<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
Commission file number: 0-27406
CONNECTIVE THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3173928
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
3400 WEST BAYSHORE ROAD
PALO ALTO, CALIFORNIA 94303
(Address of principal executive offices)
Registrant's telephone number, including area code: (415) 843-2800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days. Yes X No
--- ---
As of October 7, 1996, 7,417,731 shares of the Registrant's common stock were
outstanding, at $0.001 par value.
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CONNECTIVE THERAPEUTICS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets at September 30, 1996 and December
31, 1995 ......................................................... 3
Condensed Statements of Operations for the three and nine
months ended September 30, 1996 and 1995, and for the period
from inception (February 8, 1993) to September 30, 1996 .......... 4
Condensed Statements of Cash Flows for the nine months ended
September 30, 1996 and 1995, and for the period from inception
(February 8, 1993) to September 30, 1996 ......................... 5
Notes to Condensed Financial Statements .......................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................ 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................ 10
Item 2. Changes in Securities ............................................ 10
Item 3. Defaults Upon Senior Securities .................................. 10
Item 4. Submission of Matters to a Vote of Security Holders .............. 10
Item 5. Other Information ................................................ 10
Item 6. Exhibits and Reports on Form 8-K ................................. 10
Exhibits .................................................... 10
Reports on Form 8-K ......................................... 11
SIGNATURE .......................................................................... 12
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONNECTIVE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 8,392 $ 9,023
Short-term investments 11,948 --
Prepaid expenses and other current assets 156 154
-------- --------
Total current assets 20,496 9,177
Property and equipment, net 1,539 1,367
Notes receivable from related parties 326 414
Deposits and other assets 271 838
-------- --------
22,632 11,796
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 424 $ 441
Accrued liabilities 1,155 808
Accrued process development expenses 937 668
Accrued payroll and related expenses 363 157
Current portion of capital lease obligations, capital loans and long-term debt 2,354 1,259
-------- --------
Total current liabilities 5,233 3,333
Notes payable -- 2,205
Noncurrent portion of capital lease obligations, capital loans and long-term debt 3,508 4,933
Other long-term liabilities 1,184 1,262
Commitments
Stockholders' equity:
Preferred stock, $0.001 par value: 5,000,000 shares authorized; no shares
issued and outstanding at September 30, 1996 and 3,965,137 shares issued
and outstanding at December 31, 1995 -- 4
Common stock, $0.001 par value: 50,000,000 shares authorized; 7,417,239
shares issued and outstanding at September 30, 1996 and 908,511 shares
issued and outstanding at December 31, 1995 7 1
Additional paid in capital 46,059 21,425
Notes receivable from stockholders (75) (134)
Deferred compensation, net (1,499) (1,933)
Other (10) --
Deficit accumulated during the development stage (31,775) (19,300)
-------- --------
Total stockholders' equity 12,707 63
-------- --------
$ 22,632 $ 11,796
======== ========
</TABLE>
See notes to condensed financial statements.
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CONNECTIVE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
THREE MONTHS ENDED NINE MONTHS ENDED (FEBRUARY 8,
SEPTEMBER 30, SEPTEMBER 30, 1993) TO
------------- ------------- SEPTEMBER 30,
1996 1995 1996 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating Expenses:
Research and development $ 4,212 $ 1,860 $ 9,221 $ 6,527 $ 24,764
General and administrative 1,100 532 3,419 1,182 7,089
---------- ---------- ---------- ---------- --------
Total operating expenses 5,312 2,392 12,640 7,709 31,853
Interest income 302 110 914 329 1,357
Interest expense (249) (125) (749) (294) (1,279)
---------- ---------- ---------- ---------- --------
Net loss $ (5,259) $ (2,407) $ (12,475) $ (7,674) $(31,775)
========== ========== ========== ========== ========
Net loss per share $ (0.71) $ (0.54) $ (1.91) $ (1.73)
========== ========== ========== ==========
Shares used to calculate net loss per share 7,402,797 4,434,751 6,524,574 4,433,874
========== ========== ========== ==========
</TABLE>
See notes to condensed financial statements.
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CONNECTIVE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
NINE MONTHS ENDED (FEBRUARY 8,
SEPTEMBER 30, 1993) TO
------------- SEPTEMBER 30,
1996 1995 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(12,475) $ (7,674) $(31,775)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 491 279 1,005
Technology acquired in exchange for notes payable and other
long-term liability -- 855 2,705
Amortization of deferred compensation 434 -- 766
Changes in assets and liabilities:
Current and other assets 636 (147) (520)
Current and other liabilities 728 (40) 4,174
-------- -------- --------
Net cash used by operating activities (10,186) (6,727) (23,645)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments (25,575) (7,188) (33,135)
Sales and maturities of short-term investments, net 13,617 5,060 21,177
Capital expenditures (588) (336) (1,664)
-------- -------- --------
Net cash used in investing activities (12,546) (2,464) (13,622)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of bank loans -- (750) --
Payment of notes payable (2,205) -- (2,205)
Proceeds from capital loans and long-term debt 415 230 6,185
Payments on obligations under capital leases and capital loans (745) (253) (1,176)
Proceeds from issuance of preferred and common stock,
net of issuance costs 24,636 12,764 42,855
-------- -------- --------
Net cash provided by financing activities 22,101 11,991 45,659
-------- -------- --------
Net increase in cash and cash equivalents (631) 2,800 8,392
Cash and cash equivalents at beginning of period 9,023 1,287 --
-------- -------- --------
Cash and cash equivalents at end of period $ 8,392 $ 4,087 $ 8,392
======== ======== ========
SUPPLEMENTARY INFORMATION:
Interest paid $ 749 $ 235 $ 1,096
======== ======== ========
</TABLE>
See notes to condensed financial statements.
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CONNECTIVE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Connective
Therapeutics, Inc. (the "Company" or "Connective") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and pursuant to the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, such financial statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting of normal recurring accrual adjustments, considered
necessary for a fair presentation have been included. Operating results for the
three and nine month periods ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1996.
These financial statements and notes should be read in conjunction with the
Company's audited financial statements and notes thereto for the year ended
December 31, 1995 included in the Company's Registration Statement on Form S-1
(Reg. No. 33-80261) and related prospectus for the Company's initial public
offering of its Common Stock, which was completed on February 6, 1996.
2. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of shares of
common stock outstanding. Common equivalent shares from stock options and
convertible preferred stock are excluded from the computation as their effect is
antidilutive, except that, pursuant to Securities and Exchange Commission Staff
Accounting Bulletins, common equivalent shares issued during the twelve-month
period prior to the initial public offering are presumed to have been issued in
contemplation of the public offering and have been included in the calculation
as if they were outstanding for all periods through December 31, 1995 (using the
treasury stock method for stock options and the anticipated public offering
price).
The supplemental calculation of net loss per share presented below has been
computed using the weighted average number of shares of common stock and
preferred stock outstanding.
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED NINE-MONTH PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Supplemental net loss per share $ (0.71) $ (0.50) $ (1.77) $ (1.79)
========== ========== ========== ==========
Shares used in computation 7,402,797 4,828,723 7,053,258 4,290,590
========== ========== ========== ==========
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion contains certain forward looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from the results anticipated in these forward looking statements as a
result of certain factors set forth under the heading "Risk Factors" in the
Company's Registration Statement on Form S-1 (Reg. No. 33-80261) dated January
31, 1996 relating to the Company's initial public offering and under the heading
"Additional Factors that May Affect Future Results" in the Company's Report on
Form 10-Q for the quarters ended March 31, 1996.
The following discussion should be read in conjunction with the unaudited
condensed financial statements and notes thereto included in Part I, Item 1 of
this Quarterly Report and with Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Prospectus and
Registration Statement on Form S-1 (Reg. No. 33-80261) dated January 31, 1996
relating to the Company's initial public offering.
OVERVIEW
Connective is focused on the development of therapeutics to address serious
diseases involving the connective tissues of the body.
The Company's products under development include gamma interferon for the
treatment of atopic dermatitis and keloids; betamethasone mousse for the
treatment of scalp psoriasis and other scalp dermatoses; ConXn(TM) (relaxin) for
the treatment of scleroderma and other fibrotic disorders and T-cell Receptor
(TCR) peptide vaccines for the treatment of multiple sclerosis and rheumatoid
arthritis. At present, all products are under development and no revenues have
been derived from the sale of products.
In September 1996, the Company initiated a Phase III clinical trial of gamma
interferon for treatment of severe atopic dermatitis, a chronic inflammatory
skin disease which may result in significant morbidity and quality of life
impairment. This multicenter, randomized, double-blinded study is expected to
enroll approximately 500 patients in three parallel groups, consisting of two
active groups (50(mu)g/m2 per day and 50(mu)g/m2 every other day) and placebo.
Patients will receive subcutaneous injections over a 12-week treatment period
and undergo a 4 week follow-up to assess duration of response. Primary endpoints
include assessment of total clinical severity based upon erythema (redness of
the skin), papulation (swelling) and excoriation (scratch marks) scores. Results
from a recently concluded Phase II trial showed statistically significant
improvement in clinical scores of erythema and excoriation and in global
assessment of disease.
Also in September 1996, the Company announced that results from a physician
sponsored Phase I/II clinical trial of TCR peptide vaccines for the treatment of
multiple sclerosis were published in the October issue of the journal Nature
Medicine. The results from this pilot study indicated that patients who
responded immunologically to TCR vaccines experienced stabilization of disease
without side effects during one year of therapy. The double-blind,
placebo-controlled trial involved 23 patients with a native or substituted
version of a VB5.2 TCR peptide vaccine or placebo. Successful peptide
vaccination boosted protective T-cells and lowered pathogenic T-cells thought to
cause the disease.
The Company also completed patient enrollment in its Phase II clinical trial of
ConXn(TM) (recombinant human relaxin H2) for the treatment of scleroderma. Sixty
patients with diffuse, systemic sclerosis (the most debilitating and fatal form
of scleroderma) have been enrolled in the multicenter, double-blind,
placebo-controlled trial which was initiated in June. The patients will be
treated for 24 weeks, and will receive either ConXn at one of two dose levels
(25 (mu)g/kg/day or 100 (mu)g/kg/day) or placebo, administered over a 24-week
treatment period. The study is designed to evaluate the effects of ConXn on skin
softening, joint mobility, quality of life and vital organ function. Results of
the Phase I study of ConXn in thirty diffuse, systemic scleroderma patients
indicated ConXn was well-tolerated. Ten of twenty
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patients receiving ConXn reported improvement in disease symptoms, while only
two patients of ten receiving placebo reported improvement.
There can be no assurance that any of the Company's potential products will be
successfully developed, receive the necessary regulatory approvals or be
successfully commercialized.
The Company has financed its operations since inception through September 30,
1996 primarily through the private sale and issuance of equity securities and
from proceeds of its initial public offering in February 1996. Additional cash
has been received in connection with certain credit financing arrangements. To
date, substantially all of the Company's expenditures have been for research and
development activities. The Company has incurred operating losses since its
inception and had an accumulated deficit of $31.8 million at September 30, 1996.
The Company will require additional funds to complete the development of its
products and to fund operating losses which are expected in the next several
years.
RESULTS OF OPERATIONS
Research and development expenses increased to $4.2 million and $9.2 million for
the three and nine months ended September 30, 1996, respectively, compared to
$1.9 million and $6.5 million for comparable periods in 1995, respectively. This
increase is due primarily to increases in personnel staffing, the expansion of
clinical trials, the production of clinical supplies and increased outside
services required to support operations in 1996. Research and development
expenses are expected to continue to increase due to continued expansion of
development activities, including progression of clinical trials and possible
acquisition of new products and technologies.
General and administrative expenses increased to $1.1 million and $3.4 million
for the three and nine months ended September 30, 1996, respectively, compared
to $0.5 million and $1.2 million for comparable periods in 1995, respectively.
This increase is due primarily to increased support costs associated with
operating as a public company, including costs related to strengthening the
senior management team. The Company expects to continue to incur general and
administrative costs at approximately the current level over the near term.
Interest income increased to $0.3 million and $0.9 million for the three and
nine months ended September 30, 1996, respectively, compared to $0.1 million and
$0.3 million for comparable periods in 1995, respectively. This increase in
interest income is due to higher average cash and investment balances held by
the Company during the first three quarters of 1996 than during the comparable
periods in 1995. Interest earned in the future will depend on Company funding
cycles and prevailing interest rates. Interest expense increased to $0.2 million
and $0.7 million for the three and nine months ended September 30, 1996,
respectively compared to $0.1 million and $0.3 million for comparable periods in
1995, respectively. This increase in interest expense is due to higher balances
outstanding for obligations under capital leases and loans, and notes payable.
The Company incurred net losses of $5.3 million and $12.5 million for the three
and nine months ended September 30, 1996, respectively, compared to $2.4 million
and $7.7 million for comparable periods in 1995, respectively. The Company
expects to incur substantial additional losses over the next several years. The
losses are expected to fluctuate from period to period based on timing of
clinical material purchases, scale-up activities and clinical activities.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception through September 30,
1996 primarily through private sale and issuance of equity securities and from
proceeds of its initial public offering in February 1996.
Working capital increased to $15.3 million at September 30, 1996, compared to
working capital of $5.8
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<PAGE> 9
million at December 31, 1995, due to the receipt of approximately $25.6 million
in net proceeds from the initial public offering, offset by cash used in
operations of approximately $10.2 million for the nine months ended September
30, 1996 and the repayment of $2.2 million in notes outstanding pursuant to
certain technology licensing agreements. At September 30, 1996, the Company had
cash, cash equivalents and short-term investments totaling $20.3 million,
compared to $9.0 million at December 31, 1995. It is generally the Company's
policy to invest these funds in highly liquid securities, such as
interest-bearing money market funds, corporate debt, commercial paper and
federal agency notes.
For the nine months ended September 30, 1996, additions of equipment and
leasehold improvements totaled $0.6 million of which approximately $0.4 million
was financed through capital lease and loan arrangements. Total additions for
equipment and leasehold improvements for the period from inception to December
31, 1995, totaled $1.9 million of which $1.6 million was financed through
capital lease and loan arrangements. At September 30, 1996, the Company had
invested $2.5 million in property and equipment, and had approximately $1.2
million available for borrowing under its capital loan arrangement.
The Company believes that proceeds from its initial public offering in February
1996, together with available cash and cash equivalents, short-term investments
and amounts available under a capital loan agreement, will be sufficient to meet
the Company's operating expenses and capital requirements into 1997. The Company
expects to incur substantial additional development costs, including costs
related to clinical trials and manufacturing expenses. As a result, the Company
will require substantial additional funds prior to reaching profitability and
may attempt to raise additional funds through equity or debt financings,
collaborative arrangements with corporate partners or from other sources. There
can be no assurance that additional funds will be available for the Company to
finance its ongoing operations on acceptable terms, if at all.
The Company's future capital uses and requirements are expected to increase in
future periods and will depend on numerous factors, including the progress of
its research and development programs, the progress of pre-clinical and clinical
testing, the time and costs involved in obtaining regulatory approvals, the cost
of filing, prosecuting, and enforcing patent claims and other intellectual
property rights, competing technological and market developments, the ability of
the Company to establish collaborative arrangements, the acquisitions of new
products and technologies, and the development of commercialization activities.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
In October 1996, the Company and Dr. Edward Amento, the Company's Executive Vice
President, Research and Development and Chief Scientific Officer and a Director
of the Company, entered into a Laboratory Services Agreement, which agreement
will be assigned by Dr. Amento to a not-for-profit laboratory to be established
by Dr. Amento. Under the terms of the agreement, Dr. Amento will conduct
research, including research on behalf of the Company. Pursuant to this
agreement, the Company has agreed to provide $250,000 to assist in establishing
the laboratory and an additional grant of $100,000 per year starting upon the
opening of the laboratory and the execution of a Sponsored Research Agreement to
be agreed upon between the parties to cover two years of directed research at
the laboratory relating to relaxin diagnosis and therapeutics and TCR peptides
for diagnosis and therapeutic autoimmune disease applications. The Company will
also provide clinical space and researchers, along with costs to support three
full time employees at the laboratory. The Company will have all intellectual
property rights arising from directed research projects fully funded by the
Company and will have a right of first negotiation for certain other
intellectual property developed by the laboratory.
In conjunction with the Laboratory Services Agreement, the Company also entered
into an Agreement with Dr. Edward Amento, the Company's Executive Vice
President, Research and Preclinical Development and Chief Scientific Officer and
a Director of the Company. Pursuant to this agreement, Dr. Amento resigned his
employment relationship with the Company effective October 31, 1996, and became
a consultant to the Company. For the first nine months' of consulting work, Dr.
Amento will receive a fee of $18,750 per month; after such initial nine month
period (and for consulting services exceeding one day per week during the
initial nine months), Dr. Amento will be compensated at a rate of $2,000 per
day. The Company will also pay Dr. Amento $25,000 for each successfully
completed transaction in which his consultation was requested, under the
Agreement, by the Company and given by Dr. Amento. Dr. Amento will be provided
$24,000 over six months for office expenses. Also under the Agreement, Dr.
Amento will resign his position as a director on or before June 30, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Number Exhibit Table
------ -------------
3.4* Form of Amended and Restated Certificate of
Incorporation
3.5* Form of Bylaws
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4.1* Form of Common Stock Certificate
10.1* Form of Indemnification Agreement
10.2* 1994 Stock Plan and form of Option Agreement and
Stock Purchase Agreement
10.3* 1995 Employee Stock Purchase Plan and form of
Subscription Agreement
10.4* 1995 Directors' Stock Option Plan and form of
Option Agreement
10.5* Third Amended and Restated Registration Rights
Agreement dated February 14, 1995 among the
Registrant and certain security holders of the
Registrant and Amendments Nos. 1 and 2 thereto
dated May 31, 1995 and September 28, 1995
10.6+* License Agreement dated September 27, 1993,
between Genentech, Inc. and the Company, Amendment
dated July 14, 1994, and side letter agreement
dated November 17, 1994
10.7+* Subordinated Promissory Note, dated June 3, 1994,
payable to XOMA Corporation
10.8* Assignment and Assumption Agreement, dated June 3,
1994, by and between the Company and XOMA
Corporation
10.9+* Technical Collaboration and Manufacturing
Agreement, dated May 24, 1994, by and between the
Company and Scios Nova Inc.
10.10+* Technology Acquisition Agreement dated June 3,
1994 by and between the Company and XOMA
Corporation, and License Agreement dated February
27, 1990 by and between Arthur A. Vandenbark,
Ph.D. and XOMA Corporation
10.11+* Agreement on Interferon Gamma-1B dated December 8,
1995 by and between the Company and Genentech,
Inc.
10.12+* Equipment Lease Line, dated May 31, 1994 with
Lease Management Services, Inc.
10.13+* Business Loan Agreement, dated July 19, 1995,
between the Company, Silicon Valley Bank and
MMC/GATX Partnership No. 1
10.14+* Research Collaboration and Assignment Agreement,
dated July 1, 1994, between the Company and Dr.
Arthur A. Vandenbark
10.15* Employment and Bonus Agreement between the Company
and Edward Amento, dated November 17, 1993
10.16* Secured Loan Agreements between the Company and
Edward Amento dated November 1, 1993 and July 11,
1994, respectively
10.17* Consulting Agreement dated November 17, 1993
between the Company and Brian Seed
10.18* Consulting Agreement dated November 17, 1993
between the Company and Eugene Bauer
10.19* Employment Agreement dated June 9, 1994 between
the Company and Thomas Wiggans
10.20* Loan Agreements between the Company and Thomas
Wiggans dated July 15, 1994 and August 1, 1994
10.21* Letter Agreement with G. Kirk Raab dated October
1, 1995
10.22* Sublease Agreement with Systemix dated December 6,
1993
10.23* Facility Master Lease between the Company and
Renault & Handley dated February 9, 1994
10.24* Master Bridge Loan Agreement between the Company
and certain investors dated December 7, 1995
10.25* Agreement with William Albright dated November 17,
1995
10.26* Loan and Security Agreement dated December 21,
1995 by and among the Company, Silicon Valley Bank
and MMC/GATX Partnership No. 1
10.27++ Agreement on Relaxin Rights in Asia dated April 1,
1996 between the Company and Mitsubishi Chemical
Corporation
10.28++ Soltec License Agreement dated June 14, 1996
10.29 Laboratory Services Agreement dated October 24,
1996
10.30 Agreement with Dr. Edward Amento dated October
24, 1996
10.31 Form of Directors and Officers Change in Control
Agreement
27.1 Financial Data Schedule
----------------
* Incorporated by reference to exhibit of the same
number in the Company's Registration Statement on
Form S-1 and Amendments No. 1, 2, 3, and 4 thereto
(Registration No. 33-80261) which became effective
on January 31, 1996.
+ Confidential treatment has been granted as to
certain portions of this Exhibit by the Securities
and Exchange Commission.
++ Incorporated by reference to exhibit of the same
number in the Company's Form 10-Q for the period
ending June 30, 1996. Confidential treatment has
been requested as to certain portions of this
Exhibit.
(b) Reports on Form 8-K.
None.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONNECTIVE THERAPEUTICS, INC.
By: /s/ CYNTHIA M. BUTITTA
-----------------------------
Cynthia M. Butitta
Vice President, Finance and Administration
and Chief Financial Officer
Date: October 28, 1996
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EXHIBIT INDEX
Number Exhibit Table
3.4* Form of Amended and Restated Certificate of Incorporation
3.5* Form of Bylaws
4.1* Form of Common Stock Certificate
10.1* Form of Indemnification Agreement
10.2* 1994 Stock Plan and form of Option Agreement and Stock
Purchase Agreement
10.3* 1995 Employee Stock Purchase Plan and form of
Subscription Agreement
10.4* 1995 Directors' Stock Option Plan and form of Option
Agreement
10.5* Third Amended and Restated Registration Rights Agreement
dated February 14, 1995 among the Registrant and certain
security holders of the Registrant and Amendments Nos. 1
and 2 thereto dated May 31, 1995 and September 28, 1995
10.6+* License Agreement dated September 27, 1993, between
Genentech, Inc. and the Company, Amendment dated July 14,
1994, and side letter agreement dated November 17, 1994
10.7+* Subordinated Promissory Note, dated June 3, 1994, payable
to XOMA Corporation
10.8* Assignment and Assumption Agreement, dated June 3, 1994,
by and between the Company and XOMA Corporation
10.9+* Technical Collaboration and Manufacturing Agreement,
dated May 24, 1994, by and between the Company and Scios
Nova Inc.
10.10+* Technology Acquisition Agreement dated June 3, 1994 by
and between the Company and XOMA Corporation, and License
Agreement dated February 27, 1990 by and between Arthur
A. Vandenbark, Ph.D. and XOMA Corporation
10.11+* Agreement on Interferon Gamma-1B dated December 8, 1995
by and between the Company and Genentech, Inc.
10.12+* Equipment Lease Line, dated May 31, 1994 with Lease
Management Services, Inc.
10.13+* Business Loan Agreement, dated July 19, 1995, between the
Company, Silicon Valley Bank and MMC/GATX Partnership No.
1
10.14+* Research Collaboration and Assignment Agreement, dated
July 1, 1994, between the Company and Dr. Arthur A.
Vandenbark
10.15* Employment and Bonus Agreement between the Company and
Edward Amento, dated November 17, 1993
10.16* Secured Loan Agreements between the Company and Edward
Amento dated November 1, 1993 and July 11, 1994,
respectively
10.17* Consulting Agreement dated November 17, 1993 between the
Company and Brian Seed
10.18* Consulting Agreement dated November 17, 1993 between the
Company and Eugene Bauer
10.19* Employment Agreement dated June 9, 1994 between the
Company and Thomas Wiggans
10.20* Loan Agreements between the Company and Thomas Wiggans
dated July 15, 1994 and August 1, 1994
10.21* Letter Agreement with G. Kirk Raab dated October 1, 1995
10.22* Sublease Agreement with Systemix dated December 6, 1993
10.23* Facility Master Lease between the Company and Renault &
Handley dated February 9, 1994
10.24* Master Bridge Loan Agreement between the Company and
certain investors dated December 7, 1995
10.25* Agreement with William Albright dated November 17, 1995
10.26* Loan and Security Agreement dated December 21, 1995 by
and among the Company, Silicon Valley Bank and MMC/GATX
Partnership No. 1
10.27++ Agreement on Relaxin Rights in Asia dated April 1, 1996
between the Company and Mitsubishi Chemical Corporation
10.28++ Soltec License Agreement dated June 14, 1996
10.29 Laboratory Services Agreement dated October 24, 1996
10.30 Agreement with Dr. Edward Amento dated October 24, 1996
10.31 Form of Directors and Officers Change in Control
Agreement
27.1 Financial Data Schedule
---------------
* Incorporated by reference to exhibit of the same number
in the Company's Registration Statement on Form S-1 and
Amendments No. 1, 2, 3, and 4 thereto (Registration No.
33-80261) which became effective on January 31, 1996.
+ Confidential treatment has been granted as to certain
portions of this Exhibit by the Securities and Exchange
Commission.
++ Incorporated by reference to exhibit of the same number
in the Company's Form 10-Q for the period ending June 30,
1996. Confidential treatment has been requested as to
certain portions of this Exhibit.
<PAGE> 1
EXHIBIT 10.29
LABORATORY SERVICES AGREEMENT
This LABORATORY SERVICES AGREEMENT (the "Agreement") is
entered into by and between Connective Therapeutics, Inc., a Delaware
corporation, its predecessors, successors, subsidiaries, officers, directors,
agents, attorneys, employees and assigns, (hereafter collectively referred to as
the "Company"), on the one hand, and Dr. Edward P. Amento ("Dr. Amento") on
behalf of and to be assigned to a not-for-profit laboratory to be incorporated
by Dr. Amento within thirty (30) days of the date of this Agreement (hereafter
the "Laboratory"), on the other hand.
WITNESSETH:
WHEREAS, a former officer and employee of the Company, Dr.
Edward Amento will establish a laboratory to conduct research activities;
WHEREAS, the Company desires to have Dr. Amento and the
Laboratory conduct certain directed research activities on behalf of the
Company; and
WHEREAS, the Laboratory is willing to conduct such directed
research activities on behalf of the Company on the terms and conditions herein
set forth.
NOW, THEREFORE, in consideration of the mutual promises
contained herein, and for other good and sufficient consideration, receipt of
which is hereby acknowledged, the parties agree as follows:
1. The Company and the Laboratory agree as follows:
a. The Company shall provide $250,000 to assist in
establishing the Laboratory. Half of such funding shall be provided upon
execution hereof and half shall be provided on the first business day of 1997.
In addition, the Company shall provide a grant of $100,000 per year, paid
quarterly, with the first payment to be made within five (5) days after the date
the Laboratory is first opened for business (the "Establishment Date") with
subsequent payments made on the first day of each of the following quarters to
cover two years of directed research relating to relaxin diagnostics and
therapeutics and TCR peptides for diagnostic and therapeutic applications
covered by existing patents and patent applications owned by or licensed to the
Company (together, the "Connective Field") at the Laboratory, pursuant to the
terms and conditions of a Sponsored Research Agreement to be negotiated in good
faith and consistent with normal business practices between a commercial entity
and a research laboratory. The Company shall also make its own laboratories
available to assist Dr. Amento as reasonably requested through the period ending
9 months after the first participation of the Company's three FTE's in the
Laboratory, such participation to begin no later than 120 days after the signing
of this Agreement. In addition, the Company shall have the opportunity but not
the obligation to
<PAGE> 2
provide a matching grant for each foundation and federal grant received by the
Laboratory within the Connective Field during the two-year period.
b. The Company will additionally provide the following during
the nine (9) month period from the Establishment Date (to begin no later than
120 days after the signing of this Agreement:
(1) Company researchers to work as visiting
scientists on research within the Connective Field or research which is funded
by not-for-profit entities, part-time in the Laboratory for such nine (9) month
period. Company researchers shall not work on research funded by for-profit
entities other than the Company, it being understood that such restriction is
not intended to segregate Company researchers from, or preclude interaction and
participation in Laboratory meetings with other Laboratory scientists who are
doing such "for-profit" work. Total employees made available by the Company
would equal 3.0 FTE's to conduct exploratory research (50% time allocation for 6
employees). The remaining 50% of these employees time will be devoted to Company
research.
(2) Laboratory space, including access to Company
equipment. The Company will also provide laboratory support costs to support the
3.0 FTE's to the Laboratory at the level of the Company's own costs therefor
(i.e. $83,800 per FTE per year), which amounts shall be paid quarterly on the
first day of each of the first three calendar quarters following the
Establishment Date, provided that any travel expenses included in such amount
shall be preapproved by the Company.
c. The Laboratory shall conduct the directed research
specified in the Sponsored Research Agreement in good faith and in accordance
with the terms and conditions of that Agreement.
d. Intellectual Property. Intellectual property shall mean
trade secrets and other proprietary information, including any inventions
(whether patentable or not), improvements, processes, patents or applications
for patents.
(1) All intellectual property arising from directed
research projects fully funded by the Company will belong to the Company with no
royalty obligations.
(2) The Company shall have a right of first
negotiation for any other intellectual property developed by the Laboratory
which:
(a) falls within the Connective Field, for
as long as the Company provides funding for directed research projects at a
level of at least $100,000 per year;
2.
<PAGE> 3
(b) is unrelated to the Connective Field,
but is the result of a directed research project for which at least 50% of the
funding was provided by the Company; and
(c) results from the efforts of any Company
employee working at the Laboratory where non-Company funding has been received
from not-for-profit entities.
In addition, for a period of six (6) months following
the cessation of Company funding for directed research or its reduction below
the level of $100,000 per year, the Company shall continue to have the rights
provided above in Sections 1.d.(1) and 1.d.(2) for any intellectual property
which would, if it had first come into being prior to the cessation of Company
funding for directed research or its reduction below the level of $100,000 per
year, have fallen within the scope of such Sections 1.d.(1) and 1.d.(2) (Except
for Section 1.d.(2)(c) which shall be limited to intellectual property which is
an invention, whether patentable or not including all patent applications and
patents) . After such six (6) month period, to the extent that intellectual
property is developed by the Laboratory, which intellectual property may not be
commercialized without reference to (or a license under) the Company's
intellectual property rights, the Laboratory and the Company shall meet with
respect thereto and determine in good faith whether and the terms under which:
(i) the Laboratory may acquire any license required for further pursuit of such
developments under the Company's rights, or (ii) the Company may acquire a
license for the pursuit of such developments under the Laboratory's rights.
The terms under which such intellectual property
shall be offered to the Company shall be negotiated in good faith consistent
with industry standards for similar technology licenses and taking into account
the extent of the Company's direction and/or contribution thereto.
(3) Intellectual property developed by a
Company employee that results from work done while an employee of the Company on
the Company's time or its premises or any work conducted by such employee within
the Connective Field pursuant to Section 1.b(1), shall belong to the Company
pursuant to agreements already in place. Intellectual property developed by a
Company employee while acting as a visiting scientist to the Laboratory and
outside the Connective Field pursuant to Section 1.b(1), shall be determined
under United States law corresponding to inventorship, as if patent
application(s) corresponding to the intellectual property were filed, as
follows: (A) If sole inventorship, then the party to which the sole inventor is
obligated to assign such patent rights shall be the sole owner of the
Intellectual Property; and (B) if joint inventorship, then the parties to which
the joint inventors are obligated to assign the patent rights shall be the joint
owners of equal, undivided interests in that Intellectual Property. In the event
of a joint invention, both the Company and the Laboratory will promptly enter
into good faith discussions to decide if, when, and how patent application(s)
should be filed, and if filed, how they will be paid for. Either party may
petition the other party to obtain the other
3.
<PAGE> 4
party's patent rights in the jointly owned invention, in order to obtain
exclusive rights to the joint invention. In the absence of such further
agreement, both parties shall have the right to use, license and/or otherwise
transfer its rights and/or ownership in such jointly owned inventions without
reporting to or accounting to the other party.
The Laboratory shall promptly disclose, and to the extent so
provided for by this Section 1(d), assign to the Company any and all such
intellectual property (including any patent applications), without further
compensation. Any writings prepared by the Laboratory with regard to directed
research shall be for the benefit of the Company. The Company shall have the
right to reproduce, modify, and use such writings and all results generated as
the result of services rendered under this Agreement for any purpose related to
its lawful business. The Laboratory shall promptly make, execute and deliver any
and all instruments and documents and perform any and all acts necessary to
obtain, maintain and enforce patents, trademarks and copyrights for such
Intellectual Property as the Company may desire in any and all countries. All
costs and expenses of application and prosecution of such patents, trademarks
and copyrights shall be paid by the Company.
e. Limited Noncompete. The Laboratory, as a not-for-profit
entity will not compete with the Company in the Connective Field during the
period during which it receives funding from the Company. The Laboratory cannot,
however, be prevented from thereafter entering into research agreements with
parties that may or may not be competitive with the Company, provided the
Laboratory complies with its continuing obligations of confidentiality
hereunder.
2. This Agreement shall bind and benefit the Laboratory and its
successors and assigns; it shall also bind and benefit the Company and its
successors and assigns.
3. That this Agreement shall be deemed to have been entered into in the
State of California and shall be construed and interpreted in accordance with
the laws of that state.
4. That should there hereafter be any litigation between or among any
of the parties to this Agreement alleging a breach of this Agreement or seeking
enforcement of this Agreement, the prevailing party in such litigation shall be
entitled to recover his or its reasonable attorneys' fees and costs of such
litigation from the other party.
5. Arbitration. That any controversy between the parties hereto shall
be submitted to and settled by final and binding arbitration in Santa Clara
County under the Commercial Rules of the American Arbitration Association then
in effect. This includes any controversy involving the construction or
application of any terms or conditions of this Agreement, or any claims arising
out of or relating to this Agreement, or any breach thereof. In any arbitration
pursuant to this section, the award shall be rendered by a majority of the
members of a board of arbitration consisting of three members, one being
4.
<PAGE> 5
appointed by each party and the third being appointed by mutual agreement of the
two arbitrators appointed by the parties.
6. That during the period of this Agreement it may be necessary for the
Company to disclose certain data and other proprietary information to the
Laboratory and/or to provide the Laboratory with samples, which together with
any information generated by the Laboratory in performing its services for the
Company hereunder (collectively, "Information"), the Laboratory agrees to retain
in strict confidence and not to disclose or transfer to any party other than as
authorized by the Company. The Laboratory further agrees not to use such
Information for any purpose other than those of this Agreement. Upon completion
of the Laboratory's services hereunder, the Laboratory will return all
Information, all copies thereof and any remaining samples to the Company, unless
directed otherwise by the Company. The foregoing obligations of confidentiality
and non-use shall not apply to Information: (a) that was previously known to the
Laboratory as evidenced by its written records; (b) that is lawfully obtained by
the Laboratory from a source independent of the Company; or (c) that is now or
hereafter becomes public knowledge other than through a breach of this
Agreement. These obligations of confidentiality and non-use shall survive the
expiration or termination of this Agreement.
7. The Laboratory agrees to supply the Company with a copy of any
proposed publication or disclosure that incorporates any Information, to be
reviewed for potential proprietary information and intellectual property issues,
and approved in writing by the Company prior to submission for publication or
disclosure (such approval shall not be unreasonably delayed or withheld).
8. No Verbal Modification. This Agreement may only be amended in
writing signed by a duly authorized officer of the Laboratory and the President
of Connective Therapeutics, Inc.
9. Independent Contractor. Notwithstanding anything herein to the
contrary, the Laboratory's status with the Company shall be, at all times during
the term of this Agreement, that of an independent contractor. Nothing in this
Agreement shall be construed to give the Laboratory the power or the authority
to act or make representations for, or on behalf of, or to bind the Company.
10. Effectiveness. This Agreement shall be null and void unless
assigned to and assumed by the Laboratory within thirty (30) days of the date of
this Agreement, and any amounts already paid hereunder shall be promptly
refunded. With the sole exception of the foregoing assignment, this Agreement
will be personal to the Laboratory, and the Laboratory shall therefore have no
right or authority to assign this Agreement or any portion thereof, to sublet or
subcontract in whole or in part, or otherwise delegate the performance under
this Agreement, without the prior written consent of the Company.
5.
<PAGE> 6
11. Entire Agreement. This Agreement represents the entire agreement
and understanding between the Company and the Laboratory and supersedes and
replaces any and all prior agreements and understandings to the extent they may
be inconsistent herewith. This Agreement is being entered into in conjunction
with an Agreement effective as of October 31, 1996 between the Company and Dr.
Amento.
IN WITNESS WHEREOF, the parties have each executed this
Agreement as of the date(s) set forth below:
Dated: ______________________, 1996 ____________________________________
Dr. Edward Amento, on behalf of the
Laboratory
CONNECTIVE THERAPEUTICS, INC.
Dated: ______________________, 1996 ____________________________________
Thomas G. Wiggans, President and
Chief Executive Officer
6.
<PAGE> 1
EXHIBIT 10.30
AGREEMENT
This AGREEMENT (the "Agreement") is entered into as of October
31, 1996 (the "Effective Date") by and between Connective Therapeutics, Inc., a
Delaware corporation, its predecessors, successors, subsidiaries, officers,
directors, agents, attorneys, employees and assigns, (hereafter collectively
referred to as the "Company"), on the one hand, and Dr. Edward Amento (hereafter
"Dr. Amento"), on the other hand.
WITNESSETH:
WHEREAS, Dr. Amento began employment at the Company on or
about November 17, 1993 pursuant to the terms of an employment agreement entered
into as of that date;
WHEREAS, the Company and Dr. Amento desire to terminate Dr.
Amento's employment relationship and create a consultancy relationship; and
WHEREAS, the parties wish to set forth herein their consulting
and other relationships and preserve the good will which exists between them and
settle any and all disputes which may exist between them.
NOW, THEREFORE, in consideration of the mutual promises
contained herein, and for other good and sufficient consideration, receipt of
which is hereby acknowledged, the parties agree as follows:
A. The Company agrees as follows:
1. That as of the Effective Date, the Company hereby hires Dr. Amento
as a consultant on the following terms:
a. Consultancy:
(1) During the initial nine (9) month consulting
period, i.e. through nine months after the Effective Date, Dr. Amento shall make
himself available to the Company for at least one day per week, provided that
such availability shall be coordinated with Dr. Amento's other responsibilities.
Payment for the initial nine (9) month period shall be made to Dr. Amento on a
monthly basis as a 1099 consultant ($18,750 per month for nine (9) months for a
total of $168,750) at the rate of his current salary. Following the initial 9
month period or for consulting services exceeding one day per week during the
initial 9 months and through the end of the Company's funding of directed
research, Dr. Amento shall, at the Company's request, continue to make himself
available, but subject entirely to his other responsibilities at such time, as a
consultant at the rate of $2,000 per day.
<PAGE> 2
(2) As a consultant, Dr. Amento shall (i) serve as a
member of the Company's Scientific Advisory Board; (ii) assist the Company in
its corporate partnering discussions; (iii) consult exclusively with the Company
in the areas of relaxin as a diagnostic and therapeutic agent and TCR peptides
as diagnostics and therapeutics in those areas covered by existing Company
patents and patent applications (the Connective Field"); and (iv) advise and
counsel the Company in other areas on a nonexclusive basis. As an incentive to
participate actively in corporate partnering discussions, the Company shall pay
Dr. Amento $25,000 for each successfully completed transaction in which his
assistance was requested in writing by the Company and given by Dr. Amento
pursuant to the terms of this Agreement, including without limitation those
listed on Exhibit A hereto.
(3) During the initial nine (9) month period of Dr.
Amento's consultancy:
(a) The Company shall maintain and pay for
Dr. Amento's current life and disability coverage and, through COBRA his health
coverage.
(b) All options to acquire shares of the
Company's stock held by Dr. Amento that are not then vested or exercised subject
to the Company's repurchase option will convert to a Non-Qualified Stock Option
with the change of his status from employee to consultant and will continue to
vest at the rate applicable to full-time employment, while he remains a
consultant to the Company, (the vested option grant will convert to a
Non-Qualified Stock Option with the change of his status from employee to
consultant, unless exercised within ninety (90) days of the date hereof). In
accordance with the terms of the option agreement(s) issued to Dr. Amento, (i)
to the extent any Option is not vested as provided above, the Option shall
expire and (ii) any such vested Option must be exercised no later than ninety
(90) days after termination of the consultancy and, to the extent any such
Option is not exercised within such ninety-day period, it shall expire.
(c) Dr. Amento acknowledges and agrees that
he has received all salary, accrued vacation, commissions, bonuses,
compensation, shares of stock or options therefore or other such sums due to him
other than (i) amounts to be paid in accordance with the provisions of this
Agreement or (ii) reimbursements for travel taken on the Company's behalf
submitted within five (5) days of the Effective Date, with the exception of
telephone bills not yet received. In light of the payment by the Company of all
wages due, or to become due to Dr. Amento, the Parties further acknowledge and
agree that California Labor Code Section 206.5 is not applicable to the Parties
hereto. That section provides in pertinent part as follows:
No employer shall require the execution of any release of any
claim or right on account of wages due, or to become due, or
made as an advance on wages to be earned, unless payment of
such wages has been made.
2.
<PAGE> 3
b. Office Assistance: The Company will additionally provide
Dr. Amento with $24,000 (paid in six monthly installments of $4,000 per month
from the effective date of this Agreement) to support the costs of maintaining
an office and shall also provide Dr. Amento with the computer equipment
presently located in his office at the Company and used by him at the Company
for use in such office.
2. Miscellaneous Items:
a. That it fully and forever releases and discharges Dr.
Amento from any claims and damages and causes of action it may have against him
in his capacities as an employee or officer of the Company and covenants not to
sue or otherwise institute or cause to be instituted or in any way participate,
except as required by law, in legal or administrative proceedings against Dr.
Amento with respect to any matter arising out of or connected with Dr. Amento's
authorized course and scope of his employment with the Company at any time prior
to and including the date the Company signs the Agreement, including any and all
liabilities, claims, demands, contracts, debts, obligations and causes of action
of every nature, kind and description, in law, equity, or otherwise, whether or
not now known or ascertained, which heretofore do or may exist, with the
exception of any claim arising out of his obligations under this Agreement or
his proprietary information obligations.
b. Legal Expenses. The Company shall reimburse Dr. Amento for
his legal expenses in connection with the preparation and negotiation of this
Agreement and in connection with the prior negotiations between Dr. Amento and
the Company regarding a Medical Research Institute in an amount not to exceed
$10,000, less applicable withholdings upon presentation of appropriate
documentation of expenses incurred.
c. Severance Benefits Unchanged. The Company acknowledges that
Dr. Amento is entering into this Agreement on the understanding that the terms
and conditions relating to any and all severance benefits granted to Thomas G.
Wiggans are as set forth in that certain Employment Agreement dated June 9, 1994
between the Company and Mr. Wiggans (the "Wiggans Employment Agreement") and
have not been amended or modified orally or in writing since that date and
hereby represents and warrants that such severance terms remain as reflected in
the Wiggans Employment Agreement.
B. Dr. Amento for himself, his heirs, executors, administrators, assigns, and
successors, agrees as follows:
1. That his employment with the Company is terminated, and his
resignation from all officer positions held by him with the Company is effective
as of the Effective Date.
2. That he shall resign as a director of the Company on or before June
30, 1997.
3.
<PAGE> 4
3. That during the period of his consultancy it may be necessary for
the Company to disclose certain data and other proprietary information to him,
and/or to provide Dr. Amento with samples, which together with any information
generated by Dr. Amento in performing his services for the Company hereunder
(collectively, "Information"), Dr. Amento agrees to retain in strict confidence
and not to disclose or transfer to any party other than as authorized by the
Company. Dr. Amento further agrees not to use such Information for any purpose
other than those of this Agreement. Upon completion of Dr. Amento's consulting
services hereunder, Dr. Amento will return all Information, all copies thereof
and any remaining samples to the Company, unless directed otherwise by the
Company. The foregoing obligations of confidentiality and non-use shall not
apply to Information: (a) that was previously known to Dr. Amento as evidenced
by Dr. Amento's written records; (b) that is lawfully obtained by Dr. Amento
from a source independent of the Company; or (c) that is now or hereafter
becomes public knowledge other than through a breach of this Agreement. These
obligations of confidentiality and non-use shall survive the expiration or
termination of this Agreement.
4. Any and all intellectual property, including inventions or
discoveries, whether patentable or not, made by Dr. Amento individually or in
conjunction with others, as a result of services rendered under this Agreement,
shall become the absolute property of the Company. Dr. Amento shall promptly
disclose, and when requested, assign to the Company any and all such
intellectual property (including any patent applications), without further
compensation. Any writings prepared by Dr. Amento hereunder shall be for the
benefit of the Company. The Company shall have the right to reproduce, modify,
and use such writings and all results generated as the result of services
rendered under this Agreement for any purpose related to its lawful business.
Dr. Amento shall promptly make, execute and deliver any and all instruments and
documents and perform any and all acts necessary to obtain, maintain and enforce
patents, trademarks and copyrights for such Intellectual Property as the Company
may desire in any and all countries. All costs and expenses of application and
prosecution of such patents, trademarks and copyrights shall be paid by the
Company and Dr. Amento shall be reimbursed for his time spent on such matters at
the rate of $2,000 per day unless measured against his consulting time
hereunder.
5. Dr. Amento agrees to supply the Company with a copy of any proposed
publication or disclosure that incorporates any Information, to be reviewed for
potential proprietary information and intellectual property issues, and approved
in writing by the Company prior to submission for publication or disclosure
(such approval shall not be unreasonably delayed or withheld).
6. That Dr. Amento hereby waives any and all rights he may have had or
now has to pursue any and all remedies available to him under any cause of
action relating to his employment or his service as an officer of the Company
against the Company, including without limitation, claims of wrongful discharge
of employment; breach of contract, both express and implied; breach of a
covenant of good faith and fair dealing, both express and implied, negligent or
intentional infliction of emotional distress; harassment or fraud;
4.
<PAGE> 5
negligent or intentional misrepresentation; negligent or intentional
interference with contract or prospective economic advantage; negligence;
defamation; and violation of the provisions of the California Labor Code, the
Employee Retirement Income Security Act and any other laws and regulations
relating to employment. Dr. Amento further acknowledges and expressly agrees
that he hereby waives any and all rights he may have had or now has to pursue
any claim of discrimination, including but not limited to, any claim of
discrimination based on sex, age, race, national origin, or any other basis,
under Title VII of the Civil Rights Act of 1964, as amended, the California Fair
Employment and Housing Act, the California Constitution, the Equal Pay Act of
1963, the Age Discrimination in Employment Act of 1967 as amended "ADEA", the
Civil Rights Act of 1866, and all other laws and regulations relating to
employment.
7. Dr. Amento acknowledges that he is waiving and releasing any rights
he may have under the Age Discrimination in Employment Act of 1967 ("ADEA") and
that this waiver and release is knowing and voluntary. Dr. Amento and the
Company agree that this waiver and release does not apply to any rights or
claims that may arise under ADEA after the Effective Date of this Agreement. Dr.
Amento acknowledges that the consideration given for this waiver and release
Agreement is in addition to anything of value to which he was already entitled.
Dr. Amento further acknowledges that he has been advised by this writing that
(a) he should consult with an attorney prior to executing this Agreement; (b) he
has at least twenty-one (21) days within which to consider this Agreement; (c)
he has at least seven (7) days following the execution of this Agreement by the
parties to revoke the agreement; and (d) this Agreement shall not be effective
until the revocation period has expired.
8. That Dr. Amento will not, except as may be mandated by statutory or
regulatory requirements or as may be required by legal process, disclose to
others the fact or terms of this settlement, the amounts referred to in the
Agreement, or the fact of the payment of said amounts, except that he may
disclose to his attorneys, accountants or other professional advisors to who the
disclosure is necessary to effectuate the purposes for which he has consulted
with such professional advisors. Dr. Amento understands that this covenant of
non-disclosure is a material inducement to the Company for the making of this
settlement and that for the breech thereof the Company will be entitled to
pursue its legal and equitable remedies, including, without limitation, the
right to seek injunctive relief.
9. To forever fully release, remise, acquit and discharge the Company
and covenant not to sue or otherwise institute or cause to be instituted or any
way participate in (except at the request of the Company) legal or
administrative proceedings against the Company with respect to any matter
arising out of or connected with his prior employment with the Company or the
termination of that employment, including any and all liabilities, claims,
demands, contracts, debts, obligations and causes of action of every nature,
kind and description, in law, equity, or otherwise, whether or not known or
ascertained, which heretofore do or may exist.
5.
<PAGE> 6
10. Dr. Amento shall return all Company property and confidential
information in his possession to the Company within five (5) business days after
the termination of the consultancy hereunder, except such property and
confidential information as the Company agrees in writing to be necessary for
his continuing consultation which shall be promptly returned upon termination
thereof.
11. The Company makes no representations or warranties with respect to
the tax consequences of the payment of any sums to Dr. Amento under the terms of
this Agreement. Dr. Amento agrees and understands that he is responsible for
payment, if any, of local, state and/or federal taxes on the sums paid hereunder
by the Company and any penalties or assessments thereon. Dr. Amento further
agrees to indemnify and hold the Company harmless from any claims, demands,
deficiencies, penalties, assessments, executions, judgments, or recoveries by
any government agency against the Company for any amounts claimed due on account
of Dr. Amento's failure to pay federal or state taxes or damages sustained by
the Company by reason of any such claims, including reasonable attorneys' fees.
C. The Company and Dr. Amento, for himself, his heirs, executors,
administrators, assigns, and successors, jointly agree as follows:
1. That nothing contained in this Agreement shall constitute or be
treated as an admission by the Company or Dr. Amento of liability, of any
wrongdoing, or any violation of law.
2. That if any provision of this Agreement is found to be
unenforceable, it shall not affect the enforceability of the remaining
provisions and the court shall enforce all remaining provisions to the extent
permitted by law.
3. That except as expressly provided herein, this Agreement shall
supersede and render null and void the Employment Agreement between Dr. Amento
and the Company, including the thirty day written notice of paragraph 1 (a).
4. That this Agreement extends to all claims of every nature and kind,
known or unknown, suspected or unsuspected, past or present, arising from or
attributable to Dr. Amento's employment with the Company or the termination of
that employment, and that any and all rights granted to the Company and Dr.
Amento under Section 1542 of the California Civil Code or any analogous state
law or federal law or regulation are hereby expressly waived. Said Section 1542
of the California Civil Code reads as follows:
"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."
6.
<PAGE> 7
5. That this Agreement shall bind and benefit Dr. Amento's heirs,
executors, administrators, successors, assigns, and each of them; it shall also
bind and benefit the Company and its successors and assigns.
6. That this Agreement shall be deemed to have been entered into in the
State of California and shall be construed and interpreted in accordance with
the laws of that state.
7. That should there hereafter be any litigation between or among any
of the parties to this Agreement alleging a breach of this Agreement or seeking
enforcement of this Agreement, the prevailing party in such litigation shall be
entitled to recover his or its reasonable attorneys' fees and costs of such
litigation from the other party.
8. That, except for the facts assumed in Paragraph A. 2(c), each party
hereby agrees to accept and assume the risk that any fact with respect to any
matter covered by this Agreement may hereafter by found to be other than or
different from the facts it believes at the time of this Agreement to be true,
and agrees that this Agreement shall be and will remain effective
notwithstanding any such difference in fact.
9. Each party agrees to refrain from any disparagement, criticism,
defamation, slander of the other, or tortious interference with the contracts
and relationships of the other.
10. That Dr. Amento hereby acknowledges and understands and he agrees
that:
a. he has at least 21 days after receipt of this Agreement
within which he may review and consider, discuss with an attorney of his own
choosing, and decide to execute or not execute this Agreement;
b. he has seven days after the execution of this Agreement
within which he may revoke this Agreement;
c. in order to revoke this Agreement, Dr. Amento must deliver
to Mr. Thomas Wiggans, the Company's President and Chief Executive Officer, on
or before seven days after the execution of this Agreement, a letter stating
that he is revoking this Agreement, and;
d. that this Agreement shall not become effective or
enforceable until after the expiration of the seven days following the date Dr.
Amento executes this Agreement.
11. No Verbal Modification. This Agreement may only be amended in
writing signed by Dr. Amento and the President of Connective Therapeutics, Inc.
7.
<PAGE> 8
12. Arbitration. That any controversy between the parties hereto shall
be submitted to and settled by final and binding arbitration in Santa Clara
County under the Commercial Rules of the American Arbitration Association then
in effect. This includes any controversy involving the construction or
application of any terms or conditions of this Agreement, or any claims arising
out of or relating to this Agreement, or any breach thereof. In any arbitration
pursuant to this paragraph C. 12, the award shall be rendered by a majority of
the members of a board of arbitration consisting of three members, one being
appointed by each party and the third being appointed by mutual agreement of the
two arbitrators appointed by the parties.
13. Independent Contractor. Notwithstanding anything herein to the
contrary, Dr. Amento's consulting status with the Company shall be, at all times
during the term of this Agreement, that of an independent contractor. It is
further understood that Dr. Amento is not a Company employee and does not
participate in any Company benefit programs, except as provided in paragraph
A.1.(3)(a). Nothing in this Agreement shall be construed to give Dr. Amento the
power or the authority to act or make representations for, or on behalf of, or
to bind the Company.
14. Entire Agreement. This Agreement represents the entire agreement
and understanding between the Company and Dr. Amento concerning Amento's
separation from the Company, and supersedes and replaces any and all prior
agreements and understandings to the extent they may be inconsistent herewith.
This Agreement is being entered into concurrently with a Laboratory Services
Agreement between the Company and Dr. Amento on behalf of an independent
research laboratory to be established and the effectiveness hereof shall be
contingent upon the execution thereof.
15. That they have read and understand the foregoing Agreement and that
they affix their signatures hereto voluntarily and without coercion. Dr. Amento
further acknowledges that he has at least 21 days within which to consider this
Agreement, that he was advised by the Company to consult an attorney of his own
choosing concerning the waivers contained in and the
8.
<PAGE> 9
terms of this Agreement, and that the waivers he has made and the terms he has
agreed to herein are knowing, conscious and with full appreciation that he is
forever foreclosed from pursuing any of the rights so waived.
Dated:_____________________, 1996 _____________________________________
DR. EDWARD AMENTO
CONNECTIVE THERAPEUTICS, INC.
Dated:_____________________, 1996 _____________________________________
Thomas G. Wiggans, President and
Chief Executive Officer
9.
<PAGE> 1
Exhibit 10.31
CONNECTIVE THERAPEUTICS, INC.
1994 STOCK PLAN
1995 DIRECTORS' STOCK OPTION PLAN
DIRECTORS AND OFFICERS
CHANGE IN CONTROL AGREEMENT
This Agreement, effective March 28, 1996, between Connective Therapeutics, Inc.,
a Delaware corporation (the "Company") and the undersigned director or executive
officer optionee of the Company (the "Optionee"), pursuant to the Resolution of
the Company's Board of Directors of March 28, 1996 shall amend any and all prior
stock option and restricted stock purchase agreements between the parties with
respect to Optionee's stock options and/or restricted shares of Common Stock
subject to a right of repurchase in favor of the Company (the "Options") under
the Company's 1994 Stock Plan and/or the Company's 1995 Directors' Stock Option
Plan [the "Plan(s)," hereby incorporated by reference].
1. Definitions.
(a) Transaction. "Transaction" shall mean a merger of the Company and
another entity, acquisition of the Company by another entity, consolidation of
the Company or sale of the Company's assets, or any Change in Control.
(b) Change of Control. "Change of Control" shall mean the occurrence of
any of the following events:
(i) Ownership. Any "Person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is
or becomes the "Beneficial Owner" (as defined in Rule 13d-3 under said
Act), directly or indirectly, of securities of the Company representing
twenty percent (20%) or more of the total voting power represented by
the Company's then outstanding voting securities without the approval
of the Board of Directors of the Company.
(ii) Merger/Sale of Assets. A merger or consolidation of the
Company whether or not approved by the Board of Directors of the
Company, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) greater than
fifty percent (50%) of the total voting power represented by the voting
securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the shareholders of
the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
(iii) Change in Board Composition. A change in the composition
of the Board of Directors of the Company, as a result of which fewer
than a majority of the directors are Incumbent Directors. "Incumbent
Directors" shall mean directors who either (A) are directors of the
Company as of March 28, 1996 or (B) are elected, or nominated for
election, to the Board of Directors of the Company with the affirmative
votes of at least a majority of the Incumbent Directors at the time of
such election or nomination (but shall not include an individual whose
election or nomination is in connection with an actual or threatened
proxy contest relating to the election of directors to the Company).
(c) Cause. "Cause" shall mean (i) gross negligence or willful
misconduct where such gross negligence or willful misconduct has resulted or is
likely to result in substantial and material damage to the Company or its
subsidiaries (ii) repeated unexplained or unjustified absence from the Company,
(iii) a material and willful violation of any federal or state law; (iv)
commission of any act of fraud with respect to the Company; or (v) conviction of
a felony or a crime involving moral turpitude causing material harm to
<PAGE> 2
Directors and Officers Page 2
Change in Control Agreement
the standing and reputation of the Company, in each case as determined in good
faith by the Board of Directors of the Company.
(d) Involuntary Termination. "Involuntary Termination" shall include
any termination as a director or executive officer by the Company other than for
Cause and the Optionee's voluntary termination, upon one (1) month prior written
notice to the Company, following (i) a material reduction in job
responsibilities inconsistent with the Optionee's position with the Company and
the Optionee's prior responsibilities, (ii) a reduction of more than 20% of the
Optionee's base compensation (other than in connection with a general decrease
in base salaries for most officers of the Company), or (iii) the Optionee's
refusal to relocate to a facility or location more than 50 miles from the
Company's current location.
2. Accelerated Vesting.
(a) Subject to Section 3 below, in the event of a Transaction that
results in a Change in Control, regardless of whether Optionee's
employment/directorship with the Company is terminated in connection with the
Change in Control, each of Optionee's Options shall become immediately fully
vested (and fully exercisable in accordance with the terms of the Plans) and the
Company's right of repurchase with respect to such Options shall expire on the
effective date of the Transaction.
(b) Subject to Section 3 below, in the event of Involuntary Termination
within one (1) year of a Transaction that does not result in a Change in
Control, which Involuntary Termination is a result of such Transaction, each of
Optionee's Options shall become immediately fully vested (and fully exercisable
in accordance with the terms of the Plans) and the Company's right of repurchase
with respect to such Options shall expire on the effective date of such
Involuntary Termination.
3. Limitation on Benefits.
If any payments or benefits received by Optionee pursuant to this
Agreement would result in the imposition of an excise tax pursuant to Section
4999 of the Internal Revenue Code of 1986 (the "Code") or any corresponding
provisions of state income tax law, the Optionee shall receive whichever of
clause (a) or clause (b) below results in the larger dollar amount of payments
or benefits (calculating such dollar amount in accordance with the principles of
Section 280G of the Code) after taking into account such excise taxes:
(a) that portion of the payments or benefits to be received by the
Optionee under this Agreement which, when aggregated with any other
payments or benefits treated as contingent on a change in the ownership
or effective control of the Company or the ownership of a substantial
portion of the assets of the Company under Section 280G(b)(2) of the
Code, does not exceed 2.99 times the Optionee's "Base Amount" as
defined in Section 280G of the Code, or
(b) 100% of the payments or benefits to which the Optionee is entitled
under this Agreement, in which event the Optionee shall be responsible
for the payment of all such excise taxes imposed with respect to such
payments or benefits.
If clause (a) produces the larger payment or benefit, then each payment or
benefit to which the Optionee would otherwise be entitled under this Agreement
shall be proportionately reduced to the extent necessary to comply with the
limitation of Section 280G of the Code.
4. Successors.
Any successor to the Company (whether direct or indirect and whether by
purchase, lease, merger, consolidation, liquidation or otherwise) to all or
substantially all of the Company's business and/or assets shall assume the
obligations under this Agreement and agree expressly to perform the obligations
under this Agreement in the same manner and to the same extent as the Company
would be required to perform such obligations in the absence of a succession.
The terms of this Agreement and all of the Optionee's rights hereunder shall
inure to the benefit of, and be enforceable by, the Optionee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.
<PAGE> 3
Directors and Officers Page 3
Change in Control Agreement
5. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Optionee shall not be required to mitigate
the amount of any benefits contemplated by this Agreement (whether by seeking
new employment or in any other manner), nor, except as otherwise provided in
this Agreement, shall any such benefits be reduced by any earnings that the
Optionee may receive from any other source.
(b) Waiver. No provision of this Agreement shall be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by the Optionee and by an authorized officer of the Company (other
than the Optionee). No waiver by either party of any breach of, or of compliance
with, any condition or provision of this Agreement by the other party shall be
considered a waiver of any other condition or provision or of the same condition
or provision at another time.
(c) At-Will Employment. The Company and the Optionee acknowledge that
all employment by the Company is and shall continue to be at-will, as defined
under applicable law.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California without reference to conflict of laws provisions.
(e) Severability. If any provision of this Agreement is or becomes or
is deemed to be invalid, illegal, or unenforceable in any jurisdiction: such
provision will be deemed amended to conform to applicable laws of such
jurisdiction so as to be valid and enforceable, or, if it cannot be so amended
without materially altering the intention of the parties, it will be stricken;
the validity, legality and enforceability of such provision will not in any way
be affected or impaired thereby in any other jurisdiction; and the remainder of
this Agreement will remain in full force and effect.
(f) Arbitration. Any dispute or controversy arising under or in
connection with this Agreement may be settled at the option of either party by
binding arbitration in the County of Santa Clara, California, in accordance with
the commercial contract rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. Punitive damages shall not be awarded.
(g) Legal Fees and Expenses. The parties shall each bear their own
expenses, legal fees and other fees incurred in connection with this Agreement.
(h) No Assignment of Benefits. The rights of any person to benefits
under this Agreement shall not be made subject to option or assignment, either
by voluntary or involuntary assignment or by operation of law, including
(without limitation) bankruptcy, garnishment, attachment or other creditor's
process, and any action in violation of this subsection (h) shall be void.
(i) Employment Taxes. All benefits pursuant to this Agreement will be
subject to withholding of any applicable income and employment taxes.
(j) Assignment by Company. The Company may assign its rights under this
Agreement to an affiliate, and an affiliate may assign its rights under this
Agreement to another affiliate of the Company or to the Company; provided,
however, that no assignment shall be made if the net worth of the assignee is
less than the net worth of the Company at the time of assignment.
(k) Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. Mailed notices to the Optionee shall be
addressed to the Optionee at the home address which the Optionee most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notices shall
be directed to the attention of its Secretary.
<PAGE> 4
Directors and Officers Page 4
Change in Control Agreement
(l) Whole Agreement. No agreements, representations or understandings
(whether oral or written and whether express or implied) which are not expressly
set forth in this Agreement have been made or entered into by either party with
respect to the subject matter hereof. This Agreement, the Plan(s) and Optionee's
stock option and/or restricted stock purchase agreement(s) with the Company
constitute the entire agreement of the parties and supersede in their entirety
all prior undertakings and agreements of the Company and Optionee with respect
to the subject matter hereof.
(m) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together will constitute
one and the same instrument.
OPTIONEE CONNECTIVE THERAPEUTICS, INC.
By:
- ----------------------------- --------------------------------
Signature Thomas G. Wiggans
President & CEO
- -----------------------------
Printed Name
- -----------------------------
Social Security No.
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