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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 16, 1998
REGISTRATION NO. 333-______________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CONNETICS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 94-3173928
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
3400 WEST BAYSHORE ROAD
PALO ALTO, CA 94303
(650) 843-2800
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
THOMAS G. WIGGANS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CONNETICS CORPORATION
3400 WEST BAYSHORE ROAD
PALO ALTO, CA 94303
(650) 843-2800
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SHARES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE
=========================================================================================================================
<S> <C> <C> <C> <C>
Common Stock,
$0.001 par value per share................ 3,572,548 shares $4.09 $14,611,721.32 $4,063.00
=========================================================================================================================
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(1) Estimated solely for the purpose of computing the amount of the registration
fee based on the average of the high and low prices of the Common Stock as
reported on the Nasdaq National Market on December 9, 1998 pursuant to Rule
457(c).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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THE INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PRELIMINARY PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 16, 1998
CONNETICS CORPORATION
3,572,548 SHARES
COMMON STOCK
This Prospectus relates to 3,572,548 shares of Connetics Common Stock,
$0.001 par value, (the "Shares") which may be offered for the account of several
stockholders of Connetics (the "Selling Stockholders") and will not be
underwritten. Of the Shares being registered hereby for the Selling
Stockholders, (1) 3,167,500 were issued to several private investors in a
private placement on November 20, 1998 (the "Private Placement") pursuant to an
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), (2) 380,048 were issued to Genentech, Inc. in
May 1998 under the Company's obligation to issue equity to Genentech, Inc. in
connection with the Company's acquisition of rights to interferon gamma, and
(3) 25,000 were authorized for issuance as shares of restricted stock to Kirk
Raab, a director of the Company. The shares issued to Kirk Raab were issued on
November 5, 1998.
The Selling Stockholders may sell the Shares from time to time on the
over-the-counter market in regular brokerage transactions, in transactions
directly with market makers or in certain privately negotiated transactions. We
will not receive any proceeds from the sale of the Shares by the Selling
Stockholders. We have agreed to pay certain expenses of the Selling
Stockholders. See "Plan of Distribution."
The Selling Stockholders and any broker-dealers, agents or underwriters
that participate with the Selling Stockholders in the distribution of the Shares
may be deemed to be an "Underwriter" within the meaning of Section 2(11) of the
Securities Act, and any commissions received by them and any profit on the
resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. See "Plan of Distribution"
for a description of indemnification arrangements.
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Our Common Stock is quoted on the Nasdaq National Market System (the
"Nasdaq") under the symbol "CNCT". On December 11, 1998, the last sale price of
our Common Stock on the Nasdaq was $4.125 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 OF THIS PROSPECTUS FOR A DISCUSSION OF
MATERIAL RISKS INFORMATION THAT YOU SHOULD CONSIDER IN CONNECTION WITH THE
PURCHASE OF SECURITIES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is December 16, 1998
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TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
Available Information 6
Documents Incorporated by Reference 6
The Company 8
Risk Factors 11
Use of Proceeds 22
Indemnification of Officers and Directors 23
Issuance of Common Stock to Selling Stockholders 23
Selling Stockholders 23
Plan of Distribution 25
Legal Matters 26
Experts 26
Additional Information 26
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NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
STOCKHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE SHARES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files proxy statements, reports and other information with
the Securities and Exchange Commission (the "Commission"). This filed material
can be inspected and copied at regional offices of the Commission located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511 and 7 World Trade Center, Suite 1300, New York, New York 10048; and
at the Public Reference Office of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Commission also maintains a World Wide Web site
on the Internet at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding the Company and other
companies that file electronically with the Commission.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission File No.
27406 are incorporated by reference in this Prospectus:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1997.
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998.
3. The Company's Current Report on Form 8-K filed May 6, 1998.
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4. The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998.
5. The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
6. The description of the Company's Common Stock set forth in the
Company's Registration Statement on Form 8-A filed with the Commission on
December 8, 1995, including any amendment thereto or report filed for the
purpose of updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Common Stock offered hereby shall be deemed
to be incorporated by reference in this Prospectus. Any statement contained in a
document incorporated by reference herein shall be deemed to be modified or
superseded for purposes hereof to the extent that a statement contained herein
(or in any other subsequently filed document which also is incorporated by
reference herein) modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed to constitute a part hereof, except
as so modified or superseded.
The Company will furnish without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the written or oral
request of such person, a copy of any or all of the documents incorporated by
reference, other than exhibits to such documents. Requests should be directed to
John Higgins, Chief Financial Officer, Connetics Corporation, 3400 West Bayshore
Road, Palo Alto, California 94303, telephone: (650) 843-2800.
The "C with interlocking hemisphere" logo (used alone and with the
Company's name), "Connetics(R)", "ConXn(R)" and "Ridaura(R)" and "Luxiq" and
"OLUX" are trademarks of the Company. All other tradenames and trademarks
appearing in this Prospectus are the property of their respective holders.
Connetics Corporation ("Connetics" or the "Company") was incorporated in
the State of Delaware on February 8, 1993.
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SPECIAL NOTE: THE FOLLOWING DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS
OR EVENTS TO DIFFER MATERIALLY FROM THOSE PROJECTED IN SUCH FORWARD-LOOKING
STATEMENTS. POTENTIAL RISKS AND UNCERTAINTIES INCLUDE, WITHOUT LIMITATION, THOSE
FACTORS BELOW UNDER THE HEADING "ADDITIONAL FACTORS THAT MAY AFFECT FUTURE
RESULTS."
THE COMPANY
The Company is focused on the development and commercialization of
therapeutics to address serious diseases involving the connective tissues of the
body. Connective tissues are components of the body that form structural or
binding elements such as skin, joints, ligaments and lining of organs, and form
the three-dimensional structure that allows cells to function normally. The
diseases or conditions initially addressed by the Company include scleroderma,
rheumatoid arthritis, and psoriasis. Patients suffering from these conditions
experience a variety of chronic problems depending on the particular condition,
including hardening of the skin and internal organs, severe scarring, lack of
mobility and extensive rashes and lesions. The most severe of these diseases
cause painful disfigurement, disability and, in certain cases, death. The
Company estimates that over five million Americans suffer from its targeted
diseases in their various forms, with over five billion dollars spent annually
on treatments that are mostly palliative in nature. The Company has several
products in development addressing these disease indications: ConXn(R)
(recombinant human relaxin H2) ("relaxin"), Luxiq(TM) (betamethasone valerate
quick break foam), OLUX(TM) (clobetasol propionate quick break foam), and
through its wholly-owned subsidiary, interferon gamma (1b) ("interferon gamma").
In December 1996, the Company acquired the exclusive U.S. rights to Ridaura(R)
(auranofin), an approved disease modifying antirheumatic drug approved for sale,
from SmithKline Beecham Corporation and affiliated entities ("SmithKline").
Relaxin. Relaxin is a naturally occurring protein that is known to
promote remodeling of connective tissues. The Company is developing relaxin for
the treatment of scleroderma, as well as other connective tissue diseases.
Scleroderma, a disorder characterized by thickening and hardening of the skin
and internal organs, generally afflicts women in their child-bearing years.
Scleroderma can cause extensive disfigurement and quality of life impairment,
making it impossible for afflicted patients to carry out the most routine daily
functions. This disease affects over 300,000 individuals in the United States
and, in its severe form (known as systemic sclerosis, which affects
approximately 70,000 individuals in the U.S.), has a five-year mortality rate of
50%-70%. Research by two of the Company's founders and their colleagues has
shown that relaxin can inhibit excessive connective tissue formation and promote
connective tissue remodeling. Results from several clinical trials in
individuals with systemic sclerosis indicated that continuous administration of
relaxin was well tolerated, without any serious drug-related adverse effects. In
June 1997, the Company announced results of a 64 patient Phase II clinical trial
which showed that administration of relaxin caused a statistically significant
reduction in skin score (a measure of disease progression) and a trend toward
improvement in eleven other disease parameters. Thus, relaxin may have a
beneficial effect on connective tissue turnover and may provide a treatment for
scleroderma. The Company anticipates that it will begin a pivotal
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trial of relaxin in 1999. The Company has also conducted a preclinical animal
study that demonstrated Relaxin's potential ability to inhibit pulmonary (lung)
fibrosis and is conducting preclinical studies with relaxin in liver and cardiac
fibrosis, and infertility.
Luxiq(TM). The Company has an exclusive license to develop and market
Luxiq (a quick break foam formulation of the dermatologic drug, betamethasone
valerate) in North America. The product has been approved for sale in the United
Kingdom and is being marketed in the U.K. by Evans Medical Ltd. In the United
States, the product is referred to by the tradename Luxiq(TM). In August 1997,
the Company announced that results from its Phase III clinical trial with Luxiq
demonstrated statistically significant improvement over both placebo and
betamethasone lotion for the treatment of scalp psoriasis, a condition that
affects over three million persons in the United States. In December 1997, the
Company submitted a New Drug Application (an "NDA") with the FDA to market the
product for use in all steroid-responsive dermatoses, including psoriasis.
OLUX(TM). Following its development progress with Luxiq, the Company is
now developing a second quick-break foam product with the tradename OLUX.
OLUX is a quick break foam formulation of clobetasol propionate, a super high
potency corticosteriod. In January 1998, the Company acquired exclusive rights
to develop and market the drug in North America. During the quarter ended
September 30, 1998, the Company initiated and completed treatment in a Phase III
clinical trial of Olux intended for the treatment of severe scalp psoriasis and
other corticosteroid-responsive dermatoses of the scalp. The Phase III trial was
a multicenter, randomized, double-blind study of approximately 190 scalp
psoriasis patients which compared Olux to a currently approved clobetasol
solution and to placebo during a two week treatment regimen. The primary
endpoints for the trial included changes in the clinical signs of psoriasis:
plaque thickness scaling, erythema (redness), and the global response to
treatment as judged by the investigator. Decreases in itching and the patient's
assessment of improvement were also evaluated. On November 11, 1998, the Company
announced that the outcome of the trial was positive and that the Company
anticipates filing an NDA in 1999.
Ridaura(R). In December 1996, the Company acquired the exclusive U.S. and
Canadian rights to Ridaura (auranofin), a disease modifying antirheumatic drug,
from SmithKline. Ridaura is an established therapy for rheumatoid arthritis, an
autoimmune disease that afflicts one to two percent of adult Americans
(approximately three million people), mostly women. Under its agreement with
SmithKline, the Company acquired all U.S. and Canadian rights, title and
interest to Ridaura, including intellectual property rights, along with related
assets such as customer lists, contracts, product files and unfilled customer
orders. The primary patents for Ridaura expired in 1989 and 1992. Connetics
began marketing Ridaura through in its own sales force in mid-1997. Through
agreements with SmithKline, customer orders and distribution for the product
were managed by SmithKline through 1997, and SmithKline will manufacture and
supply Ridaura in final finished package form to the Company for an initial term
of five years. The Company has established a relationship with CORD Logistics,
Inc. ("CORD"), a distribution company located in Nashville, Tennessee and has
been shipping Ridaura through CORD since December 15, 1997. In December 1997,
the Company sold the Canadian rights to Ridaura to, and entered into a supply
agreement with, Pharmascience Inc., a Canadian company, for a net consideration
of $1,300,000.
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TCR Vaccines. The Company holds certain patents that permit it to develop
TCR vaccines for the treatment of autoimmune diseases. While the results of
pilot clinical studies using TCR vaccines for the treatment of rheumatoid
arthritis and multiple sclerosis were encouraging, the Company has suspended
most of its activity with respect to TCR, to permit it to focus its resources on
products closer to market.
Interferon gamma. Interferon gamma is one of a family of proteins
involved in the regulation of the immune system and has been shown to reduce the
frequency and severity of infections in patients. Interferon gamma is approved
by the FDA for the reduction in frequency and severity of infection in a rare,
serious immune disease, known as chronic granulomatous disease ("CGD"). In May
1998, the Company entered into a license agreement with Genentech, Inc., under
which the Company received an exclusive license under certain patent rights and
know-how to Actimmune(R) (Interferon gamma) for the treatment of infections in
CGD and several additional indications (non-cancer dermatological diseases;
infectious diseases; infections in osteopetrosis; pulmonary fibrosis; and
asthma) in the United States. The parties also entered into a Supply Agreement
under which Genentech will manufacture and supply interferon gamma, in bulk
product or finished product form.
The Company has formed a subsidiary corporation, InterMune
Pharmaceuticals, Inc. to further develop and market interferon gamma for
infectious disease applications. Clinical studies are underway evaluating
interferon gamma's role as a potential therapy for infections associated with
osteopetrosis; for atypical mycobacterial infections; and as a treatment for
multiple-drug resistant tuberculosis.
In addition, the Company has conducted a Phase II clinical trial for the
treatment of keloids, which are unsightly, painful, elevated scars resulting
from collagen overproduction. In August 1997, the Company also announced results
from a Phase III trial of interferon gamma for the treatment of atopic
dermatitis that indicated that the product did not show an acceptable
therapeutic response with respect to the primary clinical endpoint. As a result,
the Company suspended plans to submit a Biological License Application ("BLA")
for interferon gamma for the treatment of atopic dermatitis.
Corporate Strategy. The Company's strategy is to: (1) focus on the
development and commercialization of products targeting the rheumatology and
dermatology markets, which can be effectively served by focused and specialized
sales and marketing activities, (2) expand its existing product portfolio and
pursue early commercialization opportunities by in-licensing other
therapeutically related products that are already marketed or in late-stage
clinical development, (3) use corporate partnerships to pursue new business
opportunities and overseas licensing of the Company's products in development,
(4) leverage its product development and commercialization expertise by pursuing
additional specialized diseases and markets, and (5) minimize drug discovery
costs, manufacturing costs and capital requirements.
The Company's principal executive offices are located at 3400 West
Bayshore Road, Palo Alto, California 94303. Its telephone number is (650)
843-2800. The Company maintains an internet website at http://www.connetics.com.
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RISK FACTORS
This Prospectus (including the documents incorporated by reference in
this Prospectus) contains forward looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including, without limitation, statements regarding the
Company's expectations, beliefs, intentions or future strategies. All forward
looking statements included in this document are based on information available
to the Company on the date of this Prospectus, and the Company assumes no
obligation to update any such forward looking statements. Actual results could
differ materially from those projected in the forward looking statements as a
result of the risk factors set forth below and in the documents incorporated by
reference in this Prospectus. In evaluating the Company's business, prospective
investors should carefully consider the following risk factors in addition to
the other information set forth in this Prospectus or incorporated by reference
in this Prospectus.
WE ARE AT AN EARLY STAGE OF DEVELOPMENT AND ARE SUBJECT TO UNCERTAINTIES
ASSOCIATED WITH PRODUCT DEVELOPMENT AND MARKET ACCEPTANCE.
From its inception until its acquisition of Ridaura in December 1996,
Connetics was a development stage company. Except for Ridaura and Actimmune, all
of the Company's products are in clinical or preclinical development or are
pending approval by the FDA, and no revenues were generated from products until
December 1996. To date, the Company's resources have been primarily dedicated to
the research and development of products that the Company has in-licensed.
Although the Company believes it has the expertise to develop and commercialize
its products, any or all of the Company's products may fail to be effective or
prove to have undesirable and unintended side effects or other characteristics
that may prevent their development or regulatory approval, or limit their
commercial use.
There can be no assurance that the Company, or its collaborative
partners, will be permitted to undertake human clinical trials for any of their
development products not currently in clinical trials or, if permitted, that
such products will be demonstrated to be safe and effective. In addition, there
can be no assurance that any of the Company's products under development will
obtain approval from the FDA or equivalent foreign authorities for any
indication or that an approved compound will be capable of being produced in
commercial quantities at reasonable costs and successfully marketed. Even if
such products become commercially available, there can be no assurance that the
Company will be able to gain satisfactory market acceptance for such products.
WE HAVE A LIMITED OPERATING HISTORY AND A HISTORY OF LOSSES. OUR ABILITY
TO ACHIEVE OR, IF ACHIEVED, SUSTAIN PROFITABILITY, IS HIGHLY UNCERTAIN.
Due to its limited operating history, the Company is subject to the
uncertainties and risks associated with any new business. Having no
commercialized products until the December 1996 Ridaura acquisition, the Company
has experienced operating losses every year since its incorporation. Net losses
for the fiscal years ended December 31, 1997, 1996 and 1995 were
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$27.9 million, $18.5 million and $10.4 million, respectively, and the Company
had an accumulated deficit of $65.9 million at December 31, 1997. Additionally,
the Company continues to incur net losses. The Company incurred net losses of
$20.6 million in the nine months ended September 30, 1998, compared with $23.0
million for the corresponding period in 1997. Pursuant to the interferon gamma
license agreement with Genentech in May 1998, the Company recorded a $4.0
million non-cash charge for a license fee in the quarter ended June 30, 1998.
Other than the $4.0 million charge, the decrease of $2.4 million in net losses
for the nine months ended September 30, 1998 from the same period in 1997 was
primarily due to a decrease of approximately $6.2 million in development
activities, lower amortization costs due to the sale of Canadian rights to
Ridaura and an additional $1.6 million in licensing revenue in connection with
the agreement with Suntory Pharmaceuticals for relaxin. The decreases were
offset in part by higher selling, general and administrative expenses. The
Company expects to incur additional losses over the next few years and losses
are expected to fluctuate from period to period based on timing of product
revenues, clinical material purchases, possible acquisitions of new products and
technologies, scale-up activities and clinical activities. The time required by
the Company to reach profitability is uncertain and there can be no assurance
that the Company will ever be able to generate revenue from its products now
under development or achieve profitability on a sustained basis.
WE ARE SUBJECT TO RISKS RELATED TO THE MANAGEMENT OF THE MARKETING AND
SALES OF OUR RIDAURA PRODUCT. IN ADDITION, FUTURE REVENUES FROM SALES OF RIDAURA
ARE UNCERTAIN. WE ARE ALSO SUBJECT TO PATENT RISKS RELATED TO RIDAURA.
The Company's success will depend in part on its ability to manage the
marketing and sales of Ridaura. The Company has established a relationship with
CORD, a distribution company located in Nashville, Tennessee and has been
shipping Ridaura through CORD since December 15, 1997. If CORD were to become
unable to continue to distribute Ridaura in an effective manner or if the
Company is unable to maintain sufficient personnel with the appropriate levels
of experience to manage this function, the Company's business, financial
condition and results of operations could be materially and adversely affected.
In addition, there can be no assurance that the Company's Ridaura revenues will
equal or exceed those achieved by SmithKline over the last several years. If the
Company is not able to market and sell Ridaura successfully, the Company's
business, financial condition and results of operations could be adversely
affected. Furthermore, the absence of patent protection for Ridaura means that
the Company will be unable to assert patent infringement claims against a third
party marketing the same product under a different trade name, which could have
a material adverse effect on the Company's business, financial condition, and
results of operations.
OUR PRODUCT REVENUES MAY FLUCTUATE FROM PERIOD TO PERIOD IN THE FUTURE.
The Company had no revenues from products from its inception until
December 1996, when it recognized $428,000 in December product revenues from
Ridaura. For the year ended December 31, 1997, the Company recognized $6.8
million in product revenue from Ridaura. There can be no assurance that growth
in Ridaura revenue will be achieved, that current revenue levels will be
maintained, or that the Company will ever be profitable on a quarterly or annual
basis. As noted above, the Company expects to incur quarterly and annual
operating losses for at
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least the next few years. The Company's quarterly and annual operating results
may fluctuate significantly in the future depending on such factors as the
timing and shipment of significant Ridaura orders, if any, changes in pricing
policies by the Company and its competitors, the timing and market acceptance of
any new products introduced by the Company, the mix of distribution channels
through which Ridaura and other products (if any) are sold, and the Company's
inability to obtain sufficient supplies for its products. In response to
competitive pressures or new product introductions, the Company may take certain
pricing or other actions that could materially and adversely affect the
Company's operating results.
WE WILL NEED TO RAISE CAPITAL IN THE FUTURE. FUTURE FINANCINGS COULD
HAVE A DILUTIVE EFFECT ON STOCKHOLDERS OF THE COMPANY.
The Company has financed its operations to date primarily through private
sales of equity securities and proceeds from its initial public offering in
February 1996 and six self-managed financings. As of September 30, 1998, cash,
cash equivalents, short-term investments and long-term restricted cash totalled
$12.8 million, a decrease of $1.5 million from December 31, 1997. On November
20, 1998, the Company completed a private placement financing through which the
Company raised $12.7 million. As a result of this financing, the Company has
raised a total of $22.7 million through sales of Common Stock in 1998. The
Company believes that its existing cash, cash equivalents and short-term
investments along with cash generated from the sales of Ridaura and from
financings, will be sufficient to fund the Company's operating expenses, debt
obligations and capital requirements through 1999. The Company has an equity
line agreement with an investor that may potentially provide the Company access
to capital through sales of its Common Stock. The equity line is available for a
three-year term which began on June 26, 1998. During the three year term, if the
stock meets certain volume restrictions and trades above $10.00, then up to
$500,000 could be drawn by the Company approximately every three months in
exchange for the sale of stock at an approximate minimum price of $10.00.
On May 5, 1998, the Company entered into a license agreement with
Genentech under which the Company received an exclusive license under certain
patent rights and know-how to Actimmune (interferon gamma) for the treatment of
chronic granulomatous disease ("CGD") and several additional indications
(non-cancer dermatological diseases, infectious diseases, osteopetrosis,
pulmonary fibrosis and asthma) in the United States. Under the terms of the
agreement, the Company issued Genentech 380,048 shares of common stock valued at
$2.0 million at the time of closing, with a guaranteed future value of $4.0
million at December 28, 1998. In the event that the future value of such shares
is less that $4.0 million at December 28, 1998, the Company will have to either
issue additional shares or pay cash to Genentech to make up the difference. In
October 1998, the Company formed a subsidiary corporation, InterMune
Pharmaceuticals, Inc., to further develop and market interferon gamma.
The Company's future capital uses and requirements depend on numerous
factors, including the progress of its research and development programs, the
progress of clinical and advanced-stage clinical testing, the time and costs
involved in obtaining regulatory approvals, the cost of filing, prosecuting, and
enforcing patent claims and other intellectual property rights, competing
technological and market developments, the ability of the Company to establish
collaborative arrangements, the level of product revenues, the possible
acquisition of new
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products and technologies, and the development of commercialization activities,
and therefore such capital uses and requirements may increase in future periods.
As a result, the Company will require substantial additional funds prior to
reaching profitability and may attempt to raise additional funds through equity
or debt financings, collaborative arrangements with corporate partners or from
other sources. Other than the equity line agreement, the Company currently has
no commitments for any additional financings. There can be no assurance that
additional funding will be available for the Company to finance its ongoing
operations when needed or that adequate funds for the Company's operations,
whether from financial markets, collaborative or other arrangements with
corporate partners or from other sources, will be available when needed or on
terms attractive to the Company. Any additional equity financing, if available,
will have a dilutive impact on other stockholders and any debt financing, if
available, may restrict the Company's ability to pay dividends on its capital
stock or the manner in which the Company conducts its business. The inability to
obtain sufficient funds may require the Company to delay, scale back or
eliminate some or all of its research and product development programs, to limit
the marketing of its products or to license third parties the rights to
commercialize products or technologies that the Company would otherwise seek to
develop and market itself.
A KEY ELEMENT OF OUR STRATEGY IS TO ACQUIRE PRODUCTS AND THERE ARE RISKS
ASSOCIATED WITH SUCH ACQUISITIONS.
A significant part of the Company's overall strategy is to in-license or
acquire additional marketed or late-stage development products in its targeted
therapeutic areas. The 1996 acquisitions of rights to Luxiq and Ridaura reflect
this strategy. Future product acquisitions, if any, may require substantial
additional funds (1) for the initial acquisition of rights to these products and
(2) for the steps necessary to obtain FDA approval for the product and to
market, sell and distribute the product successfully. A portion of the funds
needed to acquire, develop and market any new products may come from the
Company's existing cash and short-term investments; in such case, fewer
resources will be available to the Company's current products and clinical
programs, which could have a material adverse effect on the Company's business,
financial conditions and results of operations. Alternatively, the Company may
seek to raise substantial additional funds for new product acquisitions. As
discussed above under "We will need to raise capital in the future. Future
financings could have a dilutive effect on stockholders of the Company." the
Company may seek such additional funding through collaborative arrangements and
through public or private financings, including equity financings. In addition,
any acquisition of rights to additional products that are not presently approved
by the FDA will require the commitment of substantial resources to conduct the
research and development, clinical studies and regulatory activities necessary
to bring such potential product to market. In addition, if the newly-acquired
product is already approved for sale, the Company will likely be assuming the
marketing, sale and distribution of such product, which may require the Company
to recruit a substantial number of qualified employees to perform these
functions. If the Company is unable to hire a sufficient number of employees
with the appropriate levels of experience, or if the Company is unable to
effectively manage the integration of any newly-acquired products into the
Company's product line, the Company's business, financial condition and results
of operations could be materially and adversely affected. Finally, any
newly-acquired products may not achieve the marketing or therapeutic success
expected of it by the Company, industry analysts or others at the time of
acquisition.
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CLINICAL TRIALS ARE INHERENTLY UNPREDICTABLE, AND WE HAVE LIMITED
EXPERIENCE IN CONDUCTING PRECLINICAL AND CLINICAL TRIALS.
During 1998 the Company concluded a Phase III trial of OLUX for the
treatment of severe psoriasis and skin dermatoses and a Phase II trial of
interferon gamma for the treatment of keloids. The Company anticipates
commencing a pivotal trial of ConXn for the treatment of scleroderma in 1999.
There can be no assurance that the Company will be able to commence any future
trials or successfully complete them once started. In addition, there can be no
assurance that the Company will meet its development schedule for any of its
products in development. If the Company were unable to commence clinical trials
as planned, complete the clinical trials or demonstrate the safety and efficacy
of its products, the Company's business, financial condition and results of
operations would be materially and adversely affected. Even if a product from
the Company's research and development programs or any other therapeutic product
is successfully developed according to plans, there can be no assurance it will
be approved by the FDA on a timely basis or at all.
In addition, because the Company will, in a number of cases, rely on its
contractual rights to access data collected by others in phases of its clinical
trials, the Company is dependent on the continued satisfaction by such parties
of their contractual obligations to provide such access and cooperate with the
Company in the execution of successful filings with the FDA. There can be no
assurance that the FDA will permit such reliance. If the Company were unable to
rely on clinical data collected by others, the Company may be required to repeat
clinical trials, which could significantly delay commercialization, and require
significantly greater capital.
Before obtaining regulatory approvals for the commercial sale of any of
its products under development, the Company must demonstrate through preclinical
studies and clinical trials that the product is safe and efficacious for use in
the target indication for which approval is sought. The results from preclinical
studies and early clinical trials may not be predictive of results that will be
obtained in later-stage testing and there can be no assurance that the Company's
future clinical trials will demonstrate the safety and efficacy of any products
or will result in approval to market products. A number of companies in the
biotechnology industry have suffered significant setbacks in advanced clinical
trials, even after promising results from earlier trials.
The rate of completion of the Company's clinical trials is dependent
upon, among other factors, the rate of patient enrollment. Patient enrollment is
a function of many factors, including the size of the patient population, the
nature of the protocol, the proximity of patients to clinical sites and the
eligibility criteria for the study. Delays in planned patient enrollment may
result in increased costs and delays, which could have a material adverse effect
on the Company.
AS A PHARMACEUTICAL COMPANY, WE ARE SUBJECT TO GOVERNMENTAL REGULATION.
Regulation by governmental entities in the United States and other
countries will be a significant factor in the production and marketing of any
pharmaceutical products that are or may be developed by the Company. It is
expected that all of the Company's pharmaceutical products will require
regulatory approval by governmental agencies prior to commercialization. In
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particular, human pharmaceutical therapeutic products are subject to rigorous
preclinical and clinical testing and other approval procedures by the FDA in the
United States and similar health authorities in foreign countries. Various
federal and, in some cases, state statutes and regulations also govern or
influence the manufacturing, safety, labeling, storage, record keeping and
marketing of such pharmaceutical products. The process of obtaining these
approvals and the subsequent compliance with appropriate federal and foreign
statutes and regulations are time-consuming and require the expenditure of
substantial resources. Generally, in order to obtain FDA approval for a new
therapeutic agent, a company first must conduct preclinical studies in the
laboratory and in animal model systems to gain preliminary information on the
agent's efficacy and to identify any safety problems. "Preclinical" studies
include toxicity, pharmacokinetic and efficacy testing in vitro and in animals
and chemical or biological formulation work in preparation for submission of the
necessary data to comply with applicable regulations prior to the commencement
of human testing. The results of these studies are submitted as a part of an
investigational new drug application ("IND"), which the FDA must review before
human clinical trials of an investigational drug can start. The Company has
filed and will continue to be required to sponsor and file INDs and will be
responsible for initiating and overseeing the clinical studies to demonstrate
the safety and efficacy that are necessary to obtain FDA approval of its
products.
Clinical trials are normally done in three phases and generally take two
to five years, but may take longer, to complete. "Phase I trials" generally
involve administration of a product to a small number of persons to determine
safety, tolerance and pharmacokinetic characteristics. "Phase I/II trials"
generally involve administration of a product to a small number of persons who
have the targeted disease to determine safety, tolerance and pharmacokinetic
characteristics and/or to obtain preliminary evidence of efficacy. "Phase II
trials" generally involve administration of a product to a limited number of
patients with a particular disease to determine dosage, efficacy and safety.
"Phase III trials" generally examine the clinical efficacy and safety in an
expanded patient population at multiple clinical sites. At least one such trial
is required (but usually two are required) for FDA approval to market a drug.
After completion of clinical trials of a product, the Company will be
required to file a new drug application ("NDA"), if the product is classified as
a new drug, or a biologic license application ("BLA"), if the product is
classified as a biologic, and receive FDA approval before commercial marketing
of the product. The testing and approval processes require substantial time and
effort and there can be no assurance that any approval will be granted on a
timely basis, if at all. While the Company will endeavor to secure expedited
review and approval when possible, NDAs and BLAs can take between one and two
years to be reviewed by the FDA, and can take longer if significant questions
arise during the review process. While recent legislative and regulatory
initiatives have focused on the need to reduce FDA review and approval times,
the ultimate impact of such initiatives on the Company's products cannot be
certain. If questions arise during the FDA review process, approval can take
more than five years.
Even if FDA regulatory clearances are obtained, a marketed product is
subject to continual review, and later discovery of previously unknown problems
or failure to comply with the applicable regulatory requirements may result in
restrictions on the marketing of a product or withdrawal of the product from the
market, recalls, seizures, injunctions or criminal sanctions.
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For marketing outside the United States, the Company will also be subject to
foreign regulatory requirements governing human clinical trials, manufacturing
and marketing approval for pharmaceutical products. The requirements governing
the conduct of clinical trials, product licensing, pricing and reimbursement
vary widely from country to country.
PATENTS AND PROPRIETARY RIGHTS ARE IMPORTANT TO OUR BUSINESS.
The Company's success will depend in part on the ability of Connetics and
its licensors to obtain patent protection for the Company's products and
processes, to preserve its trade secrets, and to operate without infringing the
proprietary rights of third parties. The Company owns, controls or has
exclusively licensed pending applications and/or issued patents worldwide
relating to the technology of all three of its major programs as well as
technology in the earlier stages of research.
There has been increasing litigation in the biomedical, biotechnology and
pharmaceutical industries with respect to the manufacture, use and sale of new
therapeutic products that are the subject of conflicting patent rights. The
validity and breadth of claims in biomedical/pharmaceutical/biotechnology
patents involve complex factual and legal issues for which no consistent policy
has emerged, and therefore, are highly uncertain. Moreover, the patent laws of
foreign countries differ from those of the U.S. and the degree of protection, if
any, afforded by foreign patents may, therefore, be different. In Europe, a
third party appeal is pending from an opposition to a patent application
concerning relaxin DNA; the original opposition was successfully defended by the
Company's licensor. No assurance can be given that any of the Company's or its
licensors' patent applications will issue as patents or that any such issued
patents will provide a competitive advantage to the Company or will not be
successfully challenged or circumvented by its competitors. In addition, others
may hold or receive patents or file patent applications that contain claims
having a scope that covers products or processes made, used or sold by the
Company. In the event that any claims of third-party patents are upheld as valid
and enforceable with respect to a product or process made, used or sold by the
Company, the Company could be prevented from practicing the subject matter
claimed in such patents or could be required to obtain licenses or redesign its
products or processes to avoid infringement and could be liable to pay damages.
There can be no assurance that such licenses would be available or, if
available, would be on commercially reasonable terms, or that the Company would
be successful in any attempt to redesign its products or processes to avoid
infringement.
Connetics has been awarded a U.S. Patent covering its proprietary TCR
vaccines technology. The Company is aware that third parties have also obtained
patents relating to TCR vaccines technology, including U.S. patents issued to
Immune Response Corporation in 1997 and 1998. With regard to such patents as are
known to the Company and its patent counsel, the Company believes such patents'
claims would be found either invalid or not infringed if asserted against the
Company's proposed TCR vaccines. The Company has filed an opposition to a
European patent claiming compositions for use in treating multiple sclerosis,
covering certain TCR V beta peptides disclosed for treating multiple sclerosis
in the Company's own, earlier-filed application; another opposition has been
filed against this patent by an independent party. The Company has been advised
that a separate opposition has been filed to one of the Company's European
patents.
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The Company is also aware of other pending third party patent applications
which, if issued, might be asserted against the Company's TCR vaccines and
products or processes as planned to be made, used or sold by the Company. Even
if the Company's patent counsel render advice that the Company's products and
processes do not infringe any valid claim under third party patents relating to
the TCR vaccines technology, neither they nor the Company can assure that no
third party will commence litigation to enforce such patents, or that the
Company will not incur substantial expenses or that it will prevail in any
patent litigation. A judgment adverse to the Company in any such patent
interference, litigation or other proceeding could materially adversely affect
the Company's business, financial condition and results of operation, and its
expense may be substantial whether or not the Company is successful.
Connetics also relies on trade secrets and proprietary know-how. The
Company requires each of its employees, consultants and advisors to execute a
confidentiality agreement providing that all proprietary information developed
or made known to the individual during the course of the relationship will be
kept confidential and not used or disclosed to third parties except in specified
circumstances. The agreements also provide that all inventions conceived by an
employee (or consultant or advisor to the extent appropriate for the services
provided) during the course of the relationship shall be the exclusive property
of the Company, other than inventions unrelated to the Company and developed
entirely on the individual's own time. There can be no assurance, however, that
these agreements will provide meaningful protection or adequate remedies for
misappropriation of the Company's trade secrets in the event of unauthorized use
or disclosure of such information.
WE ARE DEPENDENT ON CONTRACT MANUFACTURERS AND SUPPLIERS.
The Company currently has no manufacturing facilities for clinical or
commercial production of any of its products, nor does the Company intend to
develop such capabilities in the near future. The Company's products for
research and preclinical testing have been supplied by collaborators and
contract manufacturing companies. Relaxin has been manufactured for Connetics
under contract with four outside vendors: BASF Bioresearch Corp. for
fermentation, Scios, Inc. for purification, Chesapeake Biological Laboratory for
filling and Tektagen, Inc. for testing. TCR vaccines are manufactured for the
Company by American Peptide Company and Multiple Peptide Systems. The Company is
currently in negotiations with Bender & Co. GmbH to manufacture Relaxin for
clinical and commercial uses. Ridaura is manufactured by SmithKline (in final
finished package form) under an agreement with an initial term through December
2001. Luxiq and OLUX are currently manufactured for Connetics by CCL
Pharmaceuticals. Interferon gamma is manufactured by Genentech and Parke-Davis.
If the Company is unable to contract for manufacturing capabilities on
acceptable terms, the Company's ability to conduct preclinical and human
clinical testing will be adversely affected, resulting in the delay of
submission of products for regulatory approval and initiation of new development
programs, which in turn could impair materially the Company's competitive
position and the possibility of the Company achieving profitability. In
addition, some materials used in the Company's products may be available only
from sole suppliers. Although neither the Company nor its contract manufacturers
has experienced difficulty acquiring materials for the manufacture of its
products for clinical trials, no assurance can be given that interruptions in
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supplies will not occur in the future, which could have a material adverse
effect on the Company's ability to manufacture its products. There can also be
no assurance that the Company will be able to manufacture any of its products on
a commercial scale or at a competitive cost or in sufficient quantities. There
is no assurance that additional suppliers will be engaged by the Company or that
the current manufacturers of relaxin can supply sufficient clinical quantities.
Failure to obtain sufficient clinical or commercial quantities of relaxin or
other products at acceptable terms would have a material adverse impact on the
Company's attempts to complete its clinical trials, and obtain approval for and
commercialize its products.
WE ARE IN A HIGHLY COMPETITIVE INDUSTRY AND ARE SUBJECT TO RISK OF
TECHNOLOGICAL CHANGE.
Other products and therapies currently exist on the market or are under
development that could compete directly with some of the products that the
Company is marketing, or seeking to develop and market. There can be no
assurance that the Company's products, even if successfully tested and
developed, will be adopted by physicians over such other products, or that the
Company's products will offer an economically feasible alternative to existing
modes of therapy where they exist. In addition, a number of companies have
received FDA approval in 1998 for new products and therapies to address diseases
involving connective tissue, particularly in the field of rheumatoid arthritis,
and the number of the Company's competitors in these markets could increase. It
is uncertain what impact, if any, the introduction of new products will have on
the Company's existing or future product revenues. The Company intends to
compete on the basis of the effectiveness, quality and exclusivity of its
products, combined with the effectiveness of its marketing and sales efforts.
There can be no assurance that other products and therapies will not be
developed that will either render the Company's proposed products obsolete or
will have advantages outweighing those of the products and therapies that the
Company is seeking to develop.
With regard to Ridaura, there are numerous products on the market, and
under development, for the treatment of rheumatoid arthritis. There can be no
assurance that Ridaura will continue to be utilized by physicians over other
rheumatoid arthritis products, or that Ridaura will continue to offer a
cost-effective alternative to competing therapies. In addition, although the
Company believes that there will be a continued role for products such as
Ridaura, the market for rheumatoid arthritis will likely change based upon new
product introductions, which could have a material adverse effect on the
Company's sales of Ridaura.
Many of the Company's existing or potential competitors, particularly
large pharmaceutical companies, have substantially greater financial, technical
and human resources than the Company. In addition, many of these competitors
have more collective experience than the Company in undertaking preclinical
testing and human clinical trials of new pharmaceutical products and obtaining
regulatory approvals for therapeutic products. Accordingly, the Company's
competitors may succeed in obtaining FDA approval for products more rapidly than
the Company.
WE ARE SUBJECT TO THE RISK OF PRODUCT LIABILITY CLAIMS.
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The Company faces an inherent business risk of exposure to product
liability claims in the event that the use of its technology or potential
products is alleged to have resulted in adverse effects. Such claims, even if
successfully defended by the Company, could injure the Company's reputation.
While the Company has taken, and intends to continue to take, what it believes
are appropriate precautions to minimize exposure to product liability claims,
there can be no assurance that it will avoid liability. The Company believes
that it possesses product liability and general liability and certain other
types of insurance customarily obtained by business organizations of its type.
The Company intends to maintain insurance against product liability risks
associated with the testing, manufacturing and marketing of its products.
However, there can be no assurance that it will be able to obtain such insurance
in the future, or that if obtained, such insurance will be sufficient.
Consequently, a product liability claim or other claims with respect to
uninsured liabilities or in excess of insured liabilities could have a material
adverse effect on the business or financial condition of the Company.
WE ARE DEPENDENT ON OUR KEY PERSONNEL, AND WILL NEED TO HIRE ADDITIONAL
KEY PERSONNEL IN THE FUTURE.
The Company is dependent on the principal members of its scientific and
management staffs (including Thomas G. Wiggans, its President and Chief
Executive Officer), the loss of whose services might impede the achievement of
development objectives. The Company does not maintain "key person" insurance on
any of these individuals. In addition, the Company's potentially rapid growth
and expansion into areas and activities requiring additional expertise, such as
clinical trials, governmental approvals, manufacturing, sales and marketing,
will increase burdens on the Company's management, operational and financial
resources. These demands are expected to require an increase in management and
scientific personnel and the development of additional expertise by existing
management personnel. Recruiting and retaining management, operational personnel
and qualified scientific personnel to perform research and development work in
the future will be critical to the Company's success. Although the Company
believes it will continue to be successful in attracting and retaining skilled
and experienced management and operational and scientific personnel, there can
be no assurance that the Company will be able to attract and retain such
personnel on acceptable terms given the competition for such personnel among
numerous pharmaceutical and biotechnology companies, universities and other
institutions.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH HEALTH CARE COST CONTAINMENT
INITIATIVES, INCLUDING ANY SUCH EFFORTS THAT WOULD AFFECT THE PRICING OF
PHARMACEUTICAL PRODUCTS.
The commercial success of the Company's products under development will
be substantially dependent upon the availability of government or private
third-party reimbursement for the use of such products. There can be no
assurance that Medicare, Medicaid, health maintenance organizations and other
third-party payers will authorize or otherwise budget such reimbursement. Such
governmental and third party payers are increasingly challenging the prices
charged for medical products and services. If the Company succeeds in bringing
one or more of its development products to market, there can be no assurance
that such products will be viewed as cost-effective or that reimbursement will
be available to consumers or will be sufficient to allow the Company's products
to be marketed on a competitive basis. Furthermore,
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federal and state regulations govern or influence the reimbursement to health
care providers of fees and capital equipment costs in connection with medical
treatment of certain patients. In response to concerns about the rising costs of
advanced medical technologies, the current administration of the federal
government has in the past publicly stated its desire to reform health care,
including the possibility of price controls and revised reimbursement policies;
while the administration is no longer pursuing major initiatives, there can be
no assurance that any future actions taken by the administration with regard to
health care reform will not have a material adverse effect on the Company. If
any actions are taken by the administration, such actions could adversely affect
the prospects for future sales of the Company's products. Further, to the extent
that these or other proposals or reforms have a material adverse effect on the
Company's ability to secure funding for its development or on the business,
financial condition and profitability of other companies that are prospective
collaborators for certain of the Company's product candidates, the Company's
ability to develop or commercialize its product candidates may be adversely
affected.
Given recent government initiatives directed at lowering the total cost
of health care throughout the United States, it is likely that the U.S. Congress
and state legislatures will continue to focus on health care reform and the cost
of prescription pharmaceuticals, as well as on the reform of the Medicare and
Medicaid systems. The Company cannot predict the likelihood of passage of
federal and state legislation related to health care reform or lowering
pharmaceutical costs. In certain foreign markets pricing of prescription
pharmaceuticals is already subject to government control. Continued significant
changes in the U.S. or foreign health care systems could have a material adverse
effect on the Company's business.
WE USE HAZARDOUS MATERIALS IN OUR BUSINESS AND ARE SUBJECT TO
ENVIRONMENTAL CONTROLS AND REGULATIONS.
The Company's research and development activities involve the controlled
use of hazardous materials, chemicals and various radioactive materials. The
Company is subject to federal, state and local laws and regulations governing
the use, storage, handling and disposal of such materials and certain waste
products. Although the Company believes that its safety procedures for handling
and disposing of such materials comply with the standards prescribed by state,
federal, and local laws and regulations, the risk of accidental contamination or
injury from these materials cannot be completely eliminated. In the event of
such an accident, the Company could be held liable for any damages that result
and any liability could exceed the resources of the Company. There can be no
assurance that the Company will not be required to incur significant costs to
comply with environmental laws and regulations as its research activities are
increased or that the operations, business and future profitability of the
Company will not be adversely affected by current or future environmental laws
and regulations.
WE HAVE CERTAIN ANTI-TAKEOVER PROVISIONS IN OUR CORPORATE CHARTER
DOCUMENTS.
The Company's Board of Directors has the authority to issue up to
5,000,000 shares of undesignated Preferred Stock and to determine the rights,
preferences, privileges and restrictions of such shares without further vote or
action by the Company's stockholders. The rights of the holders of Common Stock
will be subject to, and may be adversely effected by, the rights of the
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holders of any Preferred Stock that may be issued in the future. The issuance of
Preferred Stock could have the effect of making it more difficult for third
parties to acquire a majority of the outstanding voting stock of the Company. In
1997, the Company's Board of Directors adopted a stockholder rights plan, which
entitles existing stockholders of the Company to certain rights (including the
right to purchase shares of Preferred Stock) in the event of an acquisition of
15% or more of the Company's outstanding common stock, or an unsolicited tender
offer for such shares. The existence of the rights plan could delay, prevent, or
make more difficult a merger or tender offer or proxy contest involving the
Company.
In addition, certain provisions of the Company's charter documents,
including a provision eliminating the ability of stockholders to take actions by
written consent, and of Delaware law could delay or make difficult a merger,
tender offer or proxy contest involving the Company. Further, the Company's
stock option and purchase plans generally provide for the assumption of such
plans or substitution of an equivalent option of a successor corporation or,
alternatively, at the discretion of the Board of Directors, exercise of some or
all of the option stock, including non-vested shares, or acceleration of vesting
of shares issued pursuant to stock grants, upon a change of control or similar
event.
OUR STOCK PRICE MAY BE VOLATILE. WE HAVE NOT PAID DIVIDENDS TO DATE AND
DO NOT INTEND TO DO SO IN THE FUTURE.
Prior to February 1996 there was no public market for the Common Stock of
the Company. There can be no assurance that there will be an active trading
market for the Common Stock of the Company or that the market price of the
Common Stock will not decline below its present market price. The market prices
for securities of biotechnology companies have been and are likely to continue
to be highly volatile. Announcements regarding the results of regulatory
approval filings, clinical studies or other testing, technological innovations
or new commercial products by the Company or its competitors, government
regulations, developments concerning proprietary rights or public concern as to
safety of technology have historically had, and are expected to continue to
have, a significant impact on the market prices of the stocks of biotechnology
companies. For instance, in August 1997, the Company's trading price dropped
approximately 46.7% the day the Company announced negative results from its
Phase III clinical trial of interferon gamma for the treatment of atopic
dermatitis. The trading price of the Common Stock could also be subject to
significant fluctuations in response to variations in operating results. In
addition, the Company has never paid cash dividends on its capital stock and
does not anticipate paying cash dividends in the foreseeable future, but instead
intends to retain future earnings for reinvestment in its business. The
Company's credit agreement requires the approval of the Company's bank to
declare or pay cash dividends.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares by
the Selling Stockholders in the offering.
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INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act"). Article IX of the Company's Amended and Restated Certificate of
Incorporation and Article VII, Section 6 of the Company's Bylaws provide for
indemnification of its directors, officers, employees and other agents to the
maximum extent permitted by law. In addition, the Company has entered into
Indemnification Agreements with its officers and directors and maintains
director and officer liability insurance. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of the Company, the Company has been advised
that in the opinion of the Commission, such indemnification is against public
policy, as stated by the Commission, and is, therefore, unenforceable.
ISSUANCE OF COMMON STOCK TO SELLING STOCKHOLDERS
On November 20, 1998, the Company entered into an agreement with a group
of investors (collectively the "Investors"), to sell an aggregate of 3,167,500
shares of the Company's Common Stock at a price of $4.00 per share, for an
aggregate purchase price of approximately $12,670,000. These shares were issued
to the Investors on that date. In May 1998, the Company issued 380,048 shares to
Genentech, Inc. under the Company's obligation to issue equity to Genentech,
Inc. in connection with the Company's acquisition of rights to interferon gamma.
On November 5, 1998, the Compensation Committee of the Company's Board of
Directors authorized the issuance of 25,000 shares of restricted stock to Kirk
Raab, the Chairman of the Board of Directors, at a price of $0.10 per share for
an aggregate purchase price of $2,500.
SELLING STOCKHOLDERS
The following table sets forth certain information as of November 20,
1998 with respect to each Selling Stockholder:
<TABLE>
<CAPTION>
Shares Beneficially Owned After
Name of Selling Stockholder Shares Offered Offering (1)(2)
Hereby (1) -------------------------------
Number Percent
<S> <C> <C> <C>
Domain Partners (3) 1,500,000 1,287,006 5.9%
Alta Partners (4) 250,000 2,287,163 11.2%
New Enterprise Associates (5) 1,250,000 -- --
Alex Barkas and Lynda Wijcik (6) 50,000 227,586
Thomas Kiley (7) 10,000 99,982
Merlin BioMed L.P. (8) 45,000 5,000
Jalaa Equities 25,000 60,000
Snowdon Limited Partnership 25,000 367,455
John Kane (9) 12,500 12,500
All November 1998 Investors (10) 3,167,500 4,346,692
Genentech, Inc. 380,048 -- --
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Kirk Raab(11) 25,000 131,569
Total 3,572,548 4,478,261
</TABLE>
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules and
regulations of the Commission and generally includes voting or
investment power with respect to securities. Information with respect to
beneficial ownership is based on information as of November 20, 1998 and
assumes that there is outstanding an aggregate of 20,477,617 shares of
Common Stock (not including treasury shares) and 293,420 shares issuable
upon the exercise of warrants, and options to purchase the Company's
Common Stock which are exercisable within 60 days of November 20, 1998.
No options have been issued to the Selling Stockholders named in this
Prospectus other than Messrs. Barkas, Kiley, Kane, and Raab. Except as
indicated otherwise in the footnotes below, and subject to community
property laws where applicable, the Company believes based on
information furnished by the Selling Stockholders that the persons named
in the table above have sole voting and investment power with respect to
all shares of Common Stock shown as beneficially owned by them.
(2) Assumes the sale of all Shares offered by this Prospectus and no other
purchases or sales of Connetics Common Stock. See "Plan of
Distribution." If shares offered by this prospectus are not sold, actual
share ownership will be higher than this table reflects.
(3) Shares offered hereby consist of 241,640 shares offered by Domain
Partners III L.P., 8,360 shares offered by DP III Associates L.P.,
1,220,247 shares offered by Domain Partners IV, L.P. and 29,253 shares
offered by DP IV Associates L.P. Shares beneficially owned after
offering include 66,107 warrants and 20,147 options to purchase shares
of Common Stock which are currently exercisable or will become
exercisable within 60 days of November 20, 1998 by Mr. Brian Dovey, a
Director of the Company, who is a partner of Domain Associates.
(4) Shares offered hereby consist of 155,397 shares offered by Alta
BioPharma Partners L.P., 5,857 shares offered by Alta Embarcadero
BioPharma, LLC, and 88,746 shares offered by Connetics Partners (Alta
Bio), LLC.
(5) Shares offered hereby consist of 1,233,750 shares offered by New
Enterprise Associates VIII, Limited Partnership, 15,000 shares offered
by NEA Presidents Fund, L.P. and 1,250 shares offered by NEA Ventures
1998, Limited Partnership.
(6) Includes 11,855 warrants and 24,362 options to purchase shares of Common
Stock which are currently exercisable or will become exercisable within
60 days of November 20, 1998 by Mr. Barkas.
(7) Includes 37,500 options to purchase shares of Common Stock which are
currently exercisable or will become exercisable within 60 days of
November 20, 1998 by Mr. Kiley.
(8) Does not include 265,000 shares held in various funds managed by Merlin
BioMed L.P.
(9) Includes 7,500 options to purchase shares of Common Stock which are
currently exercisable or will become exercisable within 60 days of
November 20, 1998 by Mr. Kane.
(10) Shares beneficially owned after offering includes 77,962 warrants and
89,509 options to purchase shares of Common Stock which are currently
exercisable or will become exercisable within 60 days after November 20,
1998 by all of the Selling Stockholders.
(11) Includes 125,949 options to purchase shares of Common Stock which are
currently exercisable or will become exercisable within 60 days of
November 20, 1998 by Mr. Raab.
Page 24
<PAGE> 25
PLAN OF DISTRIBUTION
The Selling Stockholders may sell the Shares in whole or in part, from
time to time on the over-the-counter market at prices and on terms prevailing at
the time of any such sale. Any such sale may be made in broker's transactions
through broker-dealers acting as agents, in transactions directly with market
makers or in privately negotiated transactions where no broker or other third
party (other than the purchaser) is involved. The Selling Stockholders will pay
selling commissions or brokerage fees, if any, with respect to the sale of the
Shares in amounts customary for the type of transaction effected. The Selling
Stockholders will also pay all applicable transfer taxes and all fees and
disbursements of counsel for the Selling Stockholders incurred in connection
with the sale of shares.
The Selling Stockholders have advised the Company that during such time
as the Selling Stockholders may be engaged in the attempt to sell Shares
registered hereunder, that they will:
(i) not engage in any stabilization activity in connection with any
of the Company's securities;
(ii) cause to be furnished to each person to whom Shares included in
this Prospectus may be offered, and to each broker-dealer, if
any, through whom Shares are offered, such copies of this
Prospectus, as supplemented or amended, as may be required by
such person; and
(iii) not bid for or purchase any of the Company's securities or any
rights to acquire the Company's securities, or attempt to induce
any person to purchase any of the Company's securities or rights
to acquire the Company's securities other than as permitted under
the Exchange Act.
The Selling Stockholders, and any other persons who participate in the
sale of the Shares, may be deemed to be "Underwriters" as defined in the
Securities Act. Any commissions paid or any discounts or concessions allowed to
any such persons, and any profits received on resale of the Shares, may be
deemed to be underwriting discounts and commissions under the Securities Act.
With regard to the Shares, the Company has agreed to maintain the
effectiveness of this Registration Statement until two years after the effective
date of this Registration Statement; provided however that the Company has
agreed to extend the effectiveness of the Registration Statement for an
additional one year period following the expiration of the initial two year
period, if requested in a writing signed by a majority of the Selling
Stockholders; provided
Page 25
<PAGE> 26
further, however, that if counsel to the Company provides an opinion to the
requesting holders, based on factual representations provided by the requesting
holders or information filed with the Commission that such holders are not, at
the time of such request, "affiliates" of the Company, within the meaning of
Rule 144 of the Securities Act, then the Company shall not be obligated to
extend the effectiveness of the Registration Statement. No sales may be made
pursuant to this Registration Statement and Prospectus after such dates unless
the Company amends or supplements this Registration Statement and Prospectus to
indicate that it has agreed to extend such period of effectiveness.
The Company has agreed to indemnify the Selling Stockholders against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
Common Stock offered hereby will be passed upon for the Company by Wilson
Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo
Alto, California 94304.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements included in our Annual Report (Form 10-K) for the year ended December
31, 1997, as set forth in their report, which is incorporated in this prospectus
by reference. Our financial statements are incorporated herein by reference in
reliance on their report, given on their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form
S-3 (referred to, together with all amendments and exhibits, as the
"Registration Statement") filed by the Company with the Securities and Exchange
Commission (the "Commission") under the Securities Act. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the shares
of Common Stock offered hereby, reference is hereby made to the Registration
Statement. Statements contained herein concerning the provisions of any document
are not necessarily complete, and each such statement is qualified in its
entirety by reference to the copy of such document filed with the Commission.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Page 26
<PAGE> 27
The following table sets forth the costs and expenses payable by the
Registrant in connection with the sale and distribution of the Common Stock
being registered. Selling commissions and brokerage fees and any applicable
transfer taxes and fees and disbursements of counsel for the Selling
Stockholders are payable by the Selling Stockholders. All amounts are estimates
except the registration fee.
<TABLE>
<CAPTION>
Amount to be Paid
<S> <C>
Registration Fee 4,063
Legal Fees and Expenses 10,000
Accounting Fees and Expenses 4,000
Miscellaneous 1,937
-------
Total $20,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933. Article IX of the
Registrant's Amended and Restated Certificate of Incorporation and Article VII,
Section 6 of the Registrant's Bylaws provide for indemnification of its
directors, officers, employees and other agents to the maximum extent permitted
by law. In addition, the Registrant has entered into Indemnification Agreements
with its officers and directors and maintains director and officer liability
insurance.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
<S> <C>
10.1 Common Stock Purchase Agreement dated April 10, 1998 by
and among the Registrant and certain investors
10.2 Registration Rights Agreement, dated April 10, 1998 by
and among the Registrant and certain investors
10.4 Stock Purchase Agreement dated May 5, 1998 between the
Registrant and Genentech, Inc.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
</TABLE>
Page 27
<PAGE> 28
<TABLE>
<S> <C>
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-30)
</TABLE>
* Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to include any material
information with respect to the plan of distribution not previously disclosed in
the Registration Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions referred to in Item 15 above or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted against the Registrant by such director, officer
or controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has been settled by
Page 28
<PAGE> 29
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
Page 29
<PAGE> 30
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Palo Alto, State of California, on the 14th day of
December 1998.
CONNETICS CORPORATION
By: /s/ JOHN L. HIGGINS
John L. Higgins
Vice President of Finance and
Administration and Chief
Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints, jointly and severally, Thomas G. Wiggans and John L. Higgins, and each
of them acting individually, as his attorney-in-fact, each with full power of
substitution, for him in any and all capacities, to sign any and all amendments
to this Registration Statement (including post-effective amendments), and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorney to any and
all amendments to said Registration Statement.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
THOMAS G. WIGGANS
- ---------------------------- President, Chief Executive Officer and Dec. 14, 1998
/s/ THOMAS G. WIGGANS Director
(Principal Executive Officer)
JOHN L. HIGGINS
- ---------------------------- Vice President of Finance and Dec. 14, 1998
/s/ JOHN L. HIGGINS Administration and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
</TABLE>
Page 30
<PAGE> 31
<TABLE>
<S> <C> <C>
G. KIRK RAAB
- ---------------------------- Chairman of the Board of Directors Dec. 14, 1998
/s/ G. KIRK RAAB
ALEXANDER E. BARKAS
- ---------------------------- Director Dec. 14, 1998
/s/ ALEXANDER E. BARKAS
EUGENE A. BAUER
- ---------------------------- Director Dec. 15, 1998
/s/ EUGENE A. BAUER
BRIAN H. DOVEY
- ---------------------------- Director Dec. 15, 1998
/s/ BRIAN H. DOVEY
JOHN C. KANE
- ---------------------------- Director Dec. 15, 1998
/s/ JOHN C. KANE
THOMAS D. KILEY
- ---------------------------- Director Dec. 14, 1998
/s/ THOMAS D. KILEY
- ---------------------------- Director Dec. __, 1998
/s/ KENNETH B. PLUMLEE
JOSEPH J. RUVANE, JR.
- ---------------------------- Director Dec. 15, 1998
/s/ JOSEPH J. RUVANE, JR.
</TABLE>
Page 31
<PAGE> 32
CONNETICS CORPORATION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
<S> <C>
10.1 Common Stock Purchase Agreement dated April 10, 1998 by
and among the Registrant and certain investors
10.2 Registration Rights Agreement, dated April 10, 1998 by
and among the Registrant and certain investors
10.4 Stock Issuance Agreement dated May 5, 1998 between
the Registrant and Genentech, Inc.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-30)
</TABLE>
<PAGE> 1
EXHIBIT 5.1
OPINION OF COUNSEL
December 16, 1998
Connetics Corporation
3400 West Bayshore Road
Palo Alto, California 94303
Re: Connetics Corporation (the "Company") Registration Statement on
Form S-3
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3 to be filed with
the Securities and Exchange Commission (the "Registration Statement"), in
connection with the registration under the Securities Act of 1933, as amended,
of 3,572,548 shares of the Company's Common Stock. As your counsel, we have
examined the proceedings taken in connection with the sale and issuance of the
above-referenced securities.
It is our opinion that the above-referenced securities, when issued and
sold in the manner referred to in the Registration Statement, will be legally
and validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
WILSON, SONSINI, GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH & ROSATI
<PAGE> 1
EXHIBIT 10.1
CONNETICS CORPORATION
COMMON STOCK PURCHASE AGREEMENT
NOVEMBER 20, 1998
This Common Stock Purchase Agreement (the "Agreement") is entered into as
of this 20th day of November, 1998, among Connetics Corporation, a Delaware
corporation (the "Company") and each of the persons listed on EXHIBIT A to this
Agreement (each a "Purchaser" and together the "Purchasers").
SECTION 1
SALE OF COMMON STOCK
1.1 Sale of Common Stock. Subject to the terms and conditions hereof, on
the Closing Date, as defined below, the Company will issue and sell to the
Purchasers, and the Purchasers will purchase from the Company, an aggregate of,
10,000 shares of Common Stock, par value $0.001 per share, of the Company (the
"Common Stock"), at a price per share of $4.00 for an aggregate purchase price
of $40,000. The number of shares of Common Stock to be purchased and the
purchase price to be paid by each Purchaser are outlined on EXHIBIT A, which is
incorporated herein by this reference.
1.2 Closing Date. The closing (the "Closing") of the purchase and sale of
the Common Stock shall be held at the offices of the Company, 3400 West Bayshore
Road, Palo Alto, California at 10:00 a.m. on November 20, 1998 or at such other
time and place upon which the Company and the Purchasers shall mutually agree
(the date of the Closing is hereinafter referred to as the "Closing Date").
1.3 Delivery. At the Closing, the Company will deliver to each Purchaser
a certificate or certificates representing the shares of Common Stock purchased
by such Purchaser, against payment of the purchase price therefor, by wire
transfer or certified or cashier's check drawn on a United States ("U.S.") bank.
1.4 Legend. The certificate or certificates for the Common Stock shall be
subject to a legend restricting transfer under the Securities Act of 1933, as
amended (the "Securities Act") and referring to restrictions on transfer herein,
such legend to be substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH
SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (A) AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO, OR (B) AN OPINION OF COUNSEL FOR THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER THE
<PAGE> 2
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR (C) FULL COMPLIANCE WITH THE
PROVISIONS OF RULE 144 UNDER THE ACT."
1.5 Removal of Legends. Any legend endorsed on a certificate pursuant to
SECTION 1.4 hereof shall be removed (a) if the shares of the Common Stock
represented by such certificate shall have been effectively registered under the
Securities Act or otherwise lawfully sold in a public transaction, (b) if such
shares may be transferred in compliance with Rule 144(k) promulgated under the
Securities Act, or (c) if the holder of such shares shall have provided the
Company with an opinion of counsel, in form and substance acceptable to the
Company, stating that a public sale, transfer or assignment of such shares may
be made without registration.
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchasers that:
2.1 Organization. The Company is a corporation duly organized and validly
existing under the laws of the State of Delaware and is in good standing under
such laws. The Company has requisite corporate power and authority to own, lease
and operate its properties and assets, and to carry on its business as presently
conducted and as proposed to be conducted. The Company is qualified to do
business as a foreign corporation in each jurisdiction in which the ownership of
its property or the nature of its business requires such qualification, except
where failure to so qualify would not have a materially adverse effect on the
Company.
2.2 Authorization. The Company has all corporate right, power and
authority to enter into this Agreement and the Registration Rights Agreement
substantially in the form attached hereto as EXHIBIT B (the "Registration Rights
Agreement") and to consummate the transactions contemplated hereby and thereby.
All corporate action on the part of the Company, its directors and stockholders
necessary for the authorization, execution, delivery and performance of this
Agreement and the Registration Rights Agreement by the Company, and the
authorization, sale, issuance and delivery of the Common Stock and the
performance of the Company's obligations hereunder and under the Registration
Rights Agreement has been taken. This Agreement and the Registration Rights
Agreement have been duly executed and delivered by the Company and constitute
legal, valid and binding obligations of the Company enforceable in accordance
with their respective terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies, and to
limitations of public policy as they may apply to Section 1.6 of the
Registration Rights Agreement. Upon issuance and delivery pursuant to this
Agreement, all of the Common Stock will be duly and validly issued, fully paid
and nonassessable and free and clear of any liens and encumbrances. There are no
statutory, contractual or other preemptive rights or rights of first refusal
with respect to the issuance and sale of the Common Stock.
2.3 Validity of Securities. The Common Stock, when issued, sold and
delivered by the Company in accordance with the terms of this Agreement, will be
duly and validly issued, fully-paid and nonassessable. The issuance, sale and
delivery of the Common Stock are not subject to
<PAGE> 3
preemptive or any similar rights of the Stockholders of the Company or any liens
or encumbrances arising through the Company. Based in part upon the
representations of the Purchasers in this Agreement, the offer, sale and
issuance of the Common Stock will be made in compliance with all applicable
federal and state securities laws.
2.4 Capitalization. The authorized capital stock of the Company consists
of 50,000,000 shares of Common Stock, $0.001 par value, of which at September
30, 1998, 17,251,289 shares were issued and outstanding, and 5,000,000 shares of
Preferred Stock, $0.001 par value, of which at September 30, 1998, zero shares
were issued and outstanding. The Company's Board of Directors has authorized the
creation of 90,000 shares of Series B Preferred Stock for potential issuance
under the Company's stockholder rights plan. Since September 30, 1998 no shares
of the Company's Common or Preferred Stock have been issued, except pursuant to
the exercise of options or warrants outstanding as of September 30, 1998. All
such issued and outstanding shares have been duly authorized and validly issued
and are fully paid and nonassessable. In addition to the foregoing, the Company
has reserved and outstanding the following warrants, rights, options and
convertible securities:
(i) warrants for the purchase of 18,395 shares of Common Stock at an
exercise price of $4.89 per share, which warrants expire in
February 2001;
(ii) warrants for the purchase of 22,728 shares of Common Stock at an
exercise price of $11.00 per share, which warrants expire in
December 2000;
(iii) warrants for the purchase of 73,071 shares of Common Stock at an
exercise price of $5.78, which warrants expire in December 2002;
(iv) warrants for the purchase of 20,000 shares of Common Stock at an
exercise price of $7.43 per share, which warrants expire in
December, 2001;
(v) warrants for the purchase of 250,000 shares of Common Stock at an
exercise price of $8.25 per share, which warrants expire in
January 2002;
(vi) warrants for the purchase of 905,000 shares of Common Stock at an
exercise price of $9.08 per share, which warrants expire in May,
2001;
(vii) warrants for the purchase of 6,000 shares of Common Stock at an
exercise price of $6.00 per share, which warrants expire in
January, 2003;
(viii) 2,600,000 shares reserved for issuance pursuant to the Company's
1994 Stock Plan, of which, at September 30, 1998, options (net of
repurchases) to purchase 373,015 shares had been exercised,
options to purchase 1,894,430 shares were outstanding and 332,555
shares remained available for future grant;
(ix) 500,000 shares reserved for issuance pursuant to the Company's
1995 Employee Stock Purchase Plan, of which, at September 30,
1998, 138,132 shares had been issued;
(x) 250,000 shares reserved for issuance under the Company's 1995
Directors' Stock Option Plan, of which, at September 30, 1998,
165,000 options had been granted;
In addition, the Company has an equity line that is potentially available for a
three-year period beginning June 26, 1998. If, during the period from June 1998
through June 2001, the Stock meets certain volume restrictions and trades above
$10.00, then up to $500,000 would be drawn down from the equity line
approximately every three months. The Company may also be obligated to issue
additional shares to Genentech, Inc. before December 31, 1998, as part of the
<PAGE> 4
consideration paid for the Company's acquisition of rights to gamma interferon
in 1998. Except as described in this Section 2.4, there are no other options,
warrants, conversion privileges or other contractual rights presently
outstanding to purchase or otherwise acquire any authorized but unissued shares
of the Company's capital stock or other securities. All of the issued and
outstanding securities of the Company have been issued in compliance with all
applicable federal and state securities laws.
2.5 No Conflict. The execution and delivery of this Agreement and the
Registration Rights Agreement do not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both), or
give rise to a right of termination, cancellation or acceleration of any
obligation or to a loss of a material benefit, under, any provision of the
Certificate of Incorporation or Bylaws of the Company or any mortgage,
indenture, lease or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company, its properties or assets, which conflict,
violation, default or right would have a material adverse effect on the
business, properties, prospects or financial condition of the Company.
2.6 Accuracy of Reports; Financial Statements. All reports required to be
filed with the Securities and Exchange Commission (the "SEC") by the Company
from February 1, 1996 (the date of the Company's initial public offering)
through the date of this Agreement under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), copies of which have been made available to each
Purchaser (the "SEC Documents"), have been duly and timely filed, were in
substantial compliance with the requirements of their respective forms when
filed, were complete and correct in all material respects as of the dates at
which the information was furnished, and contained (as of such dates) no untrue
statement of a material fact nor omitted to state a material fact necessary in
order to make the statements made therein in light of the circumstances in which
made not misleading. The Company's financial statements included in the SEC
Documents (the "Financial Statements") comply as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto. The Financial Statements have
been prepared in accordance with generally accepted accounting principles
consistently applied and fairly present the consolidated financial position of
the Company and any subsidiaries at the dates thereof and the consolidated
results of operations and consolidated cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal, recurring
adjustments).
2.7 Changes. Since November 13, 1998 (the date on which the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1998
was filed with the SEC), there has not been (a) any incurrence by the Company of
any material liability, absolute or contingent, or (b) any event or condition of
any character that has materially and adversely affected or might materially and
adversely affect the business, properties, prospects or financial condition of
the Company (as such business is presently conducted and as it is proposed to be
conducted). There is no material liability or contingency of the Company that is
not disclosed in the SEC Documents.
<PAGE> 5
2.8 Governmental Consents, Etc. No consent, approval or authorization of
or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with the valid execution and
delivery of this Agreement or the Registration Rights Agreement, or the
consummation of any other transaction contemplated hereby and thereby, except
such filings as may be required to be made with the SEC, the National
Association of Securities Dealers, Inc. ("NASD") and with governmental
authorities for purposes of effecting compliance with the securities and Blue
Sky laws in the states in which Common Stock is offered and/or sold, which
compliance will be effected in accordance with such laws.
2.9 Litigation. There is no pending or, to the best of the Company's
knowledge, threatened lawsuit, administrative proceeding, arbitration, labor
dispute or governmental investigation ("Litigation") to which the Company is a
party or by which any material portion of its assets, taken as a whole, may be
bound, nor is the Company aware of any basis therefor, which Litigation, if
adversely determined, would have a material adverse effect on the business,
properties, prospects or financial condition of the Company.
2.10 Intellectual Property. To its knowledge, and except as disclosed in
the SEC Documents, the Company owns or possesses sufficient legal rights to all
patents, trademarks, service marks, tradenames, copyrights, trade secrets,
licenses, information and proprietary rights and processes necessary for its
business as now conducted and as proposed to be conducted, without infringement
of any rights of a third party. The Company has not received any communications
alleging that the Company has violated or, by conducting its business as
proposed, would violate any of the patents, trademarks, service marks,
tradenames, copyrights, trade secrets or other proprietary rights or processes
of any other person or entity, which violation would have a material adverse
effect on the business, properties, prospects or financial condition of the
Company. Except as disclosed in the SEC Documents, the Company has not granted
(nor has the Company licensed from a third party) any material rights to or
licenses to its patents, trademarks, service marks, tradenames, copyrights,
trade secrets or other proprietary rights or processes.
2.11 Registration Rights. Except as provided in the Registration Rights
Agreement and as disclosed in the SEC Documents, the Company has not granted or
agreed to grant any rights to register its securities under the Securities Act,
including piggy-back rights, to any person or entity.
2.12 No Material Default. The Company is not in violation of or default
under any provision of (a) its Certificate of Incorporation or Bylaws or (b) any
mortgage, indenture, lease or other agreement or instrument, permit, concession,
franchise or license to which it is a party or by which it is bound or (c) any
federal or state judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company, except with respect to clauses (b) and (c)
above, such violations or defaults as would not have a material adverse effect
on the business, properties, prospects or financial condition of the Company.
2.13 Disclosure. No representation or warranty of the Company contained
in this Agreement or the exhibits attached to this Agreement (when read together
and taken as a whole),
<PAGE> 6
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein in
light of the circumstances under which they were made not misleading.
2.14 Solvency; No Default. As of this date the Company has sufficient
funds and cash flow to pay its debts and other liabilities as they become due,
and the Company is not in default with respect to any material debt or
liability.
2.15 Rights of Common Stock. The Common Stock shall have the rights,
preferences, privileges and restrictions provided in the Company's Amended and
Restated Certificate of Incorporation.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby represents and warrants to the Company as follows:
3.1 Investment. Purchaser is acquiring the Common Stock for investment
for its own account, not as a nominee or agent and not with a view to or for
resale in connection with any distribution thereof. Purchaser understands that
the Common Stock purchased by such Purchaser from the Company pursuant to this
Agreement has not been registered under the Securities Act by reason of a
specific exemption from the registration provisions of the Securities Act which
depends upon, among other things, the bona fide nature of such Purchaser's
investment intent and the accuracy of such Purchaser's representations as
expressed herein.
3.2 Accredited Investor. Each Purchaser is an "accredited investor" as
defined by Rule 501(a) under the Securities Act of 1933, as amended (the
"Securities Act"). The SEC documents have been made available to each Purchaser,
and each Purchaser has received all the information it has requested regarding
the Company. Each Purchaser has such business and financial experience as is
required to give it the capacity to protect its own interests in connection with
the purchase of the Common Stock.
3.3 Authority. This Agreement and the Registration Rights Agreement have
been duly executed and delivered by each Purchaser and constitute legal, valid
and binding obligations of the Purchasers, enforceable in accordance with their
respective terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies, and to limitations
of public policy as they may apply to Section 1.6 of the Registration Rights
Agreement. The execution and delivery of this Agreement and the Registration
Rights Agreement do not, and the consummation of the transactions contemplated
hereby and thereby will not, conflict with or result in any violation of any
obligation under any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Purchasers.
3.4 Government Consents, Etc. No consent, approval or authorization of or
designation, declaration or filing with any governmental authority on the part
of the Purchasers is
<PAGE> 7
required in connection with the valid execution and delivery of this Agreement,
or the offer, sale or issuance of the Common Stock, or the consummation of any
other transaction contemplated hereby.
3.5 Investigation. Each Purchaser has had a reasonable opportunity to
discuss the Company's business, management and financial affairs with the
Company's management.
SECTION 4
CONDITIONS TO OBLIGATIONS OF THE PURCHASERS
The obligations of each Purchaser to the Company under this Agreement are
subject to the fulfillment, on or before the Closing, of each of the following
conditions, unless otherwise waived:
4.1 Representations and Warranties Correct. The representations and
warranties made by the Company in SECTION 2 shall be true and correct in all
material respects on the Closing Date with the same effect as though such
representations and warranties had been made on and as of the Closing Date.
4.2 Covenants. All covenants, agreements and conditions contained in this
Agreement to be performed by the Company on or prior to the Closing Date shall
have been performed or complied with in all material respects.
4.3 No Order Pending. There shall not then be in effect any order
enjoining or restraining the transactions contemplated by this Agreement.
4.4 No Law Prohibiting or Restricting Sale. There shall not be in effect
any law, rule or regulation prohibiting or restricting such sale, or requiring
any consent or approval of any person which shall not have been obtained to
issue the Common Stock (except as otherwise referenced in this Agreement).
4.5 Compliance Certificate. The Company shall have delivered to the
Purchasers a certificate substantially in the form attached as EXHIBIT C to this
Agreement, executed by a duly authorized officer, dated the Closing Date, and
certifying to the fulfillment of the conditions specified in SECTIONS 4.1 and
4.2.
4.6 Registration Rights Agreement. On or before the Closing, the Company
and the Purchasers shall have executed and delivered a counterpart of the
Registration Rights Agreement attached as EXHIBIT B.
4.7 Legal Opinion. The Purchasers shall have received from Wilson Sonsini
Goodrich & Rosati, Professional Corporation, counsel for the Company, an opinion
addressed to the Purchasers, dated the Closing Date, in substantially the form
attached as EXHIBIT D to this Agreement.
<PAGE> 8
SECTION 5
CONDITIONS TO OBLIGATIONS OF THE COMPANY
The obligations of the Company under this Agreement are subject to the
fulfillment on or prior to the Closing of each of the following conditions,
unless otherwise waived:
5.1 Representations and Warranties Correct. The representations and
warranties made by the Purchaser(s) in SECTION 3 hereof shall be true and
correct in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
the Closing Date.
5.2 Performance. All covenants, agreements and conditions contained in
this Agreement to be performed by the Purchasers on or prior to the Closing Date
shall have been performed or complied with in all material respects.
5.3 No Order Pending. There shall not then be in effect any order
enjoining or restraining the transactions contemplated by this Agreement.
5.4 No Law Prohibiting or Restricting Such Sale. There shall not be in
effect any law, rule or regulation prohibiting or restricting such sale, or
requiring any consent or approval of any person which shall not have been
obtained to issue the Common Stock (except as otherwise provided in this
Agreement).
SECTION 6
MISCELLANEOUS
6.1 Governing Law. This Agreement and all acts and transactions pursuant
to this Agreement and the rights and obligations of the parties to this
Agreement shall be governed, construed and interpreted in accordance with the
laws of the State of California, without giving effect to principles of
conflicts of law.
6.2 Survival. Unless otherwise set forth in this Agreement, the
warranties, representations and covenants of the Company and the Purchasers
contained in or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement and the Closing.
6.3 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties to this Agreement and their respective
successors and assigns.
6.4 Entire Agreement; Amendment. This Agreement, the Registration Rights
Agreement and the other documents delivered pursuant to this Agreement
constitute the full and entire understanding and agreement between the parties
with regard to the subject matter hereof and thereof and supersede all prior
agreements and understandings among the parties relating to the subject matter
hereof. Neither this Agreement nor any term hereof may be amended, waived,
<PAGE> 9
discharged or terminated other than by a written instrument signed by the party
against which enforcement of any such amendment, waiver, discharge or
termination is sought.
6.5 Notices and Dates. Unless otherwise provided in this Agreement, any
notice required or permitted by this Agreement shall be in writing and shall be
deemed sufficient upon delivery, when delivered personally or by overnight
courier and addressed to the party to be notified at such party's address as set
forth on the signature page to this Agreement or as subsequently modified by
written notice. If any date provided for in this Agreement falls on a Saturday,
Sunday or legal holiday, such date shall be deemed extended to the next business
day.
6.6 Brokers.
(a) Except as disclosed to the Purchasers, the Company has not
engaged, consented to or authorized any broker, finder or intermediary to act on
its behalf, directly or indirectly, as a broker, finder or intermediary in
connection with the transactions contemplated by this Agreement. The Company
agrees to indemnify and hold harmless the Purchasers from and against all fees,
commissions or other payments owing to any party acting on behalf of the Company
hereunder.
(b) No Purchaser has engaged, consented to or authorized any
broker, finder or intermediary to act on its behalf, directly or indirectly, as
a broker, finder or intermediary in connection with the transactions
contemplated by this Agreement. Each Purchaser hereby agrees to indemnify and
hold harmless the Company from and against all fees, commissions or other
payments owing to any party acting on behalf of such Purchaser hereunder.
6.7 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
6.8 Costs and Expenses. Irrespective of whether the Closing is effected,
the Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement.
6.9 No Third Party Rights. Nothing in this Agreement shall create or be
deemed to create any rights in any person or entity not a party to this
Agreement.
6.10 Captions and Headings. The captions and headings used herein are for
convenience and ease of reference only and are not intended to be a part of or
to affect the meaning or interpretation of this Agreement.
<PAGE> 10
6.11 Counterparts. This Agreement may be executed in counterparts, and
each such counterpart shall be deemed an original for all purposes.
IN WITNESS WHEREOF, the parties to this Agreement have executed or caused
their respective authorized officers to execute this Agreement as of the first
date written above.
"COMPANY"
Connetics Corporation Address:
3400 West Bayshore Road
Palo Alto, California 94303
By: ____________________________ Facsimile: (650) 843-2899
Thomas G. Wiggans
President and Chief Executive Officer
PURCHASER(S)
By: ____________________________ Address:
<PAGE> 11
EXHIBIT A
LIST OF PURCHASERS
<TABLE>
<CAPTION>
Name Number of Shares Purchase Price
- ---- ---------------- --------------
<S> <C> <C>
1) Alexander E. Barkas 50,000 $ 200,000.00
2) John C. Kane 12,500 $ 50,000.00
3) Kiley Family Partnership 10,000 $ 40,000.00
4) Alta BioPharma Partners, L.P. 155,397 $ 621,588.00
5) Alta Embarcadero BioPharma, LLC 5,857 $ 23,428.00
6) Connetics Partners (Alta Bio), LLC 88,746 $ 354,984.00
7) Domain Partners III, L.P. 241,640 $ 966,560.00
8) DP III Associates, L.P. 8,360 $ 33,440.00
9) Domain Partners IV, L.P. 1,220,747 $ 4,882,988.00
10) DP IV Associates, L.P. 29,253 $ 117,012.00
11) Jalaa Equities 25,000 $ 100,000.00
12) New Enterprise Associates VIII, Limited Partnership 1,233,750 $ 4,935,000.00
13) NEA Presidents Fund, L.P. 15,000 $ 60,000.00
14) NEA Ventures 1998, Limited Partnership 1,250 $ 5,000.00
15) Merlin BioMed Asset Management 45,000 $ 180,000.00
16) Snowdon L.P. 25,000 $ 100,000.00
Total shares issued: 3,167,500 $12,670,000.00
</TABLE>
<PAGE> 12
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
<PAGE> 13
EXHIBIT C
CONNETICS CORPORATION
COMPLIANCE CERTIFICATE
The undersigned, Thomas G. Wiggans, hereby certifies as follows:
1. He is the duly elected President and Chief Executive Officer of
Connetics Corporation, a Delaware corporation (the "Company").
2. The representations and warranties of the Company set forth in Section
2 of the Common Stock Purchase Agreement (the "Agreement") dated November 20,
1998 are true and correct in all material respects as though made on and as of
the date of this Certificate.
3. The Company has performed and complied with all covenants, agreements,
obligations and conditions contained in the Agreement to be performed by the
Company on or prior to the Closing Date.
The undersigned has executed this Certificate this 3rd day of December
1998.
------------------------------
Thomas G. Wiggans,
President and Chief Executive Officer
<PAGE> 14
EXHIBIT D
OPINION OF WILSON SONSINI GOODRICH & ROSATI
<PAGE> 1
EXHIBIT 10.2
CONNETICS CORPORATION
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made as of the
20th day of November, 1998, by and among Connetics Corporation, a Delaware
corporation (the "Company") and each of the persons listed on EXHIBIT A to this
Agreement (each an "Investor" and together the "Investors").
R E C I T A L S
A. Effective as of the same date as this Agreement, the Company and the
Investors have entered into a Common Stock Purchase Agreement (the "Purchase
Agreement") pursuant to which the Company has agreed to sell to the Investors
and the Investors have agreed to purchase from the Company shares of the
Company's Common Stock (all terms not otherwise defined herein shall have the
meanings ascribed in the Purchase Agreement).
B. A condition to the Investors' obligations under the Purchase Agreement
is that the Company and the Investors enter into this Agreement in order to
provide the Investors with certain rights to register the Common Stock acquired
by the Investors pursuant to the Purchase Agreement. The Company desires to
induce the Investors to purchase the Common Stock pursuant to the Purchase
Agreement by agreeing to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
AGREEMENT
1. Registration Rights. The Company and the Investors covenant and agree
as follows:
1.1 Definitions. For purposes of this SECTION 1:
(a) The terms "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act of 1933, as
amended (the "Securities Act"), and the declaration or ordering of effectiveness
of such registration statement or document;
(b) The term "Registrable Securities" means (i) the shares
of Common Stock issued or sold in connection with the Purchase Agreement (such
shares of Common Stock are collectively referred to as the "Shares" or "Stock")
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 Stock; provided, that the foregoing definition shall
exclude in all cases any Registrable Securities sold by a person in a
transaction in which his or her rights under this Agreement are not assigned.
Notwithstanding the foregoing, shares of common stock shall
<PAGE> 2
only be treated as Registrable Securities if and so long as they have not been
(x) sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction, or (y) sold in a transaction
exempt from the registration and prospectus delivery requirements under Section
4(1) of the Securities Act so that all transfer restrictions, and restrictive
legends with respect thereto, if any, are removed upon the consummation of such
sale;
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock then
outstanding which are Registrable Securities, plus the number of shares of
common stock issuable pursuant to then exercisable or convertible securities
which are Registrable Securities;
(d) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with this Agreement;
(e) The term "Form S-3" means such form under the Securities
Act as in effect on the date hereof or any successor form under the Securities
Act; and
(f) The term "SEC" means the Securities and Exchange
Commission.
1.2 Registration. The Company will use its reasonable best efforts
to effect a registration to permit the sale of the Registrable Securities as
described below, and pursuant thereto the Company will:
(a) prepare and file within 20 days and use its reasonable
best efforts to have declared effective by the SEC within 45 days after the
Closing, a registration statement on Form S-3 relating to resale of all of the
shares of the Registrable Securities and use its reasonable best efforts to
cause such registration statement to remain continuously effective for a period
which will terminate when all Registrable Securities covered by such
registration statement, as amended from time to time, have been sold or when the
Registrable Securities may be sold under Rule 144(k) under the Securities Act;
(b) prepare and file with the SEC such amendments and
post-effective amendments to the registration statement and any prospectus as
may be necessary to keep such registration statement effective for the period
specified in SECTION 1.2(A) and to comply with the provisions of the Securities
Act and the Exchange Act with respect to the distribution of all Registrable
Securities;
(c) notify each Investor promptly and confirm such notice in
writing (i) when the prospectus or any supplement or post-effective amendment
has been filed and, with respect to the registration statement or any
post-effective amendment, when the same has become effective, (ii) of any
request by the SEC for amendments or supplements to the registration statement
or prospectus or for additional information, (iii) of the issuance by the SEC of
any stop order suspending the effectiveness of the registration statement or the
initiation of any proceedings for that purpose, and (iv) of the receipt by the
Company of any notification with respect to the suspension of the qualification
of the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose;
<PAGE> 3
(d) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of the registration statement at the
earliest possible moment;
(e) furnish to each Investor, without charge, at least one
copy of the registration statement and any post-effective amendment thereto,
including financial statements and schedules, and upon an Investor's request,
all documents incorporated therein by reference and all exhibits thereto
(including those incorporated by reference);
(f) deliver to each Investor, without charge, as many copies
of the prospectus (including each preliminary prospectus) and any amendment or
supplement thereto as such Investor may reasonably request in order to
facilitate the disposition of the Registrable Securities;
(g) cause all Registrable Securities covered by the
registration statement to be listed on each securities exchange or market on
which similar securities issued by the Company are then listed, and if the
securities are not so listed to use its reasonable best efforts promptly to
cause all such securities to be listed on either the New York Stock Exchange,
the American Stock Exchange or the Nasdaq Stock Market;
(h) use reasonable best efforts to qualify or register the
Registrable Securities for sale under (or obtain exemptions from the application
of) the Blue Sky laws of such jurisdictions as are applicable. The Company shall
not be required to qualify as a foreign corporation or to file a general consent
to service of process in any such jurisdiction where it is not presently
qualified or where it would be subject to general service of process or taxation
as a foreign corporation in any jurisdiction where it is not now so subject;
(i) otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the SEC under the Securities Act and the
Exchange Act and take such other actions as may be reasonably necessary to
facilitate the registration of the Registrable Securities hereunder; and
(j) expenses incurred in connection with a registration
requested pursuant to this SECTION 1.2 shall be borne by the Company, including
all registration, filing, qualification, printers' and accounting fees but
excluding any underwriters' discounts or commissions and any fees and
disbursements of any counsel for the selling Holders (such fees or discounts, if
any, to be borne pro rata by the Holders participating in the registration).
1.3 Restrictions; Procedure For Sales Pursuant To A Registration
Statement.
(a) Each Holder agrees to the following restrictions on and
procedures for sales made pursuant to a registration statement:
(i) Notice to Company. If any Holder proposes to sell
any Shares, the Holder shall notify the Company of its intent to do so at least
three (3) business days prior to the date of such sale (the "Notice of Sale"),
by tendering a Notice of Sale in substantially the
<PAGE> 4
form attached as EXHIBIT B. Alternatively, the Holder may give the Notice of
Sale verbally by telephoning and speaking directly with John L. Higgins or the
then current Chief Financial Officer at the Company at (650) 843-2800, and
following up by immediately sending a written Notice of Sale. Providing the
Notice of Sale to the Company shall conclusively be deemed to establish an
agreement by such Holder to comply with the registration provisions herein
described, and the Notice of Sale shall be deemed to constitute a representation
that any information previously supplied by such Holder is accurate as of the
date of such Notice of Sale.
(ii) Delay of Sale. The Company may refuse to permit the
Holder to resell any Shares for a specified period of time; provided, however,
that (a) in order to exercise this right, the Company must deliver a certificate
in writing to the Holder to the effect that the registration statement in its
then current form contains an untrue statement of material fact or omits to
state a material fact necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading, (b) in no
event shall such delay exceed twenty (20) days, (c) in no event shall this right
of delay be exercised on more than two (2) occasions in any twelve (12) month
period, and (d) during any suspension as contemplated by this SECTION 1.4
(A)(II), the Company will not allow any of its officers or directors to buy or
sell shares of the Company's securities.
(b) Representations of Holders. Each Holder hereby represents to
and covenants with the Company that, during the period in which a registration
statement effected pursuant to SECTION 1.2 remains effective, such Holder will:
(i) not engage in any stabilization activity in
connection with any of the Company's securities;
(ii) cause to be furnished to any purchaser of the
Shares and to the broker-dealer, if any, through whom Shares may be offered, a
copy of the Prospectus; and
(iii) not bid for or purchase any securities of the
Company or any rights to acquire the Company's securities, or attempt to induce
any person to purchase any of the Company's securities or any rights to acquire
the Company's securities other than as permitted under the Securities Exchange
Act of 1934, as amended ("Exchange Act").
(c) Information for Use in Registration Statement. Each Holder
represents and warrants to the Company that such Holder has completed the
information requested by the Selling Holder's Questionnaire attached as EXHIBIT
C to this Agreement (the "Questionnaire"), and further represents and warrants
to the Company that all information provided by such Holder in the Questionnaire
is true, accurate and complete. Each Holder understands that the written
information in the Questionnaire and all written representations made in this
Agreement are being provided to the Company specifically for use in, or in
connection with, the registration statement and the Prospectus, and has executed
this Agreement with such knowledge.
1.4 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this SECTION 1 with
respect to the Registrable
<PAGE> 5
Securities of any selling Holder that such Holder 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 such Holder's Registrable Securities.
1.5 Delay of Registration. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any dispute that might arise with respect to the interpretation or
implementation of this SECTION 1.
1.6 Indemnification. In the event any Registrable Securities are
included in a registration statement under this SECTION 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, any underwriter (as defined in the
Securities) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities or the Exchange Act, against
any losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Securities, the Exchange 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 Securities, the Exchange Act, any
state securities law or any rule or regulation promulgated under the Securities,
the Exchange Act or any state securities law; and the Company will pay to each
such Holder, 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 1.6(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 any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder 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 Securities, any underwriter, any
other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities, the Exchange 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 such
Holder expressly for
<PAGE> 6
use in connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this SUBSECTION 1.6(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
1.6(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 the Holder, which consent shall not be unreasonably withheld; provided, that,
in no event shall any indemnity under this SUBSECTION 1.6(b) exceed the net
proceeds from the offering received by such Holder, except in the case of
willful fraud by such Holder.
(c) Promptly after receipt by an indemnified party under
this SECTION 1.6 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 1.6, 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
1.6, 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 1.6.
(d) If the indemnification provided for in this SECTION 1.6
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; provided that, in no event shall any contribution by a Holder
under this SUBSECTION 1.6(d) exceed the net proceeds from the offering received
by such Holder, except in the case of willful fraud by such Holder. 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.
<PAGE> 7
(e) The obligations of the Company and Holders under this
SECTION 1.6 shall survive the completion of any offering of Registrable
Securities in a registration statement under this SECTION 1.
1.7 Reports Under Securities Exchange Act Of 1934. With a view to
making available to the Holders the benefits of Rule 144 and any other rule or
regulation of the SEC that may at any time permit a Holder to sell securities of
the Company to the public without registration or pursuant to a registration on
Form S-3, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144, so long as the Company remains
subject to the periodic reporting requirements under Sections 13 or 15(d) of the
Exchange Act;
(b) take such action, including the voluntary registration
of its Common Stock under Section 12 of the Exchange Act, as is necessary to
enable the Holders to utilize Form S-3 for the sale of their Registrable
Securities;
(c) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities and the Exchange
Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of the Exchange Act
and the rules and regulations promulgated thereunder, or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3, (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.
2. MISCELLANEOUS.
2.1 Successors and Assigns. Except as otherwise provided in this
Agreement, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties
(including transferees of any of the Shares). Nothing in this Agreement, express
or implied, is intended to confer upon any party other than the parties hereto
or their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
2.2 Governing Law. This Agreement and all acts and transactions
pursuant hereto shall be governed, construed and interpreted in accordance with
the laws of the State of California, without giving effect to principles of
conflicts of laws.
2.3 Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE> 8
2.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
2.5 Notices. Unless otherwise provided herein, any notice required
or permitted by this Agreement shall be in writing and shall be deemed
sufficient upon delivery, when delivered personally or by overnight courier and
addressed to the party to be notified at such party's address as set forth on
the signature page hereto or as subsequently modified by written notice. In the
event that any date provided for in this Agreement falls on a Saturday, Sunday
or legal holiday, such date shall be deemed extended to the next business day.
Notwithstanding the foregoing, any notice delivered pursuant to SECTION 1.3(E)
or SECTION 1.4 hereto must be made by personal delivery or confirmed facsimile
transmission.
2.6 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
2.7 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities then outstanding. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Registrable Securities then outstanding, each future holder of all
such Registrable Securities, and the Company.
2.8 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
2.9 Entire Agreement. This Agreement, and the documents referred to
in this Agreement (with the exception of the registration statement) constitute
the entire agreement between the parties hereto pertaining to the subject matter
hereof, and any and all other written or oral agreements existing between the
parties hereto are expressly canceled.
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.
"COMPANY"
Connetics Corporation Address:
3400 West Bayshore Road
Palo Alto, California 94303
By: ____________________________ Facsimile: (650) 843-2899
Thomas G. Wiggans
President and Chief Executive Officer
INVESTOR(S)
By: ____________________________ Address:
<PAGE> 10
EXHIBIT A
LIST OF INVESTORS
<TABLE>
<CAPTION>
Name Number of Shares
- ---- ----------------
<S> <C>
1) Alexander E. Barkas 50,000
2) John C. Kane 12,500
3) Kiley Family Partnership 10,000
4) Alta BioPharma Partners, L.P. 155,397
5) Alta Embarcadero BioPharma, LLC 5,857
6) Connetics Partners (Alta Bio), LLC 88,746
7) Domain Partners III, L.P. 241,640
8) DP III Associates, L.P. 8,360
9) Domain Partners IV, L.P. 1,220,747
10) DP IV Associates, L.P. 29,253
11) Jalaa Equities 25,000
12) New Enterprise Associates VIII, Limited Partnership 1,233,750
13) NEA Presidents Fund, L.P. 15,000
14) NEA Ventures 1998, Limited Partnership 1,250
15) Merlin BioMed Asset Management 45,000
16) Snowdon L.P. 25,000
Total shares issued: 3,167,500
</TABLE>
<PAGE> 11
EXHIBIT B
CONNETICS CORPORATION
NOTICE OF SALE
Pursuant to the Registration Rights Agreement dated as of
_______________, 1998 among Connetics Corporation (the "Company"), the
undersigned and certain stockholders of the Company, the undersigned hereby
gives notice to the Company of the undersigned's intent to sell _______ shares
of the Company's Common Stock registered pursuant to the registration statement
(File No. _______) filed pursuant to such Agreement.
Dated: ___________________ By:_____________________________________
(signature)
Name:___________________________________
(print)
Title:__________________________________
(if applicable)
[NOTE: THIS NOTICE OF SALE MUST BE COMPLETED AND DELIVERED (BY PERSONAL
DELIVERY OR FACSIMILE) TO THE CHIEF FINANCIAL OFFICER OF THE COMPANY ON
_____________________, 19__, OR THREE (3) BUSINESS DAY BEFORE THE DATE OF SALE
OF THE SHARES OF THE COMPANY'S COMMON STOCK REGISTERED PURSUANT TO THE
REGISTRATION STATEMENT.]
<PAGE> 12
EXHIBIT C
CONNETICS CORPORATION
SELLING STOCKHOLDER'S QUESTIONNAIRE
In connection with the Connetics Corporation (the "Company") Registration
Statement (File No. _______________) registering certain shares of the Company's
Common Stock, the undersigned represents and warrants that the information set
forth below is true, accurate and complete:
1. As of the date hereof, the undersigned beneficially owns ______ shares
of the Company's Common Stock.
2. Except as described below, the undersigned has not had a material
relationship with the Company or any of its predecessors or affiliates within
the last three years.
The term "material relationship" has not been defined by the Securities
and Exchange Commission (the "SEC"). However, the SEC has indicated that it will
probably construe as a "material relationship" any relationship which tends to
prevent arms length bargaining in dealings with a company, whether arising from
a close business connection or family relationship, a relationship of control or
otherwise. It seems prudent, therefore, to consider that the undersigned would
have such a relationship, for example, with any organization of which the
undersigned is an officer, director, trustee or partner or in which the
undersigned owns, directly or indirectly, ten percent (10%) or more of the
outstanding voting stock, or in which the undersigned has some other substantial
interest, and with any person or organization with whom the undersigned has, or
with whom any relative or spouse (or any other person or organization as to
which the undersigned has any of the foregoing other relationships) has, a
contractual relationship.
If applicable, please describe the material relationship with the
Company:
Dated: ___________________ By:______________________________________
(signature)
Name:____________________________________
(print)
Title:___________________________________
(if applicable)
<PAGE> 1
EXHIBIT 10.4
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") dated as of May 5, 1998
is between Genentech, Inc., a Delaware corporation ("Genentech"), and Connetics
Corporation, a Delaware corporation (the "Company").
INTRODUCTION
A. The Company and Genentech have entered into a License Agreement
for Interferon Gamma dated May 5, 1998 (the "License Agreement"), along with a
Supply Agreement dated as of the date of this Agreement (such Supply Agreement
and License Agreement collectively referred to herein as the "Transaction
Agreements"), pursuant to which the Company is acquiring from Genentech certain
rights to Interferon Gamma.
B. Pursuant to the License Agreement, the Company has agreed to
issue to Genentech shares of its common stock, par value $0.001 per share (the
"Common Stock"), having a value of $4 million, determined in accordance with
the terms of this Agreement and subject to the terms and conditions herein.
AGREEMENT
The parties hereto agree as follows:
ARTICLE I
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), results of operations, assets, business or
prospects of the Company, considered as a whole.
<PAGE> 2
"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.
"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
with the SEC in compliance with the 1933 Act.
"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 or otherwise
transferred by Genentech 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 equal the number of
shares of Common Stock outstanding which are Registrable Securities.
"Form S-1" means such form under the 1933 Act in effect on the date
hereof or any successor form under the 1933 Act.
"Form S-3" means such form under the 1933 Act in effect on the date
hereof or any successor form under the 1933 Act.
"SEC" means the Securities and Exchange Commission.
"Shares" means the Original Issuance Shares and the Second Issuance
Shares, if any.
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<PAGE> 3
(b) In addition, each of the following terms is defined in the
Section set forth opposite such term:
<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
Acquisition 2.2(d)
Common Stock Recitals
License Agreement Recitals
Original Closing 2.2(a)
Original Closing Date 2.2(a)
Original Issuance 2.1(a)
Original Issuance Price 2.1(a)
Original Issuance Shares 2.1(a)
Second Closing 2.2(b)
Second Closing Date 2.2(b)
Second Issuance 2.1(b)
Second Issuance Price 2.1(b)
Second Issuance Shares 2.1(b)
Transaction Agreements Recitals
Violation 3.5(a)
</TABLE>
ARTICLE II
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 Genentech, and Genentech agrees
to acquire from the Company, shares of the Company's Common Stock as follows:
(a) Original Issuance. On the Original Closing Date (as defined
below), the Company shall issue to Genentech a number of shares of Common Stock
(the "Original Issuance Shares") equal to the lesser of: (i) $2,000,000 divided
by the Original Issuance Price (as defined below) or (ii) 9.5% of the Company's
total outstanding shares of Common Stock as of the close of business on the
third trading day before the Original Closing Date (each such number of shares
to be rounded to the nearest whole number). Such issuance shall be referred to
herein as the "Original Issuance."
The "Original Issuance Price" shall be 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
Original Closing Date, as reported on the Nasdaq Stock Market.
(b) Potential Second Issuance. If on the Second Closing Date (as
defined below), the aggregate market value of the Original Issuance Shares is
less than $4,000,000 (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
-3-
<PAGE> 4
Second Closing Date, as reported on the Nasdaq Stock Market (the "Second
Issuance Price")), then the Company shall issue to Genentech on the Second
Closing Date that number of additional shares of its Common Stock (the "Second
Issuance Shares") equal to the lesser of: (i) the number of shares necessary to
increase the aggregate market value of the Original Issuance Shares (based on
the Second Issuance Price) and the Second Issuance Shares (based on the Second
Issuance Price) to $4,000,000 or (ii) the number of shares necessary to increase
the aggregate number of the Company's shares of Common Stock held by Genentech
(exclusive of any shares that Genentech has purchased from parties other than
the Company) to 9.9% of the Company's total outstanding shares of Common Stock
as of the close of business on the third trading day before the Second Closing
Date (each such number of shares to be rounded to the nearest whole number).
Such issuance shall be referred to hereinafter as the "Second Issuance."
(c) Cash in Lieu of Second Issuance Shares. Notwithstanding
Section 2.1(b) above, in lieu of all or any portion of the Second Issuance
Shares that the Company is obligated to issue to Genentech on the Second Closing
Date, the Company may elect to pay Genentech the cash value of such Second
Issuance Shares (based on the Second Issuance Price). In addition, if the
Company is obligated to deliver to Genentech the number of Second Issuance
Shares specified by clause (ii) of Section 2.1(b) rather than by clause (i) of
Section 2.1(b), the Company shall pay Genentech in cash the difference between
the value of Second Issuance Shares delivered under clause (ii) and the value of
Second Issuance Shares that would otherwise have been delivered under clause
(i). Any such cash payment under this paragraph shall be made by Company check
or by a wire transfer to a bank account designated by Genentech.
(d) Compliance with Rule 4460 of the Nasdaq Stock Market.
Notwithstanding Section 2.1(b) above, in order to comply with Rule 4460 of the
Nasdaq Stock Market, the sum of the Original Issuance Shares and the Second
Issuance Shares shall not be greater than 19.9% of the total outstanding shares
of Common Stock of the Company immediately prior to the Original Issuance. In
the event that such sum would otherwise be greater than 19.9% of the total
outstanding shares of Common Stock of the Company immediately prior to the
Original Issuance, then the sum shall be reduced until such sum is equal to
19.9% of the total outstanding shares of Common Stock of the Company immediately
prior to the Original Issuance, and the Company shall be obligated to pay
Genentech in cash the value of the Second Issuance Shares that would have been
issued on the Second Closing Date but for this subsection (based on the Second
Issuance Price).
2.2 Closing Dates.
(a) Original Closing Date. The closing of the acquisition
and issuance of the Original Issuance Shares (the "Original Closing") shall be
held at 4:00 p.m. Pacific time on the Effective Date (as defined in the License
Agreement) of the License Agreement (the "Original Closing Date") subject to the
satisfaction or waiver of the conditions set forth in Sections 6.1 and 6.2, or
at such other time or date as the Company and Genentech may agree orally or in
writing.
(b) Second Closing Date. The closing of the issuance of the
Second Issuance Shares (the "Second Closing"), if any, shall be held at 10:00
a.m. Pacific Standard time on
-4-
<PAGE> 5
December 28, 1998 (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 Genentech may agree orally or in
writing.
(c) Location. The Original Closing and the Second Closing, if any,
shall be held at the offices of Venture Law Group, 2800 Sand Hill Road, Menlo
Park, CA 94025 or at such other place as the Company and Genentech may agree
orally or in writing.
(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 stockholders 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 Genentech, which
date in no event shall be later than one (1) day prior to the closing of such
Acquisition and the 9.9% ownership limitation set forth in subsection 2.1(b)
shall not apply.
2.3 Delivery. Subject to the terms and conditions of this Agreement, at the
Original Closing and at the Second Closing, as the case may be, or as soon as
practicable thereafter, the Company will deliver to Genentech stock certificates
representing the number of Shares subject to issuance hereunder. One (1)
business day prior to the Original Closing Date, the Company shall provide
Genentech with a letter from the Company specifying the calculation of the
Original Issuance Price and the number of Original Issuance Shares to be issued
at the Original Closing. One (1) business day prior to the Second Closing Date
(if required), the Company shall provide Genentech with a letter from the
Company specifying the calculation of the Second Issuance Price and the number
of Second Issuance Shares to be issued at the Second Closing.
2.4 Restriction on Transfer. Genentech hereby agrees that, without the
prior written consent of the Company, it will not, during the period commencing
on the Original 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, and
Original Issuance 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 Original Issuance Shares, whether any such transaction
described in clause (1) or (2) above is to be settled by delivery of the
Original Issuance Shares or such other securities, in cash or otherwise.
ARTICLE III
REGISTRATION RIGHTS AND SALE OF SHARES
3.1 Form S-3 Registration. Unless otherwise requested by Genentech, the
Company will use its best efforts to prepare and file by November 1, 1998 a
registration statement on Form S-3 that contemplates a distribution of the
Registrable 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
-5-
<PAGE> 6
Company shall not be obligated to effect any such registration, qualification
or compliance if the Company shall furnish to Genentech a certificate signed by
the President of the Company stating that in the good faith judgment of the
Board of Directors 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 60 days. If
Form S-3 is not available for such offering by reason of any act or omission of
the Company, the Company shall prepare and file by November 1, 1998 a
registration statement on Form S-1 for the same purposes and subject to the
same conditions set forth in this paragraph.
3.2 Obligations of the Company. When required under this Article III 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 prior to the Second Closing Date, and, upon the request of
Genentech, keep such registration statement effective until the date on which
the distribution contemplated in such registration statement is complete, and
update such registration statement during such period of effectiveness;
provided, however, if the Company shall furnish to Genentech a certificate
signed by the President of the Company stating that in the good faith judgment
of the Board of Directors 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 60 days.
(b) Furnish to Genentech 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 Genentech;
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 or 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 III with
respect to the Registrable Securities that Genentech 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 III, including (without limitation) all
registration, filing and qualification fees, printers'
-6-
<PAGE> 7
and accounting fees, fees and disbursements of counsel for the Company, shall be
borne by the Company.
3.5 Indemnification. In the event any Registrable Securities are included
in a registration statement under this Article III:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless Genentech, each of its officers, each of its directors, any
underwriter (as defined in the 1933 Act) for Genentech and each person, if any,
who controls Genentech 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 Genentech 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 3.5(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 Genentech or any such underwriter or controlling
person.
(b) To the extent permitted by law, Genentech 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 Genentech expressly for use in connection with
such registration; and Genentech will pay, as incurred, any legal or other
expenses reasonably incurred by any person intended to be indemnified pursuant
to this subsection 3.5(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 3.5(b) shall not
-7-
<PAGE> 8
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of Genentech,
which consent shall not be unreasonably withheld. Notwithstanding the
foregoing, in no event shall Genentech's total indemnification obligation
exceed the aggregate amounts Genentech has received from the sale of the Shares
pursuant to the registration statement filed under this Article III.
(c) Promptly after receipt by an indemnified party under this
Section 3.5 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 3.5,
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 indemnifying 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
3.5, 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 3.5.
(d) If the indemnification provided for in this Section 3.5 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.
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(f) The obligations of the Company and Genentech under this Section 3.5
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Article III, and otherwise.
3.6 PROCEDURE FOR SALE OF SHARES. Genentech shall notify the Company at
least twenty trading days in advance of the first proposed sale or other
transfer of any Registrable Securities. Genentech 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 Stock
Market, and the parties will work together to explore methods of disposition in
order to achieve such goal. Genentech 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. In addition, Genentech agrees it will not transfer or
sell more than ten percent (10%) of the total number of Shares (including the
Second Issuance Shares) in any calendar week, provided that the foregoing
limitation shall not apply to any block sale or transfer arranged between
Genentech and a third party.
3.7 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Article III may not be
assigned by Genentech without the Company's prior written consent, unless such
assignment is to an Affiliate of Genentech. Any such assignment consented to by
the Company shall be 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. Genentech shall not be entitled
to exercise any right provided for in this Article III, and the Company shall
have no further obligations under this Article III, after such time as Rule 144
or another similar exemption under the 1933 Act is available for the sale of
all of Genentech's shares during a three (3) month period without registration.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Genentech as of the date hereof
that:
4.1 ORGANIZATION AND STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite corporate power and authority to own its
properties, to carry on its business as now being conducted, and to carry out
the transactions contemplated under the Transaction Agreements. Other than as
disclosed in its SEC Filings (as defined below) or as contemplated by the
License Agreement, the Company has no subsidiaries or direct or indirect
ownership interest in any firm, corporation, association or business which,
either individually or in the aggregate, are material to the business of the
Company. The Company is qualified to do business and is in good standing as a
foreign corporation in every jurisdiction in which its ownership of property or
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conduct of business requires it so to be qualified and in which the failure to
so qualify would have a Material Adverse Effect on the Company.
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.
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 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.
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 and
free and clear of all pledges, liens, encumbrances and restrictions other than
the restrictions on transfer set forth in Section 2.4 and Section 5.3 of this
Agreement.
4.6 SEC FILINGS. The Company has filed with the SEC via the EDGAR
system (i) its Annual Report on Form 10-K for the fiscal year ended December
31, 1997 and (ii) all other reports required to be filed by it with the SEC
pursuant to the 1934 Act since December 31, 1997 (the "SEC Filings").
4.7 ABSENCE OF CERTAIN CHANGES. Since December 31, 1997 and except as
contemplated by this Agreement or disclosed in any SEC Filings, the business of
the Company has been conducted in the ordinary course consistent with past
practices and there has not been
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any event, occurrence, development or state of circumstances or facts which,
individually or in the aggregate, has had a Material Adverse Effect on the
Company.
4.8 Changes. Except as set forth in the SEC Filings, since December
31, 1997, the Company has not, to the extent material to the Company (i)
incurred any debts, obligations or liabilities, absolute, accrued or contingent,
whether due or to become due, other than in the ordinary course of business,
(ii) mortgaged, pledged or subjected to lien, charge, security interest or other
encumbrance any of its assets, tangible or intangible, (iii) waived any debt
owed to the Company, (iv) satisfied or discharged any lien, claim or encumbrance
or paid any obligation other than in the ordinary course of business or as
contemplated in the SEC Filings, (v) declared, set aside or paid any dividends
or other distribution with respect to the capital stock of the Company, (vi)
amended any material contract or arrangement by which the Company or any of
its assets is bound, or (vii) sold, assigned or transferred any of its patents,
trademarks, copyrights, trade secrets or other intangible assets. Other than as
may be set forth in the SEC Filings, there has been no material adverse change
in the financial condition or business, assets or properties, liabilities or
operating results to the Company since the date of the financial statements
contained in the SEC Filings other than normal recurring operating losses, and
there has not occurred any loss, destruction or damage affecting the business,
properties, prospects or financial condition of the Company, whether or not
insured, which has or may have a Material Adverse Effect on the Company.
4.9 Litigation. Other than as described in the SEC Filings, there
are no legal actions, suits, arbitrations or other legal, administrative or
governmental proceedings pending or, to the best of the Company's knowledge,
threatened against the Company or its properties, assets or business, and the
Company is not aware of any facts which might result in or form the basis for
any such action, suit or other proceeding, in each case which, if adversely
determined, would, individually or in the aggregate, affect the execution and
delivery of the Transaction Agreements or the performance by the Company of its
obligations hereunder and thereunder or have a Material Adverse Effect on the
Company. The Company is not in default with respect to any judgement, order or
decree of any court or any governmental agency or instrumentality, which default
would have a Material Adverse Effect on the Company.
4.10 Compliance With Applicable Laws and Other Instruments. To the
best of the Company's knowledge, the business and operations of the Company have
been and are being conducted in accordance with all applicable laws, rules and
regulations of all governmental authorities, except for such violations of
applicable laws, rules and regulations which would not, individually or in the
aggregate, have a Material Adverse Effect on the Company.
4.11 Reports and Financial Statements. As of their respective filing
dates, the SEC Filings were prepared in all respects in accordance with the
applicable requirements of the 1933 Act or the 1934 Act, as the case may be. The
audited consolidated financial statements and unaudited interim financial
statements of the Company included in the SEC Filings comply as to form in all
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, and the financial statements
included in the SEC Filings have been prepared in accordance with United States
generally accepted accounting
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principles applied on a consistent basis (except as may be indicated therein on
the notes thereto) and fairly present the financial position of the Company as
at the dates thereof and the results of its operations and cash flows for the
periods then ended, subject, in the case of the unaudited interim financial
statements, to normally recurring year-end adjustments and any other
adjustments described in such financial statements.
4.12 Securities Laws; Governmental Approvals. Based in part upon the
representations and warranties of Genentech contained in Article V of this
Agreement, the offer, sale, issuance and delivery to Genentech of the Shares as
contemplated by this Agreement are exempt from the registration requirements of
the 1933 Act, and from the registration or qualification requirements of the
laws of any applicable state or other U.S. jurisdiction.
4.13 Capital Stock. All of the outstanding shares of the Company's capital
stock are validly issued, fully paid and nonassessable and were issued in
compliance with all applicable federal and state securities laws. Except as set
forth in the SEC Filings, the Company has not agreed to register the sale of
any of its securities under the 1933 Act, and there are no outstanding
subscriptions, options, warrants, calls, contracts, demands, commitments,
conversion rights or other agreements or arrangements of any character or
nature whatever under which the Company is or may be obligated to issue its
Common Stock, preferred stock or warrants or options to purchase Common Stock or
preferred stock. No holder of any security of the Company is entitled to any
rights of first refusal, preemptive or similar rights to purchase any securities
of the Company (including, without limitation, the Shares).
4.14 No Brokers or Finders. To the knowledge of the Company, no person,
firm or corporation has or will have, as a result of any act or omission of the
Company, any right, interest or valid claim against Genentech for any
commission, fee or other compensation as a finder or broker in connection with
the transactions contemplated by this Agreement.
4.15 Compliance with Environmental Law. Except as disclosed in the SEC
Filings, the Company is not in violation in any material respect of any
applicable statute, law, or regulation relating to the environment or
occupational health and safety, and, to the best of the Company's knowledge, no
material expenditures are or will be required in order to comply with any such
existing statute, law or regulation. To the best of the Company's knowledge,
the Company does not have any material liability to any governmental authority
or other third party arising under or as a result of any such past or existing
statute, law or regulation.
4.16 SEC Filings. The SEC Filings, when read as a whole, as of the date
such SEC Filings were made, did not contain any untrue statements of a material
fact and do not omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
4.17 Filing of Reports. Since the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996, the Company has filed with the SEC all
reports and other material required to be filed by it therewith pursuant to
Section 13, 14 or 15(d) of the Exchange Act, and the Company is presently
eligible to register the resale of the Shares by Genentech on a Registration
Statement on Form S-3.
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<PAGE> 13
4.18 Insurance. The Company has in full force and effect fire and casualty
insurance policies, with extended coverage, sufficient in amount (subject to
reasonable deductibles) to allow it to replace any of its properties that might
be damaged or destroyed. The Company has in full force and effect products
liability and errors and omission insurance in amounts customary for companies
similarly situated.
4.19 Tax Returns, Payments, and Elections. The Company has filed all tax
returns and reports as required by law. These returns and reports are true and
correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith. The provision for
taxes of the Company as shown in the financial statements is adequate for taxes
due or accrued as of the date thereof. The Company has not elected pursuant to
the Internal Revenue Code of 1986, as amended ("Code"), to be treated as a S
corporation or a collapsible corporation pursuant to Section 1362(a) or Section
341(f) of the Code, nor has it made any elections pursuant to the Code (other
than elections that relate solely to methods of accounting, depreciation, or
amortization) that would have a Material Adverse Effect on the Company. The
Company has never had any tax deficiency proposed or assessed against it and
has not executed any waiver of any statute of limitations on the assessment or
collection of any tax or governmental charge. Since the date of the financial
statements, the Company has made adequate provisions on its books of account
for all taxes, assessments, and governmental charges with respect to its
business, properties, and operations for such period. The Company has withheld
or collected from each payment made to each of its employees, the amount of all
taxes, including, but not limited to, federal income taxes, Federal Insurance
Contribution Act taxes and Federal Unemployment Tax Act taxes required to be
withheld or collected therefrom, and has paid the same to the proper tax
receiving officers or authorized depositaries.
4.20 HSR Filing. Acting under delegated authority of the Company's Board
of Directors, the Company's officers have determined that the fair market value
of the exclusive license granted under the License Agreement is less than
$15,000,000 and therefore that the execution and delivery of, or the
performance of the obligations of the Company or Genentech under, the
Transaction Documents (including, without limitation, the consummation of the
Original Closing and the Second Closing (collectively, the "Closings") and the
issuance of the Shares to Genentech at the Closings) shall not require that
filings under the HSR Act, or the rules or regulations promulgated thereunder,
be made prior to the Closings by the Company, Genentech, or their respective
Affiliates or ultimate parent entities, if any.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GENENTECH
5.1 Representations and Warranties. Genentech hereby represents and
warrants to the Company as of the date hereof as follows:
(a) Genentech is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware.
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(b) Genentech 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 Genentech enforceable in accordance with its
terms.
(c) The execution, delivery and performance by Genentech of this
Agreement does not (i) violate the certificate of incorporation or bylaws or
Genentech, (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 Genentech to a loss of any material benefit to
which Genentech is entitled under, any material written agreement or other
material written instrument binding upon Genentech or any material license,
franchise, permit or other similar authorization held by Genentech.
(d) The execution, delivery and performance of this Agreement by
Genentech 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, and Blue Sky Laws.
5.2 Purchase of Shares for Investment. Genentech 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 III hereof. Genentech 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 III hereof. By executing this Agreement, Genentech 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. Genentech 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, Genentech 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
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<PAGE> 15
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.
5.5 Access to Information. Genentech acknowledges that it has
received all information it has requested regarding the Company's business,
management, and financial affairs and the terms and conditions of the issuance
of the Shares. Without limiting the foregoing, Genentech acknowledges that the
Company's periodic reports required to the filed with the SEC under the 1934 Act
are available to Genentech on the SEC's World Wide Web home page at
http://www.sec.gov and that Genentech has obtained and reviewed such reports to
the extent it believes necessary to evaluate an investment in the Company.
ARTICLE VI
CONDITIONS TO CLOSINGS
6.1 Conditions to Original Issuance Obligations of Genentech. The
obligation of Genentech to consummate the Original Issuance is subject to the
satisfaction or Genentech's waiver, on or prior to the Original Closing Date, of
each of the following conditions:
(a) The representations and warranties made by the Company
in Article IV shall be true and correct when made, and shall be true and
correct on the Original 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 shall have
performed all covenants, obligations and conditions required to be performed or
observed by the Company on or prior to the Original Closing Date, or such
performance shall have expressly waived by Genentech in writing.
(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 Original 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, endorsed, 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
Original Issuance Shares to Genentech or otherwise preventing the consummation
of any of the transactions contemplated under this Agreement.
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(d) The Company and Genentech shall have executed and delivered the
Transaction Agreements.
(e) There shall be no temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation of
the Original 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 Original Issuance.
(f) The Company shall not be in material breach of the Transaction
Agreements.
(g) Genentech shall have received from the Company's counsel an
opinion in form and substance reasonably satisfactory to Genentech's Counsel
regarding the Original Issuance.
6.2 Conditions to the Original Issuance Obligations of the Company.
The obligations of the Company to issue the Original Issuance Shares is subject
to the satisfaction or the Company's waiver, on or prior to the Original Closing
Date, of each of the following conditions:
(a) The representations and warranties made by Genentech in Article V
shall be true and correct when made, and shall be true and correct on the
Original Closing Date with the same force and effect as if they had been made on
and as of such date and Genentech shall have performed all covenants,
obligations and conditions required to be performed or observed by Genentech on
or prior to the Original Closing Date or such performance shall have been
expressly waived by the Company in writing.
(b) The Company and Genentech shall have executed and delivered the
Transaction Agreements.
(c) Genentech 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 Original 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
Original Issuance Shares to Genentech or otherwise preventing the consummation
of any of the transactions contemplated under this Agreement.
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6.3 Conditions to Second Closing Obligations of Genentech. The obligation
of Genentech to consummate the Second Closing is subject to the satisfaction or
Genentech'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 Section
4.1 through and including Section 4.5, Section 4.10 and Section 4.12 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 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 to Genentech or otherwise preventing the consummation of
any of the transactions contemplated under this Agreement.
(d) 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.
(e) At the time of the closing on the Second Closing Date, the
issuance of the Shares to Genentech shall be legally permitted by all laws and
regulations to which Genentech and the Company are subject.
(f) There shall be no material default or breach under the
Transaction Agreements by the Company.
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 a Second
Closing Date, of each of the following conditions:
(a) The representations and warranties made by Genentech in Article V
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.
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(b) Genentech and 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 to Genentech or otherwise preventing the consummation of
any of the transactions contemplated under this Agreement.
(d) 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.
(e) At the time of the closing on the Second Closing Date, the
issuance of the Shares to Genentech shall be legally permitted by all laws and
regulations to which Genentech and the Company are subject.
ARTICLE VII
ADDITIONAL COVENANTS OF THE COMPANY
The Company covenants and agrees that:
7.1 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.
7.2 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 III.
7.3 Confidentiality. Except for information disclosed under the License
Agreement (which shall be governed by Section 7.0 of the License Agreement), the
Company will hold, and will use all reasonable business efforts to cause its
respective officers, directors, employees, accountants, counsel, consultants,
advisors and agents to hold, in confidence, all confidential documents and
information concerning Genentech furnished to the Company in connection with the
transactions contemplated by this Agreement and the Transaction Agreements,
except to the extent that such information can be shown to have been (i)
previously known on a
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nonconfidential basis by the Company, (ii) in the public domain through no fault
of the Company of (iii) later lawfully acquired by the Company from sources
other than Genentech; provided that the Company 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 Transaction Agreements so long as (a) such disclosure is necessary for
the evaluation and consummation of the transactions contemplated by this
Agreement and the Transaction Agreements and (b) such Persons are informed by
the Company of the confidential nature of such information and are bound in
writing by the Company to treat such information confidentially. The Company
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, the Company use all reasonable business efforts to
cause their respective officers, directors, employees, accountants, counsel,
consultants, advisors and agents to, destroy or deliver to Genentech, upon
request, all documents and other materials, and all copies thereof, obtained by
the Company or on their behalf from Genentech in connection with this Agreement
or the Transaction Agreements that are subject to such confidence. This Section
7.3 shall survive any termination of this Agreement.
ARTICLE VIII
ADDITIONAL COVENANTS OF GENENTECH
Genentech covenants and agrees that:
8.1 Confidentiality. Except for information disclosed under the
License Agreement (which shall be governed by Section 7.0 of the License
Agreement), Genentech will hold, and will use all reasonable business efforts to
cause its respective officers, directors, employees, accountants, counsel,
consultants, advisors and agents to hold, in confidence, all confidential
documents and information concerning the Company furnished to Genentech in
connection with the transactions contemplated by this Agreement and the
Transaction Agreements, except to the extent that such information can be shown
to have been (i) previously known on a nonconfidential basis by Genentech, (ii)
in the public domain through no fault of Genentech or (iii) later lawfully
acquired by Genentech from sources other than the Company; provided that
Genentech 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 Transaction Agreements so
long as (a) such disclosure is necessary for the evaluation and consummation of
the transactions contemplated by this Agreement and the Transaction Agreements
and (b) such Persons are informed by Genentech of the confidential nature of
such information and are bound in writing by Genentech to treat such information
confidentially. Genentech 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, Genentech 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
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thereof, obtained by Genentech or on their behalf from the Company in connection
with this Agreement or the Transaction Agreements that are subject to such
confidence. This Section 8.1 shall survive any termination of this Agreement.
8.2 1934 ACT FILINGS. Genentech agrees and acknowledges that it shall
have sole responsibility for making any filings with the SEC pursuant to
Sections 13 and 16 of the 1934 Act as a result of its acquisition of the Shares
and any future retention or transfer thereof.
ARTICLE IX
ADDITIONAL COVENANTS OF GENENTECH AND THE COMPANY
Genentech and the Company covenant and agree that:
9.1 BEST EFFORTS. Subject to the terms and conditions of this Agreement,
Genentech 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 Transaction Agreements. The Company and
Genentech 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 Transaction Agreements.
9.2 CERTAIN FILINGS. The Company and Genentech 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 Transaction Agreements 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 PUBLICITY. The Company and Genentech agree that, except as may
otherwise be required by applicable laws, regulations, rules, or orders,
including the disclosure requirements of the SEC and the Nasdaq Stock Market,
no information concerning this Agreement and the transactions contemplated
herein (except information which is already in the public domain) shall be made
public by either party without the prior written consent of the other party.
Notwithstanding the foregoing, with respect to complying with the disclosure
requirements of the SEC, in connection with any required SEC filing of the
Transaction Agreements by the Company, the Company shall seek confidential
treatment of portions of the Transaction Agreements from the SEC and Genentech
shall have the right to review and comment on the portions of the Transaction
Agreements for which confidentiality is sought prior to their being filed with
the SEC. Genentech shall provide its comments, if any, on such application as
soon as practicable and in no event later than seven (7) days after such
application is provided to Genentech.
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ARTICLE X
SURVIVAL
10.1 Survival. The 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 Original Closing
for a period of two (2) years.
ARTICLE XI
TERMINATION
11.1 Grounds for Termination. This Agreement may be terminated at any
time prior to the Original Closing or the Second Closing, as applicable:
(i) by mutual written agreement of the Company and Genentech; or
(ii) by either the Company or Genentech if there shall be any
law or regulation that makes consummation of the issuances of Shares
contemplated in this Agreement illegal or otherwise prohibited or if
consummation of the issuances of Shares contemplated hereby would violate any
nonappealable final order, decree or judgment of any court or governmental
body having competent jurisdiction; and in such event, the Company shall be
obligated to pay to Genentech in cash the value of the Original Issuance Shares
and the Second Issuance Shares (if any), as the case may be, that would have
been issued on the originally scheduled Original Closing Date and 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 Original Closing Date and 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 the case may be, as
reported in Nasdaq Stock Market).
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. The provisions of
Sections 7.3 and 8.1 shall survive any termination hereof pursuant to Section
11.1 or otherwise.
ARTICLE XII
MISCELLANEOUS
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12.1 Notices. Any notices permitted or required by this Agreement shall be
sent by facsimile, or by courier, 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 Genentech: Genentech, Inc.
1 DNA Way
South San Francisco, CA 94080
Attn: Corporate Secretary
Fax: (650) 952-9881
If to Connetics: Connetics Corporation
3400 W. Bayshore Road
Palo Alto, CA 94303
Attn: Chief Executive Officer
Fax: (650) 843-2899
12.2 Amendments and Waivers
(a) Any provision of this Agreement may be amended or waived prior to
the Closing Dates 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. Except as provided in Sections 3.4 and 3.5, all costs and
expenses incurred in connection with this Agreement shall be paid by the party
incurring such cost or expense.
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,
except that Genentech may assign this Agreement to an Affiliate, without the
prior written consent of the other party.
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
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intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder.
12.7 Entire Agreement. This Agreement and the Transaction Agreements
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, except for the Confidentiality Agreement between the parties
dated January 9, 1997, which shall remain in full force and effect. No
representation, inducement, promise, understanding, condition or warranty not
set forth herein has been made or relied upon by either party hereto.
[Signature Page Follows.]
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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.
GENENTECH, INC.
By: /s/ Nicholas J. Simon
-------------------------------
Name: Nicholas J. Simon
-----------------------------
Title: Vice President, Business and
----------------------------
Corporate Development
CONNETICS CORPORATION
By: /s/ T. Wiggins
-------------------------------
Name: Thomas Wiggins
-----------------------------
Title: President/CEO
----------------------------
SIGNATURE PAGE TO STOCK ISSUANCE AGREEMENT
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement (Form S-3 No. 333-00000) and related Prospectus of
Connetics Corporation for the registration of 3,572,548 shares of its common
stock and to the incorporation by reference therein of our report dated January
15, 1998, with respect to the financial statements of Connetics Corporation
included in its Annual Report (Form 10-K) for the year ended December 31, 1997,
filed with the Securities and Exchange Commission.
Palo Alto, California /s/ ERNST & YOUNG LLP
December 16, 1998
