<PAGE>

Exhibit 10.109


                             AMENDED AND RESTATED
                    LIMITED LIABILITY COMPANY AGREEMENT OF
                                   CPEC LLC

     This AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF CPEC LLC
(the "Agreement") is made as of July 15, 1999, among CPEC LLC, a Delaware
limited liability company ("CPEC"), INTERNEURON PHARMACEUTICALS, INC., a
Delaware corporation ("Interneuron"), and INTERCARDIA, INC., a Delaware
corporation ("Intercardia"), as members of CPEC, the other Persons (as defined
below), if any, who become members of CPEC in accordance with this Agreement
(whose names shall be set forth as Members on Schedule A hereto). All
capitalized terms not otherwise defined herein are used as defined in Article I
below.


                                R E C I T A L S
                                - - - - - - - -

     A.   CPEC is a limited liability company formed by Intercardia pursuant to
the Delaware Act, by filing a Certificate of Formation of CPEC with the office
of the Secretary of State of the State of Delaware and by entering into the
Limited Liability Agreement of CPEC LLC, dated as of July 6, 1999 (the "Original
Agreement").

     B.   Through a merger of CPEC, Inc., a Nevada corporation, into CPEC, CPEC
has acquired all of the rights of CPEC, Inc. in and to Bucindolol Intellectual
Property, including the exclusive, worldwide rights under the BMS License, to
develop and commercialize Bucindolol, a nonselective beta-blocker with mild
vasodilating properties, for use as a pharmaceutical therapy for congestive
heart failure and left ventricular dysfunction.

     C.   Concurrently with the execution of this agreement, Interneuron and
Intercardia have entered into an Exchange Agreement which provides, upon the
terms and subject to the conditions thereof, for (i) the redemption by
Intercardia of 4,229,381 of the shares of Common Stock, $.001 par value, of
Intercardia owned by Interneuron, and (ii) the cancellation by Interneuron of a
promissory note issued by Intercardia in the principal amount of $2,000,000 in
exchange for the transfer by Intercardia to Interneuron of 65% of the limited
liability company interests of CPEC (the "Exchange").

     D.   Concurrently with execution of this Agreement, CPEC is executing the
License Agreement providing for the assignment and license to and assumption by
Intercardia of all of CPEC's rights and obligations under the Knoll Agreement
for the development and commercialization of Bucindolol outside the United
States, Puerto Rico and Japan by BASF Pharma/Knoll AG ("Knoll").

     E.   The parties wish to set forth the rights and responsibilities and the
powers and limitations of CPEC and the Members.
<PAGE>

     NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound,
the parties hereby agree as follows:


                                 ARTICLE I --
                                 DEFINED TERMS

     Section 1.1  Definitions.  For purposes of this Agreement, capitalized
                  -----------
terms not otherwise defined herein shall have the corresponding meanings
specified below.

     "Additional Members" has the meaning set forth in Section 14.1 hereof.

     "Affiliate" means with respect to a specified Person, any Person that
directly or indirectly controls, is controlled by, or is under common control
with, the specified Person.  The term "control" means the ownership, directly or
indirectly, of over 50% of the voting securities or interests of the Person in
question, or the right to receive over 50% of the profits or earnings of a
Person, or the power to direct or cause the direction of the management and
policies of that Person, whether by contract or otherwise.

     "Agreed Value" means, with respect to any asset, the asset's adjusted
federal income tax basis, except that (i) the Agreed Value of any asset
contributed to CPEC shall be its gross fair market value at the time of the
contribution; (ii) the Agreed Value of any asset distributed in kind to any
Member shall be the gross fair market value of such asset on the date of such
distribution; and (iii) the Agreed Value of any asset shall be adjusted to equal
its gross fair market value at the time of a revaluation in CPEC's assets in
connection with a contribution or distribution as described in Treasury
Regulations Section 1.704-1(b)(2)(iv)(f)(5), if the Board reasonably determines
that such adjustments are necessary or appropriate to reflect the relative
economic interests of the Members of the Company.

     "Agreement" means this Amended and Restated Limited Liability Company
Agreement of CPEC LLC, as it may be further amended or restated from time to
time in accordance with the provisions hereof.

     "Applicable Fiscal Quarter" has the meaning specified in Section 8.5.3
hereof.

     "Approved Budget" has the meaning specified in Section 8.3 hereof.

     "BEST" means the Beta-blocker Evaluation in Survival Trial being conducted
by the National Institutes of Health and the Veterans Administration to evaluate
the use of Bucindolol in treating patients with congestive heart failure.

     "BEXTRA Committee" has the meaning specified in Section 8.2 hereof.

                                       2
<PAGE>

     "BMS License" means the Agreement dated as of December 6, 1991, as amended,
between Bristol-Myers Squibb Company and Cardiovascular Pharmacology and
Engineering Consultants, Inc., a predecessor-in-interest of CPEC.

     "Board" means the Board of Directors of CPEC.

     "Bucindolol" means the compound Benzonitrile, 2-[2-hydroxy-3-[[2-(1H-indol-
3-yl)-1,1-dimethylethyl]amino]propoxy]-, monohydrochloride, also known under the
trademark "BEXTRA".

     "Bucindolol Intellectual Property" means the Trademarks and any patents,
patent applications, copyrights, know-how, processes, formulae, data (including,
but not limited to, preclinical, clinical, and marketing data) and trade secrets
relating to the manufacture, development, commercialization or use of Bucindolol
including any Improvement made or acquired by CPEC during the term of this
Agreement.

     "Capital Account" means, with respect to any Member, the account maintained
for such Member in accordance with the provisions of Section 4.4 hereof.

     "Capital Contribution" means, with respect to any Member, the aggregate
amount of money and the fair market value of any property (other than money)
contributed to CPEC pursuant to Sections 4.1, 8.5.1, 8.6.1 and 8.6.4 hereof with
respect to such Member's Interest.

     "Certificate" means the Certificate of Formation of CPEC and any and all
amendments thereto and restatements thereof filed by or on behalf of CPEC with
the office of the Secretary of State of the State of Delaware pursuant to the
Delaware Act.

     "Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any corresponding federal tax statute enacted after the date of this
Agreement.  A reference to a specific section ((S)) of the Code includes any
corresponding provision of any federal tax statute in effect on the date in
question under this Agreement.

     "Covered Person" means a Member, Director, Officer, employee or agent of
CPEC, or any officers, directors, shareholders, partners, employees,
representatives or agents of a Member.

     "CPEC" means CPEC LLC, the limited liability company formed under the
Delaware Act and, where the context requires, any of its predecessors-in-
interest, including CPEC, Inc., a Nevada corporation, ("CPEC, Inc.") and
Cardiovascular Pharmacology and Engineering Consultants, Inc., a California
corporation.

     "CPEC Territory" means the United States of America, the District of
Columbia, Puerto Rico and Japan.

     "Delaware Act" means the Delaware Limited Liability Company Act, 6 Del.C.
                                                                        ------
(S) 18-101, et seq., as amended from time to time.
            -- ---

                                       3
<PAGE>

     "Director" means a Person designated as a director of CPEC and duly elected
pursuant to Article VI hereof.

     "Dividend(s)" means the distribution(s) by CPEC to Members pursuant to the
Delaware Act or this Agreement.

     "Excess Funded Amount" has the meaning specified in Section 8.8 hereof.

     "Fiscal Quarter" means each three calendar month period of each Fiscal Year
that ends on March 31, June 30, September 30 and December 31, except in the case
of CPEC's first and last Fiscal Quarters, which may be less than three (3) full
calendar months.

     "Fiscal Year" means (i) the period commencing upon the formation of CPEC
and ending on September 30, 1999, or (ii) any subsequent twelve (12) month
period commencing on October 1 and ending on September 30, or any portion
thereof for which CPEC is required to allocate Profits, Losses and other items
of CPEC income, gain, loss or deduction pursuant to Article IX hereof.

     "Funding Percentage" has the meaning specified in Section 8.5.1 hereof.

     "Funding Requirements" has the meaning specified in Section 8.3 hereof.

     "GAAP" means U.S. generally accepted accounting principles.

     "Improvement" has the meaning specified in Section 8.9.2 hereof.

     "Intercardia" means Intercardia, Inc. and any transferee of its entire
Interest under this Agreement that is admitted as a Member.

     "Interest" means a Member's limited liability interest in CPEC, including
all rights and benefits to which such Member is entitled under this Agreement,
the Delaware Act or other Laws.

     "Interneuron" means Interneuron Pharmaceuticals, Inc. and any transferee of
its entire Interest under this Agreement that is admitted as a Member.

     "Knoll Agreement" means the Development, Manufacturing, Marketing and
License Agreement effective as of December 19, 1996, among Intercardia, CPEC and
Knoll.

     "Knoll Territory" means all countries with the exception of the United
States of America, the District of Columbia, Puerto Rico and Japan.

     "Knoll Territory Royalty" means the amounts payable by Intercardia to CPEC
under the License Agreement, consisting of a royalty on Net Sales of Bucindolol
in the Knoll Territory and the specified share of one "milestone" payment under
Section 3.4 of the Knoll Agreement.

                                       4
<PAGE>

     "Laws" means:

          (i)     all constitutions, treaties, laws, statutes, codes,
                  ordinances, orders, decrees, rules and regulations, whether
                  domestic, foreign or international;

          (ii)    all judgments, orders, writs, injunctions, decisions, rulings,
                  decrees and awards of any governmental body;

          (iii)   all policies, practices and guidelines of any governmental
                  body; and

          (iv)    any amendment, modification, re-enactment, restatement or
                  extension of the foregoing,

in each case binding on or affecting the party or Person referred to in the
context in which such word is used.

     "License Agreement" means the Assignment, Assumption and License Agreement
between CPEC and Intercardia, executed as of the date of this Agreement,
relating to the development and commercialization of Bucindolol in the Knoll
Territory.

     "Majority Member" means the Person (including any Affiliate of a Person)
beneficially owning over 50% of the Percentage Interests of CPEC as of the date
in question under this Agreement or, notwithstanding actual ownership of
Percentage Interests, any other Member that is deemed the Majority Member
pursuant to Section 8.6.5 hereof.  Interneuron is the Majority Member
immediately following the execution of this Agreement.

     "Member" means any Person admitted as a Member, an Additional Member or a
substitute Member of CPEC pursuant to the provisions of this Agreement, in such
capacity as a member of CPEC.  For purposes of the Delaware Act, the Members
shall constitute one (1) class or group of members.  Following execution of this
Agreement, the only Members of CPEC are Interneuron and Intercardia.

     "Minority Member" means any Member other than the Majority Member.
Intercardia is the Minority Member immediately following the execution of this
Agreement.

     "Net Cash" for any period means the excess, if any, of (i) the gross cash
proceeds available to CPEC from all sources over (ii) the portion thereof used
to establish or fund reserves or pay for all CPEC expenses, debt payments,
capital improvements, replacements and contingencies, all as determined or
designated by the Board.  "Net Cash" shall not be reduced by depreciation,
amortization, cost recovery deductions or similar allowances, but shall be
increased by any reductions of reserves previously established pursuant to the
first sentence of this definition.  The term "Net Cash" also shall include all
other funds deemed available for distribution and designated as Net Cash by the
Board.

     "Officer" means a person designated as an officer of CPEC and duly elected
pursuant to Article VII hereof.

                                       5
<PAGE>

     "Once-a-Day Formulation" means the administration of Bucindolol using a
once-a-day formulation including the formulation currently being developed by
SkyePharma AG (formerly JAGO Pharma AG) under an Agreement for Feasibility Study
dated March 15, 1996, as amended, with CPEC.

     "Percentage Interest" means the rights of a Member with respect to the
receipt of certain Dividends and allocations, expressed as a portion of one
hundred percent, as such may be adjusted from time to time in accordance with
Section 8.6 hereof, as shown on Schedule B hereto.

     "Person" includes any individual, corporation, association, partnership
(general or limited), joint venture, trust, estate, limited liability company,
or other legal entity or organization.

     "Priority Dividend" has the meaning specified in Section 10.2 hereof.

     "Priority Return" has the meaning specified in Section 10.2 hereof.

     "Profits" and "Losses" means, for each Fiscal Year, an amount equal to
CPEC's taxable income or loss for such Fiscal Year, determined in accordance
with Section 703(a) of the Code, with the following adjustments, without
duplication:

          (i)    Such income or loss shall be increased or decreased, as
                 applicable, by the amount, if any, of tax-exempt income not
                 otherwise taken into account in computing Profits and Losses;

          (ii)   Such income or loss shall be reduced or increased, as
                 applicable, by the amount, if any, of expenditures not
                 otherwise taken into account in computing Profits and Losses
                 that are (A) described in Section 705(a)(2)(B) of the Code or
                 (B) treated as Code Section 705(a)(2)(B) expenditures pursuant
                 to Treasury Regulations Section 1.704-1(b)(2)(iv)(i);

          (iii)  Gain or loss on a disposition, and depreciation or
                 amortization, of any asset shall be computed with reference to
                 such asset's Agreed Value in lieu of such asset's adjusted
                 federal income tax basis; and

          (iv)   Notwithstanding any other provision of this definition, (A) any
                 item of income, gain, loss, deduction or credit that is
                 specially allocated pursuant to Schedule E attached hereto
                 shall not be taken into account in computing Profits or Losses,
                 and (B) the amount of gross revenues specially allocated to
                 Interneuron pursuant to the License Agreement under Section
                 9.2.2 hereof and the amount of gross revenues specially
                 allocated with respect to a Member's accrued Priority Return
                 under Section 9.2.3 hereof shall be excluded from CPEC's income
                 and shall not

                                       6
<PAGE>

                 be taken into account in computing Profits or
                 Losses.

     "Side Letter" means the letter agreement between Intercardia and
Interneuron effective as of the date of this Agreement and incorporated by
reference herein.

     "Special Dividend" has the meaning specified in Section 10.1 hereof.

     "Supermajority Vote" means the written approval of, or the affirmative vote
by, Members holding at least 80% of the Percentage Interests.

     "Tax Matters Partner" has the meaning specified in Section 12.1 hereof.

     "Trademark" means the registered trademark BEXTRA(R), any other trademark,
trade name or service mark used as a product identifier for Bucindolol and any
variations thereof, in each case, whether or not registered.

     "Treasury Regulations" means the income tax regulations, including
temporary regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).


                                 ARTICLE II --
                              MEMBERSHIP AND TERM

     Section 2.1  Membership.
                  ----------

                  2.1.1  Duties. The Members hereby agree that the rights,
                         ------
duties and liabilities of the Members shall be as provided in the Delaware Act,
except as otherwise provided herein.

                  2.1.2  Membership Information. The name and mailing address of
                         ----------------------
each Member and the Agreed Value of the amount contributed to the capital of
CPEC is listed on Schedule A attached hereto. The name and mailing address of
each Member and the initial Percentage Interest of each Member is listed on
Schedule B attached hereto. The Secretary shall update Schedule A and Schedule B
from time to time as necessary, but in any event as of the end of each Fiscal
Year if there was a change during or as of the end of that Fiscal Year and when
required to include information about any new Member. Any such update shall not
constitute an amendment of this Agreement requiring Member approval. Any
reference in this Agreement to Schedule A or Schedule B shall be deemed to be a
reference to Schedule A or Schedule B, respectively, as amended and in effect
from time to time.

     Section 2.2  Name.  The name of CPEC is CPEC LLC.  The Board may change the
                  ----
name from time to time, with notice to the Members.

     Section 2.3  Term.  The term of CPEC commenced on July 6, 1999, and shall
                  ----
continue in perpetuity, unless and until CPEC is dissolved in accordance with
the provisions of this

                                       7
<PAGE>

Agreement. The existence of CPEC as a separate legal entity shall continue until
cancellation of the Certificate in the manner required by the Delaware Act.

     Section 2.4  Registered Agent and Office.  CPEC's registered agent and
                  ---------------------------
office in the State of Delaware shall be The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, New Castle County, Delaware 19801.
The Board may change the registered agent and/or registered office from time to
time.

     Section 2.5  Principal Place of Business.  The principal place of business
                  ---------------------------
of CPEC shall be at 99 Hayden Avenue, Lexington, Massachusetts 02421.  The Board
may change the location of CPEC's principal place of business from time to time,
with notice to the Members.

     Section 2.6  Qualification in Other Jurisdictions.  The Board may cause
                  ------------------------------------
CPEC to be qualified, formed or registered under assumed or fictitious name
statutes or similar Laws in any jurisdiction in which such qualification or
registration is deemed appropriate.  Any Officer, as an authorized person within
the meaning of the Delaware Act, may execute, deliver and file any certificates
(and any amendments and/or restatements thereof) to be filed with the Delaware
Secretary of State or necessary for CPEC to qualify to do business in a
jurisdiction in which CPEC may wish to conduct business.

     Section 2.7  Limited Liability Company Agreement.  This Agreement amends,
                  -----------------------------------
restates and supersedes in its entirety the Original Agreement.  The Members
agree that during the term of CPEC, the rights and obligations of the Members
with respect to CPEC will be determined in accordance with the terms and
conditions of this Agreement to the greatest extent permitted by applicable law.
Except as otherwise provided herein, this Agreement is intended to control with
respect to any inconsistencies between any non-mandatory provision of the
Delaware Act and any provision hereof.


                                 ARTICLE III --
                           PURPOSE AND POWERS OF CPEC

     Section 3.1  Purpose.  The nature of the business to be conducted and
                  -------
promoted by CPEC is the development and commercialization of Bucindolol, subject
to the License Agreement, and engaging in any and all activities necessary,
convenient, desirable or incidental to such purpose.  Without limiting the
foregoing, CPEC may engage in (i) filing, prosecuting, and maintaining
intellectual property rights of CPEC related to Bucindolol; (ii) conducting
preclinical, clinical and post-marketing studies related to Bucindolol; (iii)
filing regulatory applications in its name related to Bucindolol; and (iv)
manufacturing, sales and marketing activities and arrangements relating to
Bucindolol.

     Section 3.2  Powers of CPEC.  CPEC shall have the power and authority to
                  --------------
take any and all actions necessary or appropriate for the furtherance of the
purpose set forth in Section 3.1, subject to the restrictions or conditions
specified in this Agreement and the License Agreement, which power includes, but
is not limited to, the power to conduct its business, carry on its operations
and have and exercise the powers granted to a limited liability company by the

                                       8
<PAGE>

Delaware Act in any state, territory, district or possession of the United
States, or in any foreign country, that may be necessary, convenient or
incidental to the accomplishment of the purpose of CPEC.

     Section 3.3  Certain Limitations on Powers.  Notwithstanding any other
                  -----------------------------
provision of this Agreement but subject to Section 3.4 hereof, neither CPEC nor
the Board nor any Director or Officer of CPEC shall take any of the following
actions on behalf of CPEC, unless authorized to do so by Supermajority Vote of
the Members at a meeting of the Members or evidenced in a written consent or
instrument in lieu of a meeting:

          (a) the sale, transfer or assignment of all or substantially all of
     its assets (whether in the form of intangible, personal or real property),
     directly or indirectly, by merger, consolidation or otherwise, or convert
     to another form of entity.  This restriction does not apply to any sale,
     transfer or assignment, by merger, consolidation or otherwise, by a Member
     of substantially all of its assets, including its ownership of Interests,
     as long as the assets related to Bucindolol that were held by CPEC
     immediately prior to the transaction remain in CPEC immediately after the
     transaction; or

          (b) the termination by CPEC of the BMS Agreement before its term, or
     execution of an amendment to the BMS Agreement that would materially
     adversely affect CPEC's rights under such agreement or materially increase
     the obligations of CPEC under that agreement; or

          (c) the execution or amendment of any oral or written contract or
     arrangement between CPEC and (i) any of CPEC's Members, Directors or
     Officers, (ii) a Member's Directors or Officers, or (iii) a Member's
     Affiliates, in each case involving payment by CPEC of cash or other
     consideration of (A) $1,000,000 or more in the aggregate during a Fiscal
     Year, or (B) $1,000,000 or more in any one transaction; and in each case
     excluding (x) amounts agreed to as part of an Approved Budget, provided
     that the Board members designated by the disinterested Member have approved
     the budget, and (y) amounts distributed as a Dividend to Members pursuant
     to this Agreement; or

          (d) the redemption, repurchase or retirement of any Member's Interest;
          or

          (e) the taking of any other action required by another provision of
     this Agreement or the Delaware Act to be approved by a Supermajority Vote
     or unanimous approval of the Members.

     Section 3.4  Termination of Supermajority Provisions.  The Supermajority
                  ---------------------------------------
Voting requirement to approve any type of transaction specified in paragraphs
(a) through (e) of Section 3.3 (except amendments to this Agreement under
Section 17.6 and except to the extent required by the Delaware Act) shall
terminate in the event and effective on the first March 31 or September 30 (but
no sooner than September 30, 2001) that all of the following have occurred:  (i)
the Percentage Interest of the Minority Member has been reduced by 10% in
accordance with Section 8.6 hereof, (ii) CPEC has been in possession of either
the BEST database or the draft of the initial manuscript for the BEST study for
nine months, (iii) the Majority Member has paid all

                                       9
<PAGE>

of its Funding Requirements to such date on a timely basis (i.e., by the
beginning of the Applicable Fiscal Quarter for quarterly Funding Requirements or
within the 10 day period provided for deficiency funding, as provided for in the
last sentence of Section 8.5.3) and (iv) Minority Member has failed to meet any
or all of its Funding Requirements on a timely basis since the payment default
that triggered the 10% reduction in the Minority Member's Percentage Interest.
Upon the termination of Supermajority Voting requirements, the affirmative
approval of Members holding over 50% of the Percentage Interests shall be
sufficient authorization for any transaction (except to the extent required by
the Delaware Act).


                                 ARTICLE IV --
                       CAPITAL CONTRIBUTIONS, INTERESTS,
                         CAPITAL ACCOUNTS AND ADVANCES

     Section 4.1  Capital Contributions.  Each Member has contributed or is
                  ---------------------
deemed to have contributed to the capital of CPEC the amount set forth opposite
the Member's name on Schedule A attached hereto, as updated in accordance with
Section 2.1.2 hereof.  The amount specified on Schedule A constitutes the
Capital Contributions made or deemed to have been made by each Member.  Each
Member shall make additional capital contributions to CPEC as provided in
Section 8.5 hereof, and may make additional capital contributions as provided in
Sections 8.6.1 and 8.6.4.  No Member shall have any personal liability for the
payment or repayment of any Capital Contribution of any other Member.

     Section 4.2  Member's Interest.  A Member's Interest shall for all purposes
                  -----------------
be personal property.  A Member has no interest in specific CPEC property.

     Section 4.3  Status of Capital Contributions.  The amount of a Member's
                  -------------------------------
Capital Contributions may be returned to it, in whole or in part, only with the
consent of all of the Members.  Any such returns of Capital Contributions shall
be made to all Members in proportion to the balance in their Capital Accounts.
Notwithstanding the foregoing, no return of a Member's Capital Contributions
shall be made hereunder if such distribution would violate applicable law.
Under circumstances requiring a return of any Capital Contribution, no Member
shall have the right to demand or receive property other than cash, except as
may be specifically provided in this Agreement or as may be specifically agreed
to by all of the Members.

     Section 4.4  Capital Accounts.  An individual Capital Account shall be
                  ----------------
established and maintained for each Member pursuant to the principles of this
Section 4.4 and Treasury Regulation Section 1.704-1(b)(2)(iv).  Each Capital
Account shall be maintained in accordance with the following provisions:

          (a) to a Member's Capital Account there shall be credited such
     Member's Capital Contributions (consisting of cash or the fair market value
     of any property, net of any liabilities that CPEC assumes or that are
     secured by such contributed property and CPEC takes the property subject to
     such liabilities); such Member's distributive share of Profits; and such
     Member's distributive share of other items of, or in the nature of, income
     or gain, including, without limitation, special allocations of gross
     revenues

                                       10
<PAGE>

     pursuant to Sections 9.2.2 or 9.2.3 and special allocations pursuant to
     Schedule E hereto;

          (b) to a Member's Capital Account there shall be debited the amount of
     cash and the fair market value of property distributed by CPEC to such
     Member (net of any liabilities that Member assumes or that are secured by
     such distributed property and the Member takes the property subject to such
     liabilities); such Member's distributive share of Losses; and such Member's
     distributive share of other items of, or in the nature of, loss or
     deduction, including, without limitation, special allocations pursuant to
     Schedule E hereto;

          (c) upon the transfer of all or any portion of any Member's Interest
     in accordance with the terms of this Agreement, the transferee shall
     succeed to the Capital Account of the transferor to the extent that it
     relates to the transferred Interest;

          (d) In the event that the values of CPEC's assets are adjusted in
     accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(f), the
     Capital Accounts of all Members shall be adjusted simultaneously to reflect
     the aggregate adjustments as if CPEC recognized gain or loss equal to the
     amount of such aggregate adjustment and allocated such gain or loss to the
     Members at such time pursuant to the terms of this Agreement; and

          (e) In accordance with Treasury Regulations Section 1.704-
     1(b)(2)(iv)(e), upon any actual or deemed distribution to a Member of any
     of CPEC's property (other than cash or cash equivalents), the Capital
     Accounts of all Members shall, immediately prior to any such distribution,
     be credited or debited to reflect any unrealized gain or unrealized loss
     attributable to such distributed property, as if such unrealized gain or
     unrealized loss had been recognized in a sale of such property immediately
     prior to such distribution for an amount equal to the fair market value of
     such property, and had been allocated to the Members at such time pursuant
     to the provisions of this Agreement.

     Section 4.5  Capital Account Statements.  Simultaneously with providing the
                  --------------------------
Member its Form K-1, CPEC will provide to each Member a reconciliation in
reasonable detail of all activity in all Members' Capital Accounts for the
preceding Fiscal Year.


                                 ARTICLE V --
                                    MEMBERS

     Section 5.1  Powers of Members.  The Members shall have the power to
                  -----------------
exercise any and all rights or powers granted to the Members pursuant to the
express terms of this Agreement.  The Members also shall have the power to amend
this Agreement to authorize the Board to possess and exercise any right or power
not already vested in the Board pursuant to Article VI or any other provision of
this Agreement.  In addition to the foregoing, the Members have the power to
exercise any and all other rights or powers of CPEC and to do all lawful acts
and things as are not by this Agreement directed or required to be exercised or
done by the Board.  Except as provided herein, the Members shall have no power
to bind CPEC.

                                       11
<PAGE>

     Section 5.2  Reimbursement of Expenses.  A Member shall not be entitled to
                  -------------------------
any reimbursement by CPEC of its internal or out-of-pocket expenses, or for any
compensation (whether as interest, salary, draw or otherwise) in its capacity as
a Member, or for any contributions or services rendered to CPEC, except for
Dividends authorized under Article X hereof or for amounts specifically
authorized in an Approved Budget.

     Section 5.3  Partition.  Each Member waives any and all rights that it may
                  ---------
have to maintain an action for partition of CPEC's property.

     Section 5.4  Resignation.  A Member may resign from CPEC prior to the
                  -----------
dissolution and winding up of CPEC only upon the sale, assignment or transfer of
all of its Interests in accordance with Article XV hereof.  The consent of the
other Members is not required for such resignation.  CPEC shall have no
obligation to compensate the resigning Member for the value of its Capital
Account, all of which shall be deemed assigned to the transferee of the Member.

     Section 5.5  Meetings of Members.
                  -------------------

                  5.5.1  Notice of Meetings. Meetings of the Members shall be
                         ------------------
called by the President at the request of the Majority Member at any time or at
the request of any other Member not more than twice in any Fiscal Year. Such
request shall state the purpose or purposes of the proposed meeting. Written
notice of a meeting stating the place, date and hour of the meeting and the
purpose or purposes for which the meeting is called, shall be given not less
than 10 nor more than 60 days before the date of the meeting, to each Member
entitled to vote at such meeting. Business transacted at any meeting of Members
shall be limited to the purposes stated in the notice, unless otherwise agreed
to by the Board.

                  5.5.2  Quorum. The holders of a majority of the Percentage
                         ------
Interests, present in person or represented by proxy, shall constitute a quorum
at all meetings of the Members for the transaction of business. If a quorum is
not present or represented at any meeting, the Members present (whether in
person or represented by proxy), may adjourn the meeting from time to time, by
announcement at the meeting, until a quorum is available. Any business which
might have been transacted at the meeting as originally notified may be
transacted at an adjourned meeting where a quorum is present. If the adjournment
is for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each Member of record entitled to vote at the meeting.

                  5.5.3  Acts of Members. When a quorum is present at any
                         ---------------
meeting, the vote of the holders of the majority of the Percentage Interests,
present in person or represented by proxy, shall decide any question brought
before such meeting, unless the question is one which under any provision of
this Agreement requires a different vote. Each Member shall be entitled to vote
in person or by proxy.

                  5.5.4  Electronic Communications. Members may participate in a
                         -------------------------
meeting of the Members by means of conference telephone or other communications
method that

                                       12
<PAGE>

allows all persons participating in the meeting to hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
If all the participants are participating by conference telephone or similar
communications equipment, the meeting shall be deemed to be held at the
principal place of business of CPEC.

                  5.5.5  Action by Written Consent. Unless otherwise provided in
                         -------------------------
this Agreement, any action that may or is required to be taken at any meeting of
the Members of CPEC may be taken without a meeting, with five (5) days' prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the Members representing the percentage required under
this Agreement or the Delaware Act to approve such action at a meeting of the
Members. Prompt notice of the action taken without a meeting by less than
unanimous consent shall be given to those Members who have not consented in
writing.

     Section 5.6  Duties of Members.  In addition to each Member's obligations
                  -----------------
specifically set forth in this Agreement, a Majority Member shall have duties to
the other Members comparable to the duties, if any, owed by a controlling
stockholder of a Delaware corporation to minority stockholders under relevant
principles of Delaware law.


                                 ARTICLE VI --
                                  MANAGEMENT

     Section 6.1  Board of Directors.
                  ------------------

                  6.1.1  Powers; Number.  Subject to the limitations on powers
                         --------------
specified in Section 3.3, the business and affairs of CPEC, including the
supervision of the BEXTRA Committee and the approval of annual budgets for CPEC,
shall be managed by or under the direction of a Board of Directors consisting of
five Directors.  A person elected a Director is by such election designated a
Manager by the Members for purposes of the Act.  The authorized number of
Directors may be increased or decreased only by Supermajority Vote of the
Members.

                  6.1.2  Designation Authority.  Three of the Directors shall be
                         ---------------------
designated and elected by the Majority Member, and two of the Directors shall be
designated and elected by the Minority Member.  The initial Directors designated
by Interneuron as the Majority Member and Intercardia as the Minority Member are
set forth on Schedule C to this Agreement.  The right to designate Directors
under this Agreement shall be assignable to any transferee or purchaser of all,
but not less than all, of a Member's Percentage Interest of CPEC.  The right to
designate Directors shall automatically terminate if there is no Member
qualified as a Majority Member, at which time the five Director-nominees who
receive the greatest number of votes of Members shall be elected.

                  6.1.3  Successors.  Each Director shall hold office until a
                         ----------
successor is elected and qualified or until such Director's earlier death,
resignation or removal, without the necessity for periodic reelection or
reappointment.  Directors need not be Members.  In the event a designee of
either the Majority Member or the Minority Member should cease to be a Director
for any reason, the vacancy may be filled by the Member having the right to
designate and elect

                                       13
<PAGE>

that Director, without a meeting of the Members.

     Section 6.2  Meetings of the Board of Directors.  The Board of Directors of
                  ----------------------------------
CPEC may hold meetings, both regular and special, within or outside the State of
Delaware, at such time and place as shall be specified in a notice given as
hereinafter provided, or as shall be specified in a written waiver signed by all
of the Directors.  The Board of Directors shall meet in person or by telephone
conference at least once each calendar quarter.  Written notice stating the
place, date and hour of the meeting shall be given to each Director not less
than five (5) days before the date of the meeting.

     Section 6.3  Quorum and Acts of the Board.  A quorum of the Board shall
                  ----------------------------
require (i) a majority of all the Directors and (ii) a majority of the Directors
designated by the Majority Member for the transaction of business at a meeting
and (iii) at least one director designated by the Minority Member.  Decisions by
the Board shall require the affirmative vote of a majority of the quorum, except
as otherwise provided in this Agreement.  If an Intercardia designee is not
present at two consecutive meetings called in accordance with Section 6.2, then
an Intercardia designee shall not be required to be present in order for a
quorum of the Board to be constituted.  If a quorum is not present at any
meeting of the Board, the Directors present may adjourn the meeting from time to
time, by announcement at the meeting, until a quorum is available.  Any action
required or permitted to be taken at any meeting of the Board or of any
committee thereof may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.

     Section 6.4  Electronic Communications.  Members of the Board, or any
                  -------------------------
committee designated by the Board, may participate in a Board or committee
meeting by means of conference telephone or other communications method that
allows all persons participating in the meeting to hear each other.  Such
participation in a meeting shall constitute presence in person at the meeting.
If a majority of the participants are participating by conference telephone or
similar communications equipment, the meeting shall be deemed to be held at the
principal place of business of CPEC.

     Section 6.5  Committees of Directors.  The Board, by action of all the
                  -----------------------
members, may designate one or more committees.  Any such committee shall have
and may exercise the powers and authority of the Board specifically delegated in
the Board resolution establishing the committee.  Each committee shall keep
regular minutes of its meetings and report to the Board when required.

     Section 6.6  Compensation of Directors.  A Director who also is an employee
                  -------------------------
of a Member or an Affiliate thereof shall not receive compensation, in cash or
in kind, for services to CPEC as a Director.  Any other Directors may be
compensated in such amounts as may be approved by the Board.  A Director may be
reimbursed by CPEC for reasonable out-of-pocket travel, meal and lodging
expenses incurred in connection with attendance at meetings of the Board of
Directors upon submission to the President of appropriate documentation
evidencing such expenses.

                                       14
<PAGE>

     Section 6.7  Removal of Directors.  Unless otherwise restricted by Law, any
                  --------------------
Director may be removed, with or without cause, only by the Member authorized to
designate and elect such Director, in a writing to the other Members and to the
Secretary of CPEC.  If no member qualifies as a Majority Member, the Directors
may be removed with or without cause by a majority vote of the Members.

     Section 6.8  Directors as Agents.  The Directors, to the extent of their
                  -------------------
powers and limitations set forth in this Agreement, are agents of CPEC for the
purpose of CPEC's business, and the actions of the Directors taken in accordance
with such powers shall bind CPEC.


                                ARTICLE VII --
                                   OFFICERS

     Section 7.1  Officers.  The Officers of CPEC shall be chosen by the Board
                  --------
and shall consist of at least a President, a Vice President-Research and
Development, a Secretary and a Treasurer.  The Board also may choose one or more
Vice Presidents, Assistant Secretaries and Assistant Treasurers.  Any number of
offices may be held by the same person.  The Officers of CPEC shall hold office
until their successors are chosen and qualified.  Any Officer elected or
appointed by the Board may be removed at any time by the affirmative vote of the
Board.  Any vacancy occurring in any office of CPEC shall be filled by the
Board.  No Officer shall be entitled to receive any compensation from CPEC for
services in such capacity, in cash or in kind, without the approval of all of
the members of the Board, except for reimbursement of reasonable out-of-pocket
travel, meal and lodging expenses consistent with activities and amounts in the
Approved Budget and upon submission of appropriate documentation and approval of
the President.

     Section 7.2  The President.  The President shall be the chief executive
                  -------------
officer of CPEC, shall preside at all meetings of the Members and the Board,
shall be responsible for the general management of the business of CPEC and
shall see that all orders and resolutions of the Board are carried into effect.
The President shall execute any contracts or instruments, except (i) where
required or permitted by Law to be otherwise signed and executed; (ii) where
execution thereof shall be expressly delegated by the Board to some other
Officer or agent of CPEC; or (iii) as otherwise permitted in Section 7.3 hereof.

     Section 7.3  The Vice President.  In the absence of the President or in the
                  ------------------
event of the President's inability to act, the Vice President, if any, (or in
the event there be more than one Vice President, the Vice Presidents in the
order designated by the Directors, or in the absence of any designation, then in
the order of their election) shall perform the duties of the President, and when
so acting, shall have all the powers of and be subject to all the restrictions
upon the President.  The Vice Presidents, if any, shall perform such other
duties and have such other powers as the Board may from time to time prescribe.

     Section 7.4  The Secretary and Assistant Secretary.  The Secretary shall be
                  -------------------------------------
responsible for filing legal documents and maintaining the non-financial records
of CPEC.  The Secretary shall give, or cause to be given, notice of all meetings
of the Members and special meetings of

                                       15
<PAGE>

the Board, and shall perform such other duties as may be prescribed by the Board
or President. The Assistant Secretary or Assistant Secretaries shall, in the
absence of the Secretary or in the event of the Secretary's inability to act,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the Board may from time to time
prescribe.

     Section 7.5  The Treasurer and Assistant Treasurer.  The Treasurer shall
                  -------------------------------------
have the custody of CPEC funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to CPEC and shall
deposit all moneys and other valuable effects in the name and to the credit of
CPEC in such depositories as may be designated by the Board.  The Treasurer
shall disburse the funds of CPEC as is required under this Agreement, taking
proper vouchers for such disbursements, and shall render to the Board and the
Members an account of the financial condition of CPEC as provided in Section
11.3 hereof.  The Assistant Treasurer or Assistant Treasurers shall, in the
absence of the Treasurer or in the event of the Treasurer's inability to act,
perform the duties and exercise the powers of the Treasurer and shall perform
such other duties and have such other powers as the Board may from time to time
prescribe.

     Section 7.6  Officers as Agents.  The Officers, to the extent of their
                  ------------------
powers and limitations set forth in this Agreement or otherwise vested in them
by action of the Board, are agents of CPEC for the purpose of CPEC's business,
and the actions of the Officers taken in accordance with such powers shall bind
CPEC.

     Section 7.7  Duties of Board and Officers.  Except to the extent
                  ----------------------------
specifically modified by this Agreement, each Director and Officer shall have
the fiduciary duties comparable to those of directors and officers of business
corporations organized under the General Corporation Law of the State of
Delaware.


                                ARTICLE VIII -
                   UNDERSTANDINGS RELATED TO DEVELOPMENT OF
                       BUCINDOLOL IN THE CPEC TERRITORY

     Section 8.1  Development of Bucindolol.  CPEC will use commercially
                  -------------------------
reasonable efforts to develop and commercialize Bucindolol.  Each Member will
cooperate with CPEC and each other in good faith to facilitate the development
of Bucindolol subject to the License Agreement, and will comply in all material
respects with all applicable Laws in the performance of their respective
responsibilities under this Agreement, whether performed for itself or on behalf
of CPEC.  Unless prohibited by law, CPEC will make regulatory filings, such as
the New Drug Application for Bucindolol, in its name by an officer of CPEC
designated by the Board to have responsibility for regulatory filings.

     Section 8.2  BEXTRA Committee.
                  ----------------

                  8.2.1  Membership. An operating committee (the "BEXTRA
                         ----------
Committee") with equal representation by each Member (but not more than seven
members each)

                                       16
<PAGE>

shall monitor and coordinate the operating activities and budget related to the
development, manufacture and marketing of Bucindolol in the CPEC Territory,
subject to the supervision of the Board.  The initial representatives of each
Member shall be designated promptly following the Closing.  The Chairman of the
BEXTRA Committee shall be designated by the Majority Member.  Representatives
may be changed from time to time as appropriate (for example, to substitute
marketing representatives for development personnel), by notice in accordance
with Section 17.1 hereof.

                  8.2.2  Non-Member Participation. Either Member may invite
                         ------------------------
consultants or other personnel to attend meetings of the BEXTRA Committee, upon
reasonable advance notice to the other Member. Any such participants must be
obligated to observe the confidentiality provisions under Section 17.4 hereof.
Without limiting the foregoing, Interneuron acknowledges that Intercardia may
invite Knoll representatives to attend such meetings when required under the
Knoll Agreement or as otherwise may be appropriate (e.g., to discuss safety
monitoring and adverse event reporting systems) and the Members may invite
representatives of any licensee in the CPEC Territory under comparable terms and
conditions. The Members will exchange information and update each other on the
status and results of their respective activities on behalf of CPEC, to the
extent not exchanged outside the meetings.

                  8.2.3  Operations. The BEXTRA Committee shall meet in person
                         ----------
or by telephone conference monthly or as otherwise agreed, with the location
alternating between each Member's facilities. Decisions by the Committee shall
be by affirmative vote of a majority of each Member's representatives on the
Committee. If the Committee fails to reach a consensus on any specific matter
within five (5) business days (or any shorter period required by law or
regulatory authority), either Member can request that the matter in question be
submitted for dispute resolution under Section 17.2 hereof.

     Section 8.3  Budget Through Fiscal 2000.  The budgets of CPEC and
                  --------------------------
allocation of responsibilities between the Members through Fiscal Year ending
September 30, 2000 are set forth as Schedule D to this Agreement (Schedule D and
any other budget approved for subsequent Fiscal Years as provided in Section 8.4
hereof are referred to as the "Approved Budget").  Schedule D sets forth the
estimated funding requirements of CPEC (the "Funding Requirements") to perform
development activities and to fund out-of-pocket fees and expenses paid to third
parties for corporate and administrative services performed or incurred on
behalf of CPEC, including, but not limited to, legal, accounting and insurance
fees and expenses, between the date hereof and September 30, 2000.  Except as
specifically identified in Schedule D, each Member acknowledges that it is not
entitled to receive any reimbursement from CPEC for the internal costs of
participating in the management of CPEC or performing its activities as
contemplated under the Approved Budget.  If CPEC enters into a transaction for
the commercialization of bucindolol in the CPEC Territory with a third party,
the BEXTRA Committee and the Board may revise the Approved Budget to reallocate
responsibilities and revise the Funding Requirements.

     Section 8.4  Budget for Periods after Fiscal Year 2000.   The BEXTRA
                  -----------------------------------------
Committee will prepare and recommend to the Board an annual budget and
allocation of responsibilities of CPEC for each Fiscal Year beginning after
September 30, 2000, no later than 60 days before the

                                       17
<PAGE>

Fiscal Year begins. The budget shall be prepared in good faith and shall be
commercially reasonable. Neither Member shall be entitled to any reimbursement
for the internal costs of participating in the management of CPEC or performing
any of the budgeted activities, unless specifically agreed to by both parties
and included in an Approved Budget. Each annual budget and allocation of
responsibilities shall be subject to review, modification and approval by the
Board and, when so approved, shall be deemed the "Approved Budget" for such
period.

     Section 8.5  Funding of CPEC.
                  ---------------

                  8.5.1  Proportional Sharing; Limited Liability. Interneuron
                         ---------------------------------------
and Intercardia will fund 65% and 35%, respectively, of the Funding Requirements
under an Approved Budget and arising after the Closing, regardless of their
respective Percentage Interests. The respective percentage of each Member is
referred to herein as the "Funding Percentage". The Funding Percentages shall be
reduced proportionately in the event any Additional Members are admitted. A
Member shall not be obligated to fund in excess of its respective Funding
Percentage of Funding Requirements. Funding Requirements paid by each Member
shall be deemed Capital Contributions of such Member. The provisions of this
Section 8.5 are intended solely to benefit the Members and, to the fullest
extent permitted by applicable law, shall not be construed as conferring any
benefit upon any creditor of CPEC (and no such creditor shall be a third-party
beneficiary of this Agreement). No Member shall have any duty or obligation to
any creditor of CPEC to fund any Funding Requirement, to make any Capital
Contributions or to cause the Board to call for Capital Contributions.

                  8.5.2  Changes to Approved Budgets.  Changes to the Funding
                         ---------------------------
Requirements under an Approved Budget may be made by the Board, provided,
                                                                --------
however, that the approval of both Interneuron and Intercardia shall be required
-------
for (i) increases representing in the aggregate 20% or more of the Approved
Budget then in effect (the "Periodic Limit") and (ii) increases during any
Fiscal Year which individually represent less than the Periodic Limit but which
represent in the aggregate 20% or more of the Approved Budget (the "Annual
Limit") in effect at the beginning of that Fiscal Year (or in effect as a result
of a subsequent increase over the Periodic Limit or the Annual Limit which was
approved by Interneuron and Intercardia).

                  8.5.3  Notice and Payment. At least 45 days in advance (the
                         ------------------
"Invoice Date") of each Fiscal Quarter commencing with the Fiscal Quarter
beginning January 1, 2000 (the "Applicable Fiscal Quarter"), CPEC will notify
each Member of the total estimated Funding Requirements for the Applicable
Fiscal Quarter, and invoice each Member for its respective share (the "Invoiced
Amount") of such Funding Requirements in accordance with Sections 8.5.1 and
8.5.2. No later than 30 days before the beginning of the Applicable Fiscal
Quarter, each Member will remit to CPEC its respective required Invoiced Amount
for the Applicable Fiscal Quarter. Any payments not made at least 30 days before
the beginning of the Fiscal Quarter shall accrue interest at the rate of 20% per
annum until paid. Each Member's respective Funding Requirements for the periods
up to and including December 31, 1999 shall be paid to CPEC upon execution of
this Agreement. If the actual amounts paid by CPEC during the Applicable Fiscal
Quarter aggregate less than the Invoiced Amounts for the Applicable Fiscal
Quarter, the excess amounts shall remain in CPEC but may be considered by the
Board in determining the Funding Requirements for the immediately following
Applicable Fiscal Quarter. If the actual

                                       18
<PAGE>

amounts required to be paid by CPEC during the Applicable Fiscal Quarter exceed
the Funding Requirements for the Applicable Fiscal Quarter but are within the
Approved Budget (subject to the provisions of Section 8.5.2 hereof), CPEC will
invoice each Member for its respective share of the deficiency, which shall be
due in 10 days.

                  8.5.4  Reimbursement from Third Party. If (i) CPEC receives
                         ------------------------------
from the third party (the "Designated Third Party") designated by Intercardia
and Interneuron in the Side Letter, cash payments that are specifically
identified by the Designated Third Party in writing as reimbursement for
services or activities performed or for other costs incurred by Intercardia or
Interneuron on behalf of CPEC, as evidenced by a schedule and invoice provided
by the Member performing the service or incurring the cost (the "Reimbursement
Payments"), and (ii) CPEC has not previously reimbursed the Member performing
the services or incurring the cost for the full amount of the Reimbursement
Payment, then the portion of the Reimbursement Payment received by CPEC from the
Designated Third Party equal to the amount not reimbursed by CPEC to the Member
performing the service or incurring the cost shall be remitted within 10 days to
the Member performing the service or incurring the cost, as a reimbursement for
services performed or for other costs incurred. This provision shall not apply
(i) if the definitive agreement with the Designated Third Party does not contain
economic terms that are comparable in all material respects to the economic
terms set forth in the Side Letter, (ii) with respect to any payments by the
Designated Third Party that are not designated in writing as Reimbursement
Payments or (iii) if cash payments for reimbursement are received from any third
party other than the Designated Third Party.

     Section 8.6  Adjustments of Percentage Interests.  The Percentage Interests
                  -----------------------------------
of the Members will be adjusted in the following circumstances.

                  8.6.1  Adjustment for Excess Funding. If either Member fails
                         -----------------------------
to pay its share of the Funding Requirements for any Applicable Fiscal Quarter
(including any deficiency referred to in the last sentence of Section 8.5.3) and
such default is not cured by the last day of the Fiscal Quarter immediately
preceding the Applicable Fiscal Quarter (or, if applicable, the 10-day period
for payment of a deficiency under the last sentence of Section 8.5.3) the other
Member may, but is not obligated to, make up such deficiency. If the non-
defaulting Member elects to make up such deficiency, the payment by the non-
defaulting Member shall be deemed an additional Capital Contribution by the non-
defaulting Member. Upon payment of the deficiency by the non-defaulting member
of all or any portion of such deficiency, the Percentage Interest of the non-
defaulting Member shall be increased, and the Percentage Interest of the
defaulting Member shall be decreased, by 1% for every $325,000 (or a pro rata
portion of 1% for amounts less than $325,000) of the defaulting Member's Funding
Requirement that was paid by the non-defaulting Member, subject to the maximum
adjustment specified in Section 8.6.3 hereof.

                  8.6.2  Adjustment Following Funding Default under Knoll
                         ------------------------------------------------
Agreement. If Intercardia fails to make the payments to Knoll required under
---------
Article III of the Knoll Agreement and (i) CPEC becomes liable for such amounts
in a proceeding that is not subject to further appeal (and Intercardia has been
given the opportunity to defend the proceeding under Article XIII hereof), (ii)
Intercardia has not paid the liability, and (iii) no compensation is being

                                       19
<PAGE>

paid to CPEC by Knoll for Bucindolol rights in the Knoll Territory; then in such
event the default by Intercardia under the Knoll Agreement shall be treated as a
default by Intercardia on its obligations with respect to Funding Requirements
in an amount equal to the CPEC liability (plus any fees and expenses incurred by
CPEC in defense of any related legal action but reduced by any of such amounts
that were paid by Intercardia) and as such shall be subject to the provisions of
Section 8.6.1 hereof. This provision shall not apply to funding obligations of
CPEC, Intercardia and Interneuron for fiscal years 1999 and 2000 that have been
or will be deferred as described in the Side Letter.

                  8.6.3  Maximum Reduction. No adjustment of Percentage
                         -----------------
Interests pursuant to this Section 8.6 will reduce or increase a Member's
Percentage Interest by more than 10% in the aggregate. Accordingly,
Interneuron's Percentage Interest shall not be reduced to less than 55% and
Intercardia's Percentage Interest shall not be reduced to less than 25% pursuant
to this Section 8.6. Once the Percentage Interests are adjusted in this manner,
the original Percentage Interests in effect after the Closing may not be
restored without the consent of both Interneuron and Intercardia. If a non-
defaulting Member funds in excess of $3,250,000 of a defaulting Member's
liabilities under Section 8.6, the excess shall be treated as an excess payment
under Section 8.8 hereof.

                  8.6.4  Timing of Adjustment.  The adjustment to Percentage
                         --------------------
Interests shall be effective as of the last day of the Fiscal Quarter in which
the payment by the non-defaulting Member was made.

                  8.6.5  Effect of Adjustments on Majority Membership. If the
                         --------------------------------------------
non-defaulting Member is the Minority Member, the Minority Member shall become
the Majority Member for purposes of this Agreement on the first March 31 or
September 30 (but no sooner than September 30, 2001) that all of the following
have occurred: (i) the Percentage Interest of the Majority Member has been
reduced by 10% in accordance with Section 8.6 hereof, (ii) CPEC has been in
possession of either the BEST database or the draft of the initial manuscript
for the BEST study for nine months, (iii) the Minority Member has paid all of
its Funding Requirements to such date on a timely basis (i.e., by the beginning
of the Applicable Fiscal Quarter for quarterly Funding Requirements or within
the 10-day period provided for deficiency funding, as provided for in the last
sentence of Section 8.5.3) and (iv) Majority Member has failed to meet any or
all of its Funding Requirements on a timely basis since the payment default that
triggered the 10% reduction in the Majority Member's Percentage Interest.

     Section 8.7  Member Debt.  A Member shall be deemed indebted to CPEC in the
                  -----------
following circumstances (the principal amount and interest described below shall
be deemed "Member Debt"):

                  8.7.1  Funding Default. A default in a Funding Requirement
                         ---------------
that is not paid by the non-defaulting Member as permitted in Section 8.6.1
above shall be due and payable by the defaulting Member to CPEC on demand, and
such indebtedness shall bear interest at a rate of 20% per annum.

                                       20
<PAGE>

                  8.7.2 Default on Knoll Territory Royalty.  A default by
                        ----------------------------------
Intercardia on its obligation to pay CPEC the Knoll Territory Royalty shall be
due and payable by Intercardia to CPEC on demand, and such indebtedness shall
bear interest at a rate of 20% per annum.

                  8.7.3 Set-off of Member Debt Against Dividends.  Any Dividends
                        ----------------------------------------
otherwise payable under Article X to a defaulting Member shall be reduced by the
amount of Member Debt owed to CPEC by that defaulting Member.  The Member Debt
shall be deemed cancelled to the extent paid directly by the defaulting Member
or set-off against that Member's Dividend.

     Section 8.8  Excess Payments.  If a Member funds more than $3,250,000 of a
                  ---------------
defaulting Member's share of Funding Requirements under Section 8.6 hereof and
the Percentage Interest of the non-defaulting Member has been increased by 10%,
the amount funded in excess of $3,250,000 (the "Excess Funded Amount") shall
constitute an additional Capital Contribution by the non-defaulting Member.  No
adjustment to the Percentage Interests of the Members shall be made with respect
to such Capital Contribution.  The Excess Funded Amount shall be returned to the
non-defaulting Member as a "Priority Dividend" pursuant to Section 10.2.

     Section 8.9  Inventions; Offer of Future Bucindolol Developments.
                  ---------------------------------------------------

                  8.9.1 Inventions; Exchange of Information.  CPEC shall own all
                        -----------------------------------
inventions, improvements or discoveries, know-how and data made, invented or
reduced to practice in the course of an activity pursuant to an Approved Budget
during the term of this Agreement, whether made by CPEC or by Intercardia or
Interneuron on behalf of CPEC.  Each of Intercardia and Interneuron shall
promptly disclose to CPEC and to each other any such Bucindolol discovery or
invention made by it during the term of this Agreement, and shall assign to CPEC
all rights in and to such discovery or invention.  CPEC's rights shall be
automatically included in and subject to the License Agreement.  Interneuron,
CPEC and Intercardia also will promptly disclose to the other on an ongoing
basis all technical information and data related to Bucindolol developed or
produced by or provided to it during the term of this Agreement, subject to the
limitations on use specified in this Agreement and the License Agreement.

                  8.9.2 Bucindolol Developments.
                        -----------------------

                        (a) A Member shall notify the BEXTRA Committee if it
     desires to undertake an activity related to Bucindolol that is outside the
     scope of the Approved Budget and could result in a new claim, indication,
     formulation, dosage form, delivery method or use of Bucindolol (an
     "Improvement"). The scope, timing and estimated cost of such activity and
     description of the Improvement also shall be provided to the BEXTRA
     Committee. Subject to Section 8.9.2(c), the BEXTRA Committee shall
     determine, within thirty (30) days of receipt of such notice and
     information, whether to recommend to the Board that CPEC participate in
     such activity and, if so, shall prepare for Board approval a proposed
     budget for funding such activity. Upon Board approval (which must occur, if
     at all, within sixty (60) days of receipt of the BEXTRA Committee
     recommendation and proposed budget) the activity and the budget approved by
     the Board shall be included in the Approved Budget. CPEC's percentage
     funding of the costs of the

                                       21
<PAGE>

     Improvement shall be based on a good faith estimate by the BEXTRA Committee
     and the Board of the costs of developing and commercializing the
     Improvement in the CPEC Territory, considering the costs of developing and
     commercializing the Improvement being assumed by third parties in the CPEC
     Territory and the Knoll Territory, and taking into account any other
     relevant factors. (If Interneuron is making the proposal, the approval of
     all of Intercardia's designated Directors shall constitute sufficient Board
     authorization, but such approval is not otherwise required.)

               (b)  If the BEXTRA Committee or Board declines to recommend or
     approve CPEC's participation in the proposed activity, the Member making
     the proposal shall have the right to proceed with the activity at its own
     expense, shall own all rights in and to the results of such activity, and
     shall have the right to use the results thereof in the development,
     marketing or commercialization of Bucindolol in any country, whether in or
     outside the CPEC Territory provided, however, that (i) if the data, know-
     how or other results of such activity are required to be reported to a
     regulatory authority in the CPEC Territory, the Member proceeding with the
     activity shall provide such information to CPEC and CPEC shall have the
     right of access to such information for regulatory reporting purposes, but
     if CPEC desires to use such information to seek expansion of the label or
     similar authorization related to Bucindolol, the Member and CPEC shall
     negotiate in good faith a commercially reasonable license from such Member
     to CPEC to such Improvement and (ii) if the Member proceeding with the
     activity seeks to use the Improvement in the CPEC Territory and such use
     would require the use of any of the Bucindolol Intellectual Property owned
     by CPEC, the Members and CPEC shall negotiate in good faith a commercially
     reasonable license from CPEC to such Member to such Bucindolol Intellectual
     Property.

               (c)  Notwithstanding paragraphs (a) and (b) of this Section
     8.9.2, the decision to proceed or decline participation in the Once-a-Day
     Formulation of Bucindolol shall not be required to be made by the BEXTRA
     Committee until the earlier of 90 days after the BEXTRA Committee receives
     either (i) the BEST database or (ii) the draft of the initial manuscript
     reporting the BEST data.

     Section 8.10  Safety Data Collection and Reporting.  CPEC, Intercardia and
                   ------------------------------------
Interneuron will cooperate to establish a system for the timely collection and
reporting of product complaints, adverse events and similar occurrences related
to Bucindolol that allows CPEC and Intercardia to report such occurrences on a
timely basis to regulatory authorities in the CPEC Territory and the Knoll
Territory, respectively, in compliance with applicable Laws.


                                 ARTICLE IX --
                                  ALLOCATIONS

     Section 9.1   Profits and Losses.
                   ------------------

                   9.1.1  Profits. After giving effect to the special allocation
                          -------
provisions contained in Schedule E hereto, and subject to Section 9.2 hereof,
Profits for each Fiscal Year or

                                       22
<PAGE>

other period shall be allocated among the Members in the following order and
priority:

                 (a) First, to the extent Losses have been allocated pursuant to
     Sections 9.1.2(b), (c), (d), (e) or (f) of this Agreement for any prior
     period, Profits shall be allocated to and among the Members first to offset
     any losses allocated pursuant to Section 9.1.2(f) of this Agreement, then
     to offset any Losses allocated pursuant to Section 9.1.2(e) of this
     Agreement, then to offset any Losses allocated pursuant to Section 9.1.2(d)
     of this Agreement, then to offset any Losses allocated pursuant to Section
     9.1.2(c) of this Agreement, and then to offset any Losses allocated
     pursuant to Section 9.1.2(b) of this Agreement (in each case, among the
     Members in proportion to their respective shares of the Losses at each
     level of priority being offset). To the extent any allocations of Losses
     are offset pursuant to this Section 9.1.1(a), such Losses shall be
     disregarded for purposes of computing subsequent allocations pursuant to
     this Section 9.1.1(a); and

                 (b) The balance of any Profits shall then be allocated among
     the Members in proportion to their respective Percentage Interests, as
     determined as of the end of each applicable Fiscal Quarter or other
     applicable period within the Fiscal Year or other period.


          9.1.2  Losses.  After giving effect to the special allocation
                 ------
provisions set forth on Schedule E hereto, and subject to Section 9.2 hereof,
Losses for each Fiscal Year or other period shall be allocated among the Members
in the following order and priority:

                 (a) First, if each Member has a Capital Account balance in
     excess of its "Target Amount", which shall be defined for purposes of this
     Agreement as the greater of (i) zero and (ii) the sum of (A) such Member's
     amount, if any, of unpaid Priority Dividend (i.e., the amount of any Excess
     Funded Amount contributed by such Member and not yet returned as a
     repayment thereof by CPEC, plus such Member's amount of any accrued and
     unpaid Priority Return) as of the end of the Fiscal Year or other period,
     plus (B) in the case of Interneuron only, the amount of any accumulated but
     unpaid Special Dividends to Interneuron as of the end of such Fiscal Year
     or other period (including any Special Dividend accruing during the Fiscal
     Year or other period with respect to which this allocation is being made,
     even though not payable until 41 days after the end of the Fiscal Year or
     other period), Losses shall be allocated to and among the Members in
     proportion to their respective Funding Percentages until any Member's
     Capital Account balance is reduced to its Target Amount;

                 (b) Second, Losses shall be allocated to each Member whose
     Capital Account balance (prior to taking into account the allocation of
     Losses under this Section 9.1.2(b), but after taking into account any
     allocation of Losses under Section 9.1.2(a) above) exceeds its Target
     Amount, in proportion to their respective Funding Percentages, until each
     such Member's Capital Account balance is reduced to its Target Amount;

                                       23
<PAGE>

                  (c) Third, to the extent that the Capital Account balance
     (prior to taking into account the allocation of Losses under this Section
     9.1.2(c), but after taking into account any allocation of Losses under the
     earlier subsections of this Section 9.1.2) of any Member other than
     Intercardia is greater than zero, Losses shall be allocated to each such
     Member having such a Capital Account balance, in proportion to their
     respective amounts of unpaid Priority Dividend (within the meaning of
     Section 9.1.2(a) above) as of the end of the Fiscal Year or other period,
     until Interneuron's Capital Account balance is reduced to its amount of
     accumulated but unpaid Special Dividends (within the meaning of clause
     (ii)(B) of Section 9.1.2(a) above) and each such other Member's Capital
     Account balance is reduced to zero;

                  (d) Fourth, to the extent that the Capital Account balance
     (prior to taking into account the allocation of Losses under this Section
     9.1.2(d), but after taking into account any allocation of Losses under the
     earlier subsections of this Section 9.1.2) of Interneuron is greater than
     zero, Losses shall be allocated to Interneuron until its Capital Account
     balance is reduced to zero;

                  (e) Fourth, to the extent that the Capital Account balance
     (prior to taking into account the allocation of Losses under this Section
     9.1.2(e), but after taking into account any allocation of Losses under the
     earlier subsections of this Section 9.1.2) of Intercardia is greater than
     zero, Losses shall be allocated to Intercardia until its Capital Account
     balance is reduced to zero; and

                  (f) The balance of any Losses shall then be allocated among
     the Members in proportion to their respective Funding Percentages.

     Section 9.2  Other Allocation Rules.
                  ----------------------

                  9.2.1  General. Except as otherwise provided in this
                         -------
Agreement, all items of CPEC income, gain, loss, deduction and any other
allocations not otherwise provided for shall be divided among the Members in the
same proportions as they share Profits and Losses for the Fiscal Year or other
period in question. Profits, Losses and any such other items shall be determined
on an annual basis, or any other frequency determined by the Members using any
method that is permissible under Section 706 of the Code and the Treasury
Regulations thereunder. Profits and Losses shall be prorated to take into
account adjustments to Percentage Interests made during the Fiscal Year under
Section 8.6 hereof. Any special allocation of gross revenues pursuant to
Sections 9.2.2 or 9.2.3 below shall be made and reflected in the Members'
Capital Account balances prior to the making of any allocations of Profits or
Losses pursuant to Section 9.1.

                  9.2.2  Special Allocation of License Agreement Revenues. For
                         ------------------------------------------------
each Fiscal Year or other period, Interneuron shall be specially allocated gross
revenues of CPEC in an amount equal to the amount, if any, of royalties and
milestone payments includable in CPEC's income with respect to such Fiscal Year
or other period under the License Agreement.

                                       24
<PAGE>

                  9.2.3  Special Allocation Regarding Priority Return. For each
                         --------------------------------------------
Fiscal Year or other period, there shall be a special allocation of CPEC's gross
revenues to any Member having any unrepaid Excess Funding Amount during the
period in an amount equal to the amount, if any, by which (i) the cumulative
amount of Priority Return accrued with respect to such Member's Excess Funded
Amount through the end of such Fiscal Year or other period, exceeds (ii) the
cumulative amount of gross revenues previously allocated with respect to such
Member's Interest pursuant to this Section 9.2.3 for all prior periods.

                  9.2.4  Priority of Special Allocations. For any Fiscal Year or
                         -------------------------------
other period, if CPEC's gross revenues are less than the total amounts of
special allocations otherwise required under Sections 9.2.2 and 9.2.3 for such
Fiscal Year or other period, allocations of CPEC's gross revenues, to the extent
available, shall be made in the following order and priority: first, to
Intercardia for any amount to which it is entitled pursuant to Section 9.2.3;
second, to Interneuron for any amount to which it is entitled pursuant to
Section 9.2.2; and third, to Interneuron and any other Members (other than
Intercardia) for any amounts to which they are entitled pursuant to Section
9.2.3 (in proportion to the respective amounts to which each such Member would
otherwise be entitled pursuant to Section 9.2.3). To the extent the amount of
special allocations of gross revenues to any Member under Sections 9.2.2 or
9.2.3 have been reduced for any period pursuant to this Section 9.2.4, the
amount of such reduction shall cumulate and be allocable in future periods under
Sections 9.2.2 or 9.2.3, as applicable, with the same priority.

     Section 9.3  Acknowledgment.  The Members are aware of the income tax
                  --------------
consequences of the allocations made by this Article IX and agree to be bound by
the provisions of this Article IX in reporting their shares of CPEC income and
loss for income tax purposes.  The Members intend that the allocation provisions
set forth in this Agreement are intended to comply with Section 704(b) of the
Code and the Treasury Regulations issued thereunder and the provisions are to be
interpreted in a manner consistent with those Treasury Regulations.

                                 ARTICLE X --
                                   DIVIDENDS

     Section 10.1 Special Dividend.  If at such time there is no amount of
                  ----------------
accrued but unpaid Priority Dividend payable to Intercardia under Section 10.2,
there shall be distributed to Interneuron within 41 days after the end of each
Fiscal Quarter the amount, if any, of the Knoll Territory Royalty payable to
CPEC for such Fiscal Quarter (the "Special Dividend"), without offset or
deduction.  If at such time any Priority Dividend payable to Intercardia has not
been paid in full, then payment of the Special Dividend shall be deferred and
shall cumulate until such time as such Priority Dividend has been paid in full
to Intercardia, at which time, subject to the limitations described in Section
10.4 and 10.5, the accumulated amounts shall be distributed to Interneuron.

     Section 10.2 Priority Dividend.  A Dividend shall be paid with respect to
                  -----------------
any outstanding Excess Funded Amount (as such, a "Priority Dividend") paid by a
non-defaulting Member under Section 8.8.  The Priority Dividend shall be equal
to the sum of (i) the outstanding amount of the Excess Funded Amount, plus (ii)
a priority return ("Priority Return")

                                       25
<PAGE>

equal to 40%, compounded annually, of the principal amount of the Excess Funded
Amount outstanding from time to time, until repaid in full. Payments of the
Priority Dividend shall be allocated first to payments of any accrued and unpaid
Priority Return, and then to repayment of the outstanding principal balance of
the Excess Funded Amount.

     Section 10.3  Payment of Dividends.  Unless prohibited by applicable law,
                   --------------------
CPEC shall distribute Dividends from Net Cash, if any, within 41 days after the
end of each Fiscal Quarter, which shall be paid and applied in the following
order and priority:

                   10.3.1  First, any Priority Dividend owed to Intercardia
shall be paid in accordance with Section 10.2.

                   10.3.2  Second, any Priority Dividend owed to Interneuron or
any other Member shall be paid in accordance with Section 10.2.

                   10.3.3  Third, any balance of Net Cash shall be paid as
regular Dividends to the Members in proportion to their respective Percentage
Interests, determined as of the last day of the Fiscal Quarter for which the
Dividend is calculated.

     Section 10.4  Limitations on Dividend.  Notwithstanding any provision to
                   -----------------------
the contrary contained in this Agreement, CPEC, and the Board on behalf of CPEC,
shall not make a Dividend to any Member on account of its interest in CPEC if
such Dividend would violate Section 18-607 of the Delaware Act or other
applicable Laws (which shall include, for these purposes, any contractual
limitations or restrictions to which CPEC is subject, whether in connection with
loan or financing documents or otherwise).

     Section 10.5  Set-offs.  Before making any distribution of any Special
                   --------
Dividend, Priority Dividend or regular Dividend to a Member under this Article
X, CPEC shall set-off against such Dividend all Member Debt and any other
amounts (including interest) owed by such Member to CPEC, beginning with the
oldest of such liability or indebtedness.  The amount of Dividends otherwise
payable to Intercardia that are set-off by CPEC under Section 8.7.3 hereof for
Member Debt arising out of Intercardia's failure to pay CPEC the Knoll Territory
Royalty shall be distributed to Interneuron as a Special Dividend which shall be
paid to Interneuron and shall take priority over any Priority Dividend owed to
Intercardia, notwithstanding the first two sentences of Section 10.1.  However,
if Intercardia's failure to pay the Knoll Territory Royalty resulted from
Knoll's default on its obligation to pay Intercardia, the offset of the Knoll
Territory Royalty shall not take priority over any unpaid Priority Dividend
owing to Intercardia.  The amount of any Dividend that is set-off against any
other type of Member Debt under this Section 10.5 shall not be actually
distributed to any Member, but instead shall give rise to treatment as follows:
(i) such amount shall be treated and deemed to be a Dividend distribution to the
obligor under the Member Debt (the "Obligor") for purposes of this Agreement,
including, without limitation, maintenance of Capital Accounts and determining
the amount of any unpaid Priority Dividend or Special Dividend to which the
Obligor is thereafter entitled; (ii) such amount shall be treated as having been
paid by the Obligor to CPEC immediately thereafter in repayment against the
Obligor's Member Debt; and (iii) CPEC shall retain such amount of offset
Dividend as proceeds from the repayment of the Member Debt, and such amount
shall be an available asset in the

                                       26
<PAGE>

immediately succeeding Fiscal Quarter for CPEC to (A) use to reduce the total
amount of Funding Requirements of all of the Members in a subsequent period, (B)
take into account as an additional source of funds in determining the amount of
Net Cash available in the immediately succeeding Fiscal Quarter for distribution
to all of the Members, or (C) apply in part to such a reduction of Funding
Requirements and in remaining part as an additional source of funds in such a
determination of Net Cash.

                                 ARTICLE XI --
                               BOOKS AND RECORDS

     Section 11.1  Books and Records.  CPEC shall maintain, at its principal
                   -----------------
place of business, complete and accurate books and records that show all costs
and expenses incurred, all charges made, all credits made and received and all
income derived in connection with the operation of CPEC business in accordance
with GAAP consistently applied.  Such books of account, together with a copy of
this Agreement and of the Certificate, shall be open to copying, inspection,
examination, review and verification at reasonable times by each Member and its
duly authorized representative, at the Member's cost and expense, for any
purpose reasonably related to such Member's interest in CPEC.  CPEC shall not
have the authority to withhold confidential information from a Member pursuant
to Section 18-305c of the Delaware Act, as long as the Member requesting the
information is in compliance in all material respects with its confidentiality
obligations under Section 17.5 hereof.

     Section 11.2  Accounting Method.  For financial reporting purposes, the
                   -----------------
books and records of CPEC shall be kept on the accrual method of accounting
applied in a consistent manner in accordance with GAAP and shall otherwise be
appropriate and adequate for CPEC's business.

     Section 11.3  Financial Statements.  CPEC shall use its best efforts to
                   --------------------
provide Interneuron and Intercardia with unaudited financial statements within
10 business days following the end of the first, second and third Fiscal
Quarters of each Fiscal Year.  CPEC will furnish to each Member within 24 hours
after receipt by CPEC, copies of any written reports provided by a collaborative
partner that relate to the amount or calculation of Net Sales of Bucindolol for
the Fiscal Quarter or the Fiscal Year, and in any event shall use its best
efforts to provide each Member with audited financial statements for and as of
the end of such Fiscal Year, within 60 days following the end of such Fiscal
Year and will provide each Member with unaudited financial statements for and as
of the end of such Fiscal Year as soon as they are available.  Each Member shall
be entitled to have a representative present to observe the annual audit.


                                ARTICLE XII --
                                  TAX MATTERS

     Section 12.1  Tax Matters Partner.  The Majority Member is hereby
                   -------------------
designated as "Tax Matters Partner" of CPEC for purposes of any election under
(S)6231(a)(7) of the Code.  If the

                                       27
<PAGE>

Majority Member ceases to be qualified to serve as the Tax Matters Partner under
the Code and Treasury Regulations, the Board shall designate another Member to
serve in such capacity. The Tax Matters Partner shall, within ten (10) days of
the receipt of any notice from the Internal Revenue Service in any
administrative proceeding at CPEC level relating to the determination of any
CPEC item of income, gain, loss, deduction or credit, mail or otherwise deliver
a copy of such notice to each Member.

     Section 12.2  Taxation as Partnership. From and after execution of this
                   -----------------------
Agreement, CPEC shall be treated as a partnership for U.S. federal income tax
purposes.

     Section 12.3  Preparation of Tax Filings.  The Tax Matters Partner shall
                   --------------------------
prepare and file, or cause to be prepared and filed, on a timely basis, all
applicable federal and state tax returns on behalf of CPEC.  Intercardia shall
receive a draft copy of CPEC's tax returns prior to their filing and shall
cooperate with the Tax Matters Partner in the preparation of all such filings,
upon reasonable request.  The Tax Matters Partner or CPEC shall distribute to
each Member a copy of each state or federal tax return, including schedules,
promptly after the corresponding filing date.


                                ARTICLE XIII --
                         LIABILITY AND INDEMNIFICATION

     Section 13.1  No Personal Liability.  To the fullest extent permitted by
                   ---------------------
the Delaware Act, the debts, obligations and liabilities of CPEC, whether
arising in contract, tort or otherwise, shall be solely the debts, obligations
and liabilities of CPEC, and no Member, Director, Manager or Officer shall be
obligated personally for any such debt, obligation or liability of CPEC solely
by reason of being a Member, Director, Manager or Officer.

     Section 13.2  Reliance on Others.  A Covered Person shall be fully
                   ------------------
protected in relying in good faith upon the records of CPEC and upon such
information, opinions, reports or statements presented to CPEC by any Person as
to matters the Covered Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of CPEC, including information, opinions, reports or statements
as to the value and amount of the assets, liabilities, Profits, Losses or Net
Cash or any other facts pertinent to the existence and amount of assets from
which Dividends to Members might properly be paid.

     Section 13.3  Fiduciary Duty.  To the extent that, at law or in equity, a
                   --------------
Covered Person has duties (including fiduciary duties) and liabilities relating
thereto to CPEC or to any other Covered Person, a Covered Person acting under
this Agreement shall not be liable to CPEC or to any Member for its good faith
reliance on the provisions of this Agreement.  The express provisions of this
Agreement, to the extent that they expand or restrict the duties and liabilities
of a Covered Person otherwise existing at law or in equity, are agreed by the
parties hereto to replace such other duties and liabilities of such Covered
Person.

     Section 13.4  Indemnification.  To the fullest extent permitted by
                   ---------------
applicable law, a Covered Person shall be entitled to indemnification from CPEC
for any loss, damage, claim or

                                       28
<PAGE>

expense, including reasonable legal fees, ("Liabilities") incurred by such
Covered Person by reason of any act or omission performed or omitted by such
Covered Person in good faith on behalf of CPEC and in a manner reasonably
believed to be within the scope of authority conferred on such Covered Person by
this Agreement, except that no Covered Person shall be entitled to be
indemnified in respect of any Liabilities incurred by such Covered Person if
such Person has been determined in a final judgment from which no appeal has or
may be taken to have acted in a manner which constituted breach of a fiduciary
duty, gross negligence or willful misconduct with respect to such acts or
omissions. Any indemnity under this Section 13.4 shall be provided out of and to
the extent of CPEC assets only. No Covered Person shall have any personal
liability with respect to such indemnity

     Section 13.5  Expenses.  To the fullest extent permitted by applicable law,
                   --------
expenses (including reasonable legal fees) incurred by a Covered Person in
defending any claim, demand, action, suit or proceeding shall, from time to
time, be advanced by CPEC prior to the final disposition of such claim, demand,
action, suit or proceeding upon receipt by CPEC of an undertaking by or on
behalf of the Covered Person to repay such amount if it shall be determined that
the Covered Person is not entitled to be indemnified as authorized in Section
13.4 hereof.

     Section 13.6  Insurance.  CPEC shall purchase and maintain insurance,
                   ---------
including products liability and directors and officers' liability insurance, to
the extent and in such amounts as the Board shall deem reasonable, for its own
account and/or on behalf of Covered Persons and such other Persons as the Board
shall determine, against any liability that may be asserted against or expenses
that may be incurred by any such Person in connection with the activities of
CPEC or such indemnities, regardless of whether CPEC would have the power to
indemnify such Person against such liability under the provisions of this
Agreement.  CPEC may enter into indemnity contracts with Covered Persons and
such other Persons as the Board shall determine and adopt written procedures
pursuant to which arrangements are made for the advancement of expenses and the
funding of obligations under Section 13.4 hereof and containing such other
procedures regarding indemnification as are appropriate.  Each Member shall be
identified as an additional insured on any such policies.  Upon request, CPEC
shall furnish a Member a summary of the coverage amounts of each CPEC insurance
policy.

     Section 13.7  Outside Businesses.  Any Member or Affiliate thereof may
                   ------------------
engage in or possess an interest in other business ventures of any nature or
description, independently or with others, similar or dissimilar to the business
of CPEC, and CPEC (except as set forth herein) and the Members shall have no
rights by virtue of this Agreement in and to such independent ventures or the
income or profits derived therefrom, and the pursuit of any such venture, even
if competitive with the business of CPEC, shall not be deemed wrongful or
improper.  Except as set forth in this Agreement, no Member or Affiliate thereof
shall be obligated to present any particular investment opportunity to CPEC even
if such opportunity is of a character that, if presented to CPEC, could be taken
by CPEC, and any Member or Affiliate thereof shall have the right to take for
its own account (individually or as a partner or fiduciary) or to recommend to
others any such particular investment opportunity.

                                       29
<PAGE>

                                 ARTICLE XIV --
                               ADDITIONAL MEMBERS

     Section 14.1  Right to Participate in Certain Sales of Additional
                   ---------------------------------------------------
Securities.
----------

                   14.1.1  Offer of Additional Interests. CPEC will not sell or
                           -----------------------------
issue any Interests, or securities convertible into or exchangeable for
Interests, or options, warrants or rights carrying any rights to purchase
Interests or capital stock of CPEC, unless CPEC first submits a written offer to
each Member (collectively, the "Offerees"), identifying the terms of the
proposed sale (including price, number or aggregate principal amount of
Interests or securities and all other material terms) and offers to each Offeree
in proportion to their respective Percentage Interests the opportunity to
purchase its pro rata allotment of the Interests or securities on terms and
conditions, including price, not less favorable than those on which CPEC
proposes to sell such Interests or securities to a third party or parties.
CPEC's offer pursuant to this Section 14.1 shall remain open and irrevocable for
a period of 15 days, and if such Offeree elects to purchase, such Offeree shall
be required to elect to purchase by giving written notice thereof to CPEC within
such 15-day period and to consummate such purchase within five days thereafter.
Any Interests or securities so offered which are not purchased by either Offeree
pursuant to such offer may be sold by CPEC, but only on the terms and conditions
set forth in the initial offer, at any time within 90 days following the
termination of the above-referenced 15-day period but may not be sold to any
other person or on terms and conditions, including price, that are more
favorable to the purchaser than those set forth in such offer or after such 90-
day period without renewed compliance with this Section 14.1.

                   14.1.2  Exceptions to Participation Right. Notwithstanding
                           ---------------------------------
the foregoing, the right to purchase granted under this Section 14.1 shall
terminate immediately prior to the initial public offering of Interests or
securities of CPEC (or any successor to CPEC) and shall be inapplicable with
respect to (i) options to purchase Interests or securities of CPEC granted or to
be granted pursuant to any stock option plan or other employee benefit plan
approved by the Board; (ii) CPEC securities issued as a result of any stock
split, stock dividend, reclassification or reorganization or similar event with
respect to the Interests or capital stock; (iii) CPEC Interests issuable or
issued pursuant to the equity adjustment provisions of Section 8.6 of this
Agreement; (iv) Interests or securities issued or issuable by CPEC in connection
with an acquisition, joint venture, license or other collaborative agreement
with a third party; or (v) any Member that owns less than 50% of the Interests
held by it immediately after execution of this Agreement.

          Section 14.2  Admission. If any Interest remains to be acquired
                        ---------
following completion of the procedures set forth in Section 14.1, CPEC may
invite the Person to be admitted as an Additional Member to the extent of such
remaining Interests, and upon the same terms previously offered. Such Person
shall be admitted when it (i) executes this Agreement or a counterpart of this
Agreement and (ii) is named as a Member on Schedule A hereto. The legal fees and
expenses associated with such admission shall be borne by the Additional Member.

          Section 14.3  Allocations. Additional Members shall not be entitled to
                        -----------
any retroactive allocation of CPEC's income, gains, losses, deductions, credits
or other items; provided that,

                                       30
<PAGE>

subject to the restrictions of (S) 706(d) of the Code, Additional Members shall
be entitled to their respective share of CPEC's income, gains, losses,
deductions, credits and other items arising under contracts entered into before
the effective date of the admission of any Additional Members to the extent that
such income, gains, losses, deductions, credits and other items arise after such
effective date. To the extent consistent with (S) 706(d) of the Code and
Treasury Regulations promulgated thereunder, CPEC's books may be closed at the
time Additional Members are admitted (as though CPEC's tax year had ended) or
CPEC may credit to the Additional Members pro rata allocations of CPEC's income,
gains, losses, deductions, credits and items for that portion of CPEC's Fiscal
Year after the effective date of the admission of the Additional Members.

     Section 14.4  Transfers among Members.  Except for the restrictions set
                   -----------------------
forth in Section 15.3, nothing in this Agreement shall be deemed to prohibit any
Member from transferring any or all of its Interest to another Member, upon
mutually agreeable terms.


                                 ARTICLE XV --
                       ASSIGNMENT AND PLEDGE OF INTERESTS

     Section 15.1  Assignability of Interests.  Subject to the restrictions set
                   --------------------------
forth in Section 15.3, a Member may sell, transfer, assign or pledge the whole
or any part of its Interest, upon notice to CPEC and execution of a counterpart
to this Agreement by the transferee.  CPEC shall notify the other Members
promptly following such transfer.

     Section 15.2  Recognition of Assignment by CPEC.  No assignment or pledge
                   ---------------------------------
of any Interest, or any part thereof, that is in violation of this Article XV
shall be valid or effective, and neither CPEC nor the Members shall recognize
the same for the purpose of making Dividends pursuant to this Agreement.
Neither CPEC nor the Members shall incur any liability as a result of refusing
to make any such Dividends to the assignee of any such invalid assignment.

     Section 15.3  Certain Transfers Requiring Consent.  The consent of the
                   -----------------------------------
other Members will be required for any transfer of an Interest that would render
CPEC not to be a partnership for federal income tax purposes, that would result
in a "termination" of CPEC under Code Section 708(b)(1)(B), or that would be to
any nonresident alien or any other person that is not a "United States person"
(as defined by Code Section 7701(a)(30)).


                                 ARTICLE XVI --
                    DISSOLUTION, LIQUIDATION AND TERMINATION

     Section 16.1  No Dissolution.  CPEC shall not be dissolved by the admission
                   --------------
of Additional Members or substitute Members in accordance with the terms of this
Agreement, or by the death, retirement, resignation, expulsion, bankruptcy or
dissolution of a Member or the occurrence of any other event under the Delaware
Act that terminates the continued membership of a Member in CPEC.

                                       31
<PAGE>

     Section 16.2  Events Causing Dissolution.  CPEC shall be dissolved and its
                   --------------------------
affairs shall be wound up upon the occurrence of any of the following events:

          (i)   the written consent of all Members;

          (ii)  the entry of a decree of judicial dissolution of CPEC under
                Section 18-802 of the Delaware Act; or

          (iii) at any time there are no Members, unless CPEC is continued in
                accordance with the Delaware Act.

     Section 16.3  Liquidation.  Upon dissolution of CPEC, the Board shall carry
                   -----------
out the winding up of CPEC and shall immediately commence to wind up CPEC's
affairs; provided, however, that a reasonable time shall be allowed for the
         --------  -------
orderly liquidation of the assets of CPEC and the satisfaction of liabilities to
creditors so as to enable the Members to minimize the normal losses attendant
upon a liquidation.  The Members shall continue to share Profits and Losses
during liquidation in the same proportions, as specified in Article IX hereof,
as before liquidation.  The proceeds of liquidation shall be distributed in the
following order and priority:

          (i)  to creditors of CPEC, in satisfaction of the liabilities of CPEC
               (whether by payment or the making of reasonable provision for
               payment thereof); and

          (ii) to the Members in accordance with their Capital Account balances,
               after giving effect to all contributions, Dividends and
               allocations for all periods, to be made in the priorities and
               amounts set forth in Article X hereof.

     Section 16.4.  Distribution in Kind.  Upon the dissolution and liquidation
                    --------------------
of CPEC, the Board may make distributions in liquidation in kind in the
proportions and priorities provided in Section 16.3 hereof.  In such event, the
assets to be distributed in kind shall be valued, and appropriate pre-
liquidation adjustments shall be made to the Capital Accounts of the Members in
accordance with Article IX hereof to reflect the Profits or Losses that would
have been realized and allocated to the Capital Accounts of the Members on a
sale of such assets at their fair market value, prior to distribution of such
assets in kind as provided in Section 16.3.

     Section 16.5  Termination.  CPEC shall terminate when all of the assets of
                   -----------
CPEC, after payment of or due provision for all debts, liabilities and
obligations of CPEC, shall have been distributed to the Members in the manner
provided for in this Article XVI and the Certificate shall have been canceled in
the manner required by the Delaware Act.

     Section 16.6  Claims of the Members.  The Members and former Members shall
                   ---------------------
look solely to CPEC's assets for the return of their Capital Contributions, and
if the assets of CPEC remaining after payment of or due provision for all debts,
liabilities and obligations of CPEC are insufficient to return such Capital
Contributions, the Members and former Members shall have no recourse against
CPEC or any other Member.

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<PAGE>

                                ARTICLE XVII --
                                 MISCELLANEOUS

     Section 17.1  Notices.  Any notice required to be given hereunder shall be
                   -------
in writing, shall refer specifically to this Agreement (except in the case of
Member or Director meetings), and shall be sent by facsimile transmission (with
a confirmatory copy sent by overnight courier), by courier service (with proof
of service), by hand delivery or by certified or registered mail (return receipt
requested and first-class postage prepaid), addressed as follows, or to such
other addressee as shall be properly designated in accordance with these notice
provisions.  All such notices shall be deemed to have been given when received
at the address specified below.

     If to Interneuron:

               Interneuron Pharmaceuticals, Inc.
               99 Hayden Avenue
               Lexington, MA 02421
               Facsimile:  (781) 862-3859
               Telephone:  (781) 402-3400
               Attention:  Glenn L. Cooper, M.D.

     If to Intercardia:

               Intercardia, Inc.
               Post Office Box 14287
               3200 East Highway 54
               Cape Fear Building, Suite 300
               Research Triangle Park, NC 27709
               Facsimile:  919-544-1245
               Telephone:  919-558-8688
               Attention:  Clayton I. Duncan

               With a copy to:

               Wyrick Robbins Yates & Ponton LLP
               4101 Lake Boone Trail, Suite 300
               Raleigh, NC 27607
               Facsimile:  919-781-4865
               Telephone:  919-781-4000
               Attention:  Larry E. Robbins, Esq.

     If to CPEC:  at the address specified in Section 2.5 of this Agreement.

     If to a Director:  at such Director's mailing address as provided to CPEC.

     If to any other Member:  at the address set forth opposite its name on
     Schedule A, or at such other address as such Member may hereafter designate
     by written notice to CPEC.

                                       33
<PAGE>

     Section 17.2  Dispute Resolution.
                   ------------------

                   17.2.1  Procedures.  If a dispute arises with respect to the
                           ----------
development or commercialization of Bucindolol that can not be resolved by the
BEXTRA Committee or the Board, but excluding any dispute relating specifically
to interpretation of this Agreement), Intercardia may request that the matter be
submitted to the Chief Executive Officers of Intercardia and Interneuron for
resolution.  If Intercardia has not requested such submission within 10 days
after the dispute arises, or if the Chief Executive Officers fail to resolve
such dispute following good faith discussions, the matter shall be resolved by
the Chief Executive Officer of Interneuron.  Under no circumstances shall
Intercardia be bound by a decision that it has not agreed to that would put it
in material breach of the Knoll Agreement (unless such provision or the decision
would increase CPEC's obligations or materially adversely affect its rights.)
In no event may Intercardia use the preceding sentence to avoid or reduce its
Funding Requirements under this Agreement on the basis that compliance with the
Funding Requirements would render it unable to satisfy its funding obligations
under the Knoll Agreement.  The dispute resolution mechanism in this Section
17.2.1 shall terminate if at any time Interneuron is not the Majority Member.

                   17.2.2  Arbitration. Any disputes (or portions thereof)
                           -----------
arising between the Parties relating to interpretation of this Agreement
(excluding matters related to the development or commercialization of Bucindolol
subject to resolution under Section 17.2.1 above), whether before or after
termination of the Agreement, shall be finally resolved by binding arbitration.
Whenever a Party shall decide to institute arbitration proceedings, it shall
give written notice to that effect to the other Party. The Party giving such
notice shall refrain from instituting the arbitration proceedings for a period
of sixty (60) days following such notice. During such period, the Parties shall
make good faith efforts to amicably resolve the dispute without arbitration. Any
arbitration hereunder shall be conducted under the rules of the American
Arbitration Association. Each such arbitration shall be conducted by a panel of
three arbitrators: one arbitrator shall be appointed by each of Interneuron and
Intercardia and the third shall be appointed by the two arbitrators; provided,
however, if no mutually acceptable arbitrator can be agreed to by the first two
arbitrators, a third shall be appointed by the American Arbitration Association.
Any such arbitration shall be held in New York, New York. The arbitrators shall
have the authority to direct the Parties as to the manner in which the Parties
shall resolve the disputed issues, to render a final decision with respect to
such disputed issues, or to grant specific performance with respect to any such
disputed issue. Judgment upon the award so rendered may be entered in any court
having jurisdiction or application may be made to such court for judicial
acceptance of any award and an order of enforcement, as the case may be. Nothing
in this Section shall be construed to preclude either Party from seeking
provisional remedies, including but not limited to, temporary restraining orders
and preliminary injunctions, from any court of competent jurisdiction, in order
to protect its rights pending arbitration, but such preliminary relief shall not
be sought as a means of avoiding arbitration. In no event shall a demand for
arbitration be made after the date when institution of a legal or equitable
proceeding based on such claim, dispute or other matter in question would be
barred by the applicable statute of limitations.

                                       34
<PAGE>

           Section 17.3 Failure to Pursue Remedies. The failure of any Member to
                        --------------------------
seek redress for violation of, or to insist upon the strict performance of, any
provision of this Agreement shall not prevent a subsequent act, which would have
originally constituted a violation, from having the effect of an original
violation.

           Section 17.4 Cumulative Remedies. The rights and remedies provided by
                        -------------------
this Agreement are cumulative and the use of any one right or remedy by any
Member shall not preclude or waive its right to use any or all other remedies.
Said rights and remedies are given in addition to any other rights the parties
may have by Law or otherwise.

           Section 17.5 Confidentiality. Each Member may have access through
                        ---------------
CPEC (including as a Member, Director or member of the BEXTRA Committee) or
otherwise under this Agreement to confidential or proprietary information of
CPEC, the other Member or third parties. In such event, the receiving party
shall hold in confidence and not disclose to any third party any information
from the disclosing party that is marked as confidential or proprietary, and
shall cause its Representatives to do the same. This restriction shall not apply
to information that becomes part of the public domain through no fault of the
receiving party or is obtained from a third party who is not under any
obligation of confidentiality. In addition, Intercardia may disclose such
information to Knoll for purposes of the Knoll Agreement, and any receiving
party may disclose the information to a consultant, collaborator or potential
collaborator if necessary in connection with the conduct of its responsibilities
under this Agreement, as long as such person is bound by confidentiality
obligations comparable to the obligations under this Agreement. If the receiving
party receives a subpoena or becomes subject to any other legal process
requiring disclosure of the disclosing party's confidential or proprietary
information, it will promptly notify the disclosing party and cooperate to
minimize the scope of the disclosure to the extent practicable. This Section
17.5 shall continue for five years from and after termination of this Agreement.

           Section 17.6 Amendments. Any amendment to this Agreement shall be
                        ----------
adopted and be effective as an amendment hereto if in writing and approved by
Members constituting a Supermajority Vote.

           Section 17.7 Binding Effect. This Agreement shall be binding upon and
                        --------------
inure to the benefit of all of the parties and, to the extent permitted by this
Agreement, their successors, legal Representatives and assigns.

           Section 17.8 Interpretation. Throughout this Agreement, nouns,
                        --------------
pronouns and verbs shall be construed as masculine, feminine, neuter, singular
or plural, whichever shall be applicable. Except as otherwise specified, all
references herein to "Articles," "Sections" and "Paragraphs" shall refer to
corresponding provisions of this Agreement.

           Section 17.9 Severability. The invalidity or unenforceability of any
                        ------------
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provision were omitted.

                                      35
<PAGE>

           Section 17.10 Counterparts. This Agreement may be executed in any
                         ------------
number of counterparts with the same effect as if all parties hereto had signed
the same document. All counterparts shall be construed together and shall
constitute one instrument.

           Section 17.11 Integration. This Agreement constitutes the entire
                         -----------
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understandings pertaining thereto.

           Section 17.12 Governing Law. This Agreement and the rights of the
                         -------------
parties hereunder shall be interpreted in accordance with the laws of the State
of Delaware, and all rights and remedies shall be governed by such laws without
regard to principles of conflict of laws.

                     [THE NEXT PAGE IS THE SIGNATURE PAGE]

                                      36
<PAGE>

           IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized Representatives to execute this Agreement as of the date first above
stated.


                                           INTERNEURON PHARMACEUTICALS, INC.

                                           By: /s/  Michael W.Rogers
                                               ---------------------
                                           Name: Michael W. Rogers
                                           Title: Executive Vice President


                                           INTERCARDIA, INC.

                                           By: /s/ Richard W.Reichow
                                               ---------------------
                                           Name: Richard W. Reichow
                                           Title: Executive Vice President & CFO


                                           CPEC LLC

                                           By: /s/ Richard W.Reichow
                                               ---------------------
                                           Name: Richard W. Reichow
                                           Title: Executive Vice President & CFO
                                                  of Intercardia, Inc.

                                      37