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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
Commission file number: 0-27406
CONNETICS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-3173928
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
3400 WEST BAYSHORE ROAD
PALO ALTO, CALIFORNIA 94303
(Address of principal executive offices)
Registrant's telephone number, including area code: (650) 843-2800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for at least the past 90 days.
Yes [X] No [ ]
As of April 30, 1999, 21,339,070 shares of the Registrant's common stock
were outstanding, at $0.001 par value.
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CONNETICS CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 1999
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at March 31, 1999 and December 31, 1998 ... 3
Condensed Consolidated Statements of Operations for the three months
ended March 31, 1999 and 1998 ................................................... 4
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 1998 ................................................... 5
Notes to Condensed Consolidated Financial Statements ............................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ........................................................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risks ..................... 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ................................................ 13
Exhibits ........................................................................ 13
Reports on Form 8-K ............................................................. 13
SIGNATURE .......................................................................................... 14
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONNETICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
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MARCH 31, DECEMBER 31,
1999 1998
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(UNAUDITED)
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ASSETS
Current assets:
Cash and cash equivalents $ 15,646 $ 14,708
Short-term investments 6,813 8,312
Accounts and other receivables 1,201 485
Other current assets 863 118
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Total current assets 24,523 23,623
Property and equipment, net 1,613 1,128
Notes receivable from related parties 380 379
Deposits and other assets 127 104
License agreements and product rights 4,480 6,160
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$ 31,123 $ 31,394
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,464 $ 1,229
Accrued and other current liabilities 1,459 879
Accrued process development expenses 717 644
Accrued payroll and related expenses 763 1,003
Current portion of notes payable and other liabilities 6,662 6,822
Current portion of capital lease obligations, capital loans and long-term debt 894 582
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Total current liabilities 13,959 11,159
Noncurrent portion of capital lease obligations, capital loans and long-term debt 3,810 4,002
Other long-term liabilities 2,111 3,781
Stockholders' equity:
Common stock, treasury stock and additional paid-in capital 109,923 105,285
Notes receivable from stockholders (65) (65)
Deferred compensation, net (217) (302)
Accumulated deficit (98,392) (92,469)
Accumulated other comprehensive income (loss) (6) 3
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Total stockholders' equity 11,243 12,452
========= =========
$ 31,123 $ 31,394
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
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CONNETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
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Revenues:
Product $ 2,161 $ 1,519
Contract 5,000 --
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Total revenues $ 7,161 $ 1,519
Operating cost and expenses:
Cost of product revenue 1,171 295
License amortization 1,680 1,680
Research and development 4,681 2,178
Selling, general and administrative 5,594 2,462
-------- --------
Total operating cost and expenses 13,126 6,615
Interest income 334 177
Interest expense (292) (394)
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Net loss $ (5,923) $ (5,313)
======== ========
Basic and diluted net loss per share $ (0.28) $ (0.39)
======== ========
Shares used to calculate net loss per share 21,088 13,489
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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CONNETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
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THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (5,923) $ (5,313)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 1,859 1,909
Amortization of deferred compensation 637 116
Accrued interest on notes payable -- 288
Changes in assets and liabilities:
Accounts receivable (716) 960
Current and other long-term assets (532) (1,190)
Current and other liabilities 2,648 (429)
Other long-term liabilities 670 132
-------- --------
Net cash used in operating activities (1,357) (3,527)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments (2,784) (882)
Sales and maturities of short-term investments, net 4,274 2,278
Capital expenditures (664) (27)
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Net cash provided by (used in) investing activities 826 1,369
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of notes payable (2,500) --
Payments of obligations under capital leases and capital loans (117) (597)
Proceeds from issuance of common stock, net of issuance costs 4,086 25
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Net cash provided by financing activities 1,469 (572)
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Net change in cash and cash equivalents 938 (2,730)
Cash and cash equivalents at beginning of period 14,708 8,452
======== ========
Cash and cash equivalents at end of period $ 15,646 $ 5,722
======== ========
SUPPLEMENTARY INFORMATION:
Interest paid $ 173 $ 105
</TABLE>
See notes to condensed consolidated financial statements.
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CONNETICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Connetics Corporation ("Connetics") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, such financial statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring accrual adjustments, considered necessary for a fair
presentation have been included. Operating results for the three-month period
ended March 31, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999.
These financial statements and notes should be read in conjunction with audited
financial statements and notes to those financial statements for the year ended
December 31, 1998 included in Connetics' Annual Report on Form 10-K.
2. NET LOSS PER SHARE
The computation of diluted earnings per share does not include options to
purchase 2,485,568 shares of common stock at exercise prices ranging from
$0.4448 to $11.00 and warrants to purchase 1,289,193 shares of common stock at
exercise prices ranging from $4.89 to $11.00 as their effect would be
antidilutive.
3. COMPREHENSIVE INCOME
During the three months ended March 31, 1999, total comprehensive (loss)
amounted to $(5.9) million compared to $(5.3) million for the same period in
1998. The components of comprehensive (loss) for the three-month period ended
March 31, 1999 and 1998 are as follows:
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Three months ended
March 31,
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(In thousands) 1999 1998
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Net loss $(5,923) $(5,313)
Unrealized (loss) on securities (9) (2)
Foreign currency translation adjustment -- --
------- -------
Comprehensive (loss) $(5,932) $(5,315)
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The components of accumulated other comprehensive income (loss) at March 31,
1999 and December 31, 1998 are as follows:
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(In thousands) 1999 1998
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Unrealized gains (loss) on securities $ (6) $ 3
Foreign currency translation adjustments -- --
------ ------
Accumulated comprehensive income (loss) $ (6) $ 3
------ ------
</TABLE>
4. RESEARCH AND LICENSE AGREEMENT
In January 1999, Connetics entered into a development, commercialization and
supply agreement with Medeva PLC of the United Kingdom ("Medeva") for certain
therapeutic indications pertaining to relaxin. Under the terms of the agreement,
Medeva paid $8.0 million upon closing, which included a $4.0 million contract
fee and a $4.0 million equity investment, and will pay $17.0 million of
milestone payments based upon the achievement of development milestones in the
U.S. and Europe and $5.0 million for the development and approval of each
indication in Europe in addition to scleroderma. Medeva is responsible for all
development and commercialization activities in Europe and is required to pay
royalties on sales in Europe. In addition, Medeva will reimburse Connetics for
50% of the product development costs in the U.S. up to a maximum of $1.0 million
per quarter, for an estimated total of $10.0 million. Medeva also agreed to
share U.S. co-promotion rights with Connetics for up to five years, and will
also purchase relaxin materials from Connetics. During the quarter ended March
31, 1999. Connetics recorded $5.0 million in contact revenue ($4.0 million in
contract fee and $1.0 million for the quarterly reimbursement of product
development costs) under this agreement.
5. SUBSEQUENT EVENT
On April 28, 1999, Connetics executed its plan to spin-off InterMune
Pharmaceuticals, Inc. ("InterMune"), through the sale of a majority of its
equity ownership to outside investors. Connetics established InterMune to
develop Actimmune(R) (interferon gamma) for infectious and antifungal diseases
shortly after it in-licensed Actimmune from Genentech, Inc. in May 1998. At the
close of the spin-off, Connetics retained approximately a 10% equity position in
InterMune, received a $500,000 cash payment, and will receive additional cash
and equity payments over the next three years. Connetics will retain commercial
rights to and revenue from Actimmune for chronic granulomatous disease for three
years and receive a royalty on Actimmune sales thereafter. In addition,
Connetics retains the product rights for potential dermatological applications
of Actimmune.
6. LIQUIDITY AND FINANCIAL VIABILITY
In the course of its development activities, Connetics has sustained continuing
operating losses and expects such losses to continue over at least the next few
years. Connetics plans to continue to finance its operating activities with a
combination of stock sales, through public offerings and self-managed private
financings, payments from corporate partnering arrangements, product revenue,
bank loans and/or debt financing. Ultimately, Connetics' ability to continue as
a going concern in the future is dependent upon obtaining additional financings.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SPECIAL NOTE: EXCEPT FOR THE HISTORICAL INFORMATION, THE FOLLOWING MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
("MD&A") CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. CONNETICS' ACTUAL RESULTS OF OPERATIONS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS
FACTORS, INCLUDING THOSE IDENTIFIED BELOW. POTENTIAL RISKS AND UNCERTAINTIES
INCLUDE, WITHOUT LIMITATION, UNCERTAINTY OF PRODUCT DEVELOPMENT AND MARKET
ACCEPTANCE OF A PRODUCT ONCE DEVELOPED; UNCERTAINTY OF FUTURE RIDAURA(R),
LUXIQ(TM) AND ACTIMMUNE(R) REVENUES AND COSTS; UNCERTAINTY OF CLINICAL TRIALS
RESULTS; UNCERTAINTY OF FUTURE PROFITABILITY; FUTURE CAPITAL REQUIREMENTS AND
UNCERTAINTY OF FUTURE FUNDING; AND RISKS ASSOCIATED WITH POSSIBLE FUTURE PRODUCT
ACQUISITIONS. IN PARTICULAR, THE FACTORS SET FORTH IN THE CONNETICS' ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998, MAY CAUSE
ACTUAL RESULTS TO VARY FROM THOSE CONTEMPLATED BY CERTAIN FORWARD-LOOKING
STATEMENTS SET FORTH IN THIS REPORT AND SHOULD BE CONSIDERED CAREFULLY IN
ADDITION TO OTHER INFORMATION PRESENTED IN THIS REPORT.
This MD&A should be read in conjunction with the MD&A included in Connetics'
1998 Annual Report on Form 10-K, and with the unaudited condensed consolidated
financial statements and notes to financial statements included in Part I, Item
1 of this Quarterly Report. Results of operations in the current or any prior
fiscal period should not be considered as indicative of results to be expected
for any future fiscal period.
OVERVIEW
Connetics Corporation acquires, develops and markets products in the areas of
dermatology and rheumatology. We market Riduara(R) (auranofin), a treatment for
rheumatoid arthritis, and in January 1999, we began marketing Actimmune(R)
(interferon gamma) for the treatment of chronic granulomatous disease ("CGD"),
under a license we acquired from Genentech Inc. in May 1998. In March 1999, we
received marketing clearance from the U.S. Food and Drug Administration ("FDA")
to sell Luxiq(TM) (betamethasone valerate) Foam, 0.12%, for the treatment of
scalp psoriasis. Our products under development include OLUX(TM) (clobetasol
propionate 0.05%) for the treatment of severe scalp dermatoses; ConXn(R) (human
recombinant relaxin-H2) for the treatment of scleroderma, infertility and organ
fibrosis; and T-cell receptor (TCR) peptide vaccines for the treatment of
multiple sclerosis and rheumatoid arthritis. There can be no assurance that any
of our potential products will be successfully developed, receive the necessary
regulatory approvals or be successfully commercialized.
In January 1999, Connetics entered into a development, commercialization and
supply agreement with Medeva PLC of the United Kingdom ("Medeva") for certain
therapeutic indications pertaining to relaxin. Under the terms of the agreement,
Medeva paid $8.0 million upon closing, which included a $4.0 million contract
fee and a $4.0 million equity investment, and will pay $17.0 million of
milestone payments based upon the achievement of development milestones in the
U.S. and Europe and $5.0 million for the development and approval of each
indication in Europe in addition to scleroderma. Medeva is responsible for all
development and commercialization activities in Europe and is required to pay
royalties on sales in Europe. Medeva will reimburse us for 50% of our product
development costs in the U.S. up to a maximum of $1.0 million per quarter for an
estimated total of $10.0 million. Medeva also agreed to share U.S. co-promotion
rights with Connetics for up to five years, and will also purchase relaxin
materials from us.
In February 1999, we initiated a Phase II/III pivotal clinical trial of ConXn
for the treatment of scleroderma. The primary objective of this study is to
evaluate the efficacy of the product over 24 weeks of treatment, and we expect
to enroll up to 200 patients with diffuse scleroderma, a serious,
life-threatening connective tissue disorder. Patients in the trial will be
randomized to receive relaxin at one of two dose levels (25 (greek mu)g/kg/day
or 10 (greek mu)g/kg/day) or placebo. The study is designed to evaluate the
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effects of relaxin on skin fibrosis, activities of daily living, quality of life
and vital organ function. The primary endpoint for the trial is an improvement
in the Modified Rodnan Skin Score, a measurement of skin thickness, at 17 areas
of the body.
In March 1999, we announced promotion agreements with MGI Pharma, Inc. ("MGI")
for our Ridaura and Luxiq products. Under the terms of the agreements, MGI will
promote Ridaura and Luxiq to the rheumatology market in the United States in
exchange for promotional fees. This arrangement takes advantage of MGI's
specialty sales force that calls on rheumatologists and oncologists in the
United States, and allows Connetics to focus its attention on the dermatology
marketplace.
RESULTS OF OPERATIONS
Our product revenues for the first quarter of 1999 were derived from the sales
of Ridaura and Actimmune. For the three months ended March 31, 1999, revenue
from the sales of Ridaura was $1.3 million and revenue from the sales of
Actimmune was $0.9 million compared to $1.5 million from the sales of Ridaura
only for the same period in 1998. We believe the $0.2 million decrease in
Ridaura revenue for the period may be due to recent introduction of new
rheumatoid arthritis therapies and the shifting of our commercialization focus
from rheumatology to dermatology in anticipation of our Luxiq product launch.
There can be no assurance that Connetics will be able to market and sell Ridaura
successfully or that Ridaura revenues will equal or exceed those achieved in
1998, and as a result our financial condition and results of operations could be
materially and adversely affected.
In connection with our agreement with Medeva (discussed above), we recorded $5.0
million in contract revenue ($4.0 million in contract fee and $1.0 million for
the quarterly reimbursement of product development costs) for the quarter ended
March 31, 1999.
Connetics has separate supply agreements with SmithKline Beecham Corporation and
Genentech, Inc. under which SmithKline will manufacture and supply Ridaura in
final package form through December 2001, and Genentech will manufacture and
supply interferon gamma, in bulk or finished form through May 2001. In addition,
we have a distribution arrangement with CORD Logistics, Inc. ("CORD") whereby
customer orders and distribution of our current marketed products are managed by
CORD.
Our cost of product revenues includes the cost of Ridaura purchased from
SmithKline, cost of Actimmune purchased from Genentech, royalty payments due
SmithKline and Genentech based on a percentage of our product revenues, product
freight costs and distribution costs from CORD. For the three months ended March
31, 1999, we recorded $1.2 million in cost of product revenues compared to $0.3
million for the same period in 1998. The increase of $0.9 in cost of product
revenues is primarily due to incremental costs associated with the sales of
Actimmune, including higher product and royalty costs. Amortization expense
associated with the acquisition of product rights to Ridaura were $1.7 million
for the same periods in 1999 and 1998, respectively.
Research and development expenses were $4.7 million for the three months ended
March 31, 1999 compared to $2.2 million for the same period in 1998. The
increase in research and development expenses of $2.5 million was primarily due
to the commencement of relaxin manufacturing scale-up activities (which
accounted for approximately 60% of the increase), the initiation of a 200
patient Phase II/III pivotal trial of ConXn for the treatment of scleroderma and
staffing up of the development organization. Research and development expenses
are expected to increase over the next few quarters due to relaxin manufacturing
activity, ConXn clinical trial activities, pre-manufacturing start-up costs
associated with qualifying a new supplier for OLUX and possible acquisition of
new technologies and products.
Selling, general and administrative expenses increased to $5.6 million for the
three months ended March 31, 1999 compared to $2.5 million for the same period
in 1998. The increase in expenses was primarily due to further staffing up of
the sales organization (twenty additional new hires for a total of forty-four as
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of March 31, 1999 compared to seventeen for the same period in 1998), pre-market
launch expenses associated with Luxiq, increased activities of an established
sales and marketing organization, and stock compensation related expenses.
Selling, general and administrative expenses are expected to increase primarily
due to co-promotion expenses associated with our agreement with MGI (discussed
above), costs associated with marketing Luxiq, Ridaura and Actimmune, additional
hiring of sales representatives, and possible launching of acquired products.
Interest income was $334,000 in the three months ended March 31, 1999, compared
with $177,000 for the same period in 1998. The increase in interest income
during the first three months of 1998 was due to a higher investment balance as
a result of the $9.0 million received in January from Medeva (discussed above).
Interest earned in the future will depend on our funding cycles and prevailing
interest rates. Interest expense decreased to $292,000 for the three months
ended March 31, 1999, compared with $394,000 for the same period in 1998. The
decrease in interest expense was the result of lower balances outstanding for
obligations under capital leases and loans, and notes payable.
Net loss for the three months ended March 31, 1999 was $5.9 million compared to
$5.3 million for the same period in 1998. The increase in net loss was due to
higher cost of product sold and a substantial increase in operating expenses in
1999 as a result of development, marketing and sales activities. The increase
was offset for the most part by higher revenue recorded for the quarter that
included $5.0 million contract revenue associated with the Medeva agreement. We
expect 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, clinical trial expenses, and possible acquisitions
of new products and technologies.
LIQUIDITY AND CAPITAL RESOURCES
Connetics has financed its operations to date primarily through proceeds from
its initial public offering in February 1996, six self-managed financings,
collaborative arrangements with corporate partners and bank loans. At March 31,
1999, cash, cash equivalents and short-term investments totaled $22.5 million, a
decrease of $0.5 million from $23.0 million at December 31, 1998. In the first
quarter of 1999, we received $9.0 million from Medeva as a result of a
collaborative arrangement.
Cash used in operations for the three months ended March 31, 1999 was $1.4
million compared with $3.5 million for the same period in 1998. Net loss for the
first three months of 1998 was affected by non-cash charges of $1.8 million
depreciation and amortization expense and $0.6 million deferred compensation
expense. Cash outflow for the quarter was primarily for operating activities,
including an increase in our net loss to $5.9 million, receivables at March 31,
1999 of $0.7 million due to higher product sales, and inventory of $0.6 million
due primarily to carrying Luxiq inventory in preparation for the market launch
in April. These increases were partially offset by an increase in accounts
payable and accrued liabilities at March 31, 1999 of $2.8 million due to higher
development, sales and marketing expenses.
Investing activities, other than the changes in Connetics' short-term
investments, consumed $0.7 million in cash during the three month period ended
March 31, 1999, due to leasehold improvements and equipment expenditures
required for operations.
Cash provided by financing activities was $1.5 million for the three months
ended March 31, 1999 compared with cash usage of $0.6 million for the same
period in 1997. The agreement with Medeva provided $4.0 million investment in
our common stock. This was offset in part by a $2.5 million principal payment to
SmithKline for obligations under a promissory note in connection with the
Ridaura acquisition.
Working capital decreased by $1.9 million to $10.6 million at March 31, 1999
from $12.5 million at December 31, 1998. The decrease in working capital was due
to our use of cash in operations and higher
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accounts payable and accrued liabilities as a result of increased development,
sales and marketing expenses, offset in part by higher accounts receivable,
inventory and prepaid expenses.
At March 31, 1999, Connetics had an aggregate of $13.5 million in future
obligations of principal payments under capital leases, loans, long-term debt
and other obligations, of which $7.6 million is to be paid within the next year.
Connetics has an equity line agreement with an investor that may potentially
provide access to capital through sales of our common stock. The three-year
equity line became available on June 26, 1998. During the three-year term, if
our stock meets certain volume restrictions and trades above $10.00, then up to
$500,000 would be drawn against the equity line approximately every three months
in exchange for the sale of stock at an approximate minimum price of $10.00.
We believe our existing cash, cash equivalents and short-term investments along
with cash generated from the sales of Ridaura, Luxiq and Actimmune, and from
financings will be sufficient to fund our operating expenses, debt obligations
and capital requirements through early 2000. Our future capital uses and
requirements depend on numerous factors, including the progress of our research
and development programs, the progress of 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, our ability to establish other
collaborative arrangements, the level of product revenues, the possible
acquisition of new products and technologies and the development of
commercialization activities. Therefore such capital uses and requirements may
increase in future periods. As a result, we will require 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 discussed above, we
currently have no commitments for any additional financings, and there can be no
assurance that additional funding will be available to finance our ongoing
operations when needed or, if available, that the terms for obtaining such funds
will be favorable or will not result in dilution to the our stockholders. Our
inability to obtain sufficient funds could require us to delay, scale back or
eliminate some or all of our research and development programs, to limit the
marketing of our products or to license to third parties the rights to
commercialize products or technologies that we would otherwise seek to develop
and market ourselves.
IMPACT OF YEAR 2000
Many computer systems and software applications were not designed to handle
dates beyond the year 1999, and therefore will need to be modified prior to year
2000 in order to remain functional. As for many other companies, the year 2000
issue poses a potential risk for Connetics and as a result, computer systems
and/or software used by many companies, including Connetics, may need to be
upgraded to comply with such "Year 2000" requirements.
We have completed an assessment of our core business information systems and
related business processes used in our operations, most of which are provided by
outside suppliers. To date, we have completed testing and upgrading of
approximately 93% of our information technology systems and expect to have all
remaining systems upgraded by June 30, 1999. We are approximately 72% complete
with the testing and upgrading of our operating equipment and expect the process
to be fully completed by June 30, 1999. We have on-line access to our third
party distribution service system that includes customer orders, billing,
shipping and inventory management. This vendor has made its distribution system
Year 2000 compliant, and we converted to the compliant system in November 1998.
Our reliance on key suppliers, and therefore on the proper functioning of their
information systems and software, is increasing, and there can be no assurance
that another company's failure to address year 2000 issues might not have an
adverse effect on Connetics. We have initiated formal communications with each
of our significant suppliers and customers to determine the extent of our
vulnerability to those
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third parties' failure to remediate their own Year 2000 issues. We have
requested that third party vendors represent their products and services to be
Year 2000 compliant and that they have a program to test for Year 2000
compliance. However, the response of those third parties is beyond our control.
We are in the process of evaluating the need for contingency plans with respect
to Year 2000 requirements. The necessity of any contingency plan must be
evaluated on a case-by-case basis and will vary considerably in nature depending
on the Year 2000 issue it may need to address. However, there can be no
assurance that we may be able to solve all potential Year 2000 issues, and if we
fail to correct a material Year 2000 problem, our normal business activities and
operations could be interrupted. Such interruptions could have a material
adverse affect on Connetics' results of operations, liquidity and financial
condition. To date, Year 2000 costs are not considered to be material to our
financial condition. We have incurred and expensed approximately $40,200 and
currently estimate that, in order to complete Year 2000 compliance, we will be
required to incur total expenditures of approximately $50,000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Connetics has supply contracts with Boehringer Ingelheim Austria GmbH (for a
product under research and development) and CCL Pharmaceuticals Ltd. in the U.K.
(for Luxiq). As payments under these contracts are payable in local currency,
our financial results could be affected by changes in foreign currency exchange
rates. We have a bank loan that is sensitive to movement in interest rates.
Interest income from our investments is sensitive to changes in the general
level of U.S. interest rates, particularly since the majority of our investments
are in short-term instruments. Due to the nature of our short-term investments,
we have concluded that there is no material market risk exposure. Therefore, no
quantitative tabular disclosures are required.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. See Index to Exhibits.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter ended March 31, 1999.
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<PAGE> 14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONNETICS CORPORATION
By: /s/ JOHN L. HIGGINS
------------------------------------------
John L. Higgins
Vice President, Finance and Administration
and Chief Financial Officer
Date: May 13, 1999
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<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.1 Promotion Agreement effective as of April 1, 1999 between the
Company and MGI Pharma, Inc.
10.2* Co-promotion Agreement effective as of April 1, 1999 between the
Company and MGI Pharma, Inc.
10.3* Amendment No. Two to License Agreement, effective as of January
15, 1999, between the Company and Genentech, Inc.
10.4* Amendment No. Three to License Agreement, effective as of April
27, 1999, between the Company and Genentech, Inc.
10.5(M) Restricted Common Stock Purchase Agreement dated March 9, 1999
between the Company and Kirk Raab
10.6(M) Restricted Common Stock Purchase Agreement dated March 9, 1999
between the Company and Thomas G. Wiggans
10.7 Collaboration Agreement dated April 27, 1999 between the Company
and InterMune Pharmaceuticals, Inc.
10.8 Series A-1 and A-2 Preferred Stock Purchase Agreement dated April
27, 1999 among the Company, InterMune Pharmaceuticals, Inc., and
various other investors
10.9* Transition Agreement dated April 27, 1999 between the Company and
InterMune Pharmaceuticals, Inc.
27.1 Financial Data Schedule (EDGAR - filed version only)
</TABLE>
- ---------------
* The Company has omitted certain portions of this Exhibit and has requested
confidential treatment of such portions from the SEC.
(M) Represents a management compensatory plan or arrangement required to be
listed as an exhibit to this form pursuant to Item 601(a)(10)(iii) of
Regulation S-K.
<PAGE> 1
EXHIBIT 10.1
PROMOTION AGREEMENT
THIS PROMOTION AGREEMENT is effective as of April 1, 1999 by and between
Connetics Corporation ("Connetics") and MGI Pharma, Inc. ("MGI").
B A C K G R O U N D
A. Connetics has marketing rights in the United States to a
pharmaceutical product known as Ridaura(R).
B. MGI has experience and expertise in the marketing of
rheumatological products and other pharmaceutical products administered,
dispensed and prescribed primarily by the same health care professionals who are
expected to administer, dispense and prescribe Ridaura(R).
C. MGI has a professional sales force that calls on physicians and
other health care professionals in order to promote various MGI products.
D. Connetics desires to enhance its marketing of Ridaura(R) in the
United States by enlisting the support and participation of MGI and the MGI
Sales Force (as defined below) in the marketing effort.
NOW, THEREFORE, in consideration of the Background and the mutual promises
contained in this Agreement, Connetics and MGI agree as follows:
A G R E E M E N T
ARTICLE 1
DEFINITIONS
"AFFILIATE" means in respect of either party any corporation or business
entity controlled by, controlling, or under common control with Connetics or
MGI, respectively. For this purpose "control" means the direct or indirect
beneficial ownership of at least fifty percent (50%) of the voting stock of, or
at least fifty percent (50%) interest in the income of, such corporation or
other business entity, or such other relationship as, in fact, constitutes
actual control.
"BEST EFFORTS" means those efforts that would be made by a reasonably
prudent business person acting in good faith in the exercise of reasonable
commercial judgment.
"CALL" means a presentation of the Product by a professional sales
representative to a physician or other health care professional or organization
licensed to administer, dispense or prescribe prescription drugs during a visit
which is for the purpose of actively promoting the sale of the Product.
<PAGE> 2
"COORDINATOR" means the person appointed by each of Connetics and MGI in
accordance with SECTION 3.1.
"COST OF GOODS" shall mean shall mean the cost of Product manufactured
in final form by or on behalf of Connetics, including without limitation, all
direct and indirect costs for material, labor and production overhead included
in manufacturing, producing and supplying Products in the Territory, royalties
paid to third parties, distribution costs, and freight and other transportation
costs, including insurance charges, and duties, tariffs, sales and excise taxes
and other governmental charges based directly on sales turnover or delivery of
such Product and actually paid and allowed by Connetics, all calculated in
accordance with U.S. generally accepted accounting principles.
"EFFECTIVE DATE" means the date first written above.
"FDA" means the United States Food and Drug Administration.
"GOOD CAUSE" means (a) the material failure of the other party to comply
with its material obligations contained in this Agreement. Material obligations
include, without limitation, the failure of MGI to provide the full level of
detailing and promotional support required under ARTICLES 2 AND 4 for a period
of five (5) consecutive quarters, or the failure of Connetics to make the
payments required by SECTION 5.1; or (b) the filing of a petition by or against
the other party under any bankruptcy, insolvency or similar law (which petition
is not dismissed within sixty (60) days after filing); the appointment of a
receiver for the other party's business or property; or the other party's making
of a general assignment for the benefit of its creditors; or (c) any force
majeure event as defined in SECTION 11.6 affecting the other party beyond the
other party's control that lasts for a period of at least six (6) months and
which is of sufficient intensity to interrupt or prevent the carrying out of the
totality of such other party's material obligations under this Agreement during
such period.
"GROSS MARGIN" means Net Sales less Cost of Goods.
"INABILITY TO SUPPLY" shall have the meaning set forth in SECTION 6.4.
"JOINT MARKETING TEAM" means the committee appointed pursuant to SECTION
3.2 of this Agreement.
"MGI PHYSICIANS" means physicians specializing in rheumatology or
internal medicine.
"MGI SALES FORCE" means all of the Representatives employed by MGI.
"NDA" means the new drug application (including supplements) for the
Product submitted to the FDA (which MGI has the right to audit at any time).
"NET SALES" shall mean the gross amounts invoiced by Connetics for
Product in the Territory in accordance with U.S. generally accepted accounting
principles, less the following amounts directly chargeable to such Products: (a)
customary trade, quantity or cash discounts and rebates, actually allowed and
taken; (b) allowances for estimated returns, rebates and chargebacks; (c)
uncollectible amounts; and (d) recalls.
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"PRODUCT" means the disease-modifying antirheumatic drug product
(DMARD), trade name Ridaura(R), as described in the product specifications of
the NDA, as it may be amended from time to time including any improvements
thereto.
"PRODUCT INFORMATION" means the dossier, regulatory status and
information, data and results of clinical and other trials and investigations
relating to the Product, including the NDA and right of cross-reference to the
NDA, together with all other information relating to the specification of the
Product and information relating to the manufacture (including method,
conditions, and process equipment), testing (including quality control
standards, assay methods and stability studies), storage and use of the Product
now or hereafter during the term of this Agreement in the possession or under
the control of Connetics.
"PROMOTION PLAN" means a plan developed by the Joint Marketing Team for
the detailing and promotion of the Product in the Territory, and shall include
promotional strategies, detailing plans, pricing and budgets for promotional
activities (including the development of materials for the detailing and
promotion of the Product) for each defined detailing period in which MGI
participates during the Term of this Agreement.
"PROPRIETARY INFORMATION" means any information of value to either
party, not generally known to the public, including (but not limited to):
(a) the Product Information; the development status of the Product;
Product indications and modes of administration; technical
information, such as clinical, biological, manufacturing,
pharmaceutical and characterizing data; and know-how;
(b) business information, such as reports; records; markets;
customer lists; supplier lists; marketing and sales plans;
financial information; costs; and pricing information; and
(c) pharmacoeconomic analyses, if any, conducted by Connetics with
respect to the Product.
"QUARTER" means a calendar quarter.
"REPRESENTATIVES" means sales representatives employed by MGI for
detailing the Product in the Territory to MGI Physicians.
"TERRITORY" means the United States of America, including its
territories and possessions.
"VISIT" means a visit by a professional sales representative to a
physician or other health care professional or organization licensed to
administer, dispense or prescribe prescription drugs for the purpose of actively
promoting the sale of products.
"YEAR" means the period beginning with a given anniversary of the
Effective Date and ending at the end of the day before the next anniversary of
that date.
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ARTICLE 2
GRANTS AND OBLIGATIONS
SECTION 2.1. GRANT TO MGI. Connetics hereby grants to MGI, during the
Term of this Agreement, the exclusive right to detail and promote the Product in
the Territory to MGI Physicians. During the Term of this Agreement, neither
Connetics nor an Affiliate of Connetics will authorize, or grant the right to,
any third party the rights to detail, promote, or market the Product in the
Territory as are granted to MGI hereunder, without MGI's prior written consent
which may be granted in MGI's sole discretion.
SECTION 2.2. MGI's OBLIGATIONS. Subject to the provisions of and during
the Term of this Agreement, MGI shall use its Best Efforts to detail and promote
the Product in the Territory to MGI Physicians according to the Promotion Plan
and in such manner and with such expedition as MGI itself would have adopted in
detailing and promoting a product of its own invention, including but not
limited to the use of its trained and qualified Sales Force to make Calls on
physicians and other persons and organizations licensed to administer, dispense
and prescribe prescription drugs with respect to the Product. Subject to the
obligations set forth in SECTION 2.3 and ARTICLE 4, and in particular SECTIONS
4.3 and 4.5, nothing in this Agreement is intended to prevent MGI from marketing
and/or promoting other products either during the term of this Agreement or
thereafter.
SECTION 2.3. COMPETITION. During the term of this Agreement, MGI will
not promote products that directly compete with the Product. The Joint Marketing
Team will review and approve promotional materials of related products to
prevent direct promotion of MGI products against the Product. Subject to the
first sentence of this Section, MGI may promote other products, including
DMARDS, during the term of this Agreement and thereafter.
ARTICLE 3
GOVERNANCE
SECTION 3.1. COORDINATOR. Connetics and MGI shall each appoint an
authorized and knowledgeable representative ("Coordinator") to direct
communications. Each party will promptly notify the other as to the name of the
individual so appointed. Each party may replace its Coordinator at any time,
upon prompt written notice to the other party.
SECTION 3.2. JOINT MARKETING TEAM. Within thirty (30) days following the
Effective Date, the Coordinators shall establish a "Joint Marketing Team"
consisting of representatives of Connetics and representatives of MGI appointed
by the respective Chief Executive Officers of each party. The Joint Marketing
Team will be directed by Connetics' Coordinator and will meet from time to time,
at mutually agreeable times and locations but in any event at least two (2)
times in each calendar year, to discuss and coordinate the joint promotion and
detailing of the Product in the Territory and the strategies and programs that
should be developed to maximize sales of the Product. By way of example, the
Joint Marketing Team shall develop and implement the Promotion Plan, and guide
all continuing joint promotion and detailing efforts with respect to the Product
in the Territory. Connetics will have the final responsibility, with the
cooperation and assistance of MGI, for developing promotion and detailing
strategies with respect to the Product, and for developing promotional and
detailing materials. Each party shall bear its own costs associated with its
participation in the Joint Marketing Team.
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SECTION 3.3. PROMOTION PLAN. From time to time, but in no event less
than once a year, the Joint Marketing Team shall develop and formulate a written
Promotion Plan for specified periods, which shall set forth promotion and
detailing strategies relating to the Product.
SECTION 3.4. RECOMMENDATIONS. Each party shall have the right to comment
upon and make recommendations to the other party regarding the other party's
activities under this Agreement, which recommendations the other party shall
thoroughly evaluate and consider, taking into account the other party's
expertise and experience with pharmaceutical products in the Territory.
SECTION 3.5. DECISIONS. It is expressly understood and agreed that the
Joint Marketing Team shall be led by a Connetics' representative with MGI's
participation. In the event of a disagreement among the members of the Joint
Marketing Team, the matter shall promptly be referred to the Senior Vice
President, Commercial Operations of Connetics and the Vice President, Marketing
and Sales of MGI for resolution; if the matter is still not resolved, it shall
promptly be referred to the Presidents of Connetics and MGI for resolution. If
the two Presidents cannot reach agreement, in light of the fact that Connetics
owns the Product and the regulatory approvals relating to the Product, Connetics
shall have the right to resolve any such disagreement, including without
limitation any disagreement regarding the following subjects:
(a) promotional material that Connetics considers, in its reasonable
judgment, inconsistent with the labeling of the Product or with
a regulatory submission pertaining to the Product;
(b) communications with the FDA concerning the Product, including
but not limited to the reporting of adverse events associated
with use of the Product;
(c) any decisions regarding programs and financial expenditures; and
(d) any proposed recall of the Product.
SECTION 3.6. PRICING. Connetics will establish the ex-factory price for
the Product. Connetics shall at its sole discretion establish all future factory
prices for the Product. Connetics may offer and sell the Product at prices below
the established or published ex-factory prices to wholesalers whenever Connetics
considers that such pricing is necessary to obtain the business of certain
customers.
ARTICLE 4
PRODUCT PROMOTION
SECTION 4.1. PROMOTION. Subject to Connetics' leadership of the Joint
Marketing Team, MGI shall have the obligations set forth in SECTION 2.2 for
detailing and promoting the Product in the Territory. Except as set forth in the
following sentence, Connetics shall bear all direct costs and expenses incurred
by Connetics and MGI in connection with the promotion of the Product in the
Territory. Except as otherwise determined by the Joint Marketing Team, MGI shall
bear all costs and expense related directly to the MGI Sales Force (e.g.,
salaries, incentive compensation, bonuses,
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benefits, cars, travel and entertainment expenses, etc.) and associated MGI
personnel for all purposes, including attending training sessions related to the
Product; the cost of any conference facilities etc. reserved in connection with
the training of MGI's Sales Force if that training is not held in conjunction
with Connetics Sales Force Training; personnel costs of MGI's continuing medical
education ("CME") staff; MGI's personnel and travel costs associated with
meetings and conventions; and any promotional materials that MGI prepares.
Connetics will provide up to $500,000 for marketing and sales support for the
Product in the first Year. Thereafter, the amount provided by Connetics for
marketing and sales support shall be determined by the Joint Marketing Team. All
such amounts for marketing and sales support shall be expended as determined by
the Joint Marketing Team in accordance with the Promotion Plan.
SECTION 4.2. PROMOTIONAL ACTIVITIES. The Joint Marketing Team shall
advise Connetics regarding promotional activities with respect to the Product,
which may include, without limitation, the following: journal advertising,
direct mail to physicians and pharmacies, advertising agency fees, promotional
literature, Sales Force detailing aids, creative and advertising preparation,
CME speaker programs (subject to SECTION 4.1), exhibits, symposia, audio- and
videocassettes, clinical evaluation programs as agreed upon by the Joint
Marketing Team, and marketing support trials (limited to comparative clinical
studies against competitive products intended for differentiation of the Product
during detailing and promotion).
SECTION 4.3. MGI SALES FORCE. Subject to the provisions of Section 4.5,
during the Term of this Agreement, MGI shall use its Best Efforts to commit, as
of the Effective Date, no fewer than 24 full-time equivalent Representatives to
the detailing and promotion of the Product consistent with MGI's obligations
under the Promotion Plan. Any variation with respect to MGI's commitment under
this Section 4.3 must be approved by the Joint Marketing Team.
SECTION 4.4. SALES FORCE VACANCIES. MGI may incur vacancies in its
marketing territories relating to the transfer, resignation and/or termination
of its Representatives assigned to the detailing and promotion of the Product
under this Agreement. MGI shall use Best Efforts to fill any such vacancies soon
as possible after such vacancy occurs. No vacancy shall modify the overall
obligations of SECTION 4.5.
SECTION 4.5. CALL REQUIREMENTS. MGI shall be obligated to use its Best
Efforts to deliver detailing and promotion of the Product during seventy-five
percent (75%) of the Visits actually made by the MGI Sales Force to MGI
Physicians in the Territory. In the event MGI fails to perform its obligations
under this SECTION 4.5 such that Connetics has Good Cause to terminate this
Agreement, Connetics' remedy shall be limited to the provisions set forth in
SECTION 11.4(b).
SECTION 4.6. MANAGEMENT OF SALES FORCES. The MGI Sales Force shall be
directed by the senior management of MGI, subject to the Promotion Plan
developed by the Joint Marketing Team. Connetics shall not have any
responsibility for the hiring, firing or compensation of MGI's employees or for
any employee costs or benefits associated therewith.
SECTION 4.7. PROMOTION ACTIVITY REPORTING.
(a) MGI shall provide Connetics with a detailed report within thirty
(30) days after the end of each fiscal quarter during the Term
of this Agreement, describing the specific
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detailing and promotion activities undertaken by its Sales Force
during such fiscal quarter. MGI warrants and represents that it
will maintain records of Calls made by its Sales Force and that
the records will accurately represent the number of Calls made.
(b) Connetics shall be entitled to audit the source data and
documents that MGI used to compile such reports during normal
business hours and at Connetics' expense. Accordingly, during
the term of this Agreement and for three (3) years after such
records are reported to Connetics pursuant to SECTION 4.7(a),
MGI shall maintain such records in sufficient detail to permit
Connetics to determine the specific detailing and promotion
activities undertaken by its Sales Force during the term of this
Agreement. Connetics shall have the right to nominate an
independent firm reasonably acceptable to the MGI to verify
records of MGI and the calculation of the specific detailing and
promotion activities undertaken by its Sales Force under SECTION
4.7(a) of this Agreement during the time period MGI is required
to maintain such records hereunder. Such verification shall be
conducted during normal business hours, and Connetics shall bear
the fees and expenses of the accountants performing such
verification. The accountants appointed pursuant to this Section
shall not be authorized to disclose to Connetics any information
other than the accuracy or inaccuracy of the item(s) to be
verified.
SECTION 4.8. PROMOTIONAL MATERIALS. Connetics shall create and develop
promotional materials relating to the Product for distribution to independent
third parties. The Joint Marketing Team will establish the copy platform for all
promotional materials and will agree on tactical programs. Subject to the
restrictions on trademark usage in ARTICLE 8, MGI may create and develop
promotional materials related to the Product using and based on, materials
created by or for Connetics; provided, however, that MGI will not publish or
distribute any such promotional material (or other material) with respect to the
Product that the Joint Marketing Team has not approved. The Joint Marketing team
will determine whether the expenses incurred by MGI in creating such materials
shall be reimbursed out of the marketing and sales support budget for that year
(as referenced in SECTION 4.1).
SECTION 4.9. EXCHANGE OF INFORMATION. During the Term of and subject to
any other provision of this Agreement, each party will provide the other with
any information or summaries of information relevant to the promotion of the
Product (including but not limited to market research data, information
concerning competitive products, physician communications, and the like) within
a reasonable time after such information becomes known to the party. Such
information shall be considered confidential or proprietary and therefore
subject to SECTION 11.1.
SECTION 4.10. TRAINING MATERIALS. Connetics shall train the MGI Sales
Force to detail and promote the Product in the Territory commencing on April 11,
1999 in Minneapolis, Minnesota and at such other places to be agreed by the
parties. Except as expressly stated herein, MGI shall bear its expenses
associated with training its Sales Force. Connetics shall provide MGI with
initial Product training materials, as well as any Product training materials
developed subsequent to the initial Product training materials, which MGI shall
reproduce and distribute to its Sales Force at MGI's own expense. After the
Effective Date, the Joint Marketing Team shall develop programs to monitor, test
and otherwise ensure that the MGI Sales Force is sufficiently knowledgeable
about the Product and other information contained in Connetics' training
materials.
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ARTICLE 5
CONSIDERATION
SECTION 5.1. CONSIDERATION TO MGI. For so long as MGI is conducting
detailing and promotion activities pursuant to and in accordance with this
Agreement, Connetics shall compensate MGI pursuant to Subsections (a) and (b)
below:
(a) Connetics will pay to MGI $250,000 per Quarter as follows:
(i) Within thirty (30) days after receiving documentation
from MGI sufficient to support that MGI made at least
3,750 Calls in the Quarter, Connetics shall pay the
$250,000 for that Quarter.
(ii) For the second Quarter of 1999, Connetics shall pay MGI
$250,000 regardless of the number of Calls that MGI
makes during such Quarter, provided that MGI documents
the number of Calls it does make in such Quarter.
(iii) In any Quarter after the second Quarter of 1999 in which
MGI fails to make 3,750 Calls, Connetics shall be
entitled to withhold payment for such Quarter, subject
to the "cure" mechanism described in paragraph (iv) and
(v) below, which is different depending on the number of
Quarters that this Agreement has been in effect.
(iv) For each of the third and fourth Quarters of 1999 and
the first Quarter of 2000, if MGI makes 3,750 Calls in
that Quarter, Connetics shall pay MGI $250,000, except
that if MGI makes fewer than 3,750 Calls in any such
Quarter, and does not make up the shortfall in the
following Quarter, then no amount shall be paid in the
following Quarter.
(v) Beginning with the second Quarter of 2000, the number of
Calls made by MGI in each Quarter shall be calculated by
averaging the number of Calls made on MGI Physicians
over the current and preceding three Quarters, and if
the rolling four-Quarter average is less than 3,750
Calls per Quarter, Connetics shall withhold the $250,000
for that Quarter.
(b) Connetics will pay to MGI on an annual basis (net of any
payments or credit due by MGI under this Agreement):
(i) fifty percent (50%) of the Gross Margin on Net Sales of
Product equal to or exceeding $7,500,000 in each Year;
or
(ii) zero percent (0%) of the Gross Margin on Net Sales of
Product less than $7,500,000 in each Year.
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SECTION 5.2. PAYMENT TERMS. Within thirty (30) days after the close of
each Quarter during the Term of this Agreement, Connetics shall submit to MGI an
accounting of the Gross Margin on Net Sales of the Product in the Territory and
itemizing all deductions under the definitions of Gross Margin and Net Sales for
such Quarter and for the Year to date, and calculating the compensation due MGI
for such Year under SECTION 5.1(b). At the time of submitting each accounting,
Connetics shall submit to MGI all payments due thereunder.
SECTION 5.3. AUDIT RIGHTS. During the term of this Agreement and for
three (3) years thereafter Connetics shall keep full and accurate financial and
accounting records in accordance with U.S. generally accepted accounting
principles and shall maintain such records in sufficient detail to permit
calculation of the compensation payable to MGI pursuant to SECTION 5.1(b). MGI
shall have the right to nominate an independent firm of certified public
accountants reasonably acceptable to Connetics to verify the records of
Connetics and the calculation of the payment due under SECTION 5.1 of this
Agreement. Such verification shall be conducted during normal business hours,
and MGI shall bear the fees and expenses of the accountants performing such
verification. The accountants appointed pursuant to this Section shall not be
authorized to disclose to MGI any information other than the accuracy or
inaccuracy of the item(s) to be verified. If the audit reveals that Connetics
has over-reported for the period of the audit, MGI shall immediately remit to
Connetics any refund due and interest calculated from the payment date on such
overpayment at the then-current prime rate. If the audit reveals that Connetics
has under-reported for the period of the audit, Connetics shall immediately
remit to MGI any balance owing and interest calculated from the date on such
overdue amount at the then-current prime rate. In addition, if the audit reveals
that Connetics under-reported and underpaid by more than 10%, Connetics shall be
responsible for paying the accountants' fees in connection with the audit.
ARTICLE 6
MANUFACTURING AND DISTRIBUTION
SECTION 6.1. SUPPLY OF PRODUCT. Connetics shall have the sole
responsibility, financially and otherwise, for manufacturing the Product, either
directly or through one or more contractors (including Affiliates of Connetics),
receiving and processing orders, distributing the Product to customers, and
handling Product inventory and receivables. Connetics shall bear all costs of
such activities, including without limitation all third party royalties
(including all payments due to SmithKline Beecham) and cost of goods. Connetics
shall use its Best Efforts to insure, but cannot guarantee, that sufficient
stock of the Product will be available in its inventory to promptly fill orders
from the trade based on reasonable non-binding forecasts to be provided by the
Joint Marketing Team at the beginning of each quarter during the Term of this
Agreement for that fiscal quarter and the following three (3) fiscal quarters.
SECTION 6.2. MONTHLY REPORTING. In order to aid the Joint Marketing Team
to provide the forecast to be provided under SECTION 6.1, Connetics within
thirty (30) days after the end of a given calendar month (or within a reasonable
time after it becomes available) will provide the Coordinators with a written
report for that calendar month. This report will set forth, if available, the
quantity and dollar amounts of Net Sales and Cost of Goods for the given month,
including any deductions taken and corresponding comparisons for the previous
year.
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SECTION 6.3. ORDERS. If, for any reason, MGI receives orders for the
Product, MGI shall forward such orders to Connetics as soon as practicable.
SECTION 6.4. FAILURE TO SUPPLY PRODUCT. MGI understands and acknowledges
that only one (1) contractor (a party not an Affiliate of Connetics) is
currently approved by the FDA to manufacture the Product. If Connetics is at any
time unable to supply the Product to be sold under this Agreement, which failure
may be due to the failure of a contract manufacturer to meet its obligations to
supply Product to Connetics ("Inability to Supply"), such failure will be
treated as a force majeure condition under SECTION 11.6; provided, however, (i)
MGI's obligations hereunder to promote and detail the Product shall be suspended
for the period of such Inability to Supply, and (ii) Connetics shall to pay to
MGI $250,000 for any Quarter in which Connetics experiences an Inability to
Supply up to a maximum of two consecutive Quarters, notwithstanding any contrary
terms in SECTION 5.1(a).
ARTICLE 7
REGULATORY AFFAIRS AND MEDICAL INQUIRY
SECTION 7.1. FDA APPROVAL. Connetics will maintain ownership of such
approval and file any supplements to it. Connetics shall file, own and maintain
in its name any and all regulatory and formulary submissions pertaining to the
Product and any and all regulatory and formulary approvals that may be issued
with respect to the Product.
SECTION 7.2. COMPLAINT HANDLING. Connetics shall have the sole right and
responsibility, and shall bear all costs related thereto, to take such actions
as may be necessary, in accordance with accepted business practices and legal
requirements, to obtain and maintain the authorization and/or ability to market
the Product in the Territory, including without limitation the following:
(a) responding to customer and medical complaints relating to the
quality, strength or purity of the Product, and MGI agrees that
it shall promptly refer any such complaints that it receives to
Connetics;
(b) handling all returns of the Product (if the Product is returned
to MGI it shall be shipped to Connetics at a location to be
provided by Connetics, with any reasonable or authorized
shipping or other documented out-of-pocket costs to be paid by
Connetics), and MGI and Connetics shall each advise their
customers generally that they should make returns to Connetics;
and
(c) handling all recalls of the Product (at Connetics' request, MGI
will assist Connetics in receiving the recalled Product, and any
documented out-of-pocket costs incurred by MGI with respect to
participating in such recall shall be reimbursed by Connetics).
SECTION 7.3. ADVERSE EVENT REPORTING REQUIREMENTS. Connetics shall be
solely responsible for submitting Adverse Event Reports to the FDA, except to
the extent (if at all) that MGI may be required by law to make such reports
itself. During the Term of this Agreement, MGI shall promptly forward to
Connetics at the address set forth in SECTION 11.3 any reports MGI
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receives of adverse events (distinguished as serious and non-serious by FDA
regulations), concerning side effects, injury, toxicity or sensitivity reaction
including unexpected increased incidence and severity associated with commercial
or clinical uses, studies, investigations or test with the Product (animal or
human), throughout the world, whether or not determined to be attributable to
the Product. For purposes of this SECTION 7.3, "promptly" means as soon as
practicable, but in no event later than (a) five business days for serious
adverse events after receipt of complete information regarding such events, or
(b) thirty calendar days for non-serious adverse events after receipt of
complete information regarding such events. Connetics shall transmit adverse
event reports to MGI on a periodic basis, but no less often than once every six
(6) months; provided, however, that Connetics shall promptly notify MGI of any
adverse event report requiring the cessation or substantial alteration of
detailing activities by the MGI Sales Force. MGI shall hold all such
communications in the strictest confidence and subject to the terms of SECTION
11.1 of this Agreement.
SECTION 7.4. COMMUNICATIONS WITH GOVERNMENT AGENCIES. Connetics shall
have the sole right and responsibility and shall bear all costs related to
communications with any government agencies to satisfy their requirements
regarding the authorization and/or continued authorization to market the Product
in commercial quantities in the Territory. MGI shall promptly notify Connetics
of any inquiry or other communication that it receives from the FDA concerning
the Product. Connetics shall be primarily responsible for all communications
with the FDA (and state equivalent agencies) concerning the Product, including
but not limited to reporting adverse events and responding to any inquiries
concerning advertising, detailing or promotional materials. MGI, however, shall
be able to communicate with the any such governmental agency regarding the
Product if:
(a) such communication is necessary to comply with the terms of this
Agreement or the requirements of any law, governmental order or
regulation; or
(b) MGI, if practical, made a request of such agency to communicate
with Connetics instead, and such agency refused such request;
provided, however, that before making any communication under
this SECTION 7.4, MGI shall give Connetics notice as soon as
possible of MGI's intention to make such communications, and
Connetics shall be permitted, if practical, to accompany MGI,
take part in any such communications and receive copies of all
such communications.
SECTION 7.5. MEDICAL INQUIRIES. MGI shall refer to Connetics all medical
questions or inquiries relating to the Product directed to MGI's Sales Force,
except that Adverse Event Reports shall be handled as set forth in SECTION 7.3.
MGI's medical inquiry personnel shall instruct individuals who contact MGI or
MGI's Sales Force to direct medical inquiries directly to Connetics.
SECTION 7.6. POST-MARKET STUDIES. Connetics shall be responsible for,
and bear the cost of, conducting any clinical study required by the FDA to
maintain the NDA for the Product or establish any new indication or dosage form
of the Product. MGI shall not conduct any clinical study nor incur any expenses
in anticipation of conducting any such study. The cost of any such study
conducted by Connetics shall not be considered advertising, detailing or
promotional expenses for purposes of this Agreement. Conversely, the cost of
clinical evaluation programs and marketing support trials meeting the
requirement of SECTION 4.2 shall be considered promotional expenses for purposes
of this Agreement.
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ARTICLE 8
INTELLECTUAL PROPERTY
SECTION 8.1. TRADEMARK LICENSE. Connetics hereby grants to MGI a
non-exclusive, royalty-free license to use the following trademarks for the
advertising, promotion, marketing, distribution and sale of Product in the
Territory:
Ridaura(R)
Connetics (name and logo)
c-globe design (logo)
In using the trademarks in materials it generates, MGI shall display the marks
in a style or size of print distinguishing the mark from any accompanying
wording or text.
SECTION 8.2. MARKING. During the Term of this Agreement and if permitted
by FDA regulations, all advertising, detailing and promotional materials related
to the Product may include both Connetics' name and logo and MGI's name and logo
in a manner approved by the Joint Marketing Team. Neither party will acquire any
rights in the other party's name or logo on account of its use in advertising,
detailing and promotional materials for the Product. Nothing in this Agreement
shall be construed to give either party any rights to use the other party's name
or logo outside of the Territory or other than in accordance with this
Agreement. Neither party shall distribute information that bears the name of the
other party unless the information meets the requirements of this Section, or
the other party has consented in writing to the use of its name on the
information, except that MGI shall be permitted to distribute and use all
materials (in any form) provided or previously approved by Connetics or the
Joint Marketing Committee.
SECTION 8.3. OWNERSHIP. All proprietary features constituting the trade
dress of the Product, including but not limited to the shape and color of the
bottle, cap, label design, the size and configuration of the units in cartons,
etc., shall belong exclusively to Connetics. Except as expressly set forth in
this SECTION 8.3, Connetics shall own all copyrights to all advertising,
detailing, promotional and training materials as well as all other written
materials, audiotapes, videotapes, or other copyrightable materials that are
created during the Term of this Agreement in connection with the advertising,
detailing, marketing and promotion of the Product, and MGI will and does waive
all rights in and to any and all such materials. To the extent necessary,
Connetics will contract with, and make all arrangements with, any and all third
parties for the creation of any such materials. Connetics shall, and does
hereby, grant to MGI a royalty-free license to use and reproduce such materials
solely in conjunction with its performance of services pursuant to this
Agreement, which license MGI shall not assign or transfer. Any copyrights on
promotional and training materials made by or on behalf of MGI and funded solely
by MGI shall be owned by MGI. MGI hereby grants to Connetics a perpetual,
non-exclusive, royalty-free license under such copyrights to reproduce, use and
sell such promotional and training material.
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ARTICLE 9
REPRESENTATIONS AND WARRANTIES
SECTION 9.1. REPRESENTATIONS AND WARRANTIES OF CONNETICS. Connetics
hereby represents and warrants to MGI as follows:
(a) Connetics has the corporate power and authority to execute and
deliver this Agreement and to perform its obligations
thereunder, and the execution, delivery and performance of this
Agreement have been duly authorized by Connetics.
(b) Connetics has the right to grant to MGI the rights and licenses
granted under this Agreement.
(c) To the best of Connetics' knowledge, there are no pending or
threatened legal claims relating to the Product, and there is no
infringement or threatened infringement of a third party's
patent rights with respect to any use or sale of Product in the
Territory.
SECTION 9.2. REPRESENTATION AND WARRANTY OF MGI. MGI hereby represents
and warrants to Connetics that MGI has the corporate power and authority to
execute and deliver this Agreement and to perform its obligations thereunder,
and the execution, delivery and performance of the Agreement have been duly
authorized by MGI.
SECTION 9.3. DISCLAIMER OF WARRANTIES. TO THE MAXIMUM EXTENT PERMITTED
BY APPLICABLE LAW, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT,
CONNETICS MAKES NO WARRANTY WITH RESPECT TO ANY TECHNOLOGY, GOODS, SERVICES,
RIGHTS, OR OTHER SUBJECT MATTER OF THIS AGREEMENT AND HEREBY DISCLAIMS ALL
WARRANTIES, CONDITIONS OR REPRESENTATIONS OF ANY KIND, EXPRESS OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF PERFORMANCE,
MERCHANTABILITY, SATISFACTORY QUALITY, FITNESS FOR A PARTICULAR PURPOSE OR
NON-INFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS.
SECTION 9.4. DISCLAIMER OF MGI. Connetics acknowledges that MGI
disclaims any warranty, representation or guarantee that MGI's promotion and
detailing of the Product as permitted hereunder will generate any particular
level of actual prescriptions, or any increase in sales of the Product, as a
result of Calls or Visits made to MGI Physicians.
ARTICLE 10
INDEMNIFICATION
SECTION 10.1. CONNETICS INDEMNITY.
(a) Connetics agrees to indemnify and hold harmless MGI, its
Affiliates, and their respective officers, directors, employees
and agents from and against any and all damages, claims,
liabilities, demands, charges, suits, penalties, costs, expenses
and obligations to third parties incurred or arising in
connection with (i) the manufacture, advertising, promotion,
sale, import or use of the Product, including without
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limitation, product liability and intellectual property
infringement claims, or (ii) breach of any warranty,
representation or covenant of Connetics contained in this
Agreement; provided, however, Connetics' obligations to
indemnify MGI in any action related to a claim that the Product
infringes the intellectual property of a third party shall be
limited to the amount of actual damages awarded to such third
party by a court or arbitrator, as the case may be, and to the
reasonable costs and expenses (including reasonable attorney's
fees) of MGI, its Affiliates, and their respective officers,
directors, employees and agents in connection with such action.
Connetics shall have no indemnification obligation under this
SECTION 10.1(A) for any claim(s) arising from (a) any
modifications to the Product by MGI where liability would not
have occurred by for such modifications or (b) the negligence or
wrongful act of MGI, its officers, agents or employees,
including without limitation (i) the detailing and/or promotion
of the Product in a manner that is inconsistent with the FDA
approval pertaining to the Product, or (ii) representation or
statement regarding the Product which is inconsistent with the
specifications or product label claims by MGI or an Affiliate,
assignee, distributor or representative of MGI.
(b) MGI shall give Connetics prompt written notice of the receipt of
any claim or the commencement of any action, suit or proceeding
for which MGI may seek indemnification under SECTION 10.1(a)
(individually or collectively, referred to hereafter as an
"Action"), and Connetics shall assume the defense of the Action;
provided that, MGI complies with any good faith request made by
Connetics for assistance in such defense; and provided further
that:
(i) MGI shall have the right at any time to participate in
any such Action with counsel of its own choice at MGI's
sole expense;
(ii) if MGI elects for Connetics to defend the Action, then
MGI's counsel may participate in all discussions, but
shall not be entitled to appear in any legal or judicial
proceeding relating to the Action;
(iii) if Connetics fails to assume the defense within a
reasonable time, MGI may assume such defense, and the
reasonable fees and expenses of MGI's attorneys will be
covered by the indemnity provided for in Section 10.1;
and
(iv) if a conflict with respect to legal representation
arises which cannot be resolved, and MGI is not prepared
to waive such conflict, then MGI shall have the right to
obtain separate legal counsel at Connetics' expense;
provided, however, Connetics shall have no obligation to
pay MGI's expenses in connection with MGI obtaining
separate legal counsel in any Action brought by
Connetics against MGI or any Action brought by MGI
against Connetics.
Nothing in the foregoing discussion shall give either party the
right or authority to settle any Action on behalf of the other
party without the other party's written consent.
(b) LIMITATION OF LIABILITY. EXCEPT FOR (A) ANY LOSS, LIABILITY,
DAMAGE OR OBLIGATION ARISING OUT OF OR RELATING TO THE
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DISCLOSURE OF CONFIDENTIAL INFORMATION PURSUANT TO SECTION 11.1
OR (B) THE INDEMNITY OBLIGATIONS OF CONNETICS SET FORTH IN
SECTION 10.1 (EXCLUDING INTELLECTUAL PROPERTY INFRINGEMENT
CLAIMS), OR AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT,
IN NO EVENT SHALL EITHER PARTY HAVE ANY LIABILITY TO THE OTHER
PARTY OR ANY OTHER THIRD PARTY FOR ANY LOST OPPORTUNITY OR
PROFITS, COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES,
OR FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR
SPECIAL DAMAGES ARISING OUT OF THIS AGREEMENT, UNDER ANY CAUSE
OF ACTION OR THEORY OF LIABILITY (INCLUDING NEGLIGENCE), AND
WHETHER OR NOT SUCH PARTY TO THIS AGREEMENT HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGE. THESE LIMITATIONS SHALL APPLY
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED
REMEDY.
SECTION 10.2. MGI INDEMNITY.
(a) MGI agrees to indemnify and hold harmless Connetics, its
Affiliates, and their respective officers, directors, employees
and agents from and against any and all damages, claims,
liabilities, demands, charges, suits, penalties, costs, expenses
and obligations to third parties arising from the negligence or
wrongful act of MGI, its officers, agents or employees,
including without limitation the detailing and/or promotion of
the Product in a manner that is inconsistent with the FDA
approval pertaining to the Product.
(b) Connetics shall give prompt written notice of the receipt of any
claim or the commencement of any action, suit or proceeding for
which Connetics may seek indemnification under SECTION 10.2(a),
and MGI shall assume the defense thereof; provided, however,
that Connetics shall be entitled to participate in any such
action, suit or proceeding with counsel of its own choice, but
at its own expense. If MGI fails to assume the defense within a
reasonable time, Connetics may assume such defense, and the
reasonable fees and expenses of its attorneys will be covered by
the indemnity provided for in SECTION 10.2. No such claim,
action, suit or proceeding shall be compromised or settled in
any manner that might adversely affect the interests of MGI
without the prior written consent of MGI.
SECTION 10.3. INDEMNITY DISPUTES. In the event that both parties claim
indemnification for the same claim, action, suit or proceeding, the provisions
of SECTIONS 10.1 and 10.2 shall apply, except that the cost of defense shall be
shared equally pending final resolution, at which time the party found to be
entitled to indemnification shall also be entitled to reimbursement for any
amount paid by it as defense costs, in addition to other amounts recoverable
under SECTIONS 10.1 AND 10.2, as the case may be.
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ARTICLE 11
GENERAL TERMS AND CONDITIONS
SECTION 11.1. CONFIDENTIALITY.
(a) In order to facilitate this Agreement it will be necessary for
the parties to exchange certain Proprietary Information. Each
party agrees to retain the Proprietary Information of the other
party in strict confidence and not to disclose or transfer the
Proprietary Information to any party or use the Proprietary
Information other than as authorized by the terms of this
Agreement or otherwise in writing by the discloser. The parties
acknowledge that such Proprietary Information can constitute
"inside information" for securities purposes and the
responsibility to refrain from any unauthorized disclosure,
trading or other such use. Each party represents to the other
that it maintains policies and procedures designed to prevent
unauthorized disclosure of its own Proprietary Information. All
employees of a party performing services under this Agreement
shall be subject to agreements prohibiting the disclosure of
Proprietary Information except on the terms permitted in this
Agreement.
(b) These obligations of confidentiality and non-use shall not apply
to Proprietary Information: (a) that was previously known to the
recipient as evidenced by recipient's written records, (b) that
is lawfully obtained by recipient from a source independent of
the disclosing party, (c) that is now or becomes public
knowledge other than by breach of this Agreement, or (d) that is
legally required to be disclosed under federal or state law,
provided that the party or its Affiliate required to make the
disclosure takes reasonable steps, consistent with protection it
would seek for its own confidential information, to prevent the
Proprietary Information from becoming public.
(c) Each party shall have the right to disclose the Proprietary
Information of the other to those of its Affiliates that need
the Proprietary Information for the purposes of this Agreement,
provided that each such Affiliate agrees to be bound to the
other party by the provisions of this ARTICLE 11 and the
disclosing party guarantees the performance under this Agreement
of any such Affiliate.
(d) These obligations of confidentiality and non-use shall survive
the expiration or termination of this Agreement.
SECTION 11.2. ARBITRATION AND APPLICABLE LAW. Any dispute, controversy
or claim arising out of or relating to this Agreement, or the breach or
termination of this Agreement, shall be settled by arbitration in accordance
with the rules of the American Arbitration Association then in effect. Judgment
upon the award rendered by the arbitrators may be entered in any court having
jurisdiction. In any arbitration pursuant to this SECTION 11.2, the award shall
be rendered by a majority of the members of a board of arbitration consisting of
three members, one being appointed by each party and the third being appointed
by mutual agreement of the two arbitrators appointed by the parties. The place
of arbitration shall be Chicago, Illinois. The arbitrators shall apply the law
of the State of New York (regardless of that jurisdiction's or any other
jurisdiction's choice of law principles).
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SECTION 11.3. NOTICES. Any notice required or permitted by the terms of
this Agreement shall be given by overnight carrier, or by registered mail,
prepaid and properly addressed, or delivered by hand,
If to Connetics, to:
3400 West Bayshore Road
Palo Alto, California 94303
Attn.: President and Chief Executive Officer
And if to MGI, to:
Suite 300 E, Opus Center
9900 Bren Road East
Minnetonka, MN 55343-9667
Attn.: President and Chief Executive Officer
or at such other address as either party may designate by notice pursuant to
this Section. Any such notice shall be deemed to have been given when received.
SECTION 11.4. TERM AND TERMINATION.
(a) Term. The term of this Agreement shall begin on the Effective
Date and shall continue, unless terminated sooner in accordance
with this Agreement, until the second (2nd) anniversary of the
Effective Date.
(b) Termination for Good Cause. Either party may terminate this
Agreement for Good Cause effective at any time after providing
sixty (60) days written notice and an opportunity to cure during
such sixty (60) day period; provided, however, that either party
shall have the right to terminate this Agreement immediately
upon written notice to the other party if an Inability to Supply
has continued for six (6) months or more. If a cure is effected,
the notice with respect to such Good Cause shall be null and
void.
(c) Termination by Either Party. Either party shall have the right
to terminate this Agreement upon six (6) months written notice
to the other party commencing upon the first anniversary of the
Effective Date.
(d) Termination for Other Reasons. Either party shall have the right
to terminate this Agreement in the event of a large scale recall
or withdrawal of the Product from the Territory resulting from a
significant safety risk inherent in the Product and not due to
tampering, a remediable manufacturing problem, or other defect
that can be cured with respect to Product manufactured after
such risk is discovered. Termination of this Agreement shall be
without prejudice to (i) any remedies that any party may then or
thereafter have under this Agreement or at law; (ii) a party's
right to receive any payment accrued under the Agreement prior
to the termination date but which became payable thereafter; or
(iii) either party's right to obtain performance of any
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obligation provided for in this Agreement that survives
termination by its terms or by a fair interpretation of this
Agreement.
(e) Effect of Termination. Unless otherwise explicitly stated in
this Agreement, MGI shall not be entitled to compensation for
sales of Product after termination of this Agreement. If either
party terminates this Agreement for Good Cause, Connetics shall
pay to MGI all of the compensation due MGI under SECTION 5.1 (up
to and including any portion of the calendar month in which
effective termination occurs, including sums that have accrued
but have not yet been paid as of the effective date of
termination).
SECTION 11.5. ANNOUNCEMENTS/PUBLICITY. Subject to the requirements of
law and/or Nasdaq, any announcements or publicity to be made or given in respect
of this Agreement by either party shall be subject to the prior approval of the
other party (such approval not to be unreasonably withheld or delayed) where
such announcement or publicity refers to such other party.
SECTION 11.6. FORCE MAJEURE. Neither party shall be liable for failure
to perform any duty or obligation that party may have under this Agreement where
such failure has been occasioned by any force majeure which shall mean and
include government regulation, fire, flood, war, public disaster, strike or
labor dispute, inevitable accident, national emergency, or any other cause
outside the reasonable control of the party having the duty so to perform. Such
failure to perform shall only be excusable under the provisions of this Section
for so long as, and to the extent that, the same is rendered impossible by force
majeure. The party claiming that force majeure has occurred shall send to the
other party within five (5) working days of the first occurrence of force
majeure full particulars including the date of first occurrence and of the cause
or event giving rise to it. Notwithstanding the relief granted to any party by
this Section, the relevant party shall nevertheless use its reasonable endeavors
in any situation where it has invoked this Section to perform its relevant
obligations as soon as possible after force majeure has ceased. If a force
majeure event lasts longer than six (6) months, the unaffected party shall have,
in addition to the right to terminate this Agreement for Good Cause under
SECTION 11.4, the optional right to continue the Agreement in full force and
effect without modification.
SECTION 11.7. ASSIGNMENT. Unless otherwise agreed this Agreement may not
be assigned by either of the parties, except in the case of a merger or sale of
all the assets of the business to which this Agreement relates.
SECTION 11.8. SURVIVAL. The covenants and agreements set forth in
SECTION 4.7(b) and 5.3 and ARTICLES 9, 10 and 11 shall survive any termination
or expiration of this Agreement and remain in full force and effect regardless
of the cause of termination.
SECTION 11.9. NONWAIVER OF RIGHTS. No failure or delay on the part of a
party in exercising any right hereunder will operate as a waiver of, or impair,
any such right. No single or partial exercise of any such right will preclude
any other or further exercise thereof or the exercise of any other right. No
waiver of any such right will be deemed a waiver of any other right hereunder.
SECTION 11.10. HEADINGS. Section headings contained in this Agreement
are included for convenience only and form no part of the agreement between the
parties.
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SECTION 11.11. VALIDITY OF PROVISIONS AND SEVERABILITY. If any provision
of this Agreement is or becomes or is deemed to be invalid, illegal, or
unenforceable in any jurisdiction: such provision will be deemed amended to
conform to applicable laws of such jurisdiction so as to be valid and
enforceable, or, if it cannot be so amended without materially altering the
intention of the parties, it will be stricken; the validity, legality and
enforceability of such provision will not in any way be affected or impaired
thereby in any other jurisdiction; and the remainder of this Agreement will
remain in full force and effect.
SECTION 11.12. NO HIRE. During the term of this Agreement and for six
(6) months thereafter, neither party nor its Affiliates shall solicit nor hire
any individual in the other party's Sales Force without such party's prior
written consent which consent such party may grant in its sole discretion.
SECTION 11.13. ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement of the parties with respect to the subject matter hereof. This
Agreement may not be modified except by a writing signed by the parties'
authorized representatives.
[REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the Effective Date.
Connetics Corporation, MGI Pharma, Inc.
a Delaware corporation
By /s/ T. Wiggans By /s/ C. N. Blitzer
----------------------------------- -----------------------------------
Thomas G. Wiggans Charles N. Blitzer
President & Chief Executive Officer President & Chief Executive Officer
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<PAGE> 1
EXHIBIT 10.2
CO-PROMOTION AGREEMENT
THIS CO-PROMOTION AGREEMENT is effective as of April 1, 1999 by and between
Connetics Corporation ("Connetics") and MGI Pharma, Inc. ("MGI").
B A C K G R O U N D
A. Connetics has marketing rights in the United States to a
pharmaceutical product known as Luxiq(TM).
B. MGI has experience and expertise in the marketing of products to
rheumatologists and internal medicine practitioners.
C. MGI has a professional sales force that calls on physicians and
other health care professionals in order to promote MGI products.
D. Connetics desires to enhance its marketing of Luxiq(TM) in the
United States by enlisting the support and participation of MGI and the MGI
Sales Force (as defined below) in the marketing effort.
NOW, THEREFORE, in consideration of the Background and the mutual promises
contained in this Agreement, Connetics and MGI agree as follows:
A G R E E M E N T
ARTICLE 1
DEFINITIONS
"AFFILIATE" means in respect of either party any corporation or business
entity controlled by, controlling, or under common control with Connetics or
MGI, respectively. For this purpose "control" means the direct or indirect
beneficial ownership of at least fifty percent (50%) of the voting stock of, or
at least fifty percent (50%) interest in the income of, such corporation or
other business entity, or such other relationship as, in fact, constitutes
actual control.
"BEST EFFORTS" means those efforts that would be made by a reasonably
prudent business person acting in good faith in the exercise of reasonable
commercial judgment.
"CALL" means a presentation of the Product by a professional sales
representative to a physician or other health care professional or organization
licensed to administer, dispense or prescribe prescription drugs during a visit
which is for the purpose of actively promoting the sale of the Product.
"COORDINATOR" means the person appointed by each of Connetics and MGI in
accordance with SECTION 3.1.
<PAGE> 2
"COST OF GOODS" shall mean shall mean the cost of Product manufactured
in final form by or on behalf of Connetics, including without limitation, all
direct and indirect costs for material, labor and production overhead included
in manufacturing, producing and supplying Product in the Territory, royalties
paid to third parties, distribution costs, and freight and other transportation
costs, including insurance charges, and duties, tariffs, sales and excise taxes
and other governmental charges based directly on sales turnover or delivery of
such Product and actually paid and allowed by Connetics, all calculated in
accordance with U.S. generally accepted accounting principles.
"DERMATOLOGIST" shall mean all physicians specializing in dermatology as
defined by mutually acceptable criteria and reported by a mutually acceptable
reporting service.
"EFFECTIVE DATE" means the date first written above.
"FDA" means the United States Food and Drug Administration.
"GOOD CAUSE" means (a) the material failure of the other party to comply
with its material obligations contained in this Agreement. Material obligations
include, without limitation, the failure of MGI to provide the full level of
detailing and promotional support required by ARTICLES 2 AND 4, or the failure
of Connetics to make the payments required by SECTION 5.1, (b) the filing of a
petition by or against the other party under any bankruptcy, insolvency or
similar law (which petition is not dismissed within sixty (60) days after
filing); the appointment of a receiver for the other party's business or
property; or the other party's making of a general assignment for the benefit of
its creditors, or (c) any force majeure event as defined in SECTION 11.6
affecting the other party beyond the other party's control that lasts for a
period of at least six (6) months and which is of sufficient intensity to
interrupt or prevent the carrying out of the totality of such other party's
material obligations under this Agreement during such period.
"GROSS MARGIN" means Net Sales less Cost of Goods.
"INTERNAL MEDICINE PHYSICIANS" shall mean all physicians specializing in
internal medicine as defined by mutually acceptable criteria and reported by a
mutually acceptable reporting service.
"JOINT MARKETING TEAM" means the committee appointed pursuant to SECTION
3.2 of this Agreement.
"LAUNCH STOCKING" means the Net Sales of Product sold by Connetics under
its Launch Stocking Incentive Program.
"LAUNCH STOCKING INCENTIVE PROGRAM" means Connetics' offer to
wholesalers of special purchase terms on all Product ordered on or before April
30, 1999.
"LUXIQ PRESCRIPTIONS" shall mean prescriptions for the Product as
determined using data from an agreed upon service provider.
"MARKETING EXPENSES" shall mean all out-of-pocket expenses in connection
with the Product that are approved by the Joint Marketing Team and are (i)
incurred by Connetics for marketing and promotional materials and activities
produced by Connetics, or (ii) incurred by MGI
<PAGE> 3
for marketing and promotional materials and activities produced by MGI, except
as set forth in SECTION 4.1.
"MGI PHYSICIANS" means rheumatologists and internal medicine
practitioners with a rheumatology sub-specialty as defined by mutually
acceptable criteria and reported by a mutually acceptable reporting service.
"NDA" means Connetics' new drug application number 20-934 submitted to
the FDA on December 16, 1997 (a summary of which has been provided to MGI).
"NET SALES" shall mean the gross amounts invoiced by Connetics for
Product in the Territory in accordance with U.S. generally accepted accounting
principles (except Launch Stocking), less the following amounts directly
chargeable to such Products: (a) customary trade, quantity or cash discounts and
rebates, actually allowed and taken; (b) allowances for estimated returns,
rebates and chargebacks; (c) uncollectible amounts; and (d) recalls.
"PRODUCT" means the betamethasone valerate foam product, trade name
Luxiq (TM), as described in the product specifications of the NDA as it may be
amended from time to time including any improvements thereto.
"PRODUCT CONTRIBUTION" means the amount calculated, on a quarterly
basis, by application of the following formula: [*].
"PRODUCT INFORMATION" means the dossier, regulatory status and
information, data and results of clinical and other trials and investigations
relating to the Product, including the NDA and right of cross-reference to the
NDA, together with all other information relating to the specification of the
Product and information relating to the manufacture (including method,
conditions, and process equipment), testing (including quality control
standards, assay methods and stability studies), storage and use of the Product
now or hereafter during the term of this Agreement in the possession or under
the control of Connetics.
"PROMOTION PLAN" means a plan developed by the Joint Marketing Team for
the detailing and promotion of the Product in the Territory, and shall include
promotional strategies, detailing plans, pricing and budgets for promotional
activities (including the development of materials for the detailing and
promotion of the Product) for each discrete detailing period in which MGI
participates during the Term of this Agreement.
"PROPRIETARY INFORMATION" means any information of value of either
party, not generally known to the public, including (but not limited to):
(a) the Product Information; the development status of the Product;
Product indications and modes of administration; technical
information, such as clinical, biological, manufacturing,
pharmaceutical and characterizing data; and know-how;
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 4
(b) business information, such as reports; records; customer lists;
supplier lists; marketing and sales plans; financial
information; costs; and pricing information; and
(c) pharmacoeconomic analyses, if any, conducted by Connetics with
respect to the Product.
"REPRESENTATIVES" means sales representatives employed by MGI for
detailing the Product in the Territory as permitted hereunder.
"SALES FORCE" means all of the Representatives employed by Connetics or
MGI, as the case may be.
"TERRITORY" means the United States of America, including its
territories and possessions.
"YEAR" means the period beginning with a given anniversary of the
Effective Date and ending at the end of the day before the next anniversary of
that date.
ARTICLE 2
GRANTS AND OBLIGATIONS
SECTION 2.1. GRANT TO MGI. Connetics hereby grants to MGI, during the
Term of this Agreement, the (i) exclusive right to detail and promote the
Product in the Territory to MGI Physicians, and (ii) the non-exclusive right to
detail and promote the Product in the Territory to Internal Medicine Physicians
other than MGI Physicians. During the Term of this Agreement, neither Connetics
nor an Affiliate of Connetics will authorize, or grant the right to, any third
party the rights to co-detail, co-promote, or co-market the Product to MGI
Physicians in the Territory as are granted to MGI hereunder, without MGI's prior
written consent which may be granted in MGI's sole discretion.
SECTION 2.2. MGI'S OBLIGATIONS. Subject to the provisions of and during
the Term of this Agreement, MGI shall use its Best Efforts to detail and promote
the Product in the Territory to MGI Physicians according to the Promotion Plan
and in such manner and with such expedition as MGI itself would have adopted in
detailing and promoting a product of its (or any of its Affiliates) own
invention, including but not limited to the use of its trained and qualified
Sales Force to make Calls on physicians and other persons and organizations
licensed to administer, dispense and prescribe prescription drugs with respect
to the Product. Subject to the obligations set forth in SECTION 2.3 and ARTICLE
4, and in particular SECTION 4.3, nothing in this Agreement is intended to
prevent MGI from marketing and/or promoting other products during the term of
this Agreement or thereafter.
SECTION 2.3. COMPETITION. During the term of this Agreement, MGI will
not promote any other topical corticosteroid products that competes with the
Product to MGI Physicians. Nothing in this Agreement shall restrict Connetics
from engaging in commercial alliances for Product with other parties for sales
promotion to physicians other than MGI Physicians.
<PAGE> 5
ARTICLE 3
GOVERNANCE
SECTION 3.1. COORDINATOR. Connetics and MGI shall each appoint an
authorized and knowledgeable representative ("Coordinator") to direct
communications. Each party will promptly notify the other as to the name of the
individual so appointed. Each party may replace its Coordinator at any time,
upon prompt written notice to the other party.
SECTION 3.2. JOINT MARKETING TEAM. Within thirty (30) days following the
Effective Date, the Coordinators shall establish a "Joint Marketing Team"
consisting of representatives of Connetics and representatives of MGI appointed
by the respective Chief Executive Officers of each party. The Joint Marketing
Team will be directed by Connetics' Coordinator and will meet from time to time,
at mutually agreeable times and locations but in any event at least two (2)
times in each calendar year, to discuss and coordinate the joint promotion and
detailing of the Product in the Territory and the strategies and programs that
should be developed to maximize sales of the Product. By way of example, the
Joint Marketing Team shall develop and implement the Promotion Plan, and guide
all continuing joint promotion and detailing efforts with respect to the Product
in the Territory. Connetics will have the final responsibility, with the
cooperation and assistance of MGI, for developing promotion and detailing
strategies with respect to the Product, and for developing promotional and
detailing materials. Each party shall bear its own costs associated with its
participation in the Joint Marketing Team.
SECTION 3.3. PROMOTION PLAN. From time to time, but in no event less
than once a year, the Joint Marketing Team shall develop and formulate a written
Promotion Plan for specified periods, which shall set forth promotion and
detailing strategies relating to the Product.
SECTION 3.4. RECOMMENDATIONS. Each party shall have the right to comment
upon and make recommendations to the other party regarding the other party's
activities under this Agreement, which recommendations the other party shall
thoroughly evaluate and consider, taking into account the other party's
expertise and experience with pharmaceutical products in the Territory.
SECTION 3.5. DECISIONS. It is expressly understood and agreed that the
Joint Marketing Team shall be led by a Connetics' representative with MGI's
participation. In the event of a disagreement among the members of the Joint
Marketing Team, the matter shall promptly be referred to the Senior Vice
President, Commercial Operations of Connetics and the Vice President, Marketing
and Sales of MGI for resolution; if the matter is still not resolved, it shall
promptly be referred to the Presidents of Connetics and MGI for resolution. If
the two Presidents cannot reach agreement, in light of the fact that Connetics
owns the Product and the regulatory approvals relating to the Product, Connetics
shall have the right to resolve any such disagreement, including without
limitation any disagreement regarding the following subjects:
(a) promotional material that Connetics considers, in its reasonable
judgment, inconsistent with the labeling of the Product or with
a regulatory submission pertaining to the Product;
(b) promotional material and other promotional activities that
Connetics regards, in its reasonable judgments, as adversely
affecting Connetics' promotion and/or marketing
<PAGE> 6
of the Product in other countries;
(c) communications with the FDA concerning the Product, including
but not limited to the reporting of adverse events associated
with use of the Product;
(d) any decisions regarding programs and financial expenditures; and
(e) any proposed recall of the Product.
SECTION 3.6. PRICING. Connetics will establish the initial ex-factory
prices for the Product. Connetics shall at its sole discretion establish all
future ex-factory prices for the Product. Connetics may offer and sell the
Product at prices below the established or published ex-factory prices to
wholesalers whenever Connetics considers that such pricing is necessary to
obtain the business of certain customers.
ARTICLE 4
PRODUCT PROMOTION
SECTION 4.1. JOINT PROMOTION. Subject to Connetics' leadership of the
Joint Marketing Team, MGI shall have the obligations set forth in SECTION 2.2
for detailing and promoting the Product in the Territory. Except as otherwise
determined by the Joint Marketing Team, MGI shall bear all costs and expense
related directly to the MGI Sales Force (e.g., salaries, incentive compensation,
bonuses, benefits, cars, travel and entertainment expenses, etc.) and associated
MGI personnel for all purposes, including attending training sessions related to
the Product; the cost of any conference facilities etc. reserved in connection
with the training of MGI's Sales Force if that training is not held in
conjunction with Connetics Sales Force Training; personnel costs of MGI's
continuing medical education ("CME") staff; MGI's personnel and travel costs
associated with meetings and conventions; and any promotional materials that MGI
prepares. Connetics shall supply to MGI, at Connetics' cost, tradepacks,
placebos and other materials which may be deemed part of the Marketing Expenses.
The Joint Marketing Team will determine the scope and nature of the Marketing
Expenses.
SECTION 4.2. PROMOTIONAL ACTIVITIES. The Joint Marketing Team shall
advise Connetics regarding promotional activities with respect to the Product,
which may include, without limitation, the following: journal advertising,
direct mail to physicians and pharmacies, advertising agency fees, promotional
literature, Sales Force detailing aids, creative and advertising preparation,
CME speaker programs (subject to SECTION 4.1), exhibits, symposia, audio- and
videocassettes, clinical evaluation programs as agreed upon by the Joint
Marketing Team, and marketing support trials (limited to comparative clinical
studies against competitive products intended for differentiation of the Product
during detailing and promotion).
SECTION 4.3. CALL REQUIREMENT. MGI shall detail and promote the Product
at its discretion using the MGI Sales Force in the Territory pursuant to a plan
approved by the Joint Marketing Team.
SECTION 4.4. MANAGEMENT OF SALES FORCES. The MGI Sales Force shall be
directed by the senior management of MGI, subject to the Promotion Plan
developed by the Joint Marketing
<PAGE> 7
Team. Connetics shall not have any responsibility for the hiring, firing or
compensation of the MGI's employees or for any employee costs or benefits
associated therewith.
SECTION 4.5. PROMOTION ACTIVITY REPORTING.
(a) MGI shall provide Connetics with a detailed report within thirty
(30) days after the end of each fiscal quarter during the Term
of this Agreement, describing the specific detailing and
promotion activities undertaken by its Sales Force during such
fiscal quarter. MGI warrants and represents that it will
maintain records of Calls made by its Sales Force and that the
records will accurately represent the number of Calls made.
(b) Connetics shall be entitled to audit the source data and
documents that MGI used to compile such reports during normal
business hours and at Connetics' expense. Accordingly, during
the term of this Agreement and for three (3) years after such
records are reported to Connetics pursuant to SECTION 4.5(a),
MGI shall maintain such records in sufficient detail to permit
Connetics to determine the specific detailing and promotion
activities undertaken by its Sales Force during such term, and
the amount allocated to Marketing Expenses under this Agreement.
Connetics shall have the right to nominate an independent firm
reasonably acceptable to the MGI to verify records of MGI and
the calculation of the specific detailing and promotion
activities undertaken by its Sales Force under SECTION 4.5(a) of
this Agreement during the time period MGI is required to
maintain such records hereunder. Such verification shall be
conducted during normal business hours, and Connetics shall bear
the fees and expenses of the accountants performing such
verification. The accountants appointed pursuant to this Section
shall not be authorized to disclose to Connetics any information
other than the accuracy or inaccuracy of the item(s) to be
verified.
SECTION 4.6. PROMOTIONAL MATERIALS. Connetics shall create and develop
promotional materials relating to the Product for distribution to independent
third parties. The Joint Marketing Team will establish the copy platform for all
promotional materials and will agree on tactical programs. Subject to the
restrictions on trademark usage set forth in ARTICLE 8, MGI may create and
develop promotional materials related to the Product using, and based on,
materials created by or for Connetics; provided, however, MGI will not, publish
or distribute any such promotional material (or other material) with respect to
the Product that the Joint Marketing Team has not approved. The Joint Marketing
Team will determine whether the expenses incurred by MGI in creating such
promotional materials shall be included in Marketing Expenses.
SECTION 4.7. EXCHANGE OF INFORMATION. During the Term of and subject to
any other provision of this Agreement, each party will provide the other with
any information or summaries of information relevant to the promotion of the
Product (including but not limited to market research data, information
concerning competitive products, physician communications, and the like) within
a reasonable time after such information becomes known to the party. Such
information shall be considered confidential or proprietary and therefore
subject to SECTION 11.1.
SECTION 4.8. TRAINING MATERIALS. Connetics shall train the MGI Sales
Force as required to detail and promote the Product in the Territory according
to the terms of this Agreement through existing in-house staff and field
clinical liaisons, including a training program commencing on April 11, 1999 in
Minneapolis, Minnesota, or at such other time and place to be agreed by the
parties.
<PAGE> 8
Except as otherwise provided herein, each party shall bear the expenses
associated with training its Sales Force. Connetics shall provide MGI with
initial Product training materials, as well as any Product training materials
developed subsequent to the initial Product training materials, which MGI shall
reproduce and distribute to its Sales Force at MGI's own expense. The Joint
Marketing Team shall develop programs to monitor, test and otherwise ensure that
the Connetics and MGI Sales Forces are sufficiently knowledgeable about the
Product and other information contained in Connetics' training materials.
SECTION 4.9. SAMPLING.
(a) In developing the Promotion Plan to achieve the objectives of
this Agreement, the Joint Marketing Team will consider whether
and to what extent it is necessary to distribute the Product to
health care personnel and the trade as trade packs or samples
(e.g., starter or trial kits). If the Joint Marketing Team
determines that sales of the Product would be enhanced by
distributing such samples, Connetics shall provide to MGI a
percentage of available samples of the Product, to be
distributed by the MGI Sales Force, in accordance with the
Promotion Plan.
(b) MGI shall keep records as required by the FDA or any other
governmental authority with regard to all samples distributed by
its Sales Force.
ARTICLE 5
CONSIDERATION
SECTION 5.1. CONSIDERATION TO MGI. Connetics shall book all sales of
Product in the Territory and, for so long as MGI is conducting detailing and
promotion activities pursuant to and in accordance with this Agreement, shall
pay to MGI [*] percent [*] of the Product Contribution, calculated on a
quarterly basis.
SECTION 5.2. PAYMENT TERMS.
(a) Within forty-five (45) days after the close of each fiscal
quarter during the Term of this Agreement (or, if later, fifteen
(15) days after Connetics receives the report from the reporting
service for that quarter) Connetics shall submit to MGI an
accounting of the Product Contribution in the Territory,
including an itemization of all elements of Product Contribution
for such fiscal quarter and calculating the compensation due MGI
for such fiscal Quarter under SECTION 5.1. At the time of
submitting each accounting, Connetics shall submit to MGI all
payments due thereunder net of any credits of amounts owed by
MGI to Connetics.
(b) Within thirty (30) days of December 31, 1999, Connetics shall
pay to MGI a one time adjustment for Launch Stocking which
payment shall be the amount calculated according to the
following formula: [*].
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 9
SECTION 5.3. AUDIT RIGHTS. During the term of this Agreement and for
three (3) years thereafter Connetics shall keep full and accurate financial and
accounting records in accordance with U.S. generally accepted accounting
principles and shall maintain such records in sufficient detail to permit
calculation of Net Sales, Cost of Goods and Product Contribution. MGI shall have
the right to nominate an independent firm of certified public accountants
reasonably acceptable to the Connetics to verify the records of Connetics and
the calculation of the payment due under SECTION 5.1 of this Agreement. Such
verification shall be conducted during normal business hours, and MGI shall bear
the fees and expenses of the accountants performing such verification. The
accountants appointed pursuant to this Section shall not be authorized to
disclose to MGI any information other than the accuracy or inaccuracy of the
item(s) to be verified. If the audit reveals that Connetics has over-reported
for the period of the audit, MGI shall immediately remit to Connetics any refund
due and interest calculated from the payment date on such overpayment at the
then-current prime rate. If the audit reveals that Connetics has under-reported
for the period of the audit, Connetics shall immediately remit to MGI any
balance owing and interest calculated from the date on such overdue amount at
the then-current prime rate. In addition, if the audit reveals that Connetics
under-reported and underpaid by more than 10%, Connetics shall be responsible
for paying the accountants' fees in connection with the audit.
ARTICLE 6
MANUFACTURING AND DISTRIBUTION
SECTION 6.1. SUPPLY OF PRODUCT. Connetics shall have the sole
responsibility, financially and otherwise, for manufacturing the Product, either
directly or through one or more contractors (including Affiliates of Connetics),
receiving and processing orders, distributing the Product to customers, and
handling Product inventory and receivables. Connetics shall bear all costs of
such activities, including without limitation all third party royalties
(including all payments due to Soltec Research Pty, Ltd.) and cost of goods.
Connetics shall use its best efforts to insure, but cannot guarantee, that
sufficient stock of the Product will be available in its inventory to promptly
fill orders from the trade based on reasonable, non-binding forecasts to be
provided by the Joint Marketing Team at the beginning of each fiscal quarter
during the Term of this Agreement for that fiscal quarter and the following
three (3) fiscal quarters.
SECTION 6.2. MONTHLY REPORTING. In order to aid the Joint Marketing Team
to provide the forecast to be provided under SECTION 6.1, Connetics within
thirty (30) days after the end of a given calendar month (or within a reasonable
time after it becomes available) will provide the Coordinators with a written
report for that calendar month. This report will set forth, if available, the
quantity and dollar amounts of all elements of Product Contribution for the
given month, including any deductions taken and corresponding comparisons for
the previous year.
SECTION 6.3. ORDERS. If, for any reason, MGI receives orders for the
Product, MGI shall forward such orders to Connetics as soon as practicable.
SECTION 6.4. FAILURE TO SUPPLY PRODUCT. MGI understands and acknowledges
that only one (1) contractor (a party not an Affiliate of Connetics) is
currently approved by the FDA to manufacture the Product. If Connetics is at any
time unable to supply the Product to be sold by Connetics under this Agreement,
which failure may be due to the failure of a contract manufacturer
<PAGE> 10
to meet its obligations to supply Product to Connetics, such failure will be
treated as a force majeure condition under SECTION 11.6 and MGI's obligations
hereunder to promote and detail the Product shall be suspended for the period of
such inability to supply. In the event that Connetics is unable to cure such
inability to supply within a period of six (6) months, MGI may immediately
terminate this Agreement for Good Cause, and Connetics shall reimburse MGI for
all Marketing Expenses incurred by MGI through the date of termination of this
Agreement.
ARTICLE 7
REGULATORY AFFAIRS AND MEDICAL INQUIRY
SECTION 7.1. FDA APPROVAL. Connetics will maintain ownership of the NDA
and file any supplements to it. Connetics shall file, own and maintain in its
name any and all regulatory and formulary submissions pertaining to the Product
and any and all regulatory and formulary approvals that may be issued with
respect to the Product.
SECTION 7.2. COMPLAINT HANDLING. Connetics shall have the sole right and
responsibility, and shall bear all costs related thereto, to take such actions
as may be necessary, in accordance with accepted business practices and legal
requirements, to obtain and maintain the authorization and/or ability to market
the Product in the Territory, including without limitation the following:
(a) responding to customer and medical complaints relating to the
quality, strength or purity of the Product, and MGI agrees that
it shall promptly refer any such complaints that it receives to
Connetics;
(b) handling all returns of the Product (if the Product is returned
to MGI it shall be shipped to Connetics at a location to be
provided by Connetics, with any reasonable or authorized
shipping or other documented out-of-pocket costs to be paid by
Connetics), and MGI and Connetics shall each advise their
customers generally that they should make returns to Connetics;
and
(c) handling all recalls of the Product (at Connetics' request, MGI
will assist Connetics in receiving the recalled Product, and any
documented out-of-pocket costs incurred by MGI with respect to
participating in such recall shall be reimbursed by Connetics).
SECTION 7.3. ADVERSE EVENT REPORTING REQUIREMENTS. Connetics shall be
solely responsible for submitting Adverse Event Reports to the FDA, except to
the extent (if at all) that MGI may be required by law to make such reports
itself. During the Term of this Agreement, MGI shall promptly forward to
Connetics at the address set forth in SECTION 11.3 any reports MGI receives of
adverse events (distinguished as serious and non-serious by FDA regulations),
concerning side effects, injury, toxicity or sensitivity reaction including
unexpected increased incidence and severity associated with commercial or
clinical uses, studies, investigations or test with the Product (animal or
human), throughout the world, whether or not determined to be attributable to
the Product. For purposes of this SECTION 7.3, "promptly" means as soon as
practicable, but in no event later than (a) five business days for serious
adverse events after
<PAGE> 11
receipt of complete information regarding such events, or (b) thirty calendar
days for non-serious adverse events after receipt of complete information
regarding such events. Connetics shall transmit adverse event reports to MGI on
a periodic basis, but no less often than once every six (6) months; provided,
however, that Connetics shall promptly notify MGI of any adverse event report
requiring the cessation or substantial alteration of detailing activities by the
MGI Sales Force. MGI shall hold all such communications in the strictest
confidence and subject to the terms of SECTION 11.1 of this Agreement.
SECTION 7.4. COMMUNICATIONS WITH GOVERNMENT AGENCIES. Connetics shall
have the sole right and responsibility and shall bear all costs related to
communications with any government agencies to satisfy their requirements
regarding the authorization and/or continued authorization to market the Product
in commercial quantities in the Territory. MGI shall promptly notify Connetics
of any inquiry or other communication that it receives from the FDA concerning
the Product. Connetics shall be primarily responsible for all communications
with the FDA (and state equivalent agencies) concerning the Product, including
but not limited to reporting adverse events and responding to any inquiries
concerning advertising, detailing or promotional materials. MGI, however, shall
be able to communicate with the any such governmental agency regarding the
Product if:
(a) such communication is necessary to comply with the terms of this
Agreement or the requirements of any law, governmental order or
regulation; or
(b) MGI, if practical, made a request of such agency to communicate
with Connetics instead, and such agency refused such request;
provided, however, that before making any communication under
this SECTION 7.4, MGI shall, if practical, give Connetics notice
as soon as possible of MGI's intention to make such
communications, and Connetics shall, if practical, be permitted
to accompany MGI, take part in any such communications and
receive copies of all such communications.
SECTION 7.5. MEDICAL INQUIRIES. MGI shall refer to Connetics all medical
questions or inquiries relating to the Product directed to MGI or MGI's Sales
Force, except that Adverse Event Reports shall be handled as set forth in
SECTION 7.3. MGI's medical inquiry personnel shall instruct individuals who
contact MGI or its Sales Force to direct medical inquiries directly to
Connetics.
SECTION 7.6. POST-MARKET STUDIES. Connetics shall be responsible for,
and bear the cost of, conducting any clinical study required by the FDA to
maintain the NDA for the Product or establish any new indication or dosage form
of the Product. MGI shall not conduct any clinical study nor incur any expenses
in anticipation of conducting any such study. The cost of any such study
conducted by Connetics shall not be considered Marketing Expenses, or
advertising, detailing or promotional expenses for purposes of this Agreement.
Conversely, the cost of clinical evaluation programs and marketing support
trials meeting the requirement of SECTION 4.2 shall be considered Marketing
Expenses for purposes of this Agreement.
<PAGE> 12
ARTICLE 8
INTELLECTUAL PROPERTY
SECTION 8.1. TRADEMARK LICENSE. Connetics hereby grants to MGI a
non-exclusive, royalty-free license to use the following trademarks for the
advertising, promotion, marketing, distribution and sale of Product in the
Territory:
Connetics name
Luxiq(TM)
LUXIQ(TM)
and its Foam Dollop icon, stylized name, and c-globe design, all as set
forth on Exhibit A
In using the trademarks in materials it generates, MGI shall display the marks
in a style or size of print distinguishing the mark from any accompanying
wording or text.
SECTION 8.2. MARKING. During the Term of this Agreement and if permitted
by FDA regulations, all advertising, detailing and promotional materials related
to the Product may include both Connetics' name and logo and MGI's name and logo
in a manner approved by the Joint Marketing Team. Neither party will acquire any
rights in the other party's name or logo on account of its use in advertising,
detailing and promotional materials for the Product. Nothing in this Agreement
shall be construed to give either party any rights to use the other party's name
or logo outside of the Territory or other than in accordance with this
Agreement. Neither party shall distribute information that bears the name of the
other party unless the information meets the requirements of this SECTION 8.2,
or the other party has consented in writing to the use of its name on the
information, except that MGI shall be permitted to distribute and use all
materials in any form provided or previously approved by Connetics or the Joint
Marketing Committee.
SECTION 8.3. OWNERSHIP. All proprietary features constituting the trade
dress of the Product, including but not limited to the shape and color of the
can, cap, label design, the size and configuration of the units in cartons, etc.
shall belong exclusively to Connetics. Except as expressly set forth in this
SECTION 8.3, Connetics shall own all copyrights to all advertising, detailing,
promotional and training materials as well as all other written materials,
audiotapes, videotapes, or other copyrightable materials that are created during
the Term of this Agreement in connection with the advertising, detailing,
marketing and promotion of the Product, and MGI will and does waive all rights
in and to any and all such materials. To the extent necessary, Connetics will
contract with, and make all arrangements with, any and all third parties for the
creation of any such materials. Connetics shall, and does hereby, grant to MGI a
royalty-free license to use and reproduce such materials solely in conjunction
with its performance of services pursuant to this Agreement, which license MGI
shall not assign or transfer. Any copyrights on promotional and training
materials made by or on behalf of MGI and funded solely by MGI shall be owned by
MGI. MGI hereby grants to Connetics a perpetual, non-exclusive royalty-free
license under such copyrights to reproduce, use and sell such promotional and
training materials.
<PAGE> 13
ARTICLE 9
REPRESENTATIONS AND WARRANTIES
SECTION 9.1. REPRESENTATIONS AND WARRANTIES OF CONNETICS. Connetics
hereby represents and warrants to MGI as follows:
(a) Connetics has the corporate power and authority to execute and
deliver this Agreement and to perform its obligations
thereunder, and the execution, delivery and performance of this
Agreement have been duly authorized by Connetics.
(b) Connetics has the right to grant to MGI the rights and licenses
granted under this Agreement.
(c) To the best of Connetics' knowledge, there are no pending or
threatened legal claims relating to the Product, and there is no
infringement or threatened infringement of a third party's
patent rights with respect to any use or sale of Product in the
Territory.
SECTION 9.2. REPRESENTATION AND WARRANTY OF MGI. MGI hereby represents
and warrants to Connetics that MGI has the corporate power and authority to
execute and deliver this Agreement and to perform its obligations thereunder,
and the execution, delivery and performance of the Agreement have been duly
authorized by MGI.
SECTION 9.3. DISCLAIMER OF WARRANTIES. TO THE MAXIMUM EXTENT PERMITTED
BY APPLICABLE LAW, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT,
CONNETICS MAKES NO WARRANTY WITH RESPECT TO ANY TECHNOLOGY, GOODS, SERVICES,
RIGHTS, OR OTHER SUBJECT MATTER OF THIS AGREEMENT AND HEREBY DISCLAIMS ALL
WARRANTIES, CONDITIONS OR REPRESENTATIONS OF ANY KIND, EXPRESS OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF PERFORMANCE,
MERCHANTABILITY, SATISFACTORY QUALITY, FITNESS FOR A PARTICULAR PURPOSE OR
NON-INFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS.
SECTION 9.4. DISCLAIMER OF MGI. Connetics acknowledges that MGI
disclaims any warranty, representation or guarantee that MGI's promotion and
detailing of the Product as permitted hereunder will generate any particular
level of actual prescriptions, or any increase in sales of the Products, as a
result of Calls made to MGI Physicians.
ARTICLE 10
INDEMNIFICATION
SECTION 10.1. CONNETICS INDEMNITY.
(a) Connetics agrees to indemnify and hold harmless MGI, its
Affiliates, and their respective officers, directors, employees
and agents from and against any and all damages, claims,
liabilities, demands, charges, suits, penalties, costs, expenses
and obligations to third parties incurred or arising in
connection with (i) the manufacture,
<PAGE> 14
advertising, promotion, sale, import or use of the Product,
including without limitation, product liability and intellectual
property infringement claims, or (ii) breach of any warranty,
representation or covenant of Connetics contained in this
Agreement; provided, however, Connetics' obligations to
indemnify MGI in any action related to a claim that the Product
infringes the intellectual property of a third party shall be
limited to the amount of actual damages awarded to such third
party by a court or arbitrator, as the case may be, and to the
reasonable costs and expenses (including reasonable attorneys'
fees) of MGI, its Affiliates, and their respective officers,
directors, employees and agents in connection with such action.
Connetics shall have no indemnification obligation under this
SECTION 10.1(A) for any claim(s) arising from: (a) any
modifications to the Product by MGI where liability would not
have occurred but for such modifications; or (b) the negligence
or wrongful act of MGI, its officers, agents or employees,
including without limitation (i) the detailing and/or promotion
of the Product in a manner that is inconsistent with the FDA
approval pertaining to the Product, or (ii) any liability
arising out of or relating to any representation or statement
regarding the Products which is inconsistent with the
specifications or product label claims.
(b) MGI shall give Connetics prompt written notice of the receipt of
any claim or the commencement of any action, suit or proceeding
for which MGI may seek indemnification under SECTION 10.1(A)
(individually or collectively, referred to hereafter as an
"Action"), and Connetics shall assume the defense of the Action;
provided that MGI complies with any good faith request made by
Connetics for assistance in such defense; and provided further
that:
(i) MGI shall have the right at any time to participate in
any such Action with counsel of its own choice at MGI's
sole expense;
(ii) if MGI elects for Connetics to defend the Action, then
MGI's counsel may participate in all discussions, but
shall not be entitled to appear in any legal or judicial
proceeding relating to the Action;
(iii) if Connetics fails to assume the defense within a
reasonable time, MGI may assume such defense, and the
reasonable fees and expenses of MGI's attorneys will be
covered by the indemnity provided for in SECTION 10.1;
and
(iv) if a conflict with respect to legal representation
arises which cannot be resolved, and MGI is not prepared
to waive such conflict, then MGI shall have the right to
obtain separate legal counsel at Connetics' expense;
provided, however, Connetics shall have no obligation to
pay MGI's expenses in connection with MGI obtaining
separate legal counsel in any Action brought by
Connetics against MGI or any Action brought by MGI
against Connetics.
Nothing in the foregoing discussion shall give either party the
right or authority to settle any Action on behalf of the other
party without the other party's written consent.
<PAGE> 15
(c) LIMITATION OF LIABILITY. EXCEPT FOR (A) ANY LOSS, LIABILITY,
DAMAGE OR OBLIGATION ARISING OUT OF OR RELATING TO THE
DISCLOSURE OF CONFIDENTIAL INFORMATION PURSUANT TO SECTION 11.1
OR (B) THE INDEMNITY OBLIGATIONS OF CONNETICS SET FORTH IN
SECTION 10.1, OR AS OTHERWISE EXPRESSLY SET FORTH IN THIS
AGREEMENT, IN NO EVENT SHALL EITHER PARTY HAVE ANY LIABILITY TO
THE OTHER PARTY OR ANY OTHER THIRD PARTY FOR ANY LOST
OPPORTUNITY OR PROFITS, COSTS OF PROCUREMENT OF SUBSTITUTE GOODS
OR SERVICES, OR FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL,
PUNITIVE OR SPECIAL DAMAGES ARISING OUT OF THIS AGREEMENT, UNDER
ANY CAUSE OF ACTION OR THEORY OF LIABILITY (INCLUDING
NEGLIGENCE), AND WHETHER OR NOT SUCH PARTY TO THIS AGREEMENT HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. THESE
LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL
PURPOSE OF ANY LIMITED REMEDY.
SECTION 10.2. MGI INDEMNITY.
(a) MGI agrees to indemnify and hold harmless Connetics, its
Affiliates, and their respective officers, directors, employees
and agents from and against any and all damages, claims,
liabilities, demands, charges, suits, penalties, costs, expenses
and obligations to third parties arising from the negligence or
wrongful act of MGI, its officers, agents or employees,
including without limitation the detailing and/or promotion of
the Product in a manner that is inconsistent with the FDA
approval pertaining to the Product.
(b) Connetics shall give prompt written notice of the receipt of any
claim or the commencement of any action, suit or proceeding for
which Connetics may seek indemnification under SECTION 10.2(A),
and MGI shall assume the defense thereof; provided, however,
that Connetics shall be entitled to participate in any such
action, suit or proceeding with counsel of its own choice, but
at its own expense. If MGI fails to assume the defense within a
reasonable time, Connetics may assume such defense, and the
reasonable fees and expenses of its attorneys will be covered by
the indemnity provided for in SECTION 10.2. No such claim,
action, suit or proceeding shall be compromised or settled in
any manner that might adversely affect the interests of MGI
without the prior written consent of MGI.
SECTION 10.3. INDEMNITY DISPUTES. In the event that both parties claim
indemnification for the same claim, action, suit or proceeding, the provisions
of SECTIONS 10.1 and 10.2 shall apply, except that the cost of defense shall be
shared equally pending final resolution, at which time the party found to be
entitled to indemnification shall also be entitled to reimbursement for any
amount paid by it as defense costs, in addition to other amounts recoverable
under SECTIONS 10.1 AND 10.2, as the case may be.
<PAGE> 16
ARTICLE 11
GENERAL TERMS AND CONDITIONS
SECTION 11.1. CONFIDENTIALITY.
(a) In order to facilitate this Agreement it will be necessary for
the parties to exchange certain Proprietary Information. Each
party agrees to retain the Proprietary Information of the other
party in strict confidence and not to disclose or transfer the
Proprietary Information to any party or use the Proprietary
Information other than as authorized by the terms of this
Agreement or otherwise in writing by the discloser. The parties
acknowledge that such Proprietary Information can constitute
"inside information" for securities purposes and the
responsibility to refrain from any unauthorized disclosure,
trading or other such use. Each party represents to the other
that it maintains policies and procedures designed to prevent
unauthorized disclosure of its own Proprietary Information. All
employees of a party performing services under this Agreement
shall be subject to agreements prohibiting the disclosure of
Proprietary Information except on the terms permitted in this
Agreement.
(b) These obligations of confidentiality and non-use shall not apply
to Proprietary Information: (a) that was previously known to the
recipient as evidenced by recipient's written records, (b) that
is lawfully obtained by recipient from a source independent of
the disclosing party, (c) that is now or becomes public
knowledge other than by breach of this Agreement, or (d) that is
legally required to be disclosed under federal or state law,
provided that the party or its Affiliate required to make the
disclosure takes reasonable steps, consistent with protection it
would seek for its own confidential information, to prevent the
Proprietary Information from becoming public.
(c) Each party shall have the right to disclose the Proprietary
Information of the other to those of its Affiliates that need
the Proprietary Information for the purposes of this Agreement,
provided that each such Affiliate agrees to be bound to the
other party by the provisions of this ARTICLE 11 and the
disclosing party guarantees the performance under this Agreement
of any such Affiliate.
(d) These obligations of confidentiality and non-use shall survive
the expiration or termination of this Agreement.
SECTION 11.2. ARBITRATION AND APPLICABLE LAW. Any dispute, controversy
or claim arising out of or relating to this Agreement, or the breach or
termination of this Agreement, shall be settled by arbitration in accordance
with the rules of the American Arbitration Association then in effect. Judgment
upon the award rendered by the arbitrators may be entered in any court having
jurisdiction. In any arbitration pursuant to this SECTION 11.2, the award shall
be rendered by a majority of the members of a board of arbitration consisting of
three members, one being appointed by each party and the third being appointed
by mutual agreement of the two arbitrators appointed by the parties. The place
of arbitration shall be Chicago, Illinois. The arbitrators shall apply the law
of the State of New York (regardless of that jurisdiction's or any other
jurisdiction's choice of law principles).
<PAGE> 17
SECTION 11.3. NOTICES. Any notice required or permitted by the terms of
this Agreement shall be given by overnight carrier, or by registered mail,
prepaid and properly addressed, or delivered by hand,
If to Connetics, to:
3400 West Bayshore Road
Palo Alto, California 94303
Attn.: President and Chief Executive Officer
And if to MGI, to:
Suite 300 E, Opus Center
9900 Bren Road East
Minnetonka, MN 55343-9667
Attn.: President and Chief Executive Officer
or at such other address as either party may designate by notice pursuant to
this Section. Any such notice shall be deemed to have been given when received.
SECTION 11.4. TERM AND TERMINATION.
(a) Term. The term of this Agreement shall begin on the Effective
Date and shall continue, unless terminated sooner in accordance
with this Agreement, until thirty (30) months after the
Effective Date. This Agreement may be renewed upon the mutual
agreement of the parties.
(b) Termination for Good Cause. Either party may terminate this
Agreement for Good Cause effective at any time after providing
sixty (60) days written notice and an opportunity to cure during
such sixty (60) day period; provided, however, that either party
shall have the right to terminate this Agreement immediately
upon written notice to the other party if an inability to supply
(as described in SECTION 6.4) has continued for six (6) months.
If a cure is effected, the notice with respect to such Good
Cause shall be null and void.
(c) Termination for Other Reasons. Either party shall have the right
to terminate this Agreement in the event of a large scale recall
or withdrawal of the Product from the Territory resulting from a
significant safety risk inherent in the Product and not due to
tampering, a remediable manufacturing problem, or other defect
that can be cured with respect to Product manufactured after
such risk is discovered. Termination of this Agreement shall be
without prejudice to (i) any remedies that any party may then or
thereafter have under this Agreement or at law; (ii) a party's
right to receive any payment accrued under the Agreement prior
to the termination date but which became payable thereafter; or
(iii) either party's right to obtain performance of any
obligation provided for in this Agreement that survives
termination by its terms or by a fair interpretation of this
Agreement.
<PAGE> 18
(d) Effect of Expiration or Termination. Unless otherwise explicitly
stated in this Agreement, MGI shall not be entitled to
compensation for sales of Product after termination of this
Agreement. If either party terminates this Agreement for Good
Cause, Connetics shall pay to MGI all of the compensation due
MGI under SECTION 5.1 (up to and including any portion of the
calendar month in which effective termination occurs, including
sums that have accrued but have not yet been paid as of the
effective date of termination). If MGI terminates this Agreement
for Good Cause, or upon the natural expiration of this Agreement
pursuant to SECTION 11.4(A) including any renewal, Connetics (or
its successor) shall make payments to MGI of (i) all of the
compensation due MGI under SECTION 5.1 (up to and including any
portion of the calendar month in which effective termination
occurs, including sums that have accrued but have not yet been
paid as of the effective date of termination), and (ii) Fifty
percent (50%) of the amounts due to MGI pursuant to SECTION 5.1
for sales made thereafter in each quarter (or portion thereof)
until one year from the date on which this Agreement terminates.
SECTION 11.5. ANNOUNCEMENTS/PUBLICITY. Subject to the requirements of
law and/or Nasdaq, any announcements or publicity to be made or given in respect
of this Agreement by either party shall be subject to the prior approval of the
other party (such approval not to be unreasonably withheld or delayed) where
such announcement or publicity refers to such other party.
SECTION 11.6. FORCE MAJEURE. Neither party shall be liable for failure
to perform any duty or obligation that party may have under this Agreement where
such failure has been occasioned by any force majeure which shall mean and
include government regulation, fire, flood, war, public disaster, strike or
labor dispute, inevitable accident, national emergency, or any other cause
outside the reasonable control of the party having the duty so to perform. Such
failure to perform shall only be excusable under the provisions of this Section
for so long as, and to the extent that, the same is rendered impossible by force
majeure. The party claiming that force majeure has occurred shall send to the
other party within five (5) working days of the first occurrence of force
majeure full particulars including the date of first occurrence and of the cause
or event giving rise to it. Notwithstanding the relief granted to any party by
this Section, the relevant party shall nevertheless use its reasonable endeavors
in any situation where it has invoked this Section to perform its relevant
obligations as soon as possible after force majeure has ceased. If a force
majeure event lasts longer than six (6) months, the unaffected party shall have,
in addition to the right to terminate this Agreement for Good Cause under
SECTION 11.4, the optional right to continue the Agreement in full force and
effect without modification.
SECTION 11.7. ASSIGNMENT. Unless otherwise agreed this Agreement may not
be assigned by either of the parties except in the case of a merger or sale of
all the assets of the business related to this Agreement.
SECTION 11.8. SURVIVAL. The covenants and agreements set forth in
SECTION 4.5(B) and ARTICLES 5 (TO THE EXTENT SPECIFIED IN SECTION 11.4(D)), 9,
10 and 11 shall survive any termination or expiration of this Agreement and
remain in full force and effect regardless of the cause of termination.
SECTION 11.9. NONWAIVER OF RIGHTS. No failure or delay on the part of a
party in exercising any right hereunder will operate as a waiver of, or impair,
any such right. No single or
<PAGE> 19
partial exercise of any such right will preclude any other or further exercise
thereof or the exercise of any other right. No waiver of any such right will be
deemed a waiver of any other right hereunder.
SECTION 11.10. HEADINGS. Section headings contained in this Agreement
are included for convenience only and form no part of the agreement between the
parties.
SECTION 11.11. VALIDITY OF PROVISIONS AND SEVERABILITY. If any provision
of this Agreement is or becomes or is deemed to be invalid, illegal, or
unenforceable in any jurisdiction: such provision will be deemed amended to
conform to applicable laws of such jurisdiction so as to be valid and
enforceable, or, if it cannot be so amended without materially altering the
intention of the parties, it will be stricken; the validity, legality and
enforceability of such provision will not in any way be affected or impaired
thereby in any other jurisdiction; and the remainder of this Agreement will
remain in full force and effect.
SECTION 11.12. NO HIRE. During the term of this Agreement and for six
(6) months thereafter, neither party nor its Affiliates shall solicit nor hire
any individual in the other party's Sales Force without such party's prior
written consent which consent such party may grant in its sole discretion.
SECTION 11.13. ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement of the parties with respect to the subject matter hereof. This
Agreement may not be modified except by a writing signed by the parties'
authorized representatives.
[REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE> 20
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the Effective Date.
Connetics Corporation, MGI Pharma, Inc.
a Delaware corporation a Minnesota corporation
By /s/ T. Wiggans By /s/ C. N. Blitzer
------------------------------- ----------------------------------
Thomas G. Wiggans Charles N. Blitzer
President & Chief Executive President & Chief Executive Officer
Officer
<PAGE> 21
Exhibit A
Foam Dollop icon, stylized logo, and c-globe design
<PAGE> 1
EXHIBIT 10.3
AMENDMENT NO. TWO
TO
LICENSE AGREEMENT
THIS AMENDMENT NUMBER TWO TO LICENSE AGREEMENT FOR INTERFERON GAMMA
("AMENDMENT") is entered into effective January 15, 1999, by and between
Genentech, Inc. ("Genentech") and Connetics Corporation ("Connetics").
R E C I T A L S
A. The Parties have previously entered into that certain License Agreement
for Interferon Gamma, dated May 5, 1998, as amended on December 23, 1998
(the "License Agreement").
B. Pursuant to Section 2.3(c) of the License Agreement, Connetics has the
right to sublicense certain of its rights under the Agreement to
InterMune Pharmaceutical, Inc. ("InterMune"), and has in fact entered
into a sublicense to that effect dated August 21, 1998
C. On December 3, 1998, the Parties entered into a Letter Agreement to
document the intent and agreement of Connetics and Genentech with
respect to additional terms governing the transfer and distribution of
Interferon Gamma-1B, pending the preparation of an amendment to the
License Agreement.
D. The Parties now desire to enter into a definitive amendment to the
License Agreement, effective as of the date first written above, to
permit a limited distribution of Interferon Gamma-1B by Connetics or its
sublicensee under Genentech labels and to add other additional terms
governing the transfer and distribution of Interferon Gamma-1B.
NOW THEREFORE, the Parties hereby agree as follows:
AGREEMENT
1. Terms not otherwise defined in this Amendment shall have the meanings
defined in the License Agreement.
2. Section 1.29 of the License Agreement is hereby deleted and replaced in
its entirety as follows:
<PAGE> 2
1.29 "Transfer Date" shall mean January 15, 1999, unless
otherwise mutually agreed to in writing by the Parties.
3. A new Section 1.30 is added to the License Agreement to read in its entirety
as follows:
1.30 "Connetics Product" shall mean Finished Product under the
ACTIMMUNE(R) trademark and labeled under the name of Connetics or
its sublicensee. For clarification, all terms and conditions of
this Agreement that apply to Finished Product shall also apply to
Connetics Product.
4. A new Section 1.31 is added to the License Agreement to read in its entirety
as follows:
1.31 "Distribution Period" shall mean the period of time
beginning January 15, 1999 and ending on the earlier of:
(a) the first date on which Genentech supplies InterMune
with Connetics Product or (b) sixty (60) days after
InterMune's receipt of a license from the FDA to sell
Interferon Gamma-1B for CGD.
5. A new Section 1.32 is added to the License Agreement to read in its entirety
as follows:
1.32 "Genentech Finished Product" shall mean Genentech's
inventory of Interferon Gamma-1B under the ACTIMMUNE(R) trademark
and labeled under Genentech's name. For clarification, Genentech
Finished Product is a Licensed Product under this Agreement.
6. A new Section 1.33 is added to the License Agreement to read in its entirety
as follows:
1.33 "Genentech Bulk Product" shall mean Genentech's inventory of
Interferon Gamma-1B bulk protein existing as of the Transfer
Date.
7. A new Section 1.34 is added to the License Agreement to read in its entirety
as follows:
1.34 "Genentech Product" shall mean, together, Genentech Finished
Product and Genentech Bulk Product.
2
<PAGE> 3
8. A new Section 1.35 is added to the License Agreement to read in its entirety
as follows:
1.35 "Fully Burdened Manufacturing Cost" shall mean [*], which
shall be comprised of the sum of: [*].
9. A new Section 1.36 is added to the License Agreement to read in its entirety
as follows:
1.36 "Third Party Manufacturing Royalties" shall mean all
royalties paid or incurred by Genentech to third parties under licenses
taken by Genentech with respect to patents or patent applications that,
but for such license(s), would be infringed by the manufacture, use,
sale, offer for sale or importation of Genentech Finished Product or
Genentech Bulk Product, which royalties are based on the manufacture and
sale of Genentech Finished Product or Genentech Bulk Product by
Genentech (or its contract manufacturer) or by Connetics or its
sublicensees (or a contract manufacturer on their behalf). Genentech
shall notify Connetics in writing during the term of this Agreement if
it becomes aware of any Third Party Manufacturing Royalties.
10. A new Subsection 2.5(k) is added to the License Agreement to read in its
entirety as follows:
2.5(k) Provided that all the activities listed on Exhibit H
attached hereto are completed, Genentech also shall transfer to
Connetics or its sublicensee on the Transfer Date all responsibility for
the distribution, sales and product support of Genentech Finished
Product, in the Territory, for the treatment of infections associated
with CGD, subject to the provisions of Section 4.3 below and the
following terms and conditions:
(i) Product support of Genentech Finished Product shall include,
without limitation, all financial services, all reporting required by
federal and state law or regulation, professional services, customer
inquiries, product returns, government chargebacks, product refunds, and
patient assistance programs,
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
3
<PAGE> 4
except for the processing of state Medicaid invoices and certain product
returns, as provided in Subsections 2.5(k)(iii) and (iv) below.
(ii) Connetics or its sublicensee shall sell and distribute
Genentech Finished Product only during the Distribution Period, after
which time Connetics or its sublicensee shall market, sell and
distribute Connetics Product, or other Finished Product, for CGD.
Notwithstanding the foregoing, for a period of ten (10) business days
after the last day of the Distribution Period, Connetics or its
sublicensee may continue to sell and distribute its existing inventory
of Genentech Finished Product in order to reduce or exhaust such
existing inventory. Under no circumstances, however, will Genentech be
required to manufacture, fill, label, package, or otherwise supply
Genentech Finished Product to Connetics or its sublicensees after the
end of the Distribution Period. After the Distribution Period Connetics
or its sublicensees shall retain full responsibility, and provide all
product support, for all Genentech Product sold or distributed by
Genentech, Connetics or its sublicensees, prior to, during and after the
Distribution Period, including without limitation, Genentech Product in
distribution channels.
(iii) Notwithstanding the above, Genentech shall remain
responsible for processing state Medicaid invoices for Genentech
Finished Product, in accordance with this subsection, during the
Distribution Period and for that period of time after the Distribution
Period during which states continue to send Medicaid rebate invoices for
Genentech Finished Product sold under the Genentech NDC label number
50242. Within fifteen (15) days after the end of each calendar quarter,
Connetics or its sublicensee shall supply Genentech with a report of its
Average Manufacturer Price ("AMP") and Best Price ("BP"), as defined in
the U.S. Omnibus Budget Reconciliation Act of 1990 ("OBRA 90"), for
Genentech Finished Product for such quarter, and detailed calculations
determining such AMP and BP. The AMP, BP and supporting calculations
shall be based on the carton price for Genentech Finished Product.
Genentech shall report such quarterly AMP and BP to the Health Care
Finance Administration as required by law and regulation, and will also
process state Medicaid rebate invoices received for Genentech Finished
Product. Genentech will pay, adjust or dispute the state Medicaid rebate
invoices as permitted under OBRA 90. Within sixty (60) days of receipt
of an invoice from Genentech, Connetics or its sublicensee will
reimburse Genentech the full amounts of Medicaid rebates paid by
Genentech. Genentech will have the right to examine, but not more than
once every calendar year, the books of account and records of Connetics
and its sublicensees for the purpose of determining the correctness of
the quarterly reports provided by Connetics or its sublicensees under
this subsection. If Genentech reasonably determines that any such
reports(s) were incorrect, Connetics shall pay Genentech's costs of
correcting its reports to federal agencies and will also pay any
penalties or fees associated with such incorrect reporting.
(iv) As of the Transfer Date, Connetics or its sublicensees will
be responsible for processing returns and related credits for all
Finished Product,
4
<PAGE> 5
except that Genentech will process credits for returns of Genentech
Finished Product if Genentech receives a returned Genentech Finished
Product from a third party. Within sixty (60) days of receipt of an
invoice from Genentech, Connetics or its sublicensees will reimburse
Genentech for such return credits processed by Genentech.
(v) Connetics or its sublicensees shall be responsible for all
government chargebacks for Genentech Finished Product sold by
wholesalers to customers on and after the Transfer Date, and for all
government chargebacks for all Connetics Product and other Finished
Product sold by Connetics and its sublicensees.
(vi) Connetics and its sublicensees shall not actively market or
promote Interferon Gamma-1B during the Distribution Period and while
selling or distributing Genentech Finished Product. During the
Distribution Period, Connetics and its sublicensees shall not distribute
any notice, publication or make any presentation to any third party
regarding Interferon Gamma-1B without Genenetch's prior review of such
notice, publication or presentation, and receipt of Genentech's prior
written consent. Connetics and its sublicensees shall not sell Genentech
Finished Product at a price higher than that charged by Genentech on
January 14, 1999.
11. A new Section 2.5(l) is added to the License Agreement to read in its
entirety as follows:
2.5(l) Connetics agrees that, as of the Transfer Date and under
the terms and conditions below, it or its sublicensee will supply
Genentech Finished Product to those certain patients in the U.S. to whom
Genentech has an existing contractual or regulatory obligation to supply
Interferon Gamma-1B, including prior clinical study patients. In
addition, Connetics or its sublicensee will supply Genentech Finished
Product to Hoffman-LaRoche Canada Limited ("Roche Canada") for
distribution to patients to whom there is a contractual or regulatory
obligation to supply Interferon Gamma-1B. Connetics also agrees that it
or its sublicensee will supply Genentech Finished Product free of charge
to those [*] oncology study patients (including [*] National Cancer
Institute oncology clinical trial patients) who are continuing to
receive Interferon Gamma-1B. Genentech shall supply a list of all such
patients, and information regarding the amount and destination of such
Interferon Gamma-1B, as soon as reasonably possible. After the end of
the Distribution Period, Connetics or its sublicensee shall supply
Connetics Product, or other Finished Product, to such patients and to
Roche Canada in the same quantities. No other right or license is
implied or granted to Connetics or its sublicensees to distribute
Genentech Finished Product, or any other Licensed Product, outside the
Field of Use or outside the Territory.
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
5
<PAGE> 6
(i) To supply the patients and Roche Canada as described above,
Connetics or its sublicensee shall pay a price for such Genentech
Finished Product, and such Connetics Product and other Finished Product
supplied by Genentech, equal to [*] percent [*] of Genentech's Fully
Burdened Manufacturing Cost, plus [*] of Third Party Manufacturing
Royalties attributable to the manufacture or distribution of such
Genentech Finished Product or other Finished Product.
(ii) For U.S. CGD clinical study patients that do not qualify for
Connetics' (or its sublicensee's) indigent patient program, Connetics
(or its sublicensee) shall supply, at its own cost, Genentech Finished
Product and Finished Product to such patients free of charge for a
period of time ending not later than December 31, 1999. Connetics (or
its sublicensee) shall notify such patients that such drug shall not
continue to be supplied free of charge by Genentech, Connetics or its
sublicensee, and Connetics or its sublicensee shall use its best efforts
to terminate such supply of drug before December 31, 1999, after
reasonable prior notice to such patients. [*]
(iii) Roche Canada will reimburse Connetics, or its sublicensee,
for its cost of supplying such Genentech Finished Product and Connetics
Product to the patients in Canada under a separate agreement to be
negotiated and executed by Roche Canada and Connetics.
(iv) Connetics, or its sublicensee, will supply Genentech
Finished Product and Finished Product to the [*] oncology patients
without charge to Genentech or to such patients. If, however, Genentech
has not extended the Field of Use of this Agreement to the field of
oncology within six (6) months of the Effective Date of this Amendment
No. 2, then Genentech will reimburse Connetics, or its sublicensee, for
the cost of such Genentech Finished Product and Finished Product during
such six month period. If Genentech thereafter extends the Field of Use
to oncology, then as of the effective date of such extension Connetics
or its sublicensee will provide Finished Product to such patients
without charge to Genentech or to such patients. If Genentech does not
extend the Field of Use to oncology, Connetics or its sublicensee will
continue to supply such oncology patients, but Genentech will reimburse
Connetics, or its sublicensee, for such drug in an amount equal to one
hundred percent (100%) of the price paid to Genentech for such Genentech
Finished Product and Finished Product and the direct administrative and
distribution costs of providing such drug to such patients.
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
6
<PAGE> 7
12. A new Section 4.3 is added to the License Agreement to read in its
entirety as follows:
4.3 (a) Genentech shall sell to Connetics, or its sublicensee,
Genentech's existing inventory of Genentech Product for commercial sale
solely for the treatment of infections associated with CGD. Connetics
shall pay a price for such Genentech Product equal to [*] percent [*] of
Genentech's Fully Burdened Manufacturing Cost, plus [*] of Third Party
Manufacturing Royalties attributable to the manufacture or sale of such
Genentech Product.
(b) Genentech shall deliver Genentech Finished Product to
Connetics to a single destination in the United States chosen by
Connetics, by carrier identified by Connetics. Title and risk of loss as
to all Genentech Finished Product shall pass to Connetics at point of
origin (FOB Genentech). Connetics shall be responsible for all freight,
freight brokerage, insurance and other costs associated with shipping
Genentech Finished Product hereunder. As soon as reasonably possible
after each shipment of Genentech Finished Product, Genentech shall
forward to Connetics all customary documents concerning the shipment,
including Genentech's invoice relating to such shipment. To the extent
possible, a certificate of analysis will be included in each shipment.
Where it is not possible to include a certificate of analysis with a
shipment, Genentech shall furnish the same to Connetics as soon as
reasonably possible.
(c) Payment by Connetics shall be made within sixty (60) days
after Connetics' receipt of Genentech's invoice for the supply of
Genentech Finished Product. All payments to Genentech by Connetics under
this Agreement shall be made in United States dollars by wire transfer
(or such other reasonable means as Genentech may direct) to such United
States bank account as Genentech may direct. If a wire transfer is to be
made, Connetics shall provide notice at least five (5) days prior to the
date of transfer of the amount of payment and the date good funds will
be received. Such notice should be given to the Treasurer of Genentech
at the address set forth at the beginning of this Agreement or such
other address as Genentech may subsequently direct.
(d) Genentech shall use its best efforts to maintain its Fully
Burdened Manufacturing Cost for Genentech Finished Product at or below
the benchmark costs of [*] dollars [*] per vial of Genentech Finished
Product (the "Benchmark Costs"). All the provisions of Section 2.6(e) of
that certain Supply Agreement, dated May 5, 1998, between Genentech and
Connetics, shall apply to such Benchmark Costs herein.
(e) All transfer of Genentech Finished Product to Connetics or
its sublicensee hereunder shall be subject to the provisions hereof and
shall not be subject to the terms and conditions contained on any
purchase order or
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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<PAGE> 8
confirmation by Genentech, except insofar as any such purchase order or
confirmation establishes: (i) the quantity and form of Genentech
Product; (ii) the shipment date; (iii) the shipment routes and
destinations; or (iv) the carrier.
13. This Amendment supersedes in its entirety the Letter Agreement dated
December 3, 1998.
14. All other terms and provisions of the License Agreement, including all
exhibits to that Agreement, will continue in full force and effect as
though fully set forth in this Amendment. Nothing in this Amendment
shall be construed as affecting Connetics' obligations to be liable and
responsible for the performance of all of the obligations of Connetics
and its sublicensees under the License Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment Number Two to
License Agreement as of the date first written above.
GENENTECH, INC. CONNETICS CORPORATION
By: /s/ Nicholas J. Simon By: /s/ T. Wiggans
--------------------------------- ----------------------------------
Name: Nicholas J. Simon Thomas G. Wiggans
------------------------------ President and Chief Executive Officer
Title: Vice President, Business and
Corporate Development
------------------------------
Acknowledged and agreed as to InterMune's rights and obligations hereunder as
Connetics' sublicensee under the License Agreement:
INTERMUNE PHARMACEUTICALS, INC.
By: /s/ Scott Harkonen
---------------------------------
Scott Harkonen, M.D.
President
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<PAGE> 1
EXHIBIT 10.4
AMENDMENT NO. THREE
TO
LICENSE AGREEMENT
THIS AMENDMENT NUMBER THREE TO LICENSE AGREEMENT FOR INTERFERON GAMMA
("Amendment") is entered into effective April 27, 1999 (the "Amendment Effective
Date"), by and between Genentech, Inc. ("Genentech") and Connetics Corporation
("Connetics"). Genentech and Connetics may each be referred to herein as a
"Party" and jointly as the "Parties."
RECITALS
A. The Parties have previously entered into that certain License Agreement
for Interferon Gamma, dated May 5, 1998, as amended on December 23, 1998
and on January 15, 1999 (the "License Agreement").
B. Pursuant to Section 2.3(c) of the License Agreement, Connetics has the
right to sublicense certain of its rights under the Agreement to
InterMune Pharmaceuticals, Inc. ("InterMune"), and has in fact entered
into such sublicense to that effect dated August 21, 1998.
C. The Parties have entered into that certain letter agreement dated
January 5, 1999 and revised on March 1, 1999 (the "Letter Agreement"),
documenting the intent and agreement of Connetics and Genentech with
respect to certain additional rights to be granted to Connetics and its
sublicensees under the Genentech License, pending the preparation of an
amendment to the License Agreement.
D. In consideration of such additional rights, [*].
E. The Parties now desire to enter into a definitive amendment to the
License Agreement, as of the Amendment Effective Date, through which
Genentech shall grant, and Connetics and InterMune shall accept, such
certain additional rights under the License Agreement.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants
and conditions herein contained, and intending to be legally bound hereby, the
Parties mutually agree as follows:
1. Terms not otherwise defined in this Amendment shall have the meanings
defined in the License Agreement.
2. A new Section 1.7.1 is hereby added to read in its entirety as follows:
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 2
1.7.1 "Combination Product Adjustment" shall mean the following:
in the event that a Licensed Product is sold in the form of a
combination product containing one or more active ingredients or
components in addition to such Licensed Product, Net Sales for such
combination product will be adjusted by multiplying actual Net Sales of
such combination product by the fraction A/(A + B) where A is the
invoice price of the Licensed Product, if sold separately, and B is the
invoice price of any other active ingredient(s) or component(s) in the
combination, if sold separately. If, on a country-by-country basis, the
other active ingredient(s) or component(s) in the combination are not
sold separately in said country, Net Sales shall be calculated by
multiplying actual Net Sales of such combination product by the fraction
A/C where A is the invoice price of the Licensed Product if sold
separately, and C is the invoice price of the combination product. If,
on a country-by-country basis, neither the Licensed Product nor the
other active ingredient(s) or component(s) of the combination product is
sold separately in said country, Net Sales allocable to the Licensed
Product shall be determined by mutual agreement reached in good faith by
the Parties based on an equitable method of determining such Net Sales
that, among other considerations, takes into account, on a
country-by-country basis, variations in potency, the relative
contribution of each active ingredient or component in the combination
product and the relative value to the end-user of each active ingredient
or component.
3. Section 1.12 of the License Agreement is hereby deleted and replaced in
its entirety as follows:
1.12 "Field of Use" shall mean the administration to humans of
Licensed Protein Product for the treatment or prevention of any human
disease or condition, [*]. Each "indication" listed on Exhibit E
attached hereto shall be referred to herein individually as an "Area of
the Field of Use" and collectively as "Areas of the Field of Use."
4. A new Section 1.15.1 is hereby added to the Agreement to read in its
entirety as follows:
1.15.1 "Gene Therapy Field of Use" shall mean the administration
to humans of Licensed Gene Product for Gene Therapy for the treatment or
prevention of any human disease or condition, [*].
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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<PAGE> 3
5. Section 1.18 of the License Agreement is hereby deleted and replaced in
its entirety as follows:
1.18 "Genentech Patent Rights" shall mean all patents and patent
applications and any patents issuing therefrom, together with any
extensions, reissues, reexaminations, substitutions, renewals,
divisions, continuations and continuations-in-part thereof:
(a) that are owned or controlled by Genentech presently
or hereafter, during the term of this Agreement, and under which
Genentech is free to license or sublicense; and
(b) to the extent they claim or directly relate to: (i)
Interferon Gamma or the manufacture or use of Interferon Gamma
in the Field of Use, or (ii) IG Nucleotide Sequence or the
manufacture or use of IG Nucleotide Sequence in the Gene Therapy
Field of Use;
including, without limitation, the patent rights granted under
that certain license agreement between Genentech and Children's
Medical Center Corporation, dated July 16, 1990 (the "CMCC
License"), but specifically excluding any rights granted to
Genentech under the Biogen License. Genentech Patent Rights
shall include, without limitation, the patents and patent
applications listed in Exhibit A attached hereto.
Notwithstanding the foregoing, Genentech Patent Rights shall
exclude any rights Genentech acquires after the Effective Date
under third-party license agreements, with the exception of
those rights acquired under the CMCC License, unless and until
the Parties mutually agree on terms and conditions for the
sublicense of such rights from Genentech to Connetics.
6. A new Section 1.20.1 of the License Agreement is hereby added to read in
its entirety as follows:
1.20.1 "IG Nucleotide Sequence" shall mean any DNA or RNA
sequence encoding Interferon Gamma.
7. Section 1.22 of the License Agreement is hereby deleted and replaced in
its entirety as follows:
1.22 "Licensed Product" shall mean, collectively:
(a) Any pharmaceutical formulation containing Interferon
Gamma, whether alone or together with or incorporated into any
other substance or product or material or device, whether active
or not, and which (i) but for the licenses granted hereunder,
the manufacture, use, sale, offer for sale or importation of
which in the Territory would infringe or contribute to the
infringement of the Genentech Patent Rights in the Territory, or
(ii) is based upon or incorporates or utilizes Genentech Knowhow
(a "Licensed Protein Product"); and
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<PAGE> 4
(b) Any pharmaceutical formulation containing the IG
Nucleotide Sequence, whether alone or together with or
incorporated into any other substance or product or material or
device, whether active or not, and which but for the licenses
granted hereunder, the manufacture, use, sale, offer for sale or
importation of which in the Territory would infringe or
contribute to the infringement of the Genentech Patent Rights in
the Territory (a "Licensed Gene Product").
8. The following two sentences are hereby added to the end of Section 1.25:
[*] shall also be deducted from the gross invoiced sales prices
charged for such Licensed Products in determining Net Sales for such
Licensed Products. In the event that a Licensed Product is sold in the
form of a combination product containing one or more active ingredients
or components in addition to such Licensed Product, Net Sales for such
combination product will be calculated in accordance with the
Combination Product Adjustment."
9. Section 1.28 of the License Agreement is hereby deleted and replaced in
its entirely as follows:
1.28 "Territory" shall mean the United States of America, and
its territories and possessions, and Japan.
10. A new Section 1.37 is hereby added to the License Agreement to read in
its entirety as follows:
1.37 "Third Party Product Rights" shall mean any rights licensed
or sublicensed to any third party by Genentech as of the Effective Date
to use, manufacture or sell (a) Interferon Gamma, (b) the IG Nucleotide
Sequence or (c) any pharmaceutical formulation containing either or both
of Interferon Gamma and the IG Nucleotide Sequence, whether alone or
together with or incorporated into any other substance or product or
material or device, whether active or not; [*].
11. Section 2.1 of the License Agreement is hereby deleted and replaced in
its entirety as follows:
2.1 Patent and Knowhow License Grants.
(a) Genentech hereby grants to Connetics an exclusive
license, even as to Genentech, under Genentech Patent Rights and
under Genentech Knowhow to use, sell, offer for sale and import
(but not to make or have made) Licensed Protein Products in the
Field of Use in the Territory (excluding Japan), (excluding,
with respect to the fields of (i) scleroderma and (ii)
infectious disease or condition caused by human papillomavirus,
Licensed Protein Products containing any form of Interferon
Gamma other than
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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Genentech Gamma Interferon (DELTA)3 (as that term is defined in
the Biogen License)). Notwithstanding the foregoing, Genentech
reserves the right to use (but not to import, offer for sale or
sell) Licensed Protein Products within the Field of Use solely
for non-commercial research purposes.
(b) Genentech hereby grants to Connetics a non-exclusive
license under Genentech Patent Rights and under Genentech
Knowhow to use, sell, offer for sale and import (but not to make
or have made) Licensed Protein Products containing any form of
Interferon Gamma other than Genentech Gamma Interferon (DELTA)3
(as that term is defined in the Biogen License) in the Territory
(excluding Japan) in the fields of: (i) scleroderma and (ii)
infectious disease or condition caused by human papillomavirus.
(c) Genentech hereby grants to Connetics a non-exclusive
sublicense under the Biogen License Rights to use, sell, offer
for sale and import Licensed Protein Products (excluding
Licensed Protein Products containing Biogen Gamma Interferon
(DELTA)0 (as that term is defined in the Biogen License)) in the
Territory (excluding Japan) in the fields of scleroderma and
infectious disease or condition caused by human papillomavirus.
(d) Genentech hereby grants to Connetics a non-exclusive
license under Genentech Patent Rights to make or have made in
the Territory (excluding Japan) Licensed Protein Products for
use or sale in the Field of Use in the Territory (excluding
Japan).
(e) Genentech hereby grants to Connetics a non-exclusive
license under Genentech Patent Rights and Genentech Knowhow to
use non-human animal species derived homologues of Interferon
Gamma ("Non-human Interferon Gamma") solely for non-commercial
research purposes to support the Field of Use in the Territory
(excluding Japan). Genentech hereby grants to Connetics a
non-exclusive license under Genentech Patent Rights to use
non-human animal species derived homologues of IG Nucleotide
Sequence ("Non-human Interferon Gamma-encoding IG Nucleotide
Sequence") solely for non-commercial research purposes to
support the Gene Therapy Field of Use in the Territory
(excluding Japan).
(f) Genentech hereby grants to Connetics a co-exclusive
license under Genentech Patent Rights to use, make, have made,
import, offer for sale and sell Licensed Gene Products in the
Gene Therapy Field of Use in the Territory (excluding Japan).
Notwithstanding the foregoing, Genentech reserves the right to
use (but not to import, offer for sale or sell) Licensed Gene
Products within the Gene Therapy Field of Use solely for
non-commercial research purposes. As used in this subsection
(f), "co-exclusive" shall mean that (i) Genentech shall not
grant a license to any party other than Connetics to use, make,
have made, import, offer for sale or sell Licensed Gene Products
in the Gene Therapy Field in the Territory (excluding Japan) [*]
and (ii) Genentech shall not authorize or approve any grant or
assignment [*].
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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<PAGE> 6
(g) (i) Genentech hereby grants to Connetics an
exclusive license, even as to Genentech, under Genentech Patent
Rights and under Genentech Knowhow, in Japan to make, have made,
use, sell, offer for sale and import [*].
(ii) Connetics, its Affiliates and sublicensees
hereunder shall [*] to the extent based, in whole or in part,
upon [*] [*] [*] for indications
(including, without limitation, the treatment of [*] shall not
extend to: [*] the manufacture, use or sale [*] for the
treatment of [*]. Connetics' and its Affiliates' and
sublicensees' [*] shall terminate with respect to [*].
(iii) In the event that any Third Party Product
Rights held by a third party [*] revert to Genentech, then
Genentech shall notify Connetics or its designated sublicensee
in Japan of such reversion, and upon such notice Genentech shall
be deemed to have automatically granted to Connetics the license
under Genentech Patent Rights and under Genentech Knowhow to all
such reverted rights, which license shall be exclusive to the
extent that such reverted rights were exclusive. All rights
granted to Connetics pursuant to this subsection (iii) shall be
subject to the terms of this Agreement, including without
limitation subsection (ii) above, Section 3.2(g) and Section
8.3.
(h) In the event that any Third Party Product Rights
(other than those described in subsection (g) above) shall
revert to Genentech, then Genentech shall notify Connetics of
such reversion. For the ninety (90) day period following its
receipt of such notice, Genentech and Connetics shall negotiate
exclusively in good faith the reasonable commercial terms upon
which Genentech would be willing to grant to Connetics the
license to such reverted rights. If the Parties fail to enter a
written agreement for a license to such rights by the end of
such ninety (90) day period, then Genentech shall have no
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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further obligation to Connetics with respect to such rights;
provided that for six (6) months following such ninety (90) day
period, Genentech shall not enter into an agreement to grant a
license to such rights with a third party on terms that, taken
as a whole, are less favorable to Genentech than those last
offered by Connetics for such rights. [*] Nothing in the
preceding sentence shall imply any [*]. Connetics may not
transfer its rights under this Section 2.1(h) to any party other
than InterMune without Genentech's prior written consent.
Except as expressly granted herein, there are no implied licenses under
the Genentech Patent Rights or any other intellectual property rights owned or
controlled by Genentech.
12. Section 2.3(b) of the License Agreement is hereby deleted and replaced
in its entirety as follows:
(b) Connetics may grant one or more sublicenses under
the rights granted in Sections 2.1(a), (b), (c), (e), (f) and
(g) in the Field of Use and the Gene Therapy Field of Use, on
thirty (30) days prior written notice to Genentech, and subject
to Genentech's prior written approval, which approval shall not
be unreasonably withheld.
13. A new Section 3.2(g) is hereby added to read in its entirely as follows:
(g) In addition to the Clinical Development Milestones
(as set forth in Exhibit E hereto), Connetics shall use its Best
Efforts to develop and commercialize Licensed Products: (i) in
the Field of Use with respect to indications and diseases that,
under the provisions of this Amendment, have been added to the
"Field of Use" as defined in the original License Agreement
executed as of May 5, 1998, and (ii) in the Gene Therapy Field
of Use. Such additional indications and diseases in the Field of
Use, and the Gene Therapy Field of Use, collectively are
referred to in this subsection (g) as the "Additional
Indications." In the event that Connetics is not conducting such
development efforts with respect to any Additional Indication(s)
in a country or countries in the Territory as of the [*] (or if
rights to such Additional Indication were granted to Connetics
pursuant to Section 2.1(g)(iii), then as of the [*] that
Genentech notifies Connetics or its designated sublicensee
regarding such rights as set forth in that Section) or at any
time thereafter, Genentech shall have the right to terminate
this Agreement, and the licenses granted hereunder, with respect
to Licensed Products for such Additional Indication(s) in such
country or countries, upon [*] days prior written notice to
Connetics, unless Connetics can reasonably demonstrate, during
such notice period, by its written records that as of the date
of such notice it is conducting such development efforts with
respect to such Additional Indication(s) in such country or
countries.
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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14. Sections 8.2(a) and (b) of the License Agreement are hereby deleted and
replaced in their entirety as follows:
(a) [*] within thirty (30) days following the dates on
which the first NDA or BLA, as applicable, for a Licensed
Protein Product is filed with the FDA by Connetics for [*]
provided however, that such milestone payments shall only be
paid once for each of the foregoing indications, and shall not
be paid upon the filing of a NDA or BLA for an osteopetrosis or
any mycobacterial infection indication.
(b) [*] within thirty (30) days following the date
Connetics receives the first FDA approval of [*] provided
however, that such milestone payment shall only be paid once for
each of the foregoing indications, and shall not be paid upon
receipt of FDA approval for commercial sale for an osteopetrosis
or any mycobacterial infection indication.
15. Section 8.3 of the License Agreement is hereby deleted and replaced in
its entirety as follows:
8.3 Royalties. Connetics shall pay Genentech the following
royalties on Net Sales of Licensed Products by Connetics and its
sublicensees:
(a) For annual aggregate Net Sales of all Licensed
Protein Products in the Territory (excluding Japan) [*]
a royalty rate equal to [*] of such Net Sales.
(b) [*] for annual aggregate Net Sales of all Licensed
Protein Products in the Territory (excluding Japan) [*] a
royalty rate equal to [*] of such Net Sales [*].
(c) For Net Sales of all Licensed Protein Products in
Japan, a royalty rate equal to [*] of such Net Sales; provided,
however, that in the event that [*] for an indication for which
InterMune has exclusive rights under Section 2.1(g), the
foregoing royalty rate shall be reduced to [*] for Net Sales of
[*] in Japan for such indication [*]. For the sake of clarity,
Net Sales of Licensed Protein Products to which Connetics
acquires rights pursuant to Section 2.1(g)(iii) shall be subject
to this subsection (c).
(d) (i) For Net Sales of Licensed Gene Product in the
Territory, where such Licensed Gene Product is used in
conjunction with a Licensed Protein Product for the treatment or
prevention of a given indication in a given patient
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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population, a royalty rate equal to [*] of such Net Sales.
As used in this subsection (d), "indication" shall mean any
particular medical condition within the Field of Use and Gene
Therapy Field of Use, including but not limited to labeling
claims approved by a regulatory agency.
(ii) For Net Sales of Licensed Gene Product in a
country in the Territory, where such Licensed Gene Product is
used in a given patient population for the treatment or
prevention of the same indication for which a given Licensed
Protein Product is used in such patient population, a royalty
rate equal to (A) [*] of such Net Sales during the [*][*] period
following the first commercial sale of such Licensed Gene
Product in such country for the treatment or prevention of such
indication in such patient population by Connetics, or its
Affiliates and sublicensees (the "First Commercial Sale"); (B)
[*] of such Net Sales during the [*][*] period following the
First Commercial Sale; and (C) [*] of such Net Sales beginning
on the [*] anniversary of the First Commercial Sale and
thereafter.
(iii) Notwithstanding the provisions of
subsections (i) and (ii) above, in the event that annual Net
Sales of a Licensed Gene Product for the treatment or prevention
of an indication in a patient population in a country in the
Territory [*] for the treatment or prevention of such indication
in such patient population in such country, the royalty rate
thereafter applicable to Net Sales of such Licensed Gene Product
for the treatment or prevention of such indication in such
patient population in such country shall be [*] of such Net
Sales.
(iv) In the event that Connetics or InterMune
determines at any point following [*] that the above royalty
rates are having or are likely to have an adverse impact on
Connetics' or InterMune's ability to compete effectively in its
sales of such Licensed Gene Product, Connetics or InterMune
shall so notify Genentech, and the Parties shall in good faith
discuss and attempt to reach a reasonable and mutually agreeable
resolution to the situation.
(e) (i) The royalties set forth in subsections (a), (b)
and (c) above shall be payable, on a country-by-country basis,
until the later of: (A) the expiration or revocation of the last
remaining issued patent in such country within the Genentech
Patent Rights that covers Licensed Protein Products, or (B) [*]
years from the Effective Date of this Agreement. Notwithstanding
the foregoing, upon the expiration of the last to expire issued
patent in each country within the Genentech Patent Rights during
the term of this Agreement, thereafter each of the royalty rates
set forth in (a), (b) and (c) above shall be reduced by [*] with
respect to such country.
(ii) The royalties set forth in subsection (d)
above shall be payable, on a country-by-country basis, until the
expiration or revocation of the last remaining issued patent in
such country within the Genentech Patent Rights that covers
Licensed Gene Products.
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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16. Section 8.4 of the License Agreement is hereby deleted and replaced in
its entirety as follows:
8.4 Third-Party Royalties. If Genentech or Connetics is required
to pay any third party a royalty due to the manufacture, use, sale,
offer for sale or importation of a Licensed Product in the Territory for
or by Connetics or its sublicensees, Connetics shall be responsible for
the payment of [*] of such third-party royalty, provided however, that
Connetics may deduct from the royalties otherwise payable to Genentech
under Section 8.3 above, an amount equal to [*] of such third party
royalties incurred only due to use patents in the Field of Use or in the
Gene Therapy Field of Use in the Territory, provided that the amount
deducted shall not exceed [*] of the royalties otherwise payable by
Connetics to Genentech under Section 8.3. For purposes of clarification,
such deductions shall not apply to [*]. Attached hereto as Exhibit G is
a list of all such royalty obligations to third parties known to
Genentech as of the Effective Date without diligent search. No later
than thirty (30) days from the Effective Date, Genentech shall complete
a reasonable internal investigation of its records and update Exhibit G,
as necessary, to accurately reflect all such royalty obligations to
third parties to the best of Genentech's knowledge; provided however,
Connetics acknowledges that Genentech has no obligation to conduct due
diligence or any investigation with respect to third party patent rights
related to Licensed Products. Genentech shall notify Connetics in
writing during the term of this Agreement if it becomes aware of any
additional Genentech third party royalty obligations.
17. Section 8.5 of the License Agreement is hereby deleted and replaced in
its entirety as follows:
8.5 Royalty Payments.
(a) Royalty payments shall be made to Genentech
quarterly within ninety (90) days following the end of each
calendar quarter for which royalties are due. Each royalty
payment shall be accompanied by a report summarizing the total
Net Sales during the relevant three-month period, and the
calculation of royalties, if any, due thereon pursuant to
Section 8.3.
(b) Notwithstanding subsection (a) above, any royalty
payments which accrue during 1999 on Net Sales of Licensed
Protein Product sold by Connetics' sublicensee InterMune shall
be paid to Genentech in the form of promissory note, in the form
attached hereto as Exhibit I. For each calendar quarter in 1999
for which royalty payments are due, InterMune shall execute and
deliver to Genentech, within ninety (90) days following the end
of each such calendar quarter, a promissory note in the form of
Exhibit I, and in the amount of such royalties due to Genentech
for such quarter. Each such promissory note shall be accompanied
by the report described in Section 8.5(a) above for such
quarter. In the event that any such note is delivered by
InterMune after such 90 day period, nevertheless interest shall
accrue on the date that such note was due.
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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18. The following provision is hereby inserted as Section 10.4 to the
License Agreement:
10.4 Insurance. At all times during the term of this Agreement,
Connetics and its sublicensees shall provide the following insurance at
its sole cost and expense:
(a) Commercial General Liability, including coverage for
products and completed operations (maintained for a period of at
least [*] after the expiration or termination of this Agreement)
[*]. The policy shall have a limit of no less than [*] dollars.
(b) Foreign Local Coverages: Where required by law,
Connetics and its sublicensees will purchase foreign local
coverages in an amount that, at a minimum, satisfies the legal
requirements of that jurisdiction.
(c) Policy Conditions: All policies under (a) and (b)
above shall:
(i) be written by insurance companies with an
A.M. Best's rating of A:VIII or higher (or if Connetics' or its
sublicensees policies are not subject to the Best rating, then
by carriers who are acceptable to Genentech); and
(ii) add Genentech as an additional insured.
(d) Additionally, Connetics shall use its Best Efforts
to obtain from its insurance carrier for the policies described
in subsections (a) and (b) covenants:
(i) [*]; and
(ii) [*].
Connetics and its sublicensees shall provide Genentech a
certificate of insurance which shall reflect the above coverages and
provisions, with annual renewals as long as the contract continues.
19. Section 11.1 of the License Agreement is hereby deleted and replaced in
its entirety as follows:
11.1 Term. This Agreement shall commence on the Effective Date
of this Agreement and, unless terminated earlier, shall expire:
(a) With respect to Licensed Protein Products, at the
later to occur of (i) the expiration of the last to expire of
any Genentech Patent Rights covering a Licensed Protein Product,
or (ii) twenty (20) years from the Effective Date of this
Agreement; and
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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(b) With respect to Licensed Gene Products, at the
expiration of the last to expire of any Genentech Patent Rights
covering a Licensed Gene Product;
provided, however, that in the event that either the
CMCC License or the Biogen License is terminated, the licenses
granted by Genentech to Connetics under the CMCC License or the
Biogen License shall also terminate. Genentech shall use its
Best Efforts to keep the CMCC License and the Biogen License in
effect during the term of this Agreement, [*]. One (1) year
before the expiration of this Agreement under Section 11.1(a),
the Parties agree to meet and to discuss in good faith extending
the term of this Agreement with respect to Licensed Protein
Products on terms mutually agreeable to the Parties.
20. Exhibit E of the License Agreement is hereby deleted and replaced in its
entirety with new Exhibit E attached hereto and incorporated herein.
21. In consideration for the rights granted to Connetics and its
sublicensees under this Amendment, [*].
22. This Amendment supersedes the Letter Agreement in its entirety. All
other terms and provisions of the License Agreement, including all
exhibits to that Agreement, will continue in full force and effect as
though fully set forth in this Amendment. Nothing in this Amendment
shall be construed as affecting Connetics' obligations to be liable and
responsible for the performance of all of the obligations of Connetics
and its sublicensees under the License Agreement.
THIS SPACE INTENTIONALLY LEFT BLANK
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed by the
respective duly authorized officers as of the date first written above.
GENENTECH, INC. CONNETICS CORPORATION
By: /s/ Nicholas Simon By: /s/ T. Wiggans
------------------------------- --------------------------------
Printed Name: Nicholas Simon Printed Name: Thomas G. Wiggans
---------------------- ----------------------
Title: Title: President & CEO
------------------------------ -----------------------------
Acknowledged and agreed as to InterMune's rights and obligations hereunder as
Connetics' sublicensee under the License Agreement:
INTERMUNE PHARMACEUTICALS, INC.
By: /s/ S. Harkonen
----------------------------------
Printed Name: W. Scott Harkonen
------------------------
Title: Chief Executive Officer
-------------------------------
13
<PAGE> 14
EXHIBIT E
CLINICAL DEVELOPMENT MILESTONES
[*]
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
14
<PAGE> 1
EXHIBIT 10.5
CONNETICS CORPORATION
RESTRICTED COMMON STOCK PURCHASE AGREEMENT
MARCH 9, 1999
This Common Stock Purchase Agreement (the "Agreement") is entered into
as of this 9th day of March, 1999, between Connetics Corporation, a Delaware
corporation (the "Company") and G. Kirk Raab, an individual ("Purchaser").
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 Purchaser, and Purchaser will purchase from the Company, an aggregate of
25,000 shares of Common Stock, par value $0.001 per share, of the Company (the
"Common Stock"), for an aggregate purchase price of $2,500.
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 March 30, 1999 or at such
other time and place upon which the Company and Purchaser shall mutually agree
(the date of the Closing is referred to as the "Closing Date").
1.3 Delivery. At the Closing, the Company will deliver to Purchaser
a certificate or certificates representing the shares of Common Stock purchased
by Purchaser, against payment of the purchase price therefor, by wire transfer
or check drawn on a United States bank.
1.4 Legend. The certificate(s) 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 SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
(C) FULL COMPLIANCE WITH THE PROVISIONS OF RULE 144 UNDER THE ACT."
<PAGE> 2
1.5 Removal of Legends. Any legend endorsed on a certificate
pursuant to SECTION 1.4 of this Agreement 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 Purchaser 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.
2.2 Authorization. The Company has all corporate right, power and
authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. All corporate action on the part of the Company,
its directors and stockholders necessary for the authorization, execution,
delivery and performance of this Agreement by the Company, and the
authorization, sale, issuance and delivery of the Common Stock and the
performance of the Company's obligations under this Agreement has been taken.
This Agreement has been duly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company enforceable in
accordance with its 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. 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. Based in part upon the
representations of the Purchaser 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 No Conflict. The execution and delivery of this Agreement does
not, and the sale of the Common Stock 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 agreement or
instrument, permit, license, judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to the
<PAGE> 3
Company, its properties or assets, if to do so would have a material adverse
effect on the business, properties, prospects or financial condition of the
Company.
2.5 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 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).
2.6 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 consummation of any other
transaction contemplated by this Agreement, 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.
2.7 Registration Rights. The Company has not granted or agreed to
grant any rights to register its securities under the Securities Act, including
piggy-back rights, to Purchaser.
2.8 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 PURCHASER
Purchaser hereby represents and warrants to the Company as follows:
3.1 Investment. Purchaser is acquiring the Common Stock for
investment for his 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 from the
<PAGE> 4
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
Purchaser's investment intent and the accuracy of such Purchaser's
representations as expressed in this Agreement. Purchaser acknowledges and
understands that the securities must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. Purchaser further acknowledges and understands that
the Company is under no obligation to register the securities. Purchaser
understands that the certificate(s) evidencing the securities will be imprinted
with a legend that prohibits the transfer of the securities unless they are
registered or such registration is not required in the opinion of counsel for
the Company.
3.2 Accredited Investor. Purchaser is an "accredited investor" as
defined by Rule 501(a) under the Securities Act. The SEC Documents have been
made available to Purchaser, and Purchaser has received all the information it
has requested regarding the Company. Purchaser has such business and financial
experience as is required to give him the capacity to protect his own interests
in connection with the purchase of the Common Stock.
3.3 Authority. This Agreement has been duly executed and delivered
by Purchaser and constitutes a legal, valid and binding obligation of the
Purchaser, enforceable in accordance with its 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. The execution and
delivery of this Agreement does not, and the consummation of the transactions
contemplated by this Agreement 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 Purchaser.
3.4 Investigation. Purchaser has had a reasonable opportunity to
discuss the Company's business, management and financial affairs with the
Company's management, and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the securities.
3.5 Tax Consequences. Purchaser understands that he may suffer
adverse tax consequences as a result of the purchase or disposition of the
Common Stock. Purchaser represents that he has consulted any tax consultants he
deems advisable in connection with the purchase or disposition of the Common
Stock and that Purchaser is not relying on the Company for any tax advice.
3.6 Section 83(b) Election.
(a) Purchaser understands that Section 83(a) of the Internal
Revenue Code of 1986, as amended (the "CODE"), taxes as ordinary income the
difference between the amount paid for the Common Stock and the fair market
value of the Common Stock. Purchaser understands that Purchaser may elect to be
taxed at the time the Common Stock is purchased by filing an election under
Section 83(b) (an "83(b) ELECTION") of the Code with the Internal Revenue
Service within 30 days after the date of purchase. Even if the fair market value
of the Common Stock at the time of the execution of this Agreement equals the
amount paid for the Common Stock, the election must be made to avoid income and
alternative minimum tax
<PAGE> 5
treatment under Section 83(a) in the future. Purchaser understands that failure
to file such an election in a timely manner may result in adverse tax
consequences for Purchaser. Purchaser further understands that an additional
copy of such election form should be filed with his federal income tax return
for the calendar year in which the date of this Agreement falls.
(b) Purchaser acknowledges that the foregoing is only a
summary of the effect of United States federal income taxation with respect to
purchase of the Common Stock under this Agreement, and does not purport to be
complete. Purchaser further acknowledges that the Company has directed Purchaser
to seek independent advice regarding the applicable provisions of the Code, the
income tax laws of any municipality, state, or foreign country in which
Purchaser may reside, and the tax consequences of Purchaser's death.
(c) Purchaser agrees that he will execute and deliver to the
Company with this executed Agreement a copy of the Acknowledgment and Statement
of Decision Regarding Section 83(b) Election (the "ACKNOWLEDGMENT") attached to
this Agreement as EXHIBIT A. Purchaser further agrees that he will execute and
submit with the Acknowledgment a copy of the 83(b) Election attached to this
Agreement as EXHIBIT B if Purchaser has indicated in the Acknowledgment his
decision to make such an election.
SECTION 4
CONDITIONS TO OBLIGATIONS OF THE PURCHASER
Purchaser's obligations 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 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).
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 in SECTION 3 of this Agreement shall be true
and correct in all material
<PAGE> 6
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 No Order Pending. There shall not then be in effect any order
enjoining or restraining the transactions contemplated by this Agreement.
5.3 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 Purchaser 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 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 supersede all prior agreements and understandings among the
parties relating to the subject matter of this Agreement. Neither this Agreement
nor any of its terms may be amended, waived, 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. Neither Purchaser nor the Company has engaged,
consented to or authorized any broker, finder or intermediary to act on his or
its behalf, directly or indirectly, as a broker, finder or intermediary in
connection with the transactions contemplated by this Agreement. Each of the
Company and the Purchaser agree to indemnify and hold harmless the
<PAGE> 7
other party from and against all fees, commissions or other payments owing to
any party acting on his or its behalf.
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 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.
6.9 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:
By: /s/ T. Wiggans 3400 West Bayshore Road
------------------------------------- Palo Alto, California 94303
Thomas G. Wiggans Facsimile: (650) 843-2899
President and Chief Executive Officer
"PURCHASER"
/s/ G. Kirk Raab
-------------------------------------
G. Kirk Raab 314 Wyndham Drive
Portola Valley, CA 94028
<PAGE> 1
EXHIBIT 10.6
CONNETICS CORPORATION
RESTRICTED COMMON STOCK PURCHASE AGREEMENT
MARCH 9, 1999
This Common Stock Purchase Agreement (the "Agreement") is entered into as
of this 9th day of March, 1999, between Connetics Corporation, a Delaware
corporation (the "Company") and Thomas G. Wiggans, an individual ("Purchaser").
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
Purchaser, and Purchaser will purchase from the Company, an aggregate of 25,000
shares of Common Stock, par value $0.001 per share, of the Company (the "Common
Stock"), for an aggregate purchase price of $2,500.
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 March 30, 1999 or at such
other time and place upon which the Company and Purchaser shall mutually agree
(the date of the Closing is referred to as the "Closing Date").
1.3 Delivery. At the Closing, the Company will deliver to Purchaser a
certificate or certificates representing the shares of Common Stock purchased by
Purchaser, against payment of the purchase price therefor, by wire transfer or
check drawn on a United States bank.
1.4 Legend. The certificate(s) 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 SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
(C) FULL COMPLIANCE WITH THE PROVISIONS OF RULE 144 UNDER THE ACT."
<PAGE> 2
1.5 Removal of Legends. Any legend endorsed on a certificate pursuant to
SECTION 1.4 of this Agreement 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 Purchaser 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.
2.2 Authorization. The Company has all corporate right, power and
authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. All corporate action on the part of the Company,
its directors and stockholders necessary for the authorization, execution,
delivery and performance of this Agreement by the Company, and the
authorization, sale, issuance and delivery of the Common Stock and the
performance of the Company's obligations under this Agreement has been taken.
This Agreement has been duly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company enforceable in
accordance with its 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. 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. Based in part upon the
representations of the Purchaser 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 No Conflict. The execution and delivery of this Agreement does not,
and the sale of the Common Stock 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 agreement or
instrument, permit, license, judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to the
<PAGE> 3
Company, its properties or assets, if to do so would have a material adverse
effect on the business, properties, prospects or financial condition of the
Company.
2.5 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
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).
2.6 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 consummation of any other transaction
contemplated by this Agreement, 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.
2.7 Registration Rights. The Company has not granted or agreed to grant
any rights to register its securities under the Securities Act, including
piggy-back rights, to Purchaser.
2.8 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 PURCHASER
Purchaser hereby represents and warrants to the Company as follows:
3.1 Investment. Purchaser is acquiring the Common Stock for investment
for his 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 from the
<PAGE> 4
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
Purchaser's investment intent and the accuracy of such Purchaser's
representations as expressed in this Agreement. Purchaser acknowledges and
understands that the securities must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. Purchaser further acknowledges and understands that
the Company is under no obligation to register the securities. Purchaser
understands that the certificate(s) evidencing the securities will be imprinted
with a legend that prohibits the transfer of the securities unless they are
registered or such registration is not required in the opinion of counsel for
the Company.
3.2 Accredited Investor. Purchaser is an "accredited investor" as
defined by Rule 501(a) under the Securities Act. The SEC Documents have been
made available to Purchaser, and Purchaser has received all the information it
has requested regarding the Company. Purchaser has such business and financial
experience as is required to give him the capacity to protect his own interests
in connection with the purchase of the Common Stock.
3.3 Authority. This Agreement has been duly executed and delivered by
Purchaser and constitutes a legal, valid and binding obligation of the
Purchaser, enforceable in accordance with its 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. The execution and
delivery of this Agreement does not, and the consummation of the transactions
contemplated by this Agreement 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 Purchaser.
3.4 Investigation. Purchaser has had a reasonable opportunity to discuss
the Company's business, management and financial affairs with the Company's
management, and has acquired sufficient information about the Company to reach
an informed and knowledgeable decision to acquire the securities.
3.5 Tax Consequences. Purchaser understands that he may suffer adverse
tax consequences as a result of the purchase or disposition of the Common Stock.
Purchaser represents that he has consulted any tax consultants he deems
advisable in connection with the purchase or disposition of the Common Stock and
that Purchaser is not relying on the Company for any tax advice.
3.6 Section 83(b) Election.
(a) Purchaser understands that Section 83(a) of the Internal Revenue
Code of 1986, as amended (the "CODE"), taxes as ordinary income the difference
between the amount paid for the Common Stock and the fair market value of the
Common Stock. Purchaser understands that Purchaser may elect to be taxed at the
time the Common Stock is purchased by filing an election under Section 83(b) (an
"83(b) ELECTION") of the Code with the Internal Revenue Service within 30 days
after the date of purchase. Even if the fair market value of the Common Stock at
the time of the execution of this Agreement equals the amount paid for the
Common Stock, the election must be made to avoid income and alternative minimum
tax
<PAGE> 5
treatment under Section 83(a) in the future. Purchaser understands that failure
to file such an election in a timely manner may result in adverse tax
consequences for Purchaser. Purchaser further understands that an additional
copy of such election form should be filed with his federal income tax return
for the calendar year in which the date of this Agreement falls.
(b) Purchaser acknowledges that the foregoing is only a summary
of the effect of United States federal income taxation with respect to purchase
of the Common Stock under this Agreement, and does not purport to be complete.
Purchaser further acknowledges that the Company has directed Purchaser to seek
independent advice regarding the applicable provisions of the Code, the income
tax laws of any municipality, state, or foreign country in which Purchaser may
reside, and the tax consequences of Purchaser's death.
(c) Purchaser agrees that he will execute and deliver to the
Company with this executed Agreement a copy of the Acknowledgment and Statement
of Decision Regarding Section 83(b) Election (the "ACKNOWLEDGMENT") attached to
this Agreement as EXHIBIT A. Purchaser further agrees that he will execute and
submit with the Acknowledgment a copy of the 83(b) Election attached to this
Agreement as EXHIBIT B if Purchaser has indicated in the Acknowledgment his
decision to make such an election.
SECTION 4
CONDITIONS TO OBLIGATIONS OF THE PURCHASER
Purchaser's obligations 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 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).
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 in SECTION 3 of this Agreement shall be true
and correct in all material
<PAGE> 6
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 No Order Pending. There shall not then be in effect any order
enjoining or restraining the transactions contemplated by this Agreement.
5.3 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 Purchaser 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 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 supersede all prior agreements and understandings among the
parties relating to the subject matter of this Agreement. Neither this Agreement
nor any of its terms may be amended, waived, 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. Neither Purchaser nor the Company has engaged, consented to
or authorized any broker, finder or intermediary to act on his or its behalf,
directly or indirectly, as a broker, finder or intermediary in connection with
the transactions contemplated by this Agreement. Each of the Company and the
Purchaser agree to indemnify and hold harmless the
<PAGE> 7
other party from and against all fees, commissions or other payments owing to
any party acting on his or its behalf.
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 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.
6.9 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:
By: /s/ John L. Higgins 3400 West Bayshore Road
------------------------------------------ Palo Alto, California 94303
John L. Higgins Facsimile: (650) 843-2899
Vice President, Finance and Administration
and Chief Financial Officer
"PURCHASER"
/s/ T. Wiggans
------------------------------------------
Thomas G. Wiggans 1 Patricia Drive
Atherton, California 94027
<PAGE> 1
EXHIBIT 10.7
INTERMUNE PHARMACEUTICALS, INC.
----------------------------
COLLABORATION AGREEMENT
----------------------------
APRIL 27, 1999
<PAGE> 2
INTERMUNE PHARMACEUTICALS, INC.
COLLABORATION AGREEMENT
THIS COLLABORATION AGREEMENT is made effective as of the 27th day of
April, 1999 (the "Effective Date") by and between INTERMUNE PHARMACEUTICALS,
INC., a California corporation (the "Company"), and CONNETICS CORPORATION, a
Delaware corporation ("Connetics"). Each of the Company and Connetics may be
referred to herein as a "Party" or together as the "Parties."
RECITALS
WHEREAS, as of even date herewith, the Company and Connetics have
amended and restated that certain Exclusive Sublicense Agreement, dated August
21, 1998, pursuant to which, among other things, InterMune shall make certain
milestone and royalty payments to Connetics; and
WHEREAS, as of even date herewith, the Company and Connetics have
entered into a Transition Agreement pursuant to which, among other things,
Connetics shall book net revenues, expenses, and net profits of Actimmune Units
for the treatment of Chronic Granulomatous Disease from January 15, 1999 through
December 31, 2001; and
WHEREAS, as of April 7, 1999 herewith, the Company and Connetics have
amended and restated that certain Service Agreement, dated October 12, 1998 (the
"Service Agreement"), pursuant to which, among other things, Connetics provides
to the Company certain information services, payroll, facilities, human
resources, accounting, employee benefits administration, and R&D related
services; and
WHEREAS, pursuant to the terms of that certain term sheet between the
Company and certain of the Series A-1 and A-2 Preferred Stock investors, the
Board of Directors of the Company intends to declare and pay a dividend (the
"Dividend") of four million seven hundred twenty one thousand eight hundred
seventy six dollars and seventy two cents ($4,721,876.72) to Connetics as the
sole holder of shares of Series A Preferred Stock, following the closing of the
Series A-1 and A-2 Preferred Stock financing; and
WHEREAS, Connetics has delivered concurrently herewith a notice of
conversion, pursuant to which, in accordance with the Company's Amended and
Restated Articles of Incorporation, all of Connetics' 11,200,000 shares of
Series A Preferred shall be converted into 960,000 shares of Series A-1
Preferred Stock once the Dividend has been paid to Connetics.
NOW, THEREFORE, in consideration of the foregoing recitals and mutual
promises hereinafter set forth, the parties hereby agree as follows:
1.
<PAGE> 3
1. CASH PAYMENTS.
1.1 COLLABORATION AGREEMENT CASH PAYMENT. On the Effective Date, the
Company shall pay to Connetics five hundred thousand dollars ($500,000) by wire
transfer.
1.2 TRANSITION AGREEMENT CASH PAYMENT. On the Effective Date, the
Company shall pay to Connetics one hundred fifty three thousand six hundred
fifty five dollars ($153,655) by wire transfer as payment representing the
Actimmune Gross Margin for the period from January 15, 1999 to the Effective
Date, pursuant to Section 2.3(c) of the Transition Agreement.
1.3 AMENDED AND RESTATED SERVICE AGREEMENT CASH PAYMENT. On the
Effective Date, the Company shall pay to Connetics two hundred two thousand nine
hundred eighty nine dollars ($202,989) by wire transfer as payment for services
provided from January 1, 1999, through March 31, 1999 under the Service
Agreement.
1.4 REIMBURSEMENT FOR PREPAID EXPENSES. On the Effective Date, the
Company shall pay to Connetics fifty one thousand eight hundred thirty dollars
($51,830) by wire transfer as payment for the prepaid expenses provided from
January 1, 1999, through March 31, 1999.
2. CONVERSION OF SERIES A PREFERRED INTO SERIES A-1 PREFERRED.
2.1 CONVERSION NOTICE. Connetics shall deliver, concurrent with the
execution of this Agreement, a notice of conversion of all of Connetics'
11,200,000 shares of Series A Preferred Stock into an aggregate of 960,000
shares of Series A-1 Preferred Stock. Such notice shall be in the form attached
hereto as EXHIBIT A (the "Conversion Notice").
2.2 CONVERSION. Promptly following payment of the dividend declared by
the Board of Directors of the Company to Connetics, Connetics shall deliver to
the Company its Series A Preferred Stock certificate. The Company shall then
convert the Series A Preferred Stock into Series A-1 Preferred Stock in
accordance with Article III.E.1 of the Company's Amended and Restated Articles
of Incorporation.
3. COMMITMENT TO PAY CASH OR ISSUE PROMISSORY NOTE.
3.1 COMMITMENT. On March 31, 2001, the Company shall, in its sole
discretion, either pay to Connetics (i) five hundred thousand dollars
($500,000.00) by check or by wire transfer or (ii) two hundred thousand dollars
($200,000) by check or by wire transfer and deliver a promissory note in the
form attached hereto as EXHIBIT B (the "Note").
3.2 PROMISSORY NOTE. The Note will be due and payable in two principal
payments of $150,000 each with the first payment on or before June 30, 2001, and
the second payment on or before September 30, 2001.
2.
<PAGE> 4
3.3 MILESTONE PAYMENT. The Company shall pay to Connetics a milestone
payment of one million five hundred thousand dollars ($1,500,000) in the form
and at the times set forth in Section 5.2 of the Amended and Restated Exclusive
Sublicense Agreement.
4. ISSUANCE OF SERIES B PREFERRED.
4.1 SERIES B PREFERRED. Effective upon the closing of the Company's
Series B Preferred Stock Financing (the "Series B Financing"), the Company shall
issue to Connetics shares of Series B Preferred Stock (the "Series B Preferred")
in an amount equal to the quotient of five hundred thousand dollars ($500,000)
divided by the price per share of Series B Preferred paid by the purchasers of
the Series B Preferred. The Company shall use its best efforts to assure that
the terms, conditions, rights, preferences and privileges of the Series B
Preferred issued to Connetics by the Company in the Series B Financing shall be
the same as those of the Series B Preferred issued to the other purchasers,
provided however, that such efforts shall not require the Company to accept a
lower price per share or make other material concessions to the other purchasers
of the Series B Preferred. Notwithstanding the foregoing, in the event of either
a Company Sale (as defined below) or a firm underwritten public offering of the
Company's Common Stock either of which occurs prior to a Series B Financing, the
Company shall, in its sole discretion, either (i) deliver to Connetics five
hundred thousand dollars ($500,000) by check or wire transfer or (ii) issue to
Connetics four hundred thousand (400,000) shares of Series A-2 Preferred Stock
concurrently with the closing of such Company Sale or public offering.
4.2 COMPANY SALE. For the purposes of this Agreement, a "Company Sale"
shall mean (a) any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with another
corporation after which fifty percent (50%) or more of the voting securities of
the surviving corporation is held by persons who were not stockholders of the
Company immediately prior to such reorganization, reclassification,
consolidation, or (b) the sale of all or substantially all of the Company's
assets or of any successor corporation's property and assets to any other
corporation or corporations, including, without limitation, a sale, assignment,
transfer or termination in any manner in whole or in part of the License
Agreement(s) between the Company and Connetics, Genentech and U.C. Davis and/or
patent rights described in the License Agreement.
5. ISSUANCE OF SERIES C PREFERRED
5.1 SERIES C PREFERRED. In addition to and not in lieu of Section 4.1,
effective upon the closing of the Company's Series C Preferred Stock Financing
(the "Series C Financing"), the Company shall issue shares to Connetics of
Series C Preferred Stock (the "Series C Preferred") in an amount equal to the
quotient of one million dollars ($1,000,000) divided by the price per share of
Series C Preferred paid by the purchasers of the Series C Preferred. The Company
shall use its best efforts to assure that the terms, conditions, rights,
preferences and privileges of the Series C Preferred issued to Connetics by the
Company in the Series C Financing shall be same as those of the Series C
Preferred issued to the other purchasers, provided however, that such efforts
shall not require the Company to accept a lower price per share or make other
material concessions to the other purchasers of the Series C Preferred.
Notwithstanding the foregoing, in
3.
<PAGE> 5
the event of either a Company Sale or a firm underwritten public offering of the
Company's Common Stock either of which occurs prior to the Series B Financing or
Series C Financing (if the Series B Financing has occurred), the Company shall,
in its sole discretion, either (i) deliver to Connetics one million dollars
($1,000,000) or (ii) issue to Connetics either eight hundred thousand (800,000)
shares of Series A-2 Preferred Stock (if the Series B Financing has not
occurred) or that number of shares of Series B Preferred in an amount equal to
one million dollars ($1,000,000) divided by the price paid per share for the
Series B Preferred in the Series B Financing, concurrently with the closing of
such Company Sale or public offering .
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
The Company hereby represents and warrants to Connetics as follows:
6.1 CORPORATE POWER. The Company has all requisite corporate power to
execute and deliver this Agreement and to carry out and perform its obligations
under the terms of this Agreement.
6.2 AUTHORIZATION. All corporate action on the part of the Company and
its Board of Directors necessary for the authorization, execution, delivery and
performance of this Agreement by the Company and the performance of the
Company's obligations hereunder has been taken, except for the authorization and
reservation of the Series B Preferred and Series C Preferred. This Agreement and
the Note, when executed and delivered by the Company, shall constitute valid and
binding obligations of the Company enforceable in accordance with their terms,
subject to laws of general application relating to bankruptcy, insolvency, the
relief of debtors and, with respect to rights to indemnity, subject to federal
and state securities laws. The Series B Preferred and Series C Preferred of the
Company, when issued in compliance with the provisions of this Agreement, will
be validly issued, fully paid and nonassessable and free of any liens or
encumbrances, other than restrictions on transfer under the applicable state and
federal securities laws.
6.3 OFFERING. Assuming the accuracy of the representations and
warranties of Connetics contained in Section 5 hereof, the issuance of the Note
will be exempt from the registration and prospectus delivery requirements of the
Securities Act of 1933, as amended (the "1933 Act"), and has been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit, or qualification requirements of all applicable state
securities laws.
7. REPRESENTATIONS AND WARRANTIES OF CONNETICS
7.1 PURCHASE FOR OWN ACCOUNT. Connetics represents that it shall be
acquiring the Note, the Series B Preferred and Series C Preferred solely for its
own account and beneficial interest for investment and not for sale or with a
view to distribution of the Note, Series B Preferred and Series C Preferred or
any part thereof, has no present intention of selling (in connection with a
distribution or otherwise), granting any participation in, or otherwise
distributing the same, and does not presently have reason to anticipate a change
in such intention.
4.
<PAGE> 6
7.2 INFORMATION AND SOPHISTICATION. Connetics acknowledges that it has
received all the information it has requested from the Company and it considers
necessary or appropriate for deciding whether to acquire the Note, the Series B
Preferred, and Series C Preferred. Connetics represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Note, the Series B Preferred, and
the Series C Preferred, and to obtain any additional information necessary to
verify the accuracy of the information given Connetics. Connetics further
represents that it has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risk of this investment.
7.3 ABILITY TO BEAR ECONOMIC RISK. Connetics acknowledges that
investment in the Note, the Series B Preferred and Series C Preferred involves a
high degree of risk, and represents that it is able, without materially
impairing its financial condition, to hold the Note, the Series B Preferred and
the Series C Preferred for an indefinite period of time and to suffer a complete
loss of its investment.
7.4 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting the
representations set forth above, Connetics further agrees not to make any
disposition of all or any portion of the Note, the Series B Preferred and the
Series C Preferred unless and until:
(a) There is then in effect a registration statement under the
1933 Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) Connetics shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and if reasonably
requested by the Company, Connetics shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration under the 1933 Act or any applicable
state securities laws.
(c) Notwithstanding the provisions of paragraphs (a) and (b)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by Connetics to a shareholder or partner (or retired partner) of
such Connetics, or transfers by gift, will or intestate succession to any spouse
or lineal descendants or ancestors, if all transferees agree in writing to be
subject to the terms hereof to the same extent as if they were Connetics
hereunder.
7.5 EXPERIENCE. Connetics is an "accredited" investor as such term is
defined in Rule 501 under the Securities Act.
7.6 FURTHER ASSURANCES. Connetics agrees and covenants that at any time
and from time to time it will promptly execute and deliver to the Company such
further instruments and documents and take such further action as the Company
may reasonably require in order to carry out the full intent and purpose of this
Agreement.
5.
<PAGE> 7
7.7 INSURANCE. Connetics agrees and covenants that the Company shall be
covered as an insured party under Connetics' general liability and products
liability policy until May 31, 1999.
8. CONFIDENTIALITY.
8.1 CONFIDENTIAL INFORMATION OBLIGATIONS. As used herein, "Confidential
Information" means all information that a Party discloses to the other Party
under this Agreement, provided that "Confidential Information" shall not include
such information excluded under Section 8.2. Except to the extent expressly
authorized by this Agreement or otherwise agreed in writing by the Parties, each
Party agrees that, during the term of this Agreement and for five (5) years
after the expiration or termination of this Agreement, it shall keep
confidential and shall not publish or otherwise disclose and shall not use for
any purpose other than as provided for in this Agreement any Confidential
Information furnished to it by the other Party pursuant to this Agreement.
8.2 EXCEPTIONS. The obligations set forth in Section 8.1 shall not apply
to any Information that the receiving Party can demonstrate by competent
evidence:
(a) was already known to the receiving Party, other than under an
obligation of confidentiality, at the time of disclosure by the other Party;
(b) was generally available to the public or otherwise part of
the public domain at the time of its disclosure to the receiving Party by the
other Party;
(c) became generally available to the public or otherwise part of
the public domain after its disclosure and other than through any act or
omission of the receiving Party in breach of this Agreement;
(d) was disclosed to the receiving Party, other than under an
obligation of confidentiality to a third Party, by a third Party who had no
obligation to the disclosing Party not to disclose such information to others;
or
(e) is independently developed by the receiving Party without
using any of the other Party's Confidential Information.
8.3 PERMITTED DISCLOSURE. Notwithstanding the limitations in this
Section 8, each Party may disclose Confidential Information belonging to the
other Party (or otherwise subject to this Section 8), to the extent such
disclosure is reasonably necessary in the following instances, but solely for
the limited purpose of such necessity:
(a) regulatory and tax filings;
(b) prosecuting or defending litigation;
6.
<PAGE> 8
(c) complying with applicable governmental laws or regulations or
valid court orders; or
(d) disclosure to affiliates, employees, consultants or agents
who agree to be bound by similar terms of confidentiality and non-use at least
equivalent in scope to those set forth in this Section 8.
Notwithstanding the foregoing, in the event a Party is required to make
a disclosure of the other Party's Confidential Information pursuant to Section
8.3, it will give reasonable advance notice to the other Party of such
disclosure and endeavor in good faith to secure confidential treatment of such
information. In any event, the Parties agree to take all reasonable action to
avoid disclosure of Confidential Information hereunder. Further, the Parties
agree to consult with one another on the provisions of this Agreement to be
redacted in any filings made by a Party with the United States Securities and
Exchange Commission or as otherwise required by law.
9. MISCELLANEOUS
9.1 BINDING 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. Nothing in this Agreement, express or implied, is
intended to confer upon any third party any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
9.2 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California, as such laws are applied to
agreements among California residents, made and to be performed entirely within
the State of California.
9.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.4 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.
9.5 NOTICES. Any notice required or permitted under this Agreement shall
be given in writing and shall be deemed effectively given upon personal delivery
or upon two (2) days after deposit with the United States Post Office, postage
prepaid, addressed to the Company, or to Connetics at its address at 3400 West
Bayshore Road, Palo Alto, CA 94303, or at such other address as such Party may
designate by ten (10) days advance written notice to the other Party.
9.6 MODIFICATION; WAIVER. No modification or waiver of any provision of
this Agreement or consent to departure therefrom shall be effective unless in
writing and approved by the Company and Connetics.
7.
<PAGE> 9
9.7 INDEPENDENT COUNSEL. Connetics acknowledges that this Agreement has
been prepared on behalf of the Company by Cooley Godward LLP, counsel to the
Company, and that Cooley Godward LLP does not represent, and is not acting on
behalf of, Connetics. Connetics has been provided with an opportunity to consult
with its own counsel with respect to this Agreement.
9.8 ENTIRE AGREEMENT. This Agreement and the Exhibits hereto, the
Transition Agreement, the Amended and Restated Exclusive Sublicense Agreement,
and the Amended and Restated Service Agreement (collectively, the "Intercompany
Agreements") constitute the full and entire understanding and agreement between
the parties with regard to the subjects of the Intercompany Agreements and no
Party shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as specifically set
forth in the Intercompany Agreements.
8.
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this COLLABORATION
AGREEMENT as of the date first written above.
INTERMUNE PHARMACEUTICALS, INC.
By: /s/ Scott Harkonen
--------------------------------
Print Name: Scott Harkonen
---------------------------
Title: Chief Executive Officer
--------------------------------
CONNETICS CORPORATION
By: /s/ T. G. Wiggans
--------------------------------
Print Name: Thomas G. Wiggans
Title: President and Chief
Executive Officer
--------------------------------
COLLABORATION AGREEMENT
SIGNATURE PAGE
<PAGE> 11
EXHIBIT A
FORM OF CONVERSION NOTICE
<PAGE> 12
FORM OF CONVERSION NOTICE
April ___, 1999
InterMune Pharmaceuticals, Inc.
3294 West Bayshore Road
Palo Alto, CA 94303
RE: CONVERSION OF SERIES A PREFERRED STOCK INTO SERIES A-1 PREFERRED
STOCK
In accordance with Article III.E.1 of the Amended and Restated Articles
of Incorporation of InterMune Pharmaceuticals, Inc. (the "Company"), Connetics
Corporation hereby gives irrevocable notice of its election to convert its
shares of Series A Preferred Stock into shares of Series A-1 Preferred Stock.
Enclosed please find a copy of the Series A Preferred Stock certificate
PA-1 evidencing ownership by Connetics Corporation of 11,200,000 shares of
Series A Preferred Stock of the Company (the "Stock Certificate"), which Stock
Certificate shall be delivered to the Company upon payment of the dividend
referenced in the recitals of the Collaboration Agreement. Upon the closing of
the Series A-1 and A-2 Preferred Stock financing and receipt of the original
Stock Certificate, please deliver the certificate for 960,000 shares of Series
A-1 Preferred Stock to Connetics Corporation at the address shown on the
Company's record books.
Sincerely,
Connetics Corporation
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
<PAGE> 13
EXHIBIT B
FORM OF PROMISSORY NOTE
<PAGE> 14
PROMISSORY NOTE
$300,000.00 March 31, 2001
Palo Alto, California
For value received INTERMUNE PHARMACEUTICALS, INC., a California
corporation ("Payor") promises to pay to Connetics Corporation or its assigns
("HOLDER") the principal sum of $300,000.00 with interest on the outstanding
principal amount at the prime rate plus two percent (2%) per annum. Interest
shall commence with the date hereof and shall continue on the outstanding
principal until paid in full.
1. This note (the "Note") is issued to the Holder pursuant to the terms
of that certain Agreement dated as of April ___, 1999 between the Company and
the Holders.
2. All payments of interest and principal shall be in lawful money of
the United States of America. All payments shall be applied first to accrued
interest, and thereafter to principal.
3. $150,000 of the outstanding principal balance and all unpaid accrued
interest shall become fully due and payable on June 30, 2001, and $150,000 of
the outstanding principal balance and all unpaid accrued interest shall become
due and payable on September 30, 2001.
4. In the event of any default hereunder, Payor shall pay all reasonable
attorneys' fees and court costs incurred by Holder in enforcing and collecting
this Note.
5. Payor hereby waives demand, notice, presentment, protest and notice
of dishonor.
6. The terms of this Note shall be construed in accordance with the laws
of the State of California, as applied to contracts entered into by California
residents within the State of California, which contracts are to be performed
entirely within the State of California.
7. Any term of this Note may be amended or waived with the written
consent of Payor and the Holder.
INTERMUNE PHARMACEUTICALS, INC.
By:
---------------------------------
Print Name:
---------------------------------
Title:
---------------------------------
<PAGE> 1
EXHIBIT 10.8
INTERMUNE PHARMACEUTICALS, INC.
SERIES A-1 AND A-2 PREFERRED STOCK PURCHASE AGREEMENT
<PAGE> 2
INTERMUNE PHARMACEUTICALS, INC.
SERIES A-1 AND A-2 PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES A-1 AND A-2 PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is entered into as of April 27, 1999, by and among INTERMUNE
PHARMACEUTICALS, INC. a California corporation (the "Company"), and each of
those persons and entities, severally and not jointly, whose names are set forth
on the Schedule of Purchasers attached hereto as Exhibit A (which persons and
entities are hereinafter collectively referred to as "Purchasers" and each
individually as a "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of Preferred
Stock (the "Shares") in the amount of one million eight hundred thirty-five
thousand (1,835,000) Shares of Series A-1 Preferred Stock ("Series A-1
Preferred") and five million six hundred thousand (5,600,000) Shares of Series
A-2 Preferred Stock ("Series A-2 Preferred");
WHEREAS, Purchasers desire to purchase the Shares on the terms and
conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Shares to Purchasers
on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE.
1.1 AUTHORIZATION OF SHARES. On or prior to the Closing (as
defined in Section 2 below), the Company shall have authorized (i) the sale and
issuance to Purchasers of the Shares and (ii) the issuance of such shares of
Common Stock to be issued upon conversion of the Shares (the "Conversion
Shares"). The Shares and the Conversion Shares shall have the rights,
preferences, privileges and restrictions set forth in the Amended and Restated
Articles of Incorporation of the Company, as amended, in the form attached
hereto as Exhibit B (the "Restated Articles").
1.2 SALE OF SERIES A PREFERRED STOCK. Subject to the terms and
conditions hereof, at the Closing (as defined below) the Company hereby agrees
to issue and sell to Purchaser, and Purchaser agrees to purchase from the
Company, the number of Shares set forth opposite Purchaser's name on Exhibit A.
Consideration for the purchase of Series A-1 shares is more particularly
described in Exhibit A. The Purchasers of Series A-2 shares shall pay a purchase
price of One Dollar Twenty-Five Cents ($1.25) per share. Subject to the terms
and conditions hereof, at a Subsequent Closing (as defined below) the Company
will sell an additional eight hundred thousand (800,000) shares of Series A-2
Preferred Stock to third party Purchasers at a price of One Dollar Twenty-Five
Cents ($1.25) per share. The Series A-1
<PAGE> 3
Preferred and Series A-2 Preferred may be referred to herein collectively as the
"Series A Preferred."
2. CLOSING, DELIVERY AND PAYMENT.
2.1 CLOSING. The first closing of the sale and purchase of the
Shares under this Agreement (the "Closing") shall take place at 5:00 p.m. on the
date hereof, at the offices of at the offices of Cooley Godward LLP, Five Palo
Alto Square, 3000 El Camino Real, Palo Alto, California 94306 or at such other
time or place as the Company and Purchaser may mutually agree (such date is
hereinafter referred to as the "Closing Date"). The subsequent closing shall
occur within one hundred twenty (120) days following the Closing Date
("Subsequent Closing"). The purchase and sale of additional Shares of Series A-2
Preferred at any Subsequent Closing shall be pursuant to an agreement identical
to this one, except for date and exhibits, and any such purchase and sale of
Series A-2 Preferred for the purposes of this Agreement shall be deemed to be a
purchase and sale at the Closing, as of the Closing Date.
2.2 DELIVERY. At the Closing and the Subsequent Closing, subject
to the terms and conditions hereof, the Company will deliver to the Purchaser
certificates representing the number of Shares to be purchased at the Closing
and Subsequent Closing by Purchaser, against payment of the purchase price
therefor by check, wire transfer made payable to the order of the Company, such
consideration as the Board of Directors shall determine, or any combination of
the foregoing.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth in the Schedule of Exceptions attached hereto as
Exhibit G, the Company hereby represents and warrants to each Purchaser as
follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is
a corporation duly incorporated, validly existing and in good standing under the
laws of the State of California. The Company has all requisite corporate power
and authority to own and operate its properties and assets, to execute and
deliver this Agreement and the First Refusal and Co-Sale Agreement in the form
attached hereto as Exhibit C (the "Co-Sale Agreement") and the Investor Rights
Agreement in the form attached hereto as Exhibit D (the "Investor Rights
Agreement" and together with the Co-Sale Agreement and this Agreement, the
"Financing Agreements"), to issue and sell the Shares and the Conversion Shares
and to carry out the provisions of the Financing Agreements and the Restated
Articles and to carry on its business as presently conducted and as presently
proposed to be conducted. The Company is duly qualified and is authorized to do
business and is in good standing as a foreign corporation in all jurisdictions
in which the nature of its activities and of its properties (both owned and
leased) makes such qualification necessary, except for those jurisdictions in
which failure to do so would not have a Material Adverse Effect (as hereinafter
defined) on the Company or its business. The Company owns no equity securities
of any other corporation, limited partnership or similar entity. The Company is
not a participant in any joint venture, partnership or similar arrangement.
"Material Adverse Effect" means any adverse effect on the assets, liabilities,
business, operations, properties or financial condition of the Company taken as
a whole.
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3.2 CAPITALIZATION; VOTING RIGHTS. The authorized capital stock
of the Company, immediately prior to the Closing, will consist of fifteen
million (15,000,000) shares of Common Stock, none of which is issued and
outstanding, and eleven million two hundred thousand (11,200,000) shares of
Series A Preferred Stock, eleven million two hundred thousand (11,200,0000) of
which are issued and outstanding, one million eight hundred thirty-five thousand
(1,835,000) shares of Series A-1 Preferred Stock, none of which is issued and
outstanding, five million six hundred thousand (5,600,000) shares of Series A-2
Preferred Stock, none of which is issued and outstanding, five million six
hundred thousand (5,600,000) shares of Series A-3 Preferred Stock, none of which
is issued and outstanding and one million eight hundred thirty-five thousand
(1,835,000) shares of Series A-4 Preferred Stock, none of which is issued and
outstanding. The rights, preferences, privileges and restrictions of the Shares
are as stated in the Restated Articles. Other than as set forth in the Schedule
of Exceptions, and except as may be granted pursuant to the Financing
Agreements, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
shareholder agreements, commitments or agreements of any kind for the purchase
or acquisition from the Company of any of its securities.
(a) All issued and outstanding shares of the Company's
Common Stock (i) have been duly authorized and validly issued, (ii) are fully
paid and nonassessable, and (iii) were issued in compliance with all applicable
state and Federal laws concerning the issuance of securities. The rights,
preferences, privileges and restrictions of the Shares are as stated in the
Restated Articles. Each series of Preferred Stock is convertible into Conversion
Shares on a one-for-one basis, subject to adjustment as provided in the Restated
Articles. The Conversion Shares have been duly and validly reserved for
issuance. Except as hereinabove described, the Company has no shares of capital
stock reserved for issuance.
(b) When issued in compliance with the provisions of this
Agreement and the Restated Articles, the Shares and the Conversion Shares will
be validly issued, fully paid and nonassessable and will have been issued in
compliance with all applicable state and Federal laws concerning the issuance of
securities, and will be free of any liens or encumbrances; provided, however,
that the Shares and the Conversion Shares may be subject to restrictions on
transfer under state and/or Federal securities laws as set forth herein or in
the Financing Agreements or as otherwise required by such laws at the time a
transfer is proposed.
(c) The Company does not have outstanding any bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or are convertible into or exercisable for securities having the right to
vote) with the stockholders of the Company on any matter.
3.3 AUTHORIZATION; BINDING OBLIGATIONS. The Company has all
requisite corporate power and authority to execute, deliver and perform its
obligations under the Financing Agreements. All corporate action on the part of
the Company, its officers, directors and shareholders necessary for the
authorization of the Financing Agreements, the performance of all obligations of
the Company hereunder and thereunder at the Closing and the authorization, sale,
issuance and delivery of the Shares pursuant hereto and the Conversion Shares
pursuant to the Restated Articles has been taken or will be taken prior to the
Closing. The Financing Agreements, when executed and delivered, will be valid
and binding obligations of the Company
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<PAGE> 5
enforceable against the Company in accordance with their terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors' rights;
(ii) general principles of equity that restrict the availability of equitable
remedies; and (iii) to the extent that the enforceability of the indemnification
provisions in Section 2.9 of the Investor Rights Agreement may be limited by
applicable laws. The sale of the Shares and the subsequent conversion of the
Shares into Conversion Shares are not and will not be subject to any rights of
conversion, preemptive rights or rights of first refusal that have not been
properly waived or complied with.
3.4 FINANCIAL STATEMENTS. The Company has delivered to each
Purchaser (i) its unaudited balance sheet as at December 31, 1998 and unaudited
statement of income and cash flows for the twelve months ending December 31,
1998, and (ii) its unaudited balance sheet as at February 28, 1999 (the
"Statement Date") and unaudited consolidated statement of income and cash flows
for the two month period ending on the Statement Date (collectively, the
"Financial Statements"). The Financial Statements, together with the notes
thereto, are complete and correct in all material respects, have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated, except as disclosed therein,
and present fairly the financial condition and position of the Company as of
February 28, 1999 and the Statement Date; provided, however, that the unaudited
financial statements are subject to normal recurring year-end audit adjustments
(which are not expected to be material), and do not contain all footnotes
required under generally accepted accounting principles.
3.5 LIABILITIES. The Company has no material liabilities and, to
the best of its knowledge after making due inquiry, knows of no material
contingent liabilities not disclosed in the Financial Statements, except current
liabilities incurred in the ordinary course of business subsequent to the
Statement Date which will not have, either in any individual case or in the
aggregate, a Material Adverse Effect.
3.6 AGREEMENTS; ACTION.
(a) Other than as set forth on the Schedule of Exceptions
and except for the Financing Agreements and agreements between the Company and
its employees with respect to the sale of the Company's Common Stock, there are
no agreements, understandings or proposed transactions between the Company and
any of its officers, directors, affiliates or any affiliate thereof. For
purposes of this Agreement, Connetics Corporation ("Connetics") shall not be
considered an affiliate of the Company.
(b) Other than as set forth on the Schedule of Exceptions,
there are no agreements, understandings, instruments, contracts, proposed
transactions, judgments, orders, writs or decrees to which the Company is a
party or, to the best of its knowledge after making due inquiry, by which it is
bound which may involve (i) obligations (contingent or otherwise) of, or
payments to, the Company in excess of Twenty-Five Thousand Dollars ($25,000), or
(ii) the license of any patent, copyright, trade secret or other proprietary
right to or from the Company (other than licenses arising from the purchase of
"off the shelf" or other standard products), or (iii) provisions restricting or
affecting the development, manufacture or distribution of the Company's products
or services, or (iv) indemnification by the Company with respect to
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<PAGE> 6
infringements of proprietary rights (other than indemnification obligations
arising from purchase or sale agreements entered into in the ordinary course of
business).
(c) The Company has not (i) declared or paid any
dividends, or authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) incurred any indebtedness for money
borrowed or any other liabilities individually in excess of Twenty-Five Thousand
Dollars ($25,000) or, in the case of indebtedness and/or liabilities
individually less than Twenty-Five Thousand Dollars ($25,000), in excess of
Fifty Thousand Dollars ($50,000) in the aggregate, (iii) made any loans or
advances to any person, other than ordinary advances for travel expenses, or
(iv) sold, exchanged or otherwise disposed of any of its assets or rights.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
3.7 OBLIGATIONS TO RELATED PARTIES. There are no obligations of
the Company to officers, directors, shareholders, affiliates or employees of the
Company other than (a) for payment of salary for services rendered, (b)
reimbursement for reasonable expenses incurred on behalf of the Company and, (c)
for other standard employee benefits made generally available to all employees
(including stock option agreements outstanding under any stock option plan
approved by the Board of Directors of the Company). None of the officers,
directors or shareholders of the Company, or any members of their immediate
families, are indebted to the Company or have any direct or indirect ownership
interest in any firm or corporation with which the Company is affiliated or with
which the Company has a business relationship, or any firm or corporation which
competes with the Company, except that officers, directors and/or shareholders
of the Company may own stock in publicly traded companies which may compete with
the Company and except as contemplated by this Agreement and the Common Stock
Purchase Agreements between the Company and certain of the Purchasers. No
officer, director or shareholder of the Company, or any member of their
immediate families, has an interest, directly or indirectly, in any material
contract with the Company (other than such contracts as relate to any such
person's ownership of capital stock or other securities of the Company). Except
as may be disclosed in the Financial Statements, the Company is not a guarantor
or indemnitor of any indebtedness of any other person, firm or corporation.
3.8 CHANGES. Since the Statement Date, the Company has conducted
its business only in, and has not engaged in any material transaction other than
according to, the ordinary and usual course of its business and as contemplated
by this Agreement and the Common Stock Purchase Agreements and there has not
been to the Company's knowledge:
(a) Any change in the assets, liabilities, financial
condition or operations of the Company from that reflected in the Financial
Statements, other than changes in the ordinary course of business, none of which
individually or in the aggregate has had or is expected to have a Material
Adverse Effect;
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<PAGE> 7
(b) Any resignation or termination of any key officers of
the Company; and the Company, to the best of its knowledge after making due
inquiry, does not know of the impending resignation or termination of employment
of any such officer;
(c) Any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not
covered by insurance which has a Material Adverse Effect;
(e) Any waiver by the Company of a valuable right or of a
material debt owed to it;
(f) Any direct or indirect loans made by the Company to
any shareholder, employee, officer, affiliate or director of the Company, other
than advances made in the ordinary course of business;
(g) Any material change in any compensation arrangement or
agreement with any employee, officer, director or shareholder of the Company;
(h) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(i) Any labor organization activity;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(l) Any change in any material agreement to which the
Company is a party or by which it is bound which has a Material Adverse Effect,
including compensation agreements with the Company's employees; or
(m) Any other event or condition of any character that,
either individually or cumulatively, has a Material Adverse Effect.
3.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has
good and marketable title to its properties and assets, including the properties
and assets reflected in the most recent balance sheet included in the Financial
Statements, and good title to its leasehold estates, in each case subject to no
mortgage, pledge, lien, lease, encumbrance or charge, other than (i) those
resulting from taxes which have not yet become delinquent, (ii) minor liens and
encumbrances which do not materially detract from the value of the property
subject thereto or materially impair the operations of the Company, and (iii)
liens and encumbrances that have otherwise arisen in the ordinary course of
business. All facilities, machinery, equipment,
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<PAGE> 8
fixtures, vehicles and other properties owned, leased or used by the Company are
in good operating condition and repair and are reasonably fit and usable for the
purposes for which they are being used. The Company is in compliance with all
material terms of each lease to which it is a party or is otherwise bound.
3.10 PATENTS AND TRADEMARKS. The Company owns or possesses
sufficient legal rights to all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information and other proprietary rights and
processes necessary for its business as now conducted and as proposed to be
conducted, without any known infringement of the rights of others. The Company
is not aware of any reasonable basis for the denial of any pending patent
application (including divisions, continuations, continuations in part and
renewal applications) relating to any patents filed by the Company and does not
believe that anything contained in such patent applications is reasonably likely
to effect adversely any extension, modification or renewal of existing patents
or patent applications relating to the Company's intellectual property. There
are no outstanding options, licenses or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes of any other person or entity other than such
licenses or agreements arising from the purchase of "off the shelf" or standard
products. 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, trade names, copyrights or trade
secrets or other proprietary rights of any other person or entity. The Company
is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with their duties to the Company or that would
conflict with the Company's business as proposed to be conducted. Neither the
execution nor delivery of the Financing Agreements, nor the carrying on of the
Company's business by the employees of the Company, nor the conduct of the
Company's business as proposed, will, to the Company's knowledge, conflict with
or result in a material breach of the terms, conditions or provisions of, or
constitute a material default under, any contract, covenant or instrument under
which any employee is now obligated. The Company does not believe it is or will
be necessary to utilize any inventions, trade secrets or proprietary information
of any of its employees made prior to their employment by the Company, except
for inventions, trade secrets or proprietary information that have been assigned
to the Company.
3.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any term of its Restated Articles or Bylaws, or of any
provision of any mortgage, indenture, contract, agreement, instrument or
contract to which it is party or by which it is bound or of any judgment,
decree, order, writ or, to its knowledge after making due inquiry, any statute,
rule or regulation applicable to the Company which would have a Material Adverse
Effect. The execution, delivery, and performance of and compliance with the
Financing Agreements, and the issuance and sale of the Shares pursuant hereto
and of the Conversion Shares pursuant to the Restated Articles, will not, with
or without the passage of time or giving of notice, result in any such material
violation, or be in material conflict with or constitute a material default
under any such term, or result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company or the
suspension, revocation, impairment,
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forfeiture or nonrenewal of any permit license, authorization or approval
applicable to the Company, its business or operations or any of its assets or
properties.
3.12 LITIGATION. There is no action, suit, proceeding or
investigation pending or to the Company's knowledge currently threatened against
the Company that questions the validity of the Financing Agreements or the right
of the Company to enter into any of such agreements, or to consummate the
transactions contemplated hereby or thereby, or which might result, either
individually or in the aggregate, in any material adverse change in the assets,
condition, affairs or prospects of the Company, financially or otherwise, or any
change in the current equity ownership of the Company, nor is the Company aware
that there is any basis for the foregoing. The foregoing includes, without
limitation, actions pending or threatened (or any basis therefor known to the
Company) involving the prior employment of any of the Company's employees, their
use in connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. The Company is not a party or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company intends to initiate.
3.13 TAX RETURNS AND PAYMENTS. The Company has timely filed all
tax returns (Federal, state and local) required to be filed by it. All taxes
shown to be due and payable on such returns, any assessments imposed, and, to
the Company's knowledge, all other taxes due and payable by the Company on or
before the Closing have been paid or will be paid prior to the time they become
delinquent. The Company has no knowledge of any liability of any tax to be
imposed upon its properties or assets as of the date of this Agreement that is
not adequately provided for. As of the date hereof, there are not pending or, to
the knowledge of the Company, threatened in writing, any audits, examinations,
investigations or other proceedings against the Company in respect to taxes or
tax matters. There are not any unresolved questions or claims concerning the
Company's tax liability that may have a Material Adverse Effect. The provision
for taxes of the Company as shown in the Balance Sheet as at December 31, 1998
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 (the "Code")
to be treated as a Subchapter S corporation or a collapsible corporation
pursuant to Section 341(f) and Section 1362(a) of the Code, nor has it made any
other elections pursuant to the Code (other than elections which relate solely
to methods of accounting, depreciation or amortization) which would have a
Material Adverse Effect.
3.14 EMPLOYEES. The Company has no collective bargaining
agreements with any of its employees. There is no labor union organizing
activity pending or, to the Company's knowledge, threatened with respect to the
Company. The Company is not a party to or bound by any currently effective
employment contract, deferred compensation or severance arrangement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or other employee
compensation plan or agreement. To the Company's knowledge, no employee of the
Company, nor any consultant with whom the Company has contracted, is in
violation of any term of any employment contract, proprietary information
agreement or any other agreement relating to the right of any such individual to
be employed by, or to contract with, the Company because of the nature of the
business to be conducted by the Company; and to the Company's knowledge the
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continued employment by the Company of its present employees, and the
performance of the Company's contracts with its independent contractors, will
not result in any such violation. The Company has not received any notice
alleging that any such violation has occurred. No employee of the Company has
been granted the right to continued employment by the Company or to any material
compensation following termination of employment with the Company. The Company
is not aware that any officer or key employee, or that any group of key
employees, intends to terminate their employment with the Company, nor does the
Company have a present intention to terminate the employment of any officer, key
employee or group of key employees.
3.15 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each
former and current employee, officer and consultant of the Company has executed
a Proprietary Information and Inventions Agreement. No current employee, officer
or consultant of the Company has excluded works or inventions made prior to his
or her employment with the Company from his or her assignment of inventions
pursuant to such employee, officer or consultant's Proprietary Information and
Inventions Agreement.
3.16 OBLIGATIONS OF MANAGEMENT. Each officer of the Company is
currently devoting one hundred percent (100%) of his business time to the
conduct of the business of the Company. The Company is not aware of any officer
or key employee of the Company planning to work less than full time at the
Company in the future.
3.17 REGISTRATION RIGHTS. Except as required pursuant to the
Financing Agreements, the Company is presently not under any obligation, and has
not granted any rights, to register (as defined in Section 1.1 of the Investor
Rights Agreement) any of the Company's presently outstanding securities or any
of its securities that may hereafter be issued.
3.18 COMPLIANCE WITH LAWS; PERMITS. To its knowledge, after
making due inquiry, the Company is not in violation of any applicable statute,
rule, regulation, order or restriction of any domestic or foreign government or
any instrumentality or agency thereof in respect of the conduct of its business
or the ownership of its properties which violation would have a Material Adverse
Effect. No governmental orders, permissions, consents, approvals or
authorizations are required to be obtained and no registrations or declarations
are required to be filed in connection with the execution and delivery of the
Financing Agreements and the issuance of the Shares or the Conversion Shares,
except such as has been duly and validly obtained or filed, or with respect to
any filings that must be made after the Closing, as will be filed in a timely
manner. The Company has all franchises, permits, licenses and any similar
authority necessary for the conduct of its business as now being conducted by
it, except for those the lack of which would have a Material Adverse Effect. The
Company believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted.
3.19 ENVIRONMENTAL AND SAFETY LAWS. To its knowledge, after
making due inquiry, the Company is not in violation of any applicable statute,
law or regulation relating to the environment or occupational health and safety,
and to its knowledge, after making due inquiry, no material expenditures are or
will be required in order to comply with any such existing statute, law or
regulation.
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3.20 OFFERING VALID. Assuming the accuracy of the representations
and warranties of the Purchasers contained in Section 4.2 hereof, the offer,
sale and issuance of the Shares and the Conversion Shares will be exempt from
the registration requirements of the Securities Act of 1933, as amended (the
"Securities Act") and will have been registered or qualified (or are exempt from
registration and qualification) under the registration, permit or qualification
requirements of all applicable state securities laws. Neither the Company nor
any agent on its behalf has solicited or will solicit any offers to sell or has
offered to sell or will offer to sell all or any part of the Shares to any
person or persons so as to bring the sale of such Shares by the Company within
the registration provisions of the Securities Act or any state securities laws.
3.21 FULL DISCLOSURE. The Financing Agreements, the Exhibits
thereto and all other agreements delivered by the Company to Purchasers or their
attorneys or agents in connection herewith or therewith or with the transactions
contemplated hereby or thereby, do not contain any untrue statement of a
material fact nor, to the Company's knowledge, omit to state a material fact
necessary in order to make the statements contained herein or therein not
misleading. Notwithstanding the foregoing, the business plan most recently
provided by the Company to the Purchasers (the "Business Plan") was prepared by
the management of the Company in a good faith effort to describe the Company's
proposed business and products and the markets therefor. The assumptions applied
in preparing the Business Plan appeared reasonable to management as of the date
thereof; however, there is no assurance that these assumptions will prove to be
valid or that the objectives set forth in the Business Plan will be achieved. To
the Company's knowledge, there are no facts which (individually or in the
aggregate) would or could reasonably be expected to have a Material Adverse
Effect that have not been set forth in the Agreement, the Exhibits hereto, the
Financing Agreements, the Financial Statements or in other documents delivered
to Purchasers or their attorneys or agents in connection herewith.
3.22 CORPORATE DOCUMENTS. The Restated Articles and Bylaws of the
Company are in the form provided to counsel for the Purchaser. The copy of the
minute books of the Company provided to counsel for the Purchasers contains
minutes of all meetings of directors and shareholders and all actions by written
consent without a meeting by the directors and shareholders since the date of
incorporation and reflects accurately in all material respects all actions by
the directors and shareholders with respect to all transactions referred to in
such minutes.
3.23 SECTION 83(b) ELECTIONS. To the Company's knowledge, all
elections and notices permitted by Section 83(b) of the Code and any analogous
provisions of applicable state tax laws will be or have been timely filed by all
employees who have purchased shares of the Company's Common Stock under
agreements that provide for the vesting of such shares.
3.24 REAL PROPERTY HOLDING CORPORATION. The Company is not a real
property holding corporation within the meaning of Section 897(c)(2) of the Code
and any regulations promulgated thereunder.
3.25 INSURANCE. Fire and casualty, clinical trials, general
liability, business interruption, product liability, and sprinkler and water
damage insurance policies are in full force
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and effect and are with reputable insurance carriers, provide adequate coverage
for all normal risks incident to the business of the Company and its properties
and assets, and are in character and amount at least equivalent to that carried
by companies engaged in similar businesses and subject to the same or similar
perils or hazards.
3.26 INVESTMENT COMPANY ACT. The Company is not an "investment
company", or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
3.27 YEAR 2000. The Company has reviewed its operations to
evaluate the extent to which the business or operations of the Company will be
affected by the Year 2000 Problem, as defined below. The Year 2000 Problem is
not reasonably likely to have a Material Adverse Effect. The "Year 2000 Problem"
as used herein, means any significant risk that the computer hardware or
software used in the receipt, transmission, processing, manipulation, storage,
retrieval, retransmission or other utilization of data or in the operation of
mechanical or electrical systems of any kind will not, in the case of dates or
time periods occurring after December 31, 1999, function at least as effectively
as in the case of dates or time periods occurring prior to January 1, 2000.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser hereby represents and warrants, severally but not
jointly, to the Company as follows (such representations and warranties do not
lessen or obviate the representations and warranties of the Company set forth in
this Agreement):
4.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver the Financing Agreements and to carry out their provisions. All action
on Purchaser's part required for the lawful execution and delivery of the
Financing Agreements have been or will be effectively taken prior to the
Closing. Upon their execution and delivery, the Financing Agreements will be
valid and binding obligations of Purchaser, enforceable in accordance with their
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights, (ii) general principles of equity that
restrict the availability of equitable remedies, and (iii) to the extent that
the enforceability of the indemnification provisions of Section 2.9 of the
Investor Rights Agreement may be limited by applicable laws.
4.2 INVESTMENT REPRESENTATIONS. Purchaser understands that
neither the Shares nor the Conversion Shares have been registered under the
Securities Act. Purchaser also understands that the Shares are being offered and
sold pursuant to an exemption from registration contained in the Securities Act
based in part upon Purchaser's representations contained in the Agreement.
Purchaser hereby represents and warrants as follows:
(a) PURCHASER BEARS ECONOMIC RISK. Purchaser understands
the business in which the Company is engaged and has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of its investment in the Company and has the capacity to
protect its own interests. Purchaser must bear the economic risk
11
<PAGE> 13
of this investment indefinitely unless the Shares (or the Conversion Shares) are
registered pursuant to the Securities Act, or an exemption from registration is
available. Purchaser understands that the Company has no present intention of
registering the Shares, the Conversion Shares or any shares of its Common Stock.
Purchaser also understands that there is no assurance that any exemption from
registration under the Securities Act will be available and that, even if
available, such exemption may not allow Purchaser to transfer all or any portion
of the Shares or the Conversion Shares under the circumstances, in the amounts
or at the times Purchaser might propose.
(b) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring
the Shares and the Conversion Shares for Purchaser's own account for investment
only, and not with a view towards their distribution.
(c) PURCHASER CAN PROTECT ITS INTEREST. Purchaser
represents that by reason of its, or of its management's, business or financial
experience, Purchaser has the capacity to protect its own interests in
connection with the transactions contemplated in the Financing Agreements.
Further, Purchaser is aware of no publication of any advertisement in connection
with the transactions contemplated in the Agreement.
(d) ACCREDITED INVESTOR. Purchaser represents that it is
an accredited investor within the meaning of Regulation D under the Securities
Act.
(e) COMPANY INFORMATION. Purchaser has received and read
the Financial Statements and Business Plan and has had an opportunity to discuss
the Company's business, management and financial affairs with directors,
officers and management of the Company and has had the opportunity to review the
Company's operations and facilities. Purchaser has also had the opportunity to
ask questions of and receive answers from, the Company and its management
regarding the terms and conditions of this investment. The foregoing, however,
does not limit or modify the representations and warranties of the Company in
Section 3 of this Agreement or the right of Purchaser to rely thereon.
(f) RULE 144. Purchaser acknowledges and agrees that the
Shares, and, if issued, the Conversion Shares must be held indefinitely unless
they are subsequently registered under the Securities Act or an exemption from
such registration is available. Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act, which permits
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things: the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being through an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934, as amended) and the number of
shares being sold during any three-month period not exceeding specified
limitations.
(f) RESIDENCE. The office of the Purchaser in which its
investment decision was made is located at the address of the Purchaser set
forth on Exhibit A.
12
<PAGE> 14
4.3 TRANSFER RESTRICTIONS. Each Purchaser acknowledges and agrees
that the Shares and, if issued, the Conversion Shares are subject to
restrictions on transfer as set forth in the Financing Agreements.
5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO PURCHASERS' OBLIGATIONS AT THE CLOSING.
Purchasers' obligations to purchase the Shares to be purchased at the Closing
are subject to the satisfaction, at or prior to the Closing, of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
Obligations. The representations and warranties made by the Company in Section 3
hereof shall be true and correct in all material respects as of the Closing Date
with the same force and effect as if they had been made as of the Closing Date,
and the Company shall have performed all obligations and conditions herein
required to be performed or observed by it on or prior to the Closing.
(b) LEGAL INVESTMENT. On the Closing Date, the sale and
issuance of the Shares and the proposed issuance of the Conversion Shares shall
be legally permitted by all laws and regulations to which Purchasers and the
Company are subject.
(c) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Financing Agreements
(except for such as may be properly obtained subsequent to the Closing).
(d) FILING OF RESTATED ARTICLES. The Restated Articles
shall have been filed with the Secretary of State of the State of California.
(e) CORPORATE DOCUMENTS. The Company shall have delivered
to Purchasers or their counsel, copies of all corporate documents of the Company
as Purchasers shall reasonably request.
(f) RESERVATION OF CONVERSION SHARES. The Conversion
Shares issuable upon conversion of the Shares shall have been duly authorized
and reserved for issuance upon such conversion.
(g) COMPLIANCE CERTIFICATE. The Company shall have
delivered to Purchasers a Compliance Certificate, executed by the President of
the Company, dated the date of the Closing, to the effect that the conditions
specified in subsections (a), (c), (d) and (f) of this Section 5.1 have been
satisfied.
(h) INVESTOR RIGHTS AGREEMENT. An Investor Rights
Agreement substantially in the form attached hereto as Exhibit D shall have been
executed and delivered by the parties thereto.
(i) CO-SALE AGREEMENT. The Co-Sale Agreement substantially
in the form attached hereto as Exhibit C shall have been executed and delivered
by the parties thereto.
13
<PAGE> 15
The stock certificates representing the shares subject to the Co-Sale Agreement
shall have been delivered to the Secretary of the Company and shall have had
appropriate legends placed upon them to reflect the restrictions on transfer set
forth on the Co-Sale Agreement.
(j) BOARD OF DIRECTORS. As shall be more specifically set
forth in the Voting Agreement, the authorized size of the Board of Directors of
the Company shall be five. The Board of Directors shall initially consist of W.
Scott Harkonen, James I. Healy, John Higgins and Edgar Engleman.
(k) LEGAL OPINION. The Purchasers shall have received from
legal counsel to the Company an opinion addressed to them, dated as of the
Closing Date, in substantially the form attached hereto as Exhibit E.
(l) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Purchasers and their
special counsel, and the Purchasers and their special counsel shall have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
(m) VOTING AGREEMENT. The Voting Agreement substantially
in the form attached hereto as Exhibit F shall have been executed and delivered
by the parties thereto.
(n) CONVERSION OF SERIES A PREFERRED. Connetics shall have
delivered a notice of conversion of the Series A Preferred Stock to be effective
upon the delivery of its Series A Preferred Stock certificate, which certificate
shall be delivered promptly following the payment of the dividend by the Company
to Connetics contemplated by Article IV.A.1 of the Restated Articles.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligation to issue and sell the Shares to be purchased at the Closing is
subject to the satisfaction, on or prior to the Closing, of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The
representations and warranties made by those Purchasers acquiring Shares in
Section 4 hereof shall be true and correct in all material respects at the date
of the Closing, with the same force and effect as if they had been made on and
as of said date.
(b) PERFORMANCE OF OBLIGATIONS. Such Purchasers shall have
performed and complied with all agreements and conditions herein required to be
performed or complied with by such Purchasers on or before the Closing.
(c) FILING OF RESTATED ARTICLES. The Restated Articles
shall have been filed with the Secretary of State of the State of California.
(d) INVESTOR RIGHTS AGREEMENT. An Investor Rights
Agreement substantially in the form attached hereto as Exhibit D shall have been
executed and delivered by the Purchasers.
14
<PAGE> 16
(e) CO-SALE AGREEMENT. The Co-Sale Agreement substantially
in the form attached hereto as Exhibit C shall have been executed and delivered
by the parties thereto.
(f) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Financing Agreements
(except for such as may be properly obtained subsequent to the Closing).
(g) VOTING AGREEMENT. The Voting Agreement substantially
in the form attached hereto as Exhibit F shall have been executed and delivered
by the parties thereto.
6. MISCELLANEOUS.
6.1 GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and performed entirely in
California.
6.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Purchaser and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
6.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time.
6.4 ENTIRE AGREEMENT. The Financing Agreements, the Exhibits and
Schedules thereto and the other documents delivered pursuant hereto constitute
the full and entire understanding and agreement between the parties with regard
to the subjects hereof and no party shall be liable or bound to any other in any
manner by any representations, warranties, covenants and agreements except as
specifically set forth herein and therein.
6.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
6.6 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only upon
the written consent of at least fifty-five percent (55%) of then-outstanding
shares of Series A-1 Preferred and Series A-2 Preferred of the Company,
respectively voting separately by each series.
(b) The obligations of the Company and the rights of the
holders of the Shares and the Conversion Shares under the Agreement may be
waived only with the written
15
<PAGE> 17
consent of at least fifty-five percent (55%) of then-outstanding shares of
Series A-1 Preferred and Series A-2 Preferred of the Company, respectively
voting separately by each series.
6.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission
to exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under the Financing Agreements or the
Restated Articles, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. It is further agreed that any waiver, permit, consent or
approval of any kind or character on any Purchaser's part of any breach, default
or noncompliance under the Financing Agreements or under the Restated Articles
or any waiver on such party's part of any provisions or conditions of the
Financing Agreements, or the Restated Articles must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under the Financing Agreements, the Restated Articles, by law,
or otherwise afforded to any party, shall be cumulative and not alternative.
6.8 NOTICES. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified; (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day; (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
Company at the address as set forth on the signature page hereof and to
Purchaser at the address set forth on Exhibit A attached hereto or at such other
address as the Company or Purchaser may designate by ten (10) days advance
written notice to the other parties hereto.
6.9 EXPENSES. The Company shall pay all costs and expenses that
it incurs with respect to the negotiation, execution, delivery and performance
of the Financing Agreements. The Company shall, at the Closing, reimburse the
reasonable fees and expenses of separate counsel for the Purchasers of up to
Twenty-Five Thousand Dollars ($25,000), and shall reimburse such special counsel
for reasonable expenses incurred in connection with the negotiation, execution,
delivery and performance of the Financing Agreements of up to Ten Thousand
Dollars ($10,000).
6.10 ATTORNEYS' FEES. In the event that any dispute among the
parties to the Financing Agreements should result in litigation, the prevailing
party in such dispute shall be entitled to recover from the losing party all
fees, costs and expenses of enforcing any right of such prevailing party under
or with respect to the Financing Agreements, including without limitation, such
reasonable fees and expenses of attorneys and accountants, which shall include,
without limitation, all fees, costs and expenses of appeals.
6.11 TITLES AND SUBTITLES. The titles of the sections and
subsections of the Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
16
<PAGE> 18
6.12 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
6.13 BROKER'S FEES. Each party hereto represents and warrants,
severally but not jointly, that no agent, broker, investment banker, person or
firm acting on behalf of or under the authority of such party hereto is or will
be entitled to any broker's or finder's fee or any other commission directly or
indirectly in connection with the transactions contemplated herein. Each party
hereto further agrees to indemnify each other party for any claims, losses or
expenses incurred by such other party as a result of the representation in this
Section 6.13 being untrue.
6.14 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges
that it is not relying upon any person, firm, or corporation, other than the
Company and its officers and directors, in making its investment or decision to
invest in the Company. Each Purchaser agrees that no Purchaser nor the
respective controlling persons, officers, directors, partners, members, agents,
or employees of any Purchaser shall be liable for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
Shares and Conversion Shares.
6.15 PRONOUNS. All pronouns contained herein, and any variations
thereof, shall be deemed to refer to the masculine, feminine or neutral,
singular or plural, as to the identity of the parties hereto may require.
6.16 WAIVER OF CONFLICTS. Each party to this Agreement
acknowledges that legal counsel for the Company, Cooley Godward LLP ("Cooley
Godward") has in the past and may continue in the future to perform legal
services for one or more of the Purchasers or their affiliates in matters
unrelated to the transactions contemplated by this Agreement, including, but not
limited to, the representation of the Purchasers in matters of a similar nature
to the transactions contemplated herein. Each party to this Agreement hereby (a)
acknowledges that they have had an opportunity to ask for and have obtained
information relevant to such representation, including disclosure of the
reasonably foreseeable adverse consequences of such representation; (b)
acknowledges that with respect to the transactions contemplated herein, Cooley
Godward has represented the Company and not any individual Purchaser or any
individual shareholder, director or employee of the Company; and (c) gives its
informed consent to Cooley Godward's representation of the Company in the
transactions contemplated by this Agreement and Cooley Godward's representation
of one or more of the Purchasers or their affiliates in matters unrelated to
such transactions.
6.17 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION OR IN THE ABSENCE OF AN EXEMPTION FROM SUCH
QUALIFICATION IS UNLAWFUL. PRIOR TO ACCEPTANCE OF SUCH CONSIDERATION BY THE
COMPANY, THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION FROM SUCH QUALIFICATION
BEING AVAILABLE.
17
<PAGE> 19
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
18
<PAGE> 20
PURCHASE AGREEMENT
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have executed the SERIES A-1 AND
A-2 PREFERRED STOCK PURCHASE AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY
INTERMUNE PHARMACEUTICALS, INC.
/s/ W. Scott Harkonen
- ------------------------------------
W. Scott Harkonen
President
PURCHASERS
CONNETICS CORPORATION
/s/ T. Wiggans
- ------------------------------------
Thomas Wiggans
Chief Executive Officer
GENENTECH, INC.
By:
------------------------
Print Name:
------------------------
Title:
------------------------
SANDERLING VENTURE PARTNERS IV, L.P.
- ------------------------------------ ------------------------------------
Fred A. Middleton Robert G. McNeil
General Partner General Partner
SANDERLING IV LIMITED, L.P.
- ------------------------------------ ------------------------------------
Fred A. Middleton Robert G. McNeil
General Partner General Partner
PURCHASE AGREEMENT
<PAGE> 22
SANDERLING IV BIOMEDICAL, L.P.
- ------------------------------------ ------------------------------------
Fred A. Middleton Robert G. McNeil
General Partner General Partner
SANDERLING [FERI TRUST] VENTURE PARTNERS IV, L.P.
- ------------------------------------ ------------------------------------
Fred A. Middleton Robert G. McNeil
General Partner General Partner
SANDERLING IV VENTURE MANAGEMENT
- ------------------------------------ ------------------------------------
Fred A. Middleton Robert G. McNeil
General Partner General Partner
BIOTECHNOLOGY DEVELOPMENT FUND, L.P. BIOTECHNOLOGY DEVELOPMENT FUND III,
L.P.
By: BioAsia Investments, LLC, By: BioAsia Investments, LLC,
its General Partner its General Partner
By: By:
--------------------------------- ---------------------------------
Frank Kung, Managing Member Frank Kung, Managing Member
CHARTER VENTURES III, LLC
By:
---------------------------------
Print Name:
-------------------------
Managing Member
PURCHASE AGREEMENT
<PAGE> 23
VERON INTERNATIONAL, LTD.
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
PURCHASE AGREEMENT
<PAGE> 24
Index of Exhibits
<TABLE>
<S> <C>
Schedule of Purchasers Exhibit A
Restated Articles Exhibit B
Co-Sale Agreement Exhibit C
Investor Rights Agreement Exhibit D
Form of Legal Opinion Exhibit E
Voting Agreement Exhibit F
Schedule of Exceptions Exhibit G
</TABLE>
<PAGE> 25
EXHIBIT A
SERIES A-1 PURCHASERS
<TABLE>
<CAPTION>
NUMBER OF NON-CASH
PURCHASER SHARES CONSIDERATION
- ----------------------- ----------- -------------
<S> <C> <C>
Genentech, Inc.(1) 875,000 (2)
Connetics Corporation(3) 960,000 (4)
TOTAL 1,835,000
</TABLE>
- ----------
(1) Genentech, Inc.
1 DNA Way
South San Francisco, California 94080
Attention: General Counsel
(2) Consideration for the shares is the execution on the Closing Date of an
Amendment of the License Agreement for Interferon Gamma between Connetics
and Genentech, Inc. in a form approved by the Purchasers.
(3) Connetics Corporation
3400 West Bayshore Road
Palo Alto, CA 94303
Attention: General Counsel
(4) Consideration for the shares is (a) the surrender of 11,200,000 shares of
outstanding Series A Preferred shares of the Company, (b) execution on the
Closing Date of that certain Collaboration Agreement between Connetics and
the Company in a form satisfactory to Purchasers, (c) execution on the
Closing Date of that certain Transition Agreement between Connetics and the
Company, (d) execution prior to the Closing Date of that certain Amended and
Restated Service Agreement between Connetics and the Company in a form
satisfactory to Purchasers, (e) execution on the Closing Date of an
Amendment of the Sublicense Agreement between Connetics Corporation and
Company in a form approved by the Purchasers, and (f) execution on the
Closing Date of an Amendment of the License Agreement for Interferon Gamma
between Connetics and Genentech, Inc. in a form approved by the Purchasers.
<PAGE> 26
SERIES A-2 PURCHASERS
<TABLE>
<CAPTION>
NUMBER TOTAL
PURCHASER OF SHARES PURCHASE PRICE
- --------- --------- --------------
<S> <C> <C>
Sanderling Venture Partners IV, L.P.(5) 1,266,989 $1,583,736.25
Sanderling IV Limited Partnership, L.P.(6) 494,287 $ 617,858.75
Sanderling IV Biomedical, L.P.(7) 493,231 $ 616,538.75
Sanderling [Feri Trust] Venture Partners IV, L.P.(8) 140,571 $ 175,713.75
Sanderling IV Venture Management(9) 4,922 $ 6,152.50
Biotechnology Development Fund, L.P.(10) 842,688 $1,053,360.00
Biotechnology Development Fund, L.P.(10) 357,312 $ 446,640.00
Veron International, Ltd.(11) 800,000 $ 1,000,000
Charter Ventures III, LLC(12) 400,000 $ 500,000.00
Other Third Party Investor(s) 800,000 $1,000,000.00
--------- -------------
TOTALS 5,600,000 $7,000,000.00
========= =============
</TABLE>
(5) 2730 Sand Hill Road, Suite 200
Menlo Park, CA 94025
Attention: General Partner
(6) Same address as in footnote 5.
(7) Same address as in footnote 5.
(8) Same address as in footnote 5.
(9) Same address as in footnote 5.
(10) 575 High Street, Suite 201
Palo Alto, CA 94301
Attention: General Partner
(11) ChinaChem Golden Plaza
Top Floor
77 Mody Road
Tsimshatsui East, Kowloon
Hong Kong
(12) 525 University Avenue, Suite 1500
Palo Alto, CA 94301
Attention: Managing Member
<PAGE> 27
EXHIBIT B
RESTATED ARTICLES
(attached)
<PAGE> 28
EXHIBIT C
CO-SALE AGREEMENT
(attached)
<PAGE> 29
EXHIBIT D
INVESTOR RIGHTS AGREEMENT
(attached)
<PAGE> 30
EXHIBIT E
FORM OF LEGAL OPINION
(attached)
<PAGE> 31
EXHIBIT F
VOTING AGREEMENT
(attached)
<PAGE> 32
EXHIBIT G
SCHEDULE OF EXCEPTIONS
(attached)
<PAGE> 33
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. AGREEMENT TO SELL AND PURCHASE.................................................... 1
1.1 Authorization of Shares.................................................... 1
1.2 Sale of Series A Preferred Stock........................................... 1
2. CLOSING, DELIVERY AND PAYMENT..................................................... 2
2.1 Closing.................................................................... 2
2.2 Delivery................................................................... 2
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................... 2
3.1 Organization, Good Standing and Qualification.............................. 2
3.2 Capitalization; Voting Rights.............................................. 3
3.3 Authorization; Binding Obligations......................................... 3
3.4 Financial Statements....................................................... 4
3.5 Liabilities................................................................ 4
3.6 Agreements; Action......................................................... 4
3.7 Obligations to Related Parties............................................. 5
3.8 Changes.................................................................... 5
3.9 Title to Properties and Assets; Liens, etc................................. 6
3.10 Patents and Trademarks..................................................... 7
3.11 Compliance with Other Instruments.......................................... 7
3.12 Litigation................................................................. 8
3.13 Tax Returns and Payments................................................... 8
3.14 Employees.................................................................. 8
3.15 Proprietary Information and Inventions Agreements.......................... 9
3.16 Obligations of Management.................................................. 9
3.17 Registration Rights........................................................ 9
3.18 Compliance with Laws; Permits.............................................. 9
3.19 Environmental and Safety Laws.............................................. 9
3.20 Offering Valid............................................................. 10
3.21 Full Disclosure............................................................ 10
3.22 Corporate Documents........................................................ 10
3.23 Section 83(b) Elections.................................................... 10
</TABLE>
i.
<PAGE> 34
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
3.24 Real Property Holding Corporation.......................................... 10
3.25 Insurance.................................................................. 10
3.26 Investment Company Act..................................................... 11
3.27 Year 2000.................................................................. 11
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.................................. 11
4.1 Requisite Power and Authority.............................................. 11
4.2 Investment Representations................................................. 11
4.3 Transfer Restrictions...................................................... 13
5. CONDITIONS TO CLOSING............................................................. 13
5.1 Conditions to Purchasers' Obligations at the Closing....................... 13
5.2 Conditions to Obligations of the Company................................... 14
6. MISCELLANEOUS..................................................................... 15
6.1 Governing Law.............................................................. 15
6.2 Survival................................................................... 15
6.3 Successors and Assigns..................................................... 15
6.4 Entire Agreement........................................................... 15
6.5 Severability............................................................... 15
6.6 Amendment and Waiver....................................................... 15
6.7 Delays or Omissions........................................................ 16
6.8 Notices.................................................................... 16
6.9 Expenses................................................................... 16
6.10 Attorneys' Fees............................................................ 16
6.11 Titles and Subtitles....................................................... 17
6.12 Counterparts............................................................... 17
6.13 Broker's Fees.............................................................. 17
6.14 Exculpation Among Purchasers............................................... 17
6.15 Pronouns................................................................... 17
6.16 Waiver of Conflicts........................................................ 17
6.17 California Corporate Securities Law........................................ 17
</TABLE>
ii.
<PAGE> 1
EXHIBIT 10.9
TRANSITION AGREEMENT
This TRANSITION AGREEMENT ("Agreement"), dated as of April 27, 1999 ("Effective
Date"), is entered into by and between Connetics Corporation, a Delaware
corporation ("Connetics") and InterMune Pharmaceuticals, Inc., a California
corporation ("InterMune"). Connetics and InterMune are also referred to as a
"Party" or "Parties" to this Agreement.
BACKGROUND
A. Connetics is party to a License Agreement with Genentech, Inc. dated May
5, 1998, as amended, ("Genentech License") pursuant to which Genentech
licensed to Connetics certain rights to Actimmune (as defined below).
B. Connetics has sublicensed to InterMune its rights under the Genentech
License and under the Supply Agreement between Connetics and Genentech
dated May 5, 1998 ("Genentech Supply Agreement"), all done pursuant to the
Exclusive Sublicense Agreement between Connetics and InterMune dated as of
August 21, 1998, as amended and restated effective April 27, 1999.
C. The Genentech Supply Agreement includes provisions for Connetics to
transfer manufacturing of Actimmune to a third party manufacturer [*],
and Connetics desires to create an incentive for InterMune (as
Connetics' sublicensee) to accelerate the transfer of manufacturing.
D. InterMune and Connetics have entered into a Term Sheet as of February 26,
1999 (the "Term Sheet") pursuant to which, among other things, InterMune
agreed that Connetics will have the right to book certain net revenues,
expenses and net profits related to sales of Actimmune Units for the
treatment of CGD (defined below) until December 31, 2001 (the "CGD
Revenues").
E. InterMune and Connetics have entered into that certain Collaboration
Agreement (the "Collaboration Agreement") and certain other related
documents as of even date herewith, which collectively set forth the
transaction contemplated by the Term Sheet (the "Transaction").
F. In connection with the Transaction, InterMune and Connetics desire to
enter into this Transition Agreement to outline the mechanism by which
Connetics shall book the CGD Revenues.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, and intending to be legally bound, the Parties
agree as follows:
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
Page 1 of 13
<PAGE> 2
AGREEMENT
SECTION 1
DEFINITIONS
1.1 ACTIMMUNE. "Actimmune" means the filled and finished form of the
protein encoded by the interferon gamma-1b gene, and sold and distributed under
the trademark ACTIMMUNE(R), which is owned by Genentech and licensed to
Connetics and its sublicensees under the Genentech License.
1.2 ACTIMMUNE GROSS MARGIN. "Actimmune Gross Margin" means Actimmune Net
Sales less all applicable [*].
1.3 ACTIMMUNE GROSS SALES. "Actimmune Gross Sales" means [*].
1.4 ACTIMMUNE NET SALES. "Actimmune Net Sales" means Actimmune Gross Sales
less adjustments for the following: [*].
1.5 ACTIMMUNE UNITS. "Actimmune Units" means vials of ACTIMMUNE(R) that
are sold [*].
1.6 BASELINE. "Baseline" means [*] Actimmune Units in 1999; [*]
Actimmune Units in 2000; and [*] Actimmune Units in 2001, adjusted as
applicable pursuant to Section 2.3(c). For clarity, the Parties intend that the
applicable Baseline shall represent the sales of Actimmune Units for the
treatment of CGD in each of the foregoing years.
1.7 CGD. "CGD" means chronic granulomatous disease, which is the only FDA
approved indication for the sale of Actimmune as of the Effective Date.
1.8 COLLECTION PERIOD. "Collection Period" means one full calendar month
during the Period.
1.9 CORD DISTRIBUTION COSTS. "CORD Distribution Costs" means the actual
monthly payment by InterMune to CORD Logistics, Inc., for distribution services
for sales of Actimmune up to the Baseline.
1.10 GNE ROYALTIES. "GNE Royalties" means the amount of royalties payable
to Genentech, Inc. pursuant to Section 8.3 of the Genentech License for
Actimmune Net Sales.
1.11 PERIOD. "Period" means the time from April 1, 1999 through December
31, 2001.
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
Page 2 of 13
<PAGE> 3
1.12 PRODUCT COST. "Product Cost" means actual cost paid by InterMune to
the manufacturer for each Actimmune Unit, regardless of whether the manufacturer
is Genentech or a third party manufacturer qualified pursuant to the
manufacturing transition contemplated by Section 3.
1.13 PRODUCT MANAGEMENT COSTS. "Product Management Costs" means
InterMune's actual costs to manage sales of Actimmune Units for the treatment of
CGD up to the Baseline, including all expenses and services related to sales of
such Actimmune Units, such as maintenance of safety databases, etc., tracked on
a regular basis and properly accounted for, at hourly rates to be agreed on by
the Parties.
SECTION 2
SERVICES PERFORMED; PAYMENTS
2.1 SERVICES. During the Period, InterMune shall perform, or have
performed, order entry, packaging, shipping, invoicing, and credit and
collection services (subject to Section 2.3(b)) related to sales of Actimmune
Units. All such services shall be performed on a timely basis consistent with
standard industry practices.
2.2 PRODUCT MANAGEMENT COSTS. Except for Product Management Costs,
InterMune shall receive no separate consideration for providing services under
this Agreement. No later than thirty (30) days after the end of each Collection
Period, InterMune shall invoice Connetics for Product Management Costs for such
Collection Period, and Connetics shall remit payment on such invoices within
thirty (30) days after receipt of the invoice. InterMune's invoice shall be
accompanied by a statement itemizing such Product Management Costs, including a
list of all relevant projects, services provided, travel and other expenses.
InterMune agrees that it will not include in Product Management Costs any
non-headcount related expenses or extraordinary expenses without first obtaining
Connetics' authorization to incur such expenses. Any expenses incurred with the
consent of the Commercialization Committee formed pursuant to Section 2.7 shall
be deemed to have been authorized by Connetics for purposes of this Section 2.2.
2.3 ACCOUNTING FOR ACTIMMUNE UNIT SALES; PAYMENTS TO CONNETICS.
(a) Recording Revenue. During the Period, InterMune agrees that
Connetics shall be entitled to book the Actimmune Net Sales until the
total Actimmune Units sold reaches the Baseline applicable for each
calendar year during the Period, all in accordance with generally accepted
accounting principles, and InterMune will not book such Net Sales or
otherwise record the revenue related to the Net Sales that Connetics is
entitled to book pursuant to this Agreement. For clarification, the
payment which Connetics receives from InterMune pursuant to subsection (c)
below, and the sales of Actimmune Units represented thereby, shall accrue
to the total Actimmune Net Sales booked by Connetics for 1999. InterMune
shall be entitled to book the Actimmune Net Sales for sales of all
Actimmune Units above the Baseline, after the Baseline is met in a given
calendar year.
(b) Payments to Connetics. InterMune shall pay to Connetics the
amount of Actimmune Gross Margin each Collection Period, until the total
Actimmune Units sold
Page 3 of 13
<PAGE> 4
reaches the applicable Baseline in each calendar year during the Period,
according to the following schedule: no later than [*] business days after
the end of each Collection Period, InterMune shall (i) submit to Connetics
the reports required pursuant to Section 2.4 for the Collection Period
just ended, and (ii) remit payment for the Collection Period immediately
preceding such Collection Period, together with a statement as described
in Section 2.4. For purposes of this Agreement, payments for a given
Collection Period shall be due on the [*] business day after the end of
the first full calendar month following that Collection Period ("Due
Date"). To the extent that InterMune has not received payment for sales of
Actimmune Units for a given Collection Period, InterMune's remittance on
the Due Date may exclude any such unpaid amounts, but InterMune shall
remit such amount withheld from Actimmune Gross Margin on the next Due
Date, regardless of whether InterMune has received payment.
Notwithstanding the foregoing, if such unpaid amount from a purchaser of
Actimmune Units remains unpaid six (6) months after the date of invoice
("Bad Debt"), then Connetics shall reimburse InterMune for such Bad Debt
within thirty (30) days following the end of such six month period. In
such case, InterMune shall provide to Connetics the necessary
documentation in its possession for the accounting for and collection of
such Bad Debt, and shall permit Connetics to pursue collection for such
Bad Debt.
(c) Gross Margin for the First Quarter of 1999. InterMune will make
a one-time payment to Connetics on the Effective Date equal to Actimmune
Gross Margin for the period from January 15, 1999 to March 31, 1999, in
the amount of [*], together with supporting documentation as described
in this Article 2. The amount paid will count toward the total Actimmune
Net Sales booked by Connetics for 1999, as set forth in paragraph (a)
above.
(d) Overdue Payments. For each Collection Period, if InterMune fails
to remit payment by the Due Date, the amount due shall accrue interest at
the rate of [*] per year until the amount due together with all accrued
interest are paid in full. If InterMune fails for [*] consecutive
Collection Periods to remit payment by the Due Date, InterMune hereby
agrees that Connetics shall have the right (at its sole option) to modify
the payment structure described in subsection (b) above so that Connetics
collects all revenue with respect to sales of Actimmune Units, withholds
the Actimmune Gross Margin, and remits the balance to InterMune. In such
event:
(i) InterMune shall take all action necessary to provide
Connetics with the necessary permissions and authorization to
make such modifications to the payment structure, in
accordance with a payment and reporting schedule equivalent to
that set forth in Subsection (b) above;
(ii) The provisions of Sections 2.4 and 2.6 shall apply
mutatis mutandis; and
(iii) At the termination or expiration of this
Agreement, Connetics' right to collect revenues for the sales
of Actimmune Units shall terminate and InterMune shall
thereafter have the right to collect all revenues for such
sales. Connetics shall
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
Page 4 of 13
<PAGE> 5
take all action necessary to provide InterMune with the
necessary permissions and authorization to allow InterMune to
collect such revenues.
(e) Sales Below Baseline. The Parties agree that, if Actimmune Unit
sales are [*] or more below the Baseline (on a quarterly-adjusted basis)
for a period of [*] days following [*] they will meet to evaluate the
effect of [*] on sales volume compared with historical trends and other
market dynamics. If the sales of Actimmune Units remain below the Baseline
for the second [*] day period following such [*] the Parties agree to
re-set the Baseline, provided that such lower sales are not attributable
to an extraordinary circumstance, such as an interruption in supply. If,
however, sales of Actimmune Units increase during such second [*] day
period, the Parties agree to review the market dynamics and trends from
prior years with respect to CGD patients, and to make a final decision
regarding whether and to what extent to re-set the Baseline. The revised
Baseline number shall be deemed to be the Baseline for all relevant
purposes of this Agreement beginning with the date the revised Baseline is
agreed upon (or such earlier date as the Parties may agree). If the
Parties cannot agree on an appropriate adjustment to the Baseline
following [*] as set forth in this subsection, then the proposals of each
Party shall be referred for resolution according to the mechanism set
forth in Section 5.9.
(f) Sales Above the Baseline. During [*] if Actimmune Net Sales in
any given calendar quarter exceed the Baseline (as may be adjusted
pursuant to subsection (e) above) for that quarter by more than [*],
Connetics agrees that it will [*] for the purpose of offsetting any
deferred net profits that InterMune might have realized for such quarter
had it been entitled to book those Actimmune Net Sales. The Parties agree
to [*] in an amount that approximates the profits deferred by InterMune
for Actimmune Unit sales above Baseline for the relevant quarter, [*]
InterMune's right to book sales after Baseline is met for the year. [*] to
be mutually agreed upon at the time of [*].
2.4 MONTHLY STATEMENTS AND REPORTS TO BE PROVIDED BY INTERMUNE. On the
[*] business day of each month, InterMune shall furnish to Connetics:
(a) with respect to the Collection Period just ended, a report or
reports (in a format reasonably acceptable to Connetics), listing the
quantities of Actimmune Units sold and related sales dollars (itemized by
customer and/or distributor), cost of Actimmune Units sold, inventory of
Actimmune Units as of the end of the Collection Period, accounts
receivable aging summary, returns, chargebacks, and rebates; and
(b) with respect to the Collection Period ended a month earlier,
payment of the Actimmune Gross Margin together with a statement that
reconciles the payment submitted with the reports submitted for the same
Collection Period in the prior month, and which includes all the
information necessary to calculate Actimmune Gross Sales, Actimmune Net
Sales, Actimmune Gross Margin and the payment made to Connetics. The
principal
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
Page 5 of 13
<PAGE> 6
financial officer of InterMune shall certify that such monthly statement
complies with this Agreement.
In addition to the periodic reporting outlined above, InterMune shall continue
to permit Connetics [*] as InterMune might use during the term of this
Agreement. The initial report pursuant to subsection 2.4(a) shall be due on May
4, 1999, and the initial statement and payment pursuant to subsection 2.4(b)
shall be due on June 2, 1999. InterMune's obligation to submit reports,
statements and payments shall continue after the term of this Agreement, until
all Collection Periods during the term have been fully accounted for.
2.5 ROYALTY PAYMENTS TO GENENTECH. InterMune shall remit to Genentech any
amounts payable on Actimmune Net Sales for third party royalties and for GNE
Royalties, all as required by the Genentech License. InterMune covenants and
agrees to remit the full amount of such royalties directly to Genentech or the
applicable third party, and shall [*] after the Effective Date and during the
term of this Agreement.
2.6 AUDIT. During the term of this Agreement, and for [*] years after
expiration or termination of this Agreement, InterMune shall permit an
independent auditor, reasonably acceptable to InterMune, to have access to
InterMune's records as may be necessary to verify the accuracy of the statements
provided to Connetics under this Agreement, including Actimmune Gross Sales,
Actimmune Net Sales, and Actimmune Gross Margin, and to assure that InterMune
has complied with the payment terms of this Agreement. Such records shall be
open during reasonable business hours for examination at Connetics' expense, and
not more often than once each calendar year, by such independent auditor (who
shall be required to enter into a binder of confidentiality with InterMune).
2.7 COMMERCIALIZATION COMMITTEE. The Parties shall establish a
Commercialization Committee which shall be responsible for monitoring progress,
managing information exchange between the Parties, deciding key strategies and
solving problems with respect to commercialization and promotion of Actimmune
for the CGD market. At the first meeting of the Commercialization Committee, the
members shall establish a regular meeting time and structure, and appoint a
secretary whose responsibility it will be to coordinate the timing, notice, and
agendas for Commercialization Committee meetings.
SECTION 3
MANUFACTURING COST TRANSITION
3.1 OFFSET TO TRANSITION COSTS. The Parties anticipate that the transfer
of manufacturing to a third party manufacturer could result in a substantial
reduction in the Product Cost for Actimmune. As an incentive to InterMune to
complete the transfer of manufacturing of Actimmune to a third party
manufacturer pursuant to Section 4.1 of the Genentech Supply Agreement before
May 2001, and in consideration of an increase in Actimmune Gross Margin during
the Period by virtue of such lower Product Cost, Connetics agrees to reimburse
InterMune for [*] of InterMune's actual costs to effect such transfer of
manufacturing up to a maximum
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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<PAGE> 7
payment of [*] subject to adjustment as follows for each subsequent quarter that
the transfer is not complete:
<TABLE>
<CAPTION>
Amount Payable by Connetics* If Transfer is Complete by:
- --------------------------- ---------------------------
<S> <C>
[*] [*]
</TABLE>
- ----------------
* The amounts payable by Connetics listed above assume [*] as of the Effective
Date). Accordingly, if the transition is completed by the target date but
results in a [*] the amount payable by Connetics shall be [*]. By way of
example, if the transfer is completed before [*].
3.2 COMPLETION OF MANUFACTURING TRANSFER. For purposes of this Agreement,
the transfer of manufacturing from Genentech to a third party manufacturer shall
be deemed to be complete in the first Collection Period for which [*].
3.3 PAYMENT TERMS. Any payment by Connetics pursuant to this Section 3
shall be payable in cash no later than thirty (30) days following completion of
the manufacturing transfer as set forth in Section 3.2.
SECTION 4
CONFIDENTIALITY
4.1 CONFIDENTIAL INFORMATION OBLIGATIONS. As used herein, "Confidential
Information" means all information that a Party discloses to the other Party
under this Agreement, provided that "Confidential Information" shall not include
such information excluded under Section 4.2. Except to the extent expressly
authorized by this Agreement or otherwise agreed in writing by the Parties, each
Party agrees that, during the term of this Agreement and for [*]
after the expiration or termination of this Agreement, it shall keep
confidential and shall not publish or otherwise
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
Page 7 of 13
<PAGE> 8
disclose and shall not use for any purpose other than as provided for in this
Agreement any Confidential Information furnished to it by the other Party
pursuant to this Agreement.
4.2 EXCEPTIONS. The obligations set forth in Section 4.1 shall not apply
to any Information that the receiving Party can demonstrate by competent
evidence:
(a) was already known to the receiving Party, other than under an
obligation of confidentiality, at the time of disclosure by the other
Party;
(b) was generally available to the public or otherwise part of the public
domain at the time of its disclosure to the receiving Party by the other
Party;
(c) became generally available to the public or otherwise part of the
public domain after its disclosure and other than through any act or
omission of the receiving Party in breach of this Agreement;
(d) was disclosed to the receiving Party, other than under an obligation
of confidentiality to a third Party, by a third Party who had no
obligation to the disclosing Party not to disclose such information to
others; or
(e) is independently developed by the receiving Party without using any of
the other Party's Confidential Information.
4.3 PERMITTED DISCLOSURE. Notwithstanding the limitations in this Article
4, each Party may disclose Confidential Information belonging to the other Party
(or otherwise subject to this Article 4), to the extent such disclosure is
reasonably necessary in the following instances, but solely for the limited
purpose of such necessity:
(a) regulatory and tax filings;
(b) prosecuting or defending litigation;
(c) complying with applicable governmental laws or regulations or valid
court orders; or
(d) disclosure to affiliates, employees, consultants or agents who agree
to be bound by similar terms of confidentiality and non-use at least
equivalent in scope to those set forth in this Article 4.
Notwithstanding the foregoing, in the event a Party is required to make a
disclosure of the other Party's Confidential Information pursuant to Section
4.4, it will give reasonable advance notice to the other Party of such
disclosure and endeavor in good faith to secure confidential treatment of such
information. In any event, the Parties agree to take all reasonable action to
avoid disclosure of Confidential Information hereunder. Further, the Parties
agree to consult with one another on the provisions of this Agreement to be
redacted in any filings made by a Party with the United States Securities and
Exchange Commission or as otherwise required by law.
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<PAGE> 9
SECTION 5
GENERAL PROVISIONS
5.1 NO OFFSET. Neither Party shall be entitled to offset any amounts due
to the other Party under this Agreement against any amounts due from such other
Party pursuant to this Agreement or other agreements between the Parties.
Notwithstanding the foregoing sentence, any amounts due to a Party under this
Agreement that are [*] or more days overdue may be offset by such Party
against any amounts such Party owes the other Party under this Agreement.
5.2 SURVIVAL. The payment and reporting obligations set forth in Article
2, and the provisions of Section 2.6 and Article 4 shall survive any expiration
or termination of this Agreement, as will all rights accrued and obligations
incurred hereunder prior to such expiration or termination.
5.3 TERM AND TERMINATION. The term of this Agreement shall coincide with
the Period, and this Agreement will expire with no further action required by
either Party on December 31, 2001. In addition, either Party may terminate this
Agreement on no less than [*] days' notice to the other Party for material
breach of this Agreement by that Party.
5.4 WAIVER. No waiver by either Party of any breach or default of any of
the covenants or agreements set forth in this Agreement shall be deemed a waiver
as to any subsequent or similar breach or default.
5.5 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the Parties and their permitted successors and assigns; provided,
however, that neither Party shall assign any of its rights and obligations under
this Agreement without the prior written consent of the other Party, except as
incident to the merger, consolidation, reorganization or acquisition of stock or
assets affecting substantially all of the assets or actual voting control of the
assigning Party. Any assignment or attempted assignment by either Party in
violation of the terms of this Section 4.2 shall be null and void and of no
legal effect.
5.6 NOTICES. Any notice or other communication required or permitted to be
given to either Party shall be in writing and shall be deemed to have been
properly given and to be effective on the date of delivery if delivered in
person or by facsimile or five (5) days after mailing by registered or certified
mail, postage paid, to the other Party at the following address:
In the case of InterMune: InterMune, Inc.
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
Page 9 of 13
<PAGE> 10
3294 West Bayshore Road
Palo Alto, CA 94303
Fax: (650) 858-2937
Attention: President
In the case of Connetics: Connetics Corporation
3400 West Bayshore Road
Palo Alto, CA 94303
Fax: (650) 843-2899
Attention: Chief Executive Officer
Either Party may change its address for communications by a notice to the other
Party in accordance with this Section.
5.7 HEADINGS. The headings of the several sections are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
5.8 AMENDMENT. No amendment or modification hereof shall be valid or
binding upon the Parties unless made in writing and signed by both Parties.
5.9 GOVERNING LAW. This Agreement shall be governed exclusively by the
laws of the California, as such law applies to contracts entered into between
and to be performed by California residents entirely in California.
5.10 DISPUTE RESOLUTION.
(a) In the event of any controversy or claim arising out of,
relating to or in connection with any provision of this Agreement, or the rights
or obligations of the Parties, the Parties shall try to settle their differences
amicably between themselves by referring the disputed matter to the President of
InterMune and the Chief Executive Officer of Connetics for discussion and
resolution. Either Party may initiate such informal dispute resolution by
sending written notice of the dispute to the other Party, and within ten (10)
days after such notice such representatives of the Parties shall meet for
attempted resolution by good faith negotiations.
(b) If such personnel are unable to resolve such dispute within
thirty (30) days of initiating such negotiations, either Party may seek to have
such dispute resolved by binding arbitration under this Section 5.9. The
arbitration shall be held in Palo Alto, California according to the Commercial
Arbitration Rules of the American Arbitration Association (the "Rules"). The
arbitration will be conducted by a panel of three (3) arbitrators who are
knowledgeable in the subject matter that is at issue in the dispute, are not
affiliated directly or indirectly with either Party, and are selected by mutual
agreement of the Parties. Failing such agreement, the arbitrators shall be
selected appointed as provided in the Rules. During the arbitration, the Parties
shall have such discovery rights as the arbitrators may allow, consistent with
the discovery permitted by the Federal Code of Civil Procedure. In conducting
the arbitration, the arbitrators shall apply the rules of evidence applicable in
California, and shall be able to decree any and all relief of an equitable
nature, including but not limited to such relief as a temporary restraining
order, a preliminary injunction, or a
Page 10 of 13
<PAGE> 11
permanent injunction, as well as specific performance. The arbitrators shall
also be able to award direct and indirect damages, but shall not award any other
form of damage (e.g., punitive or exemplary damages).
(c) The reasonable fees and expenses, of the arbitrators, along with
the reasonable legal fees and expenses of the prevailing Party (including all
expert witness fees and expenses), the fees and expenses of a court reporter,
and any expenses for a hearing room, shall be paid as follows: If the
arbitrators rule in favor of one Party on all disputed issues in the
arbitration, the losing Party shall pay 100% of such fees and expenses; if the
arbitrators rule in favor of one Party on some issues and the other Party on
other issues, the arbitrators shall issue with the rulings a written
determination as to how such fees and expenses shall be allocated between the
Parties. The arbitrators shall allocate fees and expenses in a way that bears a
reasonable relationship to the outcome of the arbitration, with the Party
prevailing on more issues, or on issues of greater value or gravity, recovering
a relatively larger share of its legal fees and expenses.
(d) The decision of the arbitrators shall be final and may be
entered, sued on or enforced by the Party in whose favor it runs in any court of
competent jurisdiction at the option of such Party. Whether a claim, dispute or
other matter in question would be barred by the applicable statute of
limitations, which statute of limitations also shall apply to any claim or
disputes subject to arbitration under this Section, shall be determined by
binding arbitration pursuant to this Section.
5.11 FORCE MAJEURE. Any delays in performance by any Party under this
Agreement shall not be considered a breach of this Agreement if and to the
extent caused by occurrences beyond the reasonable control of the Party
affected, including but not limited to acts of God, embargoes, governmental
restrictions, fire, flood, explosion, riots, wars, civil disorder, rebellion or
sabotage. The Party suffering such occurrence shall immediately notify the other
Party as soon as practicable, and any time for performance hereunder shall be
extended by the actual time of delay caused by the occurrence.
5.12 INDEPENDENT CONTRACTORS. In making and performing this Agreement,
InterMune and Connetics act and shall act at all times as independent
contractors and nothing contained in this Agreement shall be construed or
implied to create an agency, partnership or employer and employee relationship
between InterMune and Connetics. At no time shall one Party make commitments or
incur any charges or expenses for or in the name of the other Party.
5.13 SEVERABILITY. If any part of this Agreement is declared invalid by
any legally governing authority having jurisdiction over either Party, then such
declaration shall not affect the remainder of the Agreement and the Parties
shall revise the invalidated part in a manner that will render such provision
valid without impairing the Parties' original interest.
5.14 CUMULATIVE RIGHTS. The rights, powers and remedies under this
Agreement shall be in addition to, and not in limitation of, all rights, powers
and remedies provided at law or in equity, or under any other agreement between
the Parties. All of such rights, powers and remedies shall be cumulative, and
may be exercised successively or cumulatively.
5.15 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which shall
constitute together the same document.
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<PAGE> 12
5.16 ENTIRE AGREEMENT. This Agreement, in conjunction with the other
"Intercompany Agreements" (as that term is described in the Collaboration
Agreement), embodies the entire understanding of the Parties with respect to the
subject matter of the Intercompany Agreements, and supersedes and terminates all
previous communications, representations or understandings, either oral or
written, between the Parties relating to the subject matter of the Intercompany
Agreements.
[INTENTIONALLY LEFT BLANK]
SIGNATURE PAGE FOLLOWS
Page 12 of 13
<PAGE> 13
IN WITNESS WHEREOF, both InterMune and Connetics have executed this Agreement,
as of the day and year first written above.
INTERMUNE PHARMACEUTICALS, INC. CONNETICS CORPORATION
By: /s/ W. Scott Harkonen By: /s/ T. Wiggans
------------------------- -------------------------------------
Name: W. Scott Harkonen Name: Thomas G. Wiggans
------------------------- -------------------------------------
Title: President Title: President and Chief Executive Officer
------------------------- -------------------------------------
Page 13 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 15,646
<SECURITIES> 6,813
<RECEIVABLES> 1,201
<ALLOWANCES> 0
<INVENTORY> 590
<CURRENT-ASSETS> 273
<PP&E> 4,246
<DEPRECIATION> 2,633
<TOTAL-ASSETS> 31,123
<CURRENT-LIABILITIES> 13,959
<BONDS> 0
0
0
<COMMON> 109,923
<OTHER-SE> (98,680)
<TOTAL-LIABILITY-AND-EQUITY> 31,123
<SALES> 2,161
<TOTAL-REVENUES> 7,161
<CGS> 1,171
<TOTAL-COSTS> 1,171
<OTHER-EXPENSES> 11,955
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 292
<INCOME-PRETAX> (5,923)
<INCOME-TAX> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,923)
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</TABLE>
