiduciary duties

of the Peplin Board and the terms and conditions of the merger agreement and related agreements. The Peplin Board reviewed information regarding: Peplin’s products, business and operations; historical market prices, volatility and trading information regarding Peplin CDIs; the consideration to be paid to Peplin stockholders in the merger; the terms of the merger agreement; the potential alternatives to the merger proposed by other parties, and the terms, conditions and risks of such alternatives; Peplin’s prospects as an independent company and the required financing and resulting dilution required to operate independently; and the opinions of Goldman Sachs and of Leerink Swann described below.

 

The following discussion includes the material reasons and factors considered by the Peplin Board in making its recommendation, but is not, and is not intended to be, exhaustive:

 

 

 

 

and the levels of those premiums as compared to the premiums in other comparable merger transactions; and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In the course of its deliberations, the Peplin Board also considered a variety of uncertainties, risks and potentially negative factors weighing against the merger, including:

 

 

 

 

After careful and due consideration, the Peplin Board unanimously concluded that overall, the risks, uncertainties, restrictions and potentially negative factors associated with entering into the merger agreement were outweighed by the potential benefits to our stockholders of the merger, and that many of these risks could be managed or mitigated prior to the merger by us or were unlikely to have a material adverse effect on the merger.

 

The preceding discussion of the information and factors considered by the Peplin Board is intended to be illustrative and not exhaustive. In light of the variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, the Peplin Board did not find it practicable to, and did not, quantify or otherwise attempt to assign relative weights to the various factors considered in reaching its determination, and individual directors may have given different weight to different factors. In addition, the Peplin Board did not reach any specific conclusion with respect to any of the factors or reasons considered. Instead, the Peplin Board conducted an overall analysis of the factors and reasons described above and unanimously determined that, in the aggregate, the potential benefits considered outweighed the potential risks or possible negative consequences of approving the merger and the merger agreement and recommending that Peplin stockholders vote “FOR” the adoption of the merger agreement.

 

Goldman Sachs rendered its opinion to the Peplin Board that, as of September 2, 2009, and based upon and subject to the factors and assumptions set forth therein, the US$16.99 per share in cash to be paid to the holders

(other than LEO, Merger Sub and any other wholly owned subsidiary of LEO) of the outstanding shares of Peplin common stock pursuant to the merger agreement was fair from a financial point of view to such holders.

 

The full text of the written opinion of Goldman Sachs, dated September 2, 2009, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached to this proxy statement as Annex B-1. Goldman Sachs provided its opinion for the information and assistance of the Peplin Board in connection with its consideration of the transaction. The Goldman Sachs opinion is not a recommendation as to how any holder of Peplin common stock (or Peplin CDIs) should vote with respect to the transaction, or any other matter.

 

In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:

 

 

Goldman Sachs also held discussions with members of the senior management of Peplin regarding their assessment of the past and current business operations, financial condition and future prospects of Peplin. In addition, Goldman Sachs reviewed the reported price and trading activity for Peplin CDIs, compared certain financial and stock market information for Peplin with similar information for certain other companies the securities of which are publicly traded, and reviewed the financial terms of certain recent business combinations in the healthcare industry specifically and in other industries generally and performed such other studies and analyses, and considered such other factors, as it considered appropriate.

 

For purposes of rendering the opinion described above, Goldman Sachs relied upon and assumed, without assuming any responsibility for independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by it, and Goldman Sachs did not assume any liability for any such information. In that regard, Goldman Sachs assumed with the consent of Peplin that the Forecasts had been reasonably prepared on a basis reflecting the best then-currently available estimates and judgments of the management of Peplin. In addition, Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or off-balance-sheet assets and liabilities) of Peplin or any of its subsidiaries, nor was any evaluation or appraisal of the assets or liabilities of Peplin or any of its subsidiaries furnished to Goldman Sachs. Goldman Sachs assumed that all governmental, regulatory or other consents and approvals necessary for the completion of the transaction will be obtained without any adverse effect on the expected benefits of the transaction in any way meaningful to its analysis. Goldman Sachs also assumed that the transaction will be completed on the terms set forth in the merger agreement, without the waiver or modification of any term or condition the effect of which would be in any way

meaningful to its analysis. In addition, Goldman Sachs did not express any opinion as to the impact of the transaction on the solvency or viability of Peplin or LEO or the ability of Peplin or LEO to pay its obligations when they come due, and Goldman Sachs’ opinion does not address any legal, regulatory, tax or accounting matters nor does it address the underlying business decision of Peplin to engage in the transaction or the relative merits of the transaction as compared to any strategic alternatives that may be available to Peplin. Goldman Sachs’ opinion addresses only the fairness from a financial point of view, as of the date of the opinion, of the US$16.99 per share in cash to be paid to the holders (other than LEO, Merger Sub and any other wholly owned subsidiary of LEO) of the outstanding shares of Peplin common stock pursuant to the merger agreement. Goldman Sachs’ opinion does not express any view on, and does not address, any other term or aspect of the merger agreement or the transaction, including, without limitation, the fairness of the transaction to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors, or other constituencies of Peplin; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of Peplin, or class of such persons in connection with the transaction, whether relative to the US$16.99 per share in cash to be paid to the holders (other than LEO, Merger Sub and any other wholly owned subsidiary of LEO) of the outstanding shares of Peplin common stock pursuant to the merger agreement or otherwise. Goldman Sachs’ opinion was necessarily based on economic, monetary, market and other conditions, as in effect on, and the information made available to it as of, the date of the opinion and Goldman Sachs assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of its opinion. Goldman Sachs’ opinion was approved by a fairness committee of Goldman Sachs.

 

The following is a summary of the material financial analyses delivered by Goldman Sachs to the Peplin Board in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before August 28, 2009 and is not necessarily indicative of current market conditions.

 

Historical Stock Trading Analysis.  Goldman Sachs reviewed the historical trading prices and volumes for Peplin CDIs, which prices were converted to U.S. dollars based on each day’s spot currency exchange rate, for the 52 week period ended August 28, 2009. In addition, Goldman Sachs analyzed the consideration to be paid to holders of Peplin common stock pursuant to the merger agreement in relation to the current, one month (as of July 28, 2009) and latest 52 week high market prices of Peplin common stock.

 

This analysis indicated that the price per share to be paid to Peplin stockholders pursuant to the merger agreement represented:

 

 

Discounted Cash Flow Analysis.  Goldman Sachs performed an illustrative discounted cash flow analysis on Peplin using Peplin’s management projections to determine indications of implied total equity values per share of Peplin common stock based on the present value as of June 30, 2009 of the standalone, unlevered, after-tax estimated free cash flows of Peplin and net operating losses, which are referred to as NOLs, available to Peplin. Goldman Sachs calculated indications of net present value of free cash flows for Peplin for the fiscal years ending June 30, 2010 through June 30, 2017 using discount rates ranging from 15.0% to 20.0%, based on a weighted average cost of capital analysis for Peplin. Goldman Sachs also applied growth rates ranging from 0.0% to 10.0%, based on Peplin’s management projections, to the projected cash flows for the fiscal year ending June 30, 2017 to calculate a range of terminal values based on the projected cash flows from June 30, 2017 through June 30, 2022. This analysis resulted in a range of implied present values of the equity value per share of Peplin common stock of US$11.28 to US$16.95. Using the same range of growth rate and discount rate assumptions, Goldman Sachs also

performed illustrative sensitivity analyses by applying a range of probabilities of PEP005 Gel receiving FDA approvals for the treatment of actinic keratosis and superficial basal cell carcinoma and applying a range of probabilities of PEP005 Gel achieving revenue forecasts, in each case as prepared by Peplin management, which resulted in a range of implied present values of the equity value per share of Peplin common stock of US$9.81 to US$17.31 and US$8.57 to US$20.20, respectively.

 

Selected Transactions Analysis.  Goldman Sachs analyzed certain information relating to the following selected transactions (listed by acquirer/target) in the healthcare industry with a transaction value under US$1 billion involving biotechnology firms since February 2008:

 

 

For each of the selected transactions, Goldman Sachs compared the premium of the per share equity consideration to the per share equity valuation one day prior to announcement and four weeks prior to announcement. While none of the companies that participated in the selected transactions are directly comparable to Peplin, the companies that participated in the selected transactions are companies with characteristics that, for the purposes of analysis, may be considered similar to certain of Peplin’s results, market size and product profile.

 

The following table presents the results of this analysis with respect to biotechnology firms:

 

 

Goldman Sachs also analyzed certain information relating to the following selected transactions (listed by acquirer/target) in the healthcare industry with a transaction value under US$1 billion involving specialty pharmaceutical firms since February 2008:

 

 

For each of the selected transactions, Goldman Sachs compared the premium of the per share equity consideration to the per share equity valuation one day prior to announcement and four weeks prior to announcement. While none of the companies that participated in the selected transactions are directly comparable to Peplin, the companies that participated in the selected transactions are companies with characteristics that, for the purposes of analysis, may be considered similar to certain of Peplin’s results, market size and product profile.

The following table presents the results of this analysis with respect to specialty pharmaceutical firms:

 

 

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs’ opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to Peplin or LEO or the contemplated transaction.

 

Goldman Sachs prepared these analyses for purposes of Goldman Sachs’ providing its opinion to the Peplin Board as to the fairness from a financial point of view of the US$16.99 per share in cash to be paid to the holders (other than LEO, Merger Sub and any other wholly owned subsidiary of LEO) of the outstanding shares of Peplin common stock pursuant to the merger agreement. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of Peplin, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.

 

The merger consideration was determined through arms’-length negotiations between Peplin and LEO and was approved by the Peplin Board. Goldman Sachs provided advice to Peplin during these negotiations. Goldman Sachs did not, however, recommend any specific amount of consideration to Peplin or the Peplin Board or that any specific amount of consideration constituted the only appropriate consideration for the transaction.

 

As described above, Goldman Sachs’ opinion to the Peplin Board was one of many factors taken into consideration by the Peplin Board in making its determination to approve the merger agreement. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Goldman Sachs attached to this proxy statement as Annex B-1.

 

Goldman Sachs and its affiliates are engaged in investment banking and financial advisory services, commercial banking, securities trading, investment management, principal investment, financial planning, benefits counseling, risk management, hedging, financing, brokerage activities and other financial and non-financial activities and services for various persons and entities. In the ordinary course of these activities and services, Goldman Sachs and its affiliates may at any time make or hold long or short positions and investments, as well as actively trade or effect transactions, in the equity, debt and other securities (or related derivative securities) and financial instruments (including bank loans and other obligations) of third parties, Peplin, LEO and any of their respective affiliates or any currency or commodity that may be involved in the transaction for their own account and for the accounts of their customers. Goldman Sachs acted as financial advisor to Peplin in connection with, and participated in certain of the negotiations leading to, the transaction contemplated by the merger agreement. Goldman Sachs also may provide investment banking and other financial services to Peplin, LEO and their respective affiliates in the future. In connection with the above-described services we have received, and may receive in the future, compensation.

 

The Peplin Board selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the transaction. Pursuant to a letter

agreement dated April 15, 2009, Peplin engaged Goldman Sachs to act as its financial advisor in connection with the evaluation of potential strategic transactions. Pursuant to the terms of this engagement letter, Peplin has agreed to pay Goldman Sachs a transaction fee of approximately US$3.2 million, a principal portion of which is payable upon completion of the transaction. In addition, Peplin has agreed to reimburse Goldman Sachs for its expenses, including attorneys’ fees and disbursements, and to indemnify Goldman Sachs and related persons against various liabilities, including certain liabilities under the federal securities laws.

 

Peplin engaged Leerink Swann to render an opinion with respect to the fairness, from a financial point of view, of the consideration to be paid in connection with a possible merger, sale or other business combination involving Peplin. On August 31, 2009, Leerink Swann delivered its opinion to the Peplin Board, to the effect that, based upon and subject to the various assumptions and limitations set forth in the written opinion, the US$16.99 per share in cash to be received by the holders of Peplin common stock in the proposed merger was fair, from a financial point of view, to such holders.

 

The full text of the written opinion of Leerink Swann, issued on August 31, 2009, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the review undertaken by Leerink Swann, is attached hereto as Annex B-2 and is incorporated by reference. We urge you to read this opinion carefully and in its entirety. The summary of the written opinion of Leerink Swann set forth herein is qualified in its entirety by reference to the full text of such opinion. Leerink Swann’s analyses and opinion were prepared for and addressed to the Peplin Board and are directed only to the fairness, from a financial point of view, of the US$16.99 per share in cash to be paid in the merger, and do not constitute an opinion as to the merits of the merger or a recommendation to any stockholder as to how to act with respect to the merger. The per share merger consideration to be received in the merger was determined through negotiations between Peplin and LEO, and not pursuant to recommendations of Leerink Swann.

 

In arriving at its opinion, Leerink Swann reviewed and considered such financial and other matters as it deemed relevant, including, among other things:

 

 

In conducting its review and analysis and in arriving at its opinion, Leerink Swann, with Peplin’s consent, assumed and relied, without independent investigation, upon the accuracy and completeness of all financial and other information provided by Peplin’s management to Leerink Swann (including information furnished orally or otherwise discussed with Peplin’s management), or publicly available. Leerink Swann did not undertake any responsibility for independently verifying, and did not independently verify, the accuracy, completeness or reasonableness of any such information. With respect to Peplin’s financial forecasts that were provided to and were reviewed by Leerink Swann, including the Forecasts, Leerink Swann was advised, and assumed with Peplin’s consent, that such forecasts were reasonably prepared in good faith on the basis of reasonable assumptions and

reflect the best currently available estimates and judgments of Peplin’s management as to Peplin’s future financial condition and performance. Leerink Swann expressed no opinion with respect to such forecasts or estimates and financial information or the assumptions upon which they were based.

 

Leerink Swann did not make or obtain any independent evaluations, valuations or appraisals of the assets or liabilities (contingent or otherwise) of Peplin, nor was Leerink Swann furnished with such materials. Leerink Swann’s services provided to Peplin in connection with the merger were comprised solely of rendering an opinion as to the fairness, from a financial point of view, of the US$16.99 per share in cash to be received by the holders of Peplin common stock in the merger, and its opinion does not address any other term, aspect or implication of the merger or any other agreement or arrangement entered into in connection with the merger. Leerink Swann’s opinion was necessarily based upon economic and market conditions and other circumstances as they existed and could be evaluated on the date thereof. It should be understood that although subsequent developments may affect its opinion, Leerink Swann does not have any obligation to update, revise or reaffirm the opinion and Leerink Swann expressly disclaimed any responsibility to do so.

 

In rendering its opinion, Leerink Swann assumed, in all respects material to its analysis, that the US$16.99 per share cash merger consideration to be received in the merger pursuant to the merger agreement was determined through arm’s-length negotiations between the appropriate parties, that the representations and warranties of each party contained in the merger agreement are true and correct, that each party will perform all of the covenants and agreements required to be performed by it under the merger agreement without material alteration or waiver thereof and that all conditions to the completion of the merger will be satisfied without waiver thereof or material alteration. Leerink Swann also assumed, with Peplin’s consent, that the final form of the merger agreement will be substantially the same as the last draft reviewed by Leerink Swann. In addition, Leerink Swann assumed, with Peplin’s consent, that the historical financial statements of Peplin reviewed by Leerink Swann had been prepared and fairly presented in accordance with U.S. generally accepted accounting principles consistently applied. Leerink Swann further assumed, with Peplin’s consent, that as of the date of its fairness opinion, there had been no material adverse change in Peplin’s assets, financial conditions, results of operations, business or prospects since the date of the last audited financial statements made available to Leerink Swann which change had not been publicly disclosed prior to the date of the fairness opinion.

 

Leerink Swann’s opinion does not constitute a recommendation to any Peplin stockholder with respect to the merger. Leerink Swann’s opinion is limited to the fairness, from a financial point of view, of the US$16.99 per share in cash to be paid in the merger. Leerink Swann expressed no opinion as to the underlying business reasons that may support the decision of the Peplin Board to approve, or Peplin’s decision to complete, the merger or the relative merits of the merger as compared to other business strategies or potential transactions that might be available to Peplin.

 

The following is a summary of the principal financial analyses performed by Leerink Swann to arrive at its opinion. Some of the summaries of financial analyses include information presented in tabular format. In order to fully understand the financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Leerink Swann’s financial analyses.

 

Historical Stock Trading Analysis

 

Leerink Swann reviewed the historical trading prices for Peplin CDIs for the 52-week period ended August 31, 2009, which were then converted to United States dollars based on the August 30, 2009 exchange ratio. Leerink Swann analyzed the US$16.99 per share in cash to be received by holders of Peplin common stock pursuant to the merger, with respect to the per share price of the Peplin common stock on each of August 31, 2009, August 24, 2009 and July 31, 2009, as well as the three-month average per share price, the six-month average per share price and the 52-week high price of Peplin common stock (in each case based on the trading prices of the Peplin CDIs).

The results of these analyses are summarized as follows:

 

 

Analysis of Selected Publicly Traded Companies

 

Leerink Swann compared selected historical operating and financial data for Peplin to the corresponding publicly-available operating and financial data of certain other companies (the “Selected Companies”) whose securities are publicly traded and which Leerink Swann believed have operating characteristics, market valuation and trading valuations similar to what might be expected of Peplin. These companies were:

 

 

The data for the Selected Companies included the market capitalization of common stock on a fully-diluted basis (referred to as the equity value), equity value plus debt, and minus cash (referred to as the enterprise value) and estimated revenue and earnings per share from 2009 through 2011 based on third-party equity research analyst consensus estimates for the Selected Companies. This data was based on the closing stock prices of the Selected Companies on August 28, 2009.

 

Based, in part, on the one-year forward enterprise value to revenue multiples (calculated as enterprise value divided by 2010 revenue) of the Selected Companies, Leerink Swann applied a range of 2.5x-3.0x to Peplin management’s forecasted fiscal year 2014 revenue discounted back to 2009 (using a range of discount rates from 16.7% to 18.7%) to obtain a range of implied equity values for Peplin. This equity value range was then divided by the fully diluted shares of Peplin common stock to obtain a range of implied per share equity values, which was compared to the per share merger consideration as set forth in the following table.

 

 

Based, in part, on the two-year forward price/earnings multiples (calculated as price divided by 2011 earnings per share) of the Selected Companies, Leerink Swann applied a range of 14.0x-16.0x to Peplin management’s forecasted 2015 after tax net income discounted back to 2009 (using a range of discount rates from 16.7% to 18.7%) to obtain a range of implied equity values for Peplin. This equity value range was then divided by the fully diluted

shares of Peplin common stock to obtain a range of implied per share equity values, which was compared to the per share merger consideration as set forth in the following table.

 

 

Although the Selected Companies were used for comparison purposes, none of those companies are directly comparable to Peplin. The reference ranges utilized to calculate the implied per share equity values in the foregoing tables do not represent the range of equity values or multiples of the Selected Companies. The reference range is based on an analysis of such equity values that is not purely mathematical, but instead involves complex judgments and considerations concerning differences in historical and projected financial and operating characteristics of the Selected Companies and other factors that could affect Peplin’s publicly traded value or the publicly traded value of the Selected Companies.

 

M&A Premiums Analysis

 

Leerink Swann estimated a range of values for Peplin based upon precedent public biopharmaceutical M&A transactions from January 1, 2008 to present. The analysis represented data from 22 transactions and excluded transactions greater than US$1 billion in enterprise value. Based on these transactions, Leerink Swann applied an assumed premium range of between 50% and 75% over the closing share price of Peplin common stock on August 31, 2009. The following table presents a range of implied per share equity values based on the foregoing.

 

 

Selected Recent Specialty Biopharma Transactions

 

Leerink Swann reviewed the terms, to the extent publicly available, of 20 acquisitions of dermatology-focused specialty pharmaceutical companies announced between June 9, 2004 and the present. The data included the offer price for the common stock on a fully diluted basis (referred to as the equity value), enterprise value, last-twelve-

months (LTM) revenue at the time of the transaction, and the resulting enterprise value to LTM revenue multiple. The transactions selected for this analysis were as follows (the “Selected Transactions”):

 

 

Based on the last-twelve months revenue to enterprise value multiples of the Selected Transactions, Leerink Swann applied a range of 3.5x-4.0x to Peplin management’s forecasted fiscal year 2014 revenue discounted back to 2009 (using a range of discount rates from 16.7% to 18.7%) to obtain a range of implied equity values for Peplin. This equity value was then divided by the fully-diluted shares of Peplin common stock to obtain a range of implied per share equity values, which was compared to the per share merger consideration as set forth in the following table.

 

 

Although the Selected Transactions were used for comparison purposes, no Selected Transaction used in Leerink Swann’s analyses is identical to the merger. The reference ranges utilized to calculate the implied per share equity values in the foregoing table do not represent the range of equity values or multiples of the Selected Transactions. The reference range is based on an analysis of such equity values that is not purely mathematical. Rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition or other values of the companies, business segments or transactions analyzed.

 

Discounted Cash Flow

 

Leerink Swann performed a discounted cash flow analysis using probability-adjusted projections prepared by Peplin management through 2025 on a fully taxed and fully diluted basis relating to Peplin’s lead product candidate, which reflected, among other things, the utilization of net operating losses to offset future tax payments. Leerink Swann then calculated a range of implied present values on a per share basis of the after-tax free cash flows based on

these projections and estimates from July 1, 2009 through June 30, 2025. These implied present values were calculated using discount rates ranging from 16.7% to 18.7%.

 

The following table presents Peplin’s per share equity value as implied by reference range of the equity values of the discounted cash flow analysis divided by Peplin’s fully-diluted shares of common stock, as compared to the per share merger consideration.

 

 

Miscellaneous

 

The summary set forth above does not purport to be a complete description of all the analyses performed by Leerink Swann. The preparation of a fairness opinion is a complex process involving various determinations as to the most appropriate and relevant methods of financial analyses and the application of these methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to partial analysis or summary description. Leerink Swann did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, notwithstanding the separate factors summarized above, Leerink Swann believes that its analyses must be considered as a whole and that selecting portions of its analyses and the factors considered by it, without considering all analyses and factors, could create an incomplete view of the process underlying its opinion. In performing its analyses, Leerink Swann considered industry performance, business and economic conditions and other matters, many of which are beyond Peplin’s control. These analyses performed by Leerink Swann are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by such analyses. In addition, analyses relating to the value of businesses do not purport to be appraisals or to reflect the prices at which businesses or securities may actually be sold. Accordingly, such analyses and estimates are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors. Leerink Swann does not assume responsibility if future results are materially different from those projected. The analyses supplied by Leerink Swann and its opinion were among several factors taken into consideration by the Peplin Board in making its decision to cause Peplin to enter into the merger agreement and should not be considered as determinative of such decision.

 

In the two years prior to the date of its opinion, Leerink Swann and its affiliates have provided financial advisory services and consulting services to Peplin unrelated to the merger, for which Leerink Swann and its affiliates received compensation of approximately US$350,000. Leerink Swann may also seek to provide services to LEO in the future and would receive fees for the rendering of such services.

 

The Peplin Board selected Leerink Swann as a financial advisor in connection with the merger because Leerink Swann is a nationally recognized investment banking firm with substantial experience in similar transactions and because of Leerink Swann’s familiarity with Peplin and its business. The issuance of Leerink Swann’s opinion was approved by Leerink Swann’s fairness opinion review committee.

 

Under the terms of its engagement letter, Leerink Swann provided Peplin with a financial opinion in connection with the merger, for which Peplin agreed to pay Leerink Swann a fee that is not contingent on the completion of the merger. Peplin also agreed to reimburse Leerink Swann for its expenses incurred in performing its services. In addition, Peplin agreed to indemnify Leerink Swann and its affiliates, their respective directors, officers, agents and employees and each person, if any, controlling Leerink Swann or any of its affiliates against certain liabilities and expenses, including certain liabilities under the federal securities laws, related to or arising out of Leerink Swann’s engagement. The terms of the fee arrangement with Leerink Swann, which are customary in transactions of this nature, were negotiated at arm’s length between Peplin and Leerink Swann, and the Peplin Board was aware of the arrangement.

 

When considering the recommendation of the Peplin Board in favor of the adoption of the merger agreement, you should be aware that the members of the Peplin Board and our executive officers have interests in the merger in addition to their interests as Peplin stockholders, optionholders and warrantholders generally. These interests may be different from, or inconsistent with, your interests as Peplin stockholders. The members of the Peplin Board were aware of these additional interests, and considered them, when they approved the merger agreement, the merger and the other transactions contemplated by the merger agreement. These interests include the following:

 

Acceleration of Stock Options and Restricted Stock.  Pursuant to the terms of the merger agreement with LEO, each In-the-Money Option (as defined in “The Merger Agreement — Treatment of Stock Options Granted under the 2007 Plan” beginning on page 49) and In-the-Money Warrant (as defined in “The Merger Agreement — Treatment of Warrants (including Peplin warrants represented by (CDIs)” beginning on page 49), including those In-the-Money Options and In-the-Money Warrants held by directors and executive officers, to the extent not vested, will accelerate and become fully vested and exercisable as of immediately prior to the completion of the merger. Additionally, each share of restricted stock, to the extent not vested, shall accelerate and become fully vested and exerciseable as of immediately prior to the completion of the merger.

 

The following table identifies, for each of the directors and executive officers of Peplin, the number of unvested options to acquire shares of Peplin common stock that would vest as of immediately prior to completion of the merger and the corresponding value representing the difference between the exercise price and the per share merger consideration multiplied by the number of shares underlying options whose vesting is being accelerated and the number of unvested shares of restricted stock that would vest as of immediately prior to the completion of the merger and the corresponding value representing the per share merger consideration multiplied by the number of shares of restricted stock whose vesting is being accelerated, assuming the merger is completed on October 31, 2009:

 

 

Benefits in Certain Employment Agreements.  Below are descriptions of benefits to be paid to certain executive officers of Peplin pursuant to arrangements existing prior to the start of Peplin’s strategic process described in “The Merger — Background of the Merger” beginning on page 14.

 

Change of Control Bonus.  Pursuant to the Employment Agreement between Peplin and Mr. Wiggans, dated as of August 15, 2008, and entered into upon the commencement of Mr. Wiggans’ employment with Peplin (the “Wiggans Employment Agreement”), upon the completion of the merger, Mr. Wiggans will be entitled to a lump sum payment of US$500,000.

 

Severance Payments.

 

 

 

Gross-Up Payments.  Pursuant to the Internal Revenue Code of 1986, as amended (the “Code”), if payments or benefits contingent upon the occurrence of a change in control of a company are made to a “disqualified individual” (as defined in the Code as certain senior executives of a company), and such payments or benefits equal or exceed at least three times the disqualified individual’s five-year average of the disqualified individual’s compensation reported on federal income tax returns (the “base amount”), then all payments or benefits in excess of one times the disqualified individual’s base amount are considered “parachute payments” that are subject to a 20% excise tax under the Code. Pursuant to the Wiggans Employment Agreement and Bauer Employment Agreement entered into in connection with their respective commencement of employment with Peplin in August 2008, if either Mr. Wiggans or Dr. Bauer receives payments or benefits in connection with the merger that are considered “parachute payments” and subject to this 20% excise tax, Peplin will pay to each of Mr. Wiggans and Dr. Bauer an additional amount, to cover the amount of such excise tax.

Benefits Table.  The information for each of Messrs. Wiggans, Smith and Bauer regarding bonus, severance and gross-up payments is set forth in the table below:

 

 

 

 

Offer Letters with LEO.  It is a condition to the obligation of LEO to complete the merger that certain of Peplin’s executive officers enter into offer letters with LEO prior to the completion of the merger, agreeing to remain employed by Peplin or become employed by LEO following the completion of the merger, provided that such executive officers have been offered a base salary and target cash incentive compensation immediately following the completion of the merger that is not less than the base salary and target cash incentive compensation as of the date of the merger agreement.

 

Indemnification and Insurance.  The merger agreement provides that all rights to exculpation, indemnification and advancement of expenses existing as of the date of the merger agreement in favor of Peplin’s current directors or officers, in their capacity as directors or officers will survive the merger and continue in full force and effect.

 

The merger agreement further provides that from and after the completion of the merger through the sixth anniversary of the date the merger is completed, the certificate of incorporation and the bylaws of the surviving corporation will contain, and LEO will cause them to so contain, provisions no less favorable with respect to indemnification, advancement of expenses and exculpation of former directors and officers in Peplin’s certificate of incorporation and bylaws existing as of the date of the merger agreement.

 

The merger agreement further provides that the surviving corporation will either (1) maintain the current policies of the directors’ and officers’ liability insurance maintained by Peplin, so long as the annual premium would not be in excess of 250% of the last annual premium paid prior to the completion of the merger or (2) obtain a “tail” insurance policy with a claim period of at least six years from the effective time of the merger. If the surviving corporation’s existing insurance expires, is terminated or canceled during such six-year period or exceeds 250% of the last annual premium paid prior to the effective time, the surviving corporation will obtain as much directors’ and

officers’ liability insurance as can be obtained for the remainder of such period for an annualized premium not in excess of 250% of the last annual premium paid prior to the effective time, on terms and conditions no less advantageous to Peplin’s current directors and officers than Peplin’s and its subsidiaries’ directors’ and officers’ existing liability insurance.

 

If the merger is completed, Peplin CDIs and certain Peplin warrants represented by CDIs will no longer be traded on the ASX and Peplin will be removed from the official list of the ASX in accordance with the ASX Listing Rules as soon as practicable following the completion of the merger. Additionally, Peplin will no longer be required to make filings with the SEC pursuant to the Exchange Act, which will be accomplished by filing a Form 25 with the SEC.

 

Peplin and LEO are parties to the merger agreement and the loan agreement. See “The Merger Agreement” beginning on page 48 and “The Merger Agreement — Loan Agreement” beginning on page 64.

 

LEO and each of Peplin’s executive officers and directors and certain of their affiliates are parties to voting agreements requiring such executive officers, directors and affiliates to vote their shares of Peplin common stock in favor of adoption of the merger agreement and against any competing acquisition proposals. See “The Merger Agreement — Voting Agreements” beginning on page 62.

 

Effective February 27, 2007, Peplin Limited, a wholly owned subsidiary of Peplin, and LEO entered into a confidentiality agreement (referred to as the “Confidentiality Agreement”). The Confidentiality Agreement was amended on March 10, 2009 to include Peplin as a party and extend the period during which information shared by the parties would remain confidential.

 

Holders of Peplin common stock who do not vote in favor of the adoption of the merger agreement and who otherwise comply with the statutory requirements of Section 262 of the Delaware General Corporation Law, or the DGCL, are entitled to certain appraisal rights under Delaware law, as described below and in Annex C hereto. Those holders who perfect their appraisal rights by strictly following certain procedures in the manner prescribed by Section 262 of the DGCL will be entitled to receive payment of the “fair value” (as determined by the Delaware Court of Chancery) of their shares in cash from Peplin, as the surviving corporation in the merger.

 

ANY PEPLIN STOCKHOLDER WHO WISHES TO EXERCISE APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE HIS OR HER RIGHT TO DO SO SHOULD REVIEW ANNEX C CAREFULLY AND SHOULD CONSULT HIS OR HER LEGAL ADVISOR, SINCE FAILURE TO COMPLY IN A TIMELY MANNER WITH THE PROCEDURES SET FORTH THEREIN WILL RESULT IN THE LOSS OF SUCH RIGHTS.

 

The record holders of the shares of Peplin common stock that elect to exercise their appraisal rights with respect to the merger are referred to herein as “Dissenting Stockholders,” and the shares of Peplin common stock with respect to which they exercise appraisal rights are referred to herein as “Dissenting Shares.” If a Peplin stockholder has a beneficial interest in shares of Peplin common stock that are held of record in the name of another person, such as a broker, bank or other nominee, and such Peplin stockholder desires to perfect whatever appraisal rights that stockholder may have, such beneficial Peplin stockholder must act promptly to cause the holder of record to timely and properly follow the steps summarized below.

 

A VOTE IN FAVOR OF THE ADOPTION OF THE MERGER AGREEMENT BY A PEPLIN STOCKHOLDER WILL RESULT IN A WAIVER OF SUCH HOLDER’S APPRAISAL RIGHTS UNDER DELAWARE LAW. IN ADDITION, BECAUSE A SUBMITTED PROXY NOT MARKED “AGAINST” OR “ABSTAIN” WILL BE VOTED “FOR” THE PROPOSAL TO ADOPT THE MERGER AGREEMENT, THE SUBMISSION OF A PROXY NOT MARKED “AGAINST” OR “ABSTAIN” WILL RESULT IN THE WAIVER OF APPRAISAL RIGHTS.

When the merger becomes effective, Peplin stockholders who have strictly complied and continue to strictly comply with the procedures prescribed in Section 262 of the DGCL will be entitled to a judicial appraisal of the fair value of their shares, exclusive of any element of value arising from the accomplishment or expectation of the merger, and to receive payment of the fair value of their shares in cash from Peplin, as the surviving corporation in the merger. The following is a brief summary of the statutory procedures that must be followed by a stockholder of Peplin in order to perfect appraisal rights under the DGCL. This summary is not intended to be complete and is qualified in its entirety by reference to Section 262 of the DGCL, the text of which is included as Annex C to this proxy statement. We advise any Peplin stockholder considering demanding an appraisal to consult legal counsel.

 

In order to exercise appraisal rights under Delaware law, a stockholder must be the stockholder of record of the shares of Peplin common stock as to which Peplin appraisal rights are to be exercised on the record date for the Peplin special meeting and on the date that the written demand for appraisal described below is made, and the stockholder must continuously hold such shares through the effective date of the merger. While Peplin stockholders electing to exercise their appraisal rights under Section 262 of the DGCL are not required to vote against the approval of the adoption of the merger agreement, a vote in favor of adoption of the merger agreement will result in a waiver of the holder’s right to appraisal rights.

 

A Peplin stockholder electing to demand the appraisal of such stockholder’s shares must deliver to Peplin, before the taking of the vote on the adoption of the merger agreement, a written demand for appraisal of such stockholder’s shares. Such demand will be sufficient if it reasonably informs Peplin of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such stockholder’s shares. A proxy or vote against the adoption of the merger agreement will not constitute such a demand. Please see the discussion below under the heading “Written Demands” for additional information regarding written demand requirements.

 

Within ten days after the effective date of the merger, Peplin, as the surviving corporation, must provide notice of the date of effectiveness of the merger to all Peplin stockholders who have not voted for approval of the merger agreement and who have otherwise complied with the requirements of Section 262 of the DGCL.

 

A Peplin stockholder who elects to exercise appraisal rights must mail or deliver the written demand for appraisal to:

 

Peplin, Inc.

6475 Christie Ave., Suite 300

Emeryville, California 94608

Attention: Investor Relations

 

Within 120 days after the effective date of the merger, any Dissenting Stockholder who has strictly complied with the procedures prescribed in Section 262 of the DGCL will be entitled, upon written request, to receive from Peplin, as the surviving corporation, a statement of the aggregate number of shares not voted in favor of the merger and with respect to which demands for appraisal have been received by Peplin, and the aggregate number of holders of those shares. This statement must be mailed to the Dissenting Stockholder within ten days after the Dissenting Stockholder’s written request has been received by Peplin, as the surviving corporation, or within ten days after the date of the effective date of the merger, whichever is later.

 

Within 120 days after the effective date of the merger, any Dissenting Stockholder who has strictly complied with the procedures prescribed in Section 262 of the DGCL may file a petition in the Delaware Court of Chancery, with a copy served on Peplin, as the surviving corporation, demanding a determination of the fair value of each share of Peplin stock of all Dissenting Stockholders. However, any stockholder who has complied with the requirements of Section 262 but has not commenced or joined an appraisal proceeding has the right to withdraw the appraisal demand any time within 60 days after the effective date of the merger.

 

If a petition for an appraisal is timely filed by a Dissenting Stockholder and a copy of the petition is delivered to Peplin, as the surviving corporation, the surviving corporation will then be obligated, within 20 days after receiving service, to provide the Delaware Court of Chancery with a duly verified list containing the names and addresses of any Dissenting Stockholders with whom agreements as to the value of their shares have not been reached.

After giving notice to the Dissenting Stockholders, the Delaware Court of Chancery will conduct a hearing upon the petition, and determine those stockholders that have complied with Section 262 of the DGCL and that have become entitled to appraisal rights. The Delaware Court of Chancery may require the Dissenting Stockholders to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; if any Dissenting Stockholder fails to comply with that direction, the Delaware Court of Chancery may dismiss the proceedings as to that stockholder.

 

After determining the stockholders entitled to appraisal rights, the Delaware Court of Chancery will appraise the shares of Peplin common stock owned by those stockholders by determining the fair value of the shares exclusive of any element of value arising from the accomplishment or expectation of the merger, together with the fair rate of interest to be paid, if any, on the amount determined to be the fair value. When fair value is determined, the Delaware Court of Chancery will direct the payment of that value, with interest, if any, by the surviving corporation to the stockholders entitled to appraisal rights, upon surrender to the surviving corporation of the certificates representing those shares.

 

Although the parties believe that the merger consideration is fair, no representation is made as to the outcome of the appraisal of fair value as determined by the Delaware Court of Chancery and stockholders should recognize that such an appraisal could result in a determination of a value higher or lower than, or the same as, the consideration they would receive pursuant to the merger agreement. Moreover, we do not anticipate offering more than the per share merger consideration to any stockholder exercising appraisal rights and reserve the right to assert, in any appraisal proceeding, that, for purposes of Section 262 of the DGCL, the “fair value” of a share of our common stock is less than the per share merger consideration. In determining “fair value,” the Delaware Court of Chancery is required to take into account all relevant factors. The Delaware Supreme Court has stated that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered and that “fair price obviously requires consideration of all relevant factors involving the value of a company.” The Delaware Supreme Court has stated that in making this determination of fair value, the court must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts which could be ascertained as of the date of the merger which throw any light on future prospects of the merged corporation. Stockholders should be aware that opinions as to the fairness, from a financial point of view, of the merger consideration are not opinions as to fair value under Section 262 of the DGCL.

 

If no petition for appraisal is filed with the Delaware Court of Chancery by Peplin, as the surviving corporation, or any Dissenting Stockholder within 120 days after the effective time of the merger, then the Dissenting Stockholders’ rights to appraisal will cease and they will be entitled only to receive merger consideration paid in the merger on the same basis as other Peplin stockholders. Since Peplin, as the surviving corporation, has no obligation to file a petition, any Peplin stockholder who desires a petition to be filed is advised to file it on a timely basis. No petition timely filed in the Delaware Court of Chancery demanding appraisal shall be dismissed as to any Peplin stockholder, however, without the approval of the Delaware Court of Chancery, which may be conditioned on any terms the Delaware Court of Chancery deems just.

 

The cost of the appraisal proceeding may be determined by the Delaware Court of Chancery and taxed upon the parties as the court deems equitable in the circumstances. Upon application of a Dissenting Stockholder who has strictly complied with the procedures prescribed in Section 262 of the DGCL, the court may order that all or a portion of the expenses incurred by any Dissenting Stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees, and the fees and expenses of experts, be charged pro rata against the value of all shares entitled to appraisal. In the absence of this determination or assessment, each party bears its own expenses.

 

After the effective time of the merger, a Dissenting Stockholder that has timely demanded appraisal in compliance with Section 262 of the DGCL will not be entitled to vote the Peplin common stock subject to such demand for any purpose or to receive payment of dividends or other distributions on the Peplin common stock, except for dividends or other distributions payable to stockholders of record at a date prior to the effective time of the merger.

At any time within sixty days after the effective time of the merger, any Dissenting Stockholder will have the right to submit a written withdrawal of the stockholder’s demand for appraisal and to accept the right to receive merger consideration in the merger on the same basis on which Peplin common stock is converted in the merger. After this sixty day period, a Dissenting Stockholder may withdraw such stockholder’s demand for appraisal only with the written consent of Peplin or LEO and the approval of the Delaware Court of Chancery.

 

Written Demands

 

When submitting a written demand for appraisal under the DGCL, the written demand for appraisal must reasonably inform Peplin of the identity of the stockholder of record making the demand and indicate that the stockholder intends to demand appraisal of the stockholder’s shares. A demand for appraisal should be executed by or for the Peplin stockholder of record, fully and correctly, as that stockholder’s name appears on the stockholder’s stock certificate. If Peplin common stock is owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, the demand should be executed by the fiduciary. If Peplin common stock is owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or for all joint owners. An authorized agent, including an agent for two or more joint owners, should execute the demand for appraisal for a stockholder of record; however, the agent must identify the record owner and expressly disclose the fact that, in exercising the demand, he, she or it is acting as agent for the record owner.

 

A record owner who holds Peplin common stock as a nominee for other beneficial owners of the shares may exercise appraisal rights with respect to the Peplin common stock held for all or less than all beneficial owners of the Peplin stock for which the holder is the record owner. In that case, the written demand must state the number of shares of Peplin common stock covered by the demand. Where the number of shares of Peplin common stock is not expressly stated, the demand will be presumed to cover all shares of Peplin common stock outstanding in the name of that record owner. Beneficial owners (other than holders of Peplin CDIs) who are not record owners and who intend to exercise appraisal rights should instruct the record owner to comply strictly with the statutory requirements with respect to the delivery of written demand prior to the taking of the vote on the merger.

 

Peplin stockholders considering whether to seek appraisal should bear in mind that the fair value of their Peplin common stock determined under Section 262 of the DGCL could be more than, the same as or less than the value of the right to receive merger consideration in the merger. Also, Peplin and LEO reserve the right to assert in any appraisal proceeding that, for purposes thereof, the “fair value” of the Peplin common stock is less than the value of the merger consideration to be issued in the merger.

 

Any stockholder who fails to strictly comply with the requirements of Section 262 of the DGCL, attached as Annex C to this proxy statement, will forfeit his, her or its rights to dissent from the merger and to exercise appraisal rights and will receive merger consideration on the same basis as all other stockholders.

 

Holders of Peplin CDIs are not entitled to exercise appraisal rights in connection with the merger. Holders of Peplin CDIs must have converted their Peplin CDIs into shares of Peplin common stock prior to the record date for the Peplin special meeting in order to exercise appraisal rights in connection with the merger.

 

THE PROCESS OF DISSENTING REQUIRES STRICT COMPLIANCE WITH TECHNICAL PREREQUISITES. THOSE INDIVIDUALS OR ENTITIES WISHING TO DISSENT AND TO EXERCISE THEIR APPRAISAL RIGHTS SHOULD CONSULT WITH THEIR OWN LEGAL COUNSEL IN CONNECTION WITH COMPLIANCE UNDER SECTION 262 OF THE DGCL. TO THE EXTENT THERE ARE ANY INCONSISTENCIES BETWEEN THE FOREGOING SUMMARY AND SECTION 262 OF THE DGCL, THE DGCL SHALL CONTROL.

 

The following is a summary of the material U.S. federal income tax consequences of the merger to stockholders of Peplin whose shares of Peplin common stock will be converted into the right to receive cash in the merger. The following summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations promulgated thereunder, judicial decisions and administrative rulings, all of which are subject to change, possibly with retroactive effect. As a result, Peplin cannot assure you that the tax consequences described

in this summary will not be challenged by the Internal Revenue Service (“IRS”) or will be sustained by a court if challenged by the IRS. The summary below is limited to stockholders who hold shares of Peplin common stock as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment). The summary does not address all of the U.S. federal income tax consequences that may be relevant to particular stockholders in light of their individual circumstances or to stockholders who are subject to special rules, including: certain former citizens or residents of the United States, insurance companies, dealers or brokers in securities or currencies, tax-exempt organizations, financial institutions, mutual funds, insurance companies, cooperatives, pass-through entities and investors in such entities, stockholders who have a functional currency other than the U.S. Dollar, holders of options or warrants to acquire Peplin common stock or stockholders who hold their shares of Peplin common stock as a hedge or as part of a hedging, straddle, conversion, synthetic security, integrated investment or other risk-reduction transaction or stockholders who acquired their shares of Peplin common stock upon the exercise of employee stock options or otherwise as compensation. If a partnership holds shares of Peplin common stock, the tax treatment of a partner generally will depend on the status of the partner and on the activities of the partnership. Partners of partnerships (or other entities taxed as a partnership for federal income tax purposes) holding Peplin common stock should consult their tax advisors. Further, this discussion does not address any U.S. federal estate and gift or alternative minimum tax consequences or any state, local, foreign, gift or estate tax consequences relating to the merger.

 

As used in this discussion, a “U.S. holder” is any beneficial owner of shares of Peplin common stock who is treated for U.S. federal income tax purposes as:

 

 

A “non-U.S. holder” is any beneficial owner of shares of Peplin common stock (other than an entity taxed as a partnership for federal income tax purposes) who is not a U.S. holder for U.S. federal income tax purposes.

 

U.S. Holders.  The receipt of cash pursuant to the merger by U.S. holders will be a taxable transaction for U.S. federal income tax purposes. Generally, for U.S. federal income tax purposes, a U.S. holder will recognize gain or loss equal to the difference between the amount of cash received by the U.S. holder in the merger and the U.S. holder’s adjusted tax basis in the shares of Peplin common stock. Assuming the shares of Peplin common stock are held by a U.S. holder as capital assets, gain or loss recognized by such U.S. holder will be capital gain or loss, which will be long-term capital gain or loss if the U.S. holder’s holding period for the shares of Peplin common stock exceeds one year at the time of the merger. Capital gains recognized by an individual upon a disposition of a share of Peplin that has been held for more than one year generally will be subject to a maximum U.S. federal income tax rate of 15% or, in the case of a share that has been held for one year or less, will be subject to tax at ordinary U.S. federal income tax rates. In addition, there are limits on the deductibility of capital losses. The amount and character of gain or loss must be determined separately for each block of Peplin common stock (i.e., shares acquired at the same cost in a single transaction) converted into cash in the merger.

 

Non-U.S. Holders.  A non-U.S. holder generally will not be subject to U.S. federal income tax on any gain realized on the receipt of cash in exchange for shares of Peplin common stock in the merger. This general rule, however, is subject to some exceptions. For example, the gain would be subject to U.S. federal income tax if:

 

 

 

Unless a tax treaty provides otherwise, gain described in the first bullet point above will be subject to U.S. federal income tax on a net income basis in the same manner as if the non-U.S. holder were a resident of the United States. Non-U.S. holders that are foreign corporations also may be subject to a 30% branch profits tax (or applicable lower treaty rate). Gains described in the second bullet point above generally will be subject to U.S. federal income tax at a flat 30% rate (or applicable lower treaty rate), but may be offset by U.S. source capital losses, even though the individual is not considered a resident of the United States. Non-U.S. Holders are encouraged to consult their own tax advisors regarding the United States federal income tax consequences of the merger and as to the application of any income tax treaties.

 

Appraisal Rights.  Under specified circumstances, a stockholder may be entitled to appraisal rights in connection with the merger. If a U.S. holder of Peplin common stock receives cash pursuant to the exercise of appraisal rights, such holder generally will recognize gain or loss, measured by the difference between the cash received and such holder’s tax basis in such stock. Interest, if any, awarded in an appraisal proceeding by a court would be included in a U.S. holder’s income as ordinary income for U.S. federal income tax purposes. Holders of Peplin common stock who exercise appraisal rights are urged to consult their own tax advisors.

 

Backup Withholding.  A U.S. holder (other than certain exempt stockholders, including, among others, all corporations and certain foreign individuals) whose shares of Peplin common stock are converted into cash in the merger may be subject to backup withholding at the then applicable rate (under current law, the backup withholding rate is 28%) unless the U.S. holder provides the holder’s taxpayer identification number, or TIN, and certifies under penalties of perjury that such TIN is correct (or properly certifies that it is awaiting a TIN) and the holder is not subject to backup withholding and otherwise complies with the applicable requirements of the backup withholding rules. A U.S. holder that does not furnish a required TIN or that does not otherwise establish a basis for an exemption from backup withholding may be subject to a penalty imposed by the Internal Revenue Service, or the IRS. Each U.S. holder that is an individual should complete and sign the Substitute Form W-9 included as part of the letter of transmittal that will be sent to U.S. holders promptly following completion of the merger so as to provide the information and certification necessary to avoid backup withholding. Each non-U.S. holder must submit a signed statement (on Form W-8BEN or other applicable form) attesting to U.S. holder’s exempt status. Backup withholding is not an additional tax. Rather, the amount of the backup withholding can be credited against the U.S. federal income tax liability of the person subject to backup withholding, provided that the required information is given to the IRS. If backup withholding results in an overpayment of tax, a refund can be obtained by the stockholder by filing a U.S. federal income tax return.

 

THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS FOR GENERAL INFORMATION ONLY AND IS BASED ON THE LAW IN EFFECT ON THE DATE HEREOF. STOCKHOLDERS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES OF THE MERGER TO THEM (INCLUDING THE APPLICATION AND EFFECT OF THE U.S. FEDERAL INCOME TAX LAWS, ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS).

 

The following is a summary of the material Australian income tax consequences of disposing of shares of Peplin common stock, including Peplin CDIs in respect of such shares, held on capital account pursuant to the merger. The summary is necessarily general in nature. It does not take into account the specific circumstances of any holder of shares of Peplin common stock or Peplin CDIs. In particular, it does not take into account the holding of shares of Peplin common stock or Peplin CDIs as trading stock or otherwise on revenue account, or the holding of shares of Peplin common stock or Peplin CDIs acquired in respect of any employment or the provision of any

services. Nor does it address the tax consequences in any country other than Australia. The holders of shares of Peplin common stock or Peplin CDIs and the holders of Peplin stock options or Peplin warrants are advised to obtain professional tax advice that takes into account their specific circumstances.

 

Material Australian Income Tax Consequences for Australian Residents

 

Capital Gain or Loss.  The disposal of shares of Peplin common stock or Peplin CDIs pursuant to the merger will be a capital gains tax (“CGT”) event. An Australian resident holder of shares of Peplin common stock or Peplin CDIs will make either:

 

 

An Australian resident holder of shares of Peplin common stock or Peplin CDIs must include a net capital gain in assessable income for the income year in which the effective time occurs (i.e., the income year ending June 30, 2010 for most Australian resident holders of shares of Peplin common stock or Peplin CDIs), subject to the CGT discount (see CGT discount below).

 

An Australian resident holder of shares of Peplin common stock or Peplin CDIs may generally carry forward a net capital loss to offset capital gains made in a later income year.

 

Capital Proceeds.  For the purpose of working out the capital gain or capital loss on the disposal of shares of Peplin common stock or Peplin CDIs, the capital proceeds will be the per share merger consideration of US$16.99 per share of Peplin common stock converted to Australian dollars. Generally, the exchange rate applicable at the completion of the merger should be adopted.

 

Cost Base.  For the purpose of working out a capital gain on the disposal of shares of Peplin common stock or Peplin CDIs, the cost base will generally include any money paid to acquire the shares of Peplin common stock or Peplin CDIs plus any incidental costs of acquisition and disposal. If the shares of Peplin common stock or Peplin CDIs were acquired before September 21, 1999, the cost base may also include indexation to take account of inflation up to September 30, 1999. However, the cost base cannot include indexation for inflation where the CGT discount applies (see CGT discount below).

 

For the purpose of working out a capital loss on the disposal of shares of Peplin common stock or Peplin CDIs, the reduced cost base is worked out in the same way as the cost base except that the reduced cost base cannot include indexation for inflation.

 

In the case of a holder of shares of Peplin common stock or Peplin CDIs that exchanged shares in Peplin Limited for Peplin common stock or Peplin CDIs and chose CGT roll-over relief, references to shares of Peplin common stock or Peplin CDIs in this section include shares in Peplin Limited.

 

CGT Discount.  A holder of shares of Peplin common stock or Peplin CDIs that is an individual, a complying superannuation entity or a trust may be entitled to the CGT discount on the disposal of shares of Peplin common stock or Peplin CDIs that have been held for at least 12 months before the completion of the merger.

 

The CGT discount reduces the capital gain otherwise assessable by:

 

 

The CGT discount only reduces the net capital gain remaining after any capital losses have been applied.

 

For the purpose of meeting the 12 month holding requirement, a holder of shares of Peplin common stock or Peplin CDIs that exchanged shares in Peplin Limited for Peplin common stock or Peplin CDIs and chose CGT roll-over relief is taken to have held the shares of Peplin common stock or Peplin CDIs since the shares in Peplin Limited were acquired.

Peplin Stock Options.  The consequences of disposing of Peplin stock options will depend on whether an Australian resident holder made an election to be assessed in respect of the Peplin stock options in the income year in which the Peplin stock options were acquired.

 

If the holder made the election, the consequences will be similar to the consequences of disposing of shares of Peplin common stock or Peplin CDIs. That is, the disposal will be a CGT event and the holder of Peplin stock options will make a capital gain or a capital loss equal to the difference between the capital proceeds and the cost base of the Peplin stock options. The capital proceeds will be the amount in cash received converted to Australian dollars at the effective time. The cost base will generally include the market value of the Peplin stock options at the time of acquisition plus any incidental costs of acquisition and disposal. There may be an entitlement to the CGT discount subject to the Peplin stock options having been held for at least 12 months before the completion of the merger.

 

If the holder did not make the election, the consequence will be that the holder will derive assessable income equal to the difference between the amount of cash received and the amount paid to acquire the Peplin stock options (if any), converted to Australian dollars at the completion of the merger. There will be no entitlement to the CGT discount.

 

Peplin Warrants.  The consequences of disposing of Peplin warrants held on capital account will be similar to the consequences of disposing of shares of Peplin common stock or Peplin CDIs. That is, the disposal will be a CGT event and an Australian resident holder of Peplin warrants will make a capital gain or a capital loss equal to the difference between the capital proceeds and the cost base of the Peplin warrants. The capital proceeds will be the amount in cash received converted to Australian dollars at the completion of the merger. The cost base will generally include any money paid to acquire the Peplin warrants plus the incidental costs of acquisition and disposal. There may be an entitlement to the CGT discount subject to the Peplin warrants having been held for at least 12 months before the completion of the merger.

 

Material Australian Income Tax Consequences for Non-Residents

 

Peplin Common Stock or Peplin CDIs.  A non-resident holder of shares of Peplin common stock or Peplin CDIs will not be liable to Australian income tax on the disposal of shares of Peplin common stock or Peplin CDIs pursuant to the merger unless the shares of Peplin common stock or Peplin CDIs are taxable Australian property.

 

Shares of Peplin common stock or Peplin CDIs would generally only be taxable Australian property if:

 

 

 

 

It is understood that Peplin does not meet the 50% of market value test. Accordingly, a non-resident holder of shares of Peplin common stock or Peplin CDIs would generally only be liable to Australian income tax on the disposal if the non-resident holder has used the shares of Peplin common stock or Peplin CDIs in carrying on a business through a permanent establishment in Australia. Such a non-resident holder of shares of Peplin common stock or Peplin CDIs is advised to obtain professional tax advice that takes into account their specific circumstances. A double taxation agreement (if any) between Australia and the non-resident holder’s country of residence may also be relevant to the relief of double taxation.

 

Peplin Stock Options and Peplin Warrants.  A non-resident holder of Peplin stock options or Peplin warrants would generally not be liable to Australian income tax on disposal on the basis that the Peplin stock options and

Peplin warrants would not be taxable Australian property. However, a holder of Peplin stock options that has been employed, or provided services, in Australia in respect of the Peplin stock options is advised to obtain professional tax advice that takes into account their specific circumstances. A holder of Peplin warrants who has used the Peplin warrants in carrying on a business through a permanent establishment in Australia is also advised to obtain professional tax advice that takes into account their specific circumstances.

 

THE SUMMARY OF AUSTRALIAN INCOME TAX CONSEQUENCES SET FORTH ABOVE IS FOR GENERAL INFORMATION ONLY AND IS BASED ON THE LAW IN EFFECT ON THE DATE HEREOF. STOCKHOLDERS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES OF THE MERGER TO THEM.

 

To complete the merger, we must obtain all material federal and state approvals, consents and filings. Other than the expiration or termination of the waiting period applicable to the completion of the merger under the HSR Act, the receipt by LEO of a notice of no objection to LEO acquiring the shares of Peplin common stock in the merger under the Australian Foreign Acquisitions and Takeovers Act 1975 (Cth) and certain customary ASX approvals, we are not currently aware of any material federal or state approvals, consents or filings that are required for the parties’ completion of the merger. If any such approvals, consents or filings are required to complete the merger, we will seek or make such consents, approvals and filings. Peplin and LEO have completed the filing of the application with the Department of Justice and the Federal Trade Commission pursuant to the HSR Act and the waiting period will expire on October 16, 2009 if not earlier terminated.

 

The summary of the material provisions of the merger agreement below and elsewhere in this proxy statement is qualified in its entirety by reference to the merger agreement, a copy of which is attached to this proxy statement as Annex A and which we incorporate by reference into this document. This summary does not purport to be complete and may not contain all of the information about the merger agreement that is important to you. We encourage you to read carefully the merger agreement in its entirety.

 

Subject to the terms and conditions of the merger agreement and in accordance with the DGCL, at the effective time of the merger, Merger Sub will merge with and into Peplin. Peplin will survive the merger as a wholly owned subsidiary of LEO.

 

The completion of the merger will occur as soon as reasonably practicable after all of the conditions to the completion of the merger contained in the merger agreement are satisfied or waived, including adoption of the merger agreement by our stockholders. The merger will become effective upon the filing of a certificate of merger with the Secretary of State of the State of Delaware, or at such later time as LEO and Peplin may agree in such certificate of merger. We currently expect to complete the merger shortly after the special meeting that has been scheduled for November 5, 2009, at 4:00 p.m. California time (on November 6, 2009, at 10:00 a.m., Brisbane time). However, it is possible that factors outside of our control could require us to complete the merger at a later time, or not complete it at all.

 

If the merger is completed, you will receive US$16.99 in cash, without interest, subject to any applicable withholding tax, in exchange for each share of Peplin common stock that you own and for which you have not properly exercised appraisal rights. If you hold Peplin CDIs, you will receive US$0.8495 in cash, without interest, subject to any applicable withholding tax, in exchange for each Peplin CDI that you own.

 

The per share merger consideration of US$16.99 is set forth in the merger agreement and denominated in United States dollars. Payment to the holders of Peplin CDIs will be made in Australian dollars at the exchange rate of the United States dollar to the Australian dollar as of the date of payment. Fluctuations in the exchange rate of the United States dollar to the Australian dollar through the date of payment will affect the amount of Australian dollars into which Peplin CDIs are converted upon the completion of the merger.

 

After the merger is completed, you will have the right to receive the merger consideration, but you will no longer have any rights as a Peplin stockholder as a result of the merger. Peplin stockholders will receive the merger consideration after exchanging their Peplin stock certificates in accordance with the instructions contained in the letter of transmittal to be sent to the Peplin stockholders shortly after completion of the merger. Holders of Peplin CDIs are not required to exchange their holding statement(s) in order to receive the merger consideration.

 

In the event that during the period commencing on September 2, 2009 and ending at the completion of the merger, the outstanding shares of Peplin common stock are changed into a different number or class of shares by reason of any stock split, division or subdivision of shares, stock dividend, reverse stock split, consolidation of shares, reclassification, recapitalization or other similar transaction, or if Peplin declares a stock dividend during such period, or a record date with respect to any such event occurs during such period, then the per share merger consideration will be adjusted to the extent appropriate to provide the same economic effect as contemplated by the merger agreement prior to such action, and all references in this proxy statement and the merger agreement to specified numbers of shares of any class or series affected thereby, and all calculations provided for that are based upon such numbers, will be adjusted accordingly.

 

If Peplin breached its representations and warranties regarding the outstanding shares of Peplin common stock and outstanding options, warrants and other securities and as a result of the facts giving rise to such breach, the aggregate merger consideration would exceed the sum of (a) US$287.5 million plus (b) the aggregate exercise price

of any options or warrants exercised between the date of the merger agreement and the effective time of the merger, to the extent received by Peplin, then LEO may elect to adjust the per share merger consideration downward, to be an amount determined by dividing US$287.5 million by the actual number of shares and such securities outstanding, giving effect to the exercise prices of Peplin options and warrants.

 

At the completion of the merger, each stock option granted under the 2007 Plan that is not exercised prior to the completion of the merger (whether or not then vested), and that has a per share exercise price less than US$16.99 per share (an “In-the-Money Option”) will automatically be cancelled and converted into the right to receive an amount in cash equal to the difference between (a) the number of shares underlying such In-the-Money Option multiplied by US$16.99, and (b) the aggregate exercise price of such In-the-Money Option, subject to any applicable withholding tax. Each In-the-Money Option, to the extent not vested, will accelerate and become fully vested and exercisable as of immediately prior to the completion of the merger.

 

All options granted under the 2007 Plan that are not exercised prior to the completion of the merger (whether or not then vested), and that are not In-the-Money Options will automatically be cancelled at the completion of the merger and will not be entitled to any consideration.

 

The merger agreement further provides that as soon as reasonably practicable after the completion of the merger, LEO or the surviving corporation will pay over to each holder of In-the-Money Options the aggregate cash consideration payable to such holder of In-the-Money Options. Such cash consideration will be rounded down to the nearest cent and LEO and the surviving corporation will be entitled to deduct and withhold from such cash consideration such amounts as may be required to be deducted and withheld with respect to the making of such payment.

 

At the completion of the merger, each warrant (including certain Peplin warrants which are quoted on ASX under the code “PLIO” and are represented by CDIs, which are sometimes referred to as “quoted options” in Australia) that is not exercised prior to the completion of the merger (whether or not then vested), and that has a per share purchase price less than US$16.99 per share (an “In-the-Money Warrant”) will automatically be cancelled and converted into the right to receive an amount in cash equal to the difference between (a) the number of shares underlying the In-the-Money Warrant multiplied by US$16.99, and (b) the aggregate purchase price of the In-the-Money Warrant. Each In-the-Money Warrant, to the extent not vested, will accelerate and become fully vested and exercisable as of immediately prior to the completion of the merger.

 

All warrants that are not exercised prior to the completion of the merger (whether or not then vested), and that are not In-the-Money Warrants will automatically be cancelled at the completion of the merger and will not be entitled to any consideration.

 

LEO and the surviving corporation will be entitled to deduct and withhold from such cash consideration such amounts as may be required to be deducted and withheld with respect to the making of such payment. To the extent required by the terms of the applicable warrant, prior to completion of the merger, LEO will provide each holder of a warrant with a letter that conforms to the applicable notice and purchase requirements of the warrant and sets forth the treatment of the warrant.

 

As soon as practicable after the completion of the merger, LEO will cause the paying agent to mail to each holder of record of a certificate or certificates which immediately prior to the completion of the merger represented outstanding shares of Peplin common stock (collectively, the “Certificates”), and each holder of uncertificated shares of Peplin common stock represented by book-entry (including Peplin CDIs, the “Book-Entry Shares”): (i) a letter of transmittal; and (ii) instructions for effecting the surrender of such Certificates or Book-Entry Shares in exchange for such holder’s applicable portion of the merger consideration.

Upon surrender of a Certificate, or in the case of Book-Entry Shares, in adherence with the applicable procedures set forth in the letter of transmittal (if any), to the paying agent, together with such letter of transmittal and such other documents as may be reasonably required by the paying agent or LEO, the holder of such Certificate or Book-Entry Shares will be entitled to receive their applicable portion of the merger consideration.

 

No interest will be paid or will accrue on any cash payable in connection with the merger upon the surrender of Certificates.

 

The merger agreement contains representations and warranties made by Peplin to LEO and Merger Sub and representations and warranties made by LEO and Merger Sub to Peplin. The representations and warranties contained in the merger agreement were made only for purposes of the merger agreement and as of specified dates, were solely for the benefit of the parties to the merger agreement, and may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures exchanged between the parties in connection with the execution of the merger agreement. The representations and warranties have been made for the purposes of allocating contractual risk between the parties to the merger agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. For the foregoing reasons, you should not rely on the representations and warranties or any descriptions thereof as characterizations of the actual state of facts or condition of Peplin, LEO, Merger Sub or any of their respective subsidiaries or affiliates. The representations and warranties in the merger agreement and the description of them in this proxy statement should be read in conjunction with the other information contained in the reports, statements and filings Peplin publicly files with the SEC and the ASX.

 

We made a number of representations and warranties to LEO and Merger Sub regarding, among other things:

 

 

 

In the event that the merger is completed, our representations and warranties will expire at the completion of the merger.

 

LEO and Merger Sub made a number of representations and warranties to us in the merger agreement regarding, among other things:

 

 

In the event that the merger is completed, the representations and warranties of LEO and Merger Sub will expire at the completion of the merger.

 

Several of the representations, warranties, covenants, closing conditions and termination provisions in the merger agreement use the phrase “material adverse effect.” The merger agreement provides that “material adverse effect” means, with respect to Peplin, any effect, change, event or circumstance that, considered together with all other effects, changes, events or circumstances, is or would reasonably be expected to be or to become materially adverse to, or has or would reasonably be expected to have or result in a material adverse effect on:

 

 

The merger agreement provides, however, that none of the following, alone or in combination, be deemed to constitute, nor will any of the following be taken into account in determining whether there has occurred, a material adverse effect with respect to Peplin:

 

 

Any termination of any ongoing clinical studies of PEP005 (ingenol mebutate) for safety reasons in accordance with the protocol for such clinical studies or as a result of an action by a governmental body would be considered to constitute a material adverse effect with respect to Peplin.

 

We have agreed that, until the completion of the merger, we and our subsidiaries will continue to carry on our businesses in the ordinary course and in compliance in with all applicable legal requirements, use commercially reasonable efforts to preserve our current business organization, keep available the services of our current officers and employees and preserve our relationships with suppliers, customers, licensors, licensees, distributors and other persons we have contractual or business dealings, use commercially reasonable efforts to keep in full force all insurance policies and promptly notify LEO of written notice from any person alleging that their consent is necessary to effect the merger or the commencement of any legal proceeding or threatened legal proceeding that relates to the merger.

 

We have agreed that, until the completion of the merger, except as otherwise agreed to in writing by LEO, we will not, and will not permit any of our subsidiaries to do the following:

 

 

 

 

We have agreed that we will not, directly or indirectly, and that our subsidiaries and their representatives will not, directly or indirectly:

 

 

Pursuant to the merger agreement, we have ceased, and caused to be terminated any discussions ongoing as of the date of the merger agreement with any person that related to any proposal for an alternative acquisition proposal.

 

However, at any time prior to the adoption of the merger agreement by the Peplin stockholders (and holders of Peplin CDIs), if:

 

 

 

then we may, furnish or make available non-public information regarding Peplin to, enter into discussions and negotiations with, or amend, waive or release restrictions contained in any standstill or similar agreement applicable to, any such person.

 

The merger agreement provides that Peplin will promptly (and in no event later than 48 hours after receipt of any acquisition inquiry or acquisition proposal) advise LEO of any acquisition inquiry or acquisition proposal (including the identity of the person making or submitting such acquisition inquiry or acquisition proposal, and the material terms thereof) that is made or submitted by any person between the date of the merger agreement and the completion of the merger. The merger agreement further provides that Peplin will keep LEO informed in all material respects with respect to: (i) the status of any such acquisition inquiry or acquisition proposal; and (ii) the status and material terms of any modification or proposed modification thereto.

 

The merger agreement provides that a “superior offer” is an unsolicited bona fide, written offer by a third party to acquire, all or substantially all of the assets of the Peplin and its subsidiaries, taken as a whole, or in excess of 50% of the outstanding voting securities of Peplin that (a) was not obtained or made as a direct or indirect result of a breach by Peplin of the non-solicitation provisions in the merger agreement or the Confidentiality Agreement, (b) is determined by the Peplin Board, in its good faith judgment, after consultation with its financial advisors and after taking into account the likelihood and anticipated timing of completion, to be more favorable from a financial point of view to the Peplin stockholders than the merger and (c) contemplates a transaction that is reasonably capable of being consummated.

 

The merger agreement provides that at any time prior to the adoption of the merger agreement by the Peplin stockholders, the recommendation of the Peplin Board that the Peplin stockholders adopt the merger agreement (the “Peplin Board Recommendation”) may be withdrawn or modified in a manner adverse to LEO, if:

 

 

The merger agreement further provides that the Peplin Board may also withdraw the Peplin Board Recommendation if:

 

 

In the event that our board withdraws or modifies the Peplin Board Recommendation in a manner adverse to LEO and the merger agreement is subsequently terminated, we will be required to pay a termination fee of US$10 million to LEO. See “The Merger Agreement — Expenses and Termination Fee” beginning on page 61. In addition, prior to a termination of the merger agreement, Peplin’s obligation to call, give notice of and hold the special meeting is not limited or otherwise affected by the commencement, disclosure, making, announcement or submission of any superior offer or other acquisition proposal, by any intervening event or by any withdrawal or modification of the Peplin Board Recommendation.

 

LEO has agreed in the merger agreement that all Peplin employees who continue employment with LEO, the surviving corporation or any subsidiary of the surviving corporation will be eligible to participate in LEO’s employee benefit plans, to the same extent as similarly situated employees of LEO’s and those of Peplin’s employee benefit plans that are continued by the surviving corporation following the completion of the merger. The merger agreement provides that subject to certain limited exceptions, each continuing Peplin employee will receive full credit for their time worked for Peplin for purposes of eligibility, vesting and vacation under LEO’s employee benefit plans.

 

Peplin has agreed to cooperate and work with LEO to help LEO identify employees of Peplin and its subsidiaries whom LEO may elect to offer continued employment with the surviving corporation, its subsidiaries or LEO and assist LEO with its efforts to enter into employment agreements with such employees.

 

If requested by LEO at least two business days prior to the completion of the merger, Peplin will take actions to terminate, effective prior to the date on which the merger becomes effective, any plan that contains a cash or deferred arrangement intended to qualify under Section 401(k) of the Code.

 

The merger agreement provides that all rights to exculpation, indemnification and advancement of expenses existing as of the date of the merger agreement in favor of Peplin’s current or former directors or officers, in their capacity as directors or officers, will survive the merger and continue in full force and effect.

 

LEO has agreed that from and after the completion of the merger through the sixth anniversary of the date the merger is completed, the certificate of incorporation and the bylaws of the surviving corporation will contain, and LEO will cause them to so contain, provisions no less favorable with respect to indemnification, advancement of expenses and exculpation of former directors and officers than the provisions in Peplin’s certificate of incorporation and bylaws existing as of the date of the merger agreement.

 

The merger agreement further provides that the surviving corporation will either (1) maintain the current policies of the directors’ and officers’ liability insurance maintained by Peplin, so long as the annual premium would not be in excess of 250% of the last annual premium paid prior to the effective time or (2) obtain a “tail” insurance policy with a claim period of at least six years from the effective time of the merger. If the surviving corporation’s existing insurance expires, is terminated or canceled during such six-year period or exceeds 250% of the last annual premium paid prior to the effective time, the surviving corporation will obtain as much directors’ and officers’ liability insurance as can be obtained for the remainder of such period for an annualized premium not in excess of 250% of the last annual premium paid prior to the effective time, on terms and conditions no less advantageous to Peplin’s current directors and officers than Peplin’s and its subsidiaries’ existing directors’ and officers’ liability insurance.

 

Prior to the completion of the merger, Peplin will take all actions that are necessary or appropriate to provide that the Peplin CDIs will, immediately prior to the effective time of the merger or such other time agreed upon, be suspended from quotation on the ASX and cancelled or transmuted into the underlying shares of Peplin common stock or Peplin warrants (as the case may be), and that the shares of Peplin common stock underlying the Peplin CDIs will be exchanged for their applicable share of merger consideration. As soon as practicable after the completion of the merger, the surviving corporation will apply to the ASX to delist Peplin.

 

The merger agreement also contains covenants relating to the granting of access to information regarding Peplin and its subsidiaries, the preparation of this proxy statement, the holding of the special meeting of Peplin stockholders, cooperation regarding regulatory filings, the continued effect of the Confidentiality Agreement, consulting with the other party before issuing press releases or public statements regarding the merger, the taking of action regarding Section 16(a) of the Exchange Act, the resignation of Peplin’s officers and directors prior to the completion of the merger and Peplin giving LEO the opportunity to participate in the defense or settlement of any stockholder litigation against Peplin relating to the merger agreement or the merger.

 

The parties are obligated to effect the merger only if the following conditions are satisfied or, to the extent permitted by law, waived by both Peplin, on one hand, and LEO and Merger Sub, on the other hand:

 

 

We will not be obligated to effect the merger unless the following additional conditions are satisfied or waived by us:

 

 

 

LEO and Merger Sub will not be obligated to effect the merger unless the following additional conditions are satisfied or waived by LEO:

 

 

 

The merger agreement may be terminated by the parties under certain circumstances, including:

 

 

 

 

 

 

 

 

We must pay a US$10 million termination fee in cash, less any fees and expenses up to US$2 million that are paid to LEO as described below, if:

 

 

All fees and expenses incurred in connection with the merger agreement will be paid by the party incurring such expenses. However, if the merger agreement is terminated by LEO or Peplin following the failure of the Peplin stockholders to approve the adoption of the merger agreement, then Peplin must within 60 business days following

such termination reimburse LEO for all reasonable and documented fees and expenses incurred or paid by LEO in connection with the merger agreement and related documents, the due diligence investigation conducted with respect to Peplin and its subsidiaries, and all transactions contemplated by the merger agreement, up to a maximum of US$2 million.

 

The merger agreement provides that the parties may amend the merger agreement by written instrument signed by each of the parties to the merger agreement. However, following adoption of the merger agreement by the Peplin stockholders, any amendment that would require the further approval of the Peplin stockholders may not be made without the further approval of the Peplin stockholders.

 

The merger agreement also provides that, at any time before completion of the merger, LEO and Merger Sub on one hand and Peplin on the other hand may:

 

 

In the event that Peplin brings a legal proceeding for monetary damages for breach of the merger agreement in which it is held that the right to obtain such monetary damages (including damages based on the loss of economic benefits of the merger, if determined appropriate) is solely held by the holders of Peplin common stock, options and warrants, then such rights may be enforced on their behalf by Peplin as agent for the holders of Peplin common stock, options and warrants.

 

The parties to the merger agreement agreed that irreparable damage would occur if a provision of the merger agreement were not performed in accordance with the terms thereof and further agreed that the parties shall be entitled to seek and obtain, if available, an injunction or injunctions to prevent breaches of the merger agreement and to enforce specifically the terms and provisions of the merger agreement.

 

As a condition and inducement to LEO entering into the merger agreement, certain of our directors, executive officers and their affiliates, in their capacities as Peplin stockholders, optionholders and warrantholders (each a “Signatory” and together, “Signatories”), entered into voting agreements with LEO, pursuant to which each such Signatory agreed, among other things, to vote or cause to be voted all outstanding shares of Peplin common stock beneficially owned by such Signatories in favor of adoption of the merger agreement and against any competing acquisition proposals. The parties that have entered into voting agreements beneficially owned and exercised voting control over an aggregate of 5,125,675 shares of Peplin common stock as of the record date for the special meeting, which constituted approximately 33.35% of the shares of Peplin common stock outstanding on that date. LEO did not pay Signatories any consideration for their execution and delivery of the voting agreements other than the consideration they may receive pursuant to the merger agreement in respect of their shares.

 

The voting agreements require each Signatory, among others things, to vote the subject shares as follows:

 

 

 

 

In addition, each Signatory subject to a voting agreement appointed two officers of LEO as irrevocable proxies to vote such Signatory’s shares of Peplin common stock in the manner set forth above.

 

Each Signatory subject to a voting agreement also agreed that he would not:

 

 

The Signatories’ obligations under the voting agreements will terminate upon the earliest to occur of the date on which the merger becomes effective, the date on which the merger agreement is validly terminated, including if Peplin exercises its Fiduciary Termination Right, or by the written agreement of LEO and each Signatory.

 

As a condition and inducement to LEO entering into the merger agreement, three of our executive officers entered into noncompetition agreements with LEO, dated as of September 2, 2009, pursuant to which each such officer agreed not to do any of the following:

 

 

 

 

for a period of two or three years (depending on the executive officer) from the completion of the merger. LEO did not pay the executive officers any consideration for their execution and delivery of the noncompetition agreements other than the consideration they may receive pursuant to the merger agreement in respect of their equity securities in Peplin and any payments to which such executive officers are otherwise entitled in connection with the merger.

 

As a condition and inducement to Peplin entering into the merger agreement, Peplin and LEO entered into a loan agreement, dated as of September 2, 2009, pursuant to which LEO agreed to provide loans to Peplin of up to an aggregate principal amount of US$24 million. Each advance on the loan agreement bear interest at a rate per annum equal to the sum of the applicable one-month London Inter-Bank Offering Rate, or LIBOR, for the U.S. dollar on the date of such advance plus 2% until the termination of the merger agreement. After the termination of the merger agreement, LIBOR for the U.S. dollar plus 9%. Peplin may request no more than one advance in any 15-day period, and each advance cannot exceed the lesser of (a) US$2 million and (b) the amount of Peplin’s budgeted cash expenditures and transaction expenses for the month (less any amounts previously borrowed under the loan agreement for such month), but in no event shall the aggregate principal amount of all outstanding advances exceed the aggregate amount available under the loan agreement.

 

The loan agreement is unsecured and loans under the loan agreement are subordinated to loans pursuant to Peplin’s debt and other obligations outstanding pursuant to its loan facility with General Electric Capital Corporation and Oxford Finance Corporation, which we refer to as the GE loan agreement.

 

The principal of, and accrued interest on, the advances must be repaid on that date which is the earlier to occur of: (a) April 1, 2011; (b) the date that is seven days after the merger is completed; (c) the date that is seven days after the consummation of an acquisition by Peplin by a third party other than LEO; and (d) the date that is six months after the termination of the GE loan agreement.

 

The Loan Agreement contains limited representations and warranties and affirmative covenants applicable to Peplin and its subsidiaries. However, from and after the termination of the merger agreement, most of the covenants contained in the GE loan agreement are incorporated into the loan agreement. These covenants include restrictions on liens, indebtedness, dispositions, mergers and acquisitions, restricted payments and investments. The loan agreement also includes customary events of default, including, from and after the termination of the merger agreement, cross-defaults to the GE loan agreement and other material indebtedness of Peplin.

 

The following table sets forth information with respect to the beneficial ownership of the Peplin common stock as of September 15, 2009, with respect to:

 

 

Beneficial ownership is determined in accordance with the rules of the SEC. Except as indicated in the footnotes to this table and pursuant to state community property laws, each stockholder named in the table has sole voting and investment power for the shares shown as beneficially owned by such stockholder. Percentage of ownership is based on 15,371,121 shares of Peplin common stock outstanding on September 15, 2009. The number of shares of Peplin common stock outstanding used in calculating the percentage for each listed person and entity (and for all executive officers and directors as a group) includes Peplin common stock underlying options held by that person or entity (or by all executive officers and directors as a group, as the case may be) that are exercisable within 60 days of September 15, 2009, but excludes Peplin common stock underlying options held by any other person or entity.

Unless otherwise indicated in the footnotes, the address of each of the individuals named below is: c/o Peplin, Inc., 6475 Christie Ave., Suite 300, Emeryville, California 94608.

 

 

 

 

 

 

 

 

 

 

 

 

At the time of mailing this proxy statement, the Peplin Board knows of no other matters to be presented at the special meeting other than the matters set forth in the Notice of Special Meeting of Stockholders. If other matters not now known or determined properly come before the special meeting, however, the persons named as proxies in the enclosed proxy card for the Peplin stockholders or their substitutes will vote such proxy in accordance with the recommendations of the Peplin Board.

 

If the Peplin stockholders do not adopt the merger agreement at the special meeting, then as promptly as practicable thereafter, Peplin will file preliminary and definitive proxy statements to elect Class II directors and ratify the appointment of Ernst & Young LLP as Peplin’s independent registered public accounting firm for the fiscal year ending June 30, 2010.

 

Under the SEC’s proxy rules, stockholder proposals (including nominations for the election of directors) that satisfy specified conditions may be included in our proxy statement and form of proxy card for, and may be presented at, our next annual meeting of stockholders. If you intend to present a nomination for the election of directors or the proposal of business at our next annual meeting, you must deliver the proposal in writing to the address below in compliance with the advance notice provisions of our bylaws. These provisions require you to give advance notice at the following address no later than the close of business 90 days nor earlier than the close of business 120 days prior to the first anniversary of our last annual meeting in order for the proposal to be considered for inclusion in the proxy materials for our next annual meeting: Attention: Secretary, Peplin, Inc., 6475 Christie Ave., Suite 300, Emeryville, California 94608. (If, however, the date of the our next annual meeting is more than 30 days before or more than 70 days after the first anniversary of our last annual meeting, the written notice must be received no earlier than 120 days before our next annual meeting and no later than the date that is the later of 90 days before our next annual meeting or 10 days after we first publicly announce the date of our next annual meeting.) All stockholder proposals must comply with the requirements of Rule 14a-8 under the Exchange Act in order to be considered for inclusion in the proxy materials for our next annual meeting.

 

We file annual, quarterly and special reports, proxy statements and other information with the SEC and the ASX.

 

You may read and copy any reports, statements, or other information that we file with the SEC at the SEC’s public reference room at the following location: 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may also obtain copies of those documents at prescribed rates by writing to the Public Reference Section of the SEC at that address. Please call the SEC at +1-800-SEC-0330 for further information on the public reference room. These SEC filings are also available to the public from commercial document retrieval services and at the Internet World Wide Web site maintained by the SEC at www.sec.gov.

 

Our ASX filings are available to the public at the Internet World Wide Web site maintained by the ASX at www.asx.com.au.

 

 

The SEC allows Peplin to “incorporate by reference” information into this proxy statement, which means that we can disclose important information to you by referring you to other documents filed separately with the SEC. The information incorporated by reference is deemed to be part of this proxy statement, except for any information superseded by information in this proxy statement or incorporated by reference subsequent to the date of this proxy statement. This proxy statement incorporates by reference the documents set forth below that Peplin has previously filed with the SEC:

 

 

The foregoing documents contain important information about the companies and their financial condition and are incorporated by reference into this proxy statement. Peplin also incorporates by reference into this proxy statement additional documents that it may file with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act between the date of this proxy statement and the earlier of the date of the special meeting of Peplin stockholders or the termination of the merger agreement. These documents deemed incorporated by reference include periodic reports, such as Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, as well as Current Reports on Form 8-K and proxy and information statements. You may obtain any of the documents we file with the SEC, without charge, by requesting them in writing or by telephone from us at the following address: