EXHIBIT 1.1
Execution Copy
CONNETICS CORPORATION
2.25% CONVERTIBLE SENIOR NOTES DUE MAY 30, 2008
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PURCHASE AGREEMENT
May 21, 2003
▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co.,
▇.▇. ▇▇▇▇▇▇▇▇▇, Towbin (a California
Limited Partnership),
CIBC World Markets Corp.,
▇▇▇▇▇▇ ▇▇▇▇▇▇ Partners LLC,
U.S. Bancorp ▇▇▇▇▇ ▇▇▇▇▇▇▇ Inc.,
As representatives of the several Purchasers
named in Schedule I hereto,
c/o Goldman, ▇▇▇▇▇ & Co.,
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇.
Ladies and Gentlemen:
Connetics Corporation, a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Purchasers named in Schedule I hereto (the "Purchasers") an aggregate of
$80,000,000 principal amount of its 2.25% Convertible Senior Notes due May 30,
2008, convertible into shares of common stock, par value $0.001 per share
("Stock") of the Company (the "Firm Securities"), and, at the election of
▇▇▇▇▇▇▇, Sachs & Co., to issue and sell to ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co. up to an
aggregate of $10,000,000 additional principal amount of such notes (the
"Optional Securities") (the Firm Securities and the Optional Securities which
▇▇▇▇▇▇▇, Sachs & Co. elects to purchase pursuant to Section 2 hereof are herein
collectively referred to as the "Securities").
The Purchasers and other holders (including subsequent transferees) of
Securities will be entitled to the benefits of the registration rights
agreement, to be dated as of the First Time of Delivery (as defined in Section
4) (the "Registration Rights Agreement"), between the Company and the Purchaser,
in the form attached hereto as Exhibit A. Pursuant to the Registration Rights
Agreement, the Company will agree to file with the Securities and Exchange
Commission (the "Commission") under the circumstances set forth therein a shelf
registration statement pursuant to Rule 415 under the United States Securities
Act of 1933, as amended (the "Act"), relating to the resale of (i) Securities
initially resold in registered form and (ii) the shares of Stock initially
issuable upon conversion of the Securities by holders thereof, and to take the
actions specified therein to cause such shelf registration statement to be
declared effective.
1. The Company represents and warrants to, and agrees with, each of the
Purchasers that:
(a) An offering circular, dated May 21, 2003 (the "Offering
Circular") has been prepared in connection with the offering of the
Securities and shares of Stock issuable upon conversion thereof. Any
reference to the Offering Circular shall be deemed to refer to and
include the Company's most recent Annual Report on Form 10-K, as
amended, and all subsequent documents filed with the Commission
pursuant to Section 13(a), 13(c) or 15(d) of the United States
Securities Exchange Act of 1934, as amended (the "Exchange Act"), on or
prior to the date of the Offering Circular and any reference to the
Offering Circular, as amended or supplemented, as of any specified
date, shall be deemed to include (i) any documents filed with the
Commission pursuant to Section 13(a), 13(c) or 15(d) of the Exchange
Act after the date of the Offering Circular, and prior to such
specified date, and (ii) any Additional Issuer Information (as defined
in Section 5(f)) furnished by the Company prior to the completion of
the distribution of the Securities; and all documents filed under the
Exchange Act and so deemed to be included in the Offering Circular or
any amendment or supplement thereto are hereinafter called the
"Exchange Act Reports". The Exchange Act Reports, when they were or are
filed with the Commission, conformed or will conform in all material
respects to the applicable requirements of the Exchange Act and the
applicable rules and regulations of the Commission thereunder. The
Offering Circular and any amendments or supplements thereto and the
Exchange Act Reports did not and will not, as of their respective
dates, contain an untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company
by a Purchaser through ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co. expressly for use therein;
(b) Neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements
included in the Offering Circular any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or
governmental action, order or decree that would be material to the
Company and its subsidiaries, taken as a whole, otherwise than as set
forth or contemplated in the Offering Circular; and, since the
respective dates as of which information is given in the Offering
Circular, there has not been any change in the capital stock (other
than grants or exercises of options pursuant to employee stock option
plans existing on, or upon the conversion or exchange of convertible or
exchangeable securities outstanding as of, the date of this Agreement)
or material change in long-term debt of the Company or any of its
subsidiaries or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, stockholders' equity
or results of operations of the Company and its subsidiaries taken as a
whole, otherwise than as set forth or contemplated in the Offering
Circular;
(c) The Company and its subsidiaries have good title to all real
property and good and marketable title to all personal property owned
by them, in each case free and clear of all liens, encumbrances and
defects except such as are described in the Offering Circular or such
as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by
the Company and its subsidiaries; and
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any real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases, except as the enforcement thereof may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors'
rights generally and subject to the applicability of general principles
of equity and with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property
and buildings by the Company and its subsidiaries;
(d) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Offering
Circular, and has been duly qualified as a foreign corporation for the
transaction of business and is in good standing under the laws of each
other jurisdiction in which it owns or leases properties or conducts
any business so as to require such qualification, or is subject to no
material liability or disability by reason of the failure to be so
qualified in any such jurisdiction; and each subsidiary of the Company
has been duly incorporated and is validly existing as a corporation in
good standing under the laws of its jurisdiction of incorporation;
(e) The Company has an authorized capitalization as set forth in
the Offering Circular, and all of the issued shares of capital stock of
the Company have been duly and validly authorized and issued and are
fully paid and non-assessable; the shares of Stock initially issuable
upon conversion of the Securities have been duly authorized and
reserved for issuance and, when issued and delivered in accordance with
the provisions of the Securities and the Indenture referred to below,
will be validly issued, fully paid and non-assessable and will conform
to the description of the Stock contained in the Offering Circular; and
all of the issued shares of capital stock of each subsidiary of the
Company have been duly and validly authorized and issued, are fully
paid and non-assessable and (except for directors' qualifying shares)
are owned directly or indirectly by the Company, free and clear of all
liens, encumbrances, equities or claims;
(f) The Securities have been duly authorized and, when issued
and delivered pursuant to this Agreement and authenticated by the
Trustee (as defined below) in accordance with the provisions of the
Indenture (as defined below), will have been duly executed,
authenticated, issued and delivered and will constitute valid and
legally binding obligations of the Company entitled to the benefits
provided by the indenture to be dated as of May 28, 2003 (the
"Indenture") between the Company and ▇. ▇. ▇▇▇▇▇▇ Trust Company,
National Association, as Trustee (the "Trustee"), under which they are
to be issued; and the Securities and the Indenture will conform in all
material respects to the descriptions thereof in the Offering Circular
and will be in substantially the form previously delivered to you;
(g) None of the transactions contemplated by this Agreement
(including, without limitation, the use of the proceeds from the sale
of the Securities) will violate or result in a violation of Section 7
of the Exchange Act, or any regulation promulgated thereunder,
including, without limitation, Regulations G, T, U, and X of the Board
of Governors of the Federal Reserve System;
(h) Prior to the date hereof, neither the Company nor any of its
affiliates has taken any action which is designed to or which has
constituted or which might have been expected to
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cause or result in stabilization or manipulation of the price of any
security of the Company in connection with the offering of the
Securities;
(i) The issue and sale of the Securities and the compliance by
the Company with all of the provisions of the Securities, the
Indenture, the Registration Rights Agreement and this Agreement and the
consummation of the transactions herein and therein contemplated will
not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other material agreement or
instrument to which the Company or any of its subsidiaries is a party
or by which the Company or any of its subsidiaries is bound or to which
any of the property or assets of the Company or any of its subsidiaries
is subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws of the
Company or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any
of its subsidiaries or any of their properties; and no consent,
approval, authorization, order, registration or qualification of or
with any such court or governmental agency or body is required for the
issue and sale of the Securities or the consummation by the Company of
the transactions contemplated by this Agreement, the Indenture or the
Registration Rights Agreement, except (i) as required pursuant to the
Registration Rights Agreement, (ii) for the approval of the Stock
issuable upon conversion of the Securities for quotation on the Nasdaq
National Market, (iii) such consents and waivers with respect to
registration rights of certain stockholders that have already been
obtained and (iv) such consents, approvals, authorizations,
registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of the Securities by the Purchasers;
(j) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in default
in the performance or observance of any obligation, covenant or
condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a
party or by which it or any of its properties may be bound, subject to
such exceptions as are either (i) disclosed in the Offering Circular or
(ii) would not be material to the Company and its subsidiaries taken as
a whole;
(k) The statements set forth in the Offering Circular under the
captions "Description of the Notes" and "Description of Capital Stock",
insofar as they purport to constitute summaries of the terms of the
Securities and the Stock, and under the caption "Material United States
Federal Income Tax Considerations", insofar as they purport to describe
the provisions of the laws and regulations referred to therein,
represent fair and accurate summaries in all material respects;
(l) Other than as set forth in the Offering Circular, there are
no legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any property of the
Company or any of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, would individually
or in the aggregate have a material adverse effect on the current or
future financial position, stockholders' equity or results of
operations of the Company and its subsidiaries taken as a whole; and,
to the best of the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by
others;
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(m) When the Securities are issued and delivered pursuant to
this Agreement, the Securities will not be of the same class (within
the meaning of Rule 144A(d)(3) under the Act) as securities which are
listed on a national securities exchange registered under Section 6 of
the Exchange Act or quoted in a U.S. automated inter-dealer quotation
system;
(n) The Company is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act;
(o) The Company is not, and after giving effect to the offering
and sale of the Securities will not be, an "investment company", as
such term is defined in the United States Investment Company Act of
1940, as amended (the "Investment Company Act");
(p) Neither the Company, nor any person acting on its behalf,
has offered or sold the Securities by means of any general solicitation
or general advertising within the meaning of Rule 502(c) under the Act;
(q) Within the preceding six months, neither the Company nor any
other person acting on behalf of the Company has offered or sold to any
person any Securities, or any securities of the same or a similar class
as the Securities, other than Securities offered or sold to the
Purchasers hereunder. The Company will take reasonable precautions
designed to insure that any offer or sale, direct or indirect, in the
United States or to any U.S. person (as defined in Rule 902 under the
Act) of any Securities or any substantially similar security issued by
the Company, within six months subsequent to the date on which the
distribution of the Securities has been completed (as notified to the
Company by ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co.), is made under restrictions and other
circumstances reasonably designed not to affect the status of the offer
and sale of the Securities in the United States and to U.S. persons
contemplated by this Agreement as transactions exempt from the
registration provisions of the Act;
(r) It is not necessary in connection with the offer, sale and
delivery of the Securities to the Purchasers, or in connection with the
offer, sale and initial resale of the Securities by the Purchasers in a
manner contemplated by this Agreement, to register the Securities under
the Act or to qualify an indenture under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act") (in giving this
representation and warranty the Company is relying on the
representations, warranties and agreements of the Purchasers in this
Agreement);
(s) The Securities have been, or prior to the First Time of
Delivery (as defined in Section 4) will be, designated PORTAL eligible
securities in accordance with the rules and regulations of the National
Association of Securities Dealers, Inc.;
(t) Ernst & Young LLP, which has certified certain financial
statements of the Company and its subsidiaries, is an independent
public accountant as required by the Act and the rules and regulations
of the Commission thereunder;
(u) The Company has all requisite corporate power to enter into
this Agreement, the Indenture and the Registration Rights Agreement.
This Agreement has been and, as of each Time of Delivery, the Indenture
and the Registration Rights Agreement will have been, duly authorized,
executed and delivered by the Company and upon such execution by the
Company (assuming the due authorization, execution and delivery of such
agreements by the other parties thereto) this Agreement, the Indenture
and the Registration Rights Agreement
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will constitute valid and binding obligations of the Company
enforceable against the Company in accordance with the terms hereof
and/or thereof, subject, as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles, and
except as the enforcement of indemnification and contribution
provisions hereof and thereof may be limited by applicable law and
public policy;
(v) Except as disclosed in the Offering Circular, there are no
persons with registration rights or other similar rights to have any
securities of the Company (other than the Securities and the shares of
Stock issuable upon conversion thereof) registered under the Act under
any registration statement, which rights have not been satisfied or
waived;
(w) None of the holders of outstanding shares of capital stock
of the Company and no other person has or will have any preemptive or
other rights to purchase, subscribe for or otherwise acquire (i) the
shares of Stock to be issued upon conversion of the Securities or any
rights to such shares (other than those granted by the holders of the
Securities) or (ii) as a result of or in connection with the
transactions contemplated by this Agreement, the Indenture or the
Registration Rights Agreement, any other capital stock of the Company
or rights thereto;
(x) The Company and its subsidiaries, taken as a whole, are
insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as are prudent and customary in
the business in which they are engaged; and neither the Company nor any
of its subsidiaries has any reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a
material adverse effect on the general affairs, management, the current
or future consolidated financial position, business prospects,
stockholders' equity or results of operations of the Company and its
subsidiaries;
(y) The Company and each of its subsidiaries holds, and are
operating in compliance in all material respects with, all material
franchises, grants, authorizations, licenses, permits, easements,
consents, certificates and orders of any governmental or
self-regulatory body required for the conduct of their businesses
(including those that may be required by the U.S. Food and Drug
Administration and any federal, state or foreign agencies or bodies
engaged in the regulation of pharmaceuticals or biohazardous
substances) (collectively, "Government Licenses") and all such
Government Licenses are valid and in full force and effect; the Company
and each of its subsidiaries are in compliance in all material respects
with all applicable federal, state, local and foreign laws,
regulations, orders and decrees; neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation or modification of any material Government Licenses;
(z) The Company and each of its subsidiaries own or possess, or
have no reason to believe they cannot acquire on reasonable terms,
adequate licenses or other rights to use all patents, patent
applications, trademarks, service marks, trade names, trademark
registrations, service ▇▇▇▇ registrations, copyrights, licenses,
inventions, trade secrets and know-how (collectively, the "Intellectual
Property") necessary to conduct the businesses now operated by them as
described in the Offering Circular, and except as stated in the
Offering Circular, to the
6
Company's knowledge, no name which the Company or any of its
subsidiaries uses and no other aspect of the business of the Company or
any of its subsidiaries as conducted on the date hereof involves or
gives rise to any infringement of, or license or similar fees for, any
licenses, patents, patent applications, trademarks, service marks,
trade names, trademark registrations, service ▇▇▇▇ registrations,
copyrights, licenses, inventions, trade secrets, know-how or other
similar rights of others, and neither the Company nor any of its
subsidiaries has received any notice alleging any such infringement or
fee. The Company has duly and properly filed or caused to be filed with
the U.S. Patent and Trademark Office (the "PTO") and applicable foreign
and international patent authorities all patent applications described
in the Offering Circular (the "Patent Applications"); in connection
with the filing of the Patent Applications, the Company conducted
reasonable investigations of the published literature and patent
references relating to the inventions claimed in such applications; to
the best of the Company's knowledge, it has complied with the PTO's
duty of candor and disclosure for the Patent Applications and has made
no misrepresentation in the Patent Applications; the Company is not
aware of any facts material to a determination of patentability
regarding the Patent Applications not called to the attention of the
PTO which would preclude the grant of a patent for the Patent
Applications; and the Company has no knowledge of any facts which would
preclude it from having clear title to the Patent Applications;
(aa) Since the respective dates as of which information is given
in the Offering Circular, the studies, tests and preclinical and
clinical trials conducted by or on behalf of the Company that are
described in the Offering Circular were and, if still pending, are
being conducted in accordance with experimental protocols, procedures
and controls pursuant to, where applicable, accepted professional
scientific standards; the descriptions of the results of such studies,
tests and trials contained in the Offering Circular are accurate and
complete in all material respects; the Company is not aware of any
studies, tests or trials the results of which the Company believes
reasonably call into question the clinical trial results described or
referred to in the Offering Circular when viewed in the context in
which such results are described and the clinical state of development;
and the Company has not received any notices or correspondence from the
U.S. Food and Drug Administration or any foreign, state or local
governmental body exercising comparable authority requiring the
termination, suspension or material modification of any studies, tests
or preclinical or clinical trials conducted by or on behalf of the
Company; and
(bb) The Company is eligible for use of Form S-3 promulgated
under the Act.
2. Subject to the terms and conditions herein set forth, and upon the
basis of the representations, warranties and agreements of the Purchasers
contained herein, (a) the Company agrees to issue and sell to each of the
Purchasers, and each of the Purchasers agrees, severally and not jointly, to
purchase from the Company, at a purchase price of 96.5% of the principal amount
thereof, the principal amount of Firm Securities set forth opposite the name of
such Purchaser in Schedule I hereto and (b) in the event and to the extent that
▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co. shall exercise the election to purchase Optional Securities
as provided below, the Company agrees to issue and sell to ▇▇▇▇▇▇▇, Sachs & Co.,
and ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co. agrees to purchase from the Company, at the same
purchase price set forth in clause (a) of this Section 2, the aggregate
principal amount of the Optional Securities as to which such election shall have
been exercised (to be adjusted by you so as to eliminate fractions of $1,000).
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The Company hereby grants to ▇▇▇▇▇▇▇, Sachs & Co. the right to purchase
at its election up to $10,000,000 aggregate principal amount of Optional
Securities, at the same purchase price set forth in clause (a) of the first
paragraph of this Section 2. Any such election to purchase Optional Securities
may be exercised by written notice from ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co. to the Company,
given within a period of 30 calendar days after the date of this Agreement,
setting forth the aggregate principal amount of Optional Securities to be
purchased and the date on which such Optional Securities are to be delivered, as
determined by ▇▇▇▇▇▇▇, Sachs & Co. but in no event earlier than the First Time
of Delivery (as defined in Section 4 hereof) or, unless ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co. and
the Company otherwise agree in writing, earlier than three or later than ten New
York Business Days after the date of such notice. As used in this Agreement,
"New York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York are
generally authorized or obligated by law or executive order to close.
3. Upon the authorization by you of the release of the Securities, the
several Purchasers propose to offer the Securities for sale upon the terms and
conditions set forth in this Agreement and the Offering Circular and each
Purchaser hereby represents and warrants to, and agrees with the Company that:
(a) It will offer and sell the Securities only to persons who it
reasonably believes are "qualified institutional buyers" ("QIBs") within the
meaning of Rule 144A under the Act in transactions meeting the requirements of
Rule 144A; and
(b) It will not offer or sell the Securities by any form of general
solicitation or general advertising, including but not limited to the methods
described in Rule 502(c) under the Act.
In addition, each Purchaser represents and warrants that it is a
qualified institutional buyer or an institutional accredited investor with such
knowledge and experience in financial and business matters as are necessary to
evaluate the merits and risks of an investment in the Securities, and has
advised the Company that it proposes to offer the Securities for resale upon
terms and conditions disclosed in this Agreement and in the Offering Circular;
and it understands that, for the purposes of the opinions to be delivered
pursuant to Section 7(b) hereof, counsel to the Company, will assume the
accuracy and truth of the foregoing representations and compliance with the
foregoing agreements by each Purchaser.
4. (a) The Securities to be purchased by each Purchaser hereunder will
be represented by one or more definitive global Securities in book-entry form
which will be deposited by or on behalf of the Company with The Depository Trust
Company ("DTC") or its designated custodian. The Company will deliver the
Securities to ▇▇▇▇▇▇▇, Sachs & Co., for the account of each Purchaser, against
payment by or on behalf of such Purchaser of the purchase price therefor by wire
transfer to the Company in Federal (same day) funds, by causing DTC to credit
the Securities to the account of ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co. at DTC. The Company will
cause the certificates representing the Securities to be made available to
▇▇▇▇▇▇▇, Sachs & Co. for checking at least twenty-four hours prior to the Time
of Delivery (as defined below) at the office of DTC or its designated custodian
(the "Designated Office"). The time and date of such delivery and payment shall
be, with respect to the Firm Securities, 6:30 a.m., California time, on May 28,
2003 or such other time and date as ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co. and the Company may
agree upon in writing, and with respect to the Optional Securities, 6:30 a.m.,
California time, on the date specified by ▇▇▇▇▇▇▇, Sachs & Co. in the written
notice given by ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co. of ▇▇▇▇▇▇▇, Sachs & Co.'s election to
purchase such
8
Optional Securities, or such other time and date as ▇▇▇▇▇▇▇, Sachs & Co. and the
Company may agree upon in writing. Such time and date for delivery of the Firm
Securities is herein called the "First Time of Delivery", such time and date for
the delivery of the Optional Securities, if not the First Time of Delivery, is
herein called the "Second Time of Delivery", and each such time and date for
delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the
cross-receipt for the Securities and any additional documents requested by the
Purchasers pursuant to Section 7(j) hereof, will be delivered at such time and
date at the offices of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the "Closing Location"), and the Securities will be
delivered at the Designated Office, all at such Time of Delivery. A meeting will
be held at the Closing Location at 2:00 p.m., California time, on the New York
Business Day next preceding each Time of Delivery, at which meeting the final
drafts of the documents to be delivered pursuant to the preceding sentence will
be available for review by the parties hereto.
5. The Company agrees with each of the Purchasers:
(a) To prepare the Offering Circular in a form approved by you; to make
no amendment or any supplement to the Offering Circular which shall be
disapproved by you promptly after reasonable notice thereof; and to furnish you
with copies thereof;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Securities and the shares of Stock issuable
upon conversion of the Securities for offering and sale under the securities
laws of such jurisdictions as you may request and to comply with such laws so as
to permit the continuance of sales and dealings therein in such jurisdictions
for as long as may be necessary to complete the distribution of the Securities,
provided that in connection therewith the Company shall not be required to
qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction;
(c) To furnish the Purchasers with copies of the Offering Circular in
such quantities as you may reasonably request and each amendment or supplement
thereto signed by an authorized officer of the Company with the independent
accountants' report(s) in the Offering Circular, and any amendment or supplement
containing amendments to the financial statements covered by such report(s),
signed by the accountants, and additional written and electronic copies thereof
in such quantities as you may from time to time reasonably request, and if, at
any time prior to the expiration of nine months after the date of the Offering
Circular, any event shall have occurred as a result of which the Offering
Circular as then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were made
when such Offering Circular is delivered, not misleading, or, if for any other
reason it shall be necessary or desirable during such same period to amend or
supplement the Offering Circular, to notify you and upon your request to prepare
and furnish without charge to each Purchaser and to any dealer in securities as
many written and electronic copies as you may from time to time reasonably
request of an amended Offering Circular or a supplement to the Offering Circular
which will correct such statement or omission or effect such compliance;
(d) During the period beginning from the date hereof and continuing
until the date which is 90 days after the Time of Delivery, not to offer, sell,
contract to sell or otherwise dispose of, except as
9
provided hereunder, any securities of the Company that are substantially similar
to the Securities or the Stock, including but not limited to any securities that
are convertible into or exchangeable for, or that represent the right to
receive, Stock or any such substantially similar securities (other than pursuant
to employee stock plans existing on, or upon the conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of this
Agreement), without your prior written consent;
(e) Not to be or become, at any time prior to the expiration of two
years after the last Time of Delivery, an open-end investment company, unit
investment trust, closed-end investment company or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act;
(f) At any time when the Company is not subject to Section 13 or 15(d)
of the Exchange Act, for the benefit of holders from time to time of Securities,
to furnish at its expense, upon request, to holders of Securities and
prospective purchasers of the Securities designated by such holders, upon the
request of such holders or such prospective purchasers, the information (the
"Additional Issuer Information") satisfying the requirements of subsection
(d)(4)(i) of Rule 144A under the Act;
(g) [RESERVED];
(h) To furnish to its stockholders generally (including the holders of
the Securities) as soon as practicable after the end of each fiscal year an
annual report (including a balance sheet and statements of income, stockholders'
equity and cash flows of the Company and its consolidated subsidiaries certified
by independent public accountants) and, as soon as practicable after the end of
each of the first three quarters of each fiscal year (beginning with the fiscal
quarter ending after the date of the Offering Circular), to make available to
its stockholders consolidated summary financial information of the Company and
its subsidiaries for such quarter in reasonable detail;
(i) During a period of three years from the date of the Offering
Circular, to furnish to you copies of all reports or other communications
(financial or other) furnished to stockholders of the Company, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any securities exchange
on which the Securities or any class of securities of the Company is listed; and
(ii) such additional information concerning the business and financial condition
of the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission);
(j) During the period of two years after the last Time of Delivery, the
Company will not, and will not permit any of its "affiliates" (as defined in
Rule 144 under the Securities Act) to, resell any of the Securities which
constitute "restricted securities" under Rule 144 that have been reacquired by
any of them;
(k) To use the net proceeds received by it from the sale of the
Securities pursuant to this Agreement in the manner specified in the Offering
Circular under the caption "Use of Proceeds";
(l) To reserve and keep available at all times, free of preemptive
rights, shares of Stock for the purpose of enabling the Company to satisfy any
obligations to issue shares of its Stock upon conversion of the Securities; and
10
(m) To use its commercially reasonable efforts to list for quotation,
subject to notice of issuance, the shares of Stock issuable upon conversion of
the Securities on the Nasdaq National Market.
6. The Company covenants and agrees with the several Purchasers that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the issuance of the Securities and the shares of Stock issuable
upon conversion of the Securities and all other expenses in connection with the
preparation and printing of the Offering Circular and any amendments and
supplements thereto and the mailing and delivering of copies thereof to the
Purchasers and dealers; (ii) the cost of printing or producing any Agreement
among Purchasers, this Agreement, the Registration Rights Agreement, the
Indenture, the Blue Sky and Legal Investment Memoranda, closing documents
(including any compilations thereof) and any other documents in connection with
the offering, purchase, sale and delivery of the Securities; (iii) all expenses
in connection with the qualification of the Securities and the shares of Stock
issuable upon conversion of the Securities for offering and sale under state
securities laws as provided in Section 5(b) hereof, including the fees and
disbursements of counsel for the Purchasers in connection with such
qualification and in connection with the Blue Sky and legal investment surveys,
if any; (iv) any fees charged by securities rating services for rating the
Securities; (v) the cost of preparing the Securities; (vi) the fees and expenses
of the Trustee and any agent of the Trustee and the fees and disbursements of
counsel for the Trustee in connection with the Indenture and the Securities;
(vii) any cost incurred in connection with the designation of the Securities for
trading in PORTAL and the listing of the shares of Stock issuable upon
conversion of the Securities; and (viii) all other costs and expenses incident
to the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section. It is understood, however, that,
except as provided in this Section, and Sections 8 and 11 hereof, the Purchasers
will pay all of their own costs and expenses, including the fees of their
counsel, transfer taxes on resale of any of the Securities by them, and any
advertising expenses connected with any offers they may make.
7. The obligations of the Purchasers hereunder shall be subject, in
their discretion, to the condition that all representations and warranties and
other statements of the Company herein are, at and as of such Time of Delivery,
true and correct, the condition that the Company shall have performed all of its
obligations hereunder theretofore to be performed as of such Time of Delivery,
and the following additional conditions:
(a) ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, counsel for the Purchasers, shall have
furnished to you such opinion or opinions, dated such Time of Delivery, with
respect to such matters as you may reasonably request, and such counsel shall
have received such papers and information as they may reasonably request to
enable them to pass upon such matters;
(b) ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, counsel for the Company, shall have
furnished to you their written opinion, dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware
and has corporate power and authority to own its properties and conduct
its business as described in the Offering Circular;
(ii) The Company has an authorized capitalization as set forth
in the Offering Circular, and all of the issued and outstanding shares
of the Company's common stock, $0.001 par
11
value per share, have been duly authorized and validly issued and are
fully paid and non-assessable; and the shares of Stock initially
issuable upon conversion of the Securities have been duly authorized
and reserved for issuance and, when issued and delivered upon
conversion of the Securities and in accordance with the provisions of
the Securities, the Indenture and this Agreement, will be validly
issued, fully paid and non-assessable, and will conform in all material
respects to the description of the Stock contained in the Offering
Circular;
(iii) The Company has been duly qualified to transact business
as a foreign corporation and is in good standing under the laws of the
States of California, Indiana, New Jersey, New York, Tennessee and
Texas;
(iv) To such counsel's knowledge, all of the issued shares of
capital stock of each subsidiary of the Company are owned directly or
indirectly by the Company free and clear of all liens, encumbrances,
equities or claims;
(v) To such counsel's knowledge and other than as set forth in
the Offering Circular, there are no legal or governmental proceedings
pending to which the Company or any of its subsidiaries is a party or
of which any property of the Company or any of its subsidiaries is the
subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material
adverse effect on the current or future consolidated financial
position, stockholders' equity or results of operations of the Company
and its subsidiaries taken as a whole, and, to such counsel's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(vi) This Agreement has been duly authorized, executed and
delivered by the Company;
(vii) The Securities have been duly authorized, executed and
delivered by the Company and, assuming due authentication by the
Trustee, when issued and paid for in accordance with this Agreement and
the Indenture, will constitute legal, valid and binding obligations of
the Company entitled to the benefits provided by the Indenture; and the
Securities and the Indenture conform in all material respects to the
descriptions thereof in the Offering Circular;
(viii) The Indenture has been duly authorized, executed and
delivered by the Company and constitutes a legal, valid and binding
obligation of the Company, enforceable in accordance with its terms,
subject, as to enforcement, to bankruptcy, insolvency, reorganization
and other laws of general applicability relating to or affecting
creditors' rights and to general equity principles;
(ix) The Registration Rights Agreement has been duly authorized,
executed and delivered by the Company and constitutes a legal, valid
and binding obligation of the Company enforceable against the Company
in accordance with its terms;
(x) The issue and sale of the Securities and the performance by
the Company of its obligations under the provisions of the Securities,
the Registration Rights Agreement, the Indenture and this Agreement and
the consummation of the transactions herein and therein contemplated,
will not result in a violation of the charter or bylaws of the Company,
and to such counsel's knowledge, will not result in violation of any
law, administrative regulation or
12
administrative or court decree applicable to the Company or any
subsidiary of the Company or any of their properties, and, to such
counsel's knowledge, will not constitute a material breach of the
terms, conditions or provisions of or constitute a default under any
contract, undertaking, indenture or other agreement by which the
Company is now bound or to which it is now a party and which has been
included as an exhibit to the Company's Exchange Act Reports filed with
the Commission prior to the date hereof and incorporated by reference
in the Offering Circular;
(xi) No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body
is required for the issue and sale of the Securities or the
consummation by the Company of the transactions contemplated by this
Agreement, the Registration Rights Agreement or the Indenture, except,
such as may be required under the Act in connection with the shares of
Stock issuable upon conversion of the Securities and such consents,
approvals, authorizations, registrations or qualifications as may be
required under state securities or Blue Sky laws in connection with the
purchase and distribution of the Securities by the Purchasers;
(xii) The statements set forth in the Offering Circular under
the caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Securities and the Stock, and
under the caption "Material United States Federal Income Tax
Considerations," insofar as they purport to describe the provisions of
the laws and documents referred to therein, are accurate and correct in
all material respects;
(xiii) The Exchange Act Reports (other than the financial
statements, supporting schedules, footnotes, and other financial and
statistical information therein, as to which such counsel need express
no opinion), when they were filed with the Commission, complied as to
form in all material respects with the requirements of the Exchange
Act, and the rules and regulations of the Commission thereunder;
(xiv) No registration of the Securities under the Act, and no
qualification of an indenture under the United States Trust Indenture
Act of 1939 with respect thereto, is required for the offer, sale and
initial resale of the Securities by the Purchasers in the manner
contemplated by this Agreement and the Offering Circular; and
(xv) The Company is not and, after giving effect to the offering
and sale of the Securities and the application of the proceeds thereof
as described in the Offering Circular under the caption "Use of
Proceeds", will not be an "investment company," as such term is defined
in the Investment Company Act of 1940.
In addition, such counsel shall state that nothing has come to such
counsel's attention that leads such counsel to believe that (1) the Offering
Circular and any further amendments or supplements thereto made by the Company
prior to the Time of Delivery contained as of the date of the Offering Circular
or the Time of Delivery an untrue statement of a material fact or omitted or
omits, as the case may be, to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or (2) any of the Exchange Act Reports filed by the Company with
the Commission prior to the date of the Offering Circular and incorporated by
reference therein, when such Exchange Act Reports were so filed, contained an
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made when such
13
documents were so filed, not misleading (it being understood that such counsel
need not make any comment with respect to the financial statements, supporting
schedules, footnotes, and other financial and statistical information contained
in the Offering Circular or any amendments or supplements thereto, or any of the
documents included or deemed to be included therein).
In addition, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, General Counsel of the Company, shall have
furnished to you a letter, dated such Time of Delivery, in form and substance
satisfactory to you, to the same effect as clause (1) of the immediately
preceding paragraph.
(c) ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ and Crew LLP, intellectual property counsel
for the Company, shall have furnished to you their written opinion, dated such
Time of Delivery, in form and substance satisfactory to you, to the effect that:
(i) To the best of knowledge of such counsel, the Company has
valid, binding and enforceable licenses or other rights to use U.S.
Patent No. 6,126,920 (the `920 patent) related to clobetasol propionate
foam (OLUX(R)) and betamethasone valerate foam (Luriq(R));
(ii) Attached Schedule A to such opinion ("U.S. Patent
Applications") lists pending U.S. patent applications which are being
prosecuted by such counsel and which, to the best of their knowledge,
are owned by the Company. Where the Company is listed as the owner, an
assignment from the inventors to the Company has been recorded or is
being recorded in the United States Patent and Trademark Office, or the
inventor(s) has a duty to assign to the Company. Based on the
Certification by the Officer of the Company (as identified in such
opinion), to the best of their knowledge, there are no claims or
potential claims to any ownership interest or liens on any of the
patents or patent applications listed in Schedule A by any party other
than the Company; and
(iii) Based on the Certification by the Officer of the Company,
to the best of their knowledge, (1) the Company has not received notice
of any claim of misappropriation of any intellectual property rights or
infringement of any patents held by others, and (2) there is no pending
or threatened action, suit, proceeding or claim by others that the
Company is infringing a patent or has misappropriated any intellectual
property rights;
(d) On the date of the Offering Circular prior to the execution of this
Agreement and also at each Time of Delivery, Ernst & Young LLP shall have
furnished to you a letter or letters, dated the respective dates of delivery
thereof, in form and substance satisfactory to you, to the effect set forth in
Annex I hereto;
(e) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included in
the Offering Circular any loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Offering Circular, and (ii) since the
respective dates as of which information is given in the Offering Circular there
shall not have been any change in the capital stock or long-term debt of the
Company or any of its subsidiaries or any change, or any development involving a
prospective change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company and its
subsidiaries taken as a whole, otherwise than as set forth or contemplated in
the Offering Circular, the effect of which, in any such case described in clause
(i) or (ii), is in the judgment of the Representatives so material and adverse
as to make it
14
impracticable or inadvisable to proceed with the public offering or the delivery
of the Securities on the terms and in the manner contemplated in this Agreement
and in the Offering Circular;
(f) On or after the date hereof (i) no downgrading shall have occurred
in the rating accorded the Company's debt securities by any "nationally
recognized statistical rating organization", as that term is defined by the
Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such
organization shall have publicly announced that it has under surveillance or
review, with possible negative implications, its rating of any of the Company's
debt securities;
(g) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange or on the Nasdaq National Market; (ii)
a suspension or material limitation in trading in the Company's securities on
the Nasdaq National Market; (iii) a general moratorium on commercial banking
activities declared by any of Federal, New York State or California State
authorities or a material disruption in commercial banking or securities
settlement or clearance services in the United States; (iv) the outbreak or
escalation of hostilities involving the United States or the declaration by the
United States of a national emergency or war or (v) the occurrence of any other
calamity or crisis or any change in financial, political or economic conditions
in the United States or elsewhere, if the effect of any such event specified in
clause (iv) or (v) in the judgment of the Representatives makes it impracticable
or inadvisable to proceed with the public offering or the delivery of the
Securities on the terms and in the manner contemplated in the Offering Circular;
(h) The Securities shall have been designated for trading on PORTAL;
(i) The Company shall have obtained and delivered to the Purchasers
executed copies of a written agreement of those directors and executive officers
and other stockholders of the Company listed on Exhibit B-1 in the Form of
Exhibit B-2 hereto, subject to such exceptions as previously agreed between the
parties hereto (each such agreement, a "Lock-Up Agreement"), by the First Time
of Delivery, and executed originals of each Lock-Up Agreement shall have been
delivered to you by such time; and
(j) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company satisfactory to
you as to the accuracy of the representations and warranties of the Company
herein at and as of such Time of Delivery, as to the performance by the Company
of all of its obligations hereunder to be performed at or prior to such Time of
Delivery, as to the matters set forth in subsection (e) of this Section and as
to such other matters as you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Purchaser
against any losses, claims, damages or liabilities, joint or several, to which
such Purchaser may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in the Offering Circular, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact necessary to make the statements therein not
misleading, and will reimburse each Purchaser for any legal or other expenses
reasonably incurred by such Purchaser in connection with investigating or
defending any such action or claim as such expenses are incurred; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made
15
in the Offering Circular or any such amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by any
Purchaser through ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co. expressly for use therein.
(b) Each Purchaser will indemnify and hold harmless the Company against
any losses, claims, damages or liabilities to which the Company may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in the
Offering Circular, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Offering Circular or
any such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Purchaser through ▇▇▇▇▇▇▇, Sachs &
Co. expressly for use therein; and will reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the written consent
of the indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential party
to such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all liability
arising out of such action 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
any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Purchasers on
the other from the offering of the Securities. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the
16
notice required under subsection (c) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company on the one hand and the Purchasers on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions in respect thereof), as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Purchasers on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Purchasers, in each case as set forth
in the Offering Circular. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the Purchasers
on the other and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company
and the Purchasers agree that it would not be just and equitable if contribution
pursuant to this subsection (d) were determined by pro rata allocation (even if
the Purchasers were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to above in this subsection (d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (d), no Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities underwritten by it and distributed to
investors were offered to investors exceeds the amount of any damages which such
Purchaser has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. The Purchasers' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Purchaser within the meaning of the Act; and the obligations of the Purchasers
under this Section 8 shall be in addition to any liability which the respective
Purchasers may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company and to each person, if
any, who controls the Company within the meaning of the Act.
9. (a) If any Purchaser shall default in its obligation to purchase the
Securities which it has agreed to purchase hereunder, you may in your discretion
arrange for you or another party or other parties to purchase such Securities on
the terms contained herein. If within thirty-six hours after such default by any
Purchaser you do not arrange for the purchase of such Securities, then the
Company shall be entitled to a further period of thirty-six hours within which
to procure another party or other parties satisfactory to you to purchase such
Securities on such terms. In the event that, within the respective prescribed
periods, you notify the Company that you have so arranged for the purchase of
such Securities, or the Company notifies you that it has so arranged for the
purchase of such Securities, you or the Company shall have the right to postpone
the Time of Delivery for a period of not more than seven days, in order to
effect whatever changes may thereby be made necessary in the Offering Circular,
or in any other documents or arrangements, and the Company agrees to prepare
promptly any amendments to the Offering Circular which in your opinion may
thereby be
17
made necessary. The term "Purchaser" as used in this Agreement shall include any
person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Securities.
(b) If, after giving effect to any arrangements for the purchase of the
Securities of a defaulting Purchaser or Purchasers by you and the Company as
provided in subsection (a) above, the aggregate principal amount of such
Securities which remains unpurchased does not exceed one-eleventh of the
aggregate principal amount of all the Securities, then the Company shall have
the right to require each non-defaulting Purchaser to purchase the principal
amount of Securities which such Purchaser agreed to purchase hereunder and, in
addition, to require each non-defaulting Purchaser to purchase its pro rata
share (based on the principal amount of Securities which such Purchaser agreed
to purchase hereunder) of the Securities of such defaulting Purchaser or
Purchasers for which such arrangements have not been made; but nothing herein
shall relieve a defaulting Purchaser from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Securities of a defaulting Purchaser or Purchasers by you and the Company as
provided in subsection (a) above, the aggregate principal amount of Securities
which remains unpurchased exceeds one-eleventh of the aggregate principal amount
of all the Securities, or if the Company shall not exercise the right described
in subsection (b) above to require non-defaulting Purchasers to purchase
Securities of a defaulting Purchaser or Purchasers, then this Agreement shall
thereupon terminate, without liability on the part of any non-defaulting
Purchaser or the Company, except for the expenses to be borne by the Company and
the Purchasers as provided in Section 6 hereof and the indemnity and
contribution agreements in Section 8 hereof; but nothing herein shall relieve a
defaulting Purchaser from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Purchasers, as set forth in
this Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Purchaser or any controlling person of any Purchaser, or the Company, or
any officer or director or controlling person of the Company, and shall survive
delivery of and payment for the Securities.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Purchaser except as
provided in Sections 6 and 8 hereof; but, if for any other reason, the
Securities are not delivered by or on behalf of the Company as provided herein,
the Company will reimburse the Purchasers through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Purchasers in making preparations for the
purchase, sale and delivery of the Securities, but the Company shall then be
under no further liability to any Purchaser except as provided in Sections 6 and
8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Purchasers, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Purchaser made or given
by you jointly or by ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co. on behalf of you as the
representatives.
18
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Purchasers shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of ▇▇▇▇▇▇▇, Sachs &
Co., ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the Offering
Circular, Attention: Secretary; provided, however, that any notice to a
Purchaser pursuant to Section 8(c) hereof shall be delivered or sent by mail,
telex or facsimile transmission to such Purchaser at its address set forth in
its Purchasers' Questionnaire, or telex constituting such Questionnaire, which
address will be supplied to the Company by you upon request. Any such
statements, requests, notices or agreements shall take effect upon receipt
thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Purchasers, the Company and, to the extent provided in Sections 8 and 10
hereof, the officers and directors of the Company and each person who controls
the Company or any Purchaser, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Securities from any Purchaser shall be deemed a successor or assign by reason
merely of such purchase.
14. Time shall be of the essence of this Agreement.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such respective counterparts shall together constitute one and
the same instrument.
17. The Company is authorized, subject to applicable law, to disclose any
and all aspects of this potential transaction that are necessary to support any
U.S. federal income tax benefits expected to be claimed with respect to such
transaction, and all materials of any kind (including tax opinions and other tax
analyses) related to those benefits, without the Purchasers imposing any
limitation of any kind.
19
If the foregoing is in accordance with your understanding, please sign and
return to us eight counterparts hereof, and upon the acceptance hereof by you,
on behalf of each of the Purchasers, this letter and such acceptance hereof
shall constitute a binding agreement between each of the Purchasers and the
Company. It is understood that your acceptance of this letter on behalf of each
of the Purchasers is pursuant to the authority set forth in a form of Agreement
among Purchasers, the form of which shall be submitted to the Company for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
Very truly yours,
CONNETICS CORPORATION
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: CFO
Accepted as of the date hereof:
▇▇▇▇▇▇▇, ▇▇▇▇▇ & CO.
▇.▇. ▇▇▇▇▇▇▇▇▇, TOWBIN (A CALIFORNIA
LIMITED PARTNERSHIP)
CIBC WORLD MARKETS CORP.
▇▇▇▇▇▇ ▇▇▇▇▇▇ PARTNERS LLC
U.S. BANCORP ▇▇▇▇▇ ▇▇▇▇▇▇▇ INC.
By: /s/ ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co.
---------------------------------------
(▇▇▇▇▇▇▇, Sachs & Co.)
On behalf of each of the Purchasers.
[Signature page to Purchase Agreement dated May 21, 2003]
20
SCHEDULE I
PRINCIPAL OPTIONAL
AMOUNT OF AMOUNT OF
SECURITIES SECURITIES
TO BE TO BE
PURCHASER PURCHASED PURCHASED
--------------------------------------------------------- ----------- -----------
▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co. .................................... $56,000,000 $10,000,000
▇.▇. ▇▇▇▇▇▇▇▇▇, Towbin (a California Limited Partnership)
4,000,000 --
CIBC World Markets Corp. ................................ 8,000,000 --
▇▇▇▇▇▇ ▇▇▇▇▇▇ Partners LLC .............................. 8,000,000 --
U.S. Bancorp ▇▇▇▇▇ ▇▇▇▇▇▇▇ Inc. ......................... 4,000,000 --
----------- -----------
Total ................................. $80,000,000 $10,000,000
=========== ===========
ANNEX I
Pursuant to Section 7(d) of the Purchase Agreement, the accountants shall
furnish letters to the Purchasers to the effect that:
(i) They are independent certified public accountants with respect
to the Company and its subsidiaries within the meaning of the Securities
Exchange Act of 1934 (the "Exchange Act") and the applicable published
rules and regulations thereunder;
(ii) In our opinion, the consolidated financial statements and
financial statement schedules audited by us and included in the Offering
Circular comply as to form in all material respects with the applicable
requirements of the Exchange Act and the related published rules and
regulations;
(iii) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the Offering
Circular agrees with the corresponding amounts (after restatements where
applicable) in the audited consolidated financial statements for such five
fiscal years;
(iv) On the basis of limited procedures not constituting an audit in
accordance with generally accepted auditing standards, consisting of a
reading of the unaudited financial statements and other information
referred to below, a reading of the latest available interim financial
statements of the Company and its subsidiaries, inspection of the minute
books of the Company and its subsidiaries since the date of the latest
audited financial statements included in the Offering Circular, inquiries
of officials of the Company and its subsidiaries responsible for financial
and accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
(A) the unaudited consolidated statements of operations,
consolidated balance sheets and consolidated statements of cash
flows included in the Offering Circular are not in conformity with
generally accepted accounting principles applied on the basis
substantially consistent with the basis for the unaudited condensed
consolidated statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the Offering
Circular;
(B) any other unaudited statement of operations data and
balance sheet items included in the Offering Circular do not agree
with the corresponding items in the unaudited consolidated financial
statements from which such data and items were derived, and any such
unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements included in
the Offering Circular;
(C) the unaudited financial statements which were not included
in the Offering Circular but from which were derived any unaudited
condensed financial statements referred to in clause (A) and any
unaudited income statement data and balance sheet items included in
the Offering Circular and referred to in clause (B) were not
22
determined on a basis substantially consistent with the basis for
the audited consolidated financial statements included in the
Offering Circular;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Offering Circular do not comply as to
form in all material respects with the applicable accounting
requirements or the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of those
statements;
(E) as of a specified date not more than five days prior to
the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital stock
upon exercise of options and stock appreciation rights, upon
earn-outs of performance shares and upon conversions of convertible
securities, in each case which were outstanding on the date of the
latest financial statements included in the Offering Circular or any
increase in the consolidated long-term debt of the Company and its
subsidiaries, or any decreases in consolidated net current assets or
stockholders' equity or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with amounts shown in the
latest balance sheet included in the Offering Circular except in
each case for changes, increases or decreases which the Offering
Circular discloses have occurred or may occur or which are described
in such letter; and
(F) for the period fro the date of the latest financial
statements included in the Offering Circular to the specified date
referred to in clause (E) there were any decreases in consolidated
net revenues or operating profit or the total or per share amounts
of consolidated net income or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with the comparable period
of the preceding year and with any other period of corresponding
length specified by the Representatives, except in each case for
decreases or increases which the Offering Circular discloses have
occurred or may occur or which are described in such letter; and
(v) In addition to the examination referred to in their report(s)
included in the Offering Circular and the limited procedures, inspection
of minute books, inquiries and other procedures referred to in paragraphs
(iii) and (iv) above, they have carried out certain specified procedures,
not constituting an audit in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives, which are derived from the
general accounting records of the Company and its subsidiaries, which
appear in the Offering Circular, and have compared certain of such
amounts, percentages and financial information with the accounting records
of the Company and its subsidiaries and have found them to be in
agreement.
A-2
EXHIBIT A
[Form of Registration Rights Agreement]
EXHIBIT B-1
List of persons to sign Lock-Up Agreements:
Barkas, PH.D., ▇▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇, M.D., ▇▇▇▇▇▇ ▇.
Church, ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, R. ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, Ph.D., ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, ▇▇▇▇ ▇.
▇▇▇▇, ▇▇▇▇ ▇.
▇▇▇▇▇, ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, ▇▇▇▇ ▇.
▇▇▇▇, G. ▇▇▇▇
▇▇▇▇▇, C. ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇.
EXHIBIT B-2
CONNETICS CORPORATION
LOCK-UP AGREEMENT
MAY ___, 2003
▇▇▇▇▇▇▇, Sachs & Co.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: Connetics Corporation - Lock-Up Agreement
Ladies and Gentlemen:
The undersigned understands that you, as representatives (the
"Representatives"), propose to enter into a Purchase Agreement on behalf of the
several Purchasers named in Schedule I to such agreement (collectively, the
"Purchasers"), with Connetics Corporation, a Delaware corporation (the
"Company"), providing for an offering of convertible senior notes (the "Notes")
of the Company that will be convertible into shares of the common stock, par
value $0.001 per share (the "Common Stock"), of the Company.
In consideration of the agreement by the Purchasers to offer and sell the
Notes, and of other good and valuable consideration the receipt and sufficiency
of which is hereby acknowledged, the undersigned agrees that, during the period
beginning from the date of the Offering Circular covering the Notes and
continuing to and including the date 90 days after the date of such Offering
Circular (the "Lock-Up Period"), the undersigned will not offer, sell, contract
to sell, pledge, grant any option to purchase, make any short sale or otherwise
dispose of, or exercise any registration rights with respect to, any shares of
Common Stock, or any options or warrants to purchase any shares of Common Stock,
or any securities convertible into, exchangeable for or that represent the right
to receive shares of Common Stock, whether now owned or hereafter acquired,
owned directly by the undersigned (including holding as a custodian) or with
respect to which the undersigned has beneficial ownership within the meaning of
the rules and regulations of the Securities and Exchange Commission
(collectively, the "Undersigned's Shares").
The foregoing restriction is expressly agreed to preclude the undersigned
from engaging in any hedging or other transaction which is designed to or which
reasonably could be expected to lead to or result in a sale or disposition of
the Undersigned's Shares even if such shares would be disposed of by someone
other than the undersigned. Such prohibited hedging or other transactions would
include without limitation any short sale or any purchase, sale or grant of any
right (including without limitation any put or call option) with respect to any
of the Undersigned's Shares or with respect to any security that includes,
relates to, or derives any significant part of its value from such shares.
Notwithstanding the foregoing, the undersigned may transfer the
Undersigned's Shares (i) as a bona fide gift or gifts, provided that the donee
or donees thereof agree to be bound in writing by the restrictions set forth
herein, (ii) to any trust for the direct or indirect benefit of the undersigned
or the immediate family of the undersigned, provided that the trustee of the
trust agrees to be bound in writing by the restrictions set forth herein, and
provided further that any such transfer shall not involve a disposition for
value, or (iii) with the prior written consent of ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co. on behalf
of the Purchasers. For purposes of this agreement, "immediate family" shall mean
any relationship by blood, marriage or adoption, not more remote than first
cousin. In addition, notwithstanding the foregoing, if the undersigned is a
corporation, the corporation may transfer the capital stock of the Company to
any wholly-owned subsidiary of such corporation; provided, however, that in any
such case, it shall be a condition to the transfer that the transferee execute
an agreement stating that the transferee is receiving and holding such capital
stock subject to the provisions of this agreement and there shall be no further
transfer of such capital stock except in accordance with this agreement, and
provided further that any such transfer shall not involve a disposition for
value. The undersigned now has, and, except as contemplated by clause (i), (ii),
or (iii) above, for the duration of this agreement will have, good and
marketable title to the Undersigned's Shares, free and clear of all liens,
encumbrances, and claims whatsoever. The undersigned also agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent and
registrar against the transfer of the Undersigned's Shares except in compliance
with the foregoing restrictions.
The undersigned understands that the Company and the Purchasers are
relying upon this agreement in proceeding toward consummation of the offering.
The undersigned further understands that this agreement is irrevocable and shall
be binding upon the undersigned's heirs, legal representatives, successors and
assigns.
Very truly yours,
------------------------------------
Exact Name of Shareholder
------------------------------------
Authorized Signature
------------------------------------
Title
B-2-2
