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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 15, 1997
CONNECTIVE THERAPEUTICS, INC.
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
0-27406 94-3173928
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(Commission File Number) (IRS Employer Identification No.)
3400 West Bayshore Road, Palo Alto, CA 94303
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 843-2800
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N/A
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(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 31, 1996, Connective Therapeutics, Inc. (the "Company")
acquired the exclusive U.S. and Canadian rights to Ridaura(R) (auranofin), a
disease modifying antirheumatic drug, from SmithKline Beecham Corporation and
related entities ("SmithKline"). Ridaura is an established therapy for
rheumatoid arthritis, an autoimmune disease that afflicts one to two percent of
adult Americans (approximately three million patients), mostly women.
Under the Asset Purchase Agreement, the Company acquired all rights,
title and interest to the U.S. and Canadian intellectual property rights for
Ridaura, along with related assets such as customer lists, contracts, product
files and unfilled customer orders. As consideration to SmithKline, the Company
provided a $3 million upfront cash payment, an $11.0 million promissory note,
637,733 shares of the Company's common stock, and an obligation to pay up to
$6.0 million in sales-based royalty payments, for an aggregate purchase price of
up to $29.0 million.
The $3.0 million upfront payment was made from available cash reserves.
The promissory note is payable in two installments in January 1998 and January
1999 (of $6.0 million and $5.0 million, respectively) and is secured by the
intellectual property acquired from SmithKline. The total value of the shares
issued to SmithKline is required to be $9.0 million on December 31, 1997; to
achieve such value, the Company may be obligated to issue additional shares to
SmithKline on such date, or may repurchase a portion of the originally-issued
shares to reduce the market value of the remaining shares to $9.0 million. In
connection with the share issuance, the Company agreed to file in December 1997
a registration statement on Form S-3 covering resale of the shares and to
maintain the registration statement in effect for up to two years.
Under a related Transitional Services Agreement, customer orders and
distribution for the product will continue to be managed by SmithKline through
1997. SmithKline will receive no additional consideration for performing such
services. The parties also entered into a Supply Agreement, under which
SmithKline will manufacture and supply Ridaura (in final finished package form)
to the Company for an initial term of five years.
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ITEM 7. FINANCIAL STATEMENT AND EXHIBITS.
(C)
Exhibit 2.1*+ Asset Purchase Agreement dated December 2, 1996
between the Company, SmithKline Beecham Corporation,
SmithKline Beecham Pharma Inc., SmithKline Beecham
Properties, Inc. and SmithKline Beecham
Inter-American Corporation.
Exhibit 10.1 Stock Issuance Agreement dated December 31, 1996
between the Company and SmithKline Beecham
Properties, Inc.
Exhibit 10.2 Secured Promissory Note dated December 31, 1996
issued to SmithKline Beecham Corporation.
Exhibit 10.3 Security Agreement dated December 31, 1996 between
the Company and SmithKline Beecham Corporation.
Exhibit 10.4+ Supply Agreement dated December 31, 1996 between the
Company and SmithKline Beecham Corporation.
Exhibit 10.5+ Transitional Services Agreement dated December 31,
1996 between the Company and SmithKline Beecham
Corporation.
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* Schedules and other attachments have been omitted
from this exhibit in accordance with Item 601(b)(2)
of Regulation S-K. A list of such schedules and
attachments is provided at the end of this Exhibit,
and the Registrant will furnish supplementally a copy
of any such omitted schedule or attachment to the
Commission upon request.
+ Confidential treatment has been requested as to
certain portions of this exhibit. Such portions have
been separately provided to the Commission.
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SIGNATURES
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.
(Registrant)
Dated: January 14, 1997 By: /s/ Thomas G. Wiggans
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Thomas G. Wiggans
President and Chief Executive Officer
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INDEX TO EXHIBITS
EXHIBITS
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Exhibit 2.1*+ Asset Purchase Agreement dated December 2, 1996
between the Company, SmithKline Beecham Corporation,
SmithKline Beecham Pharma Inc., SmithKline Beecham
Properties, Inc. and SmithKline Beecham
Inter-American Corporation.
Exhibit 10.1 Stock Issuance Agreement dated December 31, 1996
between the Company and SmithKline Beecham
Properties, Inc.
Exhibit 10.2 Secured Promissory Note dated December 31, 1996
issued to SmithKline Beecham Corporation.
Exhibit 10.3 Security Agreement dated December 31, 1996 between
the Company and SmithKline Beecham Corporation.
Exhibit 10.4+ Supply Agreement dated December 31, 1996 between the
Company and SmithKline Beecham Corporation.
Exhibit 10.5+ Transitional Services Agreement dated December 31,
1996 between the Company and SmithKline Beecham
Corporation.
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* Schedules and other attachments have been omitted
from this exhibit in accordance with Item 601(b)(2)
of Regulation S-K. A list of such schedules and
attachments is provided at the end of this Exhibit,
and the Registrant will furnish supplementally a copy
of any omitted schedule or attachment to the
Commission upon request.
+ Confidential treatment has been requested as to
certain portions of this exhibit. Such portions have
been separately provided to the Commission.
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Exhibit 2.1
CONFIDENTIAL TREATMENT REQUESTED
ASSET PURCHASE AGREEMENT made as of the second day of December, 1996
between SmithKline Beecham Corporation, a Pennsylvania corporation ("SBC"),
SmithKline Beecham Pharma Inc., a Canadian corporation ("SBP"), SmithKline
Beecham Properties, Inc., a Delaware corporation ("SB Properties") and
SmithKline Beecham Inter-American Corporation, a Delaware corporation
("IAC")(collectively SBC, SBP, SB Properties and IAC are referred to herein as
the "Vendor") and Connective Therapeutics, Inc., a Delaware corporation (the
"Purchaser").
WHEREAS, Vendor manufactures and sells the prescription pharmaceutical
products listed on EXHIBIT A hereto (the "Products");
WHEREAS, Purchaser desires to purchase and Vendor desires to sell the
Products and the Purchased Assets (as hereinafter defined).
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, agreements and representations herein contained and intending to be
legally bound, Vendor and Purchaser agree as follows:
SECTION 1
INTERPRETATION
1.1 Definitions. Where used in this Agreement the following words or
phrases shall have the meanings set forth below unless the context specifically
indicates:
(a) "Affiliate" of an entity means, for so long as one of the
following relationships is maintained, any corporation or other business entity
controlled by, controlling, or under common control with another entity; with
"control" meaning direct or indirect beneficial ownership of more than fifty
percent (50%) of the voting stock of such corporation, or more than fifty
percent (50%) interest in the decision-making authority of such other
unincorporated business entity;
(b) "Agreement" means this Asset Purchase Agreement and any
instrument amending this Agreement as referred to in Section 17.7; and the
expression "Section" followed by a number means and refers to the specified
Section of this Agreement;
(c) "Business Day" means any day excluding Saturday, Sunday
and any other day which in the United States is a national legal holiday or any
day on which national banking institutions are authorized by law to close;
(d) "Equity Agreement" means the agreement between SB
Properties and Purchaser, substantially in the form of EXHIBIT B hereto.
(e) "Finished Goods" means finished, packaged, ready for sale
Products;
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(f) "Intellectual Property" means all trademarks (whether
registered or unregistered), trade names and applications therefor, brand names,
logotypes and symbols unique to the Products to the extent owned by or licensed
to and used by Vendor in the Territory in the manufacture or sale of Products,
all renewals, modifications and extensions thereof, together with the goodwill
associated therewith, including, without limitation, such of the foregoing as
are listed or described in Schedule 5.11, all copyrights (whether registered or
unregistered), trade secrets, formulations and patents, patent applications or
designs, discoveries, processes, manufacturing techniques, improvements, ideas,
copyrightable works, or other inventions for which patent applications have not
been filed, to the extent used by Vendor uniquely in the manufacture or sale of
the Products in the Territory, including, without limitation, those that are
listed in Schedule 5.11, and all continuations, continuations-in-part, renewals,
reissues, modifications or extensions thereof; provided, however, that
"Intellectual Property" does not include the SmithKline Beecham name or any
variation thereof, the corresponding logos or current trade dress of the
Products (except for the trademarks listed in Schedule 5.11);
(g) "Inventories" means all of Vendor's inventories of
Finished Goods in the Territory at the Time of Closing and any rights of Vendor
to any warranties received from manufacturers and sellers with respect to such
Finished Goods;
(h) "Promissory Note" means the promissory note in the
principal amount of $11,000,000, substantially in the form of EXHIBIT C hereto;
(i) "Purchase Price" means the purchase price payable to
Vendor for the Purchased Assets provided for in Section 3;
(j) "Purchased Assets" means the property and assets described
in Section 2.1 and related to the sale of the Products in the Territory;
(k) "Security Agreement" means the agreement between SBC and
Purchaser substantially in the form of EXHIBIT D hereto;
(l) "Supply Agreement" means the agreement between SBC and
Purchaser, substantially in the form of EXHIBIT E hereto.
(m) "Territory" means the United States, Canada and Puerto
Rico;
(n) "Time of Closing" means 1:00 o'clock in the afternoon
(Eastern time) on January 7, 1997 or such other date as the parties shall
mutually agree at which time the parties are to deliver the closing documents
described in Section 10; and
(o) "Transitional Services Agreement" means the agreement
between Vendor and Purchaser, substantially in the form of EXHIBIT F hereto.
In this Agreement, words importing the singular number only shall
include the plural and vice versa, words importing a specific gender shall
include the other genders and references to persons shall include corporations
and one or more persons, their heirs, executors, administrators or assigns as
the case may be.
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1.2 Currency. All dollar amounts referred to in this Agreement are in
U.S. Dollars.
1.3 Headings, etc. The division of this Agreement into Sections and the
insertion of headings are for convenience of reference only and shall not affect
the interpretation hereof.
SECTION 2
PURCHASED ASSETS
2.1 Assets to be Sold and Purchased. Subject to the terms and
conditions hereof, Vendor and its Affiliates shall sell, assign and transfer to
Purchaser and Purchaser shall purchase from Vendor, at the Time of Closing, all
rights, title and interest of Vendor and its Affiliates in the Purchased Assets
wheresoever situated. The Purchased Assets shall include:
(a) all Intellectual Property, New Drug Application No. 18-689
(Capsules) and all supplements thereto, as amended, IND 13,027 (Capsules IND)
dated November 30, 1976 and IND 17,636 (Special Studies IND) dated May 27, 1980
on file with the U.S. Food and Drug Administration (the "FDA"), IND 39,928
(Topical formulation for psoriasis) dated June 29, 1992 which was withdrawn July
21, 1995, Canadian NDS File No. 9427-S1376/4-27, Control No. 19842, and all
existing information relating to the stability and shelf life of the Products;
(b) the existing lists of current, past and prospective
customers for the Products, records of volumes of sales and actual selling price
by customer by month for the ten months ending October 31, 1996 and written
contracts and documentation in Vendor's possession pertaining to the same;
provided, however, that Vendor retains its rights to such information with
respect to sales of Vendor's other products;
(c) Vendor's existing files pertaining to the Products
(whether in written or machine readable form) including, without limitation,
research and development files, FDA files pertaining to the Products (including
applications and registrations, as applicable), market studies, marketing plans,
key physician records, copies of consumer complaint files, sales histories,
quality control histories, manufacturing know-how and all other information and
data pertaining to the Products owned by Vendor, which is in the possession of
Vendor or agents and is accessible by Vendor with reasonable efforts;
(d) all work in progress with respect to the improvement,
planning, promotion, production, development and distribution of the Products,
including, without limitation, all papers and promotional materials on hand, all
original art mechanicals and artwork for the production of packaging components,
television masters, agreements with advertising agencies and other materials
associated with the Products;
(e) all unfilled customer orders for the Products as of the
Time of Closing (a list of such orders to be provided to Purchaser promptly
after the Time of Closing).
2.2 Liabilities.
(a) Subject to the provisions of Section 16.1 below, Purchaser
shall be liable for all liabilities relating to actions taken or omissions to
act from and after the Time of Closing related
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to the Purchased Assets, including any cost, claim, expense, loss or liability
arising from any product liability claim or lawsuit or any FDA or other
governmental agency action or notification relating to actions taken or
omissions to act from and after the Time of Closing (except to the extent that
the cost, claim, expense, loss or liability claimed relates to a Product
supplied to Purchaser by Vendor under the Supply Agreement where the claim
arises from the manufacture of the Product) (the foregoing liabilities being
assumed by the Purchaser hereinafter referred to as the "Assumed Liabilities");
provided, however, that in the event the closing does not occur and the
Purchaser does not acquire the Purchased Assets as contemplated by this
Agreement, then the Purchaser shall not assume, and shall not be liable for, the
Assumed Liabilities for any period of time.
(b) Prior to and after the Time of Closing, Vendor shall
promptly pay and discharge all liabilities arising prior to the Time of Closing
in respect of the Purchased Assets as such liabilities come due.
(c) Except for the Assumed Liabilities and subject to the
provisions of Section 16.1 below, Purchaser shall not assume or be liable for
any liabilities whatsoever, including, without limitation, product liability,
liability in tort (including unripened liabilities due to past actions or
sales), indebtedness for money borrowed, tax liabilities, obligations to
employees, and liabilities for trade promotions related to the Purchased Assets
and to acts or omissions occurring prior to the Time of Closing. Purchaser shall
not assume any contract liabilities of Vendor, except as specifically set forth
in Schedule 2.2(c).
2.3 Use of Intellectual Property outside Territory. For the avoidance
of doubt notwithstanding the conveyance of the Intellectual Property, Vendor
retains the right to utilize the know-how and other intangible property (other
than patents and trademarks specific to the Territory) with respect to the
manufacture, marketing and sale outside the Territory of products in which
auranofin is an active ingredient. Subject to the rights of third parties,
Vendor will share with Purchaser on a timely basis any enhancements or
improvements made through such manufacture and hereby grants Purchaser a
non-exclusive right to use any such enhancements or improvements in the
Territory. Vendor will use its reasonable best efforts to prohibit the resale
(where Vendor or an Affiliate is the original seller) of products in which
auranofin is an active ingredient in the Territory and will not sell such
products to any person(s) if Vendor has actual knowledge that such person(s)
intend to resell such products in the Territory.
SECTION 3
PURCHASE PRICE
3.1 Purchase Price. The Purchase Price payable to Vendor for the
Purchased Assets shall be $29.0 million.
3.2 Transfer Taxes. Purchaser shall be liable for and shall pay all
state and local sales and use taxes payable in connection with the conveyance
and transfer of the Purchased Assets by Vendor to Purchaser.
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SECTION 4
PAYMENT OF PURCHASE PRICE
4.1 Payment of Purchase Price. The Purchase Price specified in Section
3.1 shall be paid and satisfied, at the option of Purchaser, by the delivery by
Purchaser to Vendor at the Time of Closing of (a) a certified check or bank
draft payable to the order of Vendor or by a wire transfer of funds to a bank
account(s) to be designated by Vendor in the amount of $3.0 million, (b) the
Promissory Note in the principal amount of $11.0 million, (c) deferred payments
in the aggregate amount of $6.0 million based on net sales as provided in
Section 4.2 below, and (d) shares of Common Stock as provided in Equity
Agreement. The amounts due under subsections (b) and (c) above shall be secured
under the Security Agreement; provided that amounts under subsection (c) shall
be secured only so long as there are remaining amounts due under the Promissory
Note.
4.2 Deferred Purchase Price. From and after the Time of Closing,
Purchaser shall pay to SB Properties an amount equal to [*]% of net sales (up to
$7.5 million in net sales in any calendar year and [*]% of net sales in excess
of such amount) of the Products (or any other product in which auranofin is an
active ingredient) by Purchaser or its Affiliates or any successor, assignee,
licensee or distributor of Purchaser. For purposes of this Section 4.2, net
sales shall be determined as described in Schedule 4.2. Such deferred payments
shall accrue (without interest) commencing from the Time of Closing through
December 31, 1998. Commencing January 1, 1999 such deferred payments shall be
paid quarterly in arrears not later than 30 days after the end of each calendar
quarter. During 1999 concurrently with each such quarterly payment, Purchaser
shall also pay SB Properties one-fourth of the accrued payment with respect to
the two year period ending December 31, 1998. Purchaser's obligation with
respect to deferred payments (exclusive of any late charge for failure to make
such payments when due and payable) shall be limited to $6 million. Vendor
agrees and acknowledges that the deferred payments under this Section 4.2 are
contingent on net sales. Purchaser makes no representation or warranty regarding
the aggregate amount that may be due as deferred payments.
SECTION 5
REPRESENTATIONS AND WARRANTIES OF VENDOR
Vendor hereby represents and warrants to the Purchaser as follows and
acknowledges that Purchaser is relying on such representations and warranties in
connection with the transactions contemplated by this Agreement:
5.1 Incorporation, Organization and Qualification. Each of SBC, SBP, SB
Properties and IAC is a corporation duly incorporated, validly existing and in
good standing under the law of the jurisdiction of its incorporation, and has
the corporate power to own or lease its property and to carry on its business as
now being conducted by it. Each of SBC, SBP, SB Properties and IAC is duly
qualified to do business as a foreign corporation and is in good standing in
every jurisdiction where the nature of the business conducted by it with respect
to the Purchased Assets
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* Confidential treatment has been requested for the language which has
been omitted. All such omitted material has been filed separately with
the SEC.
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or the Products makes such qualification necessary except in such jurisdictions
where the failure to so qualify does not in the aggregate have a material
adverse effect on Vendor's business taken as a whole.
5.2 Authorization and Validity of Agreement. Each of SBC, SBP, SB
Properties and IAC has the corporate power to enter into this Agreement and to
carry out its obligations hereunder. The execution and delivery of this
Agreement, the Equity Agreement, the Transitional Services Agreement, the Supply
Agreement and any other agreements or instruments executed in connection
herewith and therewith (the "SB Agreements") and the performance of their
respective obligations hereunder and thereunder have been duly authorized by all
necessary corporate action by the Boards of Directors of each of SBC, SBP, SB
Properties and IAC, and no other corporate proceedings on the part of SBC, SBP,
SB Properties or IAC are necessary to authorize such execution, delivery and
performance. The SB Agreements have been duly executed by each of SBC, SBP and
IAC and constitutes the valid and binding obligation of each such party,
enforceable against each such party in accordance with their respective terms.
Execution of the SB Agreements and consummation of the transactions contemplated
thereby will not result in the violation of, or conflict with, any of the terms
and provisions of the articles of incorporation or by-laws of SBC, SBP, SB
Properties or IAC or of any law or regulation or any applicable order of any
court, arbitrator or governmental authority having jurisdiction over Vendor, the
Products or the Purchased Assets or of any indenture or other written agreement
to which Vendor may be a party.
5.3 Title to Purchased Assets. Vendor is the sole owner of all the
Purchased Assets with good title thereto free and clear of any mortgage, lien,
charge, security interest, adverse claim or other encumbrance whatsoever
(collectively, "Encumbrances"), and at the Time of Closing will have the right
to transfer to Purchaser good title thereto, free and clear of all Encumbrances.
5.4 Financial Information. The financial information set forth in
Schedule 5.4 hereto was derived from the books and records of Vendor and was
prepared by Vendor in good faith and fairly presents the sales and contributions
of the Products for the periods shown.
5.5 Litigation. Except as set forth in Schedule 5.5, there are no
actions, suits, proceedings, investigations, arbitration proceedings or other
proceedings pending or threatened against or affecting the Purchased Assets at
law or in equity or by or before any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, or by or before any arbitrator which actions, suits or
arbitration proceedings or other proceedings relate to the Purchased Assets and
Vendor is not now aware of any existing grounds on which any such action, suit
or proceeding might be commenced and there is not currently outstanding against
the Vendor any judgment, decree, injunction, rule, order or award of any court,
governmental department, commission, board, bureau, agency, instrumentality,
domestic or foreign, or arbitrator and relating to the Purchased Assets. During
the last ten years there has not been any occurrence of, nor is there under
consideration or investigation by Vendor of, any product recall, or post-sale
warning conducted by or on behalf of Vendor concerning any Product or any
product recall conducted by or on behalf of any entity as a result of any
alleged defect in any Product.
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5.6 Inventory. The Inventory of Finished Goods set forth in Schedule
5.6 as of September 30, 1996, is of a type, quality and quantity useable and
saleable (without discount in excess of discounts customarily provided by
Vendor) in the ordinary course of business related to the Products.
5.7 Product Formulas. Schedule 5.7 is a true and complete copy of the
current formulations and production methodologies of each Product. Such
formulations and methodologies are sufficient to enable Purchaser to manufacture
all of the Products.
5.8 Regulatory Issues. The documents (including adverse events reported
to the FDA) listed on Schedule 5.8, copies of which have previously been
delivered or made available to Purchaser, reflect all material regulatory issues
with respect to the Products. Such copies are true and correct in all material
respects.
5.9 Compliance with Law. Schedule 5.9 lists all FDA and other
administrative approvals, registrations and permits relating to the Purchased
Assets. Except as described on Schedule 5.9, Vendor has conducted and is
currently conducting the manufacture, promotion, advertising, marketing and sale
of the Finished Goods in compliance with all applicable laws, rules, regulations
and court or administrative orders and processes. The manufacture of the
Products by SBC and its contract manufacturers conforms in all material respects
to the FDA's current "good manufacturing practices" regulations for finished
pharmaceuticals as applicable as currently interpreted and enforced.
5.10 No Default Under Agreements. Other than Vendor's general contracts
with wholesalers, Vendor's national accounts agreements and rights of reference
to Drug Master Files under the FDA approvals, registrations and permits, there
are no contracts which relate to the Products in the Territory.
5.11 Intellectual Property Rights.
(a) Vendor is the beneficial owner of all right, title and
interest in the Intellectual Property and the registered owner of all right,
title and interest in the items listed on Schedule 5.11, and has the right to
use, license, sublicense or assign the Intellectual Property without liability
to, or any requirement to obtain the consent of, any other person, except as
described in Schedule 5.11. Except as set forth in Schedule 5.11 there are no
agreements, understandings, instruments, contracts, trade secrets or other
proprietary rights to or from Vendor affecting the Intellectual Property.
(b) Except as otherwise set forth therein, all of the
Intellectual Property listed in Schedule 5.11 as registered or filed has been
duly registered or filed in the U.S. Patent and Trademark Office or the Canadian
Trademark Office and is currently valid.
(c) To the best of Vendor's knowledge, there are no
infringements, threats of infringements or asserted or unasserted claims by
Vendor of infringements or misappropriation of any of the Intellectual Property
in the Territory nor are there any asserted or unasserted claims by
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Vendor contesting or challenging the right, title, or interest of any other
person in any of the Intellectual Property.
(d) Except as set forth on Schedules 5.8 and 5.11, there are
no outstanding threatened or actual claims asserted against Vendor alleging the
infringement or misappropriation by Vendor of any intellectual property of any
other party that may affect the Purchased Assets or the revocation, withdrawal,
expiration, abandonment, or breach of any right to use the Intellectual Property
in the Territory. Vendor has not been notified of any such claim of any person
nor does Vendor know of any basis for the existence of any such claim in the
Territory.
5.12 Schedules. The information included on any Schedule delivered to
Purchaser by Vendor under the terms of this Agreement shall be deemed to have
been delivered with respect to any other Schedule delivered to Purchaser by
Vendor as though such information were fully set forth in such additional
Schedules. All Schedules are represented as true, correct and complete except to
the extent specifically addressed in individual representations, warranties and
Schedules.
5.13 Health, Safety, Employment and Environmental Matters. To the
extent that the failure to do so or be so would have a material adverse effect
upon the Purchased Assets, Vendor is in compliance with all federal, state,
local and foreign laws related to health and occupational safety, environment
and hazardous materials and employment practices, that are applicable to Vendor
or its business related to the Purchased Assets, and Vendor has conducted its
business relating to the Purchased Assets in compliance with the foregoing laws.
5.14 Ordinary Course. From October 1, 1995 through the date of this
Agreement, Vendor has conducted the business relating to the Purchased Assets
only in the ordinary course and there have been no events or circumstances of
any kind that have materially and adversely affected the business related to the
Purchased Assets.
5.15 Governmental Approvals. Except for compliance with
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or as
disclosed in the Schedules to this Section 5, no governmental authorization,
consent, approval, license, exemption of or filing or registration with any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, under any applicable laws, rules or
regulations currently in effect, is or will be necessary for, or in connection
with, the execution or delivery by Vendor of the SB Agreements.
SECTION 6
COVENANTS OF VENDOR
6.1 Conduct of the Business Until Closing. Except for the steps or
actions taken pursuant to the prior written consent of Purchaser, Vendor, from
the date of this Agreement until the Time of Closing, will conduct its business
with respect to the Purchased Assets in good faith and in accordance with the
same practices previously followed by it except to the extent specifically
contemplated by this Agreement and during that period Vendor shall:
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(a) conduct the business relating to the Purchased Assets,
including without limitation marketing of the Products, only in the normal
course;
(b) not transfer any of the Purchased Assets except
Inventories in the normal course;
(c) not enter into any patent, trademark or tradename or
know-how licenses, or any other leases, licenses, contracts or other commitments
relating to the Purchased Assets, unless each such lease, license, contract or
commitment (other than purchase orders for raw materials and Finished Goods
placed in the normal course of business) is disclosed to and approved in advance
by Purchaser;
(d) continue to meet the contractual obligations of, and to
pay obligations relating to, the Purchased Assets as they mature in the normal
course;
(e) preserve the good relations with respect to the Products
with suppliers, business customers and others with whom Vendor has business
relations relating to the Products; and
(f) not implement any price increases or decreases for any of
the Products or any new trade or consumer promotions, and not change the terms
or conditions or any such promotion in existence on the date hereof.
6.2 Records and Retained Product. Vendor shall continue to the extent
of its current practice to preserve its books and records (including financial
information) relating to the Products and the Purchased Assets and retain
product samples from each batch of the Products produced by or for Vendor, and
during such periods and upon reasonable notice, shall grant Purchaser and its
agents and representatives reasonable access to such records and retained
product samples during normal business hours.
6.3 Post Closing Orders. From and after the expiration of the term of
the Transitional Services Agreement, Vendor shall promptly (but in no event
later than two Business Days after receipt by Vendor's customer service
department) deliver any purchase orders and refer all inquiries it shall receive
with respect to the Products to Purchaser.
6.4 Confidentiality. From and after the date hereof, Vendor shall use
the same efforts to maintain the confidentiality of any proprietary or
confidential information regarding the manufacture or sale of the Products as
Vendor uses with respect to its own prescription pharmaceutical products;
provided, however, that any such confidential or proprietary information (a) may
be used by SBC in performing its obligations under the Supply Agreement, (b) may
be shared, subject to execution of a confidentiality agreement, with potential
third party manufacturers of the Products and (c) may be disclosed, subject to
execution of a confidentiality agreement, with potential purchasers of rights
outside the Territory to product lines for which auranofin is an active
ingredient; provided that no information specific to Purchaser shall be
disclosed in such context.
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6.5 Financial Information. In the event that Purchaser is required by
the Securities and Exchange Commission to provide audited information with
respect to the business related to the Purchased Assets for periods prior to the
Time of Closing, Vendor shall cooperate with Purchaser in providing financial
information to the extent of existing information is maintained by Vendor or can
be prepared without undue hardship or expense to Vendor.
6.6 HSR Act. Vendor will file with the United States Federal Trade
Commission and the Antitrust Division of the Justice Department pursuant to the
HSR Act all requisite documents and notifications in connection with the
transactions contemplated by this Agreement. The parties will coordinate and
cooperate with one another in exchanging information and providing reasonable
assistance as the other may request in connection with the foregoing.
6.7 Electronic Copies of Documents. At the Time of Closing, Vendor will
deliver to Purchaser electronic copies of this Agreement (and all exhibits and
schedules hereto other than Exhibits B, C, D and I) for the purpose of assisting
Purchaser's compliance with its EDGAR disclosure requirements under the Exchange
Act.
SECTION 7
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Vendor and
acknowledges that the Vendor is relying on such representations and warranties
in connection with the transactions contemplated by this Agreement that:
7.1 Incorporation, Organization and Qualification of Purchaser.
Purchaser is a corporation duly incorporated, validly existing and in good
standing under the law of the jurisdiction of its incorporation, and has the
corporate power to own or lease its property and to carry on its business as now
being conducted by it. Purchaser is duly qualified to do business as a foreign
corporation and is in good standing in every jurisdiction where the nature of
the business conducted by it makes such qualification necessary except in such
jurisdictions where the failure to so qualify does not in the aggregate have a
material adverse effect on Purchaser's business taken as a whole.
7.2 Corporate Action. This Agreement, the Promissory Note, the Equity
Agreement, the Transitional Services Agreement, the Supply Agreement and any
other agreements and instruments executed in connection herewith and therewith
(the "Connective Agreements") are the valid and binding obligations of
Purchaser, enforceable in accordance with their respective terms, subject to
bankruptcy, insolvency or similar laws of general application affecting the
enforcement of rights of creditors, and subject to equitable principles limiting
rights to specific performance or other equitable remedies, and subject to the
effect of federal and state securities laws on the enforceability of
indemnification provisions relating to liabilities arising under such laws. The
execution, delivery and performance of the Connective Agreements have been duly
authorized by all necessary corporate action of Purchaser except that approval
by Purchaser's stockholders will be required to approve the issuance of shares
under the Equity Agreement if such issuance exceeds 19.9% of Purchaser's
outstanding Common Stock prior to such issuance. The issuance of the Promissory
Note and the shares of Connective Therapeutics common stock issued or to be
issued
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pursuant to the Equity Agreement (the "Connective Shares") will not require any
further corporate action, and will not be subject to preemptive or other
preferential rights or similar statutory or contractual rights either arising
pursuant to any agreement or instrument to which Purchaser is a party or which
is otherwise binding upon Purchaser.
7.3 Governmental Approvals. Except for compliance with the HSR Act, the
Exchange Act, the registration of the Connective Shares under the Securities Act
of 1933, as amended, pursuant to the Equity Agreement and any qualification or
filings required to issue the Connective Shares under Pennsylvania securities
laws, no authorization, consent, approval, license, exemption of or filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, under any applicable
laws, rules or regulations presently in effect, is or will be necessary for, or
in connection with, execution and delivery of the Connective Agreements or the
offer, issuance, sale, execution or delivery by Purchaser of the Promissory
Note, the Equity Agreement or the Connective Shares, or for the performance by
it of its obligations under the Connective Agreements.
SECTION 8
COVENANTS OF THE PURCHASER
8.1 Insurance. At all times from the Time of Closing through December
31, 1999, Purchaser shall maintain product liability insurance written on a
claims made form in an amount of not less than $[*] per occurrence, $[*] annual
aggregate. Purchaser shall provide Vendor with a certificate of insurance as
evidence of such insurance at or before the Time of Closing and annually
thereafter evidencing the renewal of said insurance. In the event that any such
insurance shall be significantly reduced or restricted, terminated or shall
otherwise not be renewed, Purchaser shall immediately notify Vendor.
8.2 Confidentiality. From and after the Effective Date until the Time
of Closing, Purchaser shall use the same efforts to maintain the confidentiality
of any proprietary or confidential information regarding the Products as
Purchaser uses to maintain the confidentiality of its own proprietary
information. In the event that there is no Time of Closing under this Agreement,
Purchaser shall return all information regarding the Products to Vendor,
retaining no copies, excerpts or other analysis or redactions of such
information and covenants that no such information shall be disclosed to any
third party or utilized in any way by Purchaser in the conduct of its own
business.
8.3 HSR Act. Purchaser will file with the United States Federal Trade
Commission and the Antitrust Division of the Justice Department pursuant to the
HSR Act all requisite documents and notifications in connection with the
transactions contemplated by this Agreement. The parties will coordinate and
cooperate with one another in exchanging information and providing reasonable
assistance as the other may request in connection with the foregoing.
8.4 Senior Indebtedness. Purchaser shall use its best efforts to secure
amendment or waiver of any outstanding Senior Indebtedness (as defined in the
Note) as quickly as possible and
- --------
* Confidential treatment has been requested for the language which has
been omitted. All such omitted material has been filed separately with
the SEC.
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in any event prior to the Time of Closing with the effect that as of the Time of
Closing there is no such outstanding Senior Indebtedness.
SECTION 9
MUTUAL COVENANTS
9.1 Right to Investigate. After the date hereof, the Vendor shall
afford to representatives of the Purchaser reasonable access to offices, plants,
properties, books and records of the Vendor relating to the Products, during
normal business hours, in order that the Purchaser may have full opportunity to
make such investigations as it desires with respect to the Products. In the
event of termination of this Agreement, the Purchaser shall deliver to the
Vendor all documents, work papers and other material obtained by the Purchaser,
or on its behalf, from the Vendor and all copies thereof, whether so obtained
before or after the execution of this Agreement, and shall not itself use
directly or indirectly or through any subsidiary or affiliate any information so
obtained, or otherwise obtained from the Vendor, hereunder or in connection
herewith (unless such information is generally known in the industry or was
acquired by the Purchaser prior to the receipt thereof from the Vendor or was
acquired after the date hereof from a third party having a bona fide right to
provide the same to the Purchaser), and shall endeavor to have all such
information kept confidential and not used in any manner.
9.2 Equity Agreement. Purchaser and SB Properties shall enter into an
Equity Agreement substantially in the form of EXHIBIT B hereto effective as of
the Time of Closing.
9.3 Supply Agreement. Purchaser and SBC shall enter into a Supply
Agreement substantially in the form of EXHIBIT D hereto effective as of the Time
of Closing.
9.4 Transitional Services Agreement. Purchaser and Vendor shall enter
into a Transitional Services Agreement substantially in the form of EXHIBIT E
hereto effective as of the Time of Closing.
9.5 Trade returns. For the period prior to February 28, 1997 Vendor
shall bear the cost of all returns, Medicaid reimbursements and chargebacks for
Products regardless of the date of sale, in each case in accordance with
Vendor's then-current practices. Purchaser will not take any action to encourage
any returns of such goods to Vendor. From and after March 1, 1997, Purchaser
shall be responsible for all Medicaid reimbursements and chargebacks for
Products regardless of the date of sale and shall be responsible for returns of
Finished Goods from the trade in accordance with Purchaser's return policy. The
parties hereto agree that should Purchaser accept returns or grant credit for or
pay Medicaid reimbursements, chargebacks and rebates during the period prior to
March 1, 1997, Vendor shall reimburse Purchaser upon presentation of proper
evidence by Purchaser of such acceptance or payment.
9.6 Brokers. Purchaser represents to the Vendor that Purchaser has not
employed any investment banker, broker, finder or intermediary in connection
with the transactions contemplated hereby who might be entitled to a fee or
commission upon the execution of this Agreement or the consummation of such
transactions other than Mazier Partners. Purchaser shall be solely responsible
for any amounts due to Mazier Partners. Vendor represents to Purchaser that
Vendor
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has not employed any investment banker, broker, finder or intermediary in
connection with the transactions contemplated hereby who might be entitled to a
fee or commission upon the execution of this Agreement or the consummation of
such transactions. Each party agrees to indemnify and hold the other party
harmless with respect to any action, claim or demand with respect to any third
party claiming any such fee or commission by reason of its relationship to the
indemnifying party.
9.7 Allocation of Purchase Price. Schedule 9.7 sets forth the parties'
mutually negotiated allocation of the Purchase Price among the Purchased Assets.
The parties agree that said allocation shall be reflected on any returns
required to be filed with the Internal Revenue Service or any other foreign or
state tax authority arising from this transaction.
9.8 Best Efforts. Each party shall use its best efforts to close, to
comply with all covenants herein and to consummate the sale contemplated hereby
as expeditiously as possible.
9.9 Best Efforts to Obtain Satisfaction of Conditions. Vendor and
Purchaser covenant and agree to use their best efforts to obtain the
satisfaction of the conditions specified in this Agreement.
9.10 Adverse Event Reports. Upon the transfer of the FDA product
registrations, Purchaser shall assume responsibility for compliance with FDA
regulations, including without limitation adverse event reporting requirements.
To the extent that Vendor receives any adverse event reports, Vendor shall
promptly (but in no event later than five Business Days after receipt by SBC)
forward copies of such reports to Purchaser at the address set forth in Section
17.3, Attention: Regulatory Affairs. To the extent requested by SB in order to
meet SB's obligations with respect to regulatory requirements in countries
outside the Territory, to the extent that Purchaser receives any adverse event
reports, Purchaser shall promptly (but in no event later than five Business Days
after receipt by Purchaser) forward copies of such reports to SBC at the address
set forth in Section 17.3, Attention: Regulatory Affairs.
9.11 Transfer of Registrations, etc. Upon Purchaser's request, Vendor
will transfer to Purchaser, to the extent legally permissible, any federal
health registrations necessary to enable uninterrupted manufacture, marketing
and sale of the Products. Vendor will cooperate with Purchaser in disclosing and
copying any relevant records and reports which are required to be made,
maintained and reported pursuant to law.
9.12 Use of Name. For a period of 12 months from the Effective Date or
such longer period as shall be necessary to exhaust any Inventories (but in no
event later than 18 months after the Time of Closing), Vendor shall permit
Purchaser to use the term and logo for "SB SmithKline Beecham Pharmaceuticals"
on the Products and on their packaging and in connection with the sale and
distribution in the Territory of the Products (including samples) to wholesale
and retail distributors; provided, that Purchaser shall not order any new
packaging from four months after the Time of Closing which bears any of such
names or logos; and provided further, that except as hereby provided Purchaser
shall have no right to use the term "SB SmithKline Beecham Pharmaceuticals" as a
trade name, trademark or service mark, and provided further that the continued
existence in the market place of Finished Goods bearing the foregoing terms and
logos
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<PAGE> 14
after the conclusion of such twelve month or longer period in connection
with goods which were sold by Purchaser during such twelve month or longer
period shall be permitted.
9.13 Transfer of Regulatory Responsibility. Vendor and Purchaser shall
each use their best efforts to transfer the FDA and Canadian registrations and
permits and to transfer regulatory responsibilities for the Products from Vendor
to Purchaser as expeditiously as possible following the Time of Closing.
SECTION 10
CLOSING ARRANGEMENTS
10.1 Closing Arrangements. At or before the Time of Closing upon
fulfillment of all the conditions hereof which have not been waived in writing
by the Purchaser or the Vendor respectively:
(a) Vendor's Delivery of Closing Documents. Vendor shall
deliver to Purchaser:
(i) a bill of sale substantially in the form of
EXHIBIT G;
(ii) such instruments of conveyance, assignment and
transfer, in form and substance satisfactory to Purchaser, as shall be
appropriate to convey, transfer and assign to, and to vest in Purchaser, good
title to the Purchased Assets, free and clear of all Encumbrances;
(iii) all technical data, formulations, product
literature and other documentation related to the Purchased Assets;
(iv) such certificates of Vendor's officers and such
other documents evidencing satisfaction of the conditions specified in Section
11 as Purchaser shall reasonably request; and
(v) such other documents, instruments and
certificates as Purchaser may reasonably request.
(b) Purchaser's Delivery of Closing Documents. Purchaser shall
deliver to Vendor:
(i) such certificates of Purchaser's officers and
such other documents evidencing satisfaction of the conditions specified in
Section 12 as Vendor shall reasonably request; and
(ii) such other documents, instruments and
certificates as Vendor may reasonably request.
(c) Payment of Purchase Price. On the fulfillment of the
foregoing terms of Section 10 and upon the fulfillment of all the conditions of
this Agreement, which have not been
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<PAGE> 15
specifically waived in writing by Purchaser or Vendor, as the case may be,
Purchaser shall pay and satisfy the Purchase Price as provided in Section 3
hereof.
(d) Physical Delivery. Pursuant to delivery arrangements
specified by Purchaser to Vendor prior to the Time of Closing, and reasonably
acceptable to Vendor, Vendor shall deliver to Purchaser at Purchaser's premises
those tangible assets included in the Purchased Assets at the Time of Closing or
as soon thereafter as reasonably practical but in no event later than ten
Business Days after the Time of Closing.
10.2 Transfer Expenses -- Trademarks and Patents. Vendor shall deliver
to Purchaser such trademark and patent assignment documents in recordable form
necessary to effect the transfer of such trademarks and patents to Purchaser.
Purchaser shall be responsible for the recordation of same and Purchaser shall
bear any costs and fees related thereto. Purchaser shall be responsible for all
costs associated with maintenance of trademarks and patents from the Time of
Closing. At least ten Business Days prior to the Time of Closing Vendor shall
provide Purchaser with a list of any such maintenance costs which to Vendor's
knowledge are due prior to February 28, 1997.
SECTION 11
PURCHASER'S CONDITIONS OF CLOSING
The sale and purchase of the Purchased Assets in accordance with the
terms of this Agreement are subject to the following terms and conditions, each
of which is included for the exclusive benefit of Purchaser, to be fulfilled
and/or performed at or prior to the Time of Closing:
11.1 Representations and Warranties at Closing. The representations and
warranties of Vendor to Purchaser contained in this Agreement and Schedules
hereto shall be true and correct in all material respects at the Effective Date
with the same force and effect as if such representations and warranties were
made at and as of such time and the Vendor shall deliver to the Purchaser at the
Time of Closing certificate(s) by an officer of Vendor to such effect provided
that the receipt of such evidence and the closing of the transaction of purchase
and sale herein provided for shall not be nor be deemed to be a waiver of the
representations and warranties contained in this Agreement and Schedules hereto.
11.2 Compliance with Terms and Conditions. All of the terms, covenants
and conditions of this Agreement to be complied with or performed by the Vendor
at or before the Time of Closing shall have been complied with or performed in
all material respects.
11.3 Necessary Consents. There shall have been obtained from all
appropriate federal, state, municipal or other governmental or administrative
bodies such approvals or consents as are required to permit the change of
ownership of the Purchased Assets contemplated hereby.
11.4 No Actions Taken Restricting Sale. All required filings under the
HSR Act shall have been made and any required waiting period under the HSR Act
shall have expired or been earlier terminated. No action or proceeding in the
Territory by law or in equity shall be pending or threatened by any person,
firm, corporation, government, governmental authority, regulatory body
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or agency to enjoin, restrict or prohibit the purchase and sale of the Purchased
Assets contemplated hereby or the right of the Purchaser to conduct the business
in respect of the Purchased Assets.
11.5 Non-Performance of Conditions for the Benefit of the Purchaser. In
the event that any of the conditions set forth in this Section 11 shall not be
fulfilled and/or performed at or before the Time of Closing, the Purchaser may
rescind this Agreement by notice in writing to the Vendor, and the Purchaser
shall thereupon be released from all obligations under this Agreement unless the
condition or conditions for the non-fulfillment of non-performance of which the
Purchaser has rescinded this Agreement are reasonably capable of being fulfilled
and/or performed or caused to be fulfilled or performed by the Vendor, then the
Vendor shall also be released from all obligations under this Agreement,
provided any of the said conditions may be waived in whole or in part by the
Purchaser at any time without prejudice to its rights of rescission in the event
of non-fulfillment and/or non-performance of any other condition or conditions,
any such waiver to be binding upon the Purchaser only if the same is in writing.
11.6 Ancillary Documents. Vendor and Purchaser shall have entered into
the Supply Agreement, the Equity Agreement and the Transitional Services
Agreement.
11.7 Opinion of Counsel. Purchaser shall have received an opinion of
Donald F. Parman, Esq., counsel for Vendor, dated the Time of Closing,
substantially in the form of EXHIBIT H.
SECTION 12
VENDOR'S CONDITIONS OF CLOSING
The sale and purchase of the Purchased Assets in accordance with the
terms of this Agreement is subject to the following terms and conditions, each
of which is included for the exclusive benefit of the Vendor. Each of such
conditions is to be fulfilled and/or performed at or prior to the Time of
Closing.
12.1 Compliance with Terms. All the terms, covenants and conditions of
this Agreement to be complied with or performed by the Purchaser at or before
the Time of Closing shall have been duly complied with or performed in all
material respects.
12.2 No Action Taken Restricting Sale. All required filings under the
HSR Act shall have been made and any required waiting period under the HSR Act
shall have expired or been earlier terminated. No action or proceeding in the
United States at law or in equity shall be pending or threatened by any person,
firm, corporation, government, governmental authority, regulatory body or agency
to enjoin, restrict or prohibit the purchase and sale of the Purchased Assets
contemplated hereby or the right of the Vendor to sell the Purchased Assets.
12.3 Non-Performance of Conditions for the Benefit of the Vendor. In
the event that any of the conditions set forth in this Section 12 shall not be
fulfilled and/or performed at or before the Time of Closing, the Vendor may
rescind this Agreement by notice in writing to the Purchaser and the Vendor
shall thereupon be released from all obligations under this agreement and the
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Purchaser shall also be released from all obligations under this Agreement,
provided any of the said conditions may be waived in whole or in part by the
Vendor at any time without prejudice to its respective rights of rescission in
the event of a non-fulfillment and/or non-performance of any other condition or
conditions, any such waiver to be binding upon the Vendor only if the same is in
writing
12.4 Ancillary Documents. Vendor and Purchaser shall have entered into
the Security Agreement, Supply Agreement, the Equity Agreement and the
Transitional Services Agreement and Purchaser shall have executed and delivered
the Note.
12.5 Opinion of Counsel. Vendor shall have received an opinion of
Venture Law Group, counsel for Purchaser, dated the Time of Closing,
substantially in the form of EXHIBIT I.
12.6 Insurance Certificate. Purchaser shall have provided Vendor with a
certificate of insurance documenting the coverage described in Section 8.2.
12.7 Senior Indebtedness. As of the Time of Closing there shall be no
outstanding Senior Indebtedness (as defined in the Note).
SECTION 13
CONDITIONS TO THE OBLIGATIONS OF ALL PARTIES
The obligations of each of the parties hereto are subject to the
condition that at the Time of Closing, there shall exist no injunction or other
order issued by a court of competent jurisdiction which would make unlawful the
consummation of the transactions contemplated by this Agreement.
SECTION 14
INDEMNIFICATION
14.1 Vendor's Indemnification. Vendor will indemnify and hold harmless
Purchaser and each of its directors, officers, employees, advisors, affiliates,
agents and shareholders from and against any and all losses, damages,
liabilities, costs, claims and expenses, including but not limited to attorney's
fees, arising out of, based upon or resulting from:
(a) any claims against, or liabilities or obligations of, the
Vendor or against the Purchased Assets other than the Assumed Liabilities;
(b) any inaccuracy of any representation or warranty or
schedule of Vendor which is contained in or made pursuant to this Agreement;
(c) the non-compliance by Vendor with the provisions of any
applicable bulk sales act governing the purchase and sale of the Purchased
Assets;
(d) any tax liability of Vendor (other than sales and use
taxes referred to in Section 3.2 of this Agreement) including, without
limitation, any tax liability arising out of the failure of Vendor or Purchaser
to comply with any provisions of the tax laws of the
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Commonwealth of Pennsylvania (including, without limitation, provisions
requiring notice to state tax authorities concerning bulk or other sales of
property); or
(e) any breach by Vendor of any of its agreements, covenants,
warranties or obligations contained in or made pursuant to this Agreement.
Vendor shall have no obligation to indemnify Purchaser under this
Section 14.1 for any breach of Vendor's representations and warranties made in
or pursuant to this Agreement, until such time, if any, as the aggregate amount
of the liabilities, losses, damages, claims costs and expenses arising out of
such breach exceeds $50,000 and then only to the extent of such excess.
14.2 Purchaser's Indemnification. Purchaser will indemnify and hold
harmless Vendor and each of its directors, officers, employees, advisors,
affiliates, agents and shareholders from and against any and all losses,
damages, liabilities, costs, claims and expenses including but not limited to
attorney's fees arising out of, based upon or resulting from:
(a) any inaccuracy of any representation or warranty of
Purchaser which is contained in or made pursuant to this Agreement;
(b) any breach by Purchaser of any of its agreements,
covenants, warranties or obligations contained in or made pursuant to this
Agreement; or
(c) any of the Assumed Liabilities, excluding damages,
liabilities, costs and claims arising out of or related to returns to the extent
that Vendor has retained liability pursuant to Section 9.4.
Purchaser shall have no obligation to indemnify Vendor under this
Section 14.2 for any breach of Purchaser's representations and warranties made
in or pursuant to this Agreement, until such time, if any, as the aggregate
amount of the liabilities, losses, damages, claims costs and expenses arising
out of such breach exceeds $50,000 and then only to the extent of such excess.
For the avoidance of doubt this limitation does not apply to Purchaser's
obligations to pay any element of the Purchase Price.
14.3 Claims Procedures. (a) Promptly after the receipt by any party
hereto of notice or upon any party becoming otherwise aware of (x) any claim or
(y) the commencement of any action or proceeding, such party (the "Aggrieved
Party") will, if a claim with respect thereto is to be made against any party
obligated to provide indemnification (the "Indemnifying Party") pursuant to this
Section 14, give such Indemnifying Party written notice of such claim or the
commencement of such action or proceeding and shall permit the Indemnifying
Party to assume the defense of any such claim or any litigation resulting from
such claim. Failure by the Indemnifying Party to notify the Aggrieved Party of
its election to defend any such action within a reasonable time, but in no event
more than thirty days after notice thereof shall have been given to the
Indemnifying Party, shall be deemed a waiver by the Indemnifying Party of its
right to defend such action.
(b) If the Indemnifying Party assumes the defense of any such
claim or litigation resulting therefrom, the obligations of the Indemnifying
Party as to such claim shall be limited to taking all steps necessary in the
defense or settlement of such claim or litigation resulting therefrom
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and to holding the Aggrieved Party harmless from and against any and all losses,
damages and liabilities caused by or arising out of any settlement approved by
the Indemnifying Party or any judgment in connection with such claim or
litigation resulting therefrom. The Aggrieved Party may participate, at its
expense, in the defense of such claim or litigation provided that the
Indemnifying Party shall direct and control the defense of such claim or
litigation. The Indemnifying Party shall not, in the defense of such claim or
any litigation resulting therefrom, consent to entry of any judgment, except
with the written consent of the Aggrieved Party, or enter into any settlement,
except with the written consent of the Aggrieved Party, which does not include
as an unconditional term thereof the giving by the claimant or the plaintiff to
the Aggrieved Party of a release from all liability in respect of such claim or
litigation.
(c) If the Indemnifying Party shall not assume the defense of
any such claim or litigation resulting therefrom, the Aggrieved Party may defend
against such claim or litigation in such manner as it may deem appropriate and,
unless the Indemnifying Party shall deposit with the Aggrieved Party a sum
equivalent to the total amount demanded in such claim or litigation, or shall
deliver to the Aggrieved Party a surety bond or an irrevocable letter of credit
in form and substance reasonably satisfactory to the Aggrieved Party, the
Aggrieved Party may settle such claim or litigation on such terms as it may deem
appropriate, and the Indemnifying Party shall promptly reimburse the Aggrieved
Party for the amount of all reasonable expenses, including, without limitation,
attorneys' fees, incurred by the Aggrieved Party in connection with the defense
against or settlement of such claims or litigation. If no settlement of such
claim or litigation is made, the Indemnifying Party shall promptly reimburse the
Aggrieved Party for the amount of any judgment rendered with respect to such
claim or in such litigation and of all expenses, including, without limitation,
attorneys' fees, incurred by the Aggrieved Party in the defense against such
claim or litigation.
14.4 Nature of Survival of Representations, Etc. All representations
and warranties and agreements made by the parties hereto shall survive the Time
of Closing and any investigation at any time made by or on behalf of either
party, provided, however, that no suit or action may be commenced in respect of
a representation or warranty after eighteen (18) months from the Time of
Closing.
SECTION 15
EFFECTIVE DATE
The completion of the transactions contemplated by this agreement shall
take place at the Time of Closing at the offices of Vendor located at One
Franklin Plaza, Philadelphia, Pennsylvania, or at such other place as may be
agreed upon by the parties hereto.
SECTION 16
CONDUCT OF BUSINESS PRIOR TO THE TIME OF CLOSING
It is expressly understood by the parties that in the event that there
is no closing under this Agreement, Purchaser shall have no rights whatsoever to
the revenues from the Products, and shall have no liability for the Assumed
Liabilities or for any costs or expenses incurred or accrued with respect to the
business related to the Products.
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SECTION 17
MISCELLANEOUS
17.1 Further Assurances. Each of the parties hereto upon the request of
the other party hereto, whether before or after the Time of Closing and without
further consideration, shall do, execute, acknowledge and deliver or cause to be
done, executed acknowledged or delivered all such further acts, deeds,
documents, assignments, transfers, conveyances, powers of attorney and
assurances as may be reasonably necessary or desirable to effect complete
consummation of the transactions contemplated by this Agreement, and Vendor will
provide Purchaser with access to financial information relating to the Purchased
Assets as may be reasonably requested by Purchaser.
17.2 Announcements. The parties hereto agree that no disclosure or
public announcement with respect to this Agreement or any of the transactions
contemplated by this Agreement shall be made by any party hereto without the
prior written consent of Vendor or Purchaser provided, however, that nothing
herein contained shall restrict Vendor or Purchaser from making any public
announcement of the transactions contemplated by this Agreement to the extent
that it, in its sole discretion reasonably exercised, is of the view that such
announcement is required or deemed advisable in order to meet its obligations
under the securities laws or stock exchange requirements in the United Kingdom
or the United States of America; provided further that prior to making such
announcement, the party making it shall provide particulars thereof in writing
to the other party. Notwithstanding the foregoing, Purchaser may disclose this
Agreement and the transactions contemplated hereby, to the extent reasonably
necessary, in connection with (a) a private placement of securities for the
purpose of obtaining the financing necessary to pay the Purchase Price and the
fees and expenses related to this Agreement, the transactions contemplated
hereby and such financing, (b) Purchaser's filing and disclosure obligations
under the Securities Act of 1934, as amended, including the filing of he
Agreement and all exhibits with the Securities and Exchange Commission, and/or
(c) any registration of one or more of the Products with any state or Federal
agency.
17.3 Notices. Any notice, direction or other instrument required or
permitted to be given to Vendor hereunder shall be in writing and may be given
by delivering the same or sending the same by telecommunication addressed to the
Vendor as follows:
To: SmithKline Beecham Pharmaceuticals
One Franklin Plaza
Philadelphia, PA 19102
Attn: Francis Molettieri
Fax: 215-751-5509
Copy to: SmithKline Beecham Corporation
One Franklin Plaza
Philadelphia, PA 19102
Attn: Corporate Legal
Fax: 215-751-5349
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<PAGE> 21
Any notice, direction or other instrument required or permitted to be
given to Purchaser hereunder shall be in writing and may be given by delivering
the same or sending the same by telecommunication addressed to Purchaser as
follows:
To: Connective Therapeutics, Inc.
3400 W. Bayshore Road
Palo Alto, CA 94303
Attn: Chief Executive Officer
Fax: (415) 843-2899
Copy to: Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Attn: Joshua L. Green
Fax: (415) 233-8386
Any such notice, direction or other instrument, if delivered, shall be
deemed to have been given on the date on which it was delivered and if
transmitted by telecommunication shall be deemed to have been given at the
opening of business in the office of the addressee on the Business Day next
following the transmission thereof.
Any party hereto may change its address for service from time to time
by notice given to the other parties hereto in accordance with the foregoing.
17.4 Termination. This Agreement may be terminated at any time prior to
the Time of Closing:
(a) by mutual consent of Vendor and Purchaser; and
(b) by either Vendor or Purchaser if the sale contemplated
hereby shall not have been consummated on or before January 31, 1997.
17.5 Time of the Essence. Time shall be of the essence.
17.6 Applicable Law. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties hereto shall be governed by, the
laws of the Commonwealth of Pennsylvania except that matters related to grant to
Vendor by Purchaser of a security interest in the Purchased Assets shall be
governed by the laws of the State of California.
17.7 Entire Agreement. This Agreement, including the Exhibits and
Schedules hereto, constitutes the entire agreement between the parties hereto
with respect to the transactions provided for herein and, except as stated
herein and in the instruments and documents to be executed and delivered
pursuant hereto, contains all of the agreements between the parties hereto and
there are no verbal agreements or understandings between the parties hereto not
reflected in this Agreement. This Agreement may not be amended or modified in
any respect except by written instrument executed by each of the parties hereto.
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<PAGE> 22
17.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same Agreement.
17.9 Parties in Interest. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, executors,
successors, administrators, and assigns, but shall not be assignable by Vendor
or Purchaser hereto prior to the Time of Closing without the written consent of
the other party. The assignability of the Supply Agreement and the Transitional
Services Agreement shall be governed by their respective terms.
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<PAGE> 23
IN WITNESS WHEREOF this Agreement has been executed by the parties
hereto as of the date first above written.
SMITHKLINE BEECHAM CORPORATION
By: /s/ Donald Parman
------------------------------------------
Title: Secretary
SMITHKLINE BEECHAM PROPERTIES, INC.
By: /s/ Donald Parman
------------------------------------------
Title: Vice President
SMITHKLINE BEECHAM PHARMA INC.
By: /s/ Donald Parman
------------------------------------------
Title: Attorney
SMITHKLINE BEECHAM INTER-AMERICAN
CORPORATION
By: /s/ Donald Parman
------------------------------------------
Title: Vice President
CONNECTIVE THERAPEUTICS, INC.
By: /s/ Thomas G. Wiggans
------------------------------------------
Title: President and Chief Executive Officer
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<PAGE> 24
Index to Exhibits and Schedules
Exhibit A Products
Exhibit B Form of Equity Agreement
Exhibit C Form of Promissory Note
Exhibit D Form of Security Agreement
Exhibit E Form of Supply Agreement
Exhibit F Form of Transitional Services Agreement
Exhibit G Form of Bill of Sale
Exhibit H Form of Legal Opinion of Vendor's Counsel
Exhibit I Form of Legal Opinion of Purchaser's Counsel
Schedule 2.2(c) Contracts with price guarantees on Ridaura
Schedule 4.2 Gross and Net Sales
Schedule 5.4 Financial information
Schedule 5.5 Litigation matters
Schedule 5.6 Inventory
Schedule 5.7 Product formulas
Schedule 5.8 Regulatory issues
Schedule 5.9 Approvals, registrations and permits
Schedule 5.11 Intellectual property
Schedule 9.7 Allocation of purchase price
<PAGE> 1
EXHIBIT 10.1
STOCK ISSUANCE AGREEMENT
This STOCK ISSUANCE AGREEMENT dated as of December 31, 1996 is between
SmithKline Beecham Properties, Inc., a Delaware corporation ("SB"), and
Connective Therapeutics, Inc., a Delaware corporation (the "Company").
WHEREAS, the Company and SB have entered into an Asset Purchase
Agreement dated December 2, 1996 (the "Asset Purchase Agreement") pursuant to
which the Company is acquiring from SB all rights to a certain pharmaceutical
product, Ridaura, in exchange for cash and shares of the Company's common stock;
WHEREAS, pursuant to the equity component of the Ridaura acquisition,
the Company has agreed to issue to SB shares of its common stock, par value
$0.001 per share (the "Common Stock"), which issuance shall constitute an
investment in the Company of Nine Million Dollars ($9,000,000) upon the Initial
Closing Date (as defined in Section 2.2(a)), subject to certain potential
adjustments and other terms and conditions contained herein.
NOW THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. (a) The following terms, as used herein, have the
following meanings:
"Affiliate" of an entity means, for so long as one of the
following relationships is maintained, any corporation or other business entity
controlled by, controlling, or under common control with another entity, with
"control" meaning direct or indirect beneficial ownership of more than fifty
percent (50%) of the voting stock of such corporation, or more than a fifty
percent (50%) interest in the decision-making authority of such other
unincorporated business entity.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Material Adverse Effect" means a material adverse effect on
the condition (financial or otherwise), business, assets, results of operations
or prospects of the Company, considered as a whole.
"1933 Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
<PAGE> 2
"Person" means an individual, corporation, partnership,
association, trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
"Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the 1933 Act, and the declaration or
ordering of effectiveness of such registration statement or document.
"Registrable Securities" means (i) the Shares, and (ii) any
other shares of Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of, the Shares; provided, however, that the foregoing definition
shall exclude in all cases any Registrable Securities sold by SB in a
transaction in which its rights under this Agreement are not assigned.
Notwithstanding the foregoing, Common Stock or other securities shall only be
treated as Registrable Securities if and so long as they have not been (A) sold
to or through a broker or dealer or underwriter in a public distribution or a
public securities transaction, or (B) sold in a transaction exempt from the
registration and prospectus delivery requirements of the 1933 Act under Section
4(1) thereof so that all transfer restrictions, and restrictive legends with
respect thereto, if any, are removed upon the consummation of such sale.
"Registrable Securities then outstanding" shall be determined
by the number of shares of Common Stock outstanding which are Registrable
Securities.
"Form S-3" means such form under the 1933 Act as in effect on
the date hereof or any successor form under the 1933 Act.
"SEC" means the Securities and Exchange Commission.
"Shares" means the Initial Issuance Shares and the Second
Issuance Shares.
(b) In addition, each of the following terms is defined
in the Section set forth opposite such term:
<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
Asset Purchase Agreement Recitals
Common Stock Recitals
Initial Closing 2.2(a)
Initial Closing Date 2.2(a)
Initial Price 2.1(a)
Initial Issuance 2.1(a)
Initial Issuance Shares 2.1(a)
Second Closing 2.2(b)
Second Closing Date 2.2(b)
Second Issuance 2.1(b)
Second Issuance Shares 2.1(b)
</TABLE>
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<PAGE> 3
ARTICLE 2
ISSUANCE OF SHARES
2.1 Issuance of Shares. Upon the terms and subject to the
conditions of this Agreement, the Company agrees to issue to SB and SB agrees to
acquire from the Company, the Shares as follows:
(a) Initial Issuance. On the Initial Closing Date, the
Company shall issue to SB shares of Common Stock (the "Initial Issuance Shares")
(the number of which shall be rounded to the nearest whole number) at a price
(the "Initial Price"), each as shall be calculated as follows:
Initial Price = Two (2) times the average
daily closing price for the
Company's Common Stock for
the twenty (20) trading
days immediately preceding
(but not including) the
third trading day before
the Initial Closing Date,
as reported on the NASDAQ
National Market System.
$9,000,000
----------
Initial Issuance Shares = Initial Price
Such issuance shall be referred to hereinafter as the
"Initial Issuance."
(b) Adjustments on Second Closing Date.
(i) Second Issuance. If on the Second Closing
Date, the aggregate market value of the Initial Issuance Shares is less than
$9,000,000 (based upon the average daily closing price per share for the
Company's Common Stock for the twenty (20) trading days immediately preceding
(but not including) the third trading day before the Second Closing Date, as
reported on the NASDAQ National Market System), then the Company shall issue
that number of additional shares of its Common Stock (the "Second Issuance
Shares") sufficient to bring such aggregate market value of the Shares to
$9,000,000. Such issuance shall be referred to hereinafter as the "Second
Issuance."
(ii) Redemption of Shares. If on the Second
Closing Date, the aggregate market value of the Initial Issuance Shares is
greater than $9,000,000 (based upon the average daily closing price per share
for the Company's Common Stock for the twenty (20) trading days immediately
preceding (but not including) the third trading day before the Second Closing
Date, as reported on the NASDAQ National Market System), then the Company shall
have the right, but not the obligation, to redeem from SB at a price of $0.01
per share that number of the Initial Issuance Shares sufficient to reduce such
aggregate market value of the remaining Initial Issuance Shares to $9,000,000.
In such event, the Company shall deliver to SB at the Second Closing by check or
wire transfer the aggregate redemption price for the excess portion of the
Initial Issuance Shares, and SB will deliver for cancellation the stock
certificate representing the original Initial Issuance Shares (which the Company
will replace as soon as
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<PAGE> 4
practicable thereafter with a stock certificate representing the remaining
portion of the Initial Issuance Shares after the redemption set forth above).
(iii) Other Valuations. In the event that neither
Section 2.1(b)(i) nor Section 2.1(b)(ii) is applicable, then there shall be no
Second Issuance nor any redemption of the Initial Issuance Shares at the Second
Closing.
(c) Approval of the Company's Stockholders. In all events
the sum of the Initial Issuance Shares and the Second Issuance Shares (if any)
shall be not greater than 19.9% of the outstanding Common Stock of the Company
prior to their issuance. In the event that such sum of the Shares is greater
than 19.9% of the outstanding Common Stock of the Company prior to their
issuance, then, at SKB's discretion, (i) the Second Issuance Shares shall be
reduced until such sum of the Shares is equal to 19.9% of the outstanding Common
Stock of the Company, (ii) the issuance of the Second Issuance Shares shall be
subject to, and conditioned upon, approval of the issuance of the Shares by the
Company's Stockholders or (iii) the Second Closing shall be delayed until the
approval of the issuance of the Shares by the Company's Stockholders. In the
event that SB elects to proceed under clause (ii) or (iii) above, and such
stockholder approval is not obtained by December 3, 1998, then the Company shall
be obligated to pay SB in cash the value of the Second Issuance Shares that
would have been issued on the originally-scheduled Second Closing Date but for
this subsection (based upon the average daily closing price per share for the
Company's Common Stock for the twenty (20) trading days immediately preceding
(but not including) the third trading day before the originally-scheduled Second
Closing Date, as reported on the NASDAQ National Market System). Such payment
obligation shall be secured by certain of the assets acquired by the Company
from SB pursuant to a Security Agreement of even date herewith.
2.2 Closing Dates.
(a) Initial Closing Date. The closing of the acquisition
and issuance of the Initial Issuance Shares (the "Initial Closing") shall be
held at 4:00 p.m. Pacific Standard time on the date (the "Initial Closing Date")
upon which the conditions set forth in Sections 6.1 and 6.2 have been satisfied
or waived, or at such other time or date as the Company and SB may agree in
writing. The parties presently expect that the Initial Closing Date will be the
closing date for the Asset Purchase Agreement, currently scheduled for December
31, 1996.
(b) Second Closing Date. The closing of the issuance of
the Second Issuance Shares or the redemption of the Initial Issuance Shares
pursuant to Section 2.1(b) (the "Second Closing") shall be held at 4:00 p.m.
Pacific Standard time on that date which is twelve (12) calendar months after
the Initial Closing Date (the "Second Closing Date") and which is following the
satisfaction or waiver of the conditions set forth in Sections 6.3 and 6.4, or
at such other time or date as the Company and SB may agree in writing.
(c) Location. The Initial Closing and the Second Closing
shall be held at the offices of SB at One Franklin Plaza, Philadelphia,
Pennsylvania 19102 or at such other place as the Company and SB may agree in
writing.
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<PAGE> 5
(d) Acceleration of Second Closing Date. In the event of
the sale by the Company of all or substantially all of its assets or the
acquisition of the Company by another entity by means of merger or other
transaction as a result of which shareholders of the Company immediately prior
to such acquisition possess a minority of the voting power of the acquiring
entity immediately following such acquisition (an "Acquisition"), then the
Second Closing Date shall be accelerated to a date mutually acceptable to the
Company and SB, which date in no event shall be later than one (1) day prior to
the closing of such Acquisition.
2.3 Delivery. Subject to the terms and conditions of this
Agreement, at the Initial Closing and the Second Closing, as the case may be, or
as soon as practicable thereafter, the Company will deliver to SB stock
certificates representing the number of Shares subject to issuance hereunder.
One (1) business day prior to the Initial Closing Date, the Company shall
provide SB with a letter from the Chief Financial Officer of the Company
specifying the calculation of the Initial Price and the number of Initial
Issuance Shares to be issued at the Initial Closing. One (1) business day prior
to the Second Closing Date, the Company shall provide SB with a letter from the
Chief Financial Officer of the Company specifying the calculation of the number
of Second Issuance Shares (if any) to be issued at the Second Closing, the
number of Initial Issuance Shares (if any) to be redeemed at the Second Closing,
or the fact that no issuance or redemption will occur at the Second Closing
pursuant to Section 2.1(b)(iii).
2.4 Restriction on Transfer. SB hereby agrees that, without the
prior written consent of the Company, it will not, during the period commencing
on the Initial Closing Date and ending on the Second Closing Date, (1) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
Shares or (2) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Shares, whether any such transaction described in clause (1) or (2) above is
to be settled by delivery of the Shares or such other securities, in cash or
otherwise.
ARTICLE 3
REGISTRATION RIGHTS AND SALE OF SHARES
3.1 Form S-3 Registration. Unless otherwise requested by SB, the
Company will use its best efforts to prepare and file (and on or before the
Second Closing Date, effect) a registration statement on Form S-3 that
contemplates a distribution of securities on a delayed or continuous basis
pursuant to Rule 415 under the 1933 Act and any related qualification or
compliance with respect to all of the Registrable Securities; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance: (1) if Form S-3 is not available for such offering
by SB other than by reason of the Company's action or inaction; or (2) if the
Company shall furnish to SB a certificate signed by the President of the Company
stating that in the good faith judgment of the Company, it would be seriously
detrimental to the Company and its stockholders for such Form S-3 Registration
to be effected at such time, in which event the Company shall have the right to
defer the filing or effectiveness of the Form S-3 registration statement for a
period of time deemed necessary by the Company, but in any event not to exceed
ninety (90) days.
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<PAGE> 6
3.2 Obligations of the Company. When required under this Article 3
to effect the registration of the Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Use its best efforts to cause such registration
statement to become effective on or before the Second Closing Date, and, upon
the request of SB, keep such registration statement effective for up to two (2)
years and update such registration statement during such two-year period;
provided, however, if the Company shall furnish to SB a certificate signed by
the President of the Company stating that in the good faith judgment of the
Company, it would be seriously detrimental to the Company and its stockholders
for such registration statement to remain effective, the Company shall have the
right to suspend the effectiveness of the registration statement for a period of
time deemed necessary by the Company, but in any event not to exceed ninety (90)
days.
(b) Furnish to SB such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
1933 Act, and such other documents as it may reasonably request in order to
facilitate the disposition of Registrable Securities.
(c) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by SB,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
3.3 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Article 3 with
respect to the Registrable Securities that SB shall furnish to the Company such
information regarding itself, the Registrable Securities held by it, and the
intended method of disposition of such securities as shall be required to effect
the registration of the Registrable Securities.
3.4 Expenses of Registration. All expenses other than underwriting
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to this Article 3, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for SB shall be borne by the Company.
3.5 Limitation on Sale of Shares. SB will notify the Company at
least two trading days in advance of any proposed sale or other transfer of any
Registrable Securities. SB and the Company agree and acknowledge that it is in
their mutual interest that disposition of the Registrable Securities be
accomplished in a manner that does not disrupt or undermine the trading market
for the Company's common stock on the NASDAQ National Market System, and the
parties will work together to explore methods of disposition in order to achieve
such goal. SB will also consider in good faith any request by the Company to
delay such sale or transfer for a reasonable time or to arrange such sale or
transfer through an underwriter or market maker approved by the Company.
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<PAGE> 7
3.6 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Article 3:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless SB, any underwriter (as defined in the 1933 Act) for
SB and each person, if any, who controls SB or such underwriter within the
meaning of the 1933 Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the 1933
Act, the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any state securities law
or any rule or regulation promulgated under the 1933 Act, the 1934 Act or any
state securities law; and the Company will pay to SB and each such underwriter
or controlling person, as incurred, any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 3.6(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by SB or any such underwriter or controlling person.
(b) To the extent permitted by law, SB will indemnify and
hold harmless the Company, each of its directors, each of its officers who has
signed the registration statement, each person, if any, who controls the Company
within the meaning of the 1933 Act, any underwriter, any other person selling
securities in such registration statement and any controlling person of any such
underwriter or other person, against any losses, claims, damages, or liabilities
(joint or several) to which any of the foregoing persons may become subject,
under the 1933 Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereto) arise
out of or are based upon any Violation, in each case to the extent (and only to
the extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by SB expressly for use in connection with such
registration; and SB will pay, as incurred, any legal or other expenses
reasonably incurred by any person intended to be indemnified pursuant to this
subsection 3.6(b), in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 3.6(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of SB, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing, in no event shall SB's
total indemnification obligation exceed the aggregate amounts SB has received
from the sale of the Shares pursuant to the registration statement filed under
this Article 3.
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<PAGE> 8
(c) Promptly after receipt by an indemnified party under
this Section 3.6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 3.6, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the reasonable fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
3.6, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 3.6.
(d) If the indemnification provided for in this Section
3.6 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and SB under this
Section 3.6 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Article 3, and otherwise.
3.7 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Article 3 may not be
assigned by SB without the Company's prior written consent. Any such assignment
consented to by the Company shall be
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<PAGE> 9
effective only if immediately following such transfer the further disposition of
such securities by the transferee or assignee is restricted under the 1933 Act.
3.8 Termination of Registration Rights. SB shall not be entitled
to exercise any right provided for in this Article 3, and the Company shall have
no further obligations under this Article 3, after such time as Rule 144 or
another similar exemption under the 1933 Act is available for the sale of all of
SKB's shares during a three (3) month period without registration.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to SB as of the date hereof that,
except as set forth on the attached Schedule of Exceptions:
4.1 Corporate Existence and Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of
Delaware.
4.2 Corporate Authorization. The execution, delivery and
performance by the Company of this Agreement has been duly authorized by all
necessary corporate action on the part of the Company. This Agreement
constitutes a valid and binding agreement of the Company enforceable in
accordance with its terms, except as (i) the enforceability hereof and thereof
may be limited by bankruptcy, insolvency, moratorium or other similar laws
affecting the enforcement of creditors' rights generally, (ii) the availability
of equitable remedies (e.g., specific performance, injunctive relief, and other
equitable remedies) may be limited by equitable principles of general
applicability, (iii) to the extent the indemnification provisions contained in
this Agreement may be limited by applicable federal or state securities law; and
(iv) that no representation is made regarding the effect of laws relating to
competition, antitrust, intellectual property or misuse or the effect of SB's or
third parties' intellectual property rights.
4.3 Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement will not require any action by, or
filing with, any governmental body, agency, or official other than (i)
compliance with any applicable requirements of the HSR Act and (ii) compliance
with any applicable requirements of the 1933 Act, the 1934 Act and state Blue
Sky laws.
4.4 Non-Contravention. The execution, delivery and performance by
the Company of this Agreement does not (i) violate the certificate of
incorporation or bylaws of the Company, (ii) assuming compliance with the
matters referred to in Section 4.3, violate any material applicable law, rule,
regulation, judgment, injunction, order or decree known to it, or (iii) require
any consent or other action by any Person under, constitute a material default
under, or give rise to any material right of termination, cancellation or
acceleration of any material right or obligation of the Company to a loss of any
material benefit to which the Company is entitled under, any material written
agreement or other material written instrument binding upon the Company or any
material license, franchise, permit or other similar authorization held by the
Company.
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<PAGE> 10
4.5 Validity of Shares. The Shares, when issued, sold and
delivered in accordance with the terms and for the consideration set forth in
this Agreement, will be duly and validly issued, fully paid and nonassessable.
4.6 SEC Filings. The Company has delivered to SB or its counsel
the Company's (i) Prospectus dated January 31, 1996 for its initial public
offering, (ii) quarterly reports on Form 10-Q for its fiscal quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996, and (iii) all of its other
reports, statements and registration statements (without exhibits) filed with
the SEC since January 31, 1996, except for filings pursuant to Rule 144 of the
1933 Act and Sections 13(d) and 16(b) of the 1934 Act.
4.7 Absence of Certain Changes. Since September 30, 1996 and
except as contemplated by this Agreement or disclosed in any filing with the SEC
pursuant to the 1934 Act, and except as disclosed to SB, the business of the
Company has been conducted in the ordinary course consistent with past practices
and there has not been any event, occurrence, development or state of
circumstances or facts which, individually or in the aggregate, has had a
Material Adverse Effect.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SB
5.1 Representations and Warranties. SB hereby represents and
warrants to the Company as of the date hereof as follows:
(a) SB is a corporation duly organized, validly existing,
authorized to exercise all its corporate powers, rights and privileges, and in
good standing under the laws of Pennsylvania.
(b) SB has taken all necessary corporate action necessary
for the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby, and this Agreement
constitutes a valid and legally binding obligation of SB enforceable in
accordance with its terms.
(c) The execution, delivery and performance of this
Agreement by SB will not result in any violation of, be in conflict with, or
constitute a default under, with or without the passage of time or the giving of
notice: (i) any provision of SB's charter or bylaws or similar organizational
document of SB; (ii) any provision of any judgment, decree or order to which SB
is a party or by which it is bound; (iii) any contract, obligation or commitment
to which SB is a party or by which it is bound; or (iv) any statute, rule or
governmental regulation applicable to SB.
(d) The execution, delivery and performance of this
Agreement by SB will not require any consent, approval, authorization or permit
of, or filing with or without notification to, any governmental or regulatory
authority, United States or foreign, except for applicable requirements, if any,
of the 1933 Act or 1934 Act, Blue Sky Laws, and HSR Act requirements.
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<PAGE> 11
5.2 Purchase of Shares for Investment. SB acknowledges that the
Shares have not been registered under the 1933 Act or any state securities laws
and that the Company has no present intention of registering the Shares, except
as provided in Article 3 hereof. SB represents and warrants that it is acquiring
the Shares for investment purposes only, and not as a nominee or agent, and not
with a view to, or for resale or redistribution of such Shares in connection
with, any public offering or distribution thereof, except as provided in Article
3 hereof. By executing this Agreement, SB further represents that it does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person,
with respect to any of the Shares.
5.3 Restricted Securities. SB understands that the Shares may not
be sold, transferred, or otherwise disposed of without registration under the
1933 Act or an exemption therefrom, and that in the absence of an effective
registration statement covering the Shares or an available exemption from
registration under the 1933 Act, the Shares must be held indefinitely. In
particular, SB is aware that the Shares may not be sold pursuant to Rule 144
promulgated under the 1933 Act unless the conditions of that Rule are met.
5.4 Legend. Each certificate representing the Shares shall be
endorsed with the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH
SECURITIES, THE TRANSFER IS MADE IN COMPLIANCE WITH RULE 144
PROMULGATED UNDER SUCH ACT, OR THE COMPANY RECEIVES AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY STATING THAT
SUCH SALE, TRANSFER OR ASSIGNMENT IS EXEMPT FROM THE
REGISTRATION AND DELIVERY REQUIREMENTS OF SUCH ACT.
The Company need not register a transfer of any Shares and may
instruct its transfer agent not to register the transfer of the Shares, unless
the conditions specified in the foregoing legend are satisfied.
ARTICLE 6
CONDITIONS TO CLOSINGS
6.1 Conditions to Initial Issuance Obligations of SB. The
obligation of SB to consummate the Initial Issuance is subject to the
satisfaction or SB's waiver, on or prior to the Initial Closing Date, of each of
the following conditions:
(a) The representations and warranties made by the
Company in Article 4 shall be true and correct when made, and shall be true and
correct on the Initial Closing Date with the same force and effect as if they
had been made on and as of each of such dates and the Company
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<PAGE> 12
shall have performed all covenants, obligations and conditions required to be
performed or observed by the Company on or prior to the Initial Closing Date,
or such performance shall have expressly waived by SB in writing.
(b) The Company and SB shall have obtained all consents
(including all governmental or regulatory consents, approvals or authorizations
required in connection with the valid execution and delivery of this Agreement),
permits and waivers necessary or appropriate for consummation of the
transactions contemplated by the Initial Issuance under this Agreement.
(c) No Delaware, U.S. or U.S. state governmental
authority or other agency or commission or Delaware, U.S. or U.S. state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced, or
entered any law, rule, regulation, executive order, decree, injunction or other
order which is then in effect and has the effect of making illegal the issuance
of the Initial Issuance Shares to SB or otherwise preventing the consummation of
any of the transactions contemplated under this Agreement.
(d) Any waiting period (including any extension thereof)
applicable to the consummation of the issuance of the Initial Issuance Shares
under the HSR Act shall have expired or been terminated early.
(e) The Company and SB shall have executed and delivered
the Asset Purchase Agreement.
(f) There shall be no temporary restraining order,
preliminary injunction or permanent injunction or other order preventing the
consummation of the Initial Issuance issued by any court which remains in
effect, no litigation seeking the issuance of such an order or injunction and no
claims or actions threatened or pending which have a reasonably likely prospect
of resulting in such order or injunction preventing the consummation of the
Initial Issuance.
(g) The Company shall not be in material breach of the
Asset Purchase Agreement.
6.2 Conditions to Initial Issuance Obligations of the Company. The
obligations of the Company to issue the Initial Issuance Shares is subject to
the satisfaction or the Company's waiver, on or prior to the Initial Closing
Date, of each of the following conditions:
(a) The representations and warranties made by SB in
Article 5 shall be true and correct when made, and shall be true and correct on
the Initial Closing Date with the same force and effect as if they had been made
on and as of such date and SB shall have performed all covenants, obligations
and conditions required to be performed or observed by SB on or prior to the
Initial Closing Date or such performance shall have been expressly waived by the
Company in writing.
(b) The Company and SB shall have executed and delivered
the Asset Purchase Agreement, which shall remain in full force and effect.
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<PAGE> 13
(c) The Company and SB shall have obtained all consents
(including all third party and governmental or regulatory consents, approvals or
authorizations required in connection with the valid execution and delivery of
this Agreement), permits and waivers necessary or appropriate for consummation
of the transactions contemplated by the Initial Issuance under this Agreement.
(d) No Delaware, U.S. or U.S. state governmental
authority or other agency or commission or Delaware, U.S. or U.S. state court of
competent jurisdiction, shall have enacted, issued, promulgated, enforced, or
entered any law, rule, regulation, executive order, decree, injunction or other
order which is then in effect and has the effect of making illegal the issuance
of the Initial Issuance Shares to SB or otherwise preventing the consummation of
any of the transactions contemplated under this Agreement.
(e) Any waiting period (including any extension thereof)
applicable to the consummation of the sale of the Initial Issuance Shares under
the HSR Act shall have expired or been terminated early.
6.3 Conditions to Second Closing Obligations of SB. The obligation
of SB to consummate the Second Closing is subject to the satisfaction or SB's
waiver, on or prior to the Second Closing Date, of each of the following
conditions:
(a) The representations and warranties made by the
Company in Sections 4.1, 4.2, and 4.4 shall be true and correct on the Second
Closing Date with the same force and effect as if they had been made on and as
of such date, and the Company shall have performed all covenants, obligations
and conditions required to be performed or observed by it on or prior to the
Second Closing Date.
(b) The Company and SB shall have obtained all consents
(including all governmental or regulatory consents, approvals or authorizations
required in connection with the valid execution and delivery of this Agreement),
permits and waivers necessary or appropriate for consummation of the
transactions contemplated by the Second Closing under this Agreement.
(c) No Delaware, U.S. or U.S. state governmental
authority or other agency or commission or Delaware, U.S. or U.S. state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced, or
entered any law, rule, regulation, executive order, decree, injunction or other
order which is then in effect and has the effect of making illegal the issuance
of the Second Issuance Shares (if any) to SB or otherwise preventing the
consummation of any of the transactions contemplated under this Agreement.
(d) The Company shall have delivered a certificate to SB
as set forth in Section 2.3.
(e) There shall be no temporary restraining order,
preliminary injunction or permanent injunction or other order preventing the
consummation of the Second Closing issued by any court which remains in effect,
no litigation seeking the issuance of such an order or
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<PAGE> 14
injunction and no claims or actions threatened or pending which have a
reasonably likely prospect of resulting in such order or injunction preventing
the consummation of the Second Closing.
6.4 Conditions to Second Closing Obligations of the Company. The
obligations of the Company to issue the Second Issuance Shares (if any) is
subject to the satisfaction or the Company's waiver, on or prior to the Second
Closing Date, of each of the following conditions:
(a) The representations and warranties made by SB in
Article 5 shall be true and correct when made, and shall be true and correct on
the Second Closing Date with the same force and effect as if they had been made
on and as of such date.
(b) The Company shall have obtained all consents
(including all third party and governmental or regulatory consents, approvals or
authorizations required in connection with the valid execution and delivery of
this Agreement), permits and waivers necessary or appropriate for consummation
of the transactions contemplated by the Second Closing under this Agreement.
(c) No Delaware, U.S. or U.S. state governmental
authority or other agency or commission or Delaware, U.S. or U.S. state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced, or
entered any law, rule, regulation, executive order, decree, injunction or other
order which is then in effect and has the effect of making illegal the issuance
of the Second Issuance Shares (if any) to SB or otherwise preventing the
consummation of any of the transactions contemplated under this Agreement.
(d) At the time of the closing on the Second Closing
Date, the issuance of the Shares to SB shall be legally permitted by all laws
and regulations to which SB and the Company are subject.
(e) There shall be no temporary restraining order,
preliminary injunction or permanent injunction or other order preventing the
consummation of the Second Closing issued by any court which remains in effect,
no litigation seeking the issuance of such an order or injunction and no claims
or actions threatened or pending which have a reasonably likely prospect of
resulting in such order or injunction preventing the consummation of the Second
Closing.
ARTICLE 7
COVENANTS OF THE COMPANY
The Company agrees that:
7.1 Access to Information. From the date hereof until the Initial
Closing Date, the Company will (i) give, SB, its counsel and other authorized
representatives full access during reasonable business hours to the offices,
properties, books and records of the Company, (ii) furnish to SB, its counsel,
financial advisors, auditors and other authorized representatives such financial
and operating data and other information relating to the Company as such Persons
may reasonably request and (iii) instruct the employees, counsel and financial
advisors of the Company to cooperate with SB's reasonable requests in its
investigation of the Company. No investigation by SB or other information
received by SB shall operate as a waiver or otherwise
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<PAGE> 15
affect any representation, warranty or agreement given or made by the Company
hereunder. Notwithstanding the foregoing, SB shall not have access to personnel
records of the Company relating to individual performance or evaluation records,
medical histories or other information which in the Company's good faith opinion
is sensitive or the disclosure of which could subject the Company to risk of
liability.
7.2 Reservation of Shares. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock
such number of shares of Common Stock as shall be sufficient to complete the
issuance of the Shares under this Agreement.
7.3 Maintenance of Registration under the 1934 Act during Pendency
of S-3 Registration Statement. The Company shall use its best efforts to
maintain the effectiveness of the registration of its Common Stock under Section
12(g) of the 1934 Act during the effectiveness of the registration statement
filed under Article 3.
ARTICLE 8
COVENANTS OF SB
The SB covenants and agrees that:
8.1 Confidentiality. SB and its Affiliates will hold, and will use
all reasonable business efforts to cause their respective officers, directors,
employees, accountants, counsel, consultants, advisors and agents to hold, in
confidence, all confidential documents and information concerning the Company
furnished to SB or its Affiliates in connection with the transactions
contemplated by this Agreement and the Asset Purchase Agreement, except to the
extent that such information can be shown to have been (i) previously known on a
nonconfidential basis by SB, (ii) in the public domain through no fault of SB or
(iii) later lawfully acquired by SB from sources other than the Company;
provided that SB may disclose such information to its officers, directors,
employees, accountants, counsel, consultants, advisors and agents in connection
with the transactions contemplated by this Agreement and the Asset Purchase
Agreement so long as (a) such disclosure is necessary for the evaluation and
consummation of the transactions contemplated by this Agreement and the Asset
Purchase Agreement and (b) such Persons are informed by SB of the confidential
nature of such information and are bound in writing by SB to treat such
information confidentially. SB and its Affiliates shall exercise at least the
same care with respect to such information as they would take to preserve the
confidentiality of their own similar information. If this Agreement is
terminated, SB and its Affiliates use all reasonable business efforts to cause
their respective officers, directors, employees, accountants, counsel,
consultants, advisors and agents to, destroy or deliver to the Company, upon
request, all documents and other materials, and all copies thereof, obtained by
SB or its Affiliates or on their behalf from the Company in connection with this
Agreement or the Asset Purchase Agreement that are subject to such confidence.
This Section 8.1 shall survive any termination of this Agreement.
8.2 1934 Act Filings. SB agrees and acknowledges that it shall
have sole responsibility for making any filings with the SEC pursuant to
Sections 13(d) and 16(b) of the 1934 Act as a result of its acquisition of the
Shares and any future retention or transfer thereof.
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<PAGE> 16
ARTICLE 9
COVENANTS OF SB AND THE COMPANY
SB and the Company agree that:
9.1 Best Efforts. Subject to the terms and conditions of this
Agreement, SB and the Company will use their best efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things necessary or
desirable under applicable laws and regulations to consummate the transactions
contemplated by this Agreement and the Asset Purchase Agreement. The Company and
SB agree to execute and deliver such other documents, certificates, agreements
and other writings and to take such other actions as may be necessary or
desirable in order to consummate or implement expeditiously the transactions
contemplated by this Agreement and the Asset Purchase Agreement.
9.2 Certain Filings. The Company and SB shall cooperate with one
another (i) in determining whether any action by or in respect of, or filing
with, any governmental body, agency, official or authority is required, or any
actions, consents, approvals or waivers are required to be obtained from parties
to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement and the Asset Purchase Agreement
(including without limitation any filings or other actions required under the
HSR Act) and (ii) in taking such actions or making any such filings, furnishing
information required in connection therewith and seeking timely to obtain any
such actions, consents, approvals or waivers.
9.3 Public Announcements. The parties agree to consult with each
other before issuing any press release or making any public statement with
respect to this Agreement or the Asset Purchase Agreement or the transactions
contemplated hereby or thereby and, except as may be required by applicable law
or any listing agreement with any national securities exchange or market, will
not issue any such press release or make any such public statement prior to such
consultation.
ARTICLE 10
SURVIVAL; INDEMNIFICATION
10.1 Survival. The covenants, agreements, representations and
warranties of the parties hereto contained in this Agreement or in any
certificate or other writing delivered pursuant hereto or in connection herewith
shall survive the Second Closing for a period of one (1) year.
ARTICLE 11
TERMINATION
11.1 Grounds for Termination. This Agreement may be terminated at
any time prior to the Initial Closing or the Second Closing, as applicable:
(i) by mutual written agreement of the Company and SB;
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<PAGE> 17
(ii) by either the Company or SB if the Initial Closing
shall not have been consummated on or before January 31, 1997;
(iii) by either the Company or SB if there shall be any law
or regulation that makes consummation of the transactions contemplated hereby
illegal or otherwise prohibited or if consummation of the transactions
contemplated hereby would violate any nonappealable final order, decree or
judgment of any court or governmental body having competent jurisdiction; or
(iv) by the Company or by SB, if there has been a material
misrepresentation or breach of warranty on the part of SB (in the case of
termination by the Company) or by the Company (in the case of termination by SB)
in the representations and warranties contained herein; or any condition to such
party's obligations hereunder becomes incapable of fulfillment through no fault
of such party and is not waived by such party;
provided that the party against whom termination is sought shall be afforded the
opportunity to cure any defect until such Initial Closing Date or Second Closing
Date, as the case may be. The party desiring to terminate this Agreement shall
give notice of such termination to the other party.
11.2 Effect of Termination. If this Agreement is terminated as
permitted by Section 11.1, termination shall be without liability of either
party (or any stockholder, director, officer, employee, agent, consultant or
representative of such party) to the other party to this Agreement; provided
that if such termination shall result from the willful failure of either party
to fulfill a condition to the performance of the obligations of the other party,
failure to perform a covenant of this Agreement or breach by either party hereto
of any representation or warranty or agreement contained herein, such party
shall be fully liable for any and all damages incurred or suffered by the other
party as a result of such failure or breach. Any dispute regarding the foregoing
shall be resolved pursuant to Section 12.8 hereto. The provisions of Section 8.1
shall survive any termination hereof pursuant to Section 11.1 or otherwise.
ARTICLE 12
MISCELLANEOUS
12.1 Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including facsimile transmission) and shall
be given,
if to SB, to:
SmithKline Beecham Pharmaceuticals
One Franklin Plaza
Philadelphia, PA 19102
Attn: Francis Molettieri
Fax: (215) 751-5509
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<PAGE> 18
with a copy to:
SmithKline Beecham Corporation
One Franklin Plaza
Philadelphia, PA 19102
Attn: Corporate Legal
Fax: (215) 751-5349
if to the Company, to:
Connective Therapeutics, Inc.
3400 W. Bayshore Road
Palo Alto, CA 94303
Attention: Chief Executive Officer
Fax: (415) 843-2899
with a copy to:
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Attention: Joshua L. Green
Fax: (415) 233-8386
All such notices, requests and other communications shall be
deemed received on the date of receipt by the recipient thereof if received
prior to 5 p.m. in the place of receipt and such day is a business day in the
place of receipt.
Otherwise, any such notice, request or communication shall be
deemed not to have been received until the next succeeding business day in the
place of receipt.
12.2 Amendments and Waivers. (a) Any provision of this Agreement
may be amended or waived prior to the Closing Date if, but only if, such
amendment or waiver is in writing and is signed, in the case of an amendment, by
each party to this Agreement, or in the case of a waiver, by the party against
whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
12.3 Expenses. All costs and expenses incurred in connection with
this Agreement shall be paid by the party incurring such cost or expense.
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<PAGE> 19
12.4 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto.
12.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of California, without regard
to the conflicts of law rules of such state.
12.6 Counterparts; Third Party Beneficiaries. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. No provision of this Agreement is intended to confer upon any Person
other than the parties hereto any rights or remedies hereunder.
12.7 Entire Agreement. This Agreement and the Asset Purchase
Agreement constitute the entire agreement between the parties with respect to
the subject matter of this Agreement and supersedes all prior agreements and
understandings, both oral and written, between the parties with respect to the
subject matter of this Agreement. No representation, inducement, promise,
understanding, condition or warranty not set forth herein has been made or
relied upon by either party hereto.
12.8 Arbitration.
(a) Any dispute arising out of or in connection with this
Agreement shall be submitted to arbitration. The arbitration shall be conducted
according to the Commercial Arbitration Rules of the American Arbitration
Association. The place of arbitration shall be such place as may be agreed upon
by the parties or, in the absence of the parties' agreement, by the arbitrators.
Both parties shall attempt to agree upon one arbitrator, but if they are unable
to agree, each shall appoint an arbitrator and these two shall appoint a third
arbitrator. Expenses of the arbitrator(s) shall be divided equally between the
parties.
(b) Judgment upon the award rendered by the arbitrator(s)
may be entered in any court having jurisdiction thereof, and shall be
enforceable against the parties.
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<PAGE> 20
IN WITNESS WHEREOF, the parties have duly caused this Agreement to be
executed as of the day and year set forth below.
CONNECTIVE THERAPEUTICS, INC.
By: /s/ Thomas G. Wiggans
--------------------------------------
Thomas G. Wiggans
President and Chief Executive Officer
SMITHKLINE BEECHAM PROPERTIES, INC.
By: /s/ Donald F. Parman
--------------------------------------
Title: Secretary
SIGNATURE PAGE TO STOCK ISSUANCE AGREEMENT
<PAGE> 1
EXHIBIT 10.2
SECURED PROMISSORY NOTE
December 31, 1996 U.S. $11,000,000
Palo Alto, CA
FOR VALUE RECEIVED, the undersigned, CONNECTIVE THERAPEUTICS, INC., a
Delaware corporation ("Maker"), HEREBY PROMISES TO PAY to the order of
SMITHKLINE BEECHAM CORPORATION, a Pennsylvania corporation or its assigns
("Payee"), upon the Payment Dates (as defined below), the aggregate sum of
Eleven Million Dollars ($11,000,000) in lawful money of the United States.
1. Capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to such terms in the Asset Purchase Agreement
dated December 2, 1996 between Payee, Maker and the other parties named therein.
2. Maker promises to make payment under this Note on the
following dates (each a "Payment Date"):
<TABLE>
<S> <C>
January 7, 1998 $6,000,000
January 7, 1999 $5,000,000
</TABLE>
3. This Note is secured by the Intellectual Property (as defined
in Section 1.1(f) of the Asset Purchase Agreement) in accordance with a separate
security agreement (the "Security Agreement") between Maker and Payee being
entered into as of the date hereof to be executed simultaneously with the
execution of this Note. Payee has all rights of a secured creditor under
California law.
4. Maker will be deemed to be in default hereunder and the unpaid
balance of this Note will become immediately due and payable upon (a) any
failure to make the payments required under Section 2 of this Note within thirty
(30) days of the date payment is due or (b) any material breach of the Security
Agreement.
5. Maker has the right to prepay all or any part of this Note,
without any penalty or premium of any kind. Any prepayments shall be applied to
reduce the next payment due.
6. The indebtedness evidenced by this Note shall be subordinate
and junior in right of payment, to the extent and in the manner provided below,
but only to the extent requested by the holders of the Senior Indebtedness (as
defined below), to the prior payment in full of all Senior Indebtedness;
provided, that the Payee's security interest in the Intellectual Property shall
be senior to any security interest held by the holders of Senior Indebtedness.
(a) Maker shall not be obligated to make, and Payee shall
not be entitled to demand or receive, except as provided in this Section 6, any
payment on account of this Note if,
<PAGE> 2
at the time of such proposed payment, (i) any amount in respect of the Senior
Indebtedness shall be due and payable or (ii) any default in respect of any
Senior Indebtedness shall have occurred and be continuing, unless within 120
days after the occurrence of such default, the maturity of such Senior
Indebtedness shall not have been accelerated.
(b) In the event of any dissolution, winding-up, liquidation or
reorganization of Maker, whether voluntary or involuntary, in bankruptcy,
insolvency, receivership or other proceedings, upon an assignment for the
benefit of creditors or otherwise, (i) all principal of, interest on and other
amounts payable in respect of the Senior Indebtedness shall be paid in full
before Payee shall be entitled to receive any further payment or distribution in
respect of this Note, and (ii) any payment or distribution of any kind to which
Payee would be entitled except for the provisions of this paragraph (b) shall be
paid or delivered by Maker, or by Payee if received by Payee, directly to the
holders of the Senior Indebtedness or their respective representatives (pro rata
on the basis of the respective amounts of the Senior Indebtedness held by such
holders) for application to the payment of the Senior Indebtedness until the
Senior Indebtedness shall have been paid in full.
(c) In any proceeding referred to in paragraph (b) above which is
commenced by or against Maker, the holders of the Senior Indebtedness may, and
are hereby irrevocably authorized and empowered to, demand, sue for, collect and
receive every payment or distribution referred to in paragraph (b) above and
take such other action as the holders of the Senior Indebtedness may deem
necessary or advisable for the exercise or enforcement of any of their rights or
interests in respect of this Note.
(d) In the event that Payee receives any payment or distribution
of any kind or any security in respect of this Note in contravention of any of
the terms hereof, such payment, distribution or security shall be received in
trust for the benefit of the holders of the Senior Indebtedness and shall
promptly be paid over or delivered in the same form as so received to the
holders of the Senior Indebtedness for application to the payment of the Senior
Indebtedness until the Senior Indebtedness or the current installments thereof,
as may be applicable, shall have been paid in full.
(e) Nothing contained herein shall impair, as between Maker or its
creditors, other than the holders of the Senior Indebtedness and Payee, the
obligation of Maker to pay to Payee the amounts owed under this Note as and when
due and payable in accordance with the terms hereof, or prevent Payee, upon
default with respect to this Note, from exercising all rights, powers and
remedies otherwise provided herein or by applicable law, all subject to the
rights of the holders of Senior Indebtedness hereunder.
(g) "Senior Indebtedness" shall mean, as at the date of
determination thereof, all indebtedness of Maker outstanding on the date hereof,
which is secured by all or substantially all of the Company's intellectual
property. After Maker has made the $6,000,000 payment under Section 2.1 above,
Payee agrees to consider in good faith any request by Maker to amend this Note
to allow future secured indebtedness of Maker to be included in the foregoing
definition of "Senior Indebtedness."
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<PAGE> 3
7. Maker hereby waives demand, presentment for payment, notice of
dishonor, protest and notice of protest.
8. This Note may not be changed orally, but only by an agreement
in writing and signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought.
9. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS
WHOLLY MADE AND PERFORMED IN THE STATE OF CALIFORNIA. Whenever possible each
provision of this Note shall be interpreted in such manner as to be effective
and valid under applicable, law, but if any provision of this Note shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Note.
[Execution Page Follows]
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<PAGE> 4
IN WITNESS WHEREOF, Maker has caused this Note to be executed and
delivered by its fully authorized officer as of the date first above written.
CONNECTIVE THERAPEUTICS, INC.
By:/s/ Cynthia M. Butitta
--------------------------------------------
Cynthia M. Butitta
Vice President, Finance and Administration and
Chief Financial Officer
[EXECUTION PAGE TO SECURED PROMISSORY NOTE]
EXECUTION PAGE TO PROMISSORY NOTE]
<PAGE> 1
EXHIBIT 10.3
SECURITY AGREEMENT
This SECURITY AGREEMENT dated as of December 31, 1996 (the "AGREEMENT")
is entered into between CONNECTIVE THERAPEUTICS, INC., a Delaware corporation
("DEBTOR") and SMITHKLINE BEECHAM CORPORATION, a Pennsylvania corporation
("SECURED PARTY"). For purposes of this Agreement, the term "SECURED PARTY"
includes any subsequent holder of the Note (as defined below).
RECITALS:
A. Debtor and Secured Party are parties to that certain Asset
Purchase Agreement dated as of December 2, 1996 (the "ASSET PURCHASE AGREEMENT")
between Debtor, Secured Party and certain other parties, pursuant to which
Debtor has purchased certain assets from the Secured Party;
B. Part of the purchase price therefore will be paid by delivery
by Debtor of a Secured Promissory Note dated the date hereof (the "NOTE") in an
aggregate amount of $11,000,000;
C. Another part of the purchase price therefore will be paid
pursuant to Section 4.2 of the Asset Purchase Agreement in an aggregate amount
of up to $6,000,000, contingent upon Debtor's net sales of certain products (the
"Deferred Payments");
D. Subject to the occurrence of certain events, another part of
the purchase price theretofore may be paid in cash (the "Equity Payout")
pursuant to Section 2.1(c) of that certain Stock Issuance Agreement of even date
herewith between Debtor and SmithKline Beecham Properties, Inc., an affiliate of
Secured Party (the "Stock Agreement");
E. The parties intend that Debtor's obligations to repay the Note
and its contingent obligations to make the Deferred Payments and the Equity
Payout be secured by certain of the assets purchased by Debtor from Secured
Party.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, and as an inducement to Secured Party to lend Debtor the amounts
reflected by the Note and to enter into the Asset Purchase Agreement, the
parties hereto agree as follows:
1. Creation of a Security Interest. As security for payment of
the Indebtedness (as defined below) of Debtor to Secured Party when and as due,
Debtor hereby grants Secured Party a security interest in the collateral
described in Section 2 below (the "COLLATERAL"). For purposes of this Agreement,
"INDEBTEDNESS" shall mean the Equity Payout, the Deferred Payments and all
obligations and liabilities of Debtor to Secured Party under this Agreement and
the Note in the amount of $11,000,000, including any extensions, modifications
or renewals thereof. The security interest granted hereby shall be and remain a
first and prior security interest in all of the Collateral.
<PAGE> 2
2. Collateral. The Collateral that is subject to the security
interest created hereby consists of all of Debtor's right, title and interest in
and to the Intellectual Property (as defined in Section 1.1(f) of the Asset
Purchase Agreement), purchased by Debtor from Secured Party pursuant to the
Asset Purchase Agreement.
3. Debtor's Obligation. Debtor shall pay to Secured Party all
amounts due and owing to Secured Party under the Note, Section 4.2 of the Asset
Purchase Agreement and pursuant to the Equity Payout, in accordance with the
terms of same, when, if and as the same become due.
4. Protection of the Collateral. Until such time as the Note has
been paid in full, Debtor shall not create any lien or encumbrance on the
Collateral, except for liens that are subordinated to Secured Party's security
interest in the Collateral in a manner reasonably satisfactory to Secured Party.
5. Default. Each of the following events shall be defined as an
"EVENT OF DEFAULT" hereunder:
(a) Debtor fails to pay any sum due under the
Indebtedness in accordance with the terms hereof, if such nonpayment continues
for thirty (30) days after the date such sum is due;
(b) Debtor files any petition or action for relief under
any bankruptcy, reorganization, insolvency or moratorium law, or any other law
for the relief of, or relating to, debtors, now or hereafter in effect, or makes
any assignment for the benefit of creditors, or takes any corporate action in
furtherance of any of the foregoing;
(c) An involuntary petition is filed against Debtor
(unless such petition is dismissed or discharged within ninety (90) days), under
any bankruptcy statute now or hereafter in effect, or a custodian, receiver,
trustee, assignee for the benefit of creditors (or other similar official) is
appointed to take possession, custody, or control of any property of Debtor;
(d) Debtor breaches, or defaults under any material term,
condition or provision contained in this Agreement or the Note not specifically
referred to in this Section 5, if such breach or default continues for thirty
(30) days after receipt of notice from Secured Party; or
(e) Debtor shall (i) default in any payment or payments
on any Senior Indebtedness (as defined in the Note), beyond the period of grace,
if any, provided in the instrument or agreement under which such Senior
Indebtedness was created or (ii) default in the performance of any agreement or
condition relating to any Senior Indebtedness, or any other event shall occur or
condition exist (and continue beyond the applicable grace period, if any), the
effect of which is to cause, or to permit the holders of such Senior
Indebtedness to cause, such Senior Indebtedness to become due prior to its
stated maturity.
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<PAGE> 3
6. Rights of Secured Party.
(a) Upon the occurrence of any Event of Default, Secured
Party shall be entitled to declare any Indebtedness secured hereby immediately
due and payable without notice of default, presentment or demand for payment,
protest or notice of nonpayment or dishonor, or other notices or demands of any
kind or character. In addition to the right of acceleration granted herein, and
all other rights of Secured Party, Secured Party shall be entitled to any and
all remedies available under the Uniform Commercial Code in force in the State
of California as of the date of the event of Default.
(b) Secured Party shall give Debtor notice of the time on
or after which any sale or other intended disposition of the Collateral is to be
consummated, which notice shall be mailed, by first class mail, postage prepaid,
to Debtor in the manner set forth in Section 10(b) hereof at least thirty (30)
days prior to the time of such sale or other intended disposition. Secured Party
shall promptly provide a copy of such notice to all holders of Senior
Indebtedness known to Secured Party, including without limitation Silicon Valley
Bank and MMC/GATX Partnership No. 1.
(c) Each purchaser at any sale of the Collateral shall
hold the property sold free from any claim or right on the part of Debtor. Any
public or private sale of the Collateral or any part of it shall be held at such
time or times within ordinary business hours and at such place or places as
Secured Party may reasonably fix in the notice of sale, and at any such sale the
Collateral, or the portion thereof to be sold, may be sold as an entirety or in
separate parts, as Secured may reasonably determine. If permitted by law, Debtor
or Secured Party may bid (which Secured Party bid may be, in whole or in part,
in the form of cancellation of indebtedness) for the purchase of the Collateral.
7. Application of the Proceeds. All proceeds of any sale of the
Collateral by Secured Party pursuant to Section 6 shall be applied as follows:
First, to the payment of all fees and expenses incurred by
Secured Party in connection with any such sale, including, but
not limited to, the expenses of taking, advertising,
processing and preparing the Collateral to be sold, all court
costs and reasonable fees of counsel for Secured Party in
connection therewith;
Second, to the payment of the outstanding balance of the Note;
Third, to the Deferred Payments;
Fourth, to the Equity Payout; and
Fifth, to Debtor.
8. Further Assurances. At the request of Secured Party, Debtor
will promptly make, execute, deliver, record, register or file all such
financing statements, continuation statements and
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<PAGE> 4
amendments thereto, and other instruments, acts, pledges, assignments and
transfers (or cause the same to be done) and will deliver to Secured Party such
instruments constituting or evidencing items of the Collateral as may be
requested by Secured Party to better assure them with respect to the security
interests granted pursuant to this Agreement. Debtor will cause all security
instruments, notices and financing statements to be duly registered, recorded
and filed and to be duly re-registered, re-recorded and refiled at the time and
in the places now or hereafter required by all applicable laws for the proper
maintenance of the validity and priority of the security interests and liens
given as described above, and will pay all fees, charges, or taxes imposed with
respect to any such registration, recording or filing.
9. Termination of the Security Interest. The security interest
created pursuant to this Agreement shall terminate upon payment, satisfaction,
or cancellation of the Note, regardless of the amount of Deferred Payments that
have been paid by Debtor or whether the Company has become obligated to make the
Equity Payout. Upon payment, satisfaction, or cancellation of the Note, no
security interest shall exist for the Deferred Payments or the Equity Payout.
10. Miscellaneous.
(a) Secured Party may delay exercising, or omit to
exercise, any right or remedy under this Agreement without waiving that or any
past, present or future right or remedy. Neither this Agreement, nor any term
hereof, may be amended, waived, discharged or terminated except by means of an
agreement in writing signed by Debtor and Secured Party.
(b) All notices and other communications required or
permitted hereunder shall be in writing, and shall be delivered personally or
transmitted by facsimile, or, if sent within the United States, mailed by
first-class mail, postage prepaid, addressed (i) if to Secured Party, at Secured
Party's address set forth below its signature, or at such other address as
Secured Party shall have furnished to Debtor in writing, or (ii) if to Debtor,
at its address set forth below, or at such other address as Debtor shall have
furnished to Secured Party in writing. All notices shall be deemed effectively
delivered upon receipt.
(c) This Agreement shall bind and inure to the benefit of
the parties, their legal representatives, successors and assigns.
(d) This Agreement and its performance shall be governed
by the laws of the State of California, without regard to conflicts of law
principles.
(e) This Agreement may be executed in counterparts, all
of which taken together shall constitute one and the same instrument, by signing
any such counterpart.
(f) This Agreement and the security interest created
hereby are for the sole and exclusive benefit of Secured Party and their
respective assignees and shall not operate to the benefit of any other third
party.
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<PAGE> 5
(g) This Agreement and the Asset Purchase Agreement (and
all exhibits thereto) constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof, and no party
shall be liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.
[Signature page follows]
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<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written.
DEBTOR: CONNECTIVE THERAPEUTICS, INC.
By: /s/ Thomas G. Wiggans
------------------------------------------
Thomas G. Wiggans
President and Chief Executive Officer
Address: 3400 West Bayshore Road
Palo Alto, CA 94303
SECURED PARTY: SMITHKLINE BEECHAM CORPORATION
By: /s/ Donald Parman
------------------------------------------
Title: Secretary
SIGNATURE PAGE TO SECURITY AGREEMENT
<PAGE> 1
Exhibit 10.4
CONFIDENTIAL TREATMENT REQUESTED
SUPPLY AGREEMENT
BETWEEN
SMITHKLINE BEECHAM CORPORATION
AND
CONNECTIVE THERAPEUTICS, INC.
FOR
RIDAURA
(AURANOFIN)
<PAGE> 2
FINAL FINISHED PHARMACEUTICALS SUPPLY AGREEMENT
RIDAURA(R)
This is a Supply Agreement for final finished pharmaceuticals
("Agreement") effective as of January 7, 1997 by and between SmithKline Beecham
Pharmaceuticals, a division of SmithKline Beecham Corporation, a Pennsylvania
corporation having a place of business at One Franklin Plaza, Philadelphia, PA
19101 ("SB" or "SELLER"), and Connective Therapeutics, Inc., a Delaware
corporation having a place of business at 3400 West Bayshore Road, Palo Alto, CA
94303("BUYER");
BACKGROUND
A. The Parties hereto have entered into an Asset Purchase Agreement dated
December 2, 1996 ("the Asset Purchase Agreement") and a Transitional
Services Agreement, dated as of January 7, 1997 pursuant to which SB is
transferring to BUYER certain rights to products known as Ridaura(R)
containing auranofin as the sole active ingredient and assets relating
thereto, including the FDA-approved New Drug Application for Ridaura
("NDA");
B. SB has manufactured Ridaura and has the appropriate registrations,
approvals, facilities and the ability to continue to manufacture
products pursuant to the NDA;
C. In connection with Asset Purchase Agreement, BUYER desires to purchase
Ridaura from SB in final finished package form as specified in Exhibit
A ("Products");
D. SB desires to manufacture and supply Product to BUYER, subject to the
terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and the
promises herein, the parties, intending to be legally bound, agree as follows:
ARTICLE 1 - DEFINITIONS
1.1 Affiliate of an entity means, for so long as one of the following
relationships is maintained, any corporation or other business entity controlled
by, controlling, or under common control with no other entity; with "control"
meaning direct or indirect beneficial ownership of more than fifty percent (50%)
of the voting stock of such corporation, or more than fifty percent (50%)
interest in the decision-making authority of such other unincorporated business
entity;
1.2 Final Finished Pharmaceutical(s) shall mean the Product(s)
packaged in final form and ready for sale by BUYER to BUYER's ultimate customer.
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<PAGE> 3
1.3 cGMP shall mean current good manufacturing practices of the FDA,
as set forth in 21 C.F.R. Parts 210 and 211 and all applicable rules,
regulations, guides and guidances.
1.4 FDA shall mean the United States Food and Drug Administration or
comparable state or local authority.
1.5 Product(s) shall mean the Final Finished Pharmaceutical(s) listed
in EXHIBIT A.
1.6 SB Quality Assurance Requirements shall mean the requirements set
forth in EXHIBIT C.
1.7 Specifications shall mean the requirements and standards
pertaining to the Product as set forth in EXHIBIT A.
1.8 Price shall mean the prices set forth in EXHIBIT B.
1.9 Adverse Reactions shall mean the definitions as set forth in
EXHIBIT D.
1.10 Territory shall mean the United States, its possessions and
territories, including Puerto Rico, and Canada.
ARTICLE 2 - ORDERS, PRICING, PAYMENT AND CONFORMANCE
2.1 Exclusivity and Requirements
SB shall sell Product exclusively to BUYER for sale in the
Territory and shall supply all of BUYER's reasonable requirements of Product in
the Territory.
2.2 Forecasts and Orders
(a) Orders for Product shall be in full lot sizes, as defined in
Exhibit A, or full multiples thereof.
(b) Simultaneously with the execution of this Agreement for the
period remaining in the current calendar year and then by October 1st of each
year during the term of this Agreement, BUYER shall provide SB with a 12 month
forecast to run from January 1st to December 31st of the next calendar year of
BUYER's estimated requirements of the Product, which forecast may be updated
every three (3) months. The first three (3) months of each rolling 12-month
forecast or updated forecast shall be a binding order against which SB is
authorized to manufacture.
(c) SB agrees to deliver the Product in such quantities and on
such delivery dates as are specified in BUYER's forecast. SB agrees to meet
BUYER's revised forecasts and
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<PAGE> 4
orders up to a [*]% increase over the most recent forecasted requirements for
the Product for said period.
BUYER will bear the reasonable out-of-pocket costs incurred by SB
in connection with any delay in the shipment of the Product caused by BUYER's
rescheduling of shipping dates.
(d) BUYER is not obligated to buy any specific amount of Product
under this Agreement and shall be obligated to purchase only those quantities
for which it has submitted a binding order.
(e) Notwithstanding the foregoing, BUYER agrees to purchase all
remaining inventory of lot numbers 3025R79 and 3016R79 of Product in SB's
possession (which lots are the same lots identified in Schedule 5.6 of the Asset
Purchase Agreement), as of the date one year after the effective date of the
Transitional Services Agreement at the price set forth in Exhibit A.
2.3 Price; Payment; Shipment.
(a) The price for the Product ordered is set forth in EXHIBIT B,
F.O.B. SB manufacturing site, freight collect. Risk of loss in transit shall lie
with BUYER. SB may adjust the price annually to account for any reasonable
increase in the direct cost of labor and materials, with such increase not to
exceed the cumulative percentage increase in the Consumer price Index, as
published by the U.S. Department of Labor on a national basis using 1996 as the
base year. If any increase exceeds this amount the parties agree to discuss such
increases.
(b) BUYER agrees to pay SB for the Product as set forth above, net
thirty (30) days from the receipt of invoice. All payments hereunder shall be
made in U.S. Dollars.
2.4 Acceptance - Within thirty (30) days of receipt of any Product,
BUYER shall perform such samplings and tests as it deems appropriate, if any,
using validated test methods described in the NDA to determine whether the
Product meets the Specifications. If BUYER wishes to reject any shipment, BUYER
shall within such thirty (30) days' time, inform SB in writing of its refusal to
accept the lot(s), and the reasons therefor. Any Product not timely rejected
shall be deemed accepted. In the event that BUYER rejects any shipment, SB, upon
confirmation of the reasons for rejection, shall either replace the defective
Products or refund the purchase price, as SB may elect. If SB and BUYER do not
agree on the rejection of Product, then either party may refer the matter for
final analysis to a specialized laboratory of national reputation reasonably
acceptable to both parties for the purpose of determining whether the Product
meet Specifications. Any determination by such laboratory shall be binding upon
both parties.
2.5 Testing; Certificate of Analysis and Conformance - SB shall
provide a certificate of analysis and Conformance ("COA") to BUYER for each
shipment of Product.
- ----------
* Confidential Treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
-4-
<PAGE> 5
ARTICLE 3 - WARRANTIES, COVENANTS AND INDEMNIFICATION
3.1 General Warranty and Indemnification.
(a) SB warrants that the Product is and will be manufactured in
accordance with cGMPs, and, at the time of delivery of the Product, the Product
will be free from defects in materials and workmanship and shall not be
adulterated or misbranded within the meaning of the U.S. Federal Food, Drug, and
Cosmetic Act, and is not an article which may not, under the Act, be introduced
into interstate commerce. EXCEPT AS EXPRESSLY STATED IN THIS AGREEMENT, SB MAKES
NO EXPRESS OR IMPLIED WARRANTY AS TO THE MERCHANTABILITY OF THE PRODUCT, OR AS
TO ITS FITNESS FOR A PARTICULAR PURPOSE AND DISCLAIMS ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED. BUYER shall not be entitled to incidental, indirect or
consequential damages, including damages from loss of profits, loss of use or
loss of goodwill as a result of any breach of warranty by SB.
(b) In the event that any Product is quarantined or recalled, or
is subject to stop-sale action, whether voluntary or by governmental action, it
is agreed and understood that any expenses, including reasonable fees of any
experts or attorneys that may be utilized by either party, government fines or
penalties, related to such recall, quarantine or stop-sale, shall be borne by
BUYER unless it is determined that SB has breached its obligations under this
Agreement and such breach is the sole basis upon which said recall, quarantine
or stop-sale was initiated. Said determination may be made by the governmental
agency involved, or by mutual agreement of the parties following examination and
review of all records pertinent to the manufacture of the Product subject to
such recall.
(c) SB agrees to defend, indemnify and hold BUYER and its
affiliates, directors, employees and agents harmless from and against any
claims, liabilities, damages, costs or expenses (including reasonable attorney's
fees) resulting from any claims by a third party arising solely out of (i) the
fault or negligence of SB; or (ii) any material misrepresentation or breach of
warranty of SB contained in this Agreement or in any exhibit or schedule hereto,
or in any other statement, certificate or document furnished or to be furnished
to BUYER pursuant hereto or in connection with the transactions contemplated
hereby; or (iii) any material breach of a covenant or obligation of SB contained
in this Agreement; provided however that this indemnity shall exclude indirect,
incidental, indirect or consequential damages.
(d) BUYER agrees to defend, indemnify and hold SB and its
affiliates, directors, employees and agents harmless from and against any
claims, liabilities, damage, costs or expenses (including reasonable attorney's
fees) resulting from any claim except to the extent that SB is otherwise
obligated to indemnify BUYER under this Agreement.
(e) No party against whom a claim of indemnity is made under
this Agreement shall be liable unless the party making such claim shall (i)
notify the indemnifying party of such claim promptly upon becoming aware of the
existence or threatened existence of any such claim giving rise to or which may
give rise to a claim of indemnity and (ii) cooperate in the defense of such
claim.
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<PAGE> 6
3.2 Manufacture of the Product.
(a) SB shall manufacture and deliver the Product to BUYER at all
times in full compliance with cGMPs and SB Quality Control Requirements. SB
shall maintain all records as are necessary and appropriate to demonstrate
compliance with cGMPs.
(b) SB may manufacture the Product(s) at any site now or hereafter
identified in the NDA, as amended, including, its facilities at Spring Garden
Street, Philadelphia, Pa and Cidra, Puerto Rico.
(c) Subject to Section 6.6 below, upon SB's request, BUYER agrees
cooperate with SB and to use its best efforts to transfer the technology and
know-how to manufacture the Product to a third party reasonably acceptable to
BUYER and to assign to such third party all rights and obligations under this
Agreement, without recourse to SB.
SB does not guarantee the price that any third party may seek to
charge for the product.
(d) Lonza, the current supplier of bulk active auranofin approved
in the NDA, has decided to stop the manufacture of auranofin. Therefore, subject
to Section 6.6. below, SB intends, at its expense, to perform the necessary
studies to qualify Johnson Matthey as an approved supplier by preparing a
supplemental NDA to submit to FDA and then, pursuant to a supply agreement, to
obtain bulk active auranofin from Johnson Matthey. BUYER agrees to cooperate
with SB to qualify Johnson Matthey as an approved supplier under the NDA. BUYER
agrees, to submit to FDA, and diligently pursue approval of, the supplemental
NDA, and to assume BUYER's incidental expenses in connection with such filing.
(e) Subject to Section 6.6 below, if SB desires to transfer the
manufacture of Product, SB will cooperate with BUYER in the selection of to a
third party manufacturer; and, SB will perform, at SB's expense, all studies
required by FDA in connection therewith. SB shall prepare, or have prepared, a
supplemental NDA and/ or a drug master file seeking authorization for the
transfer. BUYER agrees, to submit to FDA, and diligently pursue approval of,
the supplemental NDA, and to assume BUYER's incidental expenses in connection
with such filing. BUYER, at its own expense, may also arrange for the
manufacture of product by a third party and, in such case, SB will provide
reasonable cooperation in any such arrangement.
(f) BUYER shall have the right, on reasonable advance notice and
during normal business hours once per year during the term of this Agreement, to
inspect and audit SB's facilities and operations to confirm compliance with the
covenants contained in this Agreement.
(g) SB shall provide all active and inactive raw materials,
components, packaging, containers, labeling, release testing, quality control,
equipment, labor, and other necessary services and materials, as part of the
price for Product.
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<PAGE> 7
3.3 Regulatory Matters.
(a) BUYER shall maintain the NDA in good standing during the term of
this agreement, and SB shall maintain all regulatory and governmental permits,
licenses and approvals, such as drug establishment registration and drug master
file, that may be necessary to manufacture and ship the Product to BUYER.
(b) SB shall maintain all regulatory and governmental permits,
licenses and approvals that may be necessary to manufacture and ship the Product
to BUYER.
(c) During the term of this Agreement, SB will be responsible for any
reporting of matters regarding the manufacture of Product to the FDA in
accordance with pertinent laws and regulations. SB shall furnish copies of such
reports to BUYER. SB shall also advise BUYER of any occurrences or information
which arises out of SB's manufacturing activities which have or could reasonably
be expected to have adverse regulatory compliance and/or reporting consequences
concerning Product.
(d) SB shall be responsible for handling and responding to any FDA or
other governmental agency inspections with respect to the manufacture of the
Product during the term of this Agreement. SB shall provide to BUYER any
information reasonably requested by BUYER and all information requested by any
governmental agency in connection with any governmental inspection related to
the Product.
(e) Except as otherwise provided herein, SB will obtain the advance
written consent of BUYER for changes relating to the manufacturing process of
the Product or relating to any of the materials, functions, or controls of the
Product.
(f) In the event SB is inspected by the FDA, or any similar or related
state or federal health authority, SB shall promptly notify BUYER of any written
alleged violations or deficiencies relating to the manufacturing facility at
which Products are manufactured, packaged or stored.
3.5 Complaints and Recalls
(a) Product Complaints - Product complaint reports concerning
manufacture of Product received by BUYER will be faxed within 2 business days
to:
SmithKline Beecham Pharmaceuticals,
One Franklin Plaza
Philadelphia, PA 19101
Attn: Karen Tannenbaum
Fax:610-917-4826
-7-
<PAGE> 8
Product complaint reports received by SB will be faxed within 2
business days to:
Connective Therapeutics, Inc.
3400 West Bayshore Road
Palo Alto, CA 94303
Attn: Richard J. Hammel
Fax: (415) 843-2899
(b) SB will promptly investigate all complaints associated with the
manufacture of Product and provide a written summary to BUYER. BUYER will
investigate all other Product Complaints associated with the Product regarding
and provide a written summary to SB. BUYER also will provide a written response
on each complaint to each complainant with a copy to SB.
(c) Recalls - In the event SB should be required to initiate a recall,
field alert, Product withdrawal or field correction pursuant to any Product
provided under this Agreement, SB shall immediately notify BUYER in writing. In
the event that BUYER believes that a recall, field alert, Product withdrawal, or
field correction is necessary for Product provided under this Agreement, BUYER
shall so notify SB. SB will be responsible for all costs and expenses associated
with any recall field alert, Product withdrawal or field correction arising
solely from SB's negligence
3.6 Adverse Reaction Reports BUYER and SB shall observe the procedures and
notification requirements with respect to adverse reactions described in the
attached EXHIBIT D.
3.7 Insurance. During the term of this Agreement, SB and BUYER shall
maintain their own respective comprehensive general liability, property damage
insurance, and product liability insurance with respect to the Product, in such
amounts and with such scope of coverage as are adequate to cover the obligations
under this Agreement and as are appropriate for companies of like size, taking
into account the scope of activities contemplated herein. BUYER shall, at the
request of SB, provide SB with proof of such insurance.
ARTICLE 4 - TERM AND TERMINATION
4.1 This Agreement shall have an initial term of five (5) years commencing
on the date first set forth above, and, unless terminated as provided in this
Agreement
4.2 Either party may terminate this Agreement by giving sixty (60) days
notice to the other party if the other party is in material breach of any term
of this Agreement and fails to cure that breach within such sixty (60) day
period.
4.3 This Agreement may be canceled upon thirty (30) days' prior written
notice by either party at any time during this Agreement if the other party
shall file in any court pursuant to any statute of any government in any country
a petition in bankruptcy or insolvency or for reorganization or for an
arrangement or for the appointment of a receiver or trustee of the party
-8-
<PAGE> 9
or of its assets; or if any other party proposes a written agreement of
composition for extension of its debts; or if the other party shall be served
with an involuntary petition against it, filed in any insolvency proceeding, and
such petition shall not be dismissed within sixty (60) days after filing
thereof; or if the other party shall be a party to any dissolution or
liquidation, or if the other party shall make a general assignment for the
benefit of its creditors; or if the other party is subject to any final order of
debarment which can be expected to have a material adverse effect on the sales
of the Product.
4.4 Upon termination, SB will deliver and BUYER shall promptly pay SB for
all inventory of Products, raw materials, components and works in progress
together with copies of records relating to the NDA and to the manufacture of
Product that have not already been provided pursuant to the Asset Purchase
Agreement.
ARTICLE 5 - CONFIDENTIALITY
5.1 SB shall use the same efforts to maintain the confidentiality of any
proprietary or confidential information regarding the manufacture or sale of the
Products as SB uses with respect to its own prescription pharmaceutical
products; provided, however, that any such confidential or proprietary
information (a) may be used by SB in performing its obligations under the Supply
Agreement, (b) may be shared, subject to execution of a confidentiality
agreement, with potential third party manufacturers of the Products and (c) may
be disclosed, subject to execution of a confidentiality agreement, with
potential purchasers of rights outside the Territory to product lines for which
auranofin is an active ingredient; provided that no information specific to
Purchaser shall be disclosed in such context.
5.2 SB's obligations hereunder shall not apply to information which: (i)
is already in the public domain at the time of disclosure; (ii) becomes part of
the public domain through no action or omission of SB after disclosure to the
receiving party; (iii) has been or is disclosed to SB in good faith by a third
party who was or is not, at the time of disclosure, under any obligation of
confidence to BUYER at the time the third party disclosed such information; or
(v) is required to be disclosed by law.
5.3 This Article 5 shall survive expiration or termination of this
Agreement for a period of ten (10) years.
ARTICLE 6 - MISCELLANEOUS
6.1 Corporate Organization and Authority. Each party represents and
warrants that it is a company duly organized, validly existing, and in good
standing under the laws of the jurisdiction wherein it is organized, and that it
has all necessary power and authorization to assume the obligations under this
Agreement, and to discharge them pursuant to the terms hereof.
-9-
<PAGE> 10
6.2 Public Announcements.
The parties hereto agree that no disclosure or public announcement with
respect to this Agreement or any of the transactions contemplated by this
Agreement shall be made by any party hereto without the prior written consent of
SB or Buyer provided, however, that nothing herein contained shall restrict SB
or BUYER from making any public announcement of the transactions contemplated by
this Agreement to the extent that it, in its sole discretion reasonably
exercised, is of the view that such announcement is required or deemed advisable
in order to meet its obligations under the securities laws or stock exchange
requirements in the United Kingdom or the United States of America; provided
further that prior to making such announcement, the party making it shall
provide particulars thereof in writing to the other party. Notwithstanding the
foregoing, BUYER may disclose this Agreement and the transactions contemplated
hereby, to the extent reasonably necessary, in connection with (a) a private
placement of securities for the purpose of obtaining the financing necessary to
pay the Purchase Price (as defined in the Asset Asset Purchase Agreement) and
the fees and expenses related to the Asset Purchase Agreement, the transactions
contemplated thereby and such financing, (b) BUYER's filing and disclosure
obligations under the Securities Act of 1934, as amended, including the filing
of the Asset Purchase Agreement and all exhibits with the Securities and
Exchange Commission, and/or (c) any registration of one or more of the Products
with any state or Federal agency.
6.3 Force Majeure. Neither party shall be liable to the other if, and to
the extent, that the performance or delay in performance of any of its
obligations under this Agreement is prevented, restricted, delayed or interfered
with due to circumstances beyond the reasonable control of such party,
including, but not limited to, government legislation, fires, floods,
explosions, epidemics, accidents, acts of God, wars, riots, strikes, lockouts or
other concerted acts of workers and/or acts of government. The party claiming an
event of force majeure shall promptly notify the other party in writing, and
provide full particulars of the cause or event and the date of first occurrence
thereof, as soon as possible after the event and also keep the other party
informed of any further developments. The party so affected shall use its best
efforts to remove the cause of non-performance, and both the parties shall
resume performance hereunder with the utmost dispatch when such cause is removed
unless this Agreement is previously expired or terminated under Article 4
hereof.
6.4 Amendment and Waiver. This Agreement may be amended only by a writing
which specifically states that such an amendment is its purpose and which is
signed by both parties. No course of dealing between the parties or failure by
either party to exercise any right or remedy hereunder shall constitute an
amendment to this Agreement or a waiver of any other right or remedy or the
later exercise of any right or remedy.
6.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the substantive law of the Commonwealth of Pennsylvania without
regard to its rules for conflicts of law.
6.6 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that no party may assign, delegate or
otherwise transfer any of its rights or obligations
-10-
<PAGE> 11
under this Agreement without first receiving the prior written consent of the
other party hereto which consent shall not be unreasonably withheld, except that
either party may assign and delegate its rights and duties hereunder without
obtaining such consent (i) to any Affiliate or subsidiary of such party, or (ii)
to any party or entity which acquires substantially all of the business or
assets of such party if such party guarantees the performance of the acquiring
party and the acquiring party expressly assumes the assigning party's
obligations hereunder.
6.7 Nature of Agreement. In operating under the Agreement, each party
shall act independently and this Agreement shall not be construed as creating
any partnership, joint venture or incorporated business entity. Neither party
shall have any authority to incur any liability or obligation whatsoever on
behalf of the other.
6.8 Notice. Any notice, direction or other instrument required or
permitted to be given to Vendor hereunder shall be in writing and may be given
by delivering the same or sending the same by telecommunication addressed to SB
as follows:
To: SmithKline Beecham Pharmaceuticals
One Franklin Plaza
Philadelphia, PA 19102
Attn: Francis Molettieri
Fax: 215-751-5509
Copy to: SmithKline Beecham Corporation
One Franklin Plaza
Philadelphia, PA 19102
Attn: General Counsel, U.S.
Fax: 215-751-5355
Any notice, direction or other instrument required or permitted to be
given to BUYER hereunder shall be in writing and may be given by delivering the
same or sending the same by telecommunication addressed to BUYER as follows:
To: Connective Therapeutics, Inc.
3400 W. Bayshore Road
Palo Alto, CA 94303
Attn: Chief Executive Officer
Fax:(415) 843-2899
Copy to: Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Attn: Joshua L. Green
Fax: (415) 233-8386
Any such notice, direction or other instrument, if delivered, shall be
deemed to have been given on the date on which it was delivered and if
transmitted by telecommunication
-11-
<PAGE> 12
shall be deemed to have been given at the opening of business in the office of
the addressee on the Business Day next following the transmission thereof.
Any party hereto may change its address for service from time to
time by notice given to the other parties hereto in accordance with the
foregoing.
6.9 Entire Agreement. This Agreement and the agreements and documents
referred to herein constitute the entire agreement between the parties
pertaining to the subject matter hereof, and supersede, on the effective date
hereof, all prior and contemporaneous agreements, representations and
understandings of the parties in connection herewith. No agent of either party
is authorized to make any representation, promise, or warranty not contained in
this Agreement.
-12-
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have affixed hereunto their
authorized signature as follows:
SMITHKLINE BEECHAM
PHARMACEUTICALS,
DIVISION OF SMITHKLINE BEECHAM CORPORATION
By: /s/ Donald Parman (signature)
---------------------------------
Name: Donald Parman
-------------------------------
Title: Vice President
------------------------------
CONNECTIVE THERAPEUTICS, INC.
By: /s/ Thomas G. Wiggans (signature)
---------------------------------
Name: Thomas G. Wiggans
-------------------------------
Title: President and CEO
------------------------------
-13-
<PAGE> 14
EXHIBIT A
RIDAURA
(AURANOFIN)
I. PRODUCT(S) (list each Product) LOT SIZE
Ridaura 60s 5,200,000 capsules
II. SPECIFICATIONS
DOCUMENT DATE OF DOCUMENT
Product Specifications 6/15/93
Manufacturing Specifications 1/17/89 (mix)
1/23/89 (filled capsules)
Packaging Specifications Packaging Job Order
60s 6/28/94
Raw Material Specifications [date to follow]
Testing Methods and Protocols [date to follow]
Packaging Configurations [date to follow]
(bottle size, quantity, etc.)
Copies of the above documents have been previously supplied to the BUYER and are
not attached hereto.
<PAGE> 15
EXHIBIT B
PRICES (FOB SB manufacturing site)
RIDAURA, 3MG CAPSULES
(AURANOFIN)
PRICES
(US Dollars)
(FOB SB Philadelphia, PA and Cidra, Puerto Rico manufacturing site)
<TABLE>
<CAPTION>
PRODUCT PACKAGE SIZE PRICE PER UNIT*
<S> <C> <C>
Ridaura, 3mg capsule 60's $[**]
</TABLE>
- --------
** Confidential Treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
<PAGE> 16
EXHIBIT C
SB QUALITY ASSURANCE REQUIREMENTS
<TABLE>
<CAPTION>
----------
CHECKLIST PAGE: 4
----------
- --------------------------------------------------------------------------------
Form APPLICABLE RESPONSIBLE RESPONSIBLE
Num. SB CONTRACTOR
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A. QUALITY/REGULATORY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A1 ANNUAL REVIEWS (211)
- --------------------------------------------------------------------------------
A2 AUDITS
- --------------------------------------------------------------------------------
A3 CERTIFICATES OF ANALYSIS/
CONFORMANCE (COA/COC)
- --------------------------------------------------------------------------------
A4 COMPUTER SYSTEMS
- --------------------------------------------------------------------------------
A5 CUSTOMER COMPLAINTS
- --------------------------------------------------------------------------------
A6 DEVIATIONS
- --------------------------------------------------------------------------------
A7 DOCUMENTATION
- --------------------------------------------------------------------------------
A8 DRUG MASTER FILE (DMF)
- --------------------------------------------------------------------------------
A9 FIELD ALERTS/RECALLS
- --------------------------------------------------------------------------------
A10 IN-PROCESS CONTROLS
- --------------------------------------------------------------------------------
A11 INSPECTIONS/MIL. STD.
- --------------------------------------------------------------------------------
A12 LABELING
- --------------------------------------------------------------------------------
A13 LABORATORY ANALYSIS
- --------------------------------------------------------------------------------
A14 LABORATORY STANDARDS
- --------------------------------------------------------------------------------
A15 LOT NUMBER/EXPIRATION DATING
- --------------------------------------------------------------------------------
A16 MATERIAL SEGREGATION
- --------------------------------------------------------------------------------
A17 NDA AND ANNUAL REPORT (314)
- --------------------------------------------------------------------------------
A18 PROMOTIONAL MATERIALS
- --------------------------------------------------------------------------------
A19 REGULATORY AGENCY INSPECTIONS
- --------------------------------------------------------------------------------
A20 REJECTED PRODUCT
- --------------------------------------------------------------------------------
A21 RELEASE
- --------------------------------------------------------------------------------
A22 RESERVE SAMPLES
- --------------------------------------------------------------------------------
A23 STABILITY TESTING
- --------------------------------------------------------------------------------
A24 TRAINING/QUALIFICATION
- --------------------------------------------------------------------------------
A25 GMP STANDARDS
- --------------------------------------------------------------------------------
A26 TECHNICAL DOSSIER CONTENTS
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 17
----------
CHECKLIST (CONT'D.) PAGE: 5
----------
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A27 CERTIFICATION
- --------------------------------------------------------------------------------
A28 WORLDWIDE REGISTRATIONS
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Form APPLICABLE RESPONSIBLE RESPONSIBLE
Num. SB CONTRACTOR
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
B VALIDATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
B1 CALIBRATION/PM MANAGER
- --------------------------------------------------------------------------------
B2 CLEANING
- --------------------------------------------------------------------------------
B3 EQUIPMENT
- --------------------------------------------------------------------------------
B4 FACILITY/ENVIRONMENT
- --------------------------------------------------------------------------------
B5 PROCESS
- --------------------------------------------------------------------------------
B6 REPROCESSING
- --------------------------------------------------------------------------------
B7 STERILIZATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
C MATERIALS MANAGEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
C1 CONTAINERS
- --------------------------------------------------------------------------------
C2 DISPOSAL
- --------------------------------------------------------------------------------
C3 ENVIRONMENTAL MONITORS
- --------------------------------------------------------------------------------
C4 INVENTORY POLICY
- --------------------------------------------------------------------------------
C5 ORDERING
- --------------------------------------------------------------------------------
C6 RAW MATERIALS
- --------------------------------------------------------------------------------
C7 RECEIVING
- --------------------------------------------------------------------------------
C8 SAFETY DATA SHEETS
- --------------------------------------------------------------------------------
C9 SHIPPING
- --------------------------------------------------------------------------------
C10 SHIPPING LABELS
- --------------------------------------------------------------------------------
C11 SUPPLIERS
- --------------------------------------------------------------------------------
C12 WAREHOUSING
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 18
-----------
CHECKLIST (CONT'D.) PAGE: 6
-----------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Form APPLICABLE RESPONSIBLE RESPONSIBLE
Num. SB CONTRACTOR
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
D CHANGE CONTROL
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
E PACKAGING/LABELING
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
E1 COMPONENT SPECIFICATION
SHEETS
- -------------------------------------------------------------------------------
E2 ELECTRONIC DEVICES
- -------------------------------------------------------------------------------
E3 ENVIRONMENTAL MONITORING
DEVICES
- -------------------------------------------------------------------------------
E4 NON PRINTED COMPONENTS
- -------------------------------------------------------------------------------
E5 PRINTED COMPONENTS
- -------------------------------------------------------------------------------
E6 SAMPLE PROCUREMENT
- -------------------------------------------------------------------------------
E7 SPECIFICATIONS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
F MANAGEMENT
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
F1 REPORTS
- -------------------------------------------------------------------------------
F2 MANAGEMENT OF THE
CONTRACTOR /LICENSEE
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
H. EXPORT REQMTS
- -------------------------------------------------------------------------------
</TABLE>
<PAGE> 19
----------
CONTRACT PROCESS FLOW PAGE: 7
----------
DRUG SUBSTANCE
- --------------------------------------------------------------------------------
CONTRACTOR LOCATION ADDRESS
-------------------------------------------------------------
-------------------------------------------------------------
MANUFACTURING
-------------------------------------------------------------
-------------------------------------------------------------
- --------------------------------------------------------------------------------
DRUG PRODUCT
- --------------------------------------------------------------------------------
CONTRACTOR LOCATION ADDRESS
-------------------------------------------------------------
-------------------------------------------------------------
MANUFACTURING
-------------------------------------------------------------
-------------------------------------------------------------
- --------------------------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
FILLING
- --------------------------------------------------------------------------------
<PAGE> 1
Exhibit 10.5
CONFIDENTIAL TREATMENT REQUESTED
TRANSITIONAL SERVICES AGREEMENT
AGREEMENT, dated as of December 31, 1996, between SmithKline Beecham
Corporation, a Pennsylvania corporation ("SB") and Connective Therapeutics Inc.,
a Delaware corporation ("Connective").
WHEREAS, SB and Connective have entered into an Asset Purchase
Agreement dated December 2, 1996 (the "Purchase Agreement"), pursuant to which
Connective has acquired certain products listed on EXHIBIT A (the "Products");
WHEREAS, in connection with such acquisition Connective desires SB to
continue to provide certain services with respect to the Products, and SB is
willing to continue to provide such services for the benefit of Connective;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and intending to be legally bound, the parties hereby
agree as follows:
SECTION 1
ORDER ENTRY, SHIPPING AND INVOICING
1.1 Services. During the period beginning January 7, 1997 and ending
December 31, 1997 or such earlier date as Connective may reasonably request (the
"Period"), SB shall perform order entry, packaging, shipping, invoicing and
credit and collection services for the Products. SB also agrees not to remove
the Products from its price list prior to the end of the Period; thereafter SB
shall remove the Products from its price list as soon as practical. All such
services shall be performed on a timely basis consistent with SB's practices in
effect immediately prior to the date of this Agreement.
1.2 Payments. SB shall receive no separate consideration for the
provision of services hereunder other than as set forth in the Purchase
Agreement. No later than the 30th day following the last day of each calendar
quarter (or the last day of the Period if the Period does not conclude at the
end of a calendar quarter) during the Period (each a "Collection Period"), SB
shall pay Connective an amount equal to the net sales (computed on the basis set
forth in EXHIBIT B) of the Products for such Collection Period less [*] percent
([*]%) of such net sales for cash discounts (to the extent that SB has given
such discounts); provided that during the period from the date of this Agreement
through February 28, 1997 SB shall pay Connective on the basis of gross sales
(computed on the basis set forth in EXHIBIT B) rather than net sales, again
subject to applicable cash discounts. SB shall fulfill orders from its existing
inventory of Products until such inventory is exhausted and the cost of such
Products shall be deducted (at [*] per bottle of 60 capsules) from the related
net sales.
- --------
* Confidential treatment has been requested for the language which has
been omitted. All such omitted material has been filed separately with
the SEC.
<PAGE> 2
1.3 Supporting Statements. Each payment made pursuant to Section 1.2
shall be accompanied by a statement setting forth gross sales and all
information used to calculate the payment made to Connective, together with a
certificate signed by the Director, Finance and Planning, SmithKline Beecham
Pharmaceuticals division of SB, that such statement complies with this
Agreement. SB shall permit Connective's independent auditors to have access to
SB's records and work papers as may be necessary to verify the accuracy of the
statements provided to Connective hereunder and to assure that SB has complied
with the terms of this Agreement. Bad debts incurred in connection with sales of
the Products after the date hereof will be at the expense of Connective. During
the Period the bad debt expense for any account shall be apportioned between the
Products and other SB products sold to the same customer pro rata based on total
amounts due. Connective shall have no right to separately pursue collections
directly from customers of any amounts due with respect to bad debts for sales
during the Period.
1.4 Sales Information. On the second business day after each calendar
month, SB shall provide Connective (in a format reasonably acceptable to
Connective) quantities of Products sold and related sales dollars (itemized by
customer and/or distributor), cost of Products sold, inventory of Products as of
the end of the Collection Period and any other information reasonably requested
in advance by Connective.
SECTION 2
NOTIFICATION TO THE TRADE
During the Period SB shall (a) notify all customers of the transfer of
the Products to Connective and make available a duplicate set of mailing labels
for wholesalers for Connective's use and (b) print a brief notice concerning the
sale of the Products to Connective on appropriate invoices after the date of the
Purchase Agreement.
SECTION 3
GENERAL PROVISIONS
3.1 Independent Contractors. SB is an independent contractor in
providing services with respect to the Products.
3.2 Confidentiality. The confidentiality obligations set forth in
Sections 6.5 and 8.4 of the Purchase Agreement shall apply to any proprietary or
confidential information provided by either party to the other party in
connection with this Agreement.
3.3 Indemnification. SB agrees to indemnify, defend and hold Connective
harmless from and against any and all claims, liabilities, damages, losses,
costs and expenses (including reasonable attorney fees), from any third party
claims or suits brought against Connective which arise out of the negligence or
willful misconduct of SB or one of its employees in performing the services
under this Agreement. The procedures for indemnification shall be the same as
provided in Section 14.3 of the Purchase Agreement.
-2-
<PAGE> 3
3.4 Notices. Any notices permitted or required by this Agreement shall
be sent by telecopy or by certified or registered mail and shall be effective
when received if sent and addressed as follows or to such other address as may
be designated by a party in writing:
If to SB SmithKline Beecham Pharmaceuticals
One Franklin Plaza
Philadelphia, PA 19102
Attn: Francis Molettieri
Fax: 215-751-5509
Copy to: SmithKline Beecham Corporation
One Franklin Plaza
Philadelphia, PA 19102
Attn: Corporate Legal
Fax: 215-751-5349
If to Connective: Connective Therapeutics, Inc.
3400 W. Bayshore Road
Palo Alto, CA 94303
Attn: Chief Executive Officer
Fax: (415) 843-2899
Copy to: Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Attn: Joshua L. Green
Fax: (415) 233-8386
3.5 Entire Agreement. The parties hereto acknowledge that this
Agreement sets forth the entire agreement and understanding of the parties and
supersedes all prior written or oral agreements or understandings with respect
to the subject matter hereof, except for the Purchase Agreement and the
agreements, including this Agreement, entered into pursuant to the Purchase
Agreement. No modification of any of the terms of this Agreement, or any
amendment hereto, shall be deemed to be valid unless in writing and signed by
the party against whom enforcement is sought. No course of dealing or usage of
trade shall be used to modify the terms and conditions herein.
3.6 Waiver. No waiver by either party of any default shall be effective
unless in writing, nor shall any such waiver operate as a waiver of any other
default or of the same default on any future occasion.
3.7 Obligations to Third Parties. Each party warrants and represents
that proceeding herewith is not inconsistent in any material way with any
contractual obligations, expressed or implied, undertaken with any third party.
-3-
<PAGE> 4
3.8 Assignment. This Agreement shall be binding upon and shall inure to
the benefit of the successors or permitted assigns of each of the parties. Any
assignment of rights or obligations of one party hereunder shall be effective
only after receipt of written consent from the other party, which consent shall
not be unreasonably withheld or delayed; provided that SB may assign this
Agreement to another entity controlled by, controlling or under common control
with SB without the consent of Connective so long as SB remains jointly and
severally liable with such assignee for the performance of all SB's obligations
hereunder.
3.9 Governing Law. The validity, interpretation and effect of this
Agreement shall be governed by and construed under the laws of the Commonwealth
of Pennsylvania.
3.10 Severability. In the event that any term or provision of this
Agreement shall violate any applicable statute, ordinance or rule of law in any
jurisdiction in which it is used, or otherwise be unenforceable, such provision
shall be ineffective to the extent of such violation without invalidating any
other provision hereof.
3.11 Headings. The headings used in this Agreement are for convenience
only and are not a part of this Agreement.
3.12 Counterparts. This Agreement may be executed in two (2)
counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same original.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties have each caused this Agreement to be
executed by their duly-authorized representatives as of the date first above
written.
SMITHKLINE BEECHAM CORPORATION
By: /s/ Donald Parman
--------------------------------
Title: Vice President
CONNECTIVE THERAPEUTICS INC.
By: /s/ Thomas G. Wiggans
--------------------------------
Title: President and CEO
-5-
<PAGE> 6
Exhibit A
Products
Ridaura capsules (auranofin 3 mg)
<PAGE> 7
Exhibit B
Gross and Net Sales
Gross and Net Sales are reported according to generally accepted accounting
practices by SB in the ordinary course of its business.
Gross Sales
Gross Sales is defined as the recording of Revenue with associated Accounts
Receivable for accounting purposes for specific shipment/invoicing transactions.
Invoices are prepared immediately following notification of shipment of goods.
Invoices are dated as the same day of shipment and reflect the number of units
shipped multiplied by the Unit price, which in most cases is WAC (Wholesale
Acquisition Cost). Gross Sales is recorded to the general ledger monthly from
the SB Month-to-Date Sales Report. Quarterly summarization of Gross Sales for
Connective will be in accordance with the SB Finance calendar. This calendar is
based upon a 13 week quarter comprised of 4 weeks, 4 weeks and 5 weeks for each
quarter.
Net Sales
Net Sales is defined as Gross Sales less allowable adjustments. Adjustments
include product returns, Medicaid reimbursements, chargebacks, rebates, state
payments, admin. fees and any other contractual reimbursement but do not include
cash discounts.
