SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-18311
NEUROGEN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-2845714
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 Northeast Industrial Road
Branford, Connecticut 06405
(Address of principal executive offices) (Zip Code)
(203) 488-8201
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of August 16, 1999 the registrant had 14,733,433 shares of Common Stock
outstanding.
<PAGE>
NEUROGEN CORPORATION
INDEX
Page
Number
Part I - Financial Information
Item 1. Financial Statements............................................... 1
Balance Sheets at June 30, 1999 and
December 31, 1998................................................. 1,2
Statements of Operations for the three-month and six-month
periods ended June 30, 1999 and 1998 ............................. 3
Statements of Cash Flows for the six-month periods ended
June 30, 1999 and 1998 ........................................... 4
Notes to Financial Statements...................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 6-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk......... 13
Part II - Other Information
Item 1. Legal Proceedings................................................. 14
Item 2. Changes in Securities and Use of Proceeds......................... 14
Item 3. Defaults upon Senior Securities................................... 14
Item 4. Submission of Matters to a Vote of Security Holders............... 14
Item 5. Other Information................................................. 15
Item 6. Exhibits and Reports on Form 8-K.................................. 15
Signature ................................... ........................... 17
Exhibit Index ........................................................... 18-20
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NEUROGEN CORPORATION
BALANCE SHEETS
(In thousands)
JUNE 30, 1999 DECEMBER 31, 1998
Assets (UNAUDITED) (AUDITED)
<S> <C> <C>
-------------- ---------------
Current assets:
Cash and cash equivalents $ 47,287 $ 26,066
Marketable securities 24,225 48,944
Receivables from corporate partners 201 656
Other current assets 891 1,298
------------- ---------------
Total current assets 72,604 76,964
Property, plant & equipment:
Land and land improvements 542 542
Building and building improvements 16,799 16,704
Leasehold improvements 4,026 4,026
Equipment 10,449 9,949
Furniture 545 534
--------------- ----------------
32,361 31,755
Less accumulated depreciation & amortization 8,517 7,265
--------------- ----------------
Net property, plant and equipment 23,844 24,490
Other assets, net 488 356
--------------- ----------------
$ 96,936 $ 101,810
=============== ================
</TABLE>
See accompanying notes to financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
NEUROGEN CORPORATION
BALANCE SHEETS
(In thousands, except per share data)
JUNE 30, 1999 DECEMBER 31, 1998
(UNAUDITED) (AUDITED)
----------------- -----------------
<S> <C> <C>
Liabilities & Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 1,917 $ 2,861
Unearned revenue from corporate partners 3,260 260
Current portion of mortgage payable - 74
----------------- ------------------
Total current liabilities 5,177 3,195
Other compensation 48 48
----------------- ------------------
Total liabilities 5,225 3,243
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, par value $.025 per share
Authorized 2,000 shares; none issued - -
Common stock, par value $.025 per share
Authorized 30,000 shares; issued and outstanding
14,716 shares at June 30, 1999 and 14,656 shares
at December 31, 1998 368 366
Additional paid-in capital 113,767 113,901
Accumulated deficit (19,356) (12,234)
Deferred compensation (2,881) (3,540)
Accumulated other comprehensive income (187) 74
----------------- ------------------
Total stockholders' equity 91,711 98,567
----------------- ------------------
$ 96,936 $ 101,810
================= ==================
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
NEUROGEN CORPORATION
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
---------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
Operating revenues:
License fees $ - $ - $ - $ -
Research and development 2,343 3,185 4,980 6,400
---------------- --------------- ------------- -------------
Total operating revenues 2,343 3,185 4,980 6,400
Operating expenses:
Research and development 5,914 5,196 11,764 10,200
General and administrative 1,030 1,093 2,135 2,091
---------------- ---------------- ------------- -------------
Total operating expenses 6,944 6,289 13,899 12,291
---------------- ---------------- ------------- -------------
Operating loss (4,601) (3,104) (8,919) (5,891)
Other income (expense):
Investment income 887 1,102 1,800 2,193
Interest expense (1) (5) (2) (11)
---------------- ---------------- ------------- -------------
Total other income, net 886 1,097 1,798 2,182
---------------- ---------------- ------------- -------------
Loss before provision for income taxes (3,715) (2,007) (7,121) (3,709)
Provision for income taxes - - - -
---------------- ---------------- ------------- -------------
Net loss $ (3,715) $ (2,007) $ (7,121) $ (3,709)
================ ================ ============= =============
Net loss per share:
Basic $ (0.26) $ (0.14) $ (0.49) $ (0.26)
================ ================ ============= =============
Diluted $ (0.26)(1) $ (0.14) (1) $ (0.49)(1)$ (0.26)(1)
================ ================ ============= =============
Shares used in calculation of loss per share:
Basic 14,554 14,411 14,551 14,399
================ ================ ============= =============
Diluted 14,554 (1) 14,411 (1) 14,551 (1) 14,399 (1)
================ ================ ============= =============
</TABLE>
See accompanying notes to financial statements.
(1) The contingently issuable common stock securities have not been included as
they are anti-dilutive.
3
<PAGE>
<TABLE>
<CAPTION>
NEUROGEN CORPORATION
STATEMENTS OF CASH FLOWS
(In thousands)
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998
(UNAUDITED) (UNAUDITED)
------------------ ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,121) $ (3,709)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization expense 1,260 1,148
Noncash compensation expense 243 239
Changes in operating assets and liabilities:
Decrease in accounts payable and accrued expenses (946) (2,756)
Increase in unearned revenue from corporate partners 3,000 60
Decrease in other current assets 407 181
Decrease in receivable from corporate partners 455 870
(Increase) decrease in other assets, net (140) 59
----------------- ---------------
Net cash used in operating activities (2,842) (3,908)
Cash flows from investing activities:
Purchase of plant and equipment (605) (981)
Purchases of marketable securities (11,858) (18,078)
Maturities and sales of marketable securities 36,316 11,298
----------------- ---------------
Net cash provided by (used in) investing activities 23,853 (7,761)
Cash flows from financing activities:
Exercise of employee stock options 284 135
Principal payments under mortgage payable (74) (99)
----------------- ---------------
Net cash provided by financing activities 210 36
----------------- ---------------
Net increase (decrease) in cash and cash equivalents 21,221 (11,633)
Cash and cash equivalents at beginning of period 26,066 66,924
----------------- ---------------
Cash and cash equivalents at end of period $ 47,287 $ 55,291
================= ===============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
Neurogen Corporation
Notes to Financial Statements
June 30, 1999
(Unaudited)
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited financial statements have been prepared from the books
and records of Neurogen Corporation (the "Company") in accordance with
generally accepted accounting principles for interim financial
information pursuant to Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair
presentation have been included. These interim financial statements
should be read in conjunction with the audited financial statements
for the year ended December 31, 1998 included in the Company's Annual
Report on Form 10-K. Interim results are not necessarily indicative of
the results that may be expected for the fiscal year.
(2) EARNINGS (LOSS) PER SHARE
Statement of Financial Accounting Standards No. 128, "Earnings per
Share", which became effective in 1997, requires presentation of two
calculations of earnings per common share. "Basic" earnings per common
share equals net income divided by weighted average common shares
outstanding during the period. "Diluted" earnings per common share
equals net income divided by the sum of weighted average common shares
outstanding during the period plus common stock equivalents. Common
stock equivalents are shares assumed to be issued if outstanding stock
options were exercised.
5
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Since its inception in September 1987, Neurogen has been engaged
in the discovery and development of drugs. The Company has not derived
any revenue from product sales and expects to incur significant losses
in most years prior to deriving any such product revenues. Revenues to
date have come from three collaborative research agreements entered
into with Pfizer, one collaboration with Schering-Plough, one license
agreement with American Home Products and from interest income.
RESULTS OF OPERATIONS
Results of operations may vary from period to period depending on
numerous factors, including the timing of income earned under existing
or future strategic alliances, technology transfer agreements, joint
ventures or financings, if any, the progress of the Company's research
and development and technology transfer projects, technological
advances and determinations as to the commercial potential of proposed
products. Neurogen expects research and development costs to increase
significantly over the next several years as its drug development
programs progress. In addition, general and administrative expenses
necessary to support the expanded research and development activities
are expected to increase for the foreseeable future.
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
The Company's operating revenues decreased to $2.3 million for
the three months ended June 30, 1999 as compared to $3.2 million for
the same period in 1998. This decrease in operating revenues was due
primarily to an anticipated reduction in research and development
revenues associated with the conclusion of the research phase of
Neurogen's collaboration under the Schering-Plough Agreement.
In June 1999 Neurogen entered into the Pfizer Technology Transfer
Agreement (described below). Upon commencement of this agreement,
Neurogen received a $3.0 million initial license fee, which will be
deferred and recognized in operating revenues over future periods as
Neurogen installs its Accelerated Intelligent Drug Design (AIDD)
system for discovering new drugs at Pfizer.
Operating revenues in future periods may fluctuate significantly
depending on many factors including the following: the extent to which
Pfizer elects to extend the Company's ongoing research programs under
its existing collaborations; whether the Company is successful in
entering into new collaborations; the timing and completion of the
Company's transfer of technology and systems under the Pfizer
Technology Transfer Agreement and any other similar future agreements;
and the level of Neurogen's clinical cost reimbursements under a cost
sharing arrangement with Pfizer for Neurogen's NPY obesity
collaboration.
6
<PAGE>
Research and development costs increased 14 percent to $5.9
million for the three-month period ended June 30, 1999 as compared to
the same period in 1998. The increase is primarily due to increases in
research and development personnel as well as the Company's further
expansion of its AIDD Program for the discovery of new drug
candidates. Research and development expenses represented 85 percent
and 83 percent of total expenses in the three month periods ended June
30, 1999 and 1998, respectively.
General and administrative expenses were essentially unchanged at
$1.0 million for the three-month period ended June 30, 1999 as
compared to the same period in 1998.
Other income, consisting primarily of interest income and gains
and losses from invested cash and marketable securities, decreased 19
percent for the second quarter of 1999 as compared to the same period
in 1998 due primarily to a lower level of invested funds.
The Company recognized a net loss of $3.7 million for the three
months ended June 30, 1999 as compared with a net loss of $2.0 million
for the same period in 1998. The increase in the net loss is primarily
due to an expected decrease in research funding, and an increase in
research and development expenses for the second quarter of 1999 due
to the factors described above.
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
The Company's operating revenues decreased to $5.0 million for
the six months ended June 30, 1999 from $6.4 million for the same
period in 1998. The decrease in operating revenues was due primarily
to an anticipated reduction in research and development revenues
associated with the conclusion of the research phase of Neurogen's
collaboration under the Schering-Plough Agreement. Operating revenues
in future periods may fluctuate significantly due to many factors
including those described above in the comparison of the second
quarter of 1999 to the second quarter of 1998.
Research and development expenses increased 15 percent to $11.8
million for the six months ended June 30, 1999 as compared to the same
period in 1998. This increase is primarily due to increases in
research and development personnel as well as the Company's further
expansion of its AIDD Program for the discovery of new drug
candidates. Research and development expenses represented 85 percent
of total operating expenses for the six-month period ended June 30,
1999 as compared to 83 percent for the same period in 1998.
7
<PAGE>
General and administrative expenses were essentially unchanged at
$2.1 million for the six months ended June 30, 1999 as compared to the
same period in 1998.
Other income, consisting primarily of interest income, and gains
and losses from invested cash and marketable securities, decreased to
$1.8 million for the six months ended June 30, 1999 as compared to
$2.2 million for the same period in 1998, due primarily to a lower
level of invested funds.
The Company recognized a net loss of $7.1 million for the six
months ended June 30, 1999 as compared with a net loss of $3.7 million
for the same period in 1998. The change in earnings is primarily due
to a decrease in research revenue, an increase in research and
development expenses, and a decrease in investment income, as
explained above, for the six months ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999 and December 31, 1998, cash, cash equivalents
and marketable securities were in the aggregate $71.5 million and
$75.0 million respectively. While the Company's aggregate level of
cash, cash equivalents and marketable securities decreased slightly
during the first half of 1999, these levels have fluctuated
significantly in the past and are expected to do so in the future as a
result of the factors described below.
Neurogen's cash requirements to date have been met by the
proceeds of its financing activities, amounts received pursuant to
collaborative or technology transfer arrangements and interest earned
on invested funds. The Company's financing activities include three
private placement offerings of its common stock prior to its initial
public offering, underwritten public offerings of the Company's common
stock in 1989, 1991 and 1995, and the private sale of common stock to
Pfizer in connection with entering into the Pfizer Agreements and to
American Home Products in a licensing agreement. Total funding
received from these financing activities was approximately $105.6
million. The Company's expenditures to date have been primarily to
fund research and development and general and administrative expenses
and to construct and equip its research and development facilities.
8
<PAGE>
In the first quarter of 1992, the Company entered into the 1992
Pfizer Agreement pursuant to which Pfizer made a $13.8 million equity
investment in the Company and agreed, among other things, to fund a
specified level of resources for up to five years (later extended as
described below) for Neurogen's research programs for the discovery of
GABA-based drugs for the treatment of anxiety and cognitive disorders.
As of June 30, 1999, Pfizer had provided $34.0 million of research
funding to the Company pursuant to the 1992 Pfizer Agreement, as
extended, and $0.3 million for the achievement of a clinical
development milestone. Neurogen is eligible to receive additional
milestone payments of up to $12.2 million if certain development and
regulatory objectives are achieved regarding its products subject to
the collaboration. In return, Pfizer received the exclusive rights to
manufacture and market collaboration anxiolytics and cognition
enhancers that act through the family of receptors which interact with
the neuro-transmitter GABA. Pfizer will pay Neurogen royalties based
upon net sales levels, if any, for such products.
Neurogen and Pfizer entered into their second collaborative
agreement, the 1994 Pfizer Agreement, in July 1994, pursuant to which
Pfizer made an additional $9.9 million equity investment in the
Company and agreed, among other things, to fund a specified level of
resources for up to four years (later extended as described below) for
Neurogen's research program for the development of GABA-based drugs
for the treatment of sleep disorders. As of June 30, 1999, Pfizer had
provided $11.0 million of research funding to the Company pursuant to
the 1994 Pfizer Agreement, as extended, and $0.3 million for the
achievement of a clinical development milestone. Neurogen could also
receive additional milestone payments of up to $3.0 million if certain
development and regulatory objectives are achieved regarding its
products subject to the collaboration. In return, Pfizer received the
exclusive rights to manufacture and market GABA-based sleep disorder
products for which it will pay Neurogen royalties based upon net sales
levels, if any.
In December 1996 and again in December 1998, Neurogen and Pfizer
extended and combined Neurogen's research efforts under the 1992 and
1994 Agreements. Pursuant to the extension agreements, Neurogen has
earned $3.1 million in the first six months of 1999 (which amount is
included in the above-described cumulative totals earned for the 1992
and 1994 agreements) and under the extension expects to receive an
additional $3.1 million during the remainder of 1999 for research and
development funding of the Company's GABA-based anxiolytic, cognitive
enhancer and sleep disorders projects.
Under both the 1992 Pfizer Agreement and the 1994 Pfizer
Agreement, in addition to making the equity investments and the
research and milestone payments noted above, Pfizer is responsible for
funding the cost of all clinical development and the manufacturing and
marketing, if any, of drugs developed from the collaborations.
Currently, Neurogen and Pfizer are focusing the efforts of the
collaboration on the Phase I development of candidates for anxiety,
cognition and sleep disorders, the advancement of preclinical
candidates in each program and the generation of additional clinical
candidates. Neurogen expects the lead candidate in the anxiety
program, NGD 91-3, to enter human clinical trials in the second half
of 1999. The Company believes that it is unlikely that Pfizer will
conduct additional clinical testing of a previous less potent
candidate, NGD 91-2, which as previously announced, had not exhibited
a significant reduction in anxiety in a single dose model of provoked
anxiety.
9
<PAGE>
Neurogen and Pfizer entered into their third collaborative
agreement, the 1995 Pfizer Agreement, in November 1995, pursuant to
which Pfizer made an additional $16.5 million equity investment in the
Company bringing Pfizer's ownership of the Company's common stock up
to approximately 21 percent and paid a $3.5 million license fee.
Pfizer also agreed, among other things, to fund a specified level of
resources for up to five years for Neurogen's research program for the
discovery of drugs which work through the neuropeptide Y (NPY)
mechanism for the treatment of obesity and other disorders. As of June
30, 1999, Pfizer had provided $9.1 million in research funding
pursuant to the 1995 Pfizer Agreement. In 1998, Pfizer exercised its
option under the 1995 Pfizer Agreement to extend the NPY research
program and also agreed to fund increased Neurogen staffing on the
program and thereby pay Neurogen $3.1 million to fund a fourth year of
research, through October 1999. Recently, Pfizer elected to further
extend the research program through October 2000 and to fund
Neurogen's research for this fifth year at staffing levels to be
determined by Neurogen and Pfizer. Neurogen could also receive
milestone payments of up to approximately $28.0 million if certain
development and regulatory objectives are achieved regarding its
products subject to the collaboration. As part of this third
collaboration, Pfizer received the exclusive worldwide rights to
manufacture and market NPY-based collaboration compounds, subject to
certain rights retained by Neurogen. Pursuant to the 1995 Pfizer
Agreement, Neurogen will fund a minority share of early stage clinical
development costs and has retained the right to manufacture any
collaboration products in NAFTA countries. Neurogen has also retained
a profit sharing option with respect to product sales in NAFTA
countries. If Neurogen exercises the profit sharing option, it will
fund a portion of the cost of late stage clinical trials and marketing
costs and in return receive a specified percentage of any profit
generated by sales of collaboration products in NAFTA countries. If
Neurogen chooses not to exercise its profit-sharing option, Pfizer
would pay Neurogen royalties on drugs marketed in NAFTA countries and
will fund a majority of early stage and all late stage development and
marketing expenses. In either case Neurogen would be entitled to
royalties on drugs marketed in non-NAFTA countries.
In the second quarter of 1999, Neurogen and Pfizer entered into a
technology transfer agreement, (the "Pfizer Technology Transfer
Agreement"). Under the terms of this agreement, Pfizer has agreed to
pay Neurogen a total of $27.0 million over a three year period for the
licensing and transfer to Pfizer of certain of Neurogen's AIDD
technologies for the discovery of new drugs, along with the
installation of an AIDD system. Additional payments are also possible
upon Pfizer's successful utilization of this technology. Pfizer has
received a non-exclusive license to certain AIDD intellectual
property, and the right to employ this technology in its own drug
development programs. As of June 30, 1999, Pfizer had provided $3.0
million in license fees pursuant to the Pfizer AIDD agreement.
Revenues associated with amounts received under the Pfizer Technology
Transfer Agreement will be recognized in future periods and may
fluctuate significantly depending on the timing and completion of the
Company's transfer of technology and systems pursuant to the
agreement.
In June 1995, Neurogen and Schering-Plough entered into the
Schering-Plough Agreement to collaborate in the discovery and
development of drugs for the treatment of schizophrenia and other
disorders which act through the dopamine family of receptors. Pursuant
to the Schering-Plough Agreement, the Company received one-time
license fees of $14.0 million for rights relating to Neurogen's
dopamine program and $3.0 million in each of 1995 and 1996 for the
right to test certain of Neurogen's combinatorial chemistry libraries
in selected non-CNS assays. Neurogen received scheduled funding
aggregating approximately $10.8 million during the three-year period
from June 1995 through June 1998, for research and development funding
of the Company's dopamine program.
10
<PAGE>
In July 1998, Neurogen announced that the Company and
Schering-Plough had concluded the research phase of the collaboration.
Accordingly, the funding of $3.6 million per year formerly received
from Schering-Plough came to its scheduled conclusion on July 1, 1998.
Should Schering-Plough elect to continue the development of drug
candidates subject to the collaboration, Neurogen could also receive
milestone payments of up to approximately $32.0 million if certain
development and regulatory objectives are achieved. In return,
Schering-Plough received the exclusive worldwide license to market
dopamine-based products subject to the collaboration. Neurogen
retained the rights to receive royalties based on net sales levels, if
any, and an option to manufacture products for the United States
market. In addition to the payments described above, Schering-Plough
is responsible for funding the cost of all clinical development and
marketing, if any, of drugs subject to the collaboration.
The Company plans to use its cash, cash equivalents and
marketable securities for its research and development activities,
working capital and general corporate purposes. Neurogen anticipates
that its current cash balance, as supplemented by research funding
pursuant to the Pfizer Agreements and fees it expects to receive under
the Pfizer Technology Transfer Agreement, will be sufficient to fund
its current and planned operations through 2002. However, Neurogen's
funding requirements may change and will depend upon numerous factors,
including but not limited to, the progress of the Company's research
and development programs, the timing and results of preclinical
testing and clinical studies, the timing of regulatory approvals,
technological advances, determinations as to the commercial potential
of its proposed products, the status of competitive products and the
ability of the Company to establish and maintain collaborative
arrangements with others for the purpose of funding certain research
and development programs, the ability of the Company to establish
additional technology transfer agreements, conducting clinical
studies, obtaining regulatory approvals and, if such approvals are
obtained, manufacturing and marketing products. The Company
anticipates that it may augment its cash balance through financing
transactions, including the issuance of debt or equity securities and
further corporate alliances. No arrangements have been entered into
for any future financing and no assurances can be given that adequate
levels of additional funding can be obtained on favorable terms, if at
all.
11
<PAGE>
As of December 31, 1998, the Company had approximately $24.3
million of net operating loss carryforwards available for federal
income tax purposes which expire from the years 2004 through 2013. The
Company had approximately $19.8 million of Connecticut state tax net
operating loss carryforwards as of December 31, 1998 which expire in
the years 1999 through 2003. Because of "change in ownership"
provisions of the Tax Reform Act of 1986, the Company's utilization of
its net operating loss and research and development credit
carryforwards may be subject to an annual limitation in future
periods.
Discussion of the Year 2000 issue
General. The Year 2000 issue is the result of computer programs
being written using two digits rather than four to define the
applicable year. Any of the Company's computer programs that have
date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruption of operations including, among
other things, a temporary inability to access scientific data, process
transactions, or engage in similar normal business activities.
Program. The Company has begun a program to resolve the Year 2000
issue. This program consists of four phases: assessment, remediation,
testing and contingency planning. The Company completed the assessment
phase in December 1998 and is currently in the remediation phase.
During the assessment phase, the Company assessed its products, key
financial and operating systems and other systems for Year 2000
compliance. The assessment included identifying all critical
information technology systems and non-information technology critical
systems on which the Company relies, testing Year 2000 compliance of
such systems, and recommending steps for replacing or making
corrective fixes to non-compliant systems. Additionally, the Company
obtained compliance verification from key third party vendors
supplying critical parts or services to the Company in order to
determine their plans to address their own Year 2000 issues.
Upon completion of the detailed assessment, the Company concluded
that substantially all its key financial operating systems and other
systems are Year 2000 compliant. However, certain software and
hardware components were identified as non-compliant. The Company has
established a plan to replace this non-compliant software and hardware
by October 1999. Also, the Company believes that its processes will be
unaffected by the Year 2000 issue.
The testing phase of the program has been on-going, and will
continue to be conducted as non-compliant software and hardware are
replaced. The Company estimates that the testing phase is
approximately 80% completed as of June 30, 1999. The Company currently
plans to develop a contingency plan during the third quarter of 1999
for any systems not expected to be Year 2000 compliant by December 31,
1999.
12
<PAGE>
Costs. The Company plans completion of all phases, including
contingency planning, of the Year 2000 program by the end of the third
quarter of 1999. All costs associated with the Company's Year 2000
program are being expensed as incurred. The estimated total cost of
the Year 2000 program is approximately $200,000, which primarily
includes the cost of employee time spent on the issue, and the cost of
replacing or upgrading non-compliant software identified during the
assessment phase. Costs incurred through June 30, 1999 have totalled
approximately $170,000.
Risks. The Company presently believes that with modifications to
existing software and conversions to new software, the Year 2000 issue
can be mitigated. However, the Company may not timely identify and
remediate all significant Year 2000 problems and remedial efforts may
involve greater time and expense than is currently anticipated. If
such modifications and conversions fail to be made, or are not timely
completed, the Year 2000 issue could have a material impact on the
results of operations, financial position or cash flows of the
Company. Furthermore, there can be no assurance that any Year 2000
compliance problems of the Company or its customers or suppliers will
not have a material adverse effect on the results of operations,
financial position or cash flows of the Company.
The Company believes that the most reasonably likely worst case
scenario is that a temporary disruption of operations would occur due
to any or all of the following: unavailability of services from
utility companies, delay in receipt of supplies from vendors, having
to access archived back-ups of databases of stored information, or
delays in accessing the Company's financial resources caused by
problems in the banking industry.
The estimates and conclusions herein contain forward-looking
statements and are based on management's best estimates of future
events. Risks to completing the program include the availability of
resources, the Company's ability to discover and correct Year 2000
problems which could have an impact on the Company's operations and
the ability of suppliers to bring their systems into Year 2000
compliance.
The information contained in this Year 2000 update is, to the
extent applicable, a "Year 2000 Readiness Disclosure" under the Year
2000 Information and Readiness Act of 1998.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk. The Company's investment portfolio includes
investment grade debt instruments. These securities are subject to
interest rate risk, and could decline in value if interest rates
fluctuate. Due to the short duration and conservative nature of these
instruments, the Company does not believe that it has a material
exposure to interest rate risk. Additionally, funds available from
investment activities are dependent upon available investment rates.
These funds may be higher or lower than anticipated due to interest
rate volatility.
Capital Market Risk. The Company currently has no product
revenues and is dependent on funds raised through other sources. One
source of funding is through further equity offerings. The ability of
the Company to raise funds in this manner is dependent upon capital
market forces affecting the stock price of the Company.
13
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
Not applicable for the second quarter ended June 30, 1999.
Item 2. Changes in Securities
Not applicable for the second quarter ended June 30, 1999.
Item 3. Defaults upon Senior Securities
Not applicable for the second quarter ended June 30, 1999.
Item 4. Submission of Matters to a Vote of Security Holders
On May 26, 1999, the Company held its annual meeting of
stockholders (i) to elect a board of eleven directors (Proposal 1);
and (ii) to ratify the appointment by the Board of Directors of
PricewaterhouseCoopers LLP as the independent auditors for the Company
for the fiscal year ending December 31, 1999 (Proposal 2).
Proposal 1
The stockholders elected the persons named below, the Company's
nominees for directors, as directors of the Company, casting votes in
favor of such nominees or withholding votes as indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
Votes in Favor Votes Withheld
-------------- --------------
Barry M. Bloom, Ph.D. 9,594,439 136,372
Robert N. Butler 9,594,439 136,372
Frank C. Carlucci 9,594,439 136,372
Jeffrey J. Collinson 9,594,439 136,372
Robert M. Gardiner 9,594,439 136,372
Mark Novitch, M.D. 9,594,439 136,372
Harry H. Penner, Jr. 9,594,439 136,372
Robert H. Roth, Ph.D. 9,594,439 136,372
John Simon 9,594,439 136,372
John F. Tallman, Ph.D. 9,594,439 136,372
Suzanne H. Woolsey, Ph.D. 9,594,439 136,372
</TABLE>
All of the Directors elected are continuing their term of office
as Directors after the annual meeting.
The Stockholders approved Proposal 2, voting as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Affirmative Votes Negative Votes Votes Abstained
----------------- -------------- ---------------
Proposal 2 9,606,873 120,758 3,280
</TABLE>
14
<PAGE>
Item 5. Other information
On May 26, 1999, following the annual meeting of stockholders,
the newly elected Board of Directors convened in their first regularly
scheduled meeting. At that time, the Board voted unanimously to expand
from 11 to 13 members, and to appoint Julian Baker and Felix Baker,
representatives of the Tisch Family Interests, to the newly created
director seats.
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index on page 11.
(b) None
15
<PAGE>
SAFE HARBOR STATEMENT
Statements which are not historical facts, including statements about the
Company's confidence and strategies, the status of various product development
programs, the sufficiency of cash to fund planned operations and the Company's
expectations concerning its development compounds, drug discovery technologies
and opportunities in the pharmaceutical marketplace are "forward looking
statements" within the meaning of the Private Securities Litigations Reform Act
of 1995 that involve risks and uncertainties and are not guarantees of future
performance. These risks include, but are not limited to, difficulties or delays
in development, testing, regulatory approval, production and marketing of any of
the Company's drug candidates, the failure to attract or retain scientific
management personnel, any unexpected adverse side effects or inadequate
therapeutic efficacy of the Company's drug candidates which could slow or
prevent product development efforts, competition within the Company's
anticipated product markets, the Company's dependence on corporate partners with
respect to research and development funding, regulatory filings and
manufacturing and marketing expertise, the uncertainty of product development in
the pharmaceutical industry, inability to obtain sufficient funds through future
collaborative arrangements, equity or debt financings or other sources to
continue the operation of the Company's business, risk that patents and
confidentiality agreements will not adequately protect the Company's
intellectual property or trade secrets, dependence upon third parties for the
manufacture of potential products, inexperience in manufacturing and lack of
internal manufacturing capabilities, dependence on third parties to market
potential products, lack of sales and marketing capabilities, potential
unavailability or inadequacy of medical insurance or other third-party
reimbursement for the cost of purchases of the Company's products, and other
risks detailed in the Company's Securities and Exchange Commission filings,
including its Annual Report on Form 10-K for the year ended December 31, 1998,
each of which could adversely affect the Company's business and the accuracy of
the forward-looking statements contained herein.
16
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEUROGEN CORPORATION
By:/s/ STEPHEN R. DAVIS
------------------------
Stephen R. Davis
Vice President-Finance,
Chief Financial Officer
and General Counsel
Date: August 16, 1999
17
<PAGE>
Exhibit Index
Exhibit
- -------
Number
- ------
10.1 - Neurogen Corporation Stock Option Plan, as amended (incorporated by
reference to Exhibit 10.1 to the Company's Form 10-K for the fiscal
year ended December 31, 1991).
10.2 - Form of Stock Option Agreement currently used in connection with the
grant of options under Neurogen Corporation Stock Option Plan
(incorporated by reference to Exhibit 10.2 to the Company's Form 10-K
for the fiscal year ended December 31, 1992).
10.3 - Neurogen Corporation 1993 Omnibus Incentive Plan, as amended
(incorporated by reference to Exhibit 10.3 to the Company's Form 10-K
for the fiscal year ended December 31, 1993).
10.4 - Form of Stock Option Agreement currently used in connection with the
grant of options under Neurogen Corporation 1993 Omnibus Incentive
Plan (incorporated by reference to Exhibit 10.4 to the Company's Form
10-K for the fiscal year ended December 31, 1993).
10.5 - Neurogen Corporation 1993 Non-Employee Directors Stock Option
Program (incorporated by reference to Exhibit 10.5 to the Company's
Form 10-K for the fiscal year ended December 31, 1993).
10.6 - Form of Stock Option Agreement currently used in connection with the
grant of options under Neurogen Corporation 1993 Non-Employee
Directors Stock Option Program (incorporated by reference to Exhibit
10.6 to the Company's Form 10-K for the fiscal year ended December 31,
1993).
10.7 - Employment Contract between the Company and Harry H. Penner, Jr.,
dated as of October 12, 1993 (incorporated by reference to Exhibit
10.7 to the Company's Form 10-K for the fiscal year ended December 31,
1993).
10.8 - Employment Contract between the Company and John F. Tallman, dated as
of December 1, 1993 (incorporated by reference to Exhibit 10.25 to the
Company's Form 10-Q for the quarterly period ended September 30,1994).
10.9 - Open-End Mortgage Deed and Security Agreement between the Company and
Orion Machinery & Engineering Corp., dated March 16, 1989
(incorporated by reference to Exhibit 10.15 to Registration Statement
No. 33-29709 on Form S-1).
10.10 - Form of Proprietary Information and Inventions Agreement
(incorporated by reference to Exhibit 10.31 to Registration Statement
No. 33-29709 on Form S-1).
10.11 - Warrant to Purchase 47,058 Shares of Common Stock to MMC/GATX
Partnership No. I, dated February 20, 1991 (incorporated by reference
to Exhibit 10.34 to the Company's Form 10-K for the fiscal year ended
December 31, 1990).
18
<PAGE>
10.12 - Collaborative Research Agreement and License and Royalty Agreement
between the Company and Pfizer Inc, dated as of January 1, 1992
(CONFIDENTIAL TREATMENT REQUESTED) (incorporated by reference to
Exhibit 10.35 to the Company's Form 10-K for the fiscal year ended
December 31, 1991).
10.13 - License Agreement between the Company and the National Technical
Information Service, dated as of January 1, 1992 (incorporated by
reference to Exhibit 10.36 to the Company's Form 10-K for the fiscal
year ended December 31, 1991).
10.14 - Cooperative Research and Development Agreement between the Company and
the National Institutes of Health, dated as of January 21, 1993
(incorporated by reference to Exhibit 10.37 to the Company's Form 10-K
for the fiscal year ended December 31, 1991).
10.15 - Letter Agreement between the Company and Barry M. Bloom, dated January
12, 1994 (incorporated by reference to Exhibit 10.25 to the Company's
Form 10-K for the fiscal year ended December 31, 1993).
10.16 - Letter Agreement between the Company and Robert H. Roth, dated April
14, 1994 (incorporated by reference to Exhibit 10.26 to the Company's
Form 10-K for the fiscal year ended December 31, 1994).
10.17 - Collaborative Research Agreement and License and Royalty Agreement
between the Company and Pfizer Inc, dated as of July 1, 1994
(CONFIDENTIAL TREATMENT REQUESTED) (incorporated by reference of
Exhibit 10.1 to the Company's Form 10-Q for the quarterly period ended
June 30, 1994).
10.18 - Stock Purchase Agreement between the Company and Pfizer dated as of
July 1, 1994 (incorporated by reference to Exhibit 10.2 to the
Company's Form 10-Q for the quarterly period ended June 30, 1994).
10.19 - Registration Rights and Standstill Agreement among the Company and the
Persons and Entities listed on Schedule I thereto, dated as of July
11, 1994 (incorporated by reference to Exhibit 10.29 to the Company's
Form 10-Q for the quarterly period ended September 30, 1994).
10.20 - Collaboration and License Agreement and Screening Agreement between
the Company and Schering-Plough Corporation (CONFIDENTIAL TREATMENT
REQUESTED) (incorporated by reference to Exhibit 10.1 to the Company's
Form 8-K dated July 28, 1995).
10.21 - Lease Agreement between the Company and Commercial Building Associates
dated as of August 30, 1995 (incorporated by reference to Exhibit
10.27 to the Company's Form 10-Q for the quarterly period ended
September 30, 1995).
10.22 - Collaborative Research Agreement between the Company and Pfizer dated
as of November 1, 1995 (CONFIDENTIAL TREATMENT REQUESTED)
(incorporated by reference to Exhibit 10.1 of the Company's Form 8-K
dated November 1, 1995).
19
<PAGE>
10.23 - Development and Commercialization Agreement between the Company and
Pfizer dated as of November 1, 1995 (CONFIDENTIAL TREATMENT REQUESTED)
(incorporated by reference to Exhibit 10.2 of the Company's Form 8-K
dated November 1, 1995).
10.24 - Stock Purchase Agreement between the Company and Pfizer dated as of
November 1, 1995 (incorporated by reference to Exhibit 10.3 of
the Company's Form 8-K dated November 1, 1995).
10.25 - Licensing Agreement dated as of November 25, 1996 between American
Home Products Corporation, acting through its Wyeth-Ayerst
Laboratories Division, and Neurogen Corporation (CONFIDENTIAL
TREATMENT REQUESTED) (incorporated by reference to Exhibit 10.1 of the
Company's Form 8-K dated March 31, 1997).
10.26 - Stock Purchase Agreement dated as of November 25, 1996 between
American Home Products Corporation, acting through its Wyeth-Ayerst
Laboratories Division, and Neurogen Corporation (CONFIDENTIAL
TREATMENT REQUESTED) (incorporated by reference to Exhibit 10.1 of the
Company's Form 8-K dated March 31, 1997).
10.27 - Technology agreement dated as of June 15, 1999 between the Company and
Pfizer Inc (CONFIDENTIAL TREATMENT REQUESTED).
27.1 - Financial Data Schedule
20
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000849043
<NAME> NEUROGEN CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 47,287
<SECURITIES> 24,225
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 72,604
<PP&E> 32,361
<DEPRECIATION> 8,517
<TOTAL-ASSETS> 96,936
<CURRENT-LIABILITIES> 5,177
<BONDS> 0
0
0
<COMMON> 368
<OTHER-SE> (187)
<TOTAL-LIABILITY-AND-EQUITY> 96,936
<SALES> 0
<TOTAL-REVENUES> 4,980
<CGS> 0
<TOTAL-COSTS> 13,899
<OTHER-EXPENSES> (1,798)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> (7,121)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,121)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,121)
<EPS-BASIC> (0.49)
<EPS-DILUTED> (0.49)
</TABLE>
TECHNOLOGY ACQUISITION AGREEMENT
This TECHNOLOGY ACQUISITION AGREEMENT is entered into as of June 15, 1999 by and
between PFIZER INC, a Delaware corporation, having an office at 235 East 42nd
Street, New York, New York 10017 and its Affiliates ("Pfizer"), and NEUROGEN
CORPORATION, a Delaware corporation, having an office at 35 Northeast Industrial
Road, Branford, Connecticut 06405 and its Affiliates ("Neurogen").
WHEREAS, Neurogen has developed a technology known as Accelerated Intelligent
Drug Design ("AIDD") which integrates biological assays, chemical synthesis and
computational analysis and is generally useful in pharmaceutical drug discovery;
WHEREAS, Pfizer seeks to collaborate with Neurogen on the transfer of AIDD
technology to Pfizer and further development of AIDD technology;
WHEREAS, Pfizer seeks to obtain a nonexclusive license to trade secrets and
copyrights to AIDD technology, including the technology described in Exhibit A,
which is attached to and made a part of this Agreement; and
WHEREAS, Neurogen is willing to enter into a technology collaboration with
Pfizer to transfer AIDD technology, to grant such license and to further develop
AIDD technology.
NOW, THEREFORE, the parties agree as follows:
1. Definitions
Whenever used in this Agreement, the terms defined in this Section 1 shall have
the meanings specified.
1.1 "Acceptance Testing"
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1.2 "Affiliate" means any corporation or other legal entity "controlled,"
"controlling," or "under common control with," another corporation or legal
entity, where "control" means ownership, directly or indirectly, of fifty
percent (50%) or more of the voting capital shares or similar voting securities
of the other entity.
1.3 "AIDD Software" means existing computer programs developed by Neurogen
for use in System, and Improvements to it.
1.4 "AIDD Unit" means an assembled unit of Components in a single
operational System unit as further described, attached to and made part of this
Agreement as Exhibit C.
1.5 "CAN" means the Pfizer-documented event within a Program in which, in
Pfizer's sole unfettered discretion, a Compound is recognized as a candidate for
drug development.
1.6 "Collaboration Plan" means the written plan adopted by the parties
prior to the execution of this Agreement and amended from time to time, by both
parties, to describe activities to be carried out by them pursuant to this
Agreement. The initial Collaboration Plan is attached to and made part of this
Agreement as Exhibit D.
1.7 "Collaboration Program" means the technology transfer and technology
development program contemplated in this Agreement to be conducted by Pfizer and
Neurogen pursuant to the Collaboration Plan.
1.8 "Components" mean the equipment described in Exhibit C forming an AIDD
Unit.
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1.9 "Compound" means an active compound whose chemical lineage and
structure; (a) can, by using the Tracking System, be traced to a specific
Program; and (b) falls within a claim in a pending patent application or issued
patent owned by or licensed to Pfizer.
1.10 "Contract Period" means the period beginning on the Effective Date and
ending on the date on which this Agreement terminates.
1.11 "Effective Date" means June 15, 1999.
1.12 "Islands" means the set of algorithms developed by Neurogen which;
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1.13 "Neurogen Confidential Information" means all information about any
element of the Neurogen Technology which is disclosed by Neurogen to Pfizer and
designated "Confidential" in writing by Neurogen at the time of disclosure to
Pfizer or within thirty (30) days following disclosure to the extent that such
information is not (i) known to Pfizer as of the date of disclosure to Pfizer
other than by virtue of a prior confidential disclosure to Pfizer by Neurogen;
or (ii) disclosed in published literature, or otherwise generally known to the
public through no fault or omission of Pfizer; or (iii) obtained from a third
party free from any obligation of confidentiality to Neurogen.
1.14 "Neurogen Technology"
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1.15 "Improvements"
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1.16 "Patent Rights and Copyrights" shall mean all patent rights and
copyrights in and to inventions and individual works of authorship,
respectively, within Neurogen Technology or Pfizer Technology including issued
patents and pending patent applications whether domestic or foreign, including
all substitutions, continuations, continuations-in-part, divisions and renewals,
and letters patent granted thereon, and all reissues, re-examinations and
extensions thereof.
1.17 "Pfizer Confidential Information"
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1.18 "Pfizer Technology" means Pfizer technology developed by or for Pfizer
alone or jointly with third parties (other than Neurogen) prior to the Effective
Date or during the Contract Period, including but not limited to biological
data, computational chemistry software, ADME-toxicity technology, analytical and
synthetic chemistry protocols, chemical fragments, and HTS and uHTS methods for
chemistry and screening.
1.19 "Program"
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1.20 "Project II"
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1.21 "Sites"
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1.22 "System"
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1.23 "Tracking System"
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2. Collaboration Program
2.1 Purpose. Neurogen and Pfizer shall conduct the Collaboration Program
throughout the Contract Period. The objectives of the Collaboration Program are
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2.2 Collaboration Plan. The initial Collaboration Plan is described in,
attached to and made part of this Agreement as Exhibit D. The Steering Committee
shall prepare an amended Collaboration Plan no later than at least ninety (90)
days prior to each anniversary of the Effective Date, which amended
Collaboration Plan will apply to the next year. Each amended Collaboration Plan
shall be appended to Exhibit D and made part of this Agreement.
2.3 Steering Committee
2.3.1 Purpose. Pfizer and Neurogen shall establish a Steering
Committee (the "Steering Committee"):
(a) to review and evaluate progress under the Collaboration Plan;
(b) to prepare the Collaboration Plan and any amendments;
(c) to prepare and evaluate progress on Project II plans;
(d) to coordinate visits and training; and
(e) to coordinate and monitor exchange of information and
materials that relate to the Collaboration Program. (This
function shall survive the termination of this Agreement).
2.3.2 Membership. Pfizer and Neurogen each shall appoint, in it's sole
unfettered discretion, four (4) members to the Steering Committee.
Substitutes may be appointed at any time by a party by notice in writing to
the other party; provided, however,
[CONFIDENTIAL MATERIAL OMITTED
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The members initially shall be:
Pfizer Appointees:
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Neurogen Appointees:
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2.3.3 Chair. The Steering Committee shall be chaired by two
co-chairpersons, one appointed by each of the parties.
2.3.4 Meetings. The Steering Committee shall meet at least four (4)
times per year, at places and on dates selected by each party in turn. One
(1) of the four (4) meetings may be by videoconference. Representatives of
Pfizer or Neurogen or both, in addition to members of the Steering
Committee, may attend such meetings at the invitation of either party.
2.3.5 Minutes. The Steering Committee shall keep accurate minutes of
its deliberations, which record all proposed decisions and all actions
recommended or taken. Drafts of the minutes shall be delivered to all
Steering Committee members within ten (10) business days after each
meeting. The party hosting the meeting shall be responsible for the
preparation and circulation of the draft minutes. Draft minutes shall be
edited by the co-chairpersons and shall be issued in final form only with
their approval and agreement.
2.3.6 Decisions.
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2.3.7 Expenses. Pfizer and Neurogen shall each bear all expenses of
their respective members related to their participation on the Steering
Committee.
2.4 Reports and Materials.
2.4.1 Reports. During the Contract Period, Neurogen shall furnish
to the Steering Committee:
(a) summary written reports describing its progress under
the Collaboration Plan and delivered electronically within thirty
(30) days after the end of each three (3) month period and seven
(7) days prior to the Steering Committee meeting, commencing on
the Effective Date; and
(b) comprehensive written reports within thirty (30) days
after the end of each contract year, describing in detail the
work accomplished by it under the Collaboration Plans during the
year and discussing and evaluating the results of such work.
2.4.2 Materials. During the Contract Period Neurogen and Pfizer
shall as a matter of course, as described in the Collaboration Plan,
or upon each other's written or oral request, furnish to each other
samples of biochemical or synthetic chemical materials, which are (a)
part of Pfizer Technology or Neurogen Technology; and (b) necessary
for each party to carry out its responsibilities under the
Collaboration Plan. To the extent that the quantities of materials
requested by either party exceed the quantities set forth in the
Collaboration Plan, the requesting party shall reimburse the other
party for the reasonable costs of such materials if they are
furnished.
2.5 Notebooks and Personnel. Neurogen shall provide suitable personnel
for the work to be done by Neurogen in carrying out the Collaboration
Program. All work performed by Neurogen staff under the Collaboration Plan
with respect to Project II Improvements and Acceptance Testing shall be
recorded in laboratory, notebooks, which Pfizer may review, extract or copy
at any time, upon reasonable notice.
2.6 Neurogen's Activities: During the Contract Period, Neurogen shall
perform the following technology transfer and development activities under
the Collaboration Program.
2.6.1 Neurogen shall transfer
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The Steering Committee will organize and monitor these transfer
activities which shall include without limitation:
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If Pfizer requests additional training visits by Neurogen staff to any
Site, and such visits do not coincide with Steering Committee meetings
at such Site, then Pfizer shall reimburse Neurogen for its reasonable
staff travel expenses for such visit.
2.6.2 Neurogen shall construct the Systems and Components
[CONFIDENTIAL MATERIAL OMITTED
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shall perform Acceptance Testing on each AIDD Unit; and shall deliver
[CONFIDENTIAL MATERIAL OMITTED
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as set forth in the production and delivery schedule in the
Collaboration Plan; provided, however, that Neurogen shall have the
right, upon thirty (30) days written notice to Pfizer, to deliver
[CONFIDENTIAL MATERIAL OMITTED
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to Pfizer prior to their respective scheduled delivery dates. Neurogen
and Pfizer will perform Acceptance Testing on its premises
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The location of Acceptance Testing shall be determined by the Steering
Committee at the time of delivery
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Prior to and during Acceptance Testing, Pfizer information technology
("IT") staff may, upon reasonable notice and during ordinary business
hours, visit Neurogen to inspect the Systems and Components subject to
Acceptance Testing. At these visits Pfizer IT staff may also test AIDD
Units and Components; provided, however, that these tests have been
mutually agreed. During such process, Neurogen staff may attend and
provide guidance to Pfizer IT staff.
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Within fourteen (14) days of such notice, Pfizer staff, with
Neurogen's assistance will execute the Acceptance Testing protocol on
the Pfizer AIDD Unit and notify Neurogen of such results. If the AIDD
Unit fails Acceptance Testing,
[CONFIDENTIAL MATERIAL OMITTED
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2.7 System Delivery, Installation, Maintenance and Repairs.
2.7.1 Delivery. Neurogen shall deliver or cause to be delivered
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2.7.2 Maintenance. For
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after the delivery date for
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Neurogen shall provide
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2.8 System and Component Development. During the Contract Period,
Neurogen shall perform
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2.9 Improvements.
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2.10 Diligent Efforts. Each party shall use reasonably diligent
efforts to achieve the objectives of the Collaboration Program and the
Collaboration Plan.
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3. Payments. Pfizer shall pay Neurogen for performance of Collaboration Plans
and delivery of Neurogen Technology to Pfizer according to the payment schedules
set forth in this Section.
3.1 Neurogen Technology Platform Fee. In consideration of the transfer
to Pfizer of System and Components,
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Pfizer shall pay
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to Neurogen
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twenty-seven million dollars ($ 27,000,000.00), plus
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Such amount shall be payable according to the following schedule:
(a)
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(b)
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(c)
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(d)
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(e)
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(f)
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3.2 Equipment Fees. During the Contract Period, under the direction of the
Steering Committee, Pfizer shall
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3.3
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3.4 Success Payments.
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3.5 Records. For
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from the conclusion of each year of the Agreement, Neurogen shall keep complete
and accurate records of its reimbursable expenditures pursuant to the
Collaboration Program. The records shall conform to good accounting principles
as applied to a similar company similarly situated. Pfizer shall have the right
at its own expense during the term of this Agreement and during the subsequent
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period to appoint an independent certified public accountant reasonably
acceptable to Neurogen to inspect said records to verify the reimbursability of
such expenditures. Upon reasonable notice by Pfizer, Neurogen shall make its
records available for inspection by the independent certified public accountant
during regular business hours at the place or places where such records are
customarily kept, to verify accuracy concerning the reimbursability of such
expenditures. This right of inspection shall not be exercised more than once in
any calendar year and not more than once with respect to records covering any
specific period of time. All information concerning the reimbursability of such
expenditures, and all information learned in the course of any audit or
inspection, shall be deemed to be Neurogen Confidential Information, except to
the extent that it is necessary for Pfizer to reveal the information in order to
enforce any rights it may have pursuant to this Agreement or if disclosure is
required by law. The failure of Pfizer to request verification of any
expenditures of efforts before or during the
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period shall be considered acceptance by Pfizer of the accuracy of the
reimbursability of such expenditures, and Neurogen shall have no obligation to
maintain any records pertaining to such report or statement beyond such
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period. The finding of such inspection, if any, shall be binding on both
parties.
4. Treatment of Confidential Information
4.1 Confidentiality
4.1.1 Pfizer and Neurogen each recognize that the other's Confidential
Information constitutes highly valuable, confidential information. Subject
to the terms and conditions of this Agreement, the obligations set forth in
Section 4.3 and the licenses granted in Section 5.2, Pfizer and Neurogen
each agree that during the term of this Agreement and
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thereafter, it will keep confidential, and will cause its Affiliates to
keep confidential, all Neurogen Confidential Information or Pfizer
Confidential Information, as the case may be, that is disclosed to it, or
to any of its Affiliates pursuant to this Agreement. Neither Pfizer nor
Neurogen nor any of their respective Affiliates shall use such Confidential
Information except as expressly permitted in this Agreement.
Notwithstanding the above, if Neurogen notifies Pfizer not less than sixty
(60) days prior to the expiration of
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period referred to above that certain Neurogen Confidential Information
continues to be treated by Neurogen as confidential, Pfizer agrees to
extend such
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for
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with respect to the subject matter of this notice.
4.1.2 Pfizer and Neurogen each agree that any disclosure of the
other's Confidential Information to any officer, employee or agent of the
other party or of any of its Affiliates shall be made only if and to the
extent necessary to carry out its responsibilities under this Agreement and
shall be limited to the maximum extent possible consistent with such
responsibilities. Pfizer and Neurogen each agree not to disclose the
other's Confidential Information to any Third parties under any
circumstance without written permission from the other party. Each party
shall take such action, and shall cause its Affiliates to take such action,
to preserve the confidentiality of each other's Confidential Information as
it would customarily take to preserve the confidentiality of its own
Confidential Information. Each party, upon the other's request, will return
all the Confidential Information disclosed to the other party pursuant to
this Agreement, including all copies and extracts of documents, within
sixty (60) days of the request upon the termination of this Agreement
except for one (1) copy which may be kept for the purpose of complying with
continuing obligations under this Agreement.
4.1.3 Neurogen and Pfizer each represent that all of its employees,
and any subcontractors or consultants to such party, participating in the
Collaboration Program who shall have access to Pfizer Technology or
Neurogen Technology and Pfizer Confidential Information and Neurogen
Confidential Information are bound by agreement to maintain such
information in confidence.
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4.3 Publicity. Except as required by law, neither party may disclose the
terms of this Agreement nor the Collaboration Program described in it without
the written consent of the other party, which consent shall not be unreasonably
withheld.
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4.4 Disclosure of Inventions.
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4.5 Restrictions on Transferring Materials. Pfizer and Neurogen recognize
that the chemical protocols, software algorithms, synthetic chemical and
biochemical materials which are part of Pfizer Technology or Neurogen
Technology, represent valuable commercial assets. Therefore, throughout the
Contract Period and
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thereafter, Neurogen and Pfizer agree not to transfer such materials or
materials of the other party to any third party, unless prior written consent
for any such transfer is obtained from the other party.
5. Intellectual Property Rights. The following provisions relate to rights in
the intellectual property developed by Neurogen or Pfizer, or both during the
course of carrying out the Collaboration Program.
5.1 Ownership.
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5.2 Grant of License. (a) Neurogen hereby grants to Pfizer a
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license including the right to grant sublicenses solely to Affiliates, to make
and use Neurogen Technology, Neurogen Confidential Information, Neurogen
Copyrights and Neurogen Patent Rights
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The license granted hereunder is without any right to sublicense (other than to
Affiliates), assign, sell or otherwise transfer any Neurogen Technology,
Neurogen Confidential Information or Neurogen Copyrights and Neurogen Patent
Rights to any third party. (b) In so far as the System or Neurogen Technology
licensed to Pfizer hereunder included any hardware or software of a third party
such items are listed in the Collaboration Plan and Exhibit E ("Third Party
Software"), which is attached to and made a part of this Agreement
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5.2.1 Chemistry. This Agreement confers no license, right or
obligation upon either party with respect to
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AIDD Software. Pfizer agrees not to
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6. Provisions Concerning the Filing, Prosecution and Maintenance of Patent
Rights.
6.1 Patent Rights Assignments. Each party agrees to complete at its own
expense, but without further compensation to the other party, any documents
necessary for either party to file patent applications and to prosecute patents
with respect to its own Patent Rights.
6.2 Duties. Neurogen shall be responsible for the filing, prosecution and
maintaining all Neurogen Patent Rights and Copyrights and Pfizer shall be
responsible for filing, prosecution and maintaining of Pfizer Patent Rights and
Copyrights. Each party agrees to cooperate in the preparation, filing and
prosecution of any Patent Rights or Copyrights arising under the Collaboration
Plan at the other's expense. The parties neither bear nor assume any obligations
to patent or copyright any technology contemplated in this Agreement.
Notwithstanding anything in this Agreement to the contrary, neither party will
file any patent application, which does not comply with such party's obligations
of confidentiality to the other party pursuant to Section 4.1.
6.3 Further Inventions. Intellectual Property rights with respect to System
or Improvements developed or acquired by Pfizer
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7. Other Agreements. This Agreement, together with its Exhibits set forth
the entire agreement between the parties with respect to the subject matter and
supersede all other agreements and understandings between the parties with
respect to the same.
8. Term, Termination and Disengagement.
8.1 Term. Unless sooner terminated or extended, this Agreement shall expire
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from the Effective Date.
8.2 Events of Termination. The following events shall constitute events of
termination ("Events of Termination"):
(a) any material written representation or warranty by Neurogen or
Pfizer, or any of its officers, made under or in connection with this
Agreement shall prove to have been incorrect in any material respect when
made.
(b) Neurogen or Pfizer shall fail in any material respect to perform
or observe any term, covenant or understanding contained in this Agreement
or in any of the other documents or instruments delivered pursuant to, or
concurrently with, this Agreement, and any such failure shall remain
unremedied for
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after written notice to the failing party; or
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after written notice, if the failing party is working diligently to cure
the failure.
8.3 Termination.
8.3.1 Upon the occurrence of any Event of Termination, the party not
responsible may, by notice to the other party, terminate this Agreement.
8.3.2 If Pfizer terminates this Agreement pursuant to Section 8.3.1,
or upon expiration of this Agreement pursuant to Section 8.1, Pfizer's
rights to Neurogen Technology, granted in Section 5 shall
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8.3.3 Termination of this Agreement for any reason shall be without
prejudice to:
(a) the rights and obligations of the parties provided in those
Sections which by virtue of their term and condition extend beyond any
termination of this Agreement.
(b) Neurogen's right to receive all payments accrued under Section 3
through the effective date of termination; or
(c) any other remedies which either party may otherwise have.
9. Representations and Warranties. Neurogen and Pfizer each represents and
warrants as follows:
(a) It is a corporation duly organized, validly existing and is in good
standing under the laws of Delaware, is qualified to do business and is in good
standing as a foreign corporation in each jurisdiction in which the conduct of
its business of the ownership of its properties requires such qualification and
has all requisite power and authority, corporate or otherwise, to conduct its
business as now being conducted, to own, lease and operate its properties and to
execute, deliver and perform this Agreement.
(b) The execution, delivery and performance by it of this Agreement have
been duly authorized by all necessary corporate action and do not and will not
(i) require any consent or approval of its stockholders, (ii) violate any
provision of any law, rule, regulations, order, writ, judgment, injunctions,
decree, determination award presently in effect having applicability to it or
any provision of its certificate of incorporation or by-laws or (iii) result in
a breach of or constitute a default under any material agreement, mortgage,
lease, license, permit or other instrument or obligation to which it is a party
or by which it or its properties may be bound or affected.
(c) This Agreement is a legal, valid and binding obligation of it
enforceable by it in accordance with its terms and conditions, except as such
enforceability may be limited by applicable bankruptcy, insolvency, moratorium,
reorganization or similar laws, from time to time in effect, affecting
creditor's rights generally.
(d) It is not under any obligation to any person, or entity, contractual or
otherwise, that is conflicting or inconsistent in any respect with the terms of
this Agreement or that would impede the diligent and complete fulfillment of its
obligations. (e) It has good and marketable title to or valid leases or licenses
for, all of its properties, rights and assets necessary for the fulfillment of
its responsibilities under the Collaboration Program, and is subject to no claim
of any third party other than the relevant lessors or licensors.
10. Covenants of Neurogen and Pfizer Other Than Reporting Requirements.
Throughout the Contract Period, Neurogen and Pfizer each shall:
(a) maintain and preserve its corporate existence, rights, franchises and
privileges in the jurisdiction of its incorporation, and qualify and remain
qualified as a foreign corporation in good standing in each jurisdiction in
which such qualification is from time to time necessary or desirable in view of
their business and operations or the ownership of their properties.
(b) comply in all material respects with the requirements of all applicable
laws, rules, regulations and orders of any government authority to the extent
necessary to conduct the Collaboration Program, except for those laws, rules,
regulations, and orders it may be contesting in good faith.
11. Indemnification. Pfizer will indemnify Neurogen and its Affiliates,
agents and employees (the "Indemnitees") for damages, settlements, costs, legal
fees and other expenses incurred in connection with a claim against any of the
Indemnitees based on
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provided, however, that the foregoing shall not apply (i) if the claim is found
to be based upon the
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of Neurogen or (ii) if Neurogen
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12. Notices. All notices shall be in writing mailed via certified mail, return
receipt requested, courier, or facsimile transmission addressed as follows, or
to such other address as may be designated from time to time:
If to Pfizer: To Pfizer at its address as set forth at the beginning of this
Agreement.
Attention: President, Central Research
with copy to: Office of the General Counsel
If to Neurogen: To Neurogen at its address as set forth at the beginning of this
Agreement.
Attention: President
with copy to: General Counsel
Notices shall be deemed given as of the date received.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, USA.
14. Miscellaneous.
14.1 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective legal representatives, successors
and permitted assigns.
14.2 Headings. Paragraph headings are inserted for convenience of reference
only and do not form, a part of this Agreement.
14.3 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original.
14.4 Amendment, Waiver. This Agreement may be amended, modified, superseded
or canceled, and any of the terms may be waived, only by a written instrument
executed by each party or, in the case of waiver, by the party or parties
waiving compliance. The delay or failure of any party at any time or times to
require performance of any provisions shall in no manner affect the rights at a
later time to enforce the same. No waiver by any party of any condition or of
the breach of any term contained in this Agreement, whether by conduct, or
otherwise, in any one or more instances, shall be deemed to be, or considered
as, a further or continuing waiver of any such condition or of the breach of
such term or any other term of this Agreement.
14.5 No third party Beneficiaries. Except as otherwise provided in Section
11, no third party including any employee of any party to this Agreement shall
have or acquire any rights by reason of this Agreement. Nothing contained in
this Agreement shall be deemed to constitute the parties partners with each
other or any third party.
14.6 Assignment and Successors. This Agreement may not be assigned by
either party, except that each party may assign this Agreement and the rights
and interests of such party, in whole or in part, to any of its Affiliates, any
purchaser of all or substantially all of its assets or to any successor
corporation resulting from any merger or consolidation of such party with or
into such corporations.
14.7 Force Majeure. Neither Pfizer nor Neurogen shall be liable for failure
of or delay in performing obligations set forth in this Agreement, and neither
shall be deemed in breach of its obligations, if such failure or delay is due to
natural disasters or any causes reasonably beyond the control of Pfizer or
Neurogen.
14.8 Severability. If any provision of this Agreement is or becomes invalid
or is ruled invalid by any court of competent jurisdiction or is deemed
unenforceable, it is the intention of the parties, that the remainder of the
Agreement shall not be affected.
14.9 Y2K Compliance. During the Contract Period Neurogen represents
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
PFIZER INC NEUROGEN CORPORATION
By: /s/ George Milne By: /s/ Harry H. Penner, Jr.
Title: Senior Vice President Title: President/CEO
Date: June 14, 1999 Date: June 15, 1999
<PAGE>
EXHIBIT A (1)
NEUROGEN TECHNOLOGY PATENTS
COPYRIGHTS AND TRADE SECRETS
EXHIBIT B (2)
AIDD DELIVERABLES AND ACCEPTANCE CRITERIA
EXHIBIT C (3)
AIDD UNIT EQUIPMENT
EXHIBIT D (4)
COLLABORATION PLAN
EXHIBIT E (5)
THIRD PARTY SOFTWARE
(1) Exhibit A (40 pages) omitted pursuant to a request for confidential
treatment and filed separately.
(2) Exhibit B (1 page) omitted pursuant to a request for confidential
treatment and filed separately.
(3) Exhibit C (20 pages) omitted pursuant to a request for confidential
treatment and filed separately.
(4) Exhibit D (12 pages) omitted pursuant to a request for confidential
treatment and filed separately.
(5) Exhibit E (1 page) omitted pursuant to a request for confidential
treatment and filed separately.
