Document:

exv10w301

 

Exhibit 10.301

HULETT HARPER STEWART LLP

KIRK B. HULETT, SBN: 110726

550 West C Street, Suite 1600

San Diego, CA 92101

Telephone: (619) 338-1133

Facsimile: (619) 338-1139

Plaintiffs’ Liaison Counsel

SCHIFFRIN & BARROWAY, LLP

ANDREW L. ZIVITZ

KAY E. SICKLES

280 King of Prussia Road

Radnor, PA 19087

Telephone: (610) 667-7706

Facsimile: (610) 667-7056

Plaintiffs’ Lead Counsel

UNITED STATES DISTRICT COURT

SOUTHER DISTRICT OF CALIFORNIA

	 	 	 	 	 
	IN RE LIGAND PHARMACEUTICALS, INC.	 	: Master File No. 04-CV-1620-DMS (CAB)
	SECURITIES LITIGATION

	 	:	 	 
	 

	 	:	 	 
	 

	 	 	 	 
	This Document Relates To	 	: STIPULATION OF SETTLEMENT
	ALL ACTIONS

	 	:	 	 
	 

	 	:	 	 
	 

	 	 DATE:
	 	n/a
	 

	 	TIME:
	 	n/a
	 

	 	JUDGE:
	 	Hon. Dana M. Sabraw

 

 

STIPULATION OF SETTLEMENT

     This Stipulation of Settlement (the “Stipulation”), dated as of June 28, 2006, is made and
entered into by and among the following parties (as defined further in Section V herein) to the
above-entitled action: (i) Lead Plaintiffs (as defined below), individually and on behalf of each
of the Settlement Class Members (as defined below), by and through their counsel of record in the
action; and (ii) the Defendants (as defined below), by and through their counsel of record in the
Action (collectively the “Parties”). The Stipulation is intended by the Parties to fully, finally
and forever resolve, discharge and settle the Released Claims (as defined below), upon and subject
to the terms and conditions hereof, including, but not limited to, Court approval.

I. THE ACTION

     A. The Filed Actions

     On and after August 9, 2004, eight federal securities class action complaints were filed
against Ligand Pharmaceuticals, Incorporated (“Ligand” or the “Company”), David E. Robinson and
Paul V. Maier (“Individual Defendants”), (collectively the “Defendants”), in the United States
District Court for the Southern District of California.1 By an order of the Honorable
Dana M. Sabraw dated December 10, 2004, the complaints were consolidated under the caption In re
Ligand Pharmaceuticals, Inc. Securities Litigation, No. 04-CV-1620-DMS. On December 17, 2004, the
Court appointed Gary Apostolov, William Davidson, Richard Fisher and Simon Del Rosario (the
“Apostolov Group”) as lead plaintiffs (“Lead Plaintiffs”) and appointed Schiffrin & Barroway, LLP

 

			
	1	 	The eight federal securities class action
complaints filed were: Nguyen v. Ligand Pharmaceuticals, Inc., et al., No.
04-CIV-1620-DMS; Fuechtman v. Ligand Pharmaceuticals, Inc., et al., No.
04-CIV-1637-DMS; Panah v. Ligand Pharmaceuticals, Inc., et al., No.
04-CIV-1658-DMS; Jain v. Ligand Pharmaceuticals, Inc., et al., No.
04-CV-1668-DMS; Cirasuolo v. Ligand Pharmaceuticals, Inc., et al., No.
04-CV-1682-DMS; Wang v. Ligand Pharmaceuticals, Inc., et al., No.
04-CV-1691-DMS; Metzger v. Ligand Pharmaceuticals, Inc., et al., No.
04-CV-1715-JTM; and Ericksop v. Ligand Pharmaceuticals, Inc., et al., No.
04-CV-1962-DMS.

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as Lead Counsel (“Lead Counsel”) for the Class and Hulett Harper & Stewart LLP as Liaison
Counsel for the Class.

     B. Procedural History

     On March 2, 2005, Lead Plaintiffs filed the Consolidated Class Action Complaint for violations
of the Federal Securities Laws (the “Consolidated Complaint”). The Consolidated Complaint asserted
claims against Ligand and the Individual Defendants for alleged violations of Section 10(b) of the
Securities Exchange Act of 1934 (the “Exchange Act”), and Rule10(b)(5) promulgated thereunder, on
behalf of Lead Plaintiffs and all persons and entities who purchased securities of Ligand between
March 3, 2004 and August 2, 2004, inclusive.

     On May 6, 2005, Defendants filed a motion to dismiss the Consolidated Complaint, contending,
inter alia, that the statements Lead Plaintiffs alleged were actionable were not false and
misleading, were protected by the statutory safe harbor, and were not made with the requisite
knowing or reckless state of mind. By an Order dated September 27, 2005, the Court granted
Defendants’ motion without prejudice, finding that Lead Plaintiffs did not specifically plead (1)
the falsity of Defendants’ statements and omissions, or (2) Defendants’ scienter. By the same
Order, the Court granted Lead Plaintiffs leave to amend.

     On November 18, 2005, the Company restated its financials for the years 2000 through 2004, and
shortly thereafter, on December 23, 2005, Lead Plaintiffs filed their Second Amended Consolidated
Class Action Complaint (the “Complaint”) on behalf of themselves and all other persons and entities
who purchased securities of Ligand between March 19, 2001 and May 20, 2005, inclusive, alleging
violations of Section 10(b) of the Exchange Act, and Rule 10(b)(5) promulgated thereunder.

     On January 23, 2006, Defendants moved to dismiss the Complaint Lead Plaintiffs opposed
Defendants’ motion to dismiss by Memorandum dated February 23, 2006. On March 7, 2006,

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Defendants filed a reply to Lead Plaintiffs’ opposition to the motion to dismiss. During the
pendency of Defendants’ motion to dismiss, the Parties participated in intense arms-length
settlement negotiations, which included two days of mediation. The Parties tentatively reached the
proposed Settlement on April 22, 2006.

II. PRE-TRIAL PROCEEDINGS, INVESTIGATION, AND DISCOVERY

     A. Informal Discovery, Investigation and Research Conducted by Lead Plaintiffs 

     Lead Counsel has conducted informal discovery and investigation during the prosecution of the
Action. This informal discovery and investigation has included, inter alia, (i) review of Ligand’s
public filings, annual reports, and other public statements; (ii) consultations with experts; (iii)
interviews with confidential witnesses; (iv) research of the applicable law with respect to the
claims asserted in the Action and the potential defenses thereto; and (v) review of informal
discovery produced by Defendants.

     B. Settlement Negotiations and Mediation

     On February 9, 2006, the Parties appeared for their first mediation with the Honorable Howard
B. Wiener and began their settlement discussions. In advance of this mediation, the Parties
prepared detailed settlement statements. In their settlement statements and at the mediation, the
Parties presented their respective views regarding the merits of the Action as well as their views
concerning available defenses, the evidence, and damages analyses. Following ongoing negotiations
conducted by Justice Wiener between February 9, 2006 and March 26, 2006, including two formal
mediation sessions, a tentative agreement in principle was reached between the Lead Plaintiffs and
the Defendants on April 22, 2006.

III. CLAIMS OF LEAD PLAINTIFFS AND BENEFITS OF SETTLEMENT

     In agreeing to this Settlement, Lead Plaintiffs do not concede that any infirmities exist in
their claims. Lead Plaintiffs assert that the evidence developed to date in the Action supports
the claims asserted and assert that they would present supporting evidence at trial that Defendants

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issued materially false and misleading statements and omissions of material information
concerning Ligand, causing the price of Ligand securities to be artificially inflated during the
Settlement Class Period and causing injury to Lead Plaintiffs and the Settlement Class Members.
Lead Counsel recognizes and acknowledges the expense and length of continued proceedings necessary
to prosecute the Action through trial and through appeals. Lead Counsel has also taken into
account the uncertain outcome and the risk of any litigation, especially in complex actions such as
the Action, as well as the difficulties and delays inherent in such litigation. Lead Counsel is
also mindful of the inherent problems of proof and possible defenses to the violations asserted in
the Action.

     In light of the foregoing, Lead Counsel and Lead Plaintiffs believe that the Settlement set
forth in the Stipulation confers a substantial benefit upon the Settlement Class (as defined below)
and Settlement Class Members. Based on their evaluation, Lead Counsel and Lead Plaintiffs have
determined that the Settlement set forth in the Stipulation is in the best interests of the Lead
Plaintiffs and the Settlement Class.

IV. DEFENDANTS’ DENIALS OF WRONGDOING AND LIABILITY

     In agreeing to this Settlement, Defendants do not concede any infirmities in their defenses to
the claims asserted, or that the claims are valid or have merit. Defendants have denied and
continue to deny each and all of the claims and contentions alleged by the Plaintiffs in the
Action. Defendants expressly have denied and continue to deny all charges of wrongdoing or
liability against them arising out of any of the conduct, statements, acts or omissions alleged, or
that could have been alleged, in the Action. Defendants have also denied and continue to deny,
inter alia, the allegations that the Plaintiffs or the Settlement Class have suffered damage, that
the price of Ligand stock was artificially inflated by reasons of alleged misrepresentations or
otherwise, and that Plaintiffs or the Settlement Class were harmed by the conduct alleged in the
Complaint.

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     Notwithstanding those denials, the Defendants have concluded that further conduct of the
litigation would be protracted and expensive, and that it is desirable that the Action and any
Released Claims, including Unknown Claims (as defined herein), be fully and finally settled on the
terms and conditions set forth herein. In determining to enter into the Stipulation, the
Defendants have considered the uncertainty and risk inherent in any litigation, especially complex
litigation such as this securities lawsuit.

V. TERMS OF STIPULATION OF SETTLEMENT

     NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and among Lead Plaintiffs (individually
and on behalf of each of the Settlement Class Members), and the Defendants, by and through their
respective counsel of record, that, subject to the approval of the Court, the Action and the
Released Claims shall be finally and fully compromised, settled and released, and the Action shall
be dismissed with prejudice, upon and subject to the terms and conditions of the Stipulation, as
follows:

     A. Definitions

          As used in the Stipulation, the following terms have the meanings specified below:

          1.1 “Authorized Claimant” means any Settlement Class Member whose Claim for recovery has been
allowed pursuant to the terms of the Stipulation.

          1.2 “Claimant” means any Settlement Class Member who files a Proof of Claim and Release
(“Proof of Claim”) in such form and manner, and within such time, as the Court shall prescribe.

          1.3 “Claims Administrator” means The Garden City Group, Inc. (“GCG”).

          1.4 “Company” or “Ligand” means Defendant Ligand Pharmaceuticals, Incorporated, a Delaware
corporation.

          1.5 “Defendants” means Ligand and the Individual Defendants, defined below.

          1.6 “Effective Date” means the first date by which all of the events and conditions specified
in Section V, ¶ 9.1(a)-(e) of the Stipulation have been met and have occurred.

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          1.7 “Escrow Agent” means GCG.

          1.8 “Final” means: (i) the date of final affirmance on an appeal from the Final Order and
Judgment, the expiration of the time for a petition for a writ of certiorari to review the Final
Order and Judgment and, if certiorari is granted, the date of final affirmance of the Final Order
and Judgment following review pursuant to that grant; or (ii) the date of final dismissal of any
appeal from the Final Order and Judgment or the final dismissal of any proceeding on certiorari to
review the Final Order and Judgment; or (iii) if no appeal is filed, the expiration date of the
time for the filing or noticing of any appeal from the Final Order and Judgment, i.e., thirty (30)
calendar days after entry of the Final Order and Judgment (or, if the date for taking an appeal or
seeking review shall be extended beyond this time by order of the Court, by operation of law or
otherwise, or if such extension is requested, the date of expiration of any extension if any appeal
or review is not sought); or (iv) if the Court enters a Final Order and Judgment in a form other
than that provided above (“Alternative Judgment”) and none of the Parties hereto elect to terminate
this Settlement, the date that such Alternative Judgment becomes final as defined in parts (i) to
(iii) above and no longer subject to appeal or review. Any proceeding or order, or any appeal or
petition for a writ of certiorari pertaining solely to any plan of allocation and/or application
for attorneys’ fees, costs or expenses, or incentive award to Lead Plaintiffs, shall not in any way
delay or preclude the Final Order and Judgment from becoming Final.

          1.9 “Final Order and Judgment” means the judgment to be rendered by the Court dismissing the
Action with prejudice, substantially in the form and content attached hereto as Exhibit B.

          1.10 “Individual Defendants” means David E. Robinson and Paul V. Maier.

          1.11 “Lead Plaintiffs” means Gary Apostolov, William Davidson, Richard Fisher and Simon Del
Rosario.

          1.12
“Lead Counsel” means Schiffrin & Barroway, LLP.

          1.13 “Liaison Counsel” means Hulett Harper Stewart LLP.

          1.14 “Parties” means each of the Defendants and Lead Plaintiffs on behalf of themselves and
the members of the Settlement Class.

          1.15 “Person” means an individual, corporation (including all divisions and

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subsidiaries), partnership, limited partnership, association, joint stock company, estate,
legal representative, trust, unincorporated association, government or any political subdivision or
agency thereof, and any business or legal entity and their spouses, heirs, predecessors,
successors, representatives, or assigns.

          1.16 “Plaintiffs” means each of the plaintiffs who filed a complaint in the Action, including,
but not limited to the Lead Plaintiffs.

          1.17 “Plaintiffs’ Counsel” means each counsel who has appeared as counsel for any of the
Plaintiffs in the Action, including, but not limited to Lead Counsel and Liaison Counsel.

          1.18 “Plan of Allocation” means a plan or formula of allocation of the Settlement Fund to be
prepared by Lead Counsel which shall be described in the “Notice of Pendency and Proposed
Settlement of Class Action” (“Notice”) to be sent to Settlement Class Members in connection with
the Settlement whereby the Settlement Fund shall be distributed to Authorized Claimants after
payment of expenses of notice and administration of the Settlement, any taxes, penalties or
interest or tax preparation fees owed by the Settlement Fund, and such attorneys’ fees, costs,
expenses and interest and incentive award to Lead Plaintiffs, as may be awarded by the Court. Any
Plan of Allocation is not part of the Stipulation.

          1.19 “Released Claims” means any and all claims, debts, demands, rights or causes of action or
liabilities, whether based on federal, state, local, statutory or common law or any other law, rule
or regulation, whether fixed or contingent, accrued or un-accrued, liquidated or un-liquidated, at
law or in equity, matured or un-matured, whether class or individual in nature, including both
known claims and Unknown Claims, (i) that have been asserted in this Action by the Lead Plaintiffs
and Settlement Class Members or any of them against any of the Released Persons, or (ii) that could
have been asserted in the Action by the Lead Plaintiffs and Settlement Class Members or any of them
against any of the Released Persons which arise out of, are based upon, or relate to the
allegations, transactions, facts, matters or occurrences, representations or omissions set forth,
or referred to in the Action and are based upon the purchase of Ligand securities during the
Settlement Class Period.

          1.20 “Released Defendants’ Claims” means any and all claims, rights or causes of action or
liabilities whatsoever, whether based on federal, state, local, statutory or common law or

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any other law, rule or regulation, including both known claims and Unknown Claims, that have
been or could have been asserted in the Action or any forum by the Defendants or any of them or the
successors and assigns of any of them against any of the Lead Plaintiffs, Settlement Class Members
or their attorneys, which arise out of or relate in any way to the institution, prosecution, or
settlement of the Action (except for claims to enforce the Settlement).

          1.21 “Released Persons” means each and all of the Defendants and their respective past or
present directors, officers, employees, partners, principals, agents, controlling shareholders, any
entity in which the Defendant and/or any member(s) of any Defendant’s immediate family has or have
a controlling interest, attorneys, accountants, banks, advisors, personal or legal
representatives, insurers, reinsurers, predecessors, successors, parents, subsidiaries, divisions,
joint ventures, agents, assigns, spouses, heirs, executors, administrators, associates, related or
affiliated entities, any members of their immediate families, or any trust of which any Defendant
is the trustee or settlor or which is for the benefit of any Defendant and/or member(s) of his
family.

          1.22 “Settlement Class” means all Persons who purchased securities of Ligand between March 19,
2001 and May 20, 2005, inclusive. Excluded from the Settlement Class are Defendants, officers and
directors of the Company, at all relevant times, members of their immediate families and their
legal representatives, heirs, successors or assigns and any entity in which Defendants have or had
a controlling interest. Also excluded are those Persons who timely and validly request exclusion
from the Settlement Class.

          1.23 “Settlement Class Member” or “Member of the Settlement Class” means a Person who falls
within the definition of the Settlement Class as set forth in ¶ 1.22, above.

          1.24 “Settlement Class Period” means the period from March 19, 2001 through May 20, 2005,
inclusive.

          1.25 “Settlement Fund” means the principal amount of Eight Million Dollars ($8,000,000) in
cash (the “Principal Amount”), plus interest earned or accrued thereon.

          1.26 “Unknown Claims” means any Released Claims which the Lead Plaintiffs or any Settlement
Class Member does not know or suspect to exist in his, her or its favor at the time of the release
of the Released Persons, and any Released Defendants’ Claims that any Defendant does not know or
suspect to exist in his, her or its favor, which, if known by him, her or it, might have

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affected his, her or its decision(s) with respect to this Settlement. With respect to any and
all Released Claims and Released Defendants’ Claims, the Parties stipulate and agree that, upon the
Effective Date, the Lead Plaintiffs and the Defendants expressly waive and relinquish, and the
Settlement Class Members and Released Persons shall be deemed to have, and by operation of the
Final Order and Judgment shall have expressly waived and relinquished, to the fullest extent
permitted by law, the provisions, rights, and benefits of Section 1542 of the California Civil
Code, which provides:

A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if known
by him must have materially affected his settlement with the debtor.

The Plaintiffs and Defendants expressly waive and the Settlement Class Members and the Released
Persons shall be deemed to, and upon the Effective Date and by operation of the Final Order and
Judgment shall, have waived any and all provisions, rights and benefits conferred by any law of the
United States or of any state or territory of the United States, or principle of common law, which
is similar, comparable or equivalent to Section 1542 of the California Civil Code. The Parties
acknowledge that the foregoing waiver was bargained for and a key element of the Settlement of
which this release is a part.

     2. The Settlement Consideration

          2.1 Within fifteen (15) calendar days following the Courts’ execution of the Preliminary
Approval Order, Defendants shall cause the sum of Eight Million Dollars ($8,000,000) to be
transferred to the Escrow Agent.

     3. Certification of the Settlement Class

          3.1 For the sole purpose of implementation, approval and consummation of the Settlement, the
Parties stipulate and agree that the Court may enter an order certifying the Settlement Class,
appointing the Lead Plaintiffs as the representatives of the Settlement Class, and appointing Lead
Counsel as counsel for the Settlement Class under Rule 23 of the Federal Rules of Civil Procedure.

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          3.2 Certification of the Settlement Class and appointment of Lead Counsel as counsel for the
Settlement Class, as set forth herein, shall be binding only with respect to the Settlement set
forth in the Stipulation. In the event that this Stipulation is terminated or cancelled or that
the Effective Date does not occur for any reason, the stipulated certification of the Settlement
Class shall be vacated and the Action shall proceed as though the Settlement Class had never been
certified. Except to effectuate the Settlement, neither the Parties, their respective counsel, nor
any Member of the Settlement Class shall cite, present as evidence or legal precedent, rely upon,
make reference to or otherwise make any use whatsoever of this stipulated certification of the
Settlement Class, in this Action or in any other proceeding.

     4. Administration of the Settlement Fund

          (a). The Escrow Agent

          4.1 The Escrow Agent shall invest the Settlement Fund in instruments backed by the full faith
and credit of the United States Government or fully insured by the United States Government or an
agency thereof and shall reinvest the proceeds of these instruments as they mature in similar
instruments at the current market rates. The Escrow Agent, Lead Counsel, and Plaintiffs shall bear
all risk related to the investment of the Settlement Fund.

          4.2 The Escrow Agent shall not disburse the Settlement Fund except as provided in the
Stipulation, or by an order of the Court (consistent with the terms of the Stipulation), or with
the written agreement of Lead Counsel and counsel for the Defendants.

          4.3 Subject to such further order and direction by the Court as may be necessary, the Escrow
Agent is authorized to execute such transactions on behalf of the Settlement Class Members as are
consistent with the terms of the Stipulation. In no event shall the Released Persons have any
responsibility for or liability with respect to the Escrow Agent or its actions, or with respect to
the administration of the Settlement Fund, including, but not limited to, payment made from the
Settlement Fund referenced herein.

          4.4 All funds held by the Escrow Agent shall be deemed and considered to be in the custody of
the Court, and shall remain subject to the jurisdiction of the Court, until such time as such funds
shall be distributed pursuant to the Stipulation and/or further order(s) of the Court consistent
with the terms of the Stipulation.

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          4.5 The Escrow Agent may pay from the Settlement Fund the costs and expenses reasonably and
actually incurred in connection with providing notice to the Settlement Class, locating Settlement
Class Members, soliciting Settlement Class claims, assisting with the filing of claims,
administering and distributing the Settlement Fund to Members of the Settlement Class, including
the payment of taxes or tax expenses, as defined below, and processing Proofs of Claim, including
without limitation, the actual costs of publication, printing and mailing the Notice,
reimbursements to nominee owners for forwarding notice to their beneficial owners, and the
administrative expenses incurred and fees charged by the Claims Administrator in connection with
providing notice and processing the submitted claims. Prior to the Effective Date, the Escrow
Agent may not pay more than $150,000 for these costs and expenses without further approval from the
Court.

          (b). Taxes

          4.6 (a) The Parties and the Escrow Agent agree to treat the Settlement Fund as being at all
times a “qualified settlement fund” within the meaning of Treas. Reg. Section 1.468B-1. In
addition, the Escrow Agent and, as required, the Defendants, shall jointly and timely make the
“relation-back election” (as defined in Treas. Reg. Section 1.468B-1) back to the earliest
permitted date. Such election shall be made in compliance with the procedures and requirements
contained in such regulations. It shall be the responsibility of the Escrow Agent to timely and
properly prepare, and deliver the necessary documentation for signature by all necessary parties,
and thereafter to cause the appropriate filing to occur.

               (b) For the purposes of Section 468B of the Internal Revenue Code of 1986, and Treas. Reg.
Section 1.468B, the “administrator” shall be the Escrow Agent. The Escrow Agent shall timely and
properly file all informational and other tax returns necessary or advisable with respect to the
Settlement Fund (including, without limitation, the returns described in Treas. Reg. Section
1.468B-2(l)). Such returns (as well as the election described in ¶ 4.6(a)) shall be consistent
with this ¶ 4.6 and in all events shall reflect that all taxes (including any estimated taxes,
interest or penalties) on the income earned by the Settlement Fund shall be paid out of the
Settlement Fund as provided in ¶ 4.6(c) hereof. In no event shall the Released Persons have any
responsibility for or liability with respect to the Taxes or the Tax Expenses (as defined in
¶ 4.6(c)).

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The Lead Counsel and Plaintiffs shall indemnify and hold each of the Released Persons harmless
for Taxes and Tax Expenses (including, without limitation, Taxes payable by reason of any such
indemnification).

               (c) All (i) taxes (including any estimated taxes, interest or penalties) arising with respect
to the income earned by the Settlement Fund (“Taxes”), and (ii) expenses and costs incurred in
connection with the operation and implementation of this ¶ 4.6 (including, without limitation,
expenses of tax attorneys and/or accountants and mailing and distribution costs and expenses
relating to filing (or failing to file) the returns described in this ¶ 4.6) (“Tax Expenses”),
shall be paid out of the Settlement Fund; in all events the Released Persons shall not have any
liability or responsibility for the Taxes, the Tax Expenses, or the filing of any tax returns or
other documents with the Internal Revenue Service or any other state or local taxing authority.
The Escrow Agent shall indemnify and hold the Released Persons harmless for Taxes and Tax Expenses
(including, without limitation, Taxes payable by reason of any such indemnification). Further,
Taxes and Tax Expenses shall be treated as, and considered to be, a cost of administration of the
Settlement and shall be timely paid by the Escrow Agent out of the Settlement Fund without prior
order from the Court, and the Escrow Agent shall be obligated (notwithstanding anything herein to
the contrary) to withhold from distribution to Authorized Claimants any funds necessary to pay such
amounts (as well as any amounts that may be required to be withheld under Treas. Reg. Section
1.468B-2(1)(2)); the Released Persons are not responsible and shall have no liability therefore, or
for any reporting requirements that may relate thereto. The Parties hereto agree to cooperate with
the Escrow Agent, each other, and their tax attorneys and accountants to the extent reasonably
necessary to carry out the provisions of this ¶ 4.6.

          (c). Termination

          4.7 In the event that the Stipulation is not approved, or is terminated, canceled, or fails to
become effective for any reason, the Settlement Fund (including accrued interest), less expenses
and any costs which have been incurred by the Claims Administrator for notice and administration of
the proposed Settlement pursuant to ¶ 4.5 herein, and less any Taxes or Tax Expenses paid or
incurred pursuant to ¶ 4.6 herein, shall be refunded to Defendants. In such event, any tax refund
owing to the Settlement Fund shall also be refunded.

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     5. Preliminary Approval Order and Settlement Hearing

          5.1 Promptly after execution of the Stipulation, but in no event later than five (5) calendar
days after the Stipulation is signed (unless such time is extended by the written agreement of Lead
Counsel and counsel for the Defendants), Lead Counsel on behalf of the Parties shall submit the
Stipulation together with its Exhibits to the Court and shall apply for entry of an order (the
“Preliminary Approval Order”), substantially in the form and content of Exhibit A hereto,
requesting that the Settlement Class be certified, the Court grant preliminary approval of the
Settlement set forth in the Stipulation, and that the Court approve the mailing and publication of
a full and summary Notice of Pendency of Class Action and Proposed Settlement, the Notice and
“Summary Notice” substantially in the form and content of Exhibits A(1) and A(3), respectively,
which shall include the general terms of the Settlement set forth in the Stipulation, the proposed
Plan of Allocation, the general terms of the Fee and Expense Application (as defined in ¶ 8.1) and
the date of the Settlement Hearing (as defined below in ¶ 5.2). Ligand shall provide contact
information of its transfer agent to the Claims Administrator within three (3) business days of the
Court’s execution of the Preliminary Approval Order so that the Claims Administrator may contact
the transfer agent to receive the information from the Company’s transfer records required by the
Claims Administrator to send Notice to the Settlement Class Members who can be identified through
those same records.

          5.2 Lead Counsel, on behalf of the Parties shall request that, after notice is given, the
Court hold a hearing (the “Settlement Hearing”) and finally approve this Settlement as set forth
herein. At or after the Settlement Hearing, Lead Counsel also will request that the Court approve
the proposed Plan of Allocation and the Fee and Expense Application.

     6. Releases

          6.1 Upon the Effective Date, the Lead Plaintiffs and each of the Settlement Class Members
shall be deemed to have, and by operation of the Final Order and Judgment shall have, fully,
finally and forever released, relinquished and discharged all Released Claims, including “Unknown
Claims,” against each and all of the Released Persons, whether or not such Plaintiff or
Settlement Class Member executes and delivers the Proof of Claim.

          6.2 Upon the Effective Date, each of the Defendants shall be deemed to have,

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and by operation of the Final Order and Judgment shall have, fully, finally and forever
released, relinquished and discharged the Lead Plaintiffs, the Settlement Class Members, and
Plaintiffs’ Counsel from all claims, including “Unknown Claims”, arising out of, relating to, or in
connection with the institution, prosecution, assertion or resolution of the Action or the Released
Claims.

          6.3 Upon the Effective Date, the Lead Plaintiffs, the Settlement Class Members and Plaintiffs’
Counsel shall be deemed to have, and by operation of the Final Order and Judgment shall have,
fully, finally and forever released, relinquished and discharged the Released Persons from all
claims (including “Unknown Claims”), arising out of, relating to, or in connection with the
defense, or resolution of the Action or the Released Claims.

          6.4 Except as otherwise expressly provided for in this Stipulation, the Parties shall each
bear their own respective attorneys’ fees, expenses and costs incurred in connection with the
conduct and settlement of the Action, and the preparation, implementation and performance of the
terms of this Stipulation.

          6.5 Only those Settlement Class Members filing valid and timely Proofs of Claim shall be
entitled to participate in the Settlement and receive any distributions from the Settlement Fund.
The Proofs of Claim to be executed by the Settlement Class Members shall release all Released
Claims against the Released Persons, and shall be substantially in the form and content of Exhibit
2 to Exhibit A hereto. Plaintiffs and all Settlement Class Members shall be bound by the releases
set forth in this Stipulation whether or not they submit a valid and timely Proof of Claim.

          6.6 Nothing in this ¶ 6, nor in the Stipulation, shall release any obligations owed by any of
the Parties pursuant to the terms of this Stipulation, unless the release of any such obligation is
agreed to in writing by the Parties.

     7. Administration of the Settlement Fund

          7.1 Lead Counsel, or its authorized agents, acting on behalf of the Settlement Class, and
subject to the supervision, direction and approval of the Court, shall administer and calculate the
claims submitted by Settlement Class Members and shall oversee distribution of that portion of the
Settlement Fund that is finally awarded by the Court to Authorized Claimants.

          7.2 The Settlement Fund shall be applied as follows:

               (a) to pay all unpaid costs and expenses reasonably and actually incurred

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in connection with providing notice to the Settlement Class Members including, locating
Settlement Class Members, soliciting Settlement Class claims, assisting with the filing of claims,
administering and distributing the Settlement Fund to the Settlement Class, processing Proofs of
Claim and paying escrow fees and costs, if any;

               (b) to pay Taxes and Tax Expenses;

               (c) to pay Lead Counsel’s attorneys’ fees, expenses and costs, with interest thereon (the “Fee
and Expense Award”), if and to the extent allowed by the Court;

               (d) to pay incentive awards, if and to the extent allowed by the Court to Lead Plaintiffs; and

               (e) to distribute the balance of the Settlement Fund (the “Net Settlement Fund”) to Authorized
Claimants as allowed by the Stipulation, the Plan of Allocation or the Court.

          7.3 After the Effective Date and subject to such further approval and further order(s) of the
Court as may be required, the Net Settlement Fund shall be distributed to Authorized Claimants,
subject to and in accordance with the following:

               
(a) Within ninety (90) calendar days after the mailing of the Notice or such other time as may
be set by the Court, each Person claiming to be an Authorized Claimant shall be required to submit
to the Claims Administrator a separate completed Proof of Claim as attached to the Notice and
substantially in the form and content of Exhibit 2 to Exhibit A hereto, signed under penalty of
perjury and supported by such documents as specified in the Proof of Claim and as are reasonably
available to the Authorized Claimant.

               (b) Except as otherwise ordered by the Court, all Settlement Class Members who fail to timely
submit a valid Proof of Claim within such period, or such other period as may be ordered by the
Court, or who have not already done so, shall be forever barred from receiving any payments of
money pursuant to the Stipulation and the Settlement set forth herein, but will in all other
respects be subject to and bound by the provisions of the Stipulation, the Settlement and Releases
contained herein, and the Final Order and Judgment.

               (c) The Net Settlement Fund shall be distributed to the Authorized Claimants in accordance
with and subject to the Plan of Allocation to be described in the Notice mailed to Settlement Class
Members. The proposed Plan of Allocation shall not be a part of the

15

 

Stipulation.

          7.4 The Released Persons or their counsel shall have no responsibility for, interest in, or
liability whatsoever with respect to: (i) the investment or distribution of the Settlement Fund;
(ii) the Plan of Allocation; (iii) the determination or administration, or calculation of Claims;
(iv) the payment or withholding of Taxes or Tax Expenses; or (iv) any losses incurred in connection
with (i), (ii) or (iii). No Person shall have any claim of any kind against the Released Persons
or their counsel with respect to the matters set forth in this ¶ 7 or any of its subparts.

          7.5 No Person shall have any claim against the Plaintiffs or their counsel (including Lead
Counsel), or any claims administrator, or other agent designated by Lead Counsel based on the
distributions made substantially in accordance with the Stipulation and the Settlement contained
herein, the Plan of Allocation or further orders of the Court.

          7.6 It is understood and agreed by the Parties that any proposed Plan of Allocation of the Net
Settlement Fund, including, without limitation, any adjustments to an Authorized Claimant’s claim
set forth therein, is not a material part of the Stipulation and is to be considered by the Court
separately from the Court’s consideration of the fairness, reasonableness and adequacy of the
Settlement set forth in the Stipulation, and any order or proceedings relating to the Plan of
Allocation shall not operate to terminate or cancel the Stipulation or affect the finality of the
Court’s Final Order and Judgment approving the Stipulation and the Settlement set forth herein,
including, but not limited to, the release, discharge, and relinquishment of the Released Claims
against the Released Persons, or any other orders entered pursuant to the Stipulation.

     8. Plaintiffs’ Counsel’s Attorneys’ Fees and Reimbursement of Expenses and Incentive Awards to Lead Plaintiffs

          8.1 Lead Counsel will submit an application or applications for an order (the “Fee and Expense
Application”) for distributions to them from the Settlement Fund for: (i) an award of attorneys’
fees plus (ii) reimbursement of actual expenses and costs, including the fees of any experts or
consultants, incurred in connection with prosecuting the Action plus (iii) interest on such
attorneys’ fees, costs and expenses at the same rate and for the same periods as earned by the
Settlement Fund (until paid), as may be awarded by the Court. Lead Counsel shall also submit an
application for incentive awards to Lead Plaintiffs.

16

 

          8.2 The attorneys’ fees, expenses and costs, including the fees of experts and consultants, as
awarded by the Court (the “Fee and Expense Award”), shall be transferred to Lead Counsel from the
Settlement Fund immediately after the Court either enters the Final Order and Judgment or approves
the Fee and Expense Award, whichever is later. Lead Counsel shall thereafter allocate the Fee and
Expense Award among Plaintiffs’ Counsel in a manner that Lead Counsel in good faith believes
reflects the contributions of such counsel to the prosecution and settlement of the Action;
provided, however, that in the event that the Final Order and Judgment or the Order making the Fee
and Expense Award is reversed or modified on appeal, and in the event that the Fee and Expense
Award has been paid to any extent, then Plaintiffs’ Counsel shall within ten (10) business days
from any such reversal or modification, refund to the Settlement Fund the fees, expenses, costs and
interest previously paid to them from the Settlement Fund, including accrued interest on any such
amount at the average rate earned on the Settlement Fund from the time of withdrawal until the date
of refund. Each such Plaintiffs’ Counsel’s law firm, as a condition of receiving any portion of
such fees and expenses, on behalf of itself and each partner and/or shareholder of it, agrees that
the law firm and each of its partners and/or shareholders are subject to the jurisdiction of the
Court for the purpose of enforcing this ¶ 8.2 of the Stipulation.

          8.3 The Released Persons shall have no responsibility for, and no liability whatsoever with
respect to, any payment to Lead Counsel or any Plaintiffs’ Counsel, or the Lead Plaintiffs from the
Settlement Fund that may occur before the Effective Date.

          8.4 The Released Persons shall have no responsibility for, and no liability whatsoever with
respect to, the allocation of the Fee and Expense Award among Plaintiffs’ Counsel, or any other
Person who may assert some claim thereto, or any Fee and Expense Awards that the Court may make in
the Action.

          8.5 The procedure for and the allowance or disallowance by the Court of the Fee and Expense
Application and the application for incentive awards to Lead Plaintiffs are not part of the
Settlement set forth in the Stipulation, and are to be considered by the Court separately from the
Court’s consideration of the fairness, reasonableness and adequacy of the Settlement set forth in
the Stipulation. Any order or proceedings relating to the Fee and Expense Application, or any
appeal from any order relating thereto, shall not operate to terminate or cancel the Stipulation,
or affect or

17

 

delay the finality of the Final Order and Judgment approving the Stipulation and the
Settlement of the Action set forth herein.

     9. Conditions of Settlement, Effect of Disapproval or Termination

          9.1 The Effective Date of the Stipulation shall be conditioned on the occurrence of all of the
following events:

               (a). the Principal Amount shall have been timely transferred to the Settlement Fund as
required in ¶ 2, above;

               (b). the Court has entered the Preliminary Approval Order and certified the Settlement Class,
as required by ¶¶ 3.1 and 5.1, above;

               (c). the Court has entered the Final Order and Judgment, or a judgment substantially in the
form and content of Exhibit B;

               (d). the Final Order and Judgment has become Final, as defined in ¶ 1.8, above;

               (e). Counsel for the Defendants has not given notice of intent to exercise the option to
terminate the Stipulation and Settlement in accordance with the terms of the Supplemental Agreement
described in ¶ 9.8.

          9.2 Upon the occurrence of all of the events referenced in ¶ 9.1 above, any and all remaining
interest or right of the Defendants and their insurers to the Settlement Fund shall be absolutely
and forever extinguished.

          9.3 Neither a modification nor a reversal on appeal of any Plan of Allocation or of any amount
of attorneys’ fees, costs, expenses and interest awarded by the Court to any of the Plaintiffs’
Counsel shall constitute a condition to the Effective Date or grounds for cancellation and
termination of the Stipulation.

          9.4 If any of the conditions specified in ¶ 9.1, above are not met, then Defendants’ Counsel
or Lead Counsel shall have the right to terminate the Settlement and this Stipulation by providing
written notice of their election to do so to all other parties hereto within thirty (30) calendar
days of: (i) the Court’s declining to enter the Preliminary Approval Order in any material
respect; (ii) the Court’s refusal to approve this Stipulation or any material part of it; (iii) the
Court’s declining to enter the Final Order and Judgment in any material respect; (iv) the

18

 

date upon which the Final Order and Judgment is modified or reversed in any material respect
by the Court of Appeals or the Supreme Court; or (v) the date upon which an Alternative Judgment
is modified or reversed in any material respect by the Court of Appeals or the Supreme Court.

          9.5 Unless otherwise ordered by the Court, in the event the Stipulation shall terminate, or be
canceled, or shall not become effective for any reason, within five (5) business days after written
notification of such event is sent by Lead Counsel or counsel for Defendants, with verification
from Lead Counsel, to the Escrow Agent, the Settlement Fund (including accrued interest), less
expenses and any costs which have actually been incurred for notice and administration of the
proposed Settlement, and less any Taxes and Tax Expenses paid or incurred pursuant to ¶ 4.6 herein,
shall be refunded by the Escrow Agent to Defendants. In such event, any tax refund owing to the
Settlement Fund shall also be refunded and paid to the Defendants.

          9.6 In the event that the Stipulation is not approved by the Court or the Settlement set forth
in the Stipulation is terminated or fails to become effective in accordance with its terms, this
Stipulation and all negotiations and proceedings relating hereto shall be without prejudice to any
or all Parties who shall be restored to their respective positions in the Action as of February 17,
2006. In such event, the terms and provisions of the Stipulation, with the exception of
¶¶ 1.1-1.25, 3.2, 4.2, 4.4-4.7, 7.4-7.5, 8.2-8.4, 9.1-9.9 herein, shall have no further force and
effect with respect to the Parties and shall not be used in the Action or in any other proceeding
for any purpose and any final order and judgment entered by the Court in accordance with the terms
of the Stipulation shall be treated as vacated, nunc pro tunc. No order of the Court or
modification or reversal on appeal of any order of the Court concerning the Plan of Allocation or
the amount of any attorneys’ fees, costs, expenses and interest awarded by the Court to the
Plaintiffs or any of their counsel shall constitute grounds for cancellation or termination of the
Stipulation.

          9.7 If a case is commenced in respect to any Defendant contributing to the Settlement Fund (or
any insurer contributing funds to the Settlement Fund on behalf of any Defendant) under Title 11 of
the United States Code (Bankruptcy), or a trustee, receiver or conservator is appointed under any
similar law, and in the event of the entry of a final order of a court of competent jurisdiction
determining the transfer of the Settlement Fund, or any portion thereof, by or on behalf of such
Defendant to be a preference, voidable transfer, fraudulent

19

 

conveyance or similar transaction and any portion thereof is required to be returned, and such
amount is not promptly deposited to the Settlement Fund by other Defendants, then, at the election
of Lead Counsel, the Parties shall jointly move the Court to vacate and set aside the releases
given and Final Order and Judgment entered in favor of the Defendants pursuant to this Stipulation,
which releases and Final Order and Judgment shall be null and void, and the Parties shall be
restored to their respective positions in the Action as of the date a day prior to the date of this
Stipulation and any cash amounts in the Settlement Fund shall be returned as provided in ¶ 9.5
above.

          9.8 If prior to the Settlement Hearing, Persons who otherwise would be Members of the
Settlement Class have filed with the Court valid and timely requests for exclusion (“Requests for
Exclusion”) from the Settlement Class in accordance with the provisions of the Preliminary Approval
Order and the Notice given pursuant thereto, and such Persons in the aggregate purchased a number
of shares during the Settlement Class Period in an amount greater than the sum specified in a
separate Supplemental Agreement between the Parties (the “Supplemental Agreement”), Defendants
shall have the option, in their sole and absolute discretion, to terminate this Stipulation in
accordance with the procedures set forth in the Supplemental Agreement. The Supplemental Agreement
will not be filed with the Court unless and until a dispute among the Parties concerning its
interpretation or application arises. Copies of all Requests for Exclusion received, together with
copies of all written revocations of Requests for Exclusion, shall be delivered to counsel for
Defendants within two (2) calendar days of receipt thereof.

          9.9 In the event this Stipulation shall be cancelled as set forth in ¶ 9.6 above, the Parties
shall, within two weeks of such cancellation, jointly request a status conference with the Court to
be held on the Court’s first available date. At such status conference, the Parties shall ask the
Court’s assistance in scheduling continued proceedings in the Action. Pending such status
conference or the expiration of sixty (60) calendar days from the Parties’ joint request for a
status conference, whichever occurs first, none of the Parties shall file or serve any further
motions on any of the other Parties in connection with this Action nor shall any response be due by
any Party to any outstanding pleading or motion by any other Party.

          10. Miscellaneous Provisions

          10.1 The Parties (i) acknowledge that it is their intent to consummate this

20

 

Settlement and Stipulation; and (ii) agree to cooperate to the extent necessary to effectuate
and implement all terms and conditions of the Stipulation and to exercise their best efforts to
accomplish the foregoing terms and conditions of the Stipulation.

          10.2 Each Defendant warrants as to himself or itself that, at the time any of the payments
provided for herein are made on behalf of himself or itself, he or it is not insolvent and the
payment will not render him or it insolvent. This representation is made by each Defendant as to
himself or itself and is not made by counsel for the Defendants.

          10.3 The Parties agree that the amount of the Settlement Fund, as well as the other terms of
the Settlement, were negotiated in good faith by the Parties and reflect a settlement that was
reached voluntarily after consultation with experienced legal counsel. Neither the Stipulation nor
the Settlement contained therein, nor any act performed or document executed pursuant to or in
furtherance of the Stipulation or the Settlement: (i) is or may be deemed to be or may be used as
an admission of, or evidence of, the validity of any Released Claim, or of any wrongdoing or
liability of the Released Persons; or (ii) is or may be deemed to be or may be used as an admission
of, or evidence of, any fault or omission of any of the Released Persons in any civil, criminal or
administrative proceeding in any court, administrative agency or other tribunal. Released Persons
may file the Stipulation and/or the Final Order and Judgment from this action in any other action
that may be brought against them in order to support a defense or counterclaim based on principles
of res judicata, collateral estoppel, release, good faith settlement, judgment bar or reduction or
any theory of claim preclusion or issue preclusion or similar defense or counterclaim. Defendants
have denied and continue to deny each and every claim alleged against them in the Action.

          10.4 The Parties intend for this Settlement to be a final and complete resolution of all
disputes asserted or which could be asserted by the Settlement Class Members against the Released
Persons with respect to the Released Claims. Accordingly, the Parties agree not to assert in the
Action or in any other judicial forum that the Action was brought or defended in bad faith or
without a reasonable basis. Defendants agree not to assert any claim under Rule 11 of the Federal
Rules of Civil Procedure or any similar law, rule or regulation that the Action was brought in bad
faith or without a reasonable basis. Lead Plaintiffs and the Settlement Class agree not to assert
any claim under Rule 11 of the Federal Rules of Civil Procedure or any similar law, rule or
regulation

21

 

that any pleading filed, motion made or position taken by Defendants, or their counsel, in the
Action was filed, made or taken in bad faith or without a reasonable basis. The Parties agree that
the amount paid and the other terms of the Settlement were negotiated at arm’s length and in good
faith by the Parties, and reflect a settlement that was reached voluntarily based upon adequate
information and after consultation with experienced legal counsel, with the assistance of
court-supervised mediation.

          10.5 To the extent permitted by law, all agreements made and orders entered during the course
of the Action relating to the confidentiality of information shall survive this Stipulation. In
addition, all information obtained from Ligand by Lead Counsel shall be destroyed no later than the
Effective Date.

          10.6 The waiver by one party of any breach of this Stipulation by any other party shall not be
deemed a waiver of any other prior or subsequent breach of this Stipulation.

          10.7 All of the Exhibits to the Stipulation are material and integral parts hereof and are
fully incorporated herein by this reference.

          10.8 Nothing in this Stipulation, or the negotiations relating thereto, is intended to or
shall be deemed to constitute a waiver of any applicable privilege or immunity, including, without
limitation, attorney/client privilege, joint defense privilege, or work product immunity.

          10.9 The Stipulation may be amended or modified only by a written instrument signed by or on
behalf of all Parties or their successors-in-interest. After the Effective Date, any amendments or
modifications must also be approved by the Court.

          10.10 The Stipulation, the Exhibits attached hereto, and the Supplemental Agreement constitute
the entire agreement among the Parties hereto and no representations, warranties or inducements
have been made to any party concerning the Stipulation, its Exhibits or the Supplemental Agreement
other than the representations, warranties and covenants contained and memorialized in such
documents. Except as otherwise provided herein, each party shall bear its own costs.

          10.11 Lead Counsel, on behalf of the Settlement Class, is expressly authorized by the Lead
Plaintiffs to take all appropriate action required or permitted by the Settlement Class to
effectuate this Stipulation’s terms and also is expressly authorized to enter into any
modifications or

22

 

amendments to the Stipulation on behalf of the Settlement Class which it deems appropriate.

          10.12 Each counsel or other Person executing the Stipulation or any of its Exhibits on behalf
of any party hereto hereby warrants that such person has the full authority to do so.

          10.13 The Stipulation may be executed by facsimile and in counterparts. All executed
counterparts and each of them shall be deemed to be one and the same instrument. Counsel for the
Parties to the Stipulation shall exchange among themselves original signed counterparts and a
complete set of original executed counterparts shall be filed with the Court.

          10.14 The Stipulation shall be binding upon, and inure to the benefit of, the successors and
assigns of the Parties hereto.

          10.15 The Court shall retain jurisdiction with respect to implementation and enforcement of
the terms of the Stipulation, and all Parties and their respective counsel hereto and their counsel
submit to the exclusive jurisdiction of the Court for purposes of implementing and enforcing the
Settlement embodied in the Stipulation.

          10.16 Each of the Parties warrants and represents that he, she or it has not assigned or
transferred, and will not assign or transfer, to any Person any Released Claims or any other claims
related to the matters alleged in the Action.

          10.17 The Stipulation and the Exhibits hereto shall be considered to have been negotiated,
executed and delivered, and to be wholly performed, in the State of California and the rights and
obligations of the Parties to the Stipulation shall be construed and enforced in accordance with,
and governed by, the laws of the State of California without giving effect to that State’s choice
of law principles.

     IN WITNESS WHEREOF, the parties hereto have caused the Stipulation to be executed, by their
duly authorized attorneys, as of June 28, 2006.

SCHIFFRIN & BARROWAY, LLP

/s/ Andrew Zivitz

      Andrew Zivitz

      Kay E. Sickles

280 King of Prussia Road

Radnor, Pennsylvania 19087

23

 

Telephone: (610) 667-7706

Facsimile: (610) 667-7056

Plaintiffs’ Lead Counsel

PAUL, HASTINGS, JANOFSKY &

WALKER LLP

   /s/ Christopher H. McGrath

      William F. Sullivan

      Christopher H. McGrath

      Colleen E. Huschke

      Morgan J. Miller

3579 Valley Centre Drive

San Diego, CA 92130

Telephone: (858) 720-2500

Facsimile: (858) 720-2555

Attorneys for Defendants

Ligand Pharmaceuticals, Incorporated,

David E. Robinson and Paul V. Maier

24exv10w302

 

Exhibit 10.302

ROBBINS UMEDA & FINK, LLP

BRIAN J. ROBBINS (190264)

S. BENJAMIN ROZWOOD (181474)

KELLY M. MCINTYRE (212360)

SHANE P. SANDERS (237146)

610 West Ash Street, Suite 1800

San Diego, CA 92101

Telephone: 619/525-3990

Facsimile: 619/525-3991

FARUQI & FARUQI, LLP

NADEEM FARUQI

BETH KELLER

320 East 39th Street

New York, NY 10016

Telephone: 212/983-9330

Facsimile: 212/983-9331

Co-Lead Counsel for Plaintiffs

SUPERIOR COURT OF THE STATE OF CALIFORNIA

COUNTY OF SAN DIEGO

	 	 	 	 	 	 	 
	IN RE LIGAND PHARMACEUTICALS

	)	 		 	 	Lead Case No. GIC834255
	INCORPORATED DERIVATIVE LITIGATION

	)	 		 	 	 
	 

	)	 		 	 	(Derivative Action)
	 

	)	 		 	 	 
	This Documents Relates To:

	)	 		 	 	STIPULATION OF SETTLEMENT
	 

	)	 		 	 	 
	 

	)	 		 	 	 
	ALL ACTIONS.

	)	 		 	 	 
	 

	)	 		 	 	Judge: Honorable Ronald S. Prager
	 

	)	 		 	 	Dept.: 71
	 

	)	 		 	 	Date Action Filed: August 13, 2004
	 

	 	 	 	 	 	 

STIPULATION OF SETTLEMENT

 

 

     This Stipulation of Settlement dated as of September 19, 2006 (the “Stipulation”) is
made and entered into by and among the following parties to the above-entitled action: (i) the
state derivative plaintiffs Loretta Goldstein, Richard Hreniuk and Thelma Rubin (on behalf of
themselves and derivatively on behalf of Ligand Pharmaceuticals, Inc. (“Ligand” or the “Company”)),
by and through Court appointed Co-Lead Counsel; (ii) the federal derivative plaintiff Michael Kogan
(on behalf of himself and derivatively on behalf of Ligand, by and through his counsel of record)
(collectively the individuals identified in (i) and (ii) are referred to herein as “Plaintiffs”);
(iii) the Individual Defendants (as defined in Section IV, ¶1.6), and Nominal Defendant Ligand, by
and through their counsel of record (collectively the parties identified in (i), (ii) and (iii) are
referred to herein as “the Settling Parties,” as defined in Section IV, ¶1.15 hereof). The
Stipulation is intended by the Settling Parties to fully, finally and forever resolve, discharge
and settle the Released Claims (as defined in Section IV, ¶1.11 hereof), upon and subject to the
terms and conditions hereof.

I. THE LITIGATION

     On August 13, 2004, the first of several shareholder derivative actions was filed in the
Superior Court of the State of California for the County of San Diego (the “Court”) on behalf of
nominal party Ligand. By Order of the Court, the state derivative actions were consolidated as In
re Ligand Pharmaceuticals Incorporated Derivative Litigation, Lead Case No. GIC834255 (the “State
Derivative Action”), and Robbins Umeda & Fink, LLP and Faruqi & Faruqi, LLP were appointed
Plaintiffs’ Co-Lead Counsel. The State Derivative Action claims that: (1) the Individual
Defendants breached their fiduciary duties of loyalty and good faith by causing Ligand to issue
false and misleading information to its stockholders and the investing public regarding Ligand’s
financial results and business prospects; (2) each of the Individual Defendants breached their
fiduciary duties by failing to prevent the issuance of the false and misleading information; (3)
each of the Individual Defendants abused their control; (4) each of the Individual Defendants
grossly mismanaged Ligand; (5) each of the Individual Defendants wasted Ligand’s corporate assets;
(6) each of the Individual Defendants were unjustly enriched; (7) certain of the Individual
Defendants had actual knowledge of material, adverse non-public information and sold their Ligand
common stock in violation of

STIPULATION OF SETTLEMENT

1

 

California Corporations Code §25402; and (8) the Individual Defendants’ breaches of their
fiduciary duties damaged Ligand’s corporate image and goodwill, exposed Ligand to a pending action
in the United States District Court for the Southern District of California, entitled In re Ligand
Pharmaceuticals, Inc. Securities Litigation, Master File No. 04 CV 1620 DMS (LSP) (the “Federal
Securities Action”), and caused Ligand to incur the costs of: (a) defending and settling the
Federal Securities Action; (b) responding to a formal SEC investigation; (c) the restatement of its
financial statements for almost four fiscal years; and (d) carrying out internal investigations
concerning the restatement of its financial statements and related accounting and internal control
issues. Plaintiffs sought damages and other relief on behalf of Ligand.

     On October 11, 2005, Michael Kogan v. David E. Robinson, et al., Case No. 05 CV 1924 DMS (RBB)
(the “Federal Derivative Action”) was filed in the United States District Court for the Southern
District of California on behalf of nominal defendant Ligand (the State Derivative Action and the
Federal Derivative Action are collectively referred to herein as the “Actions”). The Federal
Derivative Action asserted claims that: (1) each of the Individual Defendants breached their
fiduciary duties by causing Ligand to issue false and misleading information regarding Ligand’s
financial results by overstating revenue and understating losses, which subjected Ligand to the
pending Federal Securities Action; and (2) certain of the Individual Defendants violated Section
304 of the Sarbanes-Oxley Act of 2002. Federal derivative plaintiff Kogan is represented by
William S. Lerach, Darren J. Robbins and Travis E. Downs, III of Lerach Coughin Stoia Geller Rudman
& Robbins, LLP (referred to collectively, along with counsel for the state derivative plaintiffs,
as “Plaintiffs’ Counsel” as defined in Section IV, ¶1.9).

II. DEFENDANTS’ DENIALS OF WRONGDOING AND LIABILITY

     The Defendants (as defined in Section IV, ¶1.2) have denied and continue to deny each and all
of the claims alleged by Plaintiffs in the Actions. The Defendants have expressly denied and
continue to deny the allegations of wrongdoing, liability and/or violations of any laws, and/or any
damage whatsoever by reason of any of matters complained of in the Actions, contend that they acted
properly and lawfully at all times and deny that Plaintiffs or Ligand have been damaged.

STIPULATION OF SETTLEMENT

2

 

Defendants entering into this Stipulation does not constitute an admission by any party of
any alleged fact, wrongdoing, liability and/or violations of any laws and/or any damage whatsoever.

     Nonetheless, the Defendants have concluded that further conduct of the Actions would be
protracted and expensive, and that it is desirable that the Actions be fully and finally settled in
the manner and upon the terms and conditions set forth in this Stipulation. The Defendants also
have taken into account the uncertainty and risks inherent in any litigation, especially in complex
cases such as the Actions. The Defendants have, therefore, determined that it is desirable and
beneficial for Ligand that the Actions be settled in the manner and upon the terms and conditions
set forth in this Stipulation.

III. CLAIMS OF THE PLAINTIFFS AND BENEFITS OF SETTLEMENT

     Plaintiffs believe that the claims asserted in the Actions have merit. However, Plaintiffs’
Counsel recognize and acknowledge the expense and length of continued proceedings necessary to
prosecute the Actions against the Defendants through trial and, potentially, through appeals.
Plaintiffs’ Counsel also have taken into account the uncertain outcome inherent in any litigation,
especially in complex actions such as these Actions, as well as the difficulties and delays of such
litigation. Plaintiffs’ Counsel also are mindful of the inherent problems of proof under and
possible defenses to the claims asserted in the Actions. Plaintiffs’ Counsel believe that the
Settlement set forth in this Stipulation confers substantial benefits upon Ligand. Based on their
evaluation, Plaintiffs’ Counsel have determined that the Settlement set forth in the Stipulation is
fair, reasonable and adequate and in the best interests of Plaintiffs, Ligand and Ligand’s
stockholders.

IV. TERMS OF STIPULATION AND AGREEMENT OF SETTLEMENT

     NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and among Plaintiffs (for themselves and
derivatively on behalf of Ligand), Ligand, and the Individual Defendants, by and through their
respective counsel of record, that, subject to the approval of the Court, the Actions and the
Released Claims shall be finally and fully compromised, settled and released, and the Actions shall
be dismissed with prejudice, as to all Settling Parties, upon and subject to the terms and
conditions of the Stipulation, as follows.

STIPULATION OF SETTLEMENT

3

 

1. Definitions

     As used in the Stipulation the following terms have the meanings specified below:

     1.1 “Court” means Department 71 of the Superior Court of the State of California, County of
San Diego.

     1.2 “Defendants” means Ligand and the Individual Defendants.

     1.3 “Effective Date” means the first date by which all of the events and conditions specified
in Section IV, ¶5.1 of the Stipulation have been met and have occurred.

     1.4 “Federal Securities Action” means In re Ligand Pharmaceuticals, Inc. Securities
Litigation, Master File No. 04 CV 1620 DMS (LSP).

     1.5 “Final” means the later of: (a) the date of final affirmance on an appeal of the Judgment,
the expiration of the time for a petition to review the Judgment and, if any such writ or petition
is granted, the date of final affirmance of the Judgment following review pursuant to that grant;
or (b) the date of final, non-appealable dismissal of any appeal from the Judgment or the final,
non-appealable dismissal of any proceeding on petition for review of the Judgment; or (c) if no
appeal is filed, the expiration date of the time for the filing or noticing of any appeal from the
Court’s Judgment approving the Stipulation. Provided, in no event shall Judgment be deemed “Final”
for purposes of this Stipulation unless and until the dismissal with prejudice in In re Ligand
Pharmaceuticals Incorporated Derivative Litigation, Lead Case No. GIC834255, and Michael Kogan v.
David E. Robinson, et al., Case No. 05 CV 1924 DMS (RBB), has become “Final” as defined in this
paragraph.

     1.6 “Individual Defendants” means David E. Robinson, Paul V. Maier, James J. L’Italien,
William A. Pettit, Henry F. Blissenbach, Alexander D. Cross, John Groom, Irving S. Johnson, John W.
Kozarich, Carl C. Peck, and Michael A. Rocca.

     1.7 “Judgment” means the judgment to be rendered by the Court, substantially in the form
attached hereto as Exhibit A, or as modified pursuant to the agreement of the Settling Parties.

     1.8 “Person” means an individual, corporation, limited liability corporation, professional
corporation, partnership, limited partnership, limited liability partnership, association, joint
stock

STIPULATION OF SETTLEMENT

4

 

company, estate, legal representative, trust, unincorporated association, government or any
political subdivision or agency thereof, and any business or legal entity and their spouses, heirs,
predecessors, successors, representatives, or assignees.

     1.9 “Plaintiffs’ Counsel” means: (i) Robbins Umeda & Fink, LLP, Brian J. Robbins, S. Benjamin
Rozwood, Kelly McIntyre and Shane P. Sanders, 610 West Ash Street, Suite 1800, San Diego, CA 92101,
Telephone: 619/525-3990 and Faruqi & Faruqi, LLP, Nadeem Faruqi and Beth Keller, 320 East 39th
Street, New York, New York 10016, Telephone: 212/983-9330 on behalf of the state derivative
plaintiffs; and (ii) Lerach Coughin Stoia Geller Rudman & Robbins, LLP, William S. Lerach, Darren
J. Robbins and Travis E. Downs, III, 655 West Broadway, Suite 1900, San Diego, CA 92101, Telephone:
619/231-1058 on behalf of the federal derivative plaintiff.

     1.10 “Related Persons” means each of a Defendant’s families, parent entities, affiliates or
subsidiaries and each and all of Ligand’s respective past, present, or future officers, directors,
employees, attorneys, accountants, auditors, insurers, reinsurers, heirs, executors, personal
representatives, estates, administrators, predecessors, successors and assigns.

     1.11 “Released Claims” shall collectively mean any and all claims, rights, and causes of
action, whether based on federal, state, local, statutory or common law or any other law, rule, or
regulation, including, without limitation, Unknown Claims (as defined in Section IV, ¶1.16) and
claims under California and Delaware statutory and all other common law, federal and state
securities laws and claims under any federal or state law governing fiduciaries or the duties of
fiduciaries, that have been, could have been, or could be asserted in any forum and in any forum by
Ligand shareholders on behalf of Ligand against the Released Persons (as defined in Section IV,
¶1.10) relating to or arising out of the allegations contained in the complaints filed in the
Litigation. The Released Claims shall not include the claims asserted in the Federal Securities
Action (In re Ligand Pharmaceuticals, Inc. Securities Litigation, Master File No. 04 CV 1620 DMS
(LSP)) in the United States District Court for the Southern District of California.

     1.12 “Released Persons” means each and all of the Defendants and the Related Persons.

STIPULATION OF SETTLEMENT

5

 

     1.13 “Plaintiffs” means state derivative plaintiffs Loretta Goldstein, Richard Hreniuk and
Thelma Rubin and federal derivative plaintiff Michael Kogan, derivatively on behalf of Ligand.

     1.14 “Settlement” means the settlement contemplated by this Stipulation.

     1.15 “Settling Parties” means, collectively, Defendants and Plaintiffs.

     1.16 “Unknown Claims” means any and all settled claims which any plaintiff does not know or
suspect to exist in his, her or its favor at the time of the release of the Released Parties, which
if known by him, her or it might have affected his, her or its decision not to object to the
Stipulation. With respect to any and all claims, the Settling Parties stipulate and agree that upon
final approval, the Plaintiffs shall, expressly and derivatively, be deemed to have, and by
operation of the Judgment, shall have, expressly waived any and all provisions, rights and benefits
conferred by any law of any state or territory of the United States, or any other state, sovereign
or jurisdiction, principle of common law which is similar, comparable or equivalent to Cal. Civ.
Code § 1542 which provides:

A general release does not extend to claims which the creditor does not know or
suspect to exists in his favor at the time of executing the release, which if known
by him must have materially affected his settlement with the debtor.

2. Settlement of the Derivative Claims

     2.1 Monetary Contribution. To settle the Federal Securities Action and the Actions,
Defendants’ directors and officers insurance carrier agreed to pay $14 million to the Company, for
settlement of all pending securities and derivative litigation, and Defendants agreed to cause
Ligand to implement the corporate governance changes addressed herein.

     2.2 Corporate Governance.

     In connection with the litigation and/or resolution of the Actions, Ligand has agreed to
adopt, to the extent it has not already implemented, the corporate governance measures described in
the Corporate Governance Term Sheet attached as Exhibit B.

     Ligand also adopted corporate governance measures after the filing of the Actions (beginning
in August 2004) summarized in Exhibit C (attached hereto), as a result of Ligand’s desire to deal
with corporate governance issues related to the corporate governance issues proposed by Plaintiffs.

STIPULATION OF SETTLEMENT

6

 

Plaintiffs’ arduous litigation of the Actions substantially contributed to Ligand’s adoption
of these corporate governance measures.

     During the course of litigating the Actions, Plaintiffs had various concerns regarding
Ligand’s policies and procedures that were in existence and have remained in place for its Board of
Directors’ Committee Charters, as well as its internal controls. Plaintiffs specifically addressed
these concerns in their original demand letters. Plaintiffs subsequently met on numerous
occasions, both in person and telephonically, with Ligand and its lawyers in an attempt to address
their concerns within the existing framework of the Committee Charters and the internal controls,
as all parties believed that to be in the best interests of Ligand. Plaintiffs’ initiation and
prosecution of the Actions has resulted in the careful review of the Company’s Board Committee
Charters governing the Audit, Compensation, and Nominating Committees and the Company’s policies
concerning Insider Trading, Documentation of Accounting Decisions, and Procedures for Complaints
Relating to Accounting and Auditing Matters. This review resulted in a number of changes to the
Audit Committee Charter and the Insider Trading Policy, listed in Exhibit D, in addition to a
number of Board policy changes and additions set forth in Exhibits B and C. The Company is
continuing to review its policies in order to provide for good corporate governance, including
consideration of the comments to these policies provided by Plaintiffs.

3. Releases

     3.1 Upon the entry of the Judgment, as defined in Section IV, ¶1.7, Plaintiffs, on their own
behalf individually and derivatively on behalf of Ligand, Plaintiffs’ Counsel and Ligand shall
have, and by operation of the Judgment shall be deemed to have, fully, finally, and forever
released, relinquished and discharged all Released Claims (including Unknown Claims) and any and
all claims arising out of, relating to, or in connection with the Settlement or resolution of the
Actions against the Defendants and the Released Persons.

     3.2 Upon the entry of the Judgment, each of the Defendants and Released Persons shall be
deemed to have, and by operation of the Judgment shall have, fully, finally, and forever released,
relinquished and discharged Plaintiffs and Plaintiffs’ Counsel from all claims, arising out of,
relating

STIPULATION OF SETTLEMENT

7

 

to, or in connection with their institution, prosecution, assertion, settlement or resolution
of the Actions or the Released Claims.

     3.3 The Parties will seek entry of the Judgment by Court, dismissing the State Derivative
Action with prejudice and barring any claims that have been or might have been brought in any court
or forum by Ligand or any Ligand stockholder on Ligand’s behalf relating to or arising out of
allegations in the complaints filed in the Actions.

     3.4 Upon approval of the Settlement, the plaintiffs in the Federal Derivative Action will
dismiss, with prejudice, any appeal pending in the Ninth Circuit from the Order and Judgment
entered on May 25, 2006.

4. Plaintiffs’ Counsels’ Fees and Reimbursement of Expenses

     4.1 Defendants shall, upon Court approval, cause the payment of fees and expenses of
Plaintiffs’ Counsel in an aggregate amount of $4,150,000 within five business days of the Court’s
Order granting final approval of this Settlement, subject to the joint and several obligation of
Plaintiffs’ Counsel and their law firms (or their successors) to refund that amount (plus accrued
interest), in the event of a reversal or modification on appeal. Said refund shall be paid to
Ligand within five business days after any such appellate ruling becomes final. This payment shall
constitute final and complete payment for Plaintiffs’ attorneys’ fees and expenses that have been
incurred or will be incurred in connection with the Actions and resolution of the derivative claims
asserted in the Actions and will be paid to Robbins Umeda & Fink, LLP (“RUF”) as receiving agent
for Plaintiffs’ Counsel in both the State Derivative Action and Federal Derivative Action. RUF
shall be solely responsible for the distribution of Plaintiffs’ attorneys’ fees, costs and
expenses. Defendants shall have no responsibility for the allocation of the fees, costs and
expenses awards among Plaintiffs’ Counsel in the Actions. The obligation to make appropriate
refund or repayment may be enforced by summary orders of this Court.

5. Conditions of Settlement, Effect of Disapproval, Cancellation or Termination

     5.1 The Effective Date of the Stipulation shall be conditioned on the occurrence of all of the
following events:

STIPULATION OF SETTLEMENT

8

 

	 	1.	 	the final approval of Ligand’s Board of Directors of this Stipulation as executed;

	 
	 	2.	 	final Court approval of the Settlement;
	 
	 	3.	 	dismissal with prejudice of the Actions, and the Judgment dismissing the Actions has become
Final as defined in Section IV, 
	¶1.5 above;

     5.2 If all of the conditions specified in Section IV, ¶5.1 are not met, then the Stipulation
shall be cancelled and terminated in accordance with the procedure in Section IV, ¶5.3, unless
Plaintiffs’ Counsel and counsel for Defendants mutually agree in writing to proceed with the
Stipulation.

     5.3 In the event that all of the conditions to the Effective Date are not met, or the
Stipulation is not approved, or is otherwise terminated for any reason:

          (a) the parties shall be restored to their respective positions in the Actions as of the date
before this Stipulation is executed; and

          (b) this Stipulation and any related settlement documents shall be null and void, of no force
and effect, and nothing herein shall be deemed to prejudice the position of any of the parties or
any Released Persons with respect to the Actions or otherwise, and neither the existence of this
Stipulation nor the facts of its existence nor any of the terms thereof, shall be admissible in
evidence or shall be referred to for any purpose in the Actions or in any other litigation or the
issuance of an order.

6. Miscellaneous Provisions

     6.1 The Settling Parties:

          (a) acknowledge that it is their intent to consummate this agreement; and

          (b) agree to cooperate to the extent reasonably necessary to effectuate and implement all
terms and conditions of the Stipulation and to exercise their best efforts to accomplish the
foregoing terms and conditions of the Stipulation.

     6.2 The Settling Parties intend this Settlement to be a final and complete resolution of all
disputes between them with respect to the Actions. The Settlement compromises claims which are

STIPULATION OF SETTLEMENT

9

 

contested and shall not be deemed an admission by any Settling Party as to the merits of any
claim, allegation or defense. While retaining their right to deny that the claims advanced in the
Actions were meritorious, Defendants agree that the Actions were filed in good faith and in
accordance with the applicable California law and Rules of Court and federal law, including without
limitation §§128.5, 128.6 and 128.7 of the California Code of Civil Procedure (“C.C.P.”) and
Federal Rule of Civil Procedure 11 and are being settled voluntarily after consultation with
competent legal counsel. The Judgment will contain a statement that during the course of the
Actions, the parties and their respective counsel at all times complied with the requirements of
C.C.P. §§128.5, 128.6 and 128.7.

     6.3 Neither the Stipulation nor the Settlement, nor any act performed or document executed
pursuant to or in furtherance of the Stipulation or the Settlement: (a) is or may be deemed to be
or may be used as an admission of, or evidence of, the validity of any Released Claim, or of any
wrongdoing or liability of the Defendants or the Released Persons; or (b) is or may be deemed to be
or may be used as an admission of, or evidence of, any fault or omission of any of the Defendants,
the Defendants or the Released Persons in any proceeding of any nature. Any Defendant or Released
Person may file the Stipulation and/or the Judgment in any action that has been or may be brought
against him, her or it in order to support a defense or counterclaim based on principles of res
judicata, collateral estoppel, release, good faith settlement, judgment bar or reduction or any
other theory of claim preclusion or issue preclusion or similar defense or counterclaim.

     6.4 The Exhibits to this Stipulation are a material and integral part hereof and are fully
incorporated herein by this reference.

     6.5 The Stipulation may be amended or modified only by a written instrument signed by or on
behalf of all Settling Parties or their respective successors-in-interest.

     6.6 This Stipulation and the Exhibits attached hereto constitute the entire agreement among
the parties hereto and no representations, warranties or inducements have been made to any party
concerning the Stipulation or its Exhibits other than the representations, warranties and covenants
contained and memorialized in such documents. Except as otherwise provided herein, each party
shall bear its own costs.

STIPULATION OF SETTLEMENT

10

 

     6.7 Each counsel or other person executing the Stipulation or its Exhibits on behalf of any
party hereto hereby warrants that such person has the full authority to do so.

     6.8 The Stipulation may be executed in one or more counterparts. All executed counterparts and
each of them shall be deemed to be one and the same instrument. A complete set of original executed
counterparts shall be filed with the Court.

     6.9 The Stipulation shall be binding upon, and inure to the benefit of, the successors and
assigns of the parties hereto.

     6.10 The Court shall retain jurisdiction with respect to implementation and enforcement of the
terms of the Stipulation, and all parties hereto submit to the jurisdiction of the Court for
purposes of implementing and enforcing the Settlement embodied in the Stipulation.

     6.11 This Stipulation and the Exhibits hereto shall be considered to have been negotiated,
executed and delivered, and to be wholly performed, in the State of California, and the rights and
obligations of the parties to the Stipulation shall be construed and enforced in accordance with,
and governed by, the internal, substantive laws of the State of California without giving effect to
that State’s choice of law principles.

     IN WITNESS WHEREOF, the parties hereto have caused the Stipulation to be executed, by their
duly authorized attorneys, dated as of September 19, 2006.

	 	 	 	 	 
	 	ROBBINS UMEDA & FINK LLP

 	 
	 	 	 
	 	/s/ Brian J. Robbins
 	 
	 	BRIAN J. ROBBINS

S. BENJAMIN ROZWOOD

KELLY M. MCINTYRE

SHANE P. SANDERS

610 West Ash Street, Suite 1800

San Diego, CA  92101

Telephone: 619/525-3990

Facsimile:  619/525-3991
 	 
	 
	 	Co-Lead Counsel for State Derivative Plaintiffs

Loretta Goldstein, Richard Hreniuk and

Thelma Rubin

 	 
	 	 	 
	 	 	 
	 	 	 
	 

STIPULATION OF SETTLEMENT

11

 

	 	 	 	 	 
	 	FARUQI & FARUQI LLP

 	 
	 	 	 
	 	/s/ Nadeem Faruqi
 	 
	 	NADEEM FARUQI

BETH KELLER

320 East 39th Street

New York, NY 10016

Telephone: 212/983-9330

Facsimile:  212/983-9331
 	 
	 
	 	Co-Lead Counsel for State Derivative Plaintiffs

Loretta Goldstein, Richard Hreniuk and

Thelma Rubin

 	 
	 
	 	LERACH COUGHIN STOIA GELLER

RUDMAN & ROBBINS, LLP

 	 
	 	 	 
	 	/s/ Travis E. Downs
 	 
	 	WIILIAM S. LERACH

DARREN J. ROBBINS

TRAVIS E. DOWNS, III

655 West Broadway, Suite 1900

San Diego, CA 92101

Telephone: 619/231-1058

Facsimile:  619/231-7423
 	 
	 
	 	Counsel for Federal Derivative Plaintiff

Michael Kogan

 	 
	 
	 	PAUL HASTINGS JANOFSKY & WALKER, LLP

 	 
	 
	 	/s/ William F. Sullivan
 	 
	 	WILLIAM F. SULLIVAN
CHRISTOPHER HAROLD MCGRATH

MORGAN MILLER

3579 Valley Centre Drive

San Diego, CA 92130

Telephone: 858/720-2500

Facsimile:  858/720-2555 	 
	 
	 	Attorneys for Ligand and the Individual

Defendants David E. Robinson, Paul B.Maier,

James J. L’Italien, William A. Pettit, Henry F.

Blissenbach, Alexander D. Cross, John Groom,

Irving S. Johnson, John W. Kozarich, Carl C.

Peck and Michael A. Rocca

 	 
	 	 	 
	 	 	 
	 	 	 
	 

STIPULATION OF SETTLEMENT

12

 

EXHIBIT B

CORPORATE GOVERNANCE TERM SHEET

     Unless otherwise indicated, no provision listed below shall be retroactive. The following
corporate governance changes shall remain effective for a period of five years from implementation,
which shall occur, within 60 days after court approval of any settlement:

     A. The Board of Directors

          1. Unless otherwise specified herein, at least three-fourths of the Board of Directors
(“Board”) and the majority of each Committee shall be comprised of “Independent Directors,” as
described herein.

          2. It shall be the policy of the Board to set specific limits on outside board memberships.
The Chief Executive Officer (“CEO”) of the Company should not participate on more than two boards
of for-profit corporations (either publicly traded or privately held), and Independent Directors
should not serve on more than three boards of publicly held companies, including the Company. The
CEO or other full time senior corporate officer of another company serving on the Company’s board
should be limited to not more than two public company boards in total, including the boards of such
person’s own employer and the Company.

          3. By no later than the end of 2007, the Lead Independent Director shall, with the Board,
evaluate and review whether the position of the Chairperson of the Board (“Chair”) should be
separate from that of CEO. The Lead Independent Director shall arrange for meeting(s) or executive
session(s) of the Independent Directors to discuss this issue. If the Chair and CEO positions are
separated, the Chair must meet the definition of “Independent Director” as described herein.

          4. No member of the Board shall be a current executive officer of a customer, distributor or
supplier of Ligand, except where such entity’s business with Ligand is de minimis (as defined in
paragraph B.2. below).

          5. The performance of the Chair shall be evaluated each year by the Board. Where the Chair is
not sufficiently active or successful in providing meaningful leadership for the Board, he or she
should be replaced.

          6. Members of the Board shall serve for no more than ten years, effective as of the 2007
annual meeting, provided however, that no more that one director serving on the effective date of
this Agreement shall be term-limited by this paragraph at each annual meeting. Board members who
are also then-current employees of the Company shall be exempted from this provision.

1

 

          7. The Board’s policy, consistent with the terms of the Company’s currently operative Stock
Option Plan, should require each director to accept at least 20% of their yearly compensation in
stock or stock options.

          8. Each director of the Company shall be required to certify in writing that he or she has
received, read and understands the guidelines for directors set forth in Ligand’s “Code of Conduct
and Ethics Policy,” and Board policy shall expressly state that it is applicable to directors.

     B. Director Independence

          1. For purposes hereof, to be deemed an “Independent Director” in any calendar year, a
director would have to satisfy the following qualifications. He or she:

               a. has not been employed by Ligand or its subsidiaries or affiliates in an executive capacity
within the last five calendar years unless such employment compensation and relationship to Ligand
is de minimis.

               b. has not received, during the current calendar year or either of the three immediately
preceding calendar years, remuneration, directly or indirectly, other than de minimis remuneration,
as a result of service as, or being affiliated with an unaffiliated entity that serves as (i) an
adviser, consultant or legal counsel to Ligand or to a member of Ligand’s senior management, or
(ii) a significant distributor, customer, or supplier of Ligand;

               c. has no personal services contract(s) with Ligand, or any member of Ligand’s senior
management unless such contract(s) compensation and relationship to Ligand is de minimis;

               d. is not employed by a public company at which an executive officer of Ligand serves as a
director;

               e. has not had any of the relationships described in subsections (a)-(d) above, with any
affiliate of Ligand;

               f. is not a member of the immediate family of any person described in subsections (a)-(e)
above; and

               g. membership on the Company’s Scientific Advisory Board shall not, in itself, disqualify an
individual from service on the Board as an independent member.

          2. A director is deemed to have received remuneration, directly or indirectly, if
remuneration, other than de minimis remuneration, was paid by Ligand, its subsidiaries or
affiliates, to any entity in which the director has a beneficial ownership interest of five percent
or more, or to an entity by which the director is employed or self-employed other than as a
director. Remuneration is deemed de minimis remuneration if such remuneration is $60,000 or less
in any calendar year, or if such remuneration is paid to an entity, and it (i) did not for the
calendar year exceed the lesser of

2

 

$5 million, or one percent of the gross revenues of the entity;
and (ii) did not directly result in an increase in the compensation received by the director from
that entity.

          3. No director shall be re-nominated who has not satisfactorily performed his or her duties
based on Ligand’s established criteria for the performance of Board members.

          4. The Independent Directors shall meet separately from the rest of the Board at least
quarterly.

     C. Duties of Lead Independent Director

          The following will be adopted as policy of the Board:

     The Board considers it to be useful and appropriate to designate a non-employee director to
serve in a lead capacity to coordinate the activities of the other non-employee directors and to
perform such other duties and responsibilities as the Board may determine. If the Chair does not
qualify as an “Independent Director” pursuant to the definition above, then the Company will also
designate a “Lead Independent Director.” The specific responsibilities of the Lead Independent
Director when acting as such shall be as set forth herein below.

          1. Serve as a liaison between the other non-employee directors and the company’s Chief
Executive Officer.

          2. Advise and assist the Chair regarding the schedule of Board meetings, seeking to ensure
that the non-employee directors can perform their duties responsibly and in a manner that minimizes
any interference with ongoing company operations.

          3. Consult with and advise the Chair regarding the agenda, meeting schedules for, and
information to be provided in connection with all Board and Board Committee meetings.

          4. With the Chair, ensure that the non-employee directors have adequate resources to
effectively and responsibly perform their duties and responsibilities, including without limitation
all relevant and timely information from company management as necessary or appropriate for the
duties and responsibilities being performed.

          5. Recommend to the Chair the retention of advisors and consultants who report directly to the
Board or to any Board Committee.

          6. Serve as a member of the Nominating Committee.

          7. Attend meetings of the Audit Committee as s/he deems appropriate.

          8. Assist the Board, and all committees on which the Lead Independent Director serves, as well
as the officers of the company, to better ensure compliance with and implementation of Board and
other company policies and guidelines.

3

 

          9. Call executive sessions of non-employee directors at least quarterly.

          10. Develop agendas for and serve as Chair of the executive sessions of the
Board’s non-employee directors. Communicate to management, as appropriate, the results of
discussions from the executive sessions among non-employee directors.

          11. Serve as principal liaison between the non-employee directors and the Board

          12. Make recommendations to the Chair, the Nominating Committee, and the Audit Committee
regarding the membership of the various Board Committees, as well as the selection of the Committee
chairpersons.

          13. Serve as Acting Chair of the Board when the Chair is not present.

          14. Evaluate, together with the Compensation Committee and the full Board, the CEO’s
performance, and meet with the CEO to discuss the Board’s evaluation.

          15. Assist management, consistent with Company policy, with consultation and communication as
needed with major stockholders.

          16. Perform such other duties as the Board shall designate from time to time.

     D. Board Committees

          1. It shall be Board policy that the Audit, Compensation and Nominating Committees shall have
standing authorization, on their own decision, to retain legal or other advisors of their choice,
who shall report directly to the Board or Committee.

          2. The General Counsel in the Legal Department shall serve as the primary contact to the Lead
Independent Director and the other non-employee directors with regards to legal advice and counsel
as requested by non-employee directors, the engagement of outside advisors, and otherwise as
requested to assist the members of the Audit, Compensation and Nominating Committees in the
performance of their duties. The foregoing is not intended to limit the access that every director
has to any Ligand employee in accordance with Company policy.

          3. Each Committee member shall have a maximum tenure of six consecutive years on said
Committee, effective as of the 2007 annual meeting, provided that no more that one member of each
committee serving on the effective date of this Agreement shall be term-limited by this paragraph
at each annual meeting.

     E. Compliance Oversight and Continuing Education for Board

     The Board shall oversee compliance issues including the following annual process for oversight
and continuing education.

4

 

          1. In effectuating its oversight of compliance issues and continuing education on compliance
and Board duties, the Board shall:

               a. Oversee the development of the Company’s compliance programs to ensure that the Company is
in compliance with its policies and all applicable laws and regulations, including complying with
all legal, ethical, regulatory and commercial rules required to ensure proper research,
development, testing, procedures, sales, disclosures and statements in relation to the Company’s
actions concerning its products;

               b. Oversee the implementation, administration and enforcement of such programs;

               c. Hold at least one meeting session per year led by the General Counsel and outside expert
counsel dedicated to i) review of compliance issues and continuing education of the Board regarding
compliance requirements and ii) Board duties and responsibilities. Additional meetings may be
called on these subjects as the Chair deems appropriate. The Board may invite such additional
officers, directors and employees of the Company as it may see fit from time-to-time to attend a
meeting and participate in the discussion of matters relating to compliance. Such meetings shall
include:

	 	•	 	Review of Company compliance programs and systems
	 
	 	•	 	Review of significant compliance issues during the past year and
remediation
	 
	 	•	 	Review of significant, newly approved or approval-pending
compliance requirements (e.g. regulations & laws)
	 
	 	•	 	Review of changes in the law regarding directors’
responsibilities and duties, including recent significant court
opinions on existing or changed laws.

     F. Other Standing or New Committees of the Board

     All other existing or standing committees of the Ligand Board, including the Science and
Technology Committee formed in March 2005, shall be comprised of a majority of Independent
Directors.

     G. Access to Management

     All directors shall have access to the Company’s CEO, CFO and senior management to discuss and
review all material aspects of the Company’s business, finances, operations and products.

5

 

     H. Self-Evaluation of the Board

     By the end of 2007, so long as Ligand remains a publicly-traded company, the Company shall
establish written self-evaluation process for the Board, including evaluation criteria, which shall
be published, in the Company’s proxy statement providing for the election of directors. The Ligand
Board shall annually perform a self-evaluation of the Board’s performance against the Company’s
criteria established for members of the Board of the Company. The entire Ligand Board shall
annually prepare and meet in closed session to review the results of its self-evaluation.

     I. Selection of One Director Utilizing Criteria Agreed to With Plaintiffs

     The Board will, promptly after the resignation or termination of one or more of the Directors
affiliated with Third Point, utilize the following criteria agreed upon with Plaintiffs in the
selection of one independent Director. The criteria which shall be utilized by the members of the
Nominating Committee and the full Board, in conformity with their fiduciary duties, in the
selection of a nominee are:

     The nominee shall have no prior financial or business interest in the Company such as
through receipt of a salary or through affiliation with another company which has received a
material amount of business from Ligand (indirect ownership of company shares, e.g., via
mutual funds, or direct ownership of less than 1% of outstanding shares shall not be deemed
a violation of this criterion). The nominee will receive only the standard director
compensation, per published Company policy. The nominee shall have experience as a director
of another public company. As part of the interview process, the nominee will be questioned
about his or her experience in resolving conflicts. No nominee shall be listed as a
“problem director” by the Corporate Library nor shall the nominee be a director of a company
which is listed in the bottom decile of ISS. Furthermore, the nominee shall not have any
professional, social or personal relationships with members of executive management, except
for non-selective general or industry organizations. After the initial election to the
Board, this director shall be nominated by the Board, subject to the Board’s fiduciary
duties and the director’s satisfactory conduct of his/her duties pursuant to Board policy,
at the next annual meeting at which directors are elected to serve for an additional term.

     J. Quarterly Report of Research and Development

     At each regularly scheduled Board meeting or at other meetings when developments warrant, the
Chair of the Science and Technology Committee (or his or her designees) shall provide a report as
to the Committee’s oversight of the Company’s research and development.

     K. Related Party Contracts

     The Board shall adopt internal procedures and policies prohibiting Ligand from entering into
agreements with any director or officer of Ligand, or any person or entity controlled or affiliated
with them, for the provision of goods and services to Ligand without approval by both the
Compensation Committee and Audit Committee.

6

 

     L. Limitations on Executive Compensation

          1. The Board shall adopt a policy that upon a finding of misconduct resulting in the issuance
of a restatement by any Court of competent jurisdiction, the Lead Independent Director will seek
Board approval to determine whether the Company should pursue disgorgement remedies against the
appropriate officers during the relevant period pursuant to Sarbanes-Oxley Act of 2002 Section 304.

          2. The Ligand Board shall adopt a policy prohibiting the extension of loans and other credit
by the Company to Ligand officers and/or directors.

          3. The policy of the Board is to attract and retain top executive talent. In order to
effectuate this policy, it shall also be the policy of the Board to provide severance to executive
employees similar to that which is paid to comparable executives in comparable markets. The terms
of all severance agreements in place at the adoption of this policy shall not be affected.
Severance agreements entered into on or after the date of the adoption of this policy shall base
employee severance, taking due consideration of the reasons for severance into account, on the
prevailing national market rate, as determined by an independent outside compensation surveys for
comparable executives in comparable companies.

     M. Long-Term Strategic Vision

     The Board shall oversee the development of, and direction to, the Company’s strategic plan.
The Board shall ensure that the production of long-term shareholder value is a predominant factor.
Management, subject to the direction of the Board and pursuant to appropriate quiet periods and all
other applicable rules and regulations, shall be open and reasonably accessible to inquiry by
shareholders about the condition and performance of the Company.

     N. Document Preservation

     Ligand will adopt a policy whereby it agrees to comply with all applicable laws regulating
retention of documents. This provision is exempted from the requirement that it be implemented
within 60 days of court approval of the settlement.

7

 

Exhibit C

Ligand’s Significant Initiatives on Corporate Governance and Business Practices

     Ligand adopted a range of corporate governance measures after the filing of the Actions
(beginning in August 2004), as a result of Ligand’s desire to deal with corporate governance issues
related to the corporate governance changes proposed by Plaintiffs as part of the Settlement.
These included Ligand’s adoption of the following new policies and procedures or materially
modified pre-existing policies and procedures: (i) Disclosure Committee Charter; (ii) Science and
Technology Committee of the Board of Directors; (iii) Policy Regarding Gift Limits to Healthcare
Providers; (iv) Bylaws Amended to Clarify Period for Receiving Stockholder Proposals at Annual
Meetings; (v) Policy Regarding Accounting Decisions; and (vi) Three Third Point Shareholder
Representatives Added to the Board of Directors. Each of the policies and procedures is summarized
below.

Summary of Corporate Governance and Business Practices Initiatives Since August 2004

     Ligand shall maintain the following corporate governance initiatives, with the exception of
section (vi), for at least five years (to the extent applicable laws, rules or regulations do not
require or counsel otherwise):

I. October 2004: Approval of Ligand’s Disclosure Committee Charter

     To strengthen the disclosure of information, Ligand created the Disclosure Committee, composed
of officers or employees of the Company, with one member being an attorney knowledgeable about SEC
rules and regulations and one member who is knowledgeable about financial reporting and SEC
reporting. The Disclosure Committee’s duties are to: design, establish, evaluate and maintain
effective Disclosure Controls and Procedures that are designed to ensure that information required
to be disclosed in the reports and statements filed by the Company pursuant to the Securities
Exchange Act of 1934, including registration statements prospectuses filed by the Company pursuant
to the Securities Act of 1933, and in private memorandum (collectively Disclosure Documents) is
recorded, processed, summarized and reported in conformity with, and within the time periods
specified by, the 1934 and 1933 Acts and the rules and forms of the Securities and Exchange
Commission. The Disclosure Committee’s duties also include the responsibility to establish and
maintain a process pursuant to which the Committee shall be responsible for reviewing and
overseeing the disclosure included in the Disclosure Documents; and to maintain written records of
the Disclosure Controls and Procedures followed in connection with the preparation and approval of
Disclosure Documents.

     The objective of the Disclosure Committee is to provide a process such that: the Disclosure
Documents do not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made therein, in light of the circumstances under which such
statements were made, not misleading; any financial statements and other financial information
included in Disclosure Documents fairly present in all material respects the financial condition,
results of operations and cash flows of the Company as of and for the periods presented therein;
and that all information to be included in any Disclosure Document is

1

 

communicated to the Company’s management, including, without limitation, the Senior Officers,
as appropriate to allow timely decisions regarding required disclosure.

II. March 2005: Approval of Science and Technology Committee of the Board of Directors

     The Science & Technology (S&T) Committee of the Board was created to review the Company’s
overall R&D strategy, research and development projects, and to advise the Board and President and
Chief Executive Officer of the Company regarding future R&D strategies, projects, and efforts. The
S&T Committee shall consist of at least two directors and the Nominating Committee shall elect a
Chair. Committee members will receive such compensation for their formal meetings as the
Compensation Committee of the Board may establish from time to time. The initial members of the
S&T Committee are Carl Peck, Irving Johnson and John Kozarich. The external chairman of the SAB
shall be an ex-officio member and participate in the post SAB annual review of discovery and
preclinical projects and priorities. The S&T Committee will meet periodically and three times
annually and shall attend the annual SAB together with the Company’s scientific consultants.
Minutes of the meetings will be kept and the S&T Committee will make a formal report to the Board,
as requested.

III. June 2005: Approval of Policy Regarding Gift Limits to Healthcare Providers

     The purpose of this policy is to implement portions of the Company’s Code of Conduct and
Ethics Policy and Comprehensive Compliance Program. This policy applies to all employees,
contractors and/or consultants in Commercial Operations, as well as any other such individuals
having contact with healthcare professionals as part of his/her duties or activities for the
Company (e.g. clinical research professionals). The Vice President(s) of Commercial Operations
have primary responsibility for implementation and oversight of this policy within Commercial
Operations. Violations of this policy may result in disciplinary action up to and including
immediate termination. In addition, the Company in its discretion may advise appropriate government
officials of any apparent violations of law. In particular, employees may not rely on any oral
statements that are inconsistent with this written policy, nor which purport to change or add to
it. The Company adheres to the PhRMA code for individual items. As stated in the Code of Conduct
and Ethics Policy, “In general, such entertainment, gratuities including gifts or promotional items
should have a value of $100 or less.” Annual limits on such items to an individual medical or
health care professional are as follows: gifts ($200); promotional materials ($300-400); other
activities/items, e.g. (meals and non-contract travel ($250-500).

			
	IV.	 	November 2005: Bylaws Amended to Clarify Period for Receiving Stockholder Proposals at
Annual Meetings

     The Ligand Board of Directors approved an amendment to the bylaws of the company clarifying
the advance notice requirement for a stockholder who wishes to bring business before an annual
meeting of stockholders. The amended bylaw provides that, in the event the annual meeting date has
been changed by more than 30 days from the date contemplated in the previous year’s proxy
statement, stockholder proposals for the annual meeting must be received no later than 20 days
after the earlier of the date on which: (1) notice of the date of the annual meeting was mailed to
stockholders, or (2) public disclosure of the date of the meeting was made to

2

 

stockholders. Previously the bylaws stated that the time for receipt of such proposals was “a
reasonable time before the solicitation is made.”

V. December 2005: Approval of Policy Regarding Accounting Decisions

     An accounting decision policy establishes a control function regarding the accounting and
reporting for all significant and/or complex transactions. These transactions may be new or arise
from change in terms and are typically limited in occurrence, but potentially large and significant
as to their impact on the financial reporting and accounting records of Ligand. Examples include,
but are not limited to: significant financial transactions, financing arrangements, unusual or
unique revenue transactions, transactions involving stock or stock options, royalty or
collaboration agreements, and significant asset acquisitions or disposals. Due to the nature of
these transactions, they often result in separate or additional disclosure in the Company’s
external financial reports. These transactions and related issues will be documented and maintained
in a control file in the Controller’s office. Documentation will include the facts related to the
transaction, its financial impact, accounting and reporting implications and considerations as well
as the conclusion and rational for the determined accounting and reporting treatment. The file will
also contain any other supporting documents such as contract. The Controller will coordinate all
analysis and gather information from appropriate functional sources.

			
	VI.	 	December 2005: Three Third Point Shareholder Representatives Added to the Board of Directors

     Ligand expanded its board of directors from eight to eleven members with the addition of three
outside directors. The new board will consist of the existing board members plus Daniel S. Loeb,
Jeffrey R. Perry, and Brigette Roberts, M.D. Ligand has agreed to recommend the Third Point
directors for election to the board and solicit proxies in their favor at annual meetings through
2007, provided the Third Point directors remain on the board and Third Point does not take certain
stockholder actions as restricted until June 2, 2006, including soliciting proxies, submitting
proposals for stockholders’ meetings, buying or selling Ligand stock and engaging in or proposing
activities such as extraordinary corporate transactions, sale of material company assets, changes
in management or the board, material changes in the company’s structure or business or changes to
its charter or bylaws.

3

 

			
	
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	1.0	 	PURPOSE
	 
	 	 	The purpose of this policy is to outline the rules regarding director, employee and consultant
transactions in the stock and other securities of Ligand Pharmaceuticals Incorporated. This
policy and procedure arises from our responsibilities as a public company. We are establishing
this policy in part to assist you in understanding the complicated rules governing sales and
purchases of our securities. Failure to comply with these procedures could result in a serious
violation of the securities laws by you and/or the company and can involve both civil and
criminal penalties.
	 
	2.0	 	SCOPE
	 
	 	 	This policy applies to all directors, employees and consultants (including all temporary and
contract employees) of the Company and their Immediate Families. Employees, directors and
consultants of the company’s subsidiaries are also covered by this policy and the terms
“Company” and “Ligand” as used in this policy include Ligand Pharmaceuticals and all of its
subsidiaries. The policy covers all transactions by those individuals which involve Ligand
securities. “Ligand securities” includes any Ligand stock, any rights to acquire or dispose of
Ligand stock and any other Ligand securities.
	 
	3.0	 	REFERENCES/RELATED POLICIES
	 
	 	 	Sarbanes-Oxley Act of 2002 (Pub. Law 107-204)
	 
	 	 	Securities Exchange Act of 1934 (15 USC 78a et seq.), e.g. Section 16(b)
	 
	 	 	Rules and Regulations under the Securities Exchange Act of 1934, Rule 16 (17 CFR 240.16a-1 —
16e-1); Rule 10b5-1 (17 CFR 240.10b5-1); Rule 144
	 
	 	 	California Corporations Code §25402 (Friese v. Superior Court, 134 Cal. App.
4th 693 (2005))
	 
	4.0	 	RESPONSIBILITIES
	 
	 	 	The Company’s General Counsel (or in his/her absence the Chief Financial Officer (CFO)) is the
designated Compliance Officer under this policy and has responsibility for its day to day
administration.

	 
	Approved by/date

	 

	Warner R. Broaddus, VP & General Counsel

	 	 	 	 	 
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	 	 	Directors, employees and consultants are responsible for ensuring compliance with this policy by
their Immediate Families.
	 
	5.0	 	DEFINITIONS

	 	5.1	 	Insider. An “insider” is a person who, regardless of his or her position in
the Company, possesses, or has access to, Material Information concerning the Company
that has not been Fully Disclosed to the public. Insiders may be subject to criminal
prosecution and/or civil liability for trading (e.g. purchase or sale) in Company
securities when they know Material Information concerning the Company that has not been
Fully Disclosed to the public. The Immediate Families of insiders are also insiders
under this policy. A person can be an insider for a limited time with respect to
certain Material Information even though he or she is not an officer or director.
	 
	 	5.2	 	Tipping/Tippee. Insider trading is not limited to trading by the Insider
alone; it is also illegal to advise others to trade on the basis of undisclosed
Material Information. Liability in such cases can extend both to the “tippee” (the
person to whom the Insider disclosed inside information) and to the “tipper” (the
Insider himself or herself).
	 
	 	5.3	 	Immediate Family. Immediate family means an individual’s direct family living
in the same household.
	 
	 	5.4	 	Fully Disclosed/Full Disclosure. Full disclosure generally means a filing with
the Securities & Exchange Commission, a press release or other broadcast of information
to the investing public. A speech or a TV or radio appearance for a selective
audience, or an article in an obscure magazine do not normally qualify as full
disclosure. Full disclosure means the securities markets have the opportunity to
digest the news. For purposes of this policy, information that has been publicly
announced is not “fully disclosed” until after the close of business on the next
business day after the announcement.
	 
	 	5.5	 	Material Information. It is not possible to define all categories of material
information. In general, information should be regarded as “material” if there is a
substantial likelihood that it would be considered important by a reasonable investor
in making a decision regarding the purchase or sale of Company stock or other
securities. Examples of information that may be regarded as material would be
information covering pending acquisitions,

	 	 	 	 	 
	 
	 	 	 	 
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	 	 	 	significant changes in company sales compared to historical trends, signing of a major
corporate partnership, important clinical, R&D or product data (good or bad), pricing
changes in major contracts, planned stock splits, new stock or bond offerings and
similar matters. If you have questions as to the materiality of information, you
should contact the Compliance Officer for clarification.
	 
	 	5.6	 	Director. Director means a member of the Board of Directors of Ligand
Pharmaceuticals Incorporated.
	 
	 	5.7	 	Officer. Officer means an officer of Ligand Pharmaceuticals Incorporated as
defined in Rule 16a-1(f) under the Securities Exchange Act of 1934, as amended.

	6.0	 	POLICY

	 	6.1	 	Introduction The following is the insider trading policy of Ligand and
its subsidiaries. It is important that you review this policy carefully. The Company
strongly encourages you to contact a qualified securities lawyer if you have any doubt
about whether your actions may constitute insider trading. In addition, the Compliance
Officer can provide further answers regarding these trading restrictions. Criminal
prosecution for insider trading can and often does result in prison sentences for the
violator. Civil actions may be brought by private plaintiffs or the Securities &
Exchange Commission (SEC). The SEC is authorized by statute to seek a penalty in such
actions of the profits made or losses avoided by the violator. Finally, in addition to
the potential criminal and civil liabilities mentioned above, in certain circumstances
the Company may be able to recover all profits made by an Insider, plus collect other
damages.
	 
	 	6.2	 	General Rule Any person deemed an Insider associated with the Company,
i.e. anyone who has Material Information concerning the Company that has not been Fully
Disclosed to the public, must refrain and his/her Immediate Family must refrain, from
trading (which includes gifting and other transfers, as well as buying or selling) and
must refrain from advising others to trade (i.e. Tipping) in Company stock or other
securities until such information has been Fully Disclosed. Applicable fiduciary
duties may also prohibit insider trading where, by virtue of his/her fiduciary
position, an Insider knows or has accesss to Material Information that has not been

	 	 	 	 	 
	 
	 	 	 	 
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	 	 	 	Fully Disclosed. Information is deemed Fully Disclosed after the close of business on
the next business day after it is publicly announced.
	 
	 	6.3	 	Corporate Partner Securities We from time to time enter into
arrangements with other companies to work together on various significant projects and
collaborations, e.g. product research and development collaborations. As a result,
Ligand employees, Directors and consultants may learn non-public Material Information
relevant to those other companies. The same restrictions then apply to the other
companies’ securities. Ligand employees, Directors and consultants and their Immediate
Families must not trade in the stock or other securities of any corporate partner if
they are aware of non-public Material Information relevant to that partner. Note that
the standard for what is Material Information regarding a partner will likely be
different from what is Material Information for Ligand.
	 
	 	6.4	 	Don’t Guess, Ask Any Director, employee or consultant who believes he
or she would be regarded as an Insider who is contemplating a transaction in Company
securities and who is unsure of the applicability of this policy must contact the
Compliance Officer prior to executing any transaction in Ligand securities to determine
if he or she may properly proceed. Officers and Directors should be particularly
careful, since avoiding the appearance of engaging in a securities transaction on the
basis of non-public Material Information can be as important as avoiding a transaction
actually based upon such information.
	 
	 	6.5	 	Officers, Directors and Designated Employees

	 	6.5.1	 	Notice and Trading Window Requirements  All Officers
and Directors, as well as certain other designated employees with access to
financial data of the Company (as well as the Immediate Families of the
Officers, Directors and designated employees) who wish to buy or sell Company
securities, must

	 	•	 	First, notify the Compliance Officer1 of their intent
to enter into a transaction in Company stock or other securities;
and
	 
	 	•	 	Second, limit their purchases and sales of the Company securities
on the open market to the period beginning on the

 

			
	1	 	In instances where the Compliance Officer
wishes to trade securities, s/he shall notify the President.

	 	 	 	 	 
	 
	 	 	 	 
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	 	 	 	second business day after each public announcement of the Company’s
quarterly or annual financial results, and ending on the
30th calendar day thereafter. These periods are known as
the “trading windows.”
	 
	 	•	 	Third, Officers and Directors must report each trade in Company
securities, including trades made in accordance with Qualified
Selling Plans (defined below), by the close of business on the trade
date, to the Compliance Officer or his/her designee to facilitate
required SEC reporting. Such reports will be made available on the
Company website.

	 	 	 	The Compliance Officer shall keep the President and the CFO informed of all
transactions under this section 6.5, as they are approved. The Compliance
Officer and the relevant Department Head shall together with Human Resources
ensure that employees to be designated under this section 6.5 shall be so
informed in writing upon hire or later designation. The Compliance Officer
shall maintain a current registry of such designated employees.
	 
	 	6.5.2	 	Restrictions During Trading Windows  Notwithstanding
such trading window periods, if any Officer, Director or other person has
knowledge of Material Information which has not been Fully Disclosed, then that
person has a personal responsibility and legal obligation not to engage in
Company securities transactions while in possession of non-public Material
Information, even during such trading window periods. In addition, if in the
judgment of the President and the Compliance Officer, certain Officers,
Directors or employees of the Company are in possession of non-public Material
Information during a trading window period, or are otherwise restricted by law
from trading Company securities (see, e.g. section 6.5.5 below), they may
prohibit the affected employees, Officers or Directors from trading Company
securities in open-market transactions during such trading window periods.
	 
	 	6.5.3	 	Unavoidable Special Circumstances; Waivers Subject to
the general rule described in paragraph 6.2 above, Officers, Directors and
designated employees who, due to unavoidable and extraordinary circumstances,
need to engage in a transaction in Company securities outside of the trading
window periods

	 	 	 	 	 
	 
	 	 	 	 
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	 	 	 	described in paragraph 6.5.1 must contact the Compliance Officer. The
President and the Compliance Officer2, with advice from counsel,
will attempt to determine whether the relevant Officer, Director, or
designated employee is in possession of non-public Material Information
which would restrict such person’s ability to trade in Company securities.
If it is determined, in the President and Compliance Officer’s sole
discretion, that there is no non-public Material Information within the
possession of such person, then provided the circumstances reflect an
appropriate level of need, the Officer, Director, or designated employee may
be allowed to trade in Company securities.
	 
	 	6.5.4	 	Qualified Selling Plans  Transactions made pursuant to
a Qualified Selling Plan are not subject to the trading windows. For purposes
of this exception, a “Qualified Selling Plan” is a written plan for selling
Company stock which meets each of the following requirements:

	 	(1)	 	the plan is adopted during a
period when the trading window is open;
	 
	 	(2)	 	the plan is adopted during a
period when the individual is not in possession of non-public
Material Information;
	 
	 	(3)	 	selling under the plan does not
commence until at least 30 days after the date the plan is
adopted;
	 
	 	(4)	 	the plan is adhered to strictly,
except for non-plan sales that comply with current SEC
Interpretations and are approved by the Compliance Officer;
	 
	 	(6)	 	the plan either (a) specifies the
amount of securities to be sold, the price at which and the date
on which the securities are to be sold, (b) includes a written
formula or algorithm, or computer program, for determining the
amount of securities to be sold and the price at which and the
date on which the securities are to be purchased or sold, or (c)
does not permit any insider to exercise any subsequent influence
over how, when, or whether to effect sales; provided, in
addition, that any other person

 

			
	2	 	In the event of a waiver requested by the
President or the Compliance Officer, the determination shall be made, with
advice of counsel, by the non-requesting officer and, if available, the CFO.

	 	 	 	 	 
	 
	 	 	 	 
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	 	 	 	who, pursuant to the contract, instruction, or plan, did
exercise such influence must not have been aware of the material
nonpublic information when doing so; and
	 
	 	(7)	 	at the time it is adopted the
plan conforms to all other requirements of 17 CFR
240.10b5-1(c)(1)(C). Any Qualified Selling Plan must be
delivered promptly to the Compliance Officer. The Company
reserves the right to disclose publicly the terms of any
Qualified Selling Plan.

	 	6.5.5	 	Pension Fund Blackouts  In addition, Directors and
Officers must not trade in Company equity securities acquired in connection
with their service or employment as a Director or Officer during any “pension
fund blackout periods” as set forth in the Sarbanes-Oxley Act of 2002, section
306(a) and implementing regulations.

	 	6.6	 	Exception only for Company Stock Plans It is not an exception to this
policy that the Insider may have decided to engage in a transaction before learning of
the undisclosed Material Information or that delaying the transaction might result in
an economic loss. It is also irrelevant that publicly disclosed information about the
Company might, even aside from the undisclosed Material Information, provide a
substantial basis for engaging in the transaction. Company personnel may not trade in
Company securities while in the possession of non-public Material Information about the
Company. The only general exception to the policy is as follows:

The exercise of a stock option under the Company’s Stock Option Plan(s), or the
regularly-scheduled purchase of stock under the Company’s Stock Purchase Plan(s)
are not restricted by insider trading rules. Note that this exception does not
include a subsequent or same-day sale of the shares acquired under such Plans,
e.g. the exercise of options.

	 	6.7	 	Special Restrictions From time to time, the President together with
the Compliance Officer may issue a memo to some or all Officers, Directors, employees
and consultants notifying them that they are restricted from trading in Company
securities as of a specific date and time. This memo might be issued because a
significant event was about to occur, and the trading in Company securities during this
time frame would be construed as trading with non-public Material Information. This
restriction remains in

	 	 	 	 	 
	 
	 	 	 	 
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	 	 	 	place and the affected individuals and their Immediate Families are prohibited from
trading any Company securities until a second memo is sent by the President or
Compliance Officer removing this restriction at a specific date and time.
	 
	 	6.8	 	Administration of the Policy Violations of this policy may result in
disciplinary action up to and including immediate termination. In addition, the
Company in its discretion may advise appropriate government officials of any apparent
violations of law. This policy is in no way intended to modify the at-will nature of
your employment with the Company. Except for the aspects of this policy delegated
herein to the Compliance Officer, the President, the CFO and the General Counsel (for
purposes of this policy, the “Administrative Committee”) shall jointly and in their
sole discretion, interpret and administer this policy. This policy may not be amended
or supplemented except in writing and with the express approval of the Board of
Directors or the Administrative Committee. In particular, employees may not rely on
any oral statements that are inconsistent with this written policy, nor which purport
to change or add to it.

	7.0	 	ATTACHMENTS
	 
	 	 	None
	 
	8.0	 	REVISION HISTORY

	 	 	 	 	 
	 

	 	Current version:
	 	October 16, 2006
	 
	 	 	 	 
	 

	 	Previous version(s):
	 	May 27, 2003, May 15, 2002

Replaced “Policy Concerning Insider Trading Pursuant to SEC Rule 10b-5 — Employees” and “Policy
Concerning Insider Trading Pursuant to SEC Rule 10b-5 — Officers and Directors” both dated July
20, 1993

	 	 	 	 	 
	 
	 	 	 	 
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