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November 26, 1997
CONFIDENTIAL
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▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Chief Executive Officer
Connetics Corporation
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇.
Palo Alto, CA 94303
Dear ▇▇▇▇▇▇,
This letter agreement (the "Agreement") will confirm the understanding
between Connetics Corporation, a Delaware corporation, (the "Company"), and
▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & Co., Inc. ("GKM"), pursuant to which the Company has
retained GKM to render financial advisory services to the Company, with respect
to the transactions described in Section 1 hereof (the "Transactions" or
"Transaction"), on the terms and subject to the conditions set forth herein.
1. Description of the Transactions. The role of GKM as financial
advisor will include all transactions relating to both the strategic and
financial positioning of the Company, including but not limited to, equity and
debt financing, strategic relationships, joint ventures, partnerships, and
merger and acquisition transactions. It is understood that GKM will serve only
as a financial advisor with respect to such Transaction and will not serve as an
underwriter, broker/dealer, placement agent, or finder in connection therewith.
2. Retention. The Company hereby retains GKM and, subject to Section
3(c) hereof, GKM will act as the financial advisor to the Company in connection
with, as requested by the Company, initiating and facilitating any Transactions
until the earlier of the termination of this Agreement and one year from the
date of this Agreement. As requested by the Company, GKM will assist in
analyzing, structuring, negotiating and effecting the Transactions, as more
fully described below, after it has met with management of the Company and its
outside counsel
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and accountants and analyzed, among other things, the Company's business,
operations and prospects; and the Company's science and technology. As
appropriate, GKM will:
a. advise the Company with respect to the strategic valuation
of the Company; and the structure, terms and timing of the Transactions;
b. assist the Company in preparing the required Transaction
documents to the extent such documents relate to the terms of the Transaction or
the terms of securities being offered in a Transaction;
c. render such other financial advisory services as may from
time to time be agreed upon by the Company and GKM - see Section 3(d).
It is understood that GKM is being engaged hereunder solely to provide
the services described in this Section 2 to the Company, and that GKM is not
acting as an agent or fiduciary of, and shall have no duties or liability to,
the equity holders of the Company or any other third party in connection with
its engagement hereunder, unless mutually agreed upon by the Company and GKM.
3. Compensation. In full payment for services rendered and to be
rendered hereunder by GKM, the Company agrees to pay GKM as follows:
a. As compensation for its services to be rendered hereunder,
the Company shall pay to GKM, pursuant to 3(b) below, a fee of seventy thousand
dollars ($70,000) (the "Cash Compensation") and shall issue to GKM a warrant
(the "Warrants") to purchase 6,000 shares of the Company's common stock. The
Warrant shall be non-callable and have an exercise price of six dollars ($6.00)
per share. The Warrant shall expire five years from its issue date, and shall be
exercisable anytime during this period. The common stock underlying the Warrant
shall be registered for resale within one year from the closing of the
Transaction. Registration expenses will be the responsibility of the Company.
The Warrant will bear customary legends regarding the fact that the Warrant and
underlying shares are restricted securities and may not be resold except in
connection with registration under, or exemption from, state and federal
securities laws.
b. Upon closing of the first Transaction for which GKM has
served as financial advisor to the Company, half of the Cash Compensation shall
be paid, and the Warrant shall be issued, to GKM. The balance of the Cash
Compensation shall be paid to GKM within five (5) business days after the close
of the quarter in which such Transaction was completed.
c. In addition to the compensation to be paid to GKM as
provided for above, the Company shall agree to pay to, or on behalf of, GKM,
promptly as billed, all reasonable out-of-pocket expenses incurred by GKM in
connection with its services to be
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rendered hereunder, including all reasonable fees, disbursements and other
charges of GKM's counsel. GKM shall give prior notice to the Company of any
expenses exceeding $500.
d. GKM may resign for any reason, or the Company may for any
reason terminate the services of GKM, upon fifteen days' prior written notice to
the other. If GKM resigns or the Company terminates GKM's services for any
reason other than for Cause (as defined below), GKM shall be entitled to receive
compensation as provided for in Sections 3(a) and 3(b), and GKM and its counsel
shall be entitled to receive only the amounts provided for in Section 3(b)
hereof and then only those amounts accrued and unpaid up to and including the
effective date of such termination or resignation, as the case may be; provided,
however, that if GKM's services are terminated by the Company, for Cause, GKM
and its counsel shall be entitled to receive only the amounts provided for in
Section 3(b) hereof and then only those amounts accrued and unpaid up to and
including the effective date of such termination or resignation, as the case may
be. For purposes hereof, "Cause" shall mean gross negligence, willful
malfeasance, illegal actions, repeated failure (after notice) by GKM to
discharge its obligations hereunder, or other acts or omissions of similar
gravity.
d. If the Company requests that GKM perform services outside
of the scope of this Agreement, including but not limited to, raising capital or
issuing opinions, the Company and GKM shall enter into additional and separate
agreements for such services.
4. Indemnity. The Company agrees to the indemnification and other
agreements set forth in the Indemnification Agreement attached hereto, the
provisions of which are incorporated herein by reference.
5. Representations, Warranties and Covenants of Company. The Company
represents and warrants to, and covenants with, GKM that:
a. (i) The Company has full corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder, and
all consents, authorizations, approvals and orders required in connection with
the execution, delivery and performance hereof have been obtained; (ii) this
Agreement is a valid and binding obligation of the Company, enforceable in
accordance with its terms, except to the extent that the enforceability hereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors generally and general principles of equity; and
(iii) the execution, delivery and performance of this Agreement will not
conflict in any material way with, result in a material breach of any of the
terms or provisions of, or constitute a material violation or a material default
under, any 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.
b. The Company shall furnish GKM with such information as GKM
and the Company reasonably believe appropriate to GKM's assignment hereunder
(all such
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information so furnished being the "Information"). The Company recognizes and
confirms that GKM (i) will use, and rely primarily on, the Information and
information available from generally recognized public sources (the "Other
Information") in rendering its services without having independently verified
the same, (ii) does not assume responsibility for the accuracy or completeness
of the Information and such Other Information, (iii) will not make an appraisal
of any assets of the Company and (iv) will provide its advice hereunder based on
the Information and the Other Information. The Company shall promptly notify GKM
of any material inaccuracy or misstatement in, or material omission from, any
Information theretofore delivered to GKM of which the Company becomes aware.
c. During the term of this Agreement, the Company will give
GKM prompt notice of any material change in the assets, liabilities, condition
(financial or otherwise), earnings, business affairs or business prospects of
the Company, whether or not arising in the ordinary course of business, as well
as such other information concerning the business and financial condition of the
Company as GKM may from time to time reasonably request.
6. Survival of Certain Provisions. The expense, indemnification,
reimbursement and contribution obligations contained in the Indemnification
Agreement, the Company's obligation to pay any compensation earned pursuant
hereto and the representations and warranties of the Company contained in
Section 5 hereof shall remain operative and in full force and effect regardless
of (a) any withdrawal, termination or consummation of or failure to initiate or
consummate a Transaction, (b) any investigation made by or on behalf of GKM or
any other Indemnified Party (as defined in the Indemnification Agreement) or
(c) any termination of this Agreement, resignation of GKM hereunder or the
termination of GKM's services hereunder, and shall be binding upon, and shall
inure to the benefit of, any successors, assigns, heirs and personal
representatives of the Company, GKM and the Indemnified Parties (as defined in
the Indemnification Agreement). Nothing herein requires the Company to
consummate a Transaction or any other transaction contemplated hereby.
7. Confidentiality. Any financial advice rendered by GKM pursuant to
this Agreement may not be disclosed publicly in any manner without GKM's prior
written approval, except as may be required by law or regulation or court order
but subject to the limitation below. If the Company is required or reasonably
expects to be required by legal or regulatory process or requirement to disclose
any of such advice, the Company shall provide GKM with prompt notice thereof so
that GKM may seek a protective order or other appropriate remedy or take other
appropriate action. If a protective order or other remedy is obtained, the
Company shall use all reasonable efforts to assure that all of such advice
disclosed will be covered by such order or other remedy. Whether or not such a
protective order or other remedy is obtained, the Company shall disclose only
that portion of such advice which the Company is required to disclose by such
legal or regulatory process or requirement. GKM agrees to hold all Information
in confidence and to use such Information only for the purposes contemplated by
this Agreement. Each party
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further acknowledges its obligations under the Confidentiality Agreement dated
November 12th, 1997 between the parties.
8. Use of Name. The Company understands that GKM has not consented to
being identified as financial advisor to the Company, and except as required by
law, rule or regulation of any federal, state or local government or regulatory
body, or by any securities exchange, the Company agrees that any direct or
indirect references to GKM or any affiliate of GKM in any document, or any other
release or communication, except as a result of a disclosure required by law or
regulation or court order, shall be subject to GKM's prior approval.
9. Notices. Notice given pursuant to any of the provisions of this
Agreement shall be in writing and shall be mailed or delivered (a) if to the
Company, at its principal office at Connetics ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇.,
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and (b) if to GKM, at the
office of ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & Co., Inc., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇.
10. Future Advertisements. The Company agrees that GKM has the right to
place advertisements describing its services to the Company under this Agreement
in financial and other newspapers and journals at its own expense following the
date upon which the Transaction closes. The Company shall have the right to
review and approve such advertisements prior to their submission for
publication.
11. Miscellaneous.
a. This Agreement (including the attached Indemnification
Agreement) and the Confidentiality Agreement between the Company and GKM, set
forth the entire agreement between the parties, supersedes and merges all prior
written or oral agreements with respect to the subject matter hereof, may only
be amended in writing and shall be governed by the laws of the State of New York
applicable to agreements made and to be performed entirely within such State.
The parties shall make reasonable efforts to resolve any dispute concerning this
Agreements, its construction or its actual or alleged breach, by face-to-face
negotiations. Should such negotiation fail to resolve the matter, the matter
shall be finally decided by arbitration in accordance with the Rules then in
effect of the American Arbitration Association. If any arbitration is initiated
by either the Company or GKM, arbitration will be conducted in the New York, New
York metropolitan area.
b. The Company (for itself, anyone claiming through it or in
its name, and on behalf of its equity holders) and GKM each hereby irrevocably
waive any right they may have to a trial by jury in respect of any claim based
upon or arising out of this Agreement or the transactions contemplated hereby.
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c. This Agreement may not be assigned by either party without
the prior written consent of the other party.
d. If any provision of this Agreement is determined to be
invalid or unenforceable in any respect, such determination will not effect such
provision in any other respect or any other provision of this Agreement, which
will remain in full force and effect.
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to GKM the enclosed duplicate copy of this Agreement.
Very truly yours
▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & CO., INC
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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Senior Vice President
Accepted and agreed to as of
the date first written above
CONNETICS CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Title: President and CEO
