<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED December 31, 1998
-------------------------
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM TO
-------------- --------------
Commission file number 0-17951
Cortex Pharmaceuticals, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 33-0303583
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15241 Barranca Parkway, Irvine, California, 92618
(Address of principal executive offices, including zip code)
(949) 727-3157
(Issuers's telephone number)
NOT APPLICABLE
----------------------------------
(Former name, former address and former fiscal year,
if changed since last year)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [_]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
15,517,882 shares of Common Stock as of February 12, 1999
Page 1 of 15
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CORTEX PHARMACEUTICALS, INC.
INDEX
Page Number
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets -- December 31, 1998 and June 30, 1998.........3
Statements of Operations -- Three months ended December
31, 1998 and 1997; six months ended December 31, 1998 and
1997 and period from inception (February 10, 1987)
through December 31, 1998.....................................4
Statements of Cash Flows -- Six months ended December 31,
1998 and 1997 and period from inception (February 10,
1987) through December 31, 1998...............................5
Notes to Financial Statements.................................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Plan of Operation.............................................9
PART II. OTHER INFORMATION
Item 3. Defaults on Senior Securities................................13
Item 4. Submission of Matters to a Vote of Security Holders..........14
Item 6. Exhibits and Reports on Form 8-K.............................14
SIGNATURES...............................................................15
Page 2 of 15
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Cortex Pharmaceuticals, Inc.
(A development stage enterprise)
Balance Sheets
<TABLE>
<CAPTION>
(Unaudited) (Note)
December 31, 1998 June 30, 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 426,101 $ 2,124,008
Other current assets 38,547 71,566
------------ ------------
Total current assets 464,648 2,195,574
Furniture, equipment and leasehold improvements, net 555,172 655,419
Other 23,853 23,853
------------ ------------
$ 1,043,673 $ 2,874,846
============ ============
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 694,514 $ 408,047
Accrued dividends 22,275 26,775
Accrued wages, salaries and related expenses 50,562 62,475
Current portion of note payable to Alkermes, Inc. 974,472 --
------------ ------------
Total current liabilities 1,741,823 497,297
Note payable to Alkermes, Inc., less current portion -- 948,253
Redeemable preferred stock:
Series A convertible preferred stock, $0.001
par value; $10,000 per share liquidation
preference; shares authorized: 400; shares
issued and outstanding: 0 (December 31, 1998)
and 250 (June 30, 1998) -- 2,460,450
Stockholders' deficit:
9% cumulative convertible preferred stock, $0.001
par value; $1.00 per share liquidation preference;
shares authorized: 1,250,000; shares issued and
outstanding: 27,500 (December 31, 1998) and 35,000
(June 30, 1998) 27,500 35,000
Series B convertible preferred stock, $0.001 par value;
$0.6667 per share liquidation preference; shares
authorized: 3,200,000; shares issued and outstanding:
75,000 (December 31, 1998) and 150,000 (June 30,
1998) 43,405 86,810
Common stock, $0.001 par value; shares authorized:
20,000,000; shares issued and outstanding:
15,517,882 (December 31, 1998) and 10,237,126
(June 30, 1998) 15,517 10,237
Additional paid-in capital 38,786,777 36,276,202
Deficit accumulated during the development stage (39,571,349) (37,439,403)
------------ ------------
Total stockholders' deficit (698,150) (1,031,154)
------------ ------------
$ 1,043,673 $ 2,874,846
============ ============
</TABLE>
See accompanying notes.
Note: The balance sheet as of June 30, 1998 has been derived from the audited
financial statements at that date.
Page 3 of 15
<PAGE>
Cortex Pharmaceuticals, Inc.
(A development stage enterprise)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Period from
inception
Three months ended Six months ended (February 10,
December 31, December 31, 1987) through
------------------------ ------------------------- December 31,
1998 1997 1998 1997 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Research and license revenue $ -- $ 50,000 $ -- $ 50,000 $ 3,730,000
Grant revenue -- -- -- -- 94,717
---------- ----------- ----------- ----------- ------------
Total revenues -- 50,000 -- 50,000 3,824,717
Operating expenses:
Research and development 619,582 1,024,832 1,458,863 1,972,569 27,811,725
General and administrative 321,961 405,878 676,654 845,136 14,020,902
Settlement with Alkermes, Inc. -- -- -- -- 1,227,977
---------- ----------- ----------- ----------- ------------
Total operating expenses 941,543 1,430,710 2,135,517 2,817,705 43,060,604
---------- ----------- ----------- ----------- ------------
Loss from operations (941,543) (1,380,710) (2,135,517) (2,767,705) (39,235,887)
Interest income (expense), net (4,045) 60,534 3,571 140,124 1,696,377
---------- ----------- ----------- ----------- ------------
Net loss before preferred stock
accretion and dividends $ (945,588) $(1,320,176) $(2,131,946) $(2,627,581) $(37,539,510)
---------- ----------- ----------- ----------- ------------
Preferred stock accretion and
dividends 1,238 1,575 1,238 1,575 2,501,327
---------- ----------- ----------- ----------- -------------
Net loss applicable to common stock $ (946,826) $(1,321,751) $(2,133,184) $(2,629,156) $(40,040,837)
========== =========== =========== =========== ============
Weighted average common
shares outstanding 12,427,694 9,537,180 11,332,410 9,467,345
========== =========== =========== ===========
Net loss per share $ (0.08) $ (0.14) $ (0.19) $ (0.28)
========== =========== =========== ===========
</TABLE>
See accompanying notes.
Page 4 of 15
<PAGE>
Cortex Pharmaceuticals, Inc.
(A development stage enterprise)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Period from
inception
Six months ended (February 10,
December 31, 1987) through
-------------------------- December 31,
1998 1997 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(2,131,946) $(2,627,581) $(37,539,510)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 104,357 96,602 1,613,098
Settlement with Alkermes, Inc. -- -- 1,227,977
Changes in operating assets/liabilities:
Accounts payable and accrued expenses 274,554 (241,209) 745,076
Accrued interest on U.S. government securities -- (30,238) (171,238)
Other current assets 33,019 (11,339) (38,547)
Interest receivable from former officer -- -- (19,274)
Realized loss on sale of U.S. government securities -- -- 54,317
Stock option compensation expense -- -- 555,809
Stock issued for services -- -- 28,750
Reduction in note receivable from former
officer--compensation expense -- -- 22,600
Changes in other assets and other liabilities 26,219 29,588 215,216
----------- ----------- ------------
Net cash used in operating activities (1,693,797) (2,784,177) (33,305,726)
----------- ----------- ------------
Cash flows from investing activities:
U.S. government securities--available-for-sale--
Purchases -- (1,739,743) (38,823,738)
Proceeds from sales -- -- 38,940,820
Purchase of fixed assets (4,110) (105,636) (2,139,746)
Sale of fixed assets -- -- 10,988
Decrease (increase) in--
Other assets -- -- (39,870)
Note receivable from former officer -- -- (100,000)
----------- ----------- ------------
Net cash used in investing activities (4,110) (1,845,379) (2,151,546)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of 9% preferred stock -- -- 1,076,588
Redemption of 9% preferred stock -- -- (63,750)
Payment of 9% preferred stock dividends -- -- (110,250)
Proceeds from issuance of Series B
convertible preferred stock -- -- 1,841,108
Proceeds from issuance of Series C
convertible preferred stock -- -- 3,576,543
Proceeds from issuance of Series D
convertible preferred stock -- -- 3,719,636
Proceeds from issuance of Series A
convertible preferred stock -- -- 3,936,720
Proceeds from issuance of common stock -- -- 21,922,418
Proceeds from subordinated convertible note -- -- 208,333
Principal payments on note payable to Alkermes, Inc. -- -- (200,000)
Principal payments on capitalized leases -- (1,499) (23,973)
----------- ----------- ------------
Net cash provided by (used in) financing activities -- (1,499) 35,883,373
----------- ----------- ------------
Increase (decrease) in cash and cash equivalents (1,697,907) (4,631,055) 426,101
Cash and cash equivalents, beginning of period 2,124,008 7,568,803 --
----------- ----------- ------------
Cash and cash equivalents, end of period $ 426,101 $ 2,937,748 $ 426,101
=========== =========== ============
</TABLE>
See accompanying notes.
(Continued ...)
Page 5 of 15
<PAGE>
Cortex Pharmaceuticals, Inc.
(A development stage enterprise)
Statements of Cash Flows
(Unaudited, Continued)
<TABLE>
<CAPTION>
Period from
inception
Six months ended (February 10,
December 31, 1987) through
-------------------------- December 31,
1998 1997 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental schedule of non-cash investing
and financing activities:
Accretion of preferred stock $ -- $ -- $ 139,674
Conversion of 9% preferred stock to common stock 13,238 125,625 1,450,549
Conversion of Series B preferred stock to common stock 43,405 -- 1,797,678
Conversion of Series C preferred stock to common stock -- -- 3,576,543
Conversion of Series D preferred stock to common stock -- -- 3,719,636
Conversion of Series A preferred stock to common stock 2,460,450 344,462 3,936,720
Capital lease obligation incurred to lease equipment -- -- 23,973
</TABLE>
See accompanying notes.
Page 6 of 15
<PAGE>
Cortex Pharmaceuticals, Inc.
(A development stage enterprise)
Notes to Financial Statements
Period from inception (February 10, 1987) through December 31, 1998
(Unaudited)
Note 1 -- Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-QSB and Item 310(b) of Regulation S-
B. 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 only of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month and six-month periods ended
December 31, 1998 are not necessarily indicative of the results that may be
expected for the year ending June 30, 1999. For further information, refer to
the financial statements and notes thereto included in the Company's 1998 Annual
Report on Form 10-KSB.
Note 2 -- Development Stage Enterprise
From inception (February 10, 1987) through December 31, 1998, the Company has
generated only modest operating revenues and has incurred losses aggregating
$37,540,000. Successful completion of the Company's development program and its
transition, ultimately, to attaining profitable operations is dependent upon
obtaining additional financing adequate to fulfill its research and development
activities and achieving a level of revenues adequate to support the Company's
cost structure. There can be no assurance that the Company will be successful in
these areas.
Subsequent to December 31, 1998, the Company entered into a research
collaboration and exclusive worldwide license agreement with NV Organon
("Organon"), a subsidiary of Akzo Nobel (Note 3). The agreement will enable
Organon to develop or commercialize the Company's Ampakine(R) technology for the
treatment of schizophrenia and, upon Organon's election, for the treatment of
depression. The Company is seeking collaborative arrangements with other
pharmaceutical companies for other applications of the Ampakines compounds,
under which such companies would provide additional capital to the Company in
exchange for exclusive or non-exclusive license or other rights to the
technologies and products the Company is developing. Competition for corporate
partnering with major pharmaceutical companies is intense, with a large number
of biopharmaceutical companies attempting to arrive at such arrangements.
Accordingly, although the Company is in discussions with a number of candidate
companies, there is no assurance that an agreement will arise from these
discussions in a timely manner, or at all, or that an agreement that may arise
from these discussions will successfully reduce the Company's short or longer-
term funding requirements.
To supplement its existing resources, the Company may need to raise additional
capital through the sale of debt or equity. There can be no assurance that such
capital will be available on favorable terms, or at all. If additional funds are
raised by issuing equity securities, dilution to existing stockholders is likely
to result.
Page 7 of 15
<PAGE>
Note 3 -- Subsequent Event
In January 1999, the Company entered into a research collaboration and exclusive
worldwide license agreement with NV Organon, a pharmaceutical business unit of
Akzo Nobel (The Netherlands). The agreement will enable Organon to develop and
commercialize the Company's proprietary Ampakine(R) technology for the treatment
of schizophrenia and, upon Organon's election, for the treatment of depression.
In connection with the agreement, the Company received proceeds of $2,000,000,
representing an up-front license payment. The agreement also includes research
and support payments of up to $3,000,000 per year for two years (subject to
Cortex providing agreed-upon levels of research), milestone payments, plus
royalty payments on worldwide sales.
Page 8 of 15
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations; Plan of Operation
The following discussion and analysis should be read in conjunction with the
Financial Statements and Notes thereto appearing elsewhere in this report and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations; Plan of Operation" presented in the Company's 1998 Annual Report on
Form 10-KSB.
Introductory Note
This Quarterly Report on Form 10-QSB contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 and the Company intends that such forward
looking statements be subject to the safe harbors created thereby. These
forward-looking statements relate to (i) future research plans, expenditures and
results, (ii) potential collaborative arrangements, (iii) the potential utility
of the Company's proposed products and (iv) the need for, and availability of,
additional financing.
The forward-looking statements included herein are based on current
expectations, which involve a number of risks and uncertainties and assumptions
regarding the Company's business and technology. These assumptions involve
judgments with respect to, among other things, future scientific, economic and
competitive conditions, and future business decisions, all of which are
difficult or impossible to predict accurately and many of which are beyond the
control of the Company. Although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, any of the assumptions
could prove inaccurate and, therefore, there can be no assurance that the
results contemplated in forward-looking statements will be realized and actual
results may differ materially. In light of the significant uncertainties
inherent in the forward-looking information included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives or plans of the Company will be achieved.
Results of Operations
From inception (February 10, 1987) through December 31, 1998, the Company's
revenue has consisted of (i) $3,730,000 of license fees and research and
development funding, (ii) net interest income aggregating $1,700,000, and (iii)
$95,000 of grant revenue.
Subsequent to December 31, 1998, the Company entered into a research
collaboration and exclusive worldwide license agreement with NV Organon
("Organon"), a pharmaceutical business unit of Akzo Nobel (The Netherlands). The
agreement will allow Organon to develop and commercialize the Company's
proprietary Ampakine(R) technology for the treatment of schizophrenia and, upon
Organon's election, for the treatment of depression. In connection with the
agreement, the Company received $2,000,000, representing an up-front licensing
payment. The agreement includes research support payments of up to $3,000,000
per year for two years (subject to Cortex providing agreed-upon levels of
research) and milestone payments, plus royalty payments on worldwide sales.
From inception (February 10, 1987) through December 31, 1998, the Company has
sustained losses aggregating $37,540,000. Continuing losses are anticipated over
the next several years, as the Company's ongoing operating expenses will only be
offset by licensing revenues from its research
Page 9 of 15
<PAGE>
collaboration with Organon or under planned strategic alliances with other
pharmaceutical companies that the Company is seeking for the later stages of
clinical development, manufacturing and marketing of its proposed products. The
nature and timing of payments to Cortex under the Organon agreement or other
planned strategic alliances, if and as entered into, are likely to significantly
affect the Company's operations, and to produce substantial period-to-period
fluctuation in reported financial results. Over the longer term, the Company
will be dependent upon successful commercial development of its products by
Organon or its other prospective partners to attain profitable operations from
product royalties or other revenues based on product sales.
The net loss for the three-month period ended December 31, 1998 of 946,000
compares with a net loss of $1,320,000 for the corresponding prior year period.
The net loss of $2,132,000 for the six-month period ended December 31, 1998
compares with a net loss of $2,628,000 for the corresponding prior year period.
Research and development expenses decreased from $1,025,000 to $620,000, or by
$405,000 (40%), during the three-month period ended December 31, 1998 compared
to the corresponding prior year period. During the six-month period ended
December 31, 1998, research and development expenses decreased from $1,973,000
to $1,459,000, or by $514,000 (26%). The decreases resulted from prior year
technology access payments and clinical expenses in connection with commenced
Phase I/IIa human clinical testing of Ampalex. The decreases also reflect
reduced salary expenses due to a decrease in scientific employees and a
consequent decrease in lab supplies spending.
General and administrative expenses decreased from $406,000 to $322,000, or by
$84,000 (21%) for the three-month period ended December 31, 1998 compared to the
corresponding prior year period. For the six-month period ended December 31,
1998, general and administrative expenses decreased from $845,000 to $677,000,
or by $168,000 (20%) from the corresponding prior year period. The decreases
include savings from a reduction in administrative employees and lower spending
for office supplies, outside consulting and costs related to the annual report.
The Company believes that inflation and changing prices have not had a material
impact on its ongoing operations to date.
Plan of Operations; Liquidity and Capital Resources
CORTEX has funded its organizational and research and development activities to
date primarily from the issuance of equity securities, with net proceeds from
inception (February 10, 1987) through December 31, 1998 aggregating $35,883,000.
An additional $3,600,000 in research and license payments was received from
Alkermes in 1992 and 1993 in connection with a development and license agreement
with that firm. Net interest income from inception through December 31, 1998 was
$1,696,000.
As of December 31, 1998, the Company had cash and cash equivalents totaling
$426,000 and working capital of $(1,277,000). In comparison, as of June 30,
1998, the Company had cash and cash equivalents of $2,124,000 and working
capital of $1,698,000. The decreases represent amounts required to fund
operating losses.
Subsequent to December 31, 1998, the Company received $2,000,000 in connection
with a research collaboration and licensing agreement with NV Organon.
Additional amounts, representing quarterly
Page 10 of 15
<PAGE>
research support payments, are expected over the next two years. The agreement
also includes milestone payments based on clinical development of the licensed
technology and royalties on worldwide sales.
The Company leases approximately 30,000 square feet of research laboratory,
office and expansion space under an operating lease that expires May 31, 2004.
The commitments under the lease agreement for the years ending June 30, 1999,
2000, 2001, 2002 and 2003 total $266,000, $325,000, $339,000, $353,000 and
$368,000, respectively. From inception (February 10, 1987) through December 31,
1998, expenditures for furniture, equipment and leasehold improvements
aggregated $2,140,000.
In connection with the settlement in October 1995 of a license dispute with
Alkermes, the Company issued to Alkermes a $1,000,000 three-year promissory note
accruing interest semi-annually at the then federal funds rate. The Company also
agreed to pay Alkermes a graduated royalty on calpain inhibitor development
proceeds, as defined and subject to certain limitations. In February 1998, the
terms of the note were restructured to include a principal payment of $200,000
upon signing of the restructuring agreement. The balance of the note and accrued
interest were payable in October 1999 or upon the consummation of a corporate
partnership between Cortex and a larger pharmaceutical company, whichever is
earlier. With the signing of the license agreement with Organon, the note and
accrued interest became due and payable. In order to conserve cash resources,
the Company may propose one of several restructuring or disposition options.
There is no assurance that Alkermes will accept any of the Company's proposals.
As of December 31, 1998, Cortex had 27,500 outstanding shares of 9% cumulative
convertible preferred stock, which accrue cumulative semi-annual dividends at an
annual rate of $0.09 per share. To conserve capital for operations, the Company
has elected not to distribute the dividends that have accrued since 1989.
Accrued and unpaid dividends as of December 31, 1998 were $22,275.
Over the next twelve months the Company is committed to $600,000 of funding for
sponsored research in academic laboratories. Remaining commitments for current
Phase I/IIa clinical studies on the Company's Ampakine compounds are not
significant.
As of December 31, 1998, Cortex had a total of 15 full-time research and
administrative employees. As a result of the agreement with Organon, the Company
plans to nearly double its research staff from current levels. Significant
investments in plant or equipment are not included under current spending plans
for the upcoming year.
Assuming successful restructuring of the note payable to Alkermes, Cortex
anticipates that its existing cash, cash equivalents and short-term investments
and the expected research support payments from Organon will be sufficient to
satisfy its capital requirements through the spring of 2000. Without any
milestone payments from the Organon agreement, additional funds will be required
to continue operations beyond that time.
The Company's common stock is currently quoted on the Nasdaq SmallCap Market
under the symbol "CORX". Listing standards for the Nasdaq SmallCap Market
include a net tangible asset, market capitalization or net income test. Nasdaq
also requires a minimum bid price of $1.00 per common share. The Company does
not meet the current listing standards. At a hearing before Nasdaq in January
1999, the Company presented its plan for achieving compliance through a
Page 11 of 15
<PAGE>
combination of funding from private investors and revenues from the agreement
with Organon. If Nasdaq does not accept the Company's plan for compliance or if
the Company fails to satisfy the listing standards on a continuous basis, the
Company's common stock will no longer be eligible for listing on the Nasdaq
SmallCap Market. In such event, any trading of the Company's common stock would
be conducted in the over-the-counter market in the so-called "pink sheets" or,
if available, the NASD's "Electronic Bulletin Board." As a result, investors may
find it more difficult to dispose of, or obtain accurate quotations as to the
value of the Company's common stock and the trading price per share could be
reduced.
The Company may raise additional capital through the sale of debt or equity
securities. Given the current adverse market conditions for biopharmaceutical
companies, if the Company proceeds with a debt or equity financing, there is no
assurance that funds will be available on favorable terms, or at all. If equity
securities are issued to raise additional funds, substantial dilution to
existing shareholders is likely to result.
In order to provide for both its short and longer-term spending requirements,
the Company is presently seeking additional collaborative or other arrangements
with larger pharmaceutical companies. Under these agreements, it is intended
that such companies would provide capital to the Company in exchange for
exclusive or non-exclusive license or other rights to certain of the
technologies and products the Company is developing. Competition for such
arrangements is intense, however, with a large number of biopharmaceutical
companies attempting to secure alliances with more established pharmaceutical
companies. Although the Company has been engaged in discussions with candidate
companies, there is no assurance that an agreement or agreements will arise from
these discussions in a timely manner, or at all, or that revenues that may be
generated thereby will offset operating expenses sufficiently to reduce the
Company's short and longer-term funding requirements.
The Company's proposed products are in the preclinical or early clinical stage
of development and will require significant further research, development,
clinical testing and regulatory clearances. They are subject to the risks of
failure inherent in the development of products based on innovative
technologies. These risks include the possibilities that any or all of the
proposed products will be found to be ineffective or toxic, or otherwise fail to
receive necessary regulatory clearances; that the proposed products, although
effective, will be uneconomical to market; that third parties may now or in the
future hold proprietary rights that preclude the Company from marketing them; or
that third parties will market superior or equivalent products. Accordingly, the
Company is unable to predict whether its research and development activities
will result in any commercially viable products or applications. Further, due to
the extended testing and regulatory review process required before marketing
clearance can be obtained, the Company does not expect to be able to
commercialize any therapeutic drug for at least five years, either directly or
through its current or prospective corporate partners or licensees. There can be
no assurance that the Company's proposed products will prove to be safe or
effective or receive regulatory approvals that are required for commercial sale.
Page 12 of 15
<PAGE>
Year 2000 Compliance
The Company has completed a preliminary assessment of the impact of the year
2000 as it relates to the Company's computers and operating systems. Some of the
Company's computer programs were written using two digits rather than four to
define the applicable year. As a result, those computer programs recognize a
date using "00" as the year as 1900 rather than as the year 2000. This may cause
a system failure or otherwise disrupt operations. The Company will be required
to update some of its software so that its computer systems will continue to
function properly. Completion of the upgrade is expected by June 1999, prior to
any anticipated impact on its operating systems. The associated cost is
anticipated to be less than $25,000.
The Company has not yet completed its assessment of its laboratory equipment for
Year 2000 compliance. However, the Company has initiated contact with the
manufacturers and vendors of such equipment regarding Year 2000 compliance. The
Company anticipates that any necessary replacements or upgrades would be
completed by June 1999. The Company does not expect that its Year 2000-related
expenditures with respect to its laboratory equipment will be significant.
The Company is unable to control whether its suppliers and service providers
will be Year 2000 compliant. However, the Company has initiated communications
with its significant vendors to determine the extent to which the Company's
operations may be vulnerable to a failure by those third parties to properly
address Year 2000 issues. The Company's operations may be affected to the extent
that its vendors are unable to provide services or ship products. As of yet, the
Company has not received responses from all of its significant vendors and
cannot complete its assessment of their compliance.
Although the Company expects its internal systems to be Year 2000 compliant as
described above, the Company intends to prepare a contingency plan that will
specify what it plans to do if it or its significant vendors are not Year 2000
compliant in a timely manner. The Company expects to prepare its contingency
plan in calendar year 1999 following the anticipated completion of its internal
remediation and the assessment of the compliance of the Company's significant
vendors. Management does not believe that the Year 2000 changes affecting it and
its significant vendors will have a material impact on its business, financial
condition or results of operations.
Notwithstanding the foregoing, there can be no assurances (a) that the
representations provided by its third party vendors with respect to Year 2000
compliance will be accurate, or (b) that the Company will have any recourse
against such vendors if the representations prove to be inaccurate. Furthermore,
there can be no assurances that Year 2000-related failure caused by third
parties, such as utility providers, transportation companies or others, will not
have a material adverse effect on the Company.
PART II. OTHER INFORMATION
Item 3. Defaults upon Senior Securities
In order to conserve capital for operations, the Board of Directors of the
Company elected not to distribute the semi-annual dividends that have accrued
from June 15, 1990 on the Company's 9%
Page 13 of 15
<PAGE>
cumulative convertible preferred stock. As of December 31, 1998, accrued and
unpaid dividends on the 9% cumulative convertible preferred stock were $22,275.
Item 4. Submission of Matters to a Vote of Security Holders
On December 15, 1998, the Company held its Annual Meeting of Stockholders, with
stockholders holding 9,750,814 shares of common stock (representing 82% of the
total number of shares outstanding and entitled to vote) present in person or by
proxy at the meeting. Proxies for the meeting were solicited pursuant to
Regulation 14A of the Securities Exchange Act of 1934. Robert F. Allnutt,
Charles J. Casamento, Carl W. Cotman, Ph.D., Michael G. Grey, Vincent F. Simmon,
Ph.D. and Davis L. Temple, Jr., Ph.D. were listed as management's nominees in
the Proxy Statement and were elected as directors at the meeting. The votes for
each nominee were as follows:
<TABLE>
<CAPTION>
Number of Number of Votes
Name Affirmative Votes Negative Votes Withheld
---- ----------------- -------------- --------
<S> <C> <C> <C>
Robert F. Allnutt 9,429,609 321,205 --
Charles J. Casamento 9,379,559 371,255 --
Carl W. Cotman, Ph.D. 9,379,859 370,955 --
Michael G. Grey 9,379,709 371,105 --
Vincent F. Simmon, Ph.D. 9,379,859 370,955 --
Davis L. Temple, Jr., Ph.D. 9,379,709 371,105 --
</TABLE>
At the meeting, the Company also sought approval of an Amendment to the
Company's Restated Certificate of Incorporation to increase the authorized
number of shares of the Company's Common Stock from 20,000,000 to 30,000,000.
This proposal was approved by 8,853,134 affirmative votes. There were 840,816
negative votes and 56,864 abstentions.
The Company also sought the ratification of the appointment of Ernst & Young LLP
as independent auditors of the Company for the fiscal year ending June 30, 1999.
This proposal was approved by 9,643,692 affirmative votes. There were 71,082
negative votes and 36,040 abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
---------------------------------------------------------------------------
10.64 Research and Collaboration and License Agreement between the
Company and N.V. Organon, dated January 13, 1999. (Portions of
this Exhibit are omitted and were filed separately with the
Secretary of the Commission pursuant to the Company's application
requesting confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934.)
27 Financial Data Schedule
Page 14 of 15
<PAGE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December
31, 1998.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CORTEX PHARMACEUTICALS, INC.
February 16, 1999 By: /s/ Vincent F. Simmon, Ph.D.
----------------------------
Vincent F. Simmon, Ph.D.
President and Chief Executive Officer;
Acting Chief Financial Officer,
Corporate Secretary
(Principal Financial and Accounting Officer)
Page 15 of 15
<PAGE>
EXHIBIT 10.64
CONFIDENTIAL PORTIONS OMITTED
PURSUANT TO RULE 24b-2
OF THE SECURITIES EXCHANGE ACT OF 1934
RESEARCH COLLABORATION AND LICENSE AGREEMENT
--------------------------------------------
THIS AGREEMENT is made this 13th day of January, 1999 (the "Effective Date")
between
N.V. ORGANON, Molenstraat 110, P.O. Box 20, 5340 BH Oss, the Netherlands
(hereinafter referred to as "Organon")
and
CORTEX PHARMACEUTICALS, INC., 15241 Barranca Parkway, Irvine, California 92618,
USA (hereinafter referred to as "Cortex")
WHEREAS
A. Cortex has considerable experience and expertise with respect to the use of
AMPAkines for the treatment of diseases and Cortex owns and has been
licensed intellectual property rights in this field.
B. Organon wishes to collaborate with Cortex to develop products for the
treatment of schizophrenia and schizophrenia related disorders and symptoms
and possibly depression and wishes to obtain a (sub)license from Cortex
under Cortex' relevant intellectual property rights.
NOW THEREFORE THE PARTIES HEREBY AGREE AS FOLLOWS
1. Definitions
-----------
1.1 "Affiliate" means in the case of each party any entity that directly or
indirectly controls, is controlled by, or is under common control with
that party. For such purpose the terms "control" means ownership or
control of at least 50% of the voting interest in the entity in question.
<PAGE>
2
1.2 "AMPAkines" means compounds that modulate through an allosteric mechanism
AMPA-receptor mediated responses in vitro, [*].
1.3 "Cortex Compound" means the compounds listed in Exhibit I hereto.
1.4 "Cortex Technology" means all inventions, know-how, trade secrets, and
other proprietary information (whether patented or not), that relate to
AMPAkines and which are owned by or licensed to Cortex as of the
Effective Date or during the term of this Agreement, as to which Cortex
has the right to grant to Organon an exclusive license hereunder.
1.5 "Cost of Goods" means the cost invoiced by the manufacturer of the
Products for the Products as well as any pharmaceutical formulation,
packaging and/or package insert costs incurred by Organon.
1.6 "Depression Field" means the treatment of depression and depression
related disorders and symptoms as listed under the caption "Mood
disorders" of the most recent DSM at the date of first sale of Products
or captions applicable to depression and depression related disorders and
symptoms at that time and thereafter during commercialization.
1.7 "Development Candidate" means an AMPAkine which has undergone the
necessary preclinical in vitro and animal studies, formulation and
production work, and is [*].
1.8 "DSM" shall mean the Diagnostic and Statistical Manual of Mental
Disorders.
1.9 "Executive Committee" means the committee to be established pursuant to
Article 2 hereof.
1.10 "FTE" means the full time equivalent effort, for one year, of one person
who participates directly and effectively in the research activities
contemplated under this Agreement.
1.11 "Net Sales" means the total revenue from commercial sales received by a
party hereto, its Affiliates and/or
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
<PAGE>
3
licensees from the sale of a Product subject to royalties hereunder to
independent third parties less the following amounts:
(i) discounts, including cash and quantity discounts, trade allowances
or rebates actually allowed or granted,
(ii) credits or allowances actually granted upon claims or returns,
regardless of the party requesting the return,
(iii) separately itemised freight charges paid for delivery,
(iv) insurance costs,
(v) taxes or other governmental charges levied on or measured by the
invoiced amount, whether absorbed by the billing party or the
billed party.
1.12 "Organon Compound" means a compound originating from an Organon Library,
Organon internal development or otherwise obtained by Organon from any
potential third party.
1.13 "Organon Library" means a library or mixture of compounds, including
compounds contained or proposed to be contained therein, designed
synthesized and/or acquired by Organon (alone or with third parties) or
to which Organon otherwise has access to.
1.14 "Organon Patents" means patents Organon becomes owner of under Section 5.
1.15 "Patents" means all patents and patent applications (including
provisionals, divisionals, continuations, continuations in part,
reissues, re-examinations, substitutions, additions and any extensions to
such patents) as well as foreign counterparts thereof, claiming Cortex
Technology including Cortex Compounds and/or University of California
Patents. Patents owned by or licensed to Cortex at the Effective Date are
listed in Exhibit II hereto.
1.16 "Pharmacological Phase A" means screening in [*].
1.17 "Pharmacological Phase B" means screening in [*].
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
<PAGE>
4
1.18 "Phase I Studies" means human safety studies aiming at generating
sufficient safety data to allow initiation of full scale Phase II patient
studies.
1.19 "Phase II Studies" means dose finding studies in patients, aiming to
prove efficacy and safety of the Development Candidate and to define a
minimum effective dose and optimum effective dose.
1.20 "Phase III Studies" means all clinical studies in patients aiming at
generating sufficient data to allow submission of registration dossiers
in the United States, Europe and Japan.
1.21 "Product" means any AMPAkine developed and commercialised by Organon
pursuant to Section 4., which is manufactured, used or sold in a country
in which any of the manufacture, use or sale is covered by the Patents.
1.22 "Research" means the research program conducted by the parties pursuant
to Section 3 of this Agreement.
1.23 "Research Collaboration Compounds" means compounds designed and
synthesized under the Research Plan but excluding Cortex Compounds and
Organon Compounds.
1.24 "Research Committee" means a team to be established for the purposes of
the Research pursuant to Section 3.2 hereof.
1.25 "Research Plan" means the research activities to be conducted by the
parties pursuant to the Research. The initial Research Plan is attached
as Exhibit III which may be amended from time to time upon agreement of
the Executive Committee.
1.26 "Research Term" means the term of the Research referenced in Article 3.
1.27 "Restricted Compounds" means: Organon Compounds; compounds which are
still under investigation in the Research pursuant to Section 3.3 below;
Research Collaboration Compounds that are not AMPAkines; those Research
Collaboration Compounds and Cortex Compounds which have entered the
Selection Phase and those
<PAGE>
5
compounds which are developed and commercialized pursuant to Section 4.5
below.
1.28 "Schizophrenia Field" means the treatment of schizophrenia and
schizophrenia related disorders and symptoms as listed under the caption
"Schizophrenia and other Psychotic Disorders" of the most recent DSM at
the date of first sale of the Products or captions applicable to
schizophrenia and schizophrenia related disorders and symptoms at that
time and thereafter during commercialization.
1.29 "Selection Phase" means further pursuing of indicative pharmacology as
conducted under Phases A and B as well as a first assessment of [*]a
dossier describing the results of Phases A and B and above assessments.
1.30 "SOPP Phase" means comprehensive [*].
1.31 "University of California Agreements" means the agreements entered into
by and between the Regents of the University of California and Cortex
under which agreements Cortex has been granted exclusive rights under the
University of California Patents.
1.32 "University of California Patents" means all patents and patent
applications (including provisionals, divisionals, continuations,
continuations in part, reissues, re-examinations, substitutions,
additions and any extensions to such patents) licensed and that will be
licensed by the University of California to Cortex. University of
California Patents licensed to Cortex at the Effective Date are listed in
Exhibit II hereto.
1.33 "Unrestricted Compounds" means AMPAkines which have been released by the
Research Committee and are therefore available for use and license (or,
in the case of Unrestricted Collaboration Compounds, sublicense pursuant
to Section 4.1.4) by Cortex but excluding Organon Compounds.
1.34 "Unrestricted Information" means data and information related to
Unrestricted Compounds compiled under the Research but limited to
information and data from research and development through
Pharmacological Phase B.
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
<PAGE>
6
Further data and information shall be considered restricted information
and may under no circumstances be disclosed by Cortex to third parties
unless with the prior written approval of Organon.
2. Executive Committee
-------------------
2.1 The parties will establish an Executive Committee for the purposes of
approving research plans, research budgets and changes thereto, and
supervising the execution of the Research Plan. The Executive Committee
shall have such even number of members as the parties shall agree, half
of the members being appointed by each party, with each of Cortex and
Organon having one vote. Organon can at its sole discretion decide which
compounds will become Development Candidates. In the event of deadlock on
any issue, such issue shall be referred for decision to the Chief
Executive Officers of each party, which officers shall have the
appropriate responsibility and authority to represent and bind such party
with respect to such issue or dispute. During the Research Term, the
Executive Committee shall meet at least once a year, and the location of
such meetings shall alternate between Irvine and Oss or Newhouse, all
unless otherwise agreed by the parties.
3. Research
--------
3.1 Research Term
-------------
The Research shall commence upon the Effective Date and shall continue
for two years thereafter. In the event [*] Research Plan, Organon, at its
discretion, has the right to terminate this Agreement or the Research
only upon four months prior written notice, unless Cortex [*] reasonably
acceptable to Organon.
3.2 Research Program
----------------
3.2.1 The parties agree to execute the Research Plan subject to the following:
(a) Cortex agrees that, during the Research Term, Cortex shall
collaborate exclusively with Organon within the Schizophrenia Field
and the Depression Field.
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
<PAGE>
7
(b) Organon shall, at its discretion, provide access to its proprietary
technologies and know-how, as may be useful in connection with the
Research and shall make available an average of [*] FTE's per year
during the Research Term.
For clarity of understanding, Cortex shall not have the right to
utilise such technologies and know-how other than in connection with
the Research.
3.2.2 The Research shall be implemented by the Research Committee, which shall
be comprised of an equal number of members, but not more than four, from
each party. The members of the Research Committee shall be nominated by
the Executive Committee. In the event of deadlock on any matter the
Research Committee shall refer such matter to the Executive Committee.
The Research Committee shall meet as often as may be required for the
purposes of the Research but in any event not less than four times per
year, again unless otherwise agreed by the parties. Reports on the
Research performed shall be exchanged by the parties well before the
Research Committee meetings. Written reports of such meetings and of the
status of the individual projects shall be submitted to the Executive
Committee. Unless otherwise agreed, meetings shall alternate between the
relevant sites of Cortex and Organon. Furthermore, the Research Committee
shall have at least monthly telephone conferences amongst other things to
decide upon the selection of Compounds. Decisions made during the
telephone conferences shall be confirmed in writing.
3.2.3 Organon shall pay Cortex's fully-burdened costs per year per FTE actively
engaged in the Research. The rate shall be [*] per FTE per year. This
payment also compensates Cortex for all ordinary travel expenses incurred
by such FTE's in attending meetings.
Unless otherwise agreed in writing, Cortex shall make available a maximum
of [*] effective FTE's per year the composition of which group of FTE's
shall be agreed upon by the parties. Such FTE's shall include a balanced
group of Ph.D. or equivalent and other scientists as described in the
Research Plan.
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
<PAGE>
8
The annual cost of such FTE's shall be due and payable in quarterly
instalments in advance, on the following schedule. The first such payment
shall be due and payable upon the Effective Date, and shall cover the
expected FTE's cost from such date through the end of the then current
quarterly period. Thereafter, for the remainder of the Research, payments
for the expected FTE's costs for each quarterly period shall be due and
payable on each January 15th, April 15th, July 15th and September 15th in
U.S. dollars by bank wire transfer. Cortex shall submit corresponding
invoices to Organon no later than forty five (45) days before the date
upon which payment is due. Such payments shall be subject to
reconciliation in accordance with Section 3.2.4 herein.
3.2.4 Cortex will keep records of the time spent by its FTEs on the Research.
Cortex will report the level of FTE effort to Organon on a quarterly
basis. Organon shall have the right to have these records audited, in the
same manner as is set forth in Section 8.4. During the course of the
Research, Cortex will notify Organon if it becomes apparent that the
level of effort at Cortex is expected to deviate from the level required
under Section 3.2.3.
At the end of each year of the Research Term the parties will restore any
imbalance between actual and funded FTE's either through appropriate
payments or refunds.
3.3 Compound Screening and Selection
--------------------------------
Cortex Compounds for Research
-----------------------------
At the commencement of the Research, Cortex will make all Cortex
Compounds available for screening pursuant to the Research Plan as
selected by the Research Committee, along with the structures and
properties (to the extent known) of such Cortex Compounds. Initially, all
such Cortex Compounds shall be Restricted Compounds. Within [*] of the
commencement of the Research, and provided that at the end of such [*]
period [*] FTE's are available at Cortex to perform the Research, the
Research Committee will release [*] Cortex Compounds to be Unrestricted
Compounds, and will release an additional [*] Cortex Compounds each [*]
days thereafter, until such time as not more than [*] Cortex Compounds,
which are under active consideration, remain Restricted Compounds.
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
<PAGE>
9
The Research Committee may decide to extend the [*] days and [*] days
periods respectively and reduce the number of Cortex Compounds to be
released in the 30 days periods. In the event less than [*] FTE's are
made available by Cortex at the end of the [*] days period the [*] days
period shall be extended until such [*] FTE's have been employed by
Cortex.
Collaboration and Organon Compounds for Research
------------------------------------------------
In addition, pursuant to the Research Plan, Cortex or Organon will
synthesize additional compounds which shall be Research Collaboration
Compounds. All such Research Collaboration Compounds initially shall be
Restricted Compounds. The Research Committee may also select for
screening appropriate Organon Compounds reasonably proposed for screening
by Organon.
Screening
---------
Cortex and Organon shall use reasonable efforts to conduct the screening
in the appropriate assays of all compounds selected for screening under
this Section 3.3, in accordance with the Research Plan.
Identification of Compounds for Continued Evaluation
----------------------------------------------------
Promptly after completing the screening of compounds in either
Pharmacological Phase A or Pharmacological Phase B under this Section
3.3, the parties will provide to the Research Committee the results of
such screening. The Research Committee will review such results during
monthly telephone conferences and quarterly meetings and will determine
which of the screened compounds meet the requirements established by the
Research Committee for continued evaluation. Such compounds which meet
the requirements shall remain Restricted Compounds and any screened
compounds which do not meet the requirements other than Organon
Compounds, shall become Unrestricted Compounds.
Research with Unrestricted Compounds
------------------------------------
The Research Committee may at any time during the Research select
Unrestricted Cortex Compounds and Unrestricted Research Collaboration
Compounds for research purposes only and not for further development but
with respect to the Cortex Compounds, only so long as
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
<PAGE>
10
Cortex is not under any contractual obligation to a third party
restricting access to such compounds.
Selection of Leads for (Pre)clinical Development
------------------------------------------------
Organon shall select Restricted Compounds that are most promising for the
Selection Phase and subsequently the SOPP Phase. Organon shall use
reasonable efforts to conduct, at its expense, all activities to be
performed under the Selection Phase and the SOPP Phase to select
Restricted Compounds as Development Candidates.
End of Research Term
--------------------
At the conclusion of the Research Term, all Cortex Compounds which are
not being evaluated as potential Development Candidates in the SOPP Phase
shall become Unrestricted Compounds. [*] months after the conclusion of
the Research Term, all Research Collaboration Compounds which have not
entered the SOPP Phase shall become Unrestricted Compounds unless such
Collaboration Compounds are by definition to be considered Restricted
Compounds. Organon shall own exclusively the Restricted Compounds other
than Cortex Compounds.
Disclosure of Information Regarding Unrestricted Compounds
----------------------------------------------------------
Organon agrees that Cortex shall be free to disclose Unrestricted
Information to third parties who are potential or actual corporate
partners or licensees of Cortex.
4. Licenses
--------
Rights granted
--------------
4.1.1 Cortex grants Organon the exclusive worldwide right, license and
sublicense under the University of California Agreements with the right
to sub(sub)license, to develop, have developed, use, have used,
manufacture, have manufactured, sell and have sold AMPAkines in the
Schizophrenia Field under the Cortex Technology and the Patents, as well
as any future Patents Cortex may own or have access to required for the
development, use, manufacture and sale of such Products.
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
<PAGE>
11
4.1.2 Cortex grants Organon an exclusive option to obtain the exclusive
worldwide right, license and sublicense under the University of
California Agreements, with the right to sub(sub)license, to develop,
have developed, use, have used, manufacture, have manufactured, sell and
have sold AMPAkines in the Depression Field under the Cortex Technology
and the Patents, as well as any future Patents Cortex may own or have
access to required for the development, use, manufacture and sale of
such Products. The option is granted by Cortex to Organon for a period
of [*] from the Effective Date. Latest [*] Organon shall inform Cortex
by written notice whether it wishes to exercise its option. In the event
Organon decides to exercise its option Organon shall spend at least [*]
per year during [*] on research and development using AMPAkines in the
Depression Field. Organon shall keep records of its expenses and Cortex
shall have the right to have these records audited in the same manner as
set forth in Section 8.4.
4.1.3 Cortex shall be permitted to grant third parties access or rights to, or
provide third parties with all Unrestricted Compounds (subject to the
limitations set forth in this Agreement). Cortex shall be permitted to
provide to third parties information with respect to Cortex Restricted
Compounds, provided such information was not developed as part of the
Research. To the extent Cortex has provided access to Cortex Compounds
to third parties before the date of this Agreement, such third parties
may continue their evaluations. However, in no event shall Cortex grant
rights to such compounds in conflict with this Agreement.
4.1.4.1 Organon grants Cortex the exclusive right and license, with the right to
sub-license to develop, have developed, use, have used, manufacture,
have manufactured, sell and have sold AMPAkines outside the
Schizophrenia Field and the Depression Field (with respect to the
Depression Field, provided Organon exercises its option under 4.1.2)
under Organon Patents covering the Unrestricted Research Collaboration
Compounds. Organon retains the right, however, to use such Unrestricted
Research Collaboration Compounds in its internal research.
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
<PAGE>
12
4.1.4.2 In the event Unrestricted Research Collaboration Compounds after first
commercialization by Cortex and/or its sublicenses show a [*], Organon
shall grant Cortex the right and license, with the right to sublicense
to develop, have developed, use, have used, manufacture, have
manufactured, sell and have sold such Research Collaboration Compounds
for such use provided such use does not compete with Organon's core
business at the time Cortex or its sublicensee commences development
for such [*].
4.1.4.3 In the event Unrestricted Research Collaboration Compounds during
screening by Cortex and/or its sublicensees show a [*] Organon shall
consider in good faith to grant Cortex the right and license, with the
right to sublicense to develop, have developed, use, have used,
manufacture, have manufactured, sell and have sold such Research
Collaboration Compounds for such use. In the event Organon is willing
to grant such right and license the terms and conditions for such use
shall be agreed upon by and between Organon and Cortex at such time.
4.2 Organon Milestone Payments.
---------------------------
4.2.1 In consideration of the rights granted to Organon under Section 4.1.1
Organon shall pay Cortex [*] within 14 days after execution of this
Agreement.
Furthermore, the following milestone payments shall be made by Organon
to Cortex with respect to the Schizophrenia Field:
(i) [*] upon identification and selection of the first Development
Candidate; and
(ii) [*] for the first Development Candidate that enters into Phase II
Studies; and
(iii)[*] for the first Development Candidate to enter into Phase III
Studies: and
(iv) [*] upon successful registration of the first Product in either;
any country of the European Union, United States or Japan.
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
<PAGE>
13
For clarity of understanding the payments referred to in this Section
4.2.1 shall each be payable only once; such that the maximum aggregate
payment will be [*] irrespective of the number of Development Candidates
selected, taken into development or Products registered and
commercialised in the Schizophrenia Field.
4.2.2 In the event Organon exercises its option under Section 4.1.2 Organon
shall pay Cortex.
The following milestone payments with respect to the Depression Field:
(i) [*] upon the earlier of [*] or the decision of Organon's R&D
Management for the first Development Candidate to enter into Phase
II Studies; and
(ii) [*] for the first Development Candidate to enter into Phase III
Studies; and
(iii) [*] upon successful registration of the first Product in either
any country of the European Union, United States or Japan.
For clarity of understanding the payments referred to in this Section
4.2.2 shall each be payable only once; such that the maximum aggregate
payment will be [*] irrespective of the number of Development Candidates
selected, taken into development or Products registered and
commercialised in the Depression Field.
4.3 Royalties
---------
4.3.1 As a further compensation for granting such rights to Organon, Organon
shall pay the following royalties to Cortex.
Organon shall pay to Cortex royalties on Net Sales of Products at the
rate of [*] of Net Sales generated in the United States and [*] of Net
Sales generated in the rest of the world from which royalties the Cost of
Goods of such Products will be deducted. Organon will however pay a
minimum of [*] of Net Sales.
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
<PAGE>
14
In the event Products are not covered by University of California
Patents, but by Patents other than University of California Patents only,
all royalties due by Organon will be reduced by [*] and the minimum
royalty referred to above will be reduced to [*].
4.3.2 In consideration of the rights granted to Cortex under Sections 4.1.4.1
and 4.1.4.2, Cortex shall pay Organon [*] royalties on the Net Sales of
products (incorporating Collaboration Compounds) sold by Cortex or Cortex
(sub)licensees respectively [*] in the event such products are sold in
the Depression Field (provided that Organon has decided not to exercise
its right under Section 4.1.2).
4.3.3 Royalties shall be paid until the expiration of the Patents by which
Products are covered.
4.4 Cost of Goods
-------------
Organon shall use commercially reasonable diligence to minimise the Cost
of Goods by having the Products manufactured, pharmaceutically formulated
and packed at a competitive price. In the event Cortex considers the Cost
of Goods to be too high, Cortex may obtain quotations from competitors of
equal reputation as Organon and Organon's supplier(s) that are able to
manufacture in FDA approved facilities the required quantities at the
same or better quality as Organon and Organon's supplier(s). In the event
the quotations from such third parties are lower than the cost incurred
by Organon and those offered by Organon's suppliers, Organon has the
right to adjust the Cost of Goods for the calculation of the royalties or
have the Products manufactured by such third parties. In the event it is
decided to have Products manufactured by third parties, Organon will be
allowed a reasonable period for the transfer of the manufacture so as not
to jeopardize continuity in the supply of Products.
4.5 Development and Commercialization
---------------------------------
Organon agrees to use commercially reasonable diligence to develop and
commercialise the Products. Organon will keep Cortex informed of the
progress of its development of Products.
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
<PAGE>
15
5. Maintenance of Patents, Title to new inventions and patent rights
------------------------------------------------------------------
5.1 The Patents listed in Exhibit II shall be filed, prosecuted and
maintained by the University of California. In the event the University
of California does no longer want to apply for, prosecute and/or maintain
any of such Patents Cortex shall do so, whereby Cortex shall do its best
efforts to have the Patents assigned to Cortex. In the event Cortex no
longer wishes to do so or does not wish to file patents in certain
countries, it shall inform Organon of such fact and grant Organon the
right to do so whereby ownership of such Patents shall be assigned to
Organon provided such ownership has been assigned by the University of
California to Cortex.
5.2 Except for what has been agreed upon under Section 5.3, inventions and
discoveries made by inventors employed by Cortex shall be owned by
Cortex. Inventions and discoveries made by inventors employed by Organon
shall be owned by Organon. Inventions and discoveries made by both
inventors employed by Cortex and inventors employed by Organon shall be
jointly owned.
Each party shall provide the other party with any and all available
information and documentation needed to prepare, file, prosecute, re-
examine patent applications. Both parties shall refrain from any action
that might endanger possible patent rights arising from the Research.
5.3 Parties agree to decide upon ownership of patents on compounds and/or use
of compounds resulting from the Research in accordance with the
following:
Inventions and discoveries with respect to Cortex Compounds shall be
owned by Cortex.
Inventions and discoveries with respect to Organon Compounds shall be
owned by Organon.
Inventions and discoveries with respect to Research Collaboration
Compounds shall be owned by Organon.
<PAGE>
16
5.4 Patent Committee.
----------------
The parties shall form a joint Patent Committee to review the preparation
and prosecution of the patents arising from the Research. The Patent
Committee shall also be informed by Cortex on the status of the
preparation and prosecution of the Patents. Cortex shall request the
University of California to use all reasonable efforts to amend any
Patent to include reasonable claims reasonably requested by Organon to
protect the products to be developed under this Agreement. The Patent
Committee shall include a patent attorney designated by each party and
one research manager designated by each party. Each party shall bear the
costs of its designated members participating in the Patent Committee.
All patent applications arising from the Research shall be evaluated in
accordance with the following process:
(a) The designated patent attorneys from each party shall advise the
Executive Committee on inventorship issues related to patents arising
from the Research.
(b) Unless otherwise agreed, patents and patent applications owned by one
party shall be drafted, filed, prosecuted and maintained by the party
that owns the patent rights, as provided in Sections 5.1 and 5.3 at
that party's expense. The Patent Committee shall decide which party
will draft and prosecute joint patents in consultation with the other
party. The expenses for the drafting and prosecution of such patent
shall be shared equally between the parties. In all cases, each party
shall keep the other party informed as to the status and progress of
all relevant patents and patent applications; and shall draft, file,
prosecute and maintain joint patents and patent applications in
consolation with the other party. In the event either party does not
want to apply for, prosecute and/or maintain patents it shall inform
the other party of such fact and the other party shall have the right
to do so whereby the ownership of such patents or patent applications
shall be assigned to such party.
(c) If there is a dispute between Cortex and Organon related to patents
arising from the Research,
<PAGE>
17
including, without limitation, issues regarding patent claims, the
scope of patent claims and inventorship, the parties shall refer the
matter to an independent patent attorney acceptable to both parties
for resolution. The decision of such independent patent attorney
shall be binding.
6. Patent Enforcement
------------------
6.1 Infringement Action by a Third Party
------------------------------------
6.1.1 Notice.
------
Each party shall promptly notify the other party if any legal proceedings
are commenced against any party or any purchaser of a Product, on the
ground that the manufacture, use or sale of such Product is an
infringement of a third party's patent or other intellectual property
rights.
6.1.2 Defense of Claims Involving Products.
------------------------------------
Organon shall have the right, and to the extent required by Section 7.1,
the obligation, to assume and solely manage the defense of any such
action or claim relating to the Organon Products, in its own name or in
the name of Cortex, if necessary. In such event
(i) Cortex shall take all appropriate or necessary actions to assist in
the defense of such action or claim
(ii) Organon shall bear all costs and expenses associated with such
action or claim (including, without limitation, legal fees and
expenses). [*] of the cost incurred by Organon in such defence of
any such action or claim shall be credited against Organon's royalty
obligations with respect to sales of Organon Products, provided that
such credit shall not exceed [*] of the royalty otherwise payable by
Organon. Any monetary recovery in connection with any such action or
claim shall first be applied to reimburse Organon for all costs and
expenses incurred by Organon, both internal and external, including
attorneys' fees and expenses. The remainder of any recovery received
by Organon shall first be remitted to Cortex to the extent necessary
to reimburse Cortex for the sums
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
<PAGE>
18
withheld by Organon by virtue of the royalty offset referred to
above. Any remainder shall be retained by Organon.
6.2 Infringement Action Against a Third Party
-----------------------------------------
6.2.1 Notice.
------
Each party shall promptly notify the other party if it becomes aware of
any infringement of any Patents or Organon Patents by any third party.
6.2.2 Maintenance of Lawsuits Involving Cortex Patents.
------------------------------------------------
Cortex shall have the right (but not the obligation) to file and maintain
lawsuits for infringement of any Patents by any third party, in its own
name or in the name of Organon, if necessary at its own cost and expense.
Organon shall give Cortex all reasonable assistance and cooperate in any
such proceedings filed by Cortex, including the entry into additional
agreements necessary to perfect Cortex's right to bring or maintain such
lawsuits. If Cortex does not exercise its right to enforce a patent
covering a Product, Cortex shall inform Organon within 14 days after such
notice of its decision not to exercise such right. In such event Organon
shall have the right to file and maintain such infringement action at its
own cost and expense, provided that the third party product which is the
subject of such infringement action is a competing product with respect
to the Product. [*] of the costs incurred by Organon in maintaining such
infringement action shall be credited against Organon's royalty
obligation with respect to sales of Organon Product in such country
pending such infringement action, provided that such credit shall not
exceed [*] of the royalty otherwise payable by Organon (the "Royalty
Offset"). Any monetary recovery in connection with any such infringement
action shall first be applied to reimburse the party bringing such suit
for all costs and expenses incurred by such party, both internal and
external, including attorneys' fees and expenses and then to reimburse
the other party's costs and expenses. Any remainder shall be equally
shared between the parties in the event Cortex brings suit. In the event
that Cortex declines to file and maintain a
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
<PAGE>
19
lawsuit for infringement of Patents and Organon assumes the maintenance
of such claim at its own cost and expense the remainder of any recovery
received by Organon shall first be remitted to Cortex to the extent
necessary to reimburse Cortex for the sums withheld by Organon by virtue
of the Royalty Offset as well as royalties on lost sales as awarded to
Organon. Any remainder shall be retained by Organon.
7. Indemnity; no warranties
------------------------
7.1 Each party agrees to indemnify, defend and hold harmless the other party,
and its respective officers, directors, shareholders, and employees, from
and against all claims, losses, costs, damages and liability of any kind,
including without limitation attorneys fees, (collectively "Liabilities")
arising in connection with its development, manufacture, use or sale of
products, except for Liabilities arising as a result of breach by the
other party of its obligations under this Agreement. Neither party shall
make any admission of liability nor take any other action which could
prejudice the defence of such claim or lawsuit by the indemnifying party.
7.2 Each party shall promptly notify the other of receipt of any claim or
lawsuit subject to Section 7.1 and shall cooperate with the other in
connection with the investigation and defense of such claim or lawsuit.
The party that manufactures, uses or sells its products shall have the
right to control the defense, with counsel of its choice, provided that
the indemnified party shall have the right to be represented by advisory
counsel at its own expense.
7.3 EXCEPT AS EXPRESSLY STATED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY
WARRANTY, AND EACH PARTY EXPRESSLY DISCLAIMS ALL DISCLAIMS, ALL IMPLIED
WARRANTIES, INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, WITH RESPECT TO ANY COMPOUNDS OR OTHER BIOLOGICAL OR
CHEMICAL MATERIALS OR INFORMATION PROVIDED TO THE OTHER PARTY PURSUANT TO
THIS AGREEMENT.
8. Payments and accounting
-----------------------
8.1 All payments hereunder shall be made in U.S. Dollars.
<PAGE>
20
8.2 Organon shall keep true and correct accounts of sales of all products in
respect of which royalties are payable pursuant to this Agreement, and
the calculation of Net Sales and royalties with respect thereto, and
shall deliver to Cortex written statements thereof in such form as both
shall agree upon within sixty (60) days following the end of each
calendar quarter and at the same time shall pay to Cortex the amount of
such royalties shown to be due.
8.3 All royalties shall be earned in the local currency of the country where
the applicable Net Sales are made, but shall be converted for payment
into U.S. Dollars, in accordance with the standard procedures used by
Organon in converting currencies of world-wide product sales for its
products generally.
If royalties cannot be remitted from a country, the parties will work
together to arrive at an equitable solution for paying such royalties to
Cortex. Unless the parties mutually agree to the contrary, such
obligation shall be satisfied if royalty payments are paid to an account
of the party in the country in question.
Any withholding or other tax that Organon is required by law to withhold
and pay on behalf of Cortex with respect to the royalties payable to such
other party under this Agreement shall be deducted from said royalties
and paid contemporaneously with the remittance to Cortex; provided,
however, that in regard to any tax so deducted, Organon shall furnish
Cortex with proper evidence of the taxes paid on its behalf.
8.4 Cortex shall have the right to have an independent certified public
accountant of its own selection and at its own expense, except one to
whom Organon may have reasonable objection, examine the relevant books
and records of account of Organon during reasonable business hours, to
determine whether appropriate accounting and payment have been made
hereunder. Said independent certified public accountant shall treat as
confidential, and shall not disclose to party requesting the audit, any
other information not pertaining to the royalty amounts payable under
this Agreement. Such examination can be
<PAGE>
21
undertaken at any time within two years after the date on which such
royalty amounts were due and payable. In the event royalties are
underpaid by more than 5% (five percent) the examined party shall by pay
costs of such examination.
8.5 In the event royalties due by Cortex under Section 4.3.2 the above terms
and conditions for payment and accounting shall similarly apply.
9. Warranties
----------
9.1 Cortex warrants that:
a) Cortex is a corporation duly organized under the laws of the State of
Delaware and is duly existing and in good standing under the laws of
the States of Delaware and California in the United States of
America, with full right, power and authority to enter into and
perform this Agreement and to grant all of the rights, powers and
authorities herein granted;
b) The execution, delivery and performance of this Agreement do not
conflict with, violate or breach any agreement to which Cortex is a
party, or Cortex' articles of incorporation or bylaws;
c) The University of California granted to Cortex in the University of
California Agreements exclusive, worldwide licenses with the right to
grant sub-licenses, under the University of California Patents to
make, have made, use, and sell the Products.
d) Cortex is authorized under the University of California Agreements to
enter into this Agreement with Organon;
e) The University of California has the responsibility and obligation
under the University of California Agreements to maintain the
University of California Patents and to the best knowledge and belief
of Cortex, the University of California Patents have been maintained
properly up to the date of this Agreement;
<PAGE>
22
f) Cortex warrants that the University of California Agreements provide
that in the event the University of California Agreements are
terminated the University of California shall grant Organon a license
under terms and conditions similar to this Agreement.
9.2 Organon warrants that:
a) Organon is a corporation duly organized, existing and in good
standing under the laws of The Netherlands, with full right, power
and authority to enter into and perform this Agreement and to grant
all of the rights, powers and authorities herein granted;
b) The execution, delivery and performance of this Agreement do not
conflict with, violate or breach any agreement to which Organon is a
party, or Organon's articles of incorporation or by laws;
c) This Agreement has been duly executed and delivered by Organon and is
a legal, valid and binding obligation enforceable against Organon in
accordance with its terms.
10. Publicity and Publication
-------------------------
10.1 Publicity
---------
The parties will mutually agree on a press release to be issued upon
execution of this Agreement. Neither party shall make any subsequent
public announcement concerning the terms of this Agreement not previously
made public without the prior written approval of the other party with
regard to the form, content and precise timing of such announcement,
except (but with prior written notification to the other party) such as
may be required to be made by either party in order to comply with
applicable law, regulations or court orders. Such consent shall not be
unreasonably withheld or delayed by the other party. Prior to any such
public announcement, the party wishing to make the announcement will
submit a draft of the proposed announcement to the other party in
sufficient time to enable the other party to consider and
<PAGE>
23
comment thereon. Nothing in this section shall preclude disclosures by
either party to third parties under confidentiality restrictions in order
to carry out the purposes of this Agreement or to define the scope of
rights which may be granted to a third party without violating this
Agreement.
10.2 Publications
------------
Neither party will publish or publicly disclose results arising from the
Research without the prior consent of the other party, which consent
shall not be unreasonably withheld. Parties, however, agree not to
publish details with respect to Development Candidates until such
Development Candidates have proven to be successful in Phase II Studies.
With respect to any proposed publication or public disclosure of results,
the following shall apply:
10.2.1 The Research Committee, and after the Research Term the Vice Presidents
Research of the respective parties, shall review any proposed publication
with respect to the content, authorship, acknowledgement, and shall
either approve release of the publication, or propose revisions to the
publication. Any disputes relating to the contents or authorship of any
publication(s) prepared by Cortex and Organon scientists participating in
the Research shall be referred to the Executive Committee for resolution.
10.2.2 The proposed publication shall be reviewed by the patent departments and
any other departments of Organon and Cortex in accordance with their
customary procedures.
10.2.3 At such time as the proposed publication has been reviewed and approved
by the Research Committee and the patent and/or other departments of
Organon and Cortex, the publication may be submitted for publishing.
11. Confidentiality
---------------
Except as specifically authorised under the terms of this Agreement each
party shall, for the term of this Agreement and for ten (10) years after
its termination for any reason whatsoever, treat any proprietary
<PAGE>
24
information disclosed to it by the other party as strictly confidential,
and shall not disclose such proprietary information to third parties or
use it for purposes other than those authorised herein.
Except as set forth in the exceptions hereinafter any information, data
or material, including without limitation, software, technology, business
plans or information, communicated to the other which is identified as
confidential, or which the other party has reason to believe is
confidential, will be deemed and treated as proprietary information.
Proprietary information also includes proprietary chemical, physical or
biological materials, identified as confidential, exchanged pursuant to
this Agreement. Access to such proprietary information will be limited to
those employees or consultants of the party receiving such information or
of such party's Affiliates or sublicensees, who reasonably require such
information in order to carry out activities authorised pursuant to this
Agreement. Such employees or consultants will be advised of the
confidential nature of the Proprietary Information and the related
confidentiality undertaking.
Proprietary information shall not include, and the above confidentiality
undertaking shall in no event restrict or impair each party's right to
use or disclose any information which:
(a) at the time of disclosure is in the public domain or thereafter
becomes part of the public through no fault of the party receiving
such information;
(b) the party receiving such information can conclusively establish that
it was in its possession prior to the time of disclosure;
(c) is independently made available to the party receiving such
information by a third party who is not thereby in violation of a
confidential relationship with the other party, or
(d) the receiving party can establish was independently developed without
use of the Proprietary Information of the other party.
<PAGE>
25
The receiving party shall not be restricted from disclosing such
information as is required to be disclosed by law, regulation, or court
or governmental order, provided that the receiving party reasonably
notifies the disclosing party prior to such disclosure of such
requirement.
Upon termination of this Agreement, and provided the Proprietary
Information is still of a confidential nature, the party recipient of the
Proprietary Information will upon request from the disclosing party
either return any such information or destroy the same.
12. Term and Termination
--------------------
12.1 The Research Term shall be as set forth in Article 3.
12.2 Unless terminated earlier under Section 12.3, this Agreement shall
continue in full force and effect until the expiration of all milestone
and royalty obligations of Organon under Article 4. Upon expiration of
this Agreement under this Section 12.2, Organon and Cortex shall have
fully paid-up licenses; and the provisions identified in Section 12.4
shall survive expiration hereof.
12.3 Early Termination
-----------------
(a) Organon shall have the right to terminate, upon four months prior
written notice, this Agreement as well as its rights and licenses
under this Agreement with respect to the Schizophrenia Field or the
Depression Field only; and
(b) In the event of material breach of this Agreement by either party,
which is not cured within sixty (60) days following receipt of
written notice of the alleged default from the non defaulting party,
the non defaulting party may terminate this Agreement upon 30
(thirty) days prior written notice.
12.4 Survival
--------
In all cases of early termination or expiration of this Agreement, the
following provisions shall survive,
<PAGE>
26
together with any other obligations of either party which have accrued as
of the effective date of termination or expiration: Section 4.1.4,
Articles 5, 7, 9, 10, 11, 12 and 13.
12.5 All licenses granted under this Agreement are deemed to be, for purposes
of Section 365(n) of the U.S. Bankruptcy Code, licenses of right to
"intellectual property" as defined in Section 101 of such Code. The
parties agree that Organon may fully exercise all of its rights and
elections under the Bankruptcy code. The parties further agree that, in
the event Organon elects to retain its rights as a licensee under such
Code, Organon shall be entitled to complete access to the Cortex
Technology and Patents licensed to it hereunder and all embodiments of
such Cortex Technology and Patents, for the purposes of exploitation of
the licenses granted under this Agreement. Such embodiments of the Cortex
Technology and Patents shall be delivered to Organon not later than:
(a) the commencement of bankruptcy proceedings against Cortex, upon
written request, unless Cortex elects to perform its obligations
under the Agreement, or
(b) if not delivered under (a) above, upon the rejection of this
Agreement by or on behalf of the Cortex, upon written request.
12.6 IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR LOST PROFITS OR
ANY CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES TO THE OTHER PARTY,
HOWEVER CAUSED, IN CONNECTION WITH THIS AGREEMENT; PROVIDED THAT NOTHING
IN THIS SECTION 12.6 SHALL LIMIT THE INDEMNIFICATION OBLIGATIONS OF
EITHER PARTY PURSUANT TO ARTICLES 5 AS TO CONSEQUENTIAL, INCIDENTAL OR
INDIRECT DAMAGES TO THIRD PARTIES FOR WHICH THE INDEMNITEE MAY BE LIABLE.
13. Miscellaneous
-------------
13.1 Neither party shall have the right to assign its rights or obligations
under this Agreement to any third party other than an Affiliate of such
party without the prior written consent of the other party, which consent
shall not be unreasonably withheld, provided however, that either party
may, without such consent, assign this
<PAGE>
27
Agreement and its rights and obligations hereunder in connection with the
transfer or sale of all or substantially all of its business to which
this Agreement relates, or in the event of a merger or consolidation.
This Agreement shall be binding on, and inure to the benefit of, the
permitted successors and assigns of the parties. All permitted
sublicenses and/or assignments by either party of any of its rights under
this Agreement shall be subject to all of the terms and conditions of
this Agreement, which shall be binding on the sublicensees and/or
assignees.
13.2 The parties hereto are independent contractors. Nothing contained herein
shall constitute either party the agent of the other party for any
purpose whatsoever, or constitute the parties as partners or joint
ventures. Employees of each party remain employees of said party and
shall be considered at no time agents of or render a fiduciary duty to
the other party. Neither party hereto shall have any implied right or
authority to assume or create any obligations on behalf of or in the name
of the other party or to bind the other party to any other contract,
agreement or undertaking with any third party.
13.3 No amendment, waiver of modification of this Agreement shall be valid or
binding on either party unless made in writing signed by both parties.
The failure of either party to enforce any provision of this Agreement at
any time shall not be construed as a present or future waiver of such or
any other provision of this Agreement. The express waiver by either party
of any provision or requirement hereunder shall not operate as a future
waiver of such or any other provision or requirement.
13.4 In the event that any provision in this Agreement shall be held to be
unlawful or invalid in any jurisdiction, the meaning of such provision
shall be construed to the greatest extent possible so as to render it
enforceable. If no such construction can render such provision
enforceable, it shall be severed, and the remainder of the Agreement
shall remain in full force and effect, only to the extent that such
remainder is consistent with the intentions of the parties as evidenced
by this Agreement as a whole. The parties shall use best efforts to
<PAGE>
28
negotiate in good faith a reasonable substitute, valid and enforceable
provision effective in such jurisdiction.
13.5 Any notice required or permitted to be given by either party under this
Agreement shall be in writing, addressed, in the case of Cortex, to its
Chief Executive Officer, with copy to its General Counsel, and in the
case of Organon, to its President with copy to its General Counsel, at
the respective addresses of the parties shown in the first paragraph of
this Agreement, or such other address as may from time to time be
indicated in a notice given under this Section 13.5. All notices shall be
sent by certified or registered first class mail, telefax confirmed by
certified or registered first class mail, or personal delivery, and shall
be effective on receipt at the address referenced above.
13.6 Neither party will be deemed in breach of this Agreement as a result of
default, delay or failure to perform by such party which is due to causes
beyond the reasonable control of such party, including without
limitation, fire, earthquake, act of God, severe weather, act of war,
strikes, lockouts or other labour disputes, riots, civil disturbances,
actions or in actions of governmental authorities (except in response to
a breach by such party), or epidemics. In the event of any such force
majeure, the party affected shall promptly notify the other party, shall
use all reasonable efforts to overcome such force majeure, and shall keep
the other party informed with respect thereto.
13.7 All headings and captions used in this Agreement are for convenience
only, and are not intended to have substantive effect.
13.8 This Agreement may be executed by the parties in one or more identical
counterparts, all of which together shall constitute this Agreement.
13.9 This Agreement shall be governed by and construed in accordance with the
laws of the State of California.
<PAGE>
29
13.10 Dispute Resolution
------------------
13.10.1 All disputes of all types under this Agreement shall be referred to the
Executive Committee for resolution. The Executive Committee shall use
all reasonable efforts to resolve such matters within thirty (30) days
after such referral, including referral of questions to outside
independent experts where the Executive Committee deems appropriate.
13.10.2 If the Executive Committee is unable to resolve such dispute the
dispute shall be referred to the Chief Executive Officers ("CEOs") of
the parties for resolution.
13.10.3 In the event the CEOs are not able to resolve such dispute within
thirty (30) days after the matter is referred to them, the following
shall apply:
(a) Prior to entering into binding arbitration in accordance with the
provisions of Section 13.10.3(b) below, the parties shall enter
into non-binding mediation. The mediation shall be conducted by an
independent mediator acceptable to both parties. Either party may
serve upon the other party a written demand for mediation. Such
mediation shall commence within thirty (30) days of the other
party's receipt of such demand, unless otherwise agreed in writing
by the parties. Each party shall make available to the mediation an
authorised representative with the capacity to bind such party, and
the mediation shall be conducted as deemed appropriate by the
mediator.
(b) In the event that the dispute cannot be resolved by the mediation
mechanism referenced in Section 13.10.3(a) the dispute shall be
referred to arbitration in accordance with the rules then
prevailing of the Center for Public Resources ("CPR") 680 Fifth
Ave. New York, New York 10019 unless otherwise mutually agreed. The
arbitration shall be conducted in New York City, New York. Unless
otherwise agreed by the parties the arbitration panel shall consist
of arbitrators selected in accordance with the CPR rules.
<PAGE>
30
This section 13.10.3 shall not limit the rights of any party to seek in
court of competent jurisdiction interim relief and only such interim
relief, as may be needed to maintain the status quo or otherwise protect
the subject matter of the dispute until the arbitrators have been
appointed and shall have had an opportunity to act.
13.11 This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and supersedes all previous
agreement, understandings and negotiations, whether oral or written, with
respect to such subject matter.
<PAGE>
31
Executed and effective as of the date first set forth above.
N.V. ORGANON CORTEX PHARMACEUTICALS, INC.
By: ________________ By: _________________
Title: _____________ Title: ______________
By: ________________
Title: _____________
<PAGE>
26
EXHIBIT I
Cortex Compounds
[* PAGES 1-23 OMITTED AND FILED SEPARATELY WITH COMMISSION]
<PAGE>
12
4.1.4.2 In the event Unrestricted Research Collaboration Compounds after first
commercialization by Cortex and/or its sublicenses show a [*], Organon
shall grant Cortex the right and license, with the right to sublicense
to develop, have developed, use, have used, manufacture, have
manufactured, sell and have sold such Research Collaboration Compounds
for such use provided such use does not compete with Organon's core
business at the time Cortex or its sublicensee commences development
for such [*].
4.1.4.3 In the event Unrestricted Research Collaboration Compounds during
screening by Cortex and/or its sublicensees show a [*] Organon shall
consider in good faith to grant Cortex the right and license, with the
right to sublicense to develop, have developed, use, have used,
manufacture, have manufactured, sell and have sold such Research
Collaboration Compounds for such use. In the event Organon is willing
to grant such right and license the terms and conditions for such use
shall be agreed upon by and between Organon and Cortex at such time.
4.2 Organon Milestone Payments.
---------------------------
4.2.1 In consideration of the rights granted to Organon under Section 4.1.1
Organon shall pay Cortex [*] within 14 days after execution of this
Agreement.
Furthermore, the following milestone payments shall be made by Organon
to Cortex with respect to the Schizophrenia Field:
(i) [*] upon identification and selection of the first Development
Candidate; and
(ii) [*] for the first Development Candidate that enters into Phase II
Studies; and
(iii)[*] for the first Development Candidate to enter into Phase III
Studies: and
(iv) [*] upon successful registration of the first Product in either;
any country of the European Union, United States or Japan.
* CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
<PAGE>
15
5. Maintenance of Patents, Title to new inventions and patent rights
------------------------------------------------------------------
5.1 The Patents listed in Exhibit II shall be filed, prosecuted and
maintained by the University of California. In the event the University
of California does no longer want to apply for, prosecute and/or maintain
any of such Patents Cortex shall do so, whereby Cortex shall do its best
efforts to have the Patents assigned to Cortex. In the event Cortex no
longer wishes to do so or does not wish to file patents in certain
countries, it shall inform Organon of such fact and grant Organon the
right to do so whereby ownership of such Patents shall be assigned to
Organon provided such ownership has been assigned by the University of
California to Cortex.
5.2 Except for what has been agreed upon under Section 5.3, inventions and
discoveries made by inventors employed by Cortex shall be owned by
Cortex. Inventions and discoveries made by inventors employed by Organon
shall be owned by Organon. Inventions and discoveries made by both
inventors employed by Cortex and inventors employed by Organon shall be
jointly owned.
Each party shall provide the other party with any and all available
information and documentation needed to prepare, file, prosecute, re-
examine patent applications. Both parties shall refrain from any action
that might endanger possible patent rights arising from the Research.
5.3 Parties agree to decide upon ownership of patents on compounds and/or use
of compounds resulting from the Research in accordance with the
following:
Inventions and discoveries with respect to Cortex Compounds shall be
owned by Cortex.
Inventions and discoveries with respect to Organon Compounds shall be
owned by Organon.
Inventions and discoveries with respect to Research Collaboration
Compounds shall be owned by Organon.
<PAGE>
EXHIBIT II
Cortez Patents
University of California Patents
[*PAGES 1-2 OMITTED AND FILED SEPARATELY WITH COMMISSION]
<PAGE>
EXHIBIT III
Research Plan
[* PAGES 1-17 OMITTED AND FILED SEPARATELY WITH COMMISSION]
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF DECEMBER 31, 1998, AND THE RELATED STATEMETNS OF OPERATIONS AND CASH
FLOWS FOR THE SIX MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 426,101
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 464,648
<PP&E> 2,143,241
<DEPRECIATION> (1,588,069)
<TOTAL-ASSETS> 1,043,673
<CURRENT-LIABILITIES> 1,741,823
<BONDS> 974,472<F1>
0
70,905
<COMMON> 15,517
<OTHER-SE> (784,572)
<TOTAL-LIABILITY-AND-EQUITY> 1,043,673
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,135,517
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,219
<INCOME-PRETAX> (2,131,946)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,131,946)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,131,946)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
<FN>
<F1>PROMISSORY NOTE PAYABLE TO ALKERMES, INC. THIS AMOUNT IS INCLUDED IN CURRENT
LIABILITIES.
</FN>
</TABLE>
