<PAGE> 1
Exhibit 10.1
STRUCTURED EQUITY LINE FLEXIBLE FINANCING(SM) AGREEMENT
Between
KEPLER CAPITAL LLC
And
CONNECTIVE THERAPEUTICS, INC.
Dated as of January 2, 1997
<PAGE> 2
STRUCTURED EQUITY LINE FLEXIBLE FINANCING(SM) AGREEMENT dated as of
January 2, 1997 (the "Agreement"), between Kepler Capital LLC (the "Investor"),
a limited liability company organized and existing under the laws of the State
of Delaware, and Connective Therapeutics, Inc., a corporation organized and
existing under the laws of the State of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue to the Investor, and the
Investor shall purchase from the Company, from time to time as provided herein,
the Company's Common Stock, par value $.001 per share (the "Common Stock"), for
an aggregate Purchase Price (as defined herein) of up to $25,000,000; and
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) promulgated by the Securities and Exchange Commission ("SEC")
under the United States Securities Act of 1933, as amended (the "Securities
Act"), and/or upon such other exemption from the registration requirements of
the Securities Act as may be available with respect to any or all of the
investments in Common Stock to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1 "Additional Warrant". See Section 2.8.
Section 1.2 "Additional Warrant Registration Statement". See Section
3.2(a).
Section 1.3 "Closing" shall mean the consummation of each purchase and
sale of Common Stock pursuant to Section 2.1.
Section 1.4 "Closing Date" shall mean, with respect to each purchase
and sale of Common Stock pursuant to this Agreement, the fifth Trading Day
following an Optional Purchase Date or a Mandatory Purchase Date, as the case
may be, provided all conditions to the Closing have been satisfied; provided,
however, that if the Investor shall notify the Company by the third Trading Day
that it does not expect to be able to complete its due diligence by such fifth
Trading Day, the Closing Date shall be the seventh Trading Day following such
Optional Purchase Date or Mandatory Purchase Date, as the case may be.
<PAGE> 3
Section 1.5 "Commitment Period" shall mean the period commencing on the
earlier to occur of (i) December 1, 1997 or (ii) such earlier date as the
Company and the Investor may mutually agree, and expiring on the earlier to
occur of (x) the date on which the Investor shall have purchased Common Stock
pursuant to this Agreement for an aggregate Purchase Price of $25,000,000, (y)
the date this Agreement is terminated pursuant to Section 2.6, or (z) the date
occurring three years (subject to extension as provided by Section 8.1) from the
date of commencement of such period.
Section 1.6 "Commitment Fee". See Section 2.8.
Section 1.7 "Equity Offerings" shall mean the issuance or sale by the
Company in a transaction exempt from or not subject to the registration
requirements of the Securities Act of any shares of Common Stock or securities
which are convertible into or exchangeable for its Common Stock or any warrants,
options or other rights to subscribe for or purchase its Common Stock or any
such convertible or exchangeable securities (other than shares of Common Stock
which may be issued upon exercise of options under the Company's employee or
director stock option plans, upon the conversion or exchange of convertible or
exchangeable securities or upon the exercise of warrants (including the Warrant
and the Additional Warrants), or other rights, which options, convertible or
exchangeable securities, warrants or other rights are outstanding on the date of
execution and delivery of the Agreement (other than the Additional Warrants) and
are listed in the SEC Documents on file with the Commission as of the date of
this Agreement (other than the Warrants and the Additional Warrants) and other
than (x) shares of Common Stock which may be issued upon exercise of options
granted under such plans, (y) shares of Common Stock which may be issued upon
exercise of the Warrant and the Additional Warrants, and (z) shares of Common
Stock or securities which are convertible into or exchangeable for Common Stock
or any warrants, options or other rights to subscribe for or purchase Common
Stock or any such convertible or exchangeable securities issued in strategic
corporate partnering transactions.
Section 1.8 The "Exchange Act". See Section 4.8.
Section 1.9 "Investment Amount" shall mean the amount invested by the
Investor with respect to any Optional Purchase Date or Mandatory Purchase Date,
as the case may be, as notified by the Company to the Investor in accordance
with Section 2.5 hereof.
Section 1.10 "Mandatory Purchase Date". See Section 2.1(b)(ii).
2
<PAGE> 4
Section 1.11 "Material Adverse Effect". See Section 5.5.
Section 1.12 "Optional Purchase Date". See Section 2.1(b)(i).
Section 1.13 "Principal Market" shall mean the Nasdaq National Market,
the Nasdaq Small-Cap Market, the American Stock Exchange or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock.
Section 1.14 "Purchase Price". See Section 2.2.
Section 1.15 "Registration Rights Agreement". See Section 2.8.
Section 1.16 "Registration Statement". See Section 3.2(a).
Section 1.17 "Securities Act". See the introductory paragraphs hereof.
Section 1.18 "SEC Documents". See Section 5.2.
Section 1.19 "Trading Day" shall mean any day during which the New York
Stock Exchange shall be open for business.
Section 1.20 "Valuation Period" shall mean the period commencing on the
Trading Day following but excluding an Optional Purchase Date or a Mandatory
Purchase Date and ending on and including the Trading Day on which the aggregate
Value of Open Market Trading for all Trading Days within such period is equal to
or greater than the aggregate Value of Open Market Trading for the twenty (20)
Trading Days preceding but excluding the Optional Purchase Date or the Mandatory
Purchase Date, as the case may be; provided, however, that such period shall not
exceed eighty (80) Trading Days.
Section 1.21 "Value of Open Market Trading" with respect to any Trading
Day shall mean the product of the reported trading volume of the Common Stock on
the Principal Market on any such day , multiplied by the low trading price of
the Common Stock on such day (each as determined in accordance with Section 12.4
hereof).
Section 1.22 "Warrants". See Section 2.8.
Section 1.23 "Warrant Registration Statement". See Section 3.2(a).
Section 1.24 "Warrant Shares". See Section 3.2(l).
3
<PAGE> 5
ARTICLE II
Purchase and Sale of Common Stock
Section 2.1 Investments. (a) Upon the terms and conditions set forth
herein (including, without limitation, the provisions of Article III hereof),
during the Commitment Period the Company may, on any Optional Purchase Date, and
shall, on any Mandatory Purchase Date, issue and sell to the Investor, and the
Investor shall purchase from the Company, the number of shares of Common Stock
to be sold pursuant to the provisions hereof at the Purchase Price per share
determined pursuant to Section 2.2 below.
(b) (i) An "Optional Purchase Date" is any
Trading Day that the Company in its sole discretion elects by delivery of an
Optional Purchase Notice pursuant to Section 2.5 to sell Common Stock to the
Investor, provided that on the preceding Trading Day (x) the closing bid price
of the Common Stock on the Principal Market is (i) greater than $7.00 per share,
and (ii) at least 105% of the average of the daily low trade prices of the
Common Stock for the five (5) Trading Days preceding, but excluding, such date,
(y) all conditions provided in this Agreement for the delivery of an Optional
Put Notice are satisfied, and (z) such exercise shall be in accordance with the
provisions of clause (c) below.
(ii) A "Mandatory Purchase Date" is any
Trading Day that the Company shall be required by delivery of a Mandatory
Purchase Notice pursuant to Section 2.5 to sell Common Stock to the Investor,
which requirement shall occur provided that on the preceding Trading Day (x) the
closing bid price of the Common Stock on the Principal Market is (i) greater
than $10.00 per share, and (ii) at least 110% of the average of the daily low
trade prices of the Common Stock for the five (5) Trading Days preceding, but
excluding, such date, (y) all conditions provided in this Agreement for the
delivery of a Mandatory Put Notice are satisfied, and (z) such exercise shall be
in accordance with the provisions of clause (c) below.
(c) The Company may in its sole discretion on
any Optional Purchase Date, and must on any Mandatory Purchase Date, sell to the
Investor the number of shares of Common Stock determined by dividing the
Investment Amount by the Purchase Price. In the case of an Optional Purchase
Date or a Mandatory Purchase Date, the Investment Amount shall be as determined
by the Company and shall be in the minimum amount of $500,000 and may be in
increments of $10,000 in excess thereof and shall not exceed $2,000,000;
provided that, the Investment Amount shall not exceed 5% of the aggregate Value
of Open Market Trading during the twenty (20) Trading Days preceding and
4
<PAGE> 6
excluding such Optional Purchase Date. The Company may not deliver an Optional
Purchase Notice or a Mandatory Purchase Notice prior to completion of the
Valuation Period relating to the previous issuance of Common Stock to the
Investor, whether pursuant an Optional Purchase Notice or Mandatory Purchase
Notice. In addition, the Company shall not deliver a Mandatory Purchase Notice
until the expiration of sixty (60) Trading Days following the Closing Date with
respect to the most recent previous issuance of Common Stock to the Investor
pursuant to a Mandatory Purchase Notice.
(d) The obligation of the Investor to purchase
and pay for shares of Common Stock hereunder shall be guaranteed by The Palladin
Group, L.P.
Section 2.2 Determination of Purchase Price. The purchase price per
share of the Company's Common Stock (the "Purchase Price"), shall be 93% (the
"Purchase Price Percentage") of the lesser of (i) the average of the daily low
trading price of the Common Stock on the Principal Market for the five (5) days
prior to but excluding an Optional Purchase Date or a Mandatory Purchase Date
(the "Initial Share Price") and (ii) the weighted average (by trading volume) of
the daily low trading prices of the Common Stock on the Principal Market during
the Valuation Period (the "Valuation Period Price"). The Purchase Price shall be
subject to change by adjustments to the Purchase Price Percentage, as provided
in Section 2.3 below.
Section 2.3 Adjustments of Purchase Price Percentage. The Purchase
Price Percentage shall be adjusted as follows:
(a) if the Valuation Period exceeds twenty (20) Trading Days but is
less than forty (40) Trading Days, the Purchase Price Percentage shall be 91%;
or
(b) if the Valuation Period exceeds forty (40) Trading Days but is less
than sixty (60) Trading Days, the Purchase Price Percentage shall be 89%; or
(c) if the Valuation Period exceeds sixty (60) Trading Days but is less
than eighty (80) Trading Days, the Purchase Price Percentage shall be 87%; or
(d) if the Valuation Period is eighty (80) Trading Days, the Purchase
Price Percentage shall be 85%.
Section 2.4 (a) Closings. On each Closing Date (i) the Company shall
deliver to the Investor one or more certificates representing the number of
shares of Common Stock to be purchased by the Investor pursuant to Section 2.1
herein, registered in the name of the Investor or, at the Investor's option,
deposit such
5
<PAGE> 7
certificate(s) into such account or accounts previously designated by the
Investor and (ii) the Investor shall deliver to the Company such amount of the
aggregate Purchase Price as determined pursuant to Section 2.4 (b) by wire
transfer of immediately available funds to an account designated by the Company
on or before the Closing Date. In addition, on or prior to the Closing Date,
each of the Company and the Investor shall deliver all documents, instruments
and writings required to be delivered or reasonably requested by either of them
pursuant to this Agreement in order to implement and effect the transactions
contemplated herein.
(b) Payment for the Common Stock Purchased by the Investor. On
the Closing Date, the Investor shall pay to the Company the Investment Amount
(less any amounts withheld pursuant to Section 11.2) and shall receive from the
Company the number of shares of Common Stock determined by dividing the
Investment Amount by the Initial Share Price (rounded to the next highest
number). If upon completion of the Valuation Period with respect to the shares
of Common Stock purchased on such Closing Date, it is determined that the
Valuation Period Price is less than the Initial Share Price, the Company shall
issue and deliver to the Investor an additional number of shares of Common Stock
(the "Additional Common Stock") such that the aggregate number of shares of
Common Stock issued to the Investor on the Closing Date together with the
Additional Common Stock multiplied by the Purchase Price shall equal the
Investment Amount. The Additional Common Stock shall be delivered to the
Investor within two (2) Trading Days following the end of the Valuation Period
and the Investor shall be deemed to have paid for the shares of Common Stock
purchased on the Closing Date as well as the Additional Common Stock in full. If
the Company fails to deliver to the Investor the Additional Common Stock within
such period, the Company shall pay to the Investor in cash liquidated damages in
an amount equal to (i) one percent (1%) of the total value of the Additional
Common Stock not delivered (as determined based on the closing bid price of the
Common Stock on the date by which delivery was required or any subsequent
Trading Days prior to delivery of such Additional Common Stock, whichever is
higher) for each of the first 7 days which the Company fails to deliver to the
Investor such Additional Common Stock, and (ii) three percent (3%) of the total
value of the Additional Common Stock (determined as aforesaid) not delivered
thereafter. In the event the Investor incurs actual damages in excess of such
liquidated damages amount as a result of the Company's failure to timely deliver
such Additional Common Stock, the Company shall be liable for any such excess
amount.
Section 2.5 Mechanics of Exercise.
(a) Delivery of Optional Purchase Notice. At any time during the
Commitment Period, the Company may deliver written notices to the Investor
6
<PAGE> 8
(each such notice hereinafter referred to as an "Optional Purchase Notice")
setting forth the Investment Amount, subject to the limitations imposed by
Sections 2.1 and 3.2(l) herein, which the Company intends to sell to the
Investor. The Company may not deliver an Optional Purchase Notice to the
Investor if the conditions set forth in Section 2.1(b)(i) are not satisfied or
if the events described in Section 2.6 occur, or if the conditions set forth in
Article III are not satisfied. If such Optional Purchase Notice does not comply
with Section 2.1(b)(i), any of the events described in Section 2.6 occur on or
after the date on which an Optional Purchase Notice is given, but prior to the
closing of the transaction on the Closing Date associated with such Optional
Purchase Notice, or if the conditions set forth in Article III are not
satisfied, such Optional Purchase Notice shall be null, void and of no further
force or effect.
(b) Delivery of Mandatory Purchase Notice. At any time during the
Commitment Period, the Company shall, on a Mandatory Purchase Date, deliver a
written notice to the Investor (each such notice hereinafter referred to as an
"Mandatory Purchase Notice") setting forth the Investment Amount, subject to the
limitations imposed by Sections 2.1 and 3.2(l) herein, which the Company is
required to sell to the Investor; provided, however, that in the event the
Company fails to deliver a Mandatory Purchase Notice, such notice shall be
deemed delivered as of the Mandatory Purchase Date and the Investment Amount
shall be deemed to be $500,000. The Company may not deliver a Mandatory Purchase
Notice to the Investor if the conditions set forth in Section 2.1(b)(ii) are not
satisfied or if the events described in Section 2.6 occur, or if the conditions
set forth in Article III are not satisfied. If the conditions set forth in
Section 2.1(b)(ii) are not satisfied, any of the events described in Section 2.6
occur on or after the date on which an Mandatory Purchase Notice is given, but
prior to the closing of the transaction on the Closing Date associated with such
Mandatory Purchase Notice, or if the conditions set forth in Article III are not
satisfied, such Mandatory Purchase Notice shall be null, void and of no further
force or effect.
(c) Date of Delivery of Optional Purchase Notice or Mandatory Purchase
Notice. An Optional Purchase Notice shall be deemed delivered on (i) the Trading
Day it is received by facsimile or otherwise by the Investor if such notice is
received prior to 5:00 P. M. New York time, or (ii) the immediately succeeding
Trading Day if it is received by facsimile or otherwise after 5:00 P. M. New
York time (in which case the provisions of Section 2.1(b)(i) must be satisfied
as of such immediately succeeding Trading Day. A Mandatory Purchase Notice shall
be deemed delivered (regardless of whether it is actually delivered) on the
Trading Day on which a Mandatory Purchase Date occurs. No Optional Purchase
Notice or Mandatory Purchase Notice may be delivered or deemed delivered, on a
day which is not a Trading Day.
7
<PAGE> 9
Section 2.6 Termination or Suspension of Investment Obligation. The
Investor shall not be required to purchase any shares of Common Stock from the
Company on any Closing Date nor may an Optional Purchase Notice be delivered nor
shall a Mandatory Purchase Notice be delivered at any time during the Commitment
Period that there shall exist any one or more of the following: (i) the
withdrawal of the effectiveness of the Registration Statement, (ii) the
withdrawal of the effectiveness of the Warrant Registration Statement or the
Additional Warrant Registration Statement or any other suspension of the use of
the Warrant Registration Statement or related prospectus or the Additional
Warrant Registration Statement or related prospectus pursuant to Paragraph
3.1(e) of the Registration Rights Agreement, (iii) the Company's failure to
satisfy the requirements in Section 3.2, or (iv) any failure or interruption in
the full compliance with the Company's covenants provided in Article 6;
provided, however that the obligation of the Investor to purchase shares of
Common Stock shall be terminated (including with respect to a Closing Date which
has not yet occurred) in the event that (x) there shall occur any stop order or
suspension of the effectiveness of the Registration Statement, the Warrant
Registration Statement or the Additional Registration Statement or any
withdrawal of the effectiveness of the Registration Statement, the Warrant
Registration Statement or the Additional Registration Statement for any reason
other than as a result of subsequent corporate developments which would require
such Registration Statement, the Warrant Registration Statement or the
Additional Registration Statement to be amended to reflect such event in order
to maintain its compliance with the disclosure requirements of the Securities
Act, or (y) the Company shall at any time fail to comply with the requirements
of Section 6.3, 6.4, 6.5 or 6.6.
Section 2.7 Repurchase of Common Stock by the Company. If the daily low
trade price for the Common Stock on the Principal Market for five (5)
consecutive Trading Days within the Valuation Period relating to an Optional
Purchase Date or a Mandatory Purchase Date, as the case may be, is less than 80%
of the applicable Initial Share Price, the Company shall be required to
repurchase from the Investor such number of shares of Common Stock held by the
Investor up to the total number of shares of Common Stock sold to the Investor
on the applicable Closing Date at a purchase price per share equal to the
applicable Initial Share Price. On the fifth Trading Day from the Trading Day
the Company is required to repurchase Common Stock from the Investor, the
Investor shall deliver to the Company the total number of shares of Common Stock
it owns on such date against delivery by the Company of the purchase price
therefor.
Section 2.8 Commitment Fee. On the date of execution and delivery of
this Agreement, the Company will issue to the Investor a warrant exercisable
from time to time within five (5) years from the date of issuance (the
"Warrant") to purchase
8
<PAGE> 10
an aggregate of 250,000 shares of Common Stock at a price equal to 110% of the
closing bid price on the Principal Market of the Company's Common Stock on the
date of this Agreement. The Warrant shall be delivered by the Company to the
Investor upon execution of this Agreement by the parties hereto. The shares of
Common Stock to be issued upon exercise of the Warrant shall be registered for
resale on the Registration Statement referenced in Section 3.2(a) herein. On
each of the first, second and third anniversary of the commencement of the
Commitment Period, the Company shall issue to the Investor an additional warrant
exercisable from time to time within five (5) years from the date of issuance
(each an "Additional Warrant") to purchase an aggregate number of shares of
Common Stock equal to the product of (A) $8,333,000 minus the Aggregate
Investment Amount with respect to Common Stock sold by the Company to the
Investor during the preceding twelve-month period divided by $8,333,000 times
(B) 25,000, at a purchase price equal to 110% of the closing bid price on the
Principal Market of the Company's Common Stock on the applicable anniversary
date, subject to adjustment as provided below. The resale by the Investor of
Common Stock issuable upon exercise of the Warrant as well as each Additional
Warrant shall be subject to a registration rights agreement (the "Registration
Rights Agreement") entered into between the Company and the Investor on the date
of execution of this Agreement. The number of shares of Common Stock issuable
upon exercise of an Additional Warrant shall be increased as provided by the
following sentence, if during the twelve-month period preceding the issuance of
such Additional Warrant, the Company completes an Equity Offering and (x) on the
date of closing of such Equity Offering or on any of the thirty (30) preceding
Trading Days, conditions for the delivery of an Optional Purchase Notice
provided by Section 2.1(b)(i) relating to the closing bid price of the Common
Stock on the Principal Market and the trading volume of the Common Stock on the
Principal Market are met, and (y) at any time during such period the Company
shall have not been prohibited by the penultimate sentence of Section 2.1(c)
from delivering an Optional Purchase Notice to the Investor. The number of
shares of Common Stock otherwise issuable upon exercise of each Additional
Warrant shall be increased by an amount equal to the product of (i) the average
daily Value of Open Market Trading for the period set forth in clause (x) above,
times (ii).003333. Each of the Warrant and each Additional Warrant shall be
substantially in the form of Exhibit A hereto.
ARTICLE III
Conditions to Delivery of Optional Purchase Notices
and Mandatory Purchase Notices and Conditions to Closing
Section 3.1 Conditions Precedent to the Obligation of the Company to
Issue and Sell Common Stock. The obligation hereunder of the Company to issue
and
9
<PAGE> 11
sell Common Stock to the Investor incident to each Closing is subject to the
satisfaction, at or before each such Closing, of each of the conditions set
forth below.
(a) Accuracy of the Investor's Representation and Warranties.
The representations and warranties of the Investor shall be true and correct in
all material respects as of the date of this Agreement and as of the date of
each such Closing as though made at each such time.
(b) Performance by the Investor. The Investor shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Investor at or prior to such Closing.
(c) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which, in the reasonable opinion of the Company and its legal
counsel, prohibits or adversely affects any of the transactions contemplated by
this Agreement, and no proceeding shall have been commenced which may have the
effect of prohibiting or adversely affecting any of the transactions
contemplated by this Agreement.
Section 3.2 Conditions Precedent to the Right of the Company to Deliver
an Optional Purchase Notice, the Obligation of the Company to Deliver a
Mandatory Purchase Notice and the Obligation of the Investor to Purchase Common
Stock. The right of the Company to deliver an Optional Purchase Notice, the
obligation of the Company to deliver a Mandatory Purchase Notice and the
obligation of the Investor hereunder to acquire and pay for Common Stock
incident to the Closing is subject to the satisfaction, on the date of delivery
of such Optional Purchase Notice or Mandatory Purchase Notice, as applicable,
and on the applicable Closing Date (each a "Condition Satisfaction Date") of
each of the following conditions.
(a) Registration of the Common Stock with the SEC. The Company
shall have filed with the SEC (i) a registration statement on Form S-3 (the
"Registration Statement") for the registration of the resale by the Investor of
Common Stock to be acquired pursuant to this Agreement (not including Common
Stock to be issued upon exercise of the Warrants) under the Securities Act,
which Registration Statement shall have been declared effective by the SEC prior
to the first Optional Purchase Date or Mandatory Purchase Date, as the case may
be, but in no event later than December 1, 1997, (ii) by March 15, 1997, in
accordance with the Registration Rights Agreement a registration statement on
Form S-3 for the registration of the resale by the Investor of Common Stock to
be issued upon exercise of the Warrant (the "Warrant Registration Statement"),
and (iii) within
10
<PAGE> 12
thirty (30) days of the issuance of any Additional Warrants, in accordance with
the Registration Rights Agreement, a registration statement on Form S-3 for the
registration of the resale by the Investor of Common Stock to be issued upon
exercise of such Additional Warrants (each an "Additional Warrant Registration
Statement"); and no stop order or suspension or withdrawal of the effectiveness
of or with respect to any such registration statement or any other suspension of
the use of any such registration statement or related prospectus shall have been
issued by the SEC or any states securities commission during the Commitment
Period; and the Company shall be in compliance with the terms of the
Registration Rights Agreement.
(b) Effective Registration Statement. The Registration
Statement shall have previously become effective and shall remain effective on
each Condition Satisfaction Date and (i) neither the Company nor the Investor
shall have received notice that the SEC has issued or intends to issue a stop
order with respect to the Registration Statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of the Registration Statement, either
temporarily or permanently, or intends or has threatened to do so, and (ii) no
other suspension of the use of the Registration Statement or prospectus shall
exist pursuant to Paragraph 3.1(e) of the Registration Rights Agreement.
(c) Accuracy of the Company's Representations and Warranties.
The representations and warranties of the Company shall be true and correct as
of each Condition Satisfaction Date as though made at each such time (except for
representations and warranties specifically made as of a particular date) with
respect to all periods, and as to all events and circumstances occurring or
existing to and including each Condition Satisfaction Date.
(d) Performance by the Company. The Company shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to each Condition Satisfaction Date.
(e) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits or adversely affects any of the transactions
contemplated by this Agreement, and no proceeding shall have been commenced
which may have the effect of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement.
11
<PAGE> 13
(f) Adverse Changes. Since the date of filing of the Company's
most recent SEC Document, no event which had or is reasonably likely to have a
Material Adverse Effect (as that term is defined in Section 5.5 hereof) has
occurred.
(g) No Suspension of Trading In or Delisting of Common Stock.
The trading of the Common Stock shall not have been suspended by the SEC, the
Principal Market or the National Association of Securities Dealers, Inc. (the
"NASD") and the Common Stock shall have been approved for listing or quotation
on and shall not have been delisted from the Principal Market. The issuance of
shares of Common Stock with respect to the applicable Closing, if any, shall not
violate the shareholder approval requirements of the Principal Market.
(h) Legal Opinions. The Company shall have caused to be
delivered to the Investor, (i) within five (5) Trading Days of the effective
date of the Registration Statement, (ii) as of a date subsequent to the date of
the Company's filing of its most recent quarterly report on Form 10-Q (or the
date by which such report is required to be filed), (iii) as of a date
subsequent to the date on which the Company announces, whether on a preliminary
or definitive basis, its fourth quarter or full-year financial results and (iv)
to the extent provided by Section 3.3, an opinion of the Company's independent
counsel containing the opinions and statements set forth in Exhibit B hereto,
addressed to the Investor stating, inter alia, that in such counsel's belief the
Registration Statement (if applicable, as so amended by such SEC Document) does
not contain an untrue statement of material fact or omits a material fact
required to make the statements contained therein, not misleading or that the
underlying prospectus (if applicable, as so amended or supplemented) does not
contain an untrue statement of material fact or omits a material fact required
to make the statements contained therein, in light of the circumstances in which
they were made, not misleading; provided, however, that in the event that such
an opinion cannot be delivered by the Company's independent counsel to the
Investor, the Company shall promptly revise the Registration Statement and shall
not deliver an Optional Purchase Notice or a Mandatory Purchase Notice or, if an
Optional Purchase Notice or Mandatory Purchase Notice shall have been delivered
in good faith without knowledge by the Company that an opinion of independent
counsel can not be delivered as required, postpone such Closing Date for a
period of up to five (5) Trading Days until such an opinion is delivered to the
Investor (or such Closing shall otherwise be cancelled). In the event of such a
postponement, the Purchase Price of the Common Stock to be issued at such
Closing as determined pursuant of Section 2.2 shall be the lower of the such
Purchase Price as calculated as of the originally scheduled Closing Date and as
of the actual Closing Date. The Company's independent counsel shall also deliver
to the Investor upon execution of this agreement an opinion in form and
substance satisfactory to the Investor addressing, among other things, corporate
matters and
12
<PAGE> 14
the exemption from registration under the Securities Act of the issuance of the
Common Stock by the Company to the Investor under this Agreement.
(i) Accountant's Letter. (a) The Company shall engage the
Company's independent auditors to perform certain agreed upon procedures and
report thereon in accordance with the provisions of Statement on Auditing
Standards No. 71 with respect to the Company's quarterly financial information
and, upon issuance of such reports, the Company will provide copies thereof to
the Investor (each, a "Quarterly Review Report"). A copy of each Quarterly
Review Report shall be delivered to the Investor within five (5) Trading Days of
the filing with the SEC of each of the Company's Quarterly Reports on Form 10-Q.
(b) The Company shall engage its independent auditors to perform certain agreed
upon procedures and report thereon as shall have been reasonably requested by
the Investor with respect to certain financial information contained in the
Registration Statement and shall have delivered to the Investor, within five (5)
Trading Days of the effective date of the Registration Statement, a copy of such
report addressed to the Company. (c) In the event that no Quarterly Review
Report shall have been delivered by the Company's independent auditors to the
Company for more than ninety (90) days since the reporting date to which the
previously delivered report relates or (y) the Investor shall have requested
delivery of such a report to the Company pursuant to Section 3.3, the Company
shall engage its independent auditors to perform certain agreed upon procedures
and report thereon as shall have been reasonably requested by the Investor with
respect to certain financial information of the Company and the Company shall
deliver to the Investor a copy of such report. In the event that the report
required by this Section 3.2(i) cannot be delivered by the Company's independent
auditors, the Company shall, if necessary, promptly revise the Registration
Statement and shall not deliver an Optional Purchase Notice or a Mandatory
Purchase Notice or, if an Optional Purchase Notice or Mandatory Purchase Notice
shall have been delivered in good faith without knowledge by the Company that a
report of its independent auditors can not be delivered as required, postpone
such Closing Date for a period of up to five (5) Trading Days until such a
report is delivered (or such Closing shall otherwise be canceled). In the event
of such a postponement, the Purchase Price of the Common Stock to be issued at
such Closing as determined pursuant to Section 2.2 shall be the lower of such
Purchase Price as calculated as of the originally scheduled Closing Date and as
of the actual Closing Date.
(j) Officer's Certificate. The Company shall have delivered to
the Investor, on each Closing Date, a certificate in substantially the form and
substance of Exhibit C hereto, executed in either case by an executive officer
of the Company and to the effect that all the conditions to such Closing shall
have been satisfied as at the date of each such certificate.
13
<PAGE> 15
(k) Due Diligence. No dispute between the Company and the
Investor shall exist pursuant to Section 3.3 as to the adequacy of the
disclosure contained in the Registration Statement.
(l) Other. On each Closing Date (i) the additional shares of
Common Stock then to be purchased by the Investor shall not exceed the number of
such shares which, when aggregated with all other shares of Common Stock then
owned by the Investor pursuant to this Agreement and with the shares of Common
Stock ("Warrant Shares") beneficially or deemed beneficially owned by the
Investor pursuant to the Warrant and each Additional Warrant (if then issued and
outstanding) theretofore issued to the Investor pursuant to Section 2.8 hereof,
would result in the Investor owning more than 4.9% of all of such Common Stock
as would be outstanding on such Closing Date, as determined in accordance with
Section 13(d) of the Exchange Act and the regulations promulgated thereunder and
(ii) the Investor shall have received and been reasonably satisfied with such
other certificates and documents as shall have been reasonably requested by the
Investor in order for the Investor to confirm the Company's satisfaction of the
conditions set forth in Section 3.2. For purposes of clause (i) of this Section
3.2(l), in the event that the amount of Common Stock outstanding as determined
in accordance with Section 13(d) of the Exchange Act and the regulations
promulgated thereunder is greater on a Closing Date than on the date upon which
the Optional Purchase Notice or Mandatory Purchase Notice associated with such
Closing Date is given, the amount of Common Stock outstanding on such Closing
Date shall govern for purposes of determining whether the Investor, when
aggregating all purchases of Common Stock made pursuant to this Agreement and,
if any, Warrant Shares, would own more than 4.9% of the Common Stock following
such Closing Date.
Section 3.3 Due Diligence Review. The Company shall make available for
inspection and review by the Investor, advisors to and representatives of the
Investor (who may or may not be affiliated with the Investor and who are
reasonably acceptable to the Company), any underwriter participating in any
disposition of Common Stock on behalf of the Investor pursuant to the
Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, NASD or other filing, all financial and
other records, all SEC Documents and other filings with the SEC, and all other
corporate documents and properties of the Company as may be reasonably necessary
for the purpose of such review, and cause the Company's officers, directors and
employees to supply all such information reasonably requested by the Investor or
any such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the
14
<PAGE> 16
Investor and such representatives, advisors and underwriters and their
respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the Registration
Statement.
The Company shall not disclose non-public information to the Investor,
advisors to or representatives of the Investor unless prior to disclosure of
such information the Company identifies such information as being non-public
information and provides the Investor, such advisors and representatives with
the opportunity to accept or refuse to accept such non-public information for
review. The Company may, as a condition to disclosing any non-public information
hereunder, require the Investor's advisors and representatives to enter into a
confidentiality agreement in form reasonably satisfactory to the Company and the
Investor.
Nothing herein shall require the Company to disclose non-public
information to the Investor, his advisors or representatives, and the Company
represents that it does not disseminate non-public information to any investors
who purchase stock in the Company in a public offering, to money managers or to
securities analysts, provided, however, that notwithstanding anything herein to
the contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements,
therein, in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 3.3 shall be construed to mean that such
persons or entities other than the Investor (without the written
15
<PAGE> 17
consent of the Investor prior to disclosure of such information) may not obtain
non-public information in the course of conducting due diligence in accordance
with the terms of this Agreement and nothing herein shall prevent any such
persons or entities from notifying the Company of their opinion that based on
such due diligence by such persons or entities, that the Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading; provided, however, that in no event shall the Investor's
advisors or representatives disclose to the Investor the nature of the specific
event or circumstances constituting any non-public information discovered by
such advisors or representatives in the course of their due diligence (without
the written consent of the Investor prior to disclosure of such information).
The Investor's advisers or representatives shall make complete disclosure to the
Investor's independent counsel of all events or circumstances constituting
non-public information discovered by such advisors or representatives in the
course of their due diligence upon which such advisors or representatives form
the opinion that the Registration Statement contains an untrue statement of a
material fact or omits a material fact required to be stated in the Registration
Statement or necessary to make the statements contained therein, in the light of
the circumstances in which they were made, not misleading. Upon receipt of such
disclosure, the Investor's independent counsel shall consult with the Company's
independent counsel in order to address the concern raised as to the existence
of a material misstatement or omission and to discuss appropriate disclosure
with respect thereto. In the event after such consultation the Investor's
independent counsel believes that the Registration Statement contains an untrue
statement or a material fact or omits a material fact required to be stated in
the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading,
(x) the Company shall file with the SEC an amendment to the Registration
Statement responsive to such alleged untrue statement or omission and provide
the Investor, as promptly as practicable with copies of the Registration
Statement and related prospectus, as so amended, (y) if the Company disputes the
existence of any such material misstatement or omission, (i) the Company's
independent counsel shall provide the Investor's independent counsel with an
opinion stating that nothing has come to their attention that would lead them to
believe that the Registration Statement or the related prospectus, as of the
date of such opinion contains an untrue statement of a material fact or omits a
material fact required to be stated in the Registration Statement or the related
prospectus or necessary to make the statements contained therein, in light of
the circumstances in which they were made, not misleading and (ii) in the event
the dispute relates to the adequacy of financial disclosure and the Investor
shall reasonably request, the Company's independent auditors shall provide to
the Company a letter outlining the performance of such "agreed upon procedures"
as shall be reasonably requested by the Investor and the Company shall provide
the Investor with a copy of such letter, or (z) if the Company disputes the
existence of any such material misstatement or omission, and the dispute relates
to the timing of disclosure of a material event and the Company's independent
counsel is unable to provide the opinion referenced in clause (y) above to the
Investor, then this Agreement shall be suspended for a period of up to thirty
(30) days, at the end of which, if the dispute still exists between the
Company's independent counsel and the Investor's independent counsel, the
Company shall either (i) amend the Registration Statement as provided above,
(ii) provide to the Investor the Company's independent counsel opinion and a
copy of the letter of the Company's independent auditors referenced above, or
(iii) this Agreement shall be suspended for an
16
<PAGE> 18
additional period of up to thirty (30) days; provided, however, that at the end
of such sixty (60) day period, if the dispute still exists between the Company's
independent counsel and the Investor's independent counsel, the Company shall
either (i) amend the Registration Statement as provided above, (ii) provide the
Company's independent counsel opinion referenced above, or (iii) the obligation
of the Investor to purchase shares of Common Stock pursuant to this Agreement
shall terminate.
ARTICLE IV
Representations and Warranties of Investor
The Investor represents and warrants to the Company that:
Section 4.1 Intent. The Investor is entering into this Agreement for
its own account and the Investor has no present arrangement (whether or not
legally binding) at any time to sell the Common Stock to or through any person
or entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
Section 4.2 Sophisticated Investor. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited
investor (as defined in Rule 501 of Regulation D), and Investor has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in Common Stock. The Investor acknowledges
that an investment in the Common Stock is speculative and involves a high degree
of risk.
Section 4.3 Authority. This Agreement has been duly authorized and
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 4.4 No Brokers. The Investor has taken no action which would
give rise to any claim by any person for brokerage commission, finder's fees or
similar payments by the Company relating to this Agreement or the transactions
contemplated hereby, except for dealings with AFO Capital Advisors LLC, whose
fees will be paid for by the Investor.
17
<PAGE> 19
Section 4.5 Not an Affiliate. The Investor is not an officer, director
or "affiliate" (as that term is defined in Rule 405 of the Securities Act) of
the Company.
Section 4.6 Organization and Standing. Investor is a limited liability
company duly organized, validly existing, and in good standing under the laws of
Delaware.
Section 4.7 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Investor, or the
provision of any indenture, instrument or agreement to which Investor is a party
or is subject, or by which Investor or any of its assets is bound, or conflict
with or constitute a material default thereunder, or result in the creation or
imposition of any lien pursuant to the terms of any such indenture, instrument
or agreement, or constitute a breach of any fiduciary duty owed by Investor to
any third party, or require the approval of any third-party (which has not been
obtained) pursuant to any material contract, agreement, instrument, relationship
or legal obligation to which Investor is subject or to which any of its assets,
operations or management may be subject.
Section 4.8 Disclosure; Access to Information. Investor has received
all documents, records, books and other information pertaining to Investor's
investment in the Company that have been requested by Investor. Investor further
acknowledges that it understands that the Company is subject to the periodic
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Investor has reviewed or received copies of any such
reports that have been requested by it.
Section 4.9 Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
ARTICLE V
Representations and Warranties of the Company
The Company represents and warrants to the Investor that:
Section 5.1 Company Status. The Company has registered its Common Stock
pursuant to Section 12(b) or 12(g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company has
maintained
18
<PAGE> 20
all requirements for the continued listing or quotation of its Common Stock, and
such Common Stock is currently listed or quoted on the Principal Market. As of
the date hereof, the Principal Market is the Nasdaq National Market.
Section 5.2 Current Public Information. The Company has furnished the
Investor with true and correct copies of all registration statements, reports
and documents, including proxy statements (other than preliminary proxy
statements), filed with the SEC by or with respect to the Company since February
1, 1996, pursuant to the Securities Act or Exchange Act. All such registration
statements, reports and documents, together with those registration statements,
reports and documents filed pursuant to the Securities Act or Exchange Act
subsequent to the date of this Agreement are collectively referred to herein as
the "SEC Documents").
Section 5.3 No General Solicitation in Regard to this Transaction.
Neither the Company nor any of its affiliates nor any distributor or any person
acting on its or their behalf has conducted any general solicitation (as that
term is used in Rule 502(c) of Regulation D) with respect to any of the Common
Stock, nor have they made any offers or sales of any security or solicited any
offers to buy any security under any circumstances that would require
registration of the Common Stock under the Securities Act.
Section 5.4 Valid Issuance of Common Stock. As of the date of this
Agreement, the Company has authorized capitalization consisting of 50,000,000
shares of Common Stock, par value $.001 and 5,000,000 shares of Preferred Stock,
par value $.001, 200 shares of which have been designated 7% Convertible
Preferred Stock, Series A (the "Series A Stock") and outstanding stock options
granted or reserved for issuance to employees, consultants and directors as
described in the SEC Documents on file with the Commission as of the date of
this Agreement. As of December 27, 1996, there were issued and outstanding
8,420,550 shares of Common Stock and 200 shares of Series A Stock and no other
series of preferred stock was outstanding as of such date. As of the date of
this Agreement, the Company has no other outstanding securities convertible into
Common Stock other than as described in the SEC Documents on file with the
Commission as of the date of this Agreement. Since December 27, 1996, the
Company has issued 637,733 shares of Common Stock to SmithKline Beecham
Corporation in connection with the sale of a product. All of the outstanding
shares of Common Stock of the Company have been duly and validly authorized and
issued and are fully paid and nonassessable, upon issuance of the Common Stock,
the Common Stock will be duly and validly issued, fully paid and nonassessable,
and the holders of outstanding Common Stock of the Company are not and shall not
be entitled to preemptive or other rights afforded by the Company or other
rights afforded by the Company to subscribe for
19
<PAGE> 21
the capital stock or other securities of the Company as a result of the sale of
the Common Stock to the Investor hereunder.
Section 5.5 Organization and Qualification. The Company is a
corporation duly incorporated and existing in good standing under the laws of
the State of Delaware and has the requisite corporate power to own its
properties and to carry on its business as now being conducted. The Company does
not have any subsidiaries. The Company and each subsidiary, if any, is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect. "Material
Adverse Effect" means any effect on the business, operations, properties,
prospects, or financial condition of the Company and which is material and
adverse to the Company or to the Company and such other entities controlling or
controlled by the Company, taken as a whole and/or any condition or situation
which would prohibit or otherwise interfere with the ability of the Company to
enter into and perform its obligations under this Agreement.
Section 5.6 Authorization; Enforcement. (i) The Company has the
requisite corporate power and authority to enter into and perform this Agreement
and to issue the Common Stock, the Warrants and each Additional Warrant in
accordance with the terms hereof and thereof, (ii) the execution, issuance and
delivery of this Agreement by the Company and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company or its
Board of Directors or stockholders is required (other than such stockholder
approval as may be required by the standards imposed on companies listed on the
Nasdaq Stock Market with respect to issuances by such companies of greater than
20% of such companies' outstanding voting stock), (iii) this Agreement has been
duly executed and delivered by the Company and constitutes valid and binding
obligations of the Company enforceable against the Company in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application and (iv) the Common Stock issuable in accordance with the
terms of this Agreement or upon exercise of the Warrants and each Additional
Warrant will be duly validly issued, fully paid and nonassessable.
Section 5.7 Corporate Documents. The Company has furnished or made
available to the Investor true and correct copies of the Company's Certificate
of Incorporation, as amended and in effect on the date hereof (the
"Certificate"), and
20
<PAGE> 22
the Company's By-Laws, as amended and in effect on the date hereof (the
"By-Laws").
Section 5.8 No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance of
Common Stock, the Warrant and each Additional Warrant do not and will not (i)
result in a violation of the Company's Certificate of Incorporation or By-Laws
or (ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or (iii) result in a violation of any federal, state,
local or foreign law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations) applicable to the Company or
any of its subsidiaries or by which any property or asset of the Company or any
of its subsidiaries is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect) nor is
the Company otherwise in violation of, conflict with or in default under any of
the foregoing; provided that, for purposes of the Company's representations and
warranties as to violations of foreign law, rule or regulation referenced in
clause (iii), such representations and warranties are made only to the best of
the Company's knowledge insofar as the execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby are or may be affected by the status of the
Investor under or pursuant to any such foreign law, rule or regulation). The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations which either singly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under federal, state or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Common Stock or the Warrant and the Additional
Warrants in accordance with the terms hereof (other than any SEC, NASD or state
securities filings which may be required to be made by the Company subsequent to
any Closing, and any registration statement which may be filed pursuant hereto
and other than any shareholder approval required by the rules applicable to
companies whose common stock trades on the Nasdaq National Market referenced in
Section 5.6); provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investor herein.
21
<PAGE> 23
Section 5.9 SEC Documents. The Company has delivered or made available
to the Investor true and complete copies of the SEC Documents (including,
without limitation, proxy information and solicitation materials). The Company
has not provided to the Investor any information which, according to applicable
law, rule or regulation, should have been disclosed publicly prior to the date
hereof by the Company but which has not been so disclosed. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
rules and regulations of the SEC promulgated thereunder and other federal, state
and local laws, rules and regulations applicable to such SEC Documents, and none
of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
Section 5.10 No Material Adverse Change. Since February 1, 1996, no
Material Adverse Effect has occurred or exists with respect to the Company or
its subsidiaries, except as disclosed in the SEC Documents.
Section 5.11 No Undisclosed Liabilities. The Company and its
subsidiaries have no liabilities or obligations which are material, individually
or in the aggregate, and are not disclosed in the SEC Documents or otherwise
publicly announced, other than those incurred in the ordinary course of the
Company's or its subsidiaries' respective businesses since February 1, 1996, and
which, individually or in the aggregate, do not or would not have a Material
Adverse Effect on the Company and upon any of its subsidiaries.
Section 5.12 No Undisclosed Events or Circumstances. Since February 1,
1996, no event or circumstance has occurred or exists with respect to the
Company or its subsidiaries or their respective businesses, properties,
prospects, operations or financial condition, which, under applicable law, rule
or regulation, requires public
22
<PAGE> 24
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed in the SEC Documents.
Section 5.13 No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement, under circumstances
that would require registration of the Common Stock under the Securities Act.
Section 5.14 No Brokers. The Company has taken no action which would
give rise to any claim by any person for brokerage commissions, finder's fees or
similar payments by the Investor relating to this Agreement for the transactions
contemplated hereby, except for dealings with AFO Capital Advisors LLC, whose
fees will be paid for by the Investor.
Section 5.15 Litigation and Other Proceedings. Except as may be set
forth in the SEC Documents, there are no lawsuits or proceedings pending or to
the best knowledge of the Company threatened, against the Company, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which might have a Material Adverse Effect on the Company or
which might materially adversely affect the transactions contemplated by this
Agreement. Except as set forth in the SEC Documents no judgment, order, writ,
injunction or decree or award has been issued by or, so far as is known by the
Company, requested of any court, arbitrator or governmental agency which might
result in a Material Adverse Effect on the Company or which might materially
adversely affect the transactions contemplated by this Agreement.
ARTICLE VI
Covenants of the Company
Section 6.1 Registration Rights. The Registration Rights Agreement
shall remain in full force and effect and the Company shall comply in all
respects with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof, the
Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to satisfy any obligation to issue shares of
its Common Stock incident to the Closings and incident to the exercise of the
Warrant and each Additional Warrant issued hereunder; such amount of shares of
Common Stock to be reserved to be calculated based upon the minimum Purchase
Price
23
<PAGE> 25
therefore under the terms of this Agreement, and assuming the full exercise of
the Warrant and each Additional Warrant. The number of shares so reserved from
time to time, as theretofore increased or reduced as hereinafter provided, may
be reduced by the number of shares actually delivered hereunder and the number
of shares so reserved shall be increased to reflect (a) potential increases in
the Common Stock which the Company may thereafter be so obligated to issue by
reason of adjustments to the Purchase Price therefore and the issuance of the
Warrant and each Additional Warrant and (b) stock splits and stock dividends and
distributions.
Section 6.3 Listing of Common Stock. The Company hereby agrees to
maintain the listing of the Common Stock on a Principal Market, and as soon as
practicable but in any event prior to the commencement of the Commitment Period
to list the additional shares of Common Stock issuable under this Agreement
(including Common Stock issuable upon exercise of the Warrant and the Additional
Warrants). The Company further agrees, if the Company applies to have the Common
Stock traded on any other Principal Market, it will include in such application
the Common Stock issuable under this Agreement (including Common Stock issuable
upon exercise of the Warrant and the Additional Warrants), and will take such
other action as is necessary or desirable to cause the Common Stock to be listed
on such other Principal Market as promptly as possible. The Company shall
maintain sufficient net tangible assets to satisfy the requirements of the NASD
for the listing of the Common Stock on the Nasdaq National Market. The Company
shall undertake its best efforts to obtain the shareholder approval referenced
in Section 5.6 required for the issuance of Common Stock under this Agreement
within such time period as shall not at any time preclude the Company from
providing an Optional Purchase Notice or Mandatory Purchase Notice for the
maximum Investment Amount provided by Section 2.1 (c).
Section 6.4 Exchange Act Registration. The Company will cause its
Common Stock to continue to be registered under Section 12(g) or 12(b) of the
Exchange Act, will comply in all respects with its reporting and filing
obligations under said Act, and will not take any action or file any document
(whether or not permitted by said Act or the rules thereunder) to terminate or
suspend such registration or to terminate or suspend its reporting and filing
obligations under said Act. The Company will take all action to continue the
listing and trading of its Common Stock on the Principal Market and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the NASD and the Principal Market.
Section 6.5 Legends. The certificates evidencing the Common Stock to be
issued to the Investor at each Closing and upon the exercise of the Warrant and
each Additional Warrant, subject to the continued effectiveness of the
appropriate
24
<PAGE> 26
registration statement, shall be free of legends, so-called "stop transfer," or
"stock transfer restrictions," or other restrictions upon transfer by the
Investor to a bona fide third party which is not an affiliate of the Company.
Section 6.6 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.7 Additional SEC Documents. The Company will furnish to the
Investor, as and when the originals thereof are submitted to the SEC for filing,
copies of all SEC Documents so furnished or submitted to the SEC.
Section 6.8 "Blackout Period". (a) The Company shall not deliver to the
Investor an Optional Purchase Notice at any time during the five (5) Trading Day
period prior to filing with the SEC of an SEC Document nor shall it deliver a
Mandatory Purchase Notice during such period to the extent the Company can
reasonably be expected to anticipate the filing of an SEC Document.
(b) The Company will immediately notify the Investor upon the
occurrence of any of the following events in respect of a registration statement
or related prospectus in respect of an offering of Registrable Securities; (i)
receipt of any request for additional information by the SEC or any other
federal or state governmental authority during the period of effectiveness of
the registration statement for amendments or supplements to the registration
statement or related prospectus; (ii) the issuance by the SEC or any other
federal or state governmental authority of any stop order suspending the
effectiveness of the registration statement or the initiation of any proceedings
for that purpose; (iii) receipt of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
which makes any statement made in the registration statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or which requires the making of any
changes in the registration statement, related prospectus or documents so that,
in the case of the registration statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (vi) the Company's
reasonable determination that a post-effective amendment to the registration
statement would be appropriate; and the Company will promptly make available to
the Investor any such supplement or amendment to the related
25
<PAGE> 27
prospectus. The Company shall not deliver to the Investor any Optional Purchase
Notice or Mandatory Purchase Notice during the continuation of any of the
foregoing events.
Section 6.9 Expectations Regarding Optional Purchase Notices and
Mandatory Purchase Notices. Within 10 days after the commencement of each
calendar quarter occurring subsequent to the commencement of the Commitment
Period, the Company undertakes to notify the Investor as to its reasonable
expectations as to the dollar amount it intends to raise during such calendar
quarter, if any, through the issuance of Optional Purchase Notices and Mandatory
Purchase Notices. Such notification shall constitute only the Company's good
faith estimate and shall in no way obligate the Company to raise such amount, or
any amount, or otherwise limit its ability to deliver Optional Purchase Notices
or Mandatory Purchase Notices. The failure by the Company to comply with this
provision can be cured by the Company's notifying the Investor at any time as to
its reasonable expectations with respect to the current calendar quarter.
ARTICLE VII
Legends
Section 7.1 Legends. Each of the Warrant and each Additional Warrant
and, unless otherwise provided below, the Common Stock will bear the following
legend (the "Legend"):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
THEY MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
Upon the execution and delivery hereof, the Company is issuing to the
transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock coterminous with the Company's appointment
of any such substitute or replacement transfer agent) irrevocable instructions
in substantially the form of Exhibit D hereto. Such instructions shall be
irrevocable by the Company from and after the date hereof or from and after the
issuance thereof to any such substitute or replacement transfer agent, as the
case may be, except as otherwise expressly provided in the Registration Rights
Agreement. It is the intent and purpose of such instructions, as provided
therein, to require the transfer agent
26
<PAGE> 28
for the Common Stock from time to time upon transfer of Common Stock by the
Investor to issue certificates evidencing Common Stock free of the Legend during
the following periods and under the following circumstances and without
consultation by the transfer agent with the Company or its counsel and without
the need for any further advice or instruction or documentation to the transfer
agent by or from the Company or its counsel or the Investor:
(a) At any time after the effective date of the applicable
registration statement (provided that such registration statement shall then be
effective): (i) incident to any Closing or other issuance of shares of Common
Stock; (ii) incident to the exercise of the Warrant or either Additional
Warrant; or (iii) upon any surrender of one or more certificates evidencing
Common Stock which bear the Legend, to the extent accompanied by a notice
requesting the issuance of new certificates free of the Legend to replace those
surrendered; provided that in connection with such event the Investor confirms
to the transfer agent that it has sold, pledged or otherwise transferred or
agreed to sell, pledge or otherwise transfer such Common Stock in a bona fide
transaction to a third party which is not an affiliate of the Company; and
(b) At any time upon any surrender of one or more certificates
evidencing Common Stock which bear the Legend, to the extent accompanied by a
notice requesting the issuance of new certificates free of the Legend to replace
those surrendered and containing representations that (i) the Investor has a
bona fide intention to dispose of such Common Stock pursuant to Rule 144 under
the Securities Act or is otherwise permitted to dispose thereof without
limitation as to amount or manner of sale pursuant to Rule 144(k) under the
Securities Act; or (ii) the Investor has sold, pledged or otherwise transferred
or agreed to sell, pledge or otherwise transfer such Common Stock in a manner
other than pursuant to an effective registration statement, to a transferee who
will upon such transfer be entitled to freely tradeable securities; provided
that in connection with the event described in clause (i), the transfer agent
shall be entitled to receive an opinion of counsel to the Investor that in such
circumstances the Legend may be removed and that the transferee (provided that
such transferree is not an affiliate of the Company) shall be entitled to hold
freely tradeable securities.
Section 7.2 No Other Legend or Stock Transfer Restrictions. No Legend
has been or shall be placed on the share certificates representing the Common
Stock and no instructions or "stop transfers," so called, "stock transfer
restrictions," or other restrictions have been or shall be given to the
Company's transfer agent with respect thereto other than as expressly set forth
in this Article VII.
27
<PAGE> 29
Section 7.3 Investor's Compliance. Nothing in this Article VII shall
affect in any way the Investor' s obligations under any agreement to comply with
all applicable securities laws upon resale of the Common Stock.
Section 7.4 Covenants of the Investor. During the term of this
Agreement (i) the Investor's trading activities with respect to shares of the
Company's Common Stock will be in compliance with all applicable state and
federal securities laws, rules and regulations and rules and regulations of the
Principal Market on which the Company's Common Stock is listed, and (ii) the
Investor will not engage in short sales of the Company's Common Stock for the
purpose of depressing the trading price of such Common Stock.
ARTICLE VIII
Other Issuances of Common Stock
Section 8.1 Underwritten Public Offerings. In the event the Company at
any time during the Commitment Period undertakes an underwritten public offering
of its Common Stock, the Company shall promptly notify the Investor in writing
of such transaction, and this Agreement shall be suspended for a period of time
prior to the filing with the SEC of a registration statement relating to the
public offer and sale of Common Stock as reasonably specified in such
notification, and for such subsequent period of time following the filing of the
registration statement as required by any underwriter (provided that the
Company, its officers and directors and its significant shareholders shall be
suspended from engaging in transactions involving the Common Stock for at least
the same period) or as required by any applicable securities law; provided,
however, that clause (z) of the definition of "Commitment Period" shall be
extended for a period of time equal to one and one-half times the number of
days, if any, that this Agreement is suspended as provided by this Section 8.1.
Section 8.2 Antidilution Adjustment to Purchase Price. (a) In the event
that the Company shall, at any time within the time period commencing five days
prior to an Optional Purchase Date or a Mandatory Purchase Date and ending on
the last day of the Valuation Period, (x) issue shares of Common Stock without
consideration (other than in the form of a dividend) at a price per share less
than the daily low trading price on the date of issue, (y) issue options, rights
or warrants to subscribe for or purchase Common Stock (or securities convertible
into Common Stock) without consideration or at a price per share (or having a
conversion price per share, if a security convertible into Common Stock) less
than the daily low trading price of the Common Stock on the date of issue, or
(z) in the case of
28
<PAGE> 30
securities convertible into Common Stock having a conversion price less than the
daily low trading price of the Common Stock on the date of conversion, then for
purposes of determining the Purchase Price, the daily low trading price shall be
adjusted, if at all, as follows: for purposes of determining the Purchase Price
of the Common Stock pursuant to Section 2.2, the daily low trading price of the
Common Stock on the day on which such issuance occurs and on all days prior
thereto shall be adjusted by multiplying such daily low trading price by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding on the date of such issuance plus the number of shares of Common
Stock which the aggregate offering price of the total number of shares of Common
Stock so to be issued (or the aggregate initial conversion price of the
convertible securities so to be issued) would purchase at the Purchase Price on
the date of such issue and of which the denominator shall be the number of
shares of Common Stock outstanding on the date of such issuance plus the number
of additional shares of Common Stock to be issued (or into which the convertible
securities so to be issued are initially convertible).
(b) The $7.00 amount and the $10.00 amount referenced in Section
2.1(b), as well as the daily low trading price of the Common Stock for any
Trading Day used to calculate the Purchase Price shall be adjusted
proportionally to reflect any stock splits, stock dividends, reclassifications,
combinations and similar transactions involving the Company's Common Stock.
ARTICLE IX
Choice of Law and Venue, Waiver of Jury Trial
Section 9.1 Choice of Law; Submission to Jurisdiction. THIS AGREEMENT
SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW. The parties hereby agree that
all actions or proceedings arising directly or indirectly from or in connection
with this Agreement shall, at the option of either party, be litigated only in
the United States District Court for the Southern District of New York located
in New York County, New York. The parties consent to the jurisdiction and venue
of the foregoing court and consent that any process or notice of motion or other
application to said court or a judge thereof may be served inside or outside the
State of New York or the Southern District of New York by registered mail,
return receipt requested, directed to the party for which it is intended at its
address set forth in this Agreement (and service so made shall be deemed
complete five (5) days after the same has been posted as aforesaid) or by
personal service or in such other manner as may be permissible under the rules
of said court.
29
<PAGE> 31
ARTICLE X
Assignment; Entire Agreement, Amendment; Termination
Section 10.1 Assignment. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any transferee of any of
the Common Stock purchased or acquired by the Investor hereunder with respect to
the Common Stock held by such person, and (b) the Investor's interest in this
Agreement may be assigned at any time, in whole or in part, to any other person
or entity (including any affiliate of the Investor) upon the prior written
consent of the Company, which consent shall not to be unreasonably withheld.
Section 10.2 Entire Agreement, Amendment. This Agreement, the
Registration Rights Agreement, 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 thereof, and no party shall be liable or
bound to any other party in any manner by any warranties, representations or
covenants except as specifically set forth in this Agreement or therein. Except
as expressly provided in this Agreement, neither this Agreement nor any term
hereof may be amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such amendment,
waiver, discharge or termination is sought.
Section 10.3 Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Investor
without its consent, unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement.
ARTICLE XI
Notices, Etc.; Cost and Expenses; Indemnification
Section 11.1 Notices, Etc. All notices, demands, requests, consents,
approvals or other communications required or permitted to be given hereunder or
which are given with respect to this Agreement shall be in writing and shall be
personally served or deposited in the mail, registered or certified, return
receipt requested, postage prepaid, or delivered by reputable air courier
service with charges prepaid, or transmitted by hand delivery, telegram, telex
or facsimile, addressed as set forth below, or to such other address as such
party shall have specified most recently by written notice: (i) if to the
Company, to: Connective Therapeutics, Inc., 3400 West
30
<PAGE> 32
Bayshore Road, Palo Alto, CA 94303; Attention: Ms. Cynthia Butitta, Facsimile
No.: (415) 843-2899, with copies (which shall not constitute notice) to: Venture
Law Group, 2800 Sand Hill Road, Menlo Park, CA 94025 Attention: Joshua Greene,
Esq., Facsimile No.: (415) 233-8386; and (ii) if to the Investor, to Kepler
Capital LLC, 40 West 57th Street, New York, NY 10019; Attention: Robert L.
Chender, Facsimile No.: (212) 698-0554. Notice shall be deemed given on the date
of service or transmission if personally served or transmitted by telegram,
telex or facsimile. Notice otherwise sent as provided herein shall be deemed
given on the third business day following the date mailed or on the second
business day following delivery of such notice by a reputable air courier
service.
Section 11.2 Cost and Expenses. The Company shall be responsible for
the Investor's costs and expenses (including legal fees) incurred in entering
into this Agreement which amounts shall be paid upon execution and delivery
thereof as well as the Investor's costs and expenses (including legal fees)
incurred in connection with the performance of its initial due diligence
activities relating to the effectiveness of the Registration Statement in an
amount up to $20,000 (provided that the Investor provides the Company a proposed
budget relating to its due diligence activities prior to the commencement
thereof and the Company reasonably agrees thereto). The Company shall also be
responsible for any reasonable subsequent costs and expenses incurred by the
Investor in connection with matters set forth in Section 3.3 (including without
limitation legal fees and fees of advisors and representatives of the Investor)
in an amount not exceeding $5,000 with respect to any Closing, which amounts may
be netted by the Investor against the amount of any payment relating to the
issuance of shares of Common Stock to the Investor in connection with any
Closing. In the event that with respect to the conduct by the Investor of its
due diligence activities in connection with the effectiveness of the
Registration Statement or any Closing, it incurs costs and expenses in excess of
the amount for which the Company is responsible to reimburse it, up to $5,000 of
such excess costs and expenses may be carried forward to be reimbursed by the
Company (within the limitation set forth above) at the immediately succeeding
Closing.
Section 11.3 Indemnification.
(a) Indemnification of Investor. The Company agrees to indemnify and
hold harmless the Investor and each person, if any, who controls the Investor
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement of a
material fact
31
<PAGE> 33
contained in the Registration Statement (or any amendment thereto), including
any prospectus, or in any offering circular or other document, as applicable, or
the omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statement therein not misleading or
arising out of any untrue statement or alleged untrue statement of a material
fact contained in any prospectus (or any amendment or supplement thereto), or in
any offering circular or other document, as applicable, or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, statement or omission, or any such alleged untrue
statement or omission; provided that (subject to Section 11.3(d) below) any such
settlement is effected with the written consent of the Company; and
(iii) against any and all expenses whatsoever, as incurred
(including the fees and disbursements of counsel chosen by the Investor),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under (i ) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by the
Investor expressly for use in the Registration Statement (or any amendment
thereto), including any prospectus (or any amendment or supplement thereto), or
in any offering circular or other document, as applicable.
(b) Indemnification of Company. The Investor agrees to indemnify and
hold harmless the Company its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act against any and all loss, liability, claim, damage and expense described in
the indemnity contained in subsection (a) of this Section, as incurred, but only
with respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any amendment thereto),
including any prospectus (or any amendment or supplement thereto), or in any
32
<PAGE> 34
offering circular or other document, as applicable, in reliance upon and in
conformity with written information furnished to the Company by the Investor
expressly for use in the Registration Statement (or any amendment or supplement
thereto) or in any offering circular or other document, as applicable.
(c) Action against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of his indemnity
agreement. In the case of parties indemnified pursuant to Section 11.3(a) above,
counsel to the indemnified parties shall be selected by the Investor, and in the
case of parties indemnified pursuant to Section 11.3(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with he
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnifies parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry or any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section or Section
11.4 hereof (whether or not the indemnified parties are actual or potential
parties thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnifies part form all liability arising out of
such litigation , investigation proceeding or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act by or
on behalf of an any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for the fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 11.3(a)(ii) effected without its written consent if (i) such settlement
is entered into more than 45 days after receipt by such indemnifying party of
the aforesaid request, (ii) such indemnifying party shall have received notice
of the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such
33
<PAGE> 35
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
Section 11.4 Contribution. If the indemnification provided for in
Section 11.3 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to herein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Investor on the other hand from the offering of
the Common Stock pursuant to this Agreement or (ii) if the allocation provided
by clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the
Investor on the other hand in connection with the statements or omissions which
resulted in such losses, liabilities, claims, damages or expenses. as well as
any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Investor on the other hand in connection with the offering of the Common Stock
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Common Stock
pursuant to this Agreement (before deducting expenses) received by the Company
and the total net proceeds received by the Investor (before deducting expenses)
bear to the aggregate public offering price.
The relative fault of the Company on the one hand and the Investor on
the other hand shall be determined by reference to, among other things, whether
any such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company or by the Investor and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company and the Investor agree that it would not be just and
equitable if contribution pursuant to this Section 11.4 were determined on a
pro-rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 11.4.
The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 11.4
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim
34
<PAGE> 36
whatsoever based upon any such untrue or alleged untrue statement or omission or
alleged omission.
Notwithstanding the provisions of this Section 11.4, the Investor shall
not be required to contribute any amount in excess of the amount by which the
total price at which the Common Stock purchased by it and resold to the public
exceeds the amount of any damages which the Investor has otherwise been required
to pay by reason of any such untrue or alleged untrue statement or omission or
alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 11.4, each person, if any, who controls
the Investor within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act shall have the same rights to contribution as such
Investor, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act shall have the same rights to contribution as the Company.
ARTICLE XII
Miscellaneous
Section 12.1 Counterparts. This Agreement may be executed in any number
of counterparts, all of which together shall constitute one instrument.
Section 12.2 Survival; Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder. The indemnity and contribution agreements contained in Sections 11.3
and 11.4 hereof shall remain operative and in full force and effect regardless
of (i) any termination of this Agreement or of the Commitment Period, (ii) any
investigation made by or on behalf of any indemnified party or by or on behalf
of the Company, and (iii) the consummation of the sale or successive resales of
the Common Stock. In the event that any provision of this Agreement becomes or
is declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
35
<PAGE> 37
Section 12.3 Title 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.
Section 12.4 Reporting Entity for the Common Stock. The reporting
entity relied upon for the determination of the trading price or trading volume
of the Common Stock on any given Trading Day for the purposes of this Agreement
shall be Bloomberg or any other reputable pricing service chosen by the Investor
and reasonably acceptable to the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized offices as of the date hereof.
KEPLER CAPITAL LLC CONNECTIVE THERAPEUTICS, INC.
By: /s/ Jeffrey E. Devers By: /s/ Thomas G.Wiggans
-------------------------- --------------------------
Its Its
----------------------- -----------------------
36
<PAGE> 38
EXHIBIT A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH SECURITIES
LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF, IN THE ABSENCE OF REGISTRATION UNDER THE SECURITIES ACT OR UNLESS
SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
[Date]
Warrant to Purchase up to
_______ Shares of Common Stock
of Connective Therapeutics, Inc.
Connective Therapeutics, Inc., a Delaware corporation (the "Company"),
hereby acknowledges that Kepler Capital LLC (the "Purchaser") or any other
Warrant Holder is entitled, on the terms and conditions set forth below, to
purchase from the Company at any time after the date hereof and ending on
___________________ (sixty (60) months after the original issuance of this
Warrant) up to _____________ fully paid and nonassessable shares of Common
Stock, par value $.001 per share, of the Company (the "Common Stock"), as the
same my be adjusted pursuant to Section 5 herein, at the Purchase Price
(hereinafter defined), as the same may be adjusted pursuant to Section 5 herein.
The resale of the shares of Common Stock or other securities issuable upon
exercise or exchange of this Warrant is subject to the provisions of the
Registration Rights Agreement dated January 2, 1997 (the "Registration Rights
Agreement"), by and between the Company and the Investor.
1. Definitions.
(a) the term "Warrant Holder" shall mean the Purchaser or
any assignee of all or any portion of this Warrant.
(b) the term "Warrant Shares" shall mean the shares of
Common Stock or other securities issuable upon exercise of this Warrant.
(c) the term "Purchase Price" shall initially be $8.25,
which represents 110% of the closing bid price for the Common Stock on January
2, 1997, as may be adjusted pursuant to Section 5 herein.
(d) the term "Agreement" shall mean the Structured Equity Line
Flexible Financing SM Agreement, dated as of January 2, 1997, between the
Company and the Investor.
(e) other capitalized terms used herein which are defined
in the Agreement shall have the same meanings herein as therein.
2. Exercise or Exchange of Warrant.
(a) This Warrant may be exercised by the Warrant Holder,
in whole or in part, at any time and from time to time by surrender of this
Warrant, together with the form of subscription at the end hereof duly executed
by Warrant Holder, together with the full Purchase Price (as defined in Section
1) for each share of Common Stock as to which this Warrant is exercised to the
Company at the
Warrant Exhibit
<PAGE> 39
address set forth in Section 13 hereof. In the event that the Warrant is not
exercised in full, the number of Warrant Shares shall be reduced by the number
of such Warrant Shares for which this Warrant is exercised, and the Company, at
its expense, shall forthwith issue and deliver to or upon the order of the
Warrant Holder a new Warrant of like tenor in the name of the Warrant Holder or
as the Warrant Holder may request, reflecting such adjusted Warrant Shares.
The Warrants are exchangeable for their value in Common Stock based
upon the closing bid price of such Common Stock as quoted on the Principal
Market (as herein defined) on the date prior to the date of exchange or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange or quoted on the Nasdaq National Market or Small-Cap Market, the
closing bid price on the over-the-counter market as furnished by any New York
Stock Exchange member firm which makes a market in the Common Stock reasonably
selected from time to time by the Company for that purpose, or, if the Common
Stock is not listed or admitted to trading on any national securities exchange
or quoted on the Nasdaq National Market or Small-Cap Market or traded
over-the-counter and the average price cannot be determined as contemplated
above, the fair market value of the Common Stock shall be as reasonably
determined in good faith by the Company's Board of Directors. In the event
Warrants are exchanged for shares, the value of the Warrants so exchanged shall
equal the Closing Price on the date of delivery of notice of exercise minus the
Purchase Price.
(b) The "Date of Exercise" of the Warrant shall be the date
that the advance copy of the form of exercise attached hereto as Exhibit A (the
"Exercise Form"), is sent by facsimile to the Company, provided that the
original Warrant and Exercise Form are received by the Company within reasonable
time thereafter. If the Warrant Holder has not sent advance notice by facsimile,
the Date of Exercise shall be the date the original Exercise Form is received by
the Company.
(c) Notwithstanding any other provision of this Section 2, as
of any date prior to the Date of Exercise, the aggregate number of shares of
Common Stock into which this Warrant, all other Warrants and all other
securities convertible into Common Stock held by the Warrant Holder and its
affiliates shall be convertible, together with the shares of Common Stock then
beneficially owned (as such term is defined in the Exchange Act) by such Warrant
Holder and its affiliates, shall not exceed 4.9% of the total outstanding shares
of Common Stock as of such Date of Exercise.
3. Delivery of Stock Certificates.
(a) Subject to the terms and conditions of this Warrant, as
soon as practicable after the exercise of this Warrant in full or in part, and
in any event within two (2) days thereafter, the Company at its expense
(including, without limitation, the payment by it of any applicable issue taxes)
will cause to be issued in the name of and delivered to the Warrant Holder, or
as the Warrant Holder may lawfully direct, a certificate or certificates for the
number of fully paid and non-assessable shares of Common Stock to which the
Warrant Holder shall be entitled on such exercise, together with any other stock
or other securities or property (including cash, where applicable) to which the
Warrant Holder is entitled upon such exercise in accordance with the provisions
hereof.
(b) This Warrant may not be exercised as to fractional shares
of Common Stock. In the event that the exercise of this Warrant, in full or in
part, would result in the issuance of any fractional share of Common Stock, then
in such event the Warrant Holder shall be entitled to cash equal to the fair
market value of such fractional share. For purposes of this Warrant, "fair
market value" shall equal the closing bid price of the Common Stock on the
Nasdaq National Market or Small-Cap Market, the American Stock Exchange or the
New York Stock Exchange, whichever is the principal trading exchange or market
for the Common Stock (the "Principal Market") on the date of determination or,
if the Common Stock is not listed or admitted to trading on any national
securities exchange or quoted on the Nasdaq National Market or Small-Cap Market,
the closing bid price on the over-the-counter market as furnished by any New
York Stock Exchange member firm that makes a market in the Common Stock
reasonably selected from time to time by the Company for that purpose, or, if
the Common Stock is not listed or
2
Warrant Exhibit
<PAGE> 40
admitted to trading on any national securities exchange or quoted on the Nasdaq
National Market or Small-Cap Market or traded over-the-counter and the average
price cannot be determined as contemplated above, the fair market value of the
Common Stock shall be as reasonably determined in good faith by the Company's
Board of Directors.
4. Covenants of the Company.
(a) The Company shall use its reasonable best efforts to
insure that a registration statement under the Securities Act covering the
resale or other disposition thereof of the Warrant Shares by the Warrant Holder
is effective to the extent provided by the Registration Rights Agreement or, to
the extent applicable, in Section 3.2(a) of the Agreement.
(b) The Company shall take all necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, including, without limitation the notification of the Nasdaq
National Market, for the legal and valid issuance of this Warrant and the
Warrant Shares to the Warrant Holder.
(c) From the date hereof through the last date on which this
Warrant is exercisable, the Company shall take all steps reasonably necessary
and within its control to insure that the Common Stock remains listed or quoted
on the Principal Market and shall not amend its Certificate of Incorporation or
Bylaws so as to adversely affect any rights of the Warrant Holder under this
Warrant.
(d) The Company shall at all times reserve and keep available,
solely for issuance and delivery as Warrant Shares hereunder, such shares of
Common Stock as shall from time to time be issuable as Warrant Shares.
(e) The Warrant Shares, when issued in accordance with the
terms hereof; will be duly authorized and, when paid for or issued in accordance
with the terms hereof, shall be validly issued, fully paid and non-assessable.
The Company has authorized and reserved for issuance to the Warrant Holder the
requisite number of shares of Common Stock to be issued pursuant to this
Warrant.
(f) With a view to making available to the Warrant Holder the
benefits of Rule 144 promulgated under the Securities Act ("Rule 144") and any
other rule or regulation of the Securities and Exchange Commission (the "SEC"),
that may at any time permit Warrant Holder to sell securities of the Company to
the public without registration, the Company agrees to use its reasonable best
efforts to(i) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times; and (ii) file with the SEC in
a timely manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act.
5. Adjustment of Purchase Price and Number of Shares. The
number of and kind of securities purchasable upon exercise of this Warrant and
the Purchase Price shall be subject to adjustment from time to time as follows:
(a) Subdivisions, Combinations and Other Issuances. If the
Company shall at any time after the date hereof but prior to the expiration of
this Warrant subdivide its outstanding securities as to which purchase rights
under this Warrant exist, by split-up, spin-off, or otherwise, or combine its
outstanding securities as to which purchase rights under this Warrant exist, the
number of Warrant Shares as to which this Warrant is exercisable as of the date
of such subdivision, split-up, spin-off or combination shall forthwith be
proportionately increased in the case of a subdivision, or proportionately
decreased in the case of a combination. Appropriate adjustments shall also be
made to the Purchase Price, but the aggregate purchase price payable for the
total number of Warrant Shares purchasable under this Warrant as of such date
shall remain the same.
3
Warrant Exhibit
<PAGE> 41
(b) Stock Dividend. If at any time after the date hereof the
Company declares a dividend or other distribution on Common Stock payable in
Common Stock or other securities or rights convertible into or exchangeable for
Common Stock ("Common Stock Equivalents"), without payment of any consideration
by holders of Common Stock for the additional shares of Common Stock or the
Common Stock Equivalents (including the additional shares of Common Stock
issuable upon exercise or conversion thereof), then the number of shares of
Common Stock for which this Warrant may be exercised shall be increased as of
the record date (or the date of such dividend distribution if no record date is
set) for determining which holders of Common Stock shall be entitled to receive
such dividends, in proportion to the increase in the number of outstanding
shares (and shares of Common Stock issuable upon conversion of all such
securities convertible into Common Stock) of Common Stock as a result of such
dividend, and the Purchase Price shall be adjusted so that the aggregate amount
payable for the purchase of all the Warrant Shares issuable hereunder
immediately after the record date (or on the date of such distribution, if
applicable), for such dividend shall equal the aggregate amount so payable
immediately before such record date (or on the date of such distribution, if
applicable).
(c) Other Distributions. If at any time after the date hereof
the Company distributes to holders of its Common Stock, other than as part of a
dissolution or liquidation or the winding up of its affairs, any shares of its
capital stock, any evidence of indebtedness or any of its assets (other than
cash, Common Stock or securities convertible into or exchangeable for Common
Stock), then, in any such case, the Warrant Holder shall be entitled to receive,
upon exercise of this Warrant, with respect to each share of Common Stock
issuable upon such exercise, the amount of cash or evidences of indebtedness or
other securities or assets which such Warrant Holder would have been entitled to
receive with respect to each such share of Common Stock as a result of the
happening of such event had this Warrant been exercised immediately prior to the
record date or other date determining the shareholders entitled to participate
in such distribution (the "Determination Date") or, in lieu thereof, if the
Board of Directors of the Company should so determine at the time of such
distribution, a reduced Purchase Price determined by multiplying the Purchase
Price on the Determination Date by a fraction, the numerator of which is the
result of such Purchase Price reduced by the value of such distribution
applicable to one share of Common Stock (such value to be determined in good
faith by the Company's Board of Directors) and the denominator of which is such
Purchase Price.
(d) Merger, Consolidation, etc. If at any time after the date
hereof there shall be a merger or consolidation of the Company with or into, or
a transfer of all or substantially all of the assets of the Company to, another
entity (a "Consolidation Event"), then the Warrant Holder shall be entitled to
receive upon such transfer, merger or consolidation becoming effective, and upon
payment of the aggregate Purchase Price then in effect, the number of shares or
other securities or property of the Company or of the successor corporation
resulting from such merger or consolidation, which would have been received by
Warrant Holder for the shares of stock subject to this Warrant had this Warrant
been exercised immediately prior to such transfer, merger or consolidation
becoming effective or to the applicable record date thereof, as the case may be.
The Company shall not effect any Consolidation Event unless the resulting
successor or acquiring entity (if not the Company) assumes by written instrument
the obligation to deliver to the Warrant Holder such shares of stock and/or
securities as the Warrant Holder is entitled to receive had this Warrant been
exercised in accordance with the foregoing; provided, however, that if as of the
third business day prior to the consummation of the Consolidation Event the
closing bid price of the Common Stock shall be equal to at least 200% of the
Purchase Price, then the Warrant shall be automatically exchanged on the date of
consummation of the Consolidation Event, as provided in Section 2 hereof.
(e) Reclassification, Etc. If at any time after the date
hereof there shall be a reclassification of any securities as to which purchase
rights under this Warrant exist, into the same or a different number of
securities of any other class or classes, then the Warrant Holder shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified herein and upon payment of the Purchase Price then in effect,
the number of shares or other securities or property
4
Warrant Exhibit
<PAGE> 42
resulting from such reorganization or reclassification, which would have been
received by the Warrant Holder for the shares of stock subject to this Warrant
had this Warrant at such time been exercised.
(f) Purchase Price Adjustment. In the event that the Company
issues or sells any Common Stock or securities which are convertible into or
exchangeable for its Common Stock or any convertible securities, or any warrants
or other rights to subscribe for or to purchase or any options for the purchase
of its Common Stock or any such convertible securities (other than issuance of
Preferred Stock or of shares of Common Stock upon conversion thereof, shares or
options issued or which may be issued to employees, directors or consultants
pursuant to the Company's stock option or stock purchase plans listed in the SEC
Reports or shares issued upon exercise of options, warrants or rights
outstanding on the date of the Agreement and listed in the SEC Reports) at an
effective purchase price per share which is less than the Purchase Price then in
effect and less than the fair market value (as hereinabove defined) of the
Common Stock on the trading day next preceding such issue or sale, then in each
such case, the Purchase Price in effect immediately prior to such issue or sale
shall be reduced effective concurrently with such issue or sale to an amount
determined by multiplying the Purchase Price then in effect by a fraction, (x)
the numerator of which shall be the sum of (1) the number of shares of Common
Stock outstanding immediately prior to such issue or sale, including, without
duplication, those deemed to have been issued under any provision of the
Preferred Stock and the Warrants plus (2) the number of shares of Common Stock
which the aggregate consideration received by the Company for such additional
shares would purchase at such fair market value then in effect and (y) the
denominator of which shall be the number of shares of Common Stock of the
Company outstanding immediately after such issue or sale including, without
duplication, those deemed to have been issued under any provision of the
Preferred Stock and Warrants; provided, however, there shall be no reduction of
the Purchase Price for such issuances or sales at any time from January 2, 1997
through the term of this Warrant in an aggregate (i.e., not per transaction)
amount of up to $5,000,000 provided that such issuance or sale is completed at
an effective purchase price per share of at least 85% of the fair market value
of the Common Stock on the trading day next preceding such issue or sale. For
purposes of the foregoing fraction, Common Stock outstanding shall include,
without limitation, any equity offerings then outstanding, whether or not they
are exercisable or convertible when such fraction is to be determined.
The number of shares which may be purchunder shall be
increased proportionately to any reduction in Purchase Price pursuant to this
pased herearagraph 5(f), so that after such adjustments the aggregate Purchase
Price payable hereunder for the increased number of shares of Common Stock shall
be the same as the aggregate Purchase Price in effect immediately prior to such
adjustments.
Notwithstanding anything else contained in this Warrant to the
contrary, there shall be no adjustment of the Purchase Price or the number of
shares of Common Stock issuable pursuant to the exercise of this Warrant in the
event that during the term of this Warrant, the Company issues shares of Common
Stock, or securities convertible into Common Stock to the Purchaser.
(g) Adjustments: Additional Shares, Securities or Assets. In
the event that at any time, as a result of an adjustment made pursuant to this
Section 5, the Warrant Holder shall, upon exercise of this Warrant, become
entitled to receive shares and/or other securities or assets (other than Common
Stock) then, wherever appropriate, all references herein to shares of Common
Stock shall be deemed to refer to and include such shares and/or other
securities or assets; and thereafter the number of such shares and/or other
securities or assets shall be subject to adjustment from time to time in a
manner and upon terms as nearly equivalent as practicable to the provisions of
this Section 5.
6. No Impairment. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the
5
Warrant Exhibit
<PAGE> 43
rights of the Warrant Holder against impairment. Without limiting the generality
of the foregoing, the Company (a) will not increase the par value of any Warrant
Shares above the amount payable therefor on such exercise, and (b) will take all
such action as may be reasonably necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable Warrant
Shares on the exercise of this Warrant.
7. Notice of Adjustments; Notices. Whenever the Purchase Price
or number of Warrant Shares purchasable hereunder shall be adjusted pursuant to
Section 5 hereof, the Company shall execute and deliver to the Warrant Holder a
certificate setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated and the Purchase Price and number of shares purchasable hereunder
after giving effect to such adjustment, and shall cause a copy of such
certificate to be mailed (by first class mail, postage prepaid) to the Warrant
Holder.
8. Rights As Stockholder. Prior to exercise of this Warrant,
the Warrant Holder shall not be entitled to any rights as a stockholder of the
Company with respect to the Warrant Shares, including (without limitation) the
right to vote such shares, receive dividends or other distributions thereon or
be notified of stockholder meetings. However, in the event of any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend) or other distribution, any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Company shall mail to
each Warrant Holder, at least 10 days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character of
such dividend, distribution or right.
9. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of the
Warrant and, in the case of any such loss, theft or destruction of the Warrant,
upon delivery of an indemnity agreement or security reasonably satisfactory in
form and amount to the Company or, in the case of any such mutilation, on
surrender and cancellation of such Warrant, the Company at its expense will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
10. Consent to Jurisdiction. Each of the Company and the
Warrant Holder (i) hereby irrevocably submits to the non-exclusive jurisdiction
of the United States District Court for the Southern District of New York for
the purposes of any suit, action or proceeding arising out of or relating to
this Warrant and (ii) hereby waives, and agrees not to assert in any such suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper. Each of the Company and the Warrant Holder consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address in effect for notices to it under this Warrant and agrees
that such service shall constitute good and sufficient service of process and
notice thereof. Nothing in this paragraph shall affect or limit any right to
serve process in any other manner permitted by law.
11. Entire Agreement; Amendments. This Warrant and the
Agreement contain the entire understanding of the parties with respect to the
matters covered hereby and thereby. No provision of this Warrant may be waived
or amended other than by a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought.
12. Restricted Securities.
(a) Registration or Exemption Required. This Warrant has
been issued in a transaction exempt from the registration requirements of the
Act in reliance upon the provisions of
6
Warrant Exhibit
<PAGE> 44
Section 4(2) promulgated by the SEC under the Act. This Warrant and the Warrant
Shares issuable upon exercise of this Warrant may not be resold except pursuant
to an effective registration statement or an exemption to the registration
requirements of the Act and applicable state laws.
(b) Legend. The Warrant and any Warrant Shares issued upon
exercise thereof (until a registration statement has been declared effective by
the SEC with respect to the Warrant Shares, at which time, such legend shall be
removed, and the Warrant Shares shall be freely tradeable), shall bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE
BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH SECURITIES LAWS. NEITHER
THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF, IN THE ABSENCE OF REGISTRATION UNDER THE
SECURITIES ACT OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, SUCH REGISTRATION."
(c) Assignment. Assuming the conditions of (a) above regarding
registration or exemption have been satisfied, the Warrant Holder may sell,
transfer, assign, pledge or otherwise dispose of this Warrant, in whole or in
part. The Warrant Holder shall deliver a written notice to Company,
substantially in the form of the Assignment attached hereto as Exhibit B,
indicating the person or persons to whom the Warrant shall be assigned and the
respective number of warrants to be assigned to each assignee. The Company shall
effect the assignment within ten (10) days, and shall deliver to the assignee(s)
designated by the Warrant Holder a Warrant or Warrants of like tenor and terms
for the appropriate number of shares.
13. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective (a)
upon hand delivery or delivery by facsimile at the address or number designated
below (if delivered on a business day during normal business hours where such
notice is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date
of mailing by express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:
to the Company:
Connective Therapeutics, Inc.
3400 West Bayshore Road
Palo Alto, California 94303
Attn: Ms. Cynthia Butitta
Fax: (415) 843-2899
to the Warrant Holder:
Attn:
Fax:
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 13 by giving at least 10 days prior written
notice of such changed address or facsimile number to the other party hereto.
7
Warrant Exhibit
<PAGE> 45
14. Miscellaneous. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. This Warrant shall be construed and enforced in
accordance with and governed by the laws of the State of Delaware. The headings
in this Warrant are for purposes of reference only, and shall not limit or
otherwise affect any of the terms hereof. The invalidity or unenforceability of
any provision hereof shall in no way affect the validity or enforceability of
any other provision.
CONNECTIVE THERAPEUTICS, INC.
By ______________________________
Title:
[CORPORATE SEAL]
Attest:
By ________________________________
Its:
8
Warrant Exhibit
<PAGE> 46
EXHIBIT A
EXERCISE FORM
CONNECTIVE THERAPEUTICS, INC.
The undersigned hereby irrevocably exercises the right to
purchase __________________ shares of Common Stock of CONNECTIVE THERAPEUTICS,
INC., a Delaware corporation, evidenced by the attached Warrant, and herewith
makes payment of the Purchase Price with respect to such shares in full in the
form of [cash or check in the amount of $___], [_____ Warrant Shares which
represent the amount of Warrant Shares as provided in the attached Warrant to be
cancelled in connection with such exercise], all in accordance with the
conditions and provisions of said Warrant.
The undersigned requests that stock certificates for such
Warrant Shares be issued, and a Warrant representing any unexercised portion
hereof be issued, pursuant to this Warrant in the name of the registered Holder
and delivered to the undersigned at the address set forth below.
Dated:____________________
_____________________________________________
Signature of Registered Holder
Name of Registered Holder (Print)
_____________________________________________
Address
9
Warrant Exhibit
<PAGE> 47
EXHIBIT B
ASSIGNMENT
(To be executed by the registered Warrant Holder
desiring to transfer the Warrant)
FOR VALUED RECEIVED, the undersigned Warrant Holder of the attached Warrant
hereby sells, assigns and transfers unto the persons below named the right to
purchase ______________ shares of the Common Stock of CONNECTIVE THERAPEUTICS,
INC. evidenced by the attached Warrant and does hereby irrevocably constitute
and appoint ______________________ attorney to transfer the said Warrant on the
books of the Company, with full power of substitution in the premises.
Dated:
______________________________
Signature
Fill in for new Registration of Warrant:
_________________________________________
Name
_________________________________________
Address
_________________________________________
Please print name and address of assignee
(including zip code number)
NOTICE
The signature to the foregoing Exercise Form or Assignment must correspond to
the name as written upon the face of the attached Warrant in every particular,
without alteration or enlargement or any change whatsoever.
10
Warrant Exhibit
<PAGE> 48
EXHIBIT B
(a) The Company is a corporation duly organized, validly existing and
in good standing under the law of the State of Delaware and has all requisite
power and authority (corporate and other) to carry on its business and to own,
lease and operate its properties and assets as described in the Company's SEC
Reports.
(b) To our knowledge, except as disclosed in the SEC Reports, there are
no actions or proceedings that are pending or threatened against the Company or
against any officer or director of the Company in their capacity as such.
(c) Although we have not undertaken to determine independently, and do
not assume any responsibility for, the accuracy or completeness of the
statements in the Registration Statement, we have participated in the
preparation of the Registration Statement and the Prospectus, including review
and discussion of the contents thereof, and nothing has come to our attention
that has caused us to believe that the Registration Statement at the time the
Registration Statement became effective and as of the date of the filing with
the Commission of the Company's most recent Quarterly Report on Form 10-Q
incorporated by reference into such Registration Statement, or the Prospectus as
of its date of the filing of such Quarterly Report, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; however, we express no
opinion with respect to the financial statements and the notes thereto and the
schedules and other financial and statistical data derived therefrom included in
the Registration Statement or the Prospectus.
<PAGE> 49
EXHIBIT C
CONNECTIVE THERAPEUTICS, INC.
COMPLIANCE CERTIFICATE
The undersigned, Thomas G. Wiggans, hereby certifies as follows:
1. The undersigned is the duly elected President and Chief Executive
Officer of Connective Therapeutics, Inc., a Delaware corporation (the
"Company").
2. The representations and warranties of the Company set forth in
Article V of the Structured Equity Line Flexible Financing Agreement (the
"Agreement") dated as of January 2, 1997 are true and correct in all material
respects as though made on and as of the date hereof.
3. The Company has performed and complied with all covenants,
agreements, obligations and conditions contained in Article III of the Agreement
to be performed by the Company on or prior to the Closing Date.
The undersigned has executed this Certificate this ____ day of
________, 199_.
____________________________________
Thomas G. Wiggans, President and
Chief Executive Officer
<PAGE> 50
Exhibit D
CONNECTIVE THERAPEUTICS, INC.
IRREVOCABLE INSTRUCTIONS TO TRANSFER AGENT
January 2, 1997
[Name and address of Transfer Agent]
Dear Sirs:
Reference is made to the Structured Equity Line Flexible Financing
Agreement (the "Agreement") dated as of January 2, 1997 between Kepler Capital
LLC (the "Investor") and Connective Therapeutics, Inc. (the "Company"). Pursuant
to the Agreement, subject to the terms and conditions set forth in the Agreement
(i) the Investor has agreed to purchase from the Company and the Company has
agreed to sell to the Investor from time to time during the term of the
Agreement shares of Common Stock of the Company, par value $.001 per share (the
"Common Stock") and (ii) the Company has issued to the Investor a warrant to
purchase Common Stock and, subject to the terms and conditions set forth in the
Agreement, the Company has agreed to issue to the Investor additional warrants
to purchase Common Stock (together, the "Warrants"). As a condition to the
effectiveness of the Agreement the Company has agreed to issue to you, as the
transfer agent for the Common Stock (the "Transfer Agent"), these irrevocable
instructions relating to the Common Stock to be issued to the Investor (or a
permitted assignee) pursuant to the Agreement or upon exercise of the Warrants.
All terms used herein and not otherwise defined shall have the meaning set forth
in the Agreement.
1. ISSUANCE OF COMMON STOCK WITHOUT THE LEGEND
Pursuant to the Agreement, the Company is required to prepare and file
with the Commission, and maintain the effectiveness of, a registration statement
or registration statements registering the resale of the Common Stock to be
acquired by the Investor (i) under the Agreement and (ii) upon exercise of the
Warrants. The Company will advise the Transfer Agent in writing of the
effectiveness of any such registration statement promptly upon its being
declared effective. The Transfer Agent shall be entitled to rely on such advice
and shall assume that the effectiveness of such registration statement remains
in effect unless the Transfer Agent is otherwise advised in writing by the
Company and shall not be required to independently confirm the continued
effectiveness of such registration statement. In the circumstances set forth in
the following two paragraphs, the Transfer Agent shall deliver to the Investor
certificates representing Common Stock not bearing the Legend without requiring
further advice or instruction or additional documentation from the Company or
its counsel or the Investor or its counsel or any other party (other than as
described in such paragraphs).
<PAGE> 51
At any time after the effective date of the applicable registration
statement (provided that the Company has not informed the Transfer Agent in
writing that such registration statement is not effective) (i) incident to any
Closing (whether on the Closing Date or thereafter as a result of an increase in
the number of shares of Common Stock issuable in respect of such Closing in
accordance with the Agreement) or other issuance of shares of Common Stock; (ii)
incident to the exercise of any Warrant; or (iii) upon any surrender of one or
more certificates evidencing Common Stock which bear the Legend, to the extent
accompanied by a notice requesting the issuance of new certificates free of the
Legend to replace those surrendered, the Transfer Agent shall deliver to the
Investor the certificates representing the Common Stock not bearing the Legend,
in such names and denominations as the Investor shall request, provided that in
connection with any such event, the Investor shall confirm in writing to the
Transfer Agent that it has sold, pledged or otherwise transferred or agreed to
sell, pledge or otherwise transfer such Common Stock in a bona fide transaction
to a third party.
In addition to the obligation of the Transfer Agent set forth in the
preceding paragraph to issue certificates representing the Common Stock not
bearing the Legend, at any time upon surrender of one or more certificates
evidencing Common Stock which bear the Legend which certificates are accompanied
by a request to issuance new certificates not bearing the Legend to replace
those surrendered, the Transfer Agent shall deliver certificates evidencing
Common Stock not bearing the Legend, in such names and denominations as the
Investor shall request, provided that in connection with such request the
Investor (or permitted assignee) shall represent that (i) it has a bona fide
intention to dispose of such Common Stock pursuant to Rule 144 under the
Securities Act or is otherwise permitted to dispose thereof with limitation as
to amount of manner of sale pursuant to Rule 144(k) under the Securities Act; or
(ii) it has sold, pledged or otherwise transferred or agreed to sell, pledge or
otherwise transfer such Common Stock in a manner other than pursuant to an
effective registration statement to a transferee who will upon such transfer be
entitled to freely tradeable securities; provided that in connection with the
event described in clause (i), the transfer agent shall be entitled to receive
an opinion of counsel to the Investor that in such circumstances the Legend may
be removed and that the transferee (provided that it is not an affiliate of the
Company) shall be entitled to receive freely tradeable securities.
2. MECHANICS OF DELIVERY OF CERTIFICATES REPRESENTING COMMON STOCK
In connection with any Closing pursuant to which the Investor acquires
Common Stock under the Agreement, the Transfer Agent shall deliver certificates
representing Common Stock (with or without the Legend, as appropriate) on the
Closing Date by overnight courier as instructed by the Investor.
2
<PAGE> 52
In connection with the issuance of Common Stock upon the exercise of
Warrants, you (i) shall deliver certificates representing Common Stock (with or
without the Legend, as appropriate) on the date the Transfer Agent shall have
received the original certificate representing the Warrant to be exercised (in
whole or in part) by overnight courier as instructed by the Investor and (ii)
unless the Company assumes responsibility therefor, shall also on such date
deliver to the Investor a new Warrant representing any portion of the Warrant
not being exercised.
In connection with any delivery by the Investor to the Transfer Agent
of certificates representing Common Stock which bear the Legend accompanied by
appropriate documentation as specifically set forth in Section 1, the Transfer
Agent shall deliver certificates representing Common Stock (with or without the
Legend, as appropriate) by overnight courier as instructed by the Investor on
the date the Transfer Agent shall have received the original certificate or
certificates representing the Common Stock (provided that you shall also have
received the appropriate documentation by facsimile or otherwise).
3. NUMBER OF SHARES OF COMMON STOCK TO BE ISSUED AT CLOSING, AS ADJUSTED
SUBSEQUENT TO A CLOSING OR UPON EXERCISE OF WARRANTS
The number of shares of Common Stock to be issued upon at any Closing
under the Agreement shall be determined based upon a formula as set forth in the
Agreement. In addition, the number of shares of Common Stock issuable with
respect to any Closing may be subject increase subsequent to such Closing as
provided in the Agreement. Furthermore, the number of shares of Common Stock
issuable upon the exercise of Warrants may be subject to adjustment as provided
by the Warrants. With respect to each of the instances referenced in the
previous sentence, the Investor shall advise the Transfer Agent as to the number
of shares of Common Stock to be issued and shall also so advise the Company. In
the event the Company disagrees with the Investor's calculation and so notifies
the Transfer Agent in writing, the Transfer Agent shall issue shares of Common
Stock to the Investor in accordance with the Agreement and these Irrevocable
Instructions in the lesser amount and the Investor shall present the disputed
issue to an independent financial institution (chosen by the Investor and
reasonably acceptable to the Company) for resolution and the determination of
that financial institution shall be controlling. The written concurrence of the
Company as to the Investor's calculation shall not be required and in the event
the Transfer Agent does not receive written notice of the Company's disagreement
with the Investor's calculation prior to the date by which the Transfer Agent is
required to deliver certificates representing Common Stock to the Investor, the
Transfer Agent shall deliver the number of shares of Common Stock to the
Investor as so requested. The fees of such financial institution shall be borne
by the party which, based upon such
3
<PAGE> 53
financial institution's determination, incorrectly calculated the number of
shares of Common Stock issuable.
4. FEES OF TRANSFER AGENT; INDEMNIFICATION
The Company agrees to pay the Transfer Agent for all fees incurred in
connection with these Irrevocable Instructions. The Company agrees to indemnify
the Transfer Agent and its officers, employees and agents, against any losses,
claims, damages or liabilities, joint or several, to which it or they become
subject based upon the performance by the Transfer Agent of its duties in
accordance with the Irrevocable Instructions.
5. IRREVOCABLE INSTRUCTIONS
These Irrevocable Instructions delivered by the Company to the Transfer
Agent are irrevocable and the Transfer Agent is hereby directed not to follow
any subsequent direction of the Company, written or oral, delivered subsequent
to the date hereof relating to the matters contained herein which are
inconsistent with these Irrevocable Instructions.
6. THIRD PARTY BENEFICIARY
The Company and the Transfer Agent acknowledge and agree that the
Investor is an express third party beneficiary of these Irrevocable Instructions
and shall be entitled to rely upon, and enforce, the provisions thereof.
CONNECTIVE THERAPEUTICS, INC.
By:__________________________
Name:
Title:
AGREED:
[NAME OF TRANSFER AGENT]
By:__________________________
Name:
Title:
4
