<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 19, 1996.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CAMBRIDGE NEUROSCIENCE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 13-3319074
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
ONE KENDALL SQUARE, BUILDING 700, CAMBRIDGE, MASSACHUSETTS 02139 (617) 225-0600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ELKAN R. GAMZU
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CAMBRIDGE NEUROSCIENCE, INC.
ONE KENDALL SQUARE, BUILDING 700
CAMBRIDGE, MASSACHUSETTS 02139
(617) 225-0600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
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WILLIAM T. WHELAN, ESQ. LESLIE E. DAVIS, ESQ.
PALMER & DODGE LLP TESTA, HURWITZ & THIBEAULT, LLP
ONE BEACON STREET HIGH STREET TOWER
BOSTON, MASSACHUSETTS 02108 125 HIGH STREET
(617) 573-0100 BOSTON, MASSACHUSETTS 02110
(617) 248-7000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(1)(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $0.001 par value..... 2,300,000 shares $13.125 $30,187,500 $9,148.00
</TABLE>
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(1) Includes 300,000 shares which the Underwriters may purchase to cover
over-allotments, if any.
(2) Estimated solely for the purpose of determining the registration fee and
computed pursuant to Rule 457(c) and based on the average of the high and
low sales prices on December 16, 1996, as reported on the Nasdaq National
Market.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 19, 1996
COMPANY LOGO
2,000,000 SHARES
COMMON STOCK
All of the 2,000,000 shares of Common Stock being offered hereby are being
issued and sold by Cambridge NeuroScience, Inc. ("Cambridge NeuroScience" or the
"Company"). On December 18, 1996, the last reported sale price for the Common
Stock, as reported on the Nasdaq National Market, was $13.25 per share. See
"Price Range of Common Stock." The Common Stock of the Company is traded on the
Nasdaq National Market under the symbol "CNSI".
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
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<S> <C> <C> <C>
Per Share......................... $ $ $
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Total (2)......................... $ $ $
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</TABLE>
(1) Before deducting expenses payable by the Company estimated at $400,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 300,000 shares of Common Stock, solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions, and
Proceeds to Company will be $ , $ and $ ,
respectively.
------------------------
The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens &
Company"), San Francisco, California on or about , 1997.
ROBERTSON, STEPHENS & COMPANY PAINEWEBBER INCORPORATED
The date of this Prospectus is January , 1997.
<PAGE> 3
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). All such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and the Commission's Regional
Offices at 90 Devonshire Street, Suite 700, Boston, Massachusetts 02109, 7 World
Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material can also be obtained from the Public Reference Section
of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its public reference facilities at Boston,
Massachusetts, New York, New York and Chicago, Illinois at prescribed rates. In
addition, the aforementioned materials may also be inspected at the offices of
the Nasdaq National Market at 1735 K Street, N.W., Washington, D.C. 20006. The
Commission maintains a World-Wide Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's Web site is
http://www.sec.gov.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, filed with the Commission under the Exchange Act,
are hereby incorporated by reference into this Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996;
3. The Company's Current Reports on Form 8-K dated January 26, 1996,
February 7, 1996, March 6, 1996, March 14, 1996, March 28, 1996,
July 16, 1996, August 22, 1996, November 21, 1996 and December 18,
1996; and
4. The description of the Company's Common Stock contained in the
Registration Statement on Form 8-A, as filed with the Commission on
April 23, 1991, including any amendment or report filed for the
purpose of updating such description.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14, and 15(d) of the Exchange Act, after the date of this Registration
Statement and prior to the filing of a post-effective amendment that indicates
that all shares of Common Stock offered hereunder have been sold or which
deregisters all shares of Common Stock remaining unsold, shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of the
filing of such reports and documents. Any statement contained herein or in a
document incorporated by reference or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that the statement is modified or superseded by any
other subsequently filed document which is incorporated or is deemed to be
incorporated by reference herein. Any statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. Cambridge NeuroScience hereby undertakes to
provide without charge to each person, including any beneficial owner, to whom
this Prospectus has been delivered, on the written or oral request of such
person, a copy of any or all of the documents referred to above which have been
or may be incorporated into this Prospectus and deemed to be part hereof, other
than exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents. These documents are available upon
request from Harry W. Wilcox, III, Chief Financial Officer, Cambridge
NeuroScience, Inc., One Kendall Square, Building 700, Cambridge, Massachusetts
02139 (telephone: (617) 225-0600).
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
------------------------
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS OR THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN
THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH
RULE 10B-6A UNDER THE EXCHANGE ACT. SEE "UNDERWRITING."
2
<PAGE> 4
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SHARES OF COMMON STOCK OFFERED HEREBY, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY TO OR FROM ANY PERSON IN ANY JURISDICTION IN WHICH
IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
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PAGE
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Summary............................................................................... 4
Risk Factors.......................................................................... 6
Use of Proceeds....................................................................... 16
Dividend Policy....................................................................... 16
Price Range of Common Stock........................................................... 17
Capitalization........................................................................ 18
Dilution.............................................................................. 19
Selected Consolidated Financial Data.................................................. 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 21
Business.............................................................................. 25
Management............................................................................ 39
Principal Stockholders................................................................ 42
Description of Capital Stock.......................................................... 44
Underwriting.......................................................................... 46
Legal Matters......................................................................... 47
Experts............................................................................... 47
Additional Information................................................................ 47
Index to Consolidated Financial Statements............................................ F-1
</TABLE>
------------------------
CERESTAT[R] is a registered trademark of the Company assigned to Boehringer
Ingelheim International GmbH ("BI") under the terms of a collaborative
arrangement between the Company and BI. This Prospectus also contains trademarks
other than those of the Company.
3
<PAGE> 5
SUMMARY
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and Consolidated Financial Statements and
Notes thereto, appearing elsewhere in this Prospectus or incorporated by
reference herein.
THE COMPANY
Cambridge NeuroScience is a leading neuroscience company engaged in the
development of proprietary pharmaceuticals to treat severe disorders of, or
injuries to, the nervous system. The Company's product candidates and programs
include (i) ion-channel blockers for the treatment and prevention of brain
damage resulting from traumatic brain injury ("TBI"), stroke and surgery, as
well as for the treatment of certain forms of neuropathic pain, and (ii) growth
factors for the treatment of multiple sclerosis ("MS") and peripheral
neuropathies. CERESTAT[R], the Company's most advanced product candidate, is a
small molecule ion-channel blocker currently in Phase III clinical trials for
the treatment of both TBI and stroke.
Each year, approximately 500,000 individuals in the United States suffer
severe injuries to the head and spine and there are an additional 500,000
incidents of stroke. CERESTAT was effective in limiting brain damage in animal
models of stroke and has been evaluated in over 350 patients in a number of
Phase II clinical trials. To date, over 500 individuals have been treated with
CERESTAT and the drug has been found to be well tolerated in patients at dose
levels that the Company believes will be therapeutically active. The Phase III
clinical trials of CERESTAT are being managed by the Company and its
collaborative partner, Boehringer Ingelheim International GmbH ("BI"). The
Company is also developing other ion-channel blockers, including CNS 5161, for
the treatment of neuropathic pain, brain damage frequently associated with
cardiac surgery, migraine and epilepsy.
The Company's second principal drug program is focused on the development
of recombinant human Glial Growth Factor 2 ("rhGGF2") for the treatment of MS.
MS is a disease of the central nervous system that is characterized by chronic
inflammation and demyelination at multiple sites in the brain and spinal cord.
Approximately 350,000 people in the United States suffer from MS. In preclinical
studies, rhGGF2 has been shown in an animal model of MS to reduce the number of
relapses per animal. Cambridge NeuroScience is also investigating the potential
use of rhGGF2 as a treatment for additional neurological disorders, including
peripheral neuropathies and other degenerative diseases of the nervous system.
Peripheral neuropathies comprise a collection of disorders that are
characterized by the degeneration of sensory and/or motor nerves. More than one
million people in the United States suffer from peripheral neuropathies, the
majority of which are caused by diabetes and chemotherapy. In preclinical
studies, rhGGF2 has been shown to prevent degeneration associated with
peripheral neuropathies.
The Company's strategy includes forming collaborations with pharmaceutical
companies to assist in the development of its potential products, provide
capital for such development and share development risk. In March 1995, the
Company entered into a collaboration agreement with BI for the development and
commercialization of CERESTAT. In November 1996, the Company entered into a
collaboration agreement with an affiliate of Allergan Inc. ("Allergan") to
develop N-methyl D-aspartate ("NMDA") ion-channel blockers, sodium ion-channel
blockers and combination ion-channel blockers for the treatment of ophthalmic
disorders, including glaucoma.
Cambridge NeuroScience was incorporated in Delaware in 1985. The Company's
headquarters and principal research facilities are located at One Kendall
Square, Building 700, Cambridge, Massachusetts 02139, and its telephone number
is (617) 225-0600.
4
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company........ 2,000,000 shares
Common Stock Outstanding after the 17,000,703 shares(1)
Offering.................................
Use of Proceeds............................ For funding of clinical trials and other research and
development activities, and general corporate purposes.
See "Use of Proceeds."
Nasdaq National Market Symbol.............. CNSI
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- -----------------
1993 1994 1995 1995 1996
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................................... $ 417 $ 299 $ 8,218 $ 7,032 $ 1,897
Operating expenses:
Research and development..................... 12,763 12,722 13,850 10,412 9,748
General and administrative................... 3,488 2,863 2,158 1,685 1,874
-------- -------- ------- ------- -------
Total operating expenses.................. 16,251 15,585 16,008 12,097 11,622
-------- -------- ------- ------- -------
Loss from operations........................... (15,834) (15,286) (7,790) (5,065) (9,725)
Interest income, net........................... 365 401 736 499 822
-------- -------- ------- ------- -------
Net loss....................................... $(15,469) $(14,885) $(7,054) $(4,566) $(8,903)
======== ======== ======= ======= =======
Net loss per share............................. $ (1.79) $ (1.46) $ (0.59) $ (0.39) $ (0.65)
======== ======== ======= ======= =======
Weighted average shares outstanding............ 8,634 10,230 11,927 11,677 13,674
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------
ACTUAL AS ADJUSTED(2)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................... $ 27,337 $ 51,847
Total assets........................................................ 29,169 53,679
Accumulated deficit................................................. (85,558) (85,558)
Stockholders' equity................................................ 20,582 45,092
</TABLE>
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(1) Based on shares outstanding as of November 30, 1996. Excludes outstanding
options to purchase 1,461,925 shares of Common Stock at a weighted average
exercise price of $6.86 per share.
(2) Adjusted to reflect the sale by the Company of 2,000,000 shares of Common
Stock offered hereby at an assumed public offering price of $13.25 per share
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
Except as otherwise specified herein, all information in this Prospectus
assumes no exercise of the Underwriters' over-allotment option.
5
<PAGE> 7
RISK FACTORS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus.
In addition to the other information included or incorporated by reference
in this Prospectus, the following risk factors should be considered carefully in
evaluating the Company and its business before purchasing shares of the Common
Stock offered hereby.
UNCERTAINTIES RELATED TO CLINICAL TRIALS
Before obtaining regulatory approvals for the commercial sale of any of its
products under development, the Company must demonstrate through preclinical
studies and clinical trials that the product is safe and effective for use in
each target indication. The results from preclinical studies and early clinical
trials may not be predictive of results that will be obtained in large-scale
clinical trials, and there can be no assurance that clinical trials of the
Company's product candidates will demonstrate sufficient safety and efficacy to
obtain the requisite regulatory approvals or will result in marketable products.
Clinical trials are often conducted with patients that are critically ill.
During the course of treatment, these patients can die or suffer other adverse
medical effects for reasons that may not be related to the pharmaceutical agent
being tested but which can nevertheless affect clinical trial results. A number
of companies in the pharmaceutical industry have suffered significant setbacks
in advanced clinical trials, even after promising results in earlier trials. If
the Company's lead compound, CERESTAT, is not shown to be safe and effective in
clinical trials (including current Phase III clinical trials), the resulting
delays in developing other compounds and conducting related preclinical testing
and clinical trials would have a material adverse effect on the Company's
business, financial condition and results of operations.
The completion of clinical trials of the Company's product candidates may
be delayed by many factors and there can be no assurance that delays or
terminations will not occur. One such factor is the rate of enrollment of
patients, which generally varies throughout the course of a clinical trial and
which depends on the size of the patient population, the number of clinical
trial sites, the proximity of patients to clinical trial sites, the eligibility
criteria for the trial and the existence of competitive clinical trials. The
Company cannot control the rate at which patients present themselves for
enrollment, and there can be no assurance that the rate of patient enrollment
will be consistent with the Company's expectations or be sufficient to enable
clinical trials of the Company's product candidates to be completed in a timely
manner. The Company is aware of several other companies that are currently
conducting or preparing to conduct advanced clinical trials of products for the
treatment of TBI and stroke. To date, the Company has experienced delays in the
planned patient enrollment for its Phase III clinical trials of CERESTAT due, in
part, to the existence of these competing trials. Any continued delays in
patient enrollment may result in increased costs or regulatory filing delays, or
both. Any significant delays in, or termination of, clinical trials of the
Company's product candidates would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"-- Intense Competition and Risk of Technological Change."
CERESTAT is being tested in Phase III clinical trials for the treatment of
TBI and stroke. Currently, there are no NMDA ion-channel blockers approved by
the U.S. Food and Drug Administration ("FDA") for these indications. Several
large pharmaceutical companies have suspended or terminated clinical trials of
drug candidates, including NMDA antagonists, for stroke and TBI indications due
to lack of efficacy. The Company expects that it will be required to conduct an
additional Phase III clinical trial for stroke in addition to the one that is
currently underway. There can be no assurance that additional Phase III clinical
trials will not be required for TBI or stroke. In addition, rhGGF2 is a glial
growth factor, and there are no FDA-approved glial growth factors for the
treatment of MS. There can be no assurance that significant effects on the
outcome measures being used by the Company in clinical trials for CERESTAT or
any of the Company's other product candidates will be acceptable to regulatory
authorities, including the FDA, as the basis for marketing approval. In
addition, clinical trials may be terminated at any time for safety reasons or if
little or no efficacy is demonstrated on an interim basis.
6
<PAGE> 8
There can be no assurance that regulatory authorities will permit
additional clinical trials for CERESTAT or clinical trials for the Company's
other product candidates. Additional animal studies could be required to obtain
additional saftey data prior to commencing clinical trials of NMDA ion-channel
blockers for indications that are less life-threatening than TBI or stroke. If
trials are conducted, there can be no assurance that any of the Company's
product candidates will prove to be safe and efficacious or will receive
regulatory approvals. See "Business--Product Candidates" and "--Government
Regulation."
UNCERTAINTIES RELATED TO EARLY STAGE OF DEVELOPMENT; TECHNOLOGICAL UNCERTAINTIES
All of the Company's product candidates are in the research or development
stage, and all revenues to date have been generated from collaborative research
agreements, government grants and financing activities, or from interest income
earned on these funds. No revenues have been generated from product sales. There
can be no assurance that product revenues can be realized on a timely basis, if
ever.
Cambridge NeuroScience has not yet requested or received regulatory
approval for any product from the FDA or any other regulatory authority. There
can be no assurance that Cambridge NeuroScience or its strategic partners will
succeed in the development and marketing of any therapeutic product. To achieve
profitable operations, the Company must, alone or with others, successfully
identify, develop, introduce and market proprietary products. If potential
products are identified, they will require significant additional investment,
development, preclinical testing and clinical trials prior to potential
regulatory approval and commercialization. The Company is devoting its efforts
to the research and development of potential products based on NMDA ion-channel
blockers and other technology platforms. Neither the Company, nor to its
knowledge any other company, has successfully obtained marketing approval for a
product based on NMDA ion-channel blockers to treat either TBI or stroke.
The development of new pharmaceutical products is highly uncertain and
subject to a number of significant risks. Potential products that appear to be
promising at early stages of development may not reach the market for a number
of reasons. Potential products may be found to be ineffective or cause harmful
side effects during preclinical testing or clinical trials, fail to receive
necessary regulatory approvals, be difficult to manufacture on a large scale, be
uneconomical, fail to achieve market acceptance or be precluded from
commercialization by proprietary rights of third parties. CERESTAT has not been
proven safe and effective in humans. There can be no assurance that the
Company's product development efforts will be successfully completed, that
required regulatory approvals can be obtained or that any products, if
introduced, will be successfully marketed or achieve customer acceptance.
Commercial availability of any Cambridge NeuroScience products, including
CERESTAT, is not expected for a number of years, if at all. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Product Candidates."
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
As of September 30, 1996, the Company had an accumulated deficit of $85.6
million. The Company anticipates that it will incur substantial losses in the
future, potentially greater than losses incurred in prior years. There can be no
assurance that the Company's product candidates will be successfully developed
or that its products, if successfully developed, will generate revenues
sufficient to enable the Company to earn a profit. Cambridge NeuroScience
expects to incur substantial additional operating expenses over the next several
years as its research, development and clinical trial activities increase. To
the extent that the Company is unable to obtain additional third-party funding
for expenses, the Company expects that increased expenses will result in
increased losses from operations. The Company's ability to achieve profitability
depends in part on the ability of the Company to enter into agreements for the
development and commercialization of the Company's products. There can be no
assurance that Cambridge NeuroScience or its strategic partners will obtain
required regulatory approvals and successfully identify, test, manufacture and
market any product candidates, or that the Company will ever achieve product
revenues or profitability. Cambridge NeuroScience does not expect to generate
revenues from the sale of products, if any, for several years. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
7
<PAGE> 9
DEPENDENCE ON STRATEGIC ALLIANCES; POTENTIAL CONFLICTS OF INTEREST
The Company's strategy for research, development and commercialization of
its product candidates includes the establishment of various corporate
collaborations, licensing agreements and other arrangements. In some cases, the
Company will be dependent upon these outside parties to conduct preclinical
testing and clinical trials and to provide adequate funding for the Company's
development programs. To date, the Company has entered into two collaborative
arrangements: one with BI for the development and commercialization of CERESTAT
and one with Allergan for the development of NMDA ion-channel blockers, sodium
ion-channel blockers and combination ion-channel blockers for the treatment of
ophthalmic diseases, including glaucoma. A substantial portion of the payments
to be received by the Company from BI and Allergan are dependent on the Company
achieving certain program development milestones. There can be no assurance that
such milestones will be achieved on a timely basis, if ever. There can be no
assurance that the Company will be able to maintain existing collaboration
agreements, negotiate collaborative arrangements in the future on acceptable
terms, if at all, or that any such collaborative arrangements will be
successful. To the extent that the Company is not able to maintain or establish
such arrangements, the Company would be required to undertake product
development and commercialization activities at its own expense, which would
increase the Company's capital requirements or require the Company to limit the
scope of its development and commercialization activities. In addition, the
Company may encounter significant delays in introducing its products into
certain markets or find that the development, manufacture or sale of its
products in such markets is adversely affected by the absence of such
collaborative agreements. While the Company believes that BI, Allergan and other
potential strategic partners will have an economic motivation to succeed in
performing their obligations under collaboration arrangements with the Company,
the amount and timing of funds and other resources to be devoted under such
arrangements will be controlled by such other parties and would be subject to
financial or other difficulties that may befall such other parties.
The Company cannot control the amount and timing of resources which its
strategic partners devote to the Company's programs or potential products, which
may vary because of factors unrelated to the potential products. If any of the
Company's strategic partners breach or terminate their agreements with the
Company or otherwise fail to conduct their collaborative activities in a timely
manner, the preclinical or clinical development or commercialization of product
candidates or research programs may be delayed, and the Company will be required
to devote additional resources to product development and commercialization or
terminate certain development programs. Under the Company's collaboration
agreement with BI, BI has certain termination rights including the right in its
sole discretion to terminate its agreement upon 90 days written notice. Allergan
may also terminate its agreement with the Company for breach and under certain
other circumstances upon six months notice. The termination of the BI or
Allergan agreement or of other collaborative arrangements which the Company may
in the future enter into would have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that disputes will not arise in the future with respect to the
ownership of rights to any technology developed with third parties. These and
other possible disagreements between collaborators and the Company could lead to
delays in the collaborative research, development or commercialization of
certain product candidates or could require or result in litigation or
arbitration, which would be time-consuming and expensive, and would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Cambridge NeuroScience's strategic partners may develop, either alone or
with others, products that compete with the development and marketing of the
Company's products. For example, the Company is aware that BI is engaged in
advanced clinical trials of products for the treatment of stroke, including
enlimomab and tPA, the latter in conjunction with Genentech, Inc. Competing
products, either developed by the strategic partners or to which the strategic
partners have rights, may result in the Company's partners withdrawing research,
development or marketing support with respect to all or a portion of the
Company's technology, which would have a material adverse effect on the
Company's business, financial condition and results of operation. See
"Business--Strategic Alliances" and "--Competition."
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<PAGE> 10
NEED FOR FUTURE FUNDING; UNCERTAINTY OF ACCESS TO CAPITAL
Cambridge NeuroScience will require substantial additional funding in order
to continue research, product development, preclinical testing and clinical
trials of its product candidates. The Company will also require additional
funding for operating expenses, the pursuit of regulatory approvals for its
product candidates and to establish marketing and sales capabilities. The
Company believes that its existing capital resources, including the proceeds of
this offering and interest earned thereon, together with anticipated funding of
estimated reimbursable costs pursuant to collaborative agreements, will be
sufficient to support its current and planned operations at least through the
next 18 months. The Company's future capital requirements will depend on many
factors, including continued scientific progress in its research and development
programs, the size and complexity of these programs, progress with preclinical
testing and clinical trials, the time and costs involved in obtaining regulatory
approvals, the costs involved in filing, prosecuting and enforcing patent
claims, competing technological and market developments, the establishment of
additional collaborative arrangements, the cost of manufacturing arrangements,
commercialization activities and the cost of product in-licensing and strategic
acquisitions, if any. There can be no assurance that the Company's cash reserves
and other liquid assets, including the net proceeds of this offering and funding
that may be received from the Company's strategic partners and interest income
earned thereon, will be adequate to satisfy its capital and operating
requirements.
Cambridge NeuroScience may seek additional funding through arrangements
with strategic collaborators and through public or private sales of the
Company's securities, including equity securities. There can be no assurance,
however, that additional funding will be available on reasonable terms, if at
all. Any additional equity financings would be dilutive to the Company's
stockholders. If adequate funds are not available, Cambridge NeuroScience may be
required to curtail significantly or terminate one or more of its research and
development programs and/or obtain funds through arrangements with collaborative
partners or others that may require Cambridge NeuroScience to relinquish rights
to certain of its technologies or product candidates. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
INTENSE COMPETITION AND RISK OF TECHNOLOGICAL CHANGE
The fields in which Cambridge NeuroScience is involved are characterized by
rapid technological progress. New developments are expected to continue at a
rapid pace in both industry and academia. There are many companies, both public
and private, including large pharmaceutical companies, chemical companies and
specialized genetic engineering companies, engaged in developing products
competitive with products under development by the Company. Many of these
companies have greater capital, human resources and research and development,
manufacturing and marketing experience than Cambridge NeuroScience. Such
companies may succeed in developing products that are more effective or less
costly than any that may be developed by Cambridge NeuroScience and may also
prove to be more successful than Cambridge NeuroScience in production and
marketing. Competition may increase further as a result of potential advances in
the commercial applicability of biotechnology and greater availability of
capital for investment in these fields. In addition, academic, government and
industry-based research is intense, resulting in considerable competition in
obtaining qualified research personnel, submitting patent filings for protection
of intellectual property rights and establishing corporate strategic alliances.
There can be no assurance that research, discoveries and commercial developments
by others will not render any of the Company's programs or potential products
noncompetitive.
In July 1996, the FDA approved the use of tissue plasminogen activator
("tPA") for the treatment of patients who had suffered a stroke within the
preceding three hours and for whom a CT scan showed no evidence of hemorrhage.
The Company is aware of three therapeutics currently being marketed to treat MS,
which are Betaseron[R] (Chiron Corporation/Schering AG), Avonex[R] (Biogen,
Inc.) and Copaxone[R] (Teva Pharmaceutical Industries Ltd./Hoechst Marion
Roussel Ltd.). In addition, a number of companies are developing other drugs to
treat TBI and/or stroke. Competition for CERESTAT will come from other
inhibitors of responses mediated via specific ion channels. In particular,
Sandoz AG is preparing to conduct a Phase III clinical trial of D-CPPene, which
is being developed for TBI only. Lubeluzole (Janssen
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<PAGE> 11
Pharmaceutica, N.V., a subsidiary of Johnson & Johnson), currently in Phase III
clinical trials, is being developed for stroke. Fosphenytoin (Warner-Lambert
Company), currently in Phase III clinical trials, and SNX-111 (Neurex
Corporation), currently in Phase II clinical trials, are being developed for
TBI. Citicoline[R] (Interneuron Pharmaceuticals, Inc.), currently in a Phase III
clinical trial, and enlimomab (BI), currently in a Phase III clinical trial, are
being developed for stroke. There can be no assurance that the introduction of
these or other products that the Company is unaware of will not have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company will, for the foreseeable future, rely on its strategic
partners for certain preclinical evaluation and clinical development of its
product candidates and manufacturing and marketing of any products. In addition,
the Company relies on its strategic partners, in part, for support in its drug
discovery operations. Generally, the Company's agreements with its strategic
partners do not prohibit the strategic partners from engaging in competitive
activities with the Company. The pharmaceutical companies with which the Company
has collaborations are in some cases attempting to develop other products to
treat diseases within the fields of the collaborations with the Company. Any
product candidate of the Company, therefore, may be subject to competition with
a potential product under development by the pharmaceutical company with which
the Company is collaborating in connection with such product candidate.
Biotechnology and related pharmaceutical technology have undergone rapid
and significant change. The Company expects the technology associated with the
Company's research and development will continue to develop rapidly, and the
Company's future success will depend in large part on its ability to maintain a
competitive position with respect to this technology. Rapid technological
development by the Company or others may result in compounds, products or
processes becoming obsolete before the Company recovers any expenses it incurs
in connection with developing such products. See "Business--Competition."
PATENT AND LICENSE UNCERTAINTIES
Proprietary rights relating to the Company's products will be protected
from unauthorized use by third parties only to the extent that they are covered
by valid and enforceable patents or are maintained as trade secrets, and to the
extent that the Company diligently enforces its rights against infringement of
its patent rights and against misappropriation of its trade secrets and
proprietary information. The biotechnology and pharmaceutical industries place
considerable importance on obtaining patent and trade secret protection for new
technologies, products and processes, and the Company's success will depend, in
part, on its ability to obtain patent protection for its products and
manufacturing processes, preserve its trade secrets and operate without
infringing the proprietary rights of third parties. Some of the technology that
may be used in the Company's products may not be covered by any patent or patent
application. In instances where the Company's products are not covered by valid
and enforceable patents, there can be no assurance that third parties will not
be able to market similar or related products, nor can there be any assurance
that patent or other proprietary rights held by the Company with respect to
these products will afford commercially significant protection. In addition,
there can be no assurance that confidentiality arrangements to which the Company
is a party will be effective in protecting the Company's confidential
information or trade secrets.
There can be no assurance that any patent applications relating to the
Company's products will be filed in the future or that any currently pending
applications will issue on a timely basis, if ever. Since patent applications in
the United States are maintained in secrecy until patents issue and since
publication of discoveries in the scientific or patent literature often lag
behind actual discoveries, the Company cannot be certain that it was the first
to make the inventions covered by each of its pending patent applications or
that it was the first to file patent applications for such inventions. Even if
patents are issued, the degree of protection afforded by such patents will
depend upon the scope, validity and enforceability of the claims obtained in
such patents and the Company's willingness and financial ability to enforce
and/or defend them. The patent position of biotechnology and pharmaceutical
firms is often highly uncertain and usually involves complex legal and factual
questions. Moreover, no consistent policy has emerged in the United States and
in many other countries regarding the breadth of claims allowed in biotechnology
patents. The Company could incur substantial costs in defending itself in suits
brought against it by others or in suits in which the Company may assert its
patents against others. If the outcome of any such litigation is adverse to the
Company, the
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<PAGE> 12
Company's business, financial condition and results of operations could be
adversely affected. If competitors of the Company prepare and file patent
applications in the United States that claim technology also claimed by the
Company, the Company may be required to participate in interference proceedings
declared by the U.S. Patent and Trademark Office to determine priority of
invention, which could result in substantial cost to the Company. Patents
granted to the Company in certain foreign countries may be subject to opposition
proceedings brought by third parties. The Company may incur substantial costs
defending such proceedings. There can be no assurance that the Company would
prevail in any such proceedings or that such proceedings would not result in a
material adverse effect on the Company's business, financial condition or
results of operations. In addition, patents blocking the Company's manufacture,
use or sale of its products could be issued to third parties in the United
States or foreign countries. The issuance of blocking patents or an adverse
outcome in an interference or opposition proceeding, could subject the Company
to significant liabilities to third parties and require the Company to license
disputed rights from third parties or cease using the technology. There can be
no assurance that such license would be available on commercially acceptable
terms, if at all.
There are patents held by third parties that relate to the manufacture,
development and use of the Company's product candidates for which the Company
has licenses. There can be no assurance that the Company will not in the future
require licenses to additional patents, that such licenses will be available on
commercially reasonable terms, if at all, that existing or future licenses will
not be terminated or that any such termination or failure to obtain a license
will not have a material adverse effect on the Company's business, financial
condition or results of operations.
The Company is also aware of a third-party patent and pending patent
applications in the United States and corresponding patent applications pending
in some foreign countries that, if issued and valid, may be construed to cover
aspects of the Company's rhGGF2 product candidates. There can be no assurance
that the claims of the issued U.S. patents are not infringed, and that the
claims of future patents issuing from the patent applications, if any, will not
be infringed by the Company's proposed manufacture, use or sale of products
based on the rhGGF2 technology. Furthermore, there can be no assurance that
Cambridge NeuroScience would prevail in any legal action seeking damages or
injunctive relief for infringement of the existing patent or any patent that
might issue from such applications or that any license required under any such
patent would be available or, if available, would be available on commercially
reasonable terms. Failure to obtain a required license or to successfully
establish non-infringement of, or the invalidity or unenforceability of, such
third-party patents could preclude the manufacture, marketing, sale and use of
the Company's products based on such rhGGF2 technology.
NO MANUFACTURING EXPERIENCE; RELIANCE ON THIRD-PARTY MANUFACTURING
The Company has no experience in manufacturing products for commercial
purposes and does not have manufacturing facilities. Consequently, the Company
is dependent on contract manufacturers for the production of products for
development and commercial purposes. In the event that the Company is unable to
obtain or retain third-party manufacturing arrangements, it will not be able to
commercialize its products as planned which would have a material adverse effect
on the Company's business, financial condition and results of operations. The
manufacture of the Company's products for clinical trials and commercial
purposes is subject to current Good Manufacturing Practices ("GMP") regulations
promulgated by the FDA. There can be no assurance that the Company will be able
to enter into agreements for the manufacture of future products with
manufacturers whose facilities and procedures comply with GMP and other
regulatory requirements. The Company does not intend to develop or acquire
facilities for the manufacture of drug products for clinical trials or
commercial purposes, and has been, and will remain, dependent on its strategic
partners or third parties for the manufacture of product candidates for
preclinical, clinical and commercial purposes.
Under the terms of its collaboration agreement for CERESTAT with BI, the
Company has retained worldwide manufacturing rights, subject to BI's option to
acquire such rights in exchange for increased royalty payments. Although the
Company had an agreement with a third-party manufacturer to provide quantities
of CERESTAT sufficient to complete the development program for this product, the
Company currently has no agreement for the manufacture of CERESTAT for
commercial purposes. The Company's current dependence
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<PAGE> 13
upon others for the manufacture of its products may adversely affect its profit
margin, if any, on the sale of future products and the Company's ability to
develop and deliver products on a timely and competitive basis. See
"Business--Manufacturing."
UNCERTAINTIES RELATED TO MARKETING AND SALES
Under its collaboration agreement for CERESTAT with BI, the Company has
granted exclusive marketing rights to BI in Europe and other geographic regions
in return for royalties on product sales. If BI terminates the agreement or
fails to market CERESTAT successfully, the Company's business, financial
condition and results of operations will be adversely affected.
Under its agreement with BI, Cambridge NeuroScience has an option to
co-promote CERESTAT in the United States. The Company has notified BI of its
intent to exercise this option. Co-promotion of CERESTAT would require the
Company to develop its own sales force to promote CERESTAT or make arrangements
with a third party to do so. Cambridge NeuroScience currently has no experience
in marketing or selling pharmaceutical products. In order to achieve commercial
success for any approved product, Cambridge NeuroScience must either develop a
marketing and sales force or, where appropriate or permissible, enter into
arrangements with third parties to market and sell its products. There can be no
assurance that Cambridge NeuroScience will successfully develop marketing and
sales experience or that it will be able to enter into marketing and sales
agreements with others on acceptable terms, if at all. If the Company develops
its own marketing and sales capability, it will compete with other companies
that currently have experienced and well funded marketing and sales operations.
To the extent that the Company enters into co-promotion or other sales and
marketing arrangements with other companies, any revenues to be received by
Cambridge NeuroScience will be dependent on the efforts of others and there can
be no assurance that their efforts will be successful. See "Business--Strategic
Alliances" and "--Marketing and Sales."
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
Prior to marketing, any product developed by the Company must undergo an
extensive regulatory approval process. This regulatory process, which includes
preclinical testing and clinical trials, and may include post-marketing
surveillance, of each compound to establish its safety and efficacy can take
many years and require the expenditure of substantial resources. Data obtained
from preclinical and clinical activities are susceptible to varying
interpretations which could delay, limit or prevent regulatory approval. In
addition, delays or rejections may be encountered based upon changes in FDA
policy for drug approval during the period of product development and FDA
regulatory review of each submitted new drug application ("NDA"). Similar delays
may also be encountered in foreign countries. There can be no assurance that
regulatory approval will be obtained for any products developed by the Company.
Moreover, regulatory approval may entail limitations on the indicated uses
of the drug. Further, even if regulatory approval is obtained, a marketed
product and its manufacturer are subject to continuing review. Discovery of
previously unknown problems with a product or manufacturer may have a material
adverse effect on the Company's business, financial condition and results of
operations, including withdrawal of the product from the market. Violations of
regulatory requirements at any stage of the regulatory process may result in
various adverse consequences, including the FDA's delay in approving or its
refusal to approve a product, withdrawal of an approved product from the market
and the imposition of criminal penalties against the manufacturer and
NDA-holder. The Company has not had any product approved for commercialization
in the United States or elsewhere. No assurance can be given that the Company
will be able to obtain FDA approval for any products. Failure to obtain
requisite regulatory approvals or failure to obtain approvals of the scope
requested will delay or preclude the Company or its licensees or strategic
partners from marketing the Company's products or limit the commercial use of
the products and will have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Government
Regulation."
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UNCERTAINTY OF PHARMACEUTICAL PRICING AND REIMBURSEMENT
The Company's successful commercialization of its pharmaceutical products
will depend in part on the extent to which reimbursement for the costs of such
products and related treatments will be available from government health
administration authorities, private health insurers and other third-party
payors. Significant uncertainty exists as to the reimbursement status of newly
approved health care products, and third-party payors are increasingly
challenging the prices charged for medical products and services. There can be
no assurance that any third-party insurance coverage will be available to
patients for any products developed by the Company. Government and other
third-party payors are increasingly attempting to contain health care costs by
limiting both coverage and the level of reimbursement for new therapeutic
products, and by refusing, in some cases, to provide coverage for uses of
approved products for disease indications for which the FDA has not granted
marketing approval. In particular, the Company anticipates that a large
percentage of patients who receive CERESTAT for the treatment of stroke will be
covered by Medicare and be subject to limitations on reimbursement. If adequate
coverage and reimbursement levels are not provided by government and third-party
payors for the Company's products, the market acceptance of these products would
be adversely affected, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's business may be materially adversely affected by the
continuing efforts of governmental and third-party payors to contain or reduce
the costs of health care through various means. For example, in certain foreign
markets, pricing or profitability of prescription pharmaceuticals is subject to
government control. In the United States, there have been, and the Company
expects that there will continue to be, a number of federal and state proposals
to implement similar government control. In addition, an increasing emphasis on
managed care in the United States has and will continue to put pressure on
pharmaceutical pricing. Such initiatives and proposals, if adopted, could
decrease the price that the Company receives for any products it may develop and
sell in the future and thereby have a material adverse effect on the Company's
business, financial condition and results of operations. Further, to the extent
that such proposals or initiatives have a material adverse effect on other
pharmaceutical companies that are collaborators or prospective collaborators for
certain of the Company's potential products, the Company's ability to
commercialize its potential products may be adversely affected.
POTENTIAL PRODUCT LIABILITY; UNCERTAINTIES RELATED TO INSURANCE
The use of any of the Company's potential products in clinical trials and
the sale of any approved products, including the testing and commercialization
of CERESTAT, may expose the Company to liability claims resulting from the use
of products or product candidates. These claims might be made directly by
consumers, pharmaceutical companies or others. The Company maintains product
liability insurance coverage for claims arising from the use of its products in
clinical trials in the amount of $5.0 million per occurrence and $5.0 million in
aggregate. However, coverage is becoming increasingly expensive, and no
assurance can be given that the Company will be able to maintain insurance at a
reasonable cost or in sufficient amounts to protect the Company against losses
due to liability that could have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that the Company will be able to obtain commercially reasonable
product liability insurance for any product approved for marketing in the future
or that insurance coverage and the resources of the Company would be sufficient
to satisfy any liability resulting from product liability claims. A successful
product liability claim or series of claims brought against the Company would
have a material adverse effect on its business, financial condition and results
of operations.
VOLATILITY OF COMMON STOCK PRICE
The market prices for securities of biotechnology and pharmaceutical
companies, including Cambridge NeuroScience, have historically been highly
volatile, and the market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. Factors such as fluctuations in the Company's operating
results, announcements of technological innovations or new therapeutic products
by the Company or others, clinical trial results, developments
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<PAGE> 15
concerning agreements with collaborators, governmental regulation, developments
in patent or other proprietary rights, public concern as to the safety of
products developed by the Company or others, future sales of substantial amounts
of Common Stock by existing stockholders and general market conditions can have
an adverse effect on the market price of the Common Stock. The realization of
any of the risks described in these "Risk Factors" could have a dramatic and
adverse impact on market price. See "Price Range of Common Stock."
CONCENTRATION OF OWNERSHIP
Directors and officers and stockholders affiliated with members of the
Board of Directors of the Company beneficially own over 48% of the outstanding
Common Stock and will beneficially own approximately 43% upon completion of this
offering. These stockholders effectively would be able to control the election
of the Company's Board of Directors and significantly influence corporate
actions. See "Principal Stockholders."
DEPENDENCE ON QUALIFIED PERSONNEL
Because of the specialized scientific nature of the Company's business,
Cambridge NeuroScience is highly dependent upon its ability to continue to
attract and retain qualified scientific and technical personnel. There is
intense competition for qualified personnel in the areas of the Company's
activities and there can be no assurance that Cambridge NeuroScience will be
able to continue to attract and retain the qualified personnel necessary for the
development of its business. Loss of the services of, or failure to recruit, key
scientific and technical personnel would be significantly detrimental to the
Company's product development programs and could have a material adverse effect
on the Company's business, financial condition and results of operations.
POTENTIAL ADVERSE EFFECTS OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial amount of Common Stock in the public market
following this offering could adversely affect the market price of the Company's
Common Stock. Upon completion of this offering, the Company will have 17,000,703
shares of Common Stock outstanding assuming no exercise of options outstanding
as of November 30, 1996. As of November 30, 1996, 1,461,925 shares of Common
Stock were issuable upon the exercise of outstanding stock options. Most of such
shares will be freely tradeable upon issuance. Future sales of Common Stock by
the Company or existing stockholders, or the perception that sales could occur,
could adversely affect the market price of the Common Stock. The Company's
officers and directors and certain significant stockholders, who together own or
have the right to acquire an aggregate of 7,927,758 shares of Common Stock, have
agreed not to sell or otherwise dispose of any shares of Common Stock owned by
them prior to 90 days from the date of this Prospectus without the prior written
consent of Robertson, Stephens & Company. Robertson, Stephens & Company may, in
its sole discretion and at any time without notice, release all or any portion
of the shares subject to these lock-up agreements.
Additional shares held by existing stockholders will become eligible for
sale from time to time in the future. The holders of 5,962,689 shares of Common
Stock are entitled to certain demand and/or piggyback registration rights with
respect to the registration of such shares under the Securities Act of 1933, as
amended (the "Securities Act"). If such holders, by exercising their demand or
piggyback rights, cause a large number of securities to be registered and sold
in the public market, such sales could have an adverse effect on the market
price for the Company's Common Stock. If the Company were to include in
Company-initiated registrations shares of Common Stock held by such holders
pursuant to the exercise of their piggyback registration rights, such sales may
have an adverse effect on the Company's ability to raise needed capital. See
"Description of Capital Stock--Registration Rights" and "Underwriting."
ANTITAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation authorizes the Board of
Directors to issue, without stockholder approval, up to 10,000,000 shares of
preferred stock with voting, conversion and other rights and preferences that
could adversely affect the voting power or other rights of the holders of Common
Stock. The
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issuance of preferred stock or rights to purchase preferred stock could be used
to discourage an unsolicited acquisition proposal. In addition, the possible
issuance of preferred stock could discourage a proxy contest, make more
difficult the acquisition of a substantial block of the Company's Common Stock
or limit the price that investors might be willing to pay for shares and the
Company's Common Stock. In addition, certain provisions of the Delaware
corporate law may have the effect of deterring hostile takeovers or delaying or
preventing changes in the control or management of the Company, including
transactions in which stockholders might otherwise receive a premium for their
shares over the then current market prices. See "Description of Capital
Stock--Preferred Stock" and "--Delaware Takeover Statute."
DILUTION
Investors purchasing shares of Common Stock in this offering will incur
immediate and substantial dilution. Based on the net tangible book value of the
Common Stock as of September 30, 1996, dilution in net tangible book value to
investors purchasing shares of Common Stock in this offering would be $10.57 per
share. In addition, investors purchasing shares of Common stock in this offering
will incur additional dilution to the extent outstanding options are exercised.
See "Dilution."
ABSENCE OF DIVIDENDS
The Company has never declared nor paid cash dividends on any of its
capital stock. The Company currently intends to retain its earnings for future
growth and therefore does not anticipate paying cash dividends in the
foreseeable future.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered hereby will be approximately $24.5 million ($28.2 million
if the Underwriters' over-allotment option is exercised in full), based on the
assumed public offering price of $13.25, after underwriting discounts,
commissions and estimated offering expenses.
The Company estimates that the majority of the net proceeds of this
offering will be used to fund the Company's clinical trials and other research
and product development activities and the balance will be used for general
corporate purposes. Such general corporate purposes may include acquisitions of
other businesses, technologies or products complementary to those of the
Company, although the Company currently has no agreements or commitments in this
regard. In conjunction with the collaboration with BI, the Company may
co-promote CERESTAT in the United States, and some of the proceeds may be used
to that end. The amounts and timing of the Company's actual expenditures will
depend upon a number of factors, including the scope and results of preclinical
studies and clinical trials, the progress of other research and development
activities, the cost, timing and outcomes of regulatory review, the rate of
technological advances, determinations as to the commercial potential of the
Company's products under development, administrative and legal expenses, the
status of competitive products, the establishment of manufacturing capacity or
third-party manufacturing arrangements, the establishment of collaborative
arrangements with other companies and the availability of other financing. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The Company will require substantial additional funds to conduct its
operations in the future. The Company believes that its existing capital
resources, including the proceeds of this offering and interest earned thereon,
together with anticipated funding of estimated reimbursable costs pursuant to
collaborative agreements, will be sufficient to support its current and planned
operations at least through the next 18 months. Pending application of the
proceeds as described above, the Company intends to invest the net proceeds of
this offering in investment-grade, interest-bearing instruments.
DIVIDEND POLICY
The Company has never declared nor paid cash dividends on any of its
capital stock. The Company currently intends to retain its earnings for future
growth and therefore does not anticipate paying cash dividends in the
foreseeable future.
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PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "CNSI". The following table sets forth, for the periods indicated,
the range of high and low sale prices for the Company's Common Stock on the
Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
---- -----
<S> <C> <C>
1994
First Quarter...................................................... $8 3/4 $7 1/4
Second Quarter..................................................... 7 3/4 4 1/2
Third Quarter...................................................... 5 1/2 3 1/4
Fourth Quarter..................................................... 5 1/2 3 3/64
1995
First Quarter...................................................... 6 4
Second Quarter..................................................... 6 5/8 4 3/8
Third Quarter...................................................... 14 5 1/2
Fourth Quarter..................................................... 10 3/4 7 1/8
1996
First Quarter...................................................... 14 3/4 8 1/2
Second Quarter..................................................... 13 1/2 7 3/8
Third Quarter...................................................... 9 1/4 6 3/4
Fourth Quarter (through December 18)............................... 15 1/4 8 1/2
</TABLE>
As of November 30, 1996, there were 172 holders of record of the Common
Stock. On December 18, 1996, the last sale price reported on the Nasdaq National
Market for the Company's Common Stock was $13.25 per share.
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<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996, and as adjusted reflect the receipt of the estimated
proceeds from the sale of 2,000,000 shares of Common Stock offered hereby at an
assumed public offering price of $13.25 per share and the application of the
estimated net proceeds therefrom:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(in thousands)
<S> <C> <C>
Stockholders' equity:
Preferred Stock, $0.01 par value, 10,000,000
shares authorized; none issued................................. $ -- $ --
Common Stock, $0.001 par value, 30,000,000
shares authorized; 14,813,682 shares
outstanding; 16,813,682 shares outstanding,
as adjusted (1)................................................ 15 17
Additional paid-in capital........................................ 106,125 130,633
Accumulated deficit............................................... (85,558) (85,558)
-------- --------
Total stockholders' equity................................ 20,582 45,092
-------- --------
Total capitalization................................. $ 20,582 $ 45,092
======== ========
</TABLE>
- ---------------
(1) Excludes options outstanding at September 30, 1996 to purchase 1,472,282
shares of Common Stock at a weighted average exercise price of $6.85 per
share.
18
<PAGE> 20
DILUTION
The net tangible book value of the Company as of September 30, 1996 was
$20.6 million or $1.39 per share of Common Stock. After giving effect to the
sale by the Company of 2,000,000 shares of Common Stock offered hereby, at an
assumed public offering price of $13.25 per share and the receipt of the net
proceeds therefrom (after deducting the estimated underwriting discounts and
commissions and offering expenses), the pro forma net tangible book value of the
Common Stock as of September 30, 1996 would have been approximately $45.1
million, or $2.68 per share. This represents an immediate increase in net
tangible book value of $1.29 per share to existing stockholders and an immediate
dilution in net tangible book value of $10.57 per share to new investors
purchasing shares at the assumed public offering price. The following table
illustrates the dilution per share as described above:
<TABLE>
<S> <C> <C>
Assumed public offering price per share(1).................. $13.25
Net tangible book value before the offering............... $1.39
Increase attributable to new investors in the offering.... 1.29
-----
Pro forma net tangible book value after the offering(2)..... $ 2.68
------
Dilution new investors...................................... $10.57
======
</TABLE>
- ---------------
(1) Before deduction of the Underwriters' discounts and commissions and
estimated offering expenses payable by the Company.
(2) Net tangible book value per share is equal to total tangible assets of the
Company less total liabilities divided by the number of shares of Common
Stock outstanding.
19
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected financial data for Cambridge
NeuroScience. The selected financial data as of December 31, 1991, 1992, 1993,
1994 and 1995, and for each of the five years in the period ended December 31,
1995, are derived from the consolidated financial statements of the Company
which have been audited by Ernst & Young LLP, independent auditors. The selected
financial data set forth below as of September 30, 1996 and for the nine month
periods ended September 30, 1996 and 1995 are derived from the unaudited
consolidated financial statements of the Company, included elsewhere in this
Prospectus. The unaudited consolidated financial data have been prepared on a
basis consistent with the audited financial statements and, in the opinion of
the management, include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial condition and results of
operations for the periods presented. The results for the nine months ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996. This selected financial data
should be read in conjunction "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with the consolidated financial
statements of the Company and related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(in thousands, except per share data)
STATEMENT OF OPERATIONS
DATA:
Revenues................... $ 1,085 $ 647 $ 417 $ 299 $ 8,218 $ 7,032 $ 1,897
Operating expenses:
Research and
development........... 7,506 12,193 12,763 12,722 13,850 10,412 9,748
General and
administrative........ 2,315 3,047 3,488 2,863 2,158 1,685 1,874
------- -------- -------- -------- ------- ------- -------
Total operating
expenses............ 9,821 15,240 16,251 15,585 16,008 12,097 11,622
------- -------- -------- -------- ------- ------- -------
Loss from operations....... (8,736) (14,593) (15,834) (15,286) (7,790) (5,065) (9,725)
Interest income, net....... 784 1,153 365 401 736 499 822
------- -------- -------- -------- ------- ------- -------
Net loss................... $ (7,952) $(13,440) $(15,469) $(14,885) $ (7,054) $(4,566) $(8,903)
======= ======== ======== ======== ======= ======= =======
Net loss per share (1)..... $ (1.26) $ (1.56) $ (1.79) $ (1.46) $ (0.59) $ (0.39) $ (0.65)
======= ======== ======== ======== ======= ======= =======
Weighted average shares
outstanding.............. 6,332 8,618 8,634 10,230 11,927 11,677 13,674
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
(in thousands)
BALANCE SHEET DATA:
Cash and cash
equivalents.............. $ 37,212 $ 25,077 $ 7,907 $ 6,269 $ 21,937 $ 27,337
Total assets............... 39,781 28,455 11,159 9,330 24,321 29,169
Long term debt, less
current portion.......... -- 1,667 -- -- -- --
Accumulated deficit........ (25,807) (39,248) (54,716) (69,601) (76,655) (85,558)
Stockholders' equity....... 36,320 22,970 7,644 6,181 19,528 20,582
</TABLE>
- ---------------
(1) See Note A of Notes to Consolidated Financial Statements for explanation of
computation of net loss per share.
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere in
this Prospectus.
OVERVIEW
Since inception, the Company has been primarily engaged in research and
development. To date, Cambridge NeuroScience has not received any revenue from
the sale of products. The Company has not been profitable since inception and
expects to incur substantial operating losses for at least the next several
years.
Cambridge NeuroScience has financed its operations through proceeds from an
initial public offering and a follow-on public offering in 1991, various private
placements of preferred equity securities prior to the initial public offering,
a private placement of Common Stock to institutional investors in 1994, its
collaboration with BI which commenced in March 1995, two directed public
offerings in 1995, its collaboration with Allergan which commenced in November
1996, research grants and investment income earned on its cash balances and
short-term investments.
In 1995, the Company entered into a collaboration with BI for the
development and commercialization of CERESTAT. The Company received $15.0
million upon signing the agreement, consisting of $5.0 million in the form of an
expense reimbursement and $10.0 million for 1,250,000 shares of the Company's
Common Stock. In September 1996, pursuant to the agreement, BI purchased an
additional 1,237,624 shares of the Company's Common Stock for $10.0 million.
Pursuant to the collaboration, BI will fund 75% of the development costs for
CERESTAT in the United States and Europe and all of the development costs in
Japan, and the Company is entitled to receive royalties on product sales. The
Company has the option to co-promote in the United States. Any co-promotion
activities by the Company will result in increased sales and marketing and
general and administrative expenditures.
In November 1996, the Company entered into a collaboration with Allergan
for the development of NMDA ion-channel blockers, sodium ion-channel blockers
and combination ion-channel blockers for the treatment of ophthalmic disorders,
including glaucoma. In conjunction with the signing of this agreement, the
Company received $3.0 million for 175,103 shares of the Company's Common Stock.
Allergan will bear all of the development costs for potential products arising
from the collaboration, and the Company is entitled to receive royalties on any
product sales.
The Company's business is subject to significant risks, including but not
limited to the risks inherent in its research and development efforts, including
clinical trials, uncertainties associated both with obtaining and enforcing its
patents and with the patent rights of others, the lengthy, expensive and
uncertain process of seeking regulatory approvals, uncertainties regarding
government reforms and of product pricing and reimbursement levels,
technological changes, manufacturing uncertainties and dependence on third
parties. Even if the Company's product candidates appear promising at an early
stage of development, they may not reach the market for numerous reasons. See
"Risk Factors--Uncertainties Related to Clinical Trials," "--Uncertainties
Related to Early Stage of Development; Technological Uncertainties,"
"--Intensive Competition and Risk of Technological Change" and "--Patent and
License Uncertainties."
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Revenues
Research and development revenue decreased to $1.9 million for the nine
months ended September 30, 1996, from $7.0 million for the same period in 1995,
a decrease of $5.1 million. This decrease was due to the receipt of a $5.0
million payment in March 1995 upon the signing of the collaboration agreement
with BI, representing an up-front reimbursement of previously incurred CERESTAT
costs. Of the total research and development revenue under the BI agreement,
revenue relating to current period spending was $1.9 million in
21
<PAGE> 23
1996, compared to $2.3 million in 1995, a decrease of $400,000. This decrease
was due to an increase in spending by BI relative to the amount spent by both
companies. The Company books revenue in the amount that its CERESTAT development
expenses exceed 25% of the CERESTAT development expenses of the Company and BI
combined.
Operating Expenses
Operating expenses decreased to $11.6 million for the nine months ended
September 30, 1996, from $12.1 million for the same period in 1995. Research and
development expenses for the nine months ended September 30, 1996 decreased to
$9.7 million, from $10.4 million in 1995, a decrease of $700,000, primarily as a
result of a decrease in nonclinical development costs associated with CERESTAT.
Offsetting this decrease, in part, was an increase in nonclinical study costs
associated with another of the Company's programs as well as an increase in
costs associated with higher headcount, primarily in support of development
activities. Research and development expenses were 84% of total operating
expenses for the nine months ended September 1996, compared to 86% in the same
period in 1995.
Interest Income
Interest income increased to $822,000 for the nine-month period ended
September 30, 1996 from $499,000 for the same period in 1995. This increase
reflects the higher cash balances available for investment primarily as a result
of the two Common Stock offerings in the fourth quarter of 1995 and the second
equity investment by BI in September 1996.
Net Loss Per Share
The net loss increased to $8.9 million, or $0.65 per share, for the
nine-month period ended September 30, 1996 compared to $4.6 million, or $0.39
per share, for the same period in 1995. This increase in net loss per share was
due primarily to the decrease in research and development revenue, partially
offset by an increase in weighted average shares outstanding as a result of two
Common Stock offerings in the fourth quarter of 1995 and the second equity
investment by BI in early September 1996.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenues
Research and development revenue was $8.2 million for the year ended
December 31, 1995. The Company had no research and development revenue for the
year ended December 31, 1994. The revenue in 1995 was received in connection
with the Company's collaboration with BI and included a one-time reimbursement
of $5.0 million for previously incurred CERESTAT research and development costs.
Revenue from government grants decreased to $63,000 from $299,000 for the year
ended December 31, 1994, a decrease of $236,000, due to the expiration of a
grant in March 1995.
Operating Expenses
Total operating expenses increased to $16.0 million for the year ended
December 31, 1995 from $15.6 million for the year ended December 31, 1994.
Research and development expenses increased to $13.8 million for the year ended
December 31, 1995 from $12.7 million for the year ended December 31, 1994. Costs
associated with CERESTAT preclinical studies and clinical trials increased to
$4.7 million for the year ended December 31, 1995 from $2.0 million for the year
ended December 31, 1994, an increase of $2.7 million. Partially offsetting this
increase were lower costs associated with a decrease in workforce as part of a
cost-reduction program implemented in January 1995 as well as lower external
costs associated with the Company's other research and development programs.
Research and development expenses were 87% of total operating expenses for the
year ended December 31, 1995, compared to 82% for the year ended December 31,
1994.
General and administrative expenses decreased to $2.2 million for the year
ended December 31, 1995 from $2.9 million for the year ended December 31, 1994,
a decrease of $700,000. This decrease is due primarily to cost savings
associated with the reduction in workforce in January 1995 as well as to a
decrease in expenses relating to the use of outside consultants for business
development purposes.
22
<PAGE> 24
Interest Income
Interest income increased to $736,000 for the year ended December 31, 1995
from $401,000 for the year ended December 31, 1994, an increase of $335,000.
This was due to an increase in the rate of return earned on the Company's
investments as well as to higher cash balances available for investment in 1995.
Net Loss Per Share
The net loss for the year ended December 31, 1995 was $7.1 million, or
$0.59 per share, compared to $14.9 million, or $1.46 per share, for the year
ended December 31, 1994. The decrease in the net loss is primarily due to
increased research and development revenues.
YEARS ENDED DECEMBER 31, 1994 AND 1993
Revenues
Revenue from government grants decreased to $300,000 for the year ended
December 31, 1994 from $417,000 for the year ended December 31, 1993. This was
due to the expiration of NIH Small Business Innovation Research grants. The
Company had one later-stage grant which expired in March 1995.
Operating Expenses
Total operating expenses decreased to $15.6 million for the year ended
December 31, 1994, from $16.3 million for the year ended December 31, 1993, a
decrease of $700,000. Research and development expenses decreased to $12.7
million for the year ended December 31, 1994, from $12.8 million for the year
ended December 31, 1993, a decrease of $100,000. There was an increase in
expenses relating to an increase in staff and an expansion of facilities which
occurred in the fourth quarter of 1993, which was offset by decreases in the use
of outside professional services and in contracted research costs due to the
termination of a research agreement in November 1993. Research and development
expense was 82% of total operating expenses for the year ended December 31,
1994, compared to 79% for the year ended December 31, 1993. General and
administrative expenses decreased to $2.9 million for the year ended December
31, 1994 from $3.5 million for the year ended December 31, 1993. This decrease
was primarily due to the recognition in 1993 of expenses related to the
retirement of an executive officer.
Interest Income
Interest income decreased to $401,000 for the year ended December 31, 1994
from $515,000 for the year ended December 31, 1993, a decrease of $114,000. This
decrease reflects lower cash balances available for investment in 1994. The
Company had no interest expense for the year ended December 31, 1994. Interest
expense of $150,000 for the year ended December 31, 1993 related to the loan
agreement entered into in December 1992 and paid in full in December 1993.
Net Loss Per Share
The net loss for the year ended December 31, 1994 was $14.9 million, or
$1.46 per share, compared to $15.5 million, or $1.79 per share, in the year
ended December 31, 1993. The decrease in the net loss was primarily due to a
reduction in general and administrative expenses. The decrease in net loss per
share was the result of an increase in weighted average shares outstanding from
8.6 million in 1993 to 10.2 million in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $27.3 million as of September
30, 1996, compared to $21.9 million as of December 31, 1995. Pursuant to the
terms of the collaboration agreement and in connection with the commencement of
the Phase III stroke trial by BI, the Company received a milestone payment in
September 1996 of $10.0 million for 1,237,624 shares of the Company's Common
Stock. In addition, in 1996 the Company has received $6.8 million in advances
against reimbursable expenses pursuant to the BI collaboration. These cash
advances are based upon estimates of the relative spending by the
23
<PAGE> 25
Company and BI on the development of CERESTAT. On an annual basis, actual
spending is reconciled with the budget and may result in the Company's repayment
to BI of any excess advances. In the nine-month period ended September 30, 1996,
the Company used $11.0 million for operating purposes.
The Company and BI began two Phase III clinical trials in 1996. These
trials are expected to involve approximately 1,600 patients and are expected to
result in an increase in the Company's consumption of capital. The cost of both
trials will be shared by the parties in accordance with the terms of the
collaboration agreement. The Company's obligation relative to this sharing of
costs is generally 25% of total costs incurred by both parties, excluding
development costs for Japan which will be borne solely by BI. Any costs incurred
in excess of one party's contractual obligation will be reimbursed by the other
party. The cash reimbursement and the revenue earned are subject to each party's
relative expenditures and therefore may fluctuate on a quarterly basis. The
agreement provides that BI will advance cash to the Company on a quarterly basis
in the event that it is expected that the Company will spend more than obligated
under the agreement (25% of total amount spent by both parties). Due to the
uncertainty associated with the annual estimate of spending by both companies
and the timing of the relative spending, the amount and timing of advances from
BI is uncertain. It is expected that as more patients enroll in these trials,
total costs and the costs borne by the Company will increase. The Company
expects to incur significant expenses related to these trials for the remainder
of 1996 and in 1997 and thereafter, subject to the cost sharing arrangement
discussed above.
The Company believes that the existing cash and cash equivalents available
as of September 30, 1996 together with the funds received upon the signing of
the collaboration agreement with Allergan in November 1996 and the anticipated
net proceeds from this offering will be sufficient to maintain operations at
least through the next 18 months. The BI and Allergan collaborations also
provide that the Company may receive up to an additional $18.0 million and up to
an additional $18.5 million, respectively, upon the achievement of certain
milestones. However, there can be no assurance as to when or if these milestones
will be achieved.
The Company's primary expenditures are expected to be in the areas of
research and development, general and administrative expenses and capital
expenditures. The Company will require substantial additional funds for its
research and product development programs, pursuing regulatory clearances,
establishing production, sales and marketing capabilities and other operating
expenses. Despite the potential future milestone payments under the BI and
Allergan collaborations, adequate funds for these purposes may not be available
when needed on terms acceptable to the Company. Insufficient funds may require
the Company to delay, scale back or eliminate certain of its research and
product development programs or to license third parties to commercialize
products or technologies that the Company might otherwise undertake itself.
The Company does not believe that inflation has had a material impact on
its results of operations.
24
<PAGE> 26
BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
OVERVIEW
Cambridge NeuroScience is a leading neuroscience company engaged in the
development of proprietary pharmaceuticals to treat severe disorders of, or
injuries to, the nervous system. The Company's product candidates and programs
include (i) ion-channel blockers for the treatment and prevention of brain
damage resulting from TBI, stroke and surgery, as well as for the treatment of
certain forms of neuropathic pain, and (ii) growth factors for the treatment of
MS and peripheral neuropathies. CERESTAT, the Company's most advanced product
candidate, is a small molecule ion-channel blocker currently in Phase III
clinical trials for the treatment of both TBI and stroke.
BACKGROUND
The central nervous system, composed of the brain and spinal cord, controls
cognitive functions, interprets incoming sensory information and organizes body
movements. The peripheral nervous system, composed of nerve fibers leading to
and from the central nervous system, carries encoded information from body
sensory receptors and commands to muscles and glands. Two main cell types are
found throughout the nervous system: nerve cells, which generate and transmit
signals, and glial cells, which provide nutrition and support functions to nerve
cells.
Information in the nervous system travels within individual nerve cells as
electrical signals and is passed from one nerve cell to another by chemical
substances, known as neurotransmitters, which act on cellular receptors to
generate or modify electrical activity of the receiving nerve cell. Electrical
signals of the nervous system are generated by membrane proteins, known as ion
channels, which control the flow of charged ions across nerve cell membranes.
Disorders of the nervous system fall broadly into two categories: those in which
the cellular structure of the nervous system is intact, but the electrical
signals of the cellular network are abnormal; and those in which the
degeneration of nerve or glial cells leads to abnormal function.
Acute central nervous system disorders, such as stroke and traumatic
injuries to the head and spine, often cause a reduction in blood flow (ischemia)
to, and the premature death of, nerve cells, resulting in permanent disorders of
the central nervous system. Nerve cell death following an ischemic event in the
brain is triggered by the excessive release of the excitatory neurotransmitter,
glutamate, from damaged nerve terminals, which in turn stimulates the massive
entry of calcium into nerve cells through activated ion channels. Overloading
nerve cells with calcium ions activates a number of processes that ultimately
result in cell death.
In the ischemic brain, glutamate predominantly activates an ion channel
known as the NMDA ion channel. In animal models of stroke and TBI, NMDA
antagonists have been shown to limit the extent of brain damage when
administered after the onset of cerebral ischemia.
Chronic disorders of the nervous system, such as multiple sclerosis,
peripheral neuropathies and other degenerative disorders, are known to result
from the death of nerve or glial cells. In the development of the nervous
system, the proliferation, differentiation and survival of nerve and glial cells
are controlled by a variety of protein growth factors. These growth factors are
produced by cells of the nervous system and by their target cells. Growth
factors, which are normally involved in the development of the nervous system,
also play important roles during the normal regeneration of the nervous system
following damage. Animal studies suggest that one attractive therapeutic
approach to replacing damaged nerve and glial cells is to re-initiate the
processes of early development in the nervous system through the introduction of
protein growth factors. Therefore, protein growth factors offer significant
potential as treatments for a variety of neurological disorders.
25
<PAGE> 27
CORE TECHNOLOGIES
Cambridge NeuroScience has concentrated its drug discovery and development
efforts in two main programs: ion-channel blockers to modify nerve cell
signaling or to prevent nerve cell death; and protein growth factors to prevent
degeneration of, or to regenerate, nerve and glial cells. To pursue these two
programs, the Company uses its expertise in medicinal and analytical chemistry,
molecular biology, protein chemistry and in vitro and in vivo pharmacology.
ION-CHANNEL BLOCKERS
The Company has focused on the synthesis of small organic molecules, known
as ion-channel blockers, that directly block passage of ions through certain ion
channels which control the activity of nerve cells. The Company has been
synthesizing and evaluating small molecules that block ion channels which
regulate the release of glutamate from nerve cells or the responses of nerve
cells to glutamate. In cerebral ischemia, over-stimulation of the
glutamate-activated NMDA ion channel is primarily responsible for flooding nerve
cells with calcium ions, which results in cell death. The Company is developing
ion-channel blockers that selectively block the NMDA ion channel and limit nerve
cell death during acute cerebral ischemia as a treatment for TBI and stroke.
CERESTAT, the Company's most advanced NMDA ion-channel blocker, is
currently undergoing Phase III clinical trials in both TBI and stroke. The Phase
III clinical trials of CERESTAT are being managed by the Company and its
collaborative partner, BI. CNS 5161, the second development compound selected by
the Company from its NMDA ion-channel blockers project, is being advanced
towards clinical trials as a potential treatment to reduce post-surgical
neuropathic pain and to limit the neurological deficits which sometimes result
from major cardiac surgeries. The Company has applied its expertise in
discovering and developing NMDA ion-channel blockers to the synthesis and
testing of compounds that selectively block other ion channels, such as sodium
ion channels, which can contribute to abnormal nerve cell electrical activity.
The Company believes that such ion-channel blockers may have therapeutic utility
in a number of acute and chronic neurological disorders, including spinal cord
injury, migraine and epilepsy.
The Company's ion-channel blocker product candidates for the treatment of
acute and chronic neurological disorders are being designed with the following
characteristics:
Rapid Brain Penetration. In animal models of cerebral ischemia, the more
rapidly drugs intended to prevent nerve cell death reach the area of the brain
at risk, the greater the degree of protection. Because of their physical
characteristics, the Company's small molecule ion-channel blockers readily
penetrate the blood-brain barrier in animals. The Company believes that
effective brain concentrations of ion-channel blockers can be rapidly achieved
in patients.
Early Intervention in Nerve Cell Death. The massive influx of lethal levels
of calcium into the cell is one of the earliest in a sequence of events leading
to nerve cell death. The Company believes that its ion-channel blockers, by
acting at an early stage in this process, can effectively shut down all
subsequent biochemical processes in this pathway that lead to nerve cell death.
High Potency. Ion-channel blockers can shut down operations of activated
ion channels, regardless of the strength of the naturally occurring stimulus.
Potential products that inhibit the function of an ion channel by other
mechanisms often can be overwhelmed by an increase in the activating stimulus.
26
<PAGE> 28
PROTEIN GROWTH FACTORS
Growth factors are known to play an important role in the growth,
differentiation and distribution of nerve cells. They also are crucial to
maintaining the health and function of neurons. The Company has made significant
progress in the development of growth factor proteins as treatments for
disorders of the nervous system.
The Company's most advanced growth factor product candidate is recombinant
human Glial Growth Factor 2, a potential treatment for degenerative diseases of
the nervous system, including multiple sclerosis and peripheral neuropathies.
Over the past five years, the Company has isolated, cloned, expressed and
produced rhGGF2 and is currently focusing its investigation on the potential use
of rhGGF2 as a therapeutic intervention in the pathological processes involved
in MS.
The Company is also conducting research on two other novel protein growth
factors: Growth/Differentiation Factor-1 ("GDF-1"), a nervous-system-specific
member of the Transforming Growth Factor-SS ("TGF-SS") family, and F-Spondin, a
protein that plays an important role in the developing spinal cord.
27
<PAGE> 29
PRODUCT CANDIDATES
The following table summarizes the primary indications, development status
and holder of commercial rights for each of the Company's ("CNSI") product
candidates. This table is qualified in its entirety by reference to the more
detailed descriptions appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DEVELOPMENT COMMERCIAL
PRODUCT CANDIDATE INDICATIONS STATUS(1) RIGHTS
- ------------------------ ------------------------------------------ ----------- -------
<S> <C> <C> <C>
ION-CHANNEL BLOCKERS
CERESTAT TBI Phase III CNSI/BI(2)
Stroke Phase III CNSI/BI(2)
CNS 5161 Post-surgical neuropathic pain Pre-IND CNSI
Neurological deficits from cardiac surgery Pre-IND CNSI (3)
NMDA, sodium and Cerebral ischemia; spinal cord injury; Preclinical CNSI
combination ion-channel migraine; epilepsy
blockers Glaucoma and other ophthalmic disorders Preclinical CNSI/
Allergan (4)
PROTEIN GROWTH FACTORS
rhGGF2 Multiple sclerosis Pre-IND CNSI
Chemotherapy-induced neuropathy; Preclinical CNSI
diabetic neuropathy
GDF-1 Multiple sclerosis; neurodegeneration Research CNSI
F-Spondin Spinal cord injuries; nerve regeneration Research CNSI
</TABLE>
- ---------------
(1) "Phase III" indicates that the compound is being tested in a large-scale
clinical trial to obtain the efficacy and safety information required for
marketing approval. "Pre-IND" refers to toxicology and other regulatory
studies for a designated compound in anticipation of human clinical trials.
"Preclinical" refers to safety and efficacy studies conducted in animals.
"Research" refers to scientific activities to identify a specific molecule
or to select a specific clinical indication. See "--Government Regulation."
(2) The Company has certain co-promotion rights for CERESTAT in the United
States, and BI has exclusive marketing rights elsewhere in the world. See
"--Strategic Alliances."
(3) BI has the right to negotiate a development and marketing agreement for CNS
5161 for this indication. See "--Strategic Alliances."
(4) Allergan has the right to develop certain NMDA ion-channel blockers, sodium
ion-channel blockers and combination ion-channel blockers for the treatment
of ophthalmic disorders, including glaucoma. See "--Strategic Alliances."
28
<PAGE> 30
ION-CHANNEL BLOCKERS
CERESTAT: Background
CERESTAT, the Company's most advanced product candidate, is currently
undergoing a Phase III clinical trial in both TBI and stroke. The Phase III
clinical trials of CERESTAT are being managed by the Company and its
collaborative partner, BI. A coordinated series of Phase I and Phase II clinical
trials was undertaken to ascertain the safety of CERESTAT in over 400 volunteers
and patients. These clinical trials were conducted to determine the safe and
tolerable doses and dosing regimens that result in a plasma level of the
compound equivalent to, or higher than, the minimum plasma level of the compound
("target plasma level") that is associated with the limitation of brain damage
in animal models of cerebral ischemia. Four studies were performed in
volunteers, including a study in Japan that was conducted by BI in the second
half of 1996 as the initiation of clinical development in that country. See
"-- Strategic Alliances."
In TBI patients, two studies were conducted to determine a dosing regimen
that would produce a plasma level of CERESTAT three times the target plasma
level. Following the first study in which CERESTAT was administered on a
weight-adjusted basis over a four-hour period, the second study demonstrated
that a non-weight-adjusted dosing regimen could safely maintain such a plasma
level for 72 hours. Non-weight-adjusted dosing regimens are more easily
administered in clinical trials and offer marketing advantages.
In stroke patients, three studies were undertaken to determine a dosing
regimen that would produce a plasma level of CERESTAT equivalent to, or greater
than, the target plasma level. The first was used to determine the safety of
escalating doses of CERESTAT over a four-hour treatment period. The second was a
dose-response trial. In this clinical trial, at 90 days after treatment, the
improvement in neurological function (NIH Stroke Scale) of patients treated with
the highest dose tested was significantly better than that of placebo-treated
patients. A third study determined that a non-weight-adjusted dosing regimen
could safely maintain the target plasma level over a 12-hour period.
The results of these Phase I and Phase II clinical trials were used by the
Company and BI to design the Phase III clinical trials in TBI and stroke
patients described below. There can be no assurance that the results of Phase I
and Phase II clinical trials will be indicative of results in Phase III clinical
trials or that Phase III clinical trials will show that CERESTAT is sufficiently
safe and efficacious for marketing approval by the FDA or other regulatory
authorities.
CERESTAT: Traumatic Brain Injury
It is estimated that approximately 500,000 individuals suffer severe
injuries to the head each year in the United States. Brain damage results from
the trauma and from subsequent cerebral ischemia. The annual economic cost of
TBI to the United States has been estimated to be more than $40.0 billion. The
current Phase III clinical trial of CERESTAT is designed to treat a subset of
comatose patients with TBI. At present, there are no FDA-approved treatments
that limit or reduce the brain damage associated with traumatic injuries to the
head.
Based on the safety and tolerance findings from the Phase I and Phase II
clinical trials, the Company and its collaborative partner BI initiated a Phase
III efficacy trial for CERESTAT in TBI patients in March 1996. The intent is to
enroll 700 patients at approximately 70 centers in the United States, Canada and
certain European countries. Patients enrolled in the trial are randomized for
intravenous treatment with either CERESTAT or placebo. The primary outcome
measure has been defined as the percentage of patients with a "favorable"
outcome on the Glasgow Outcome Scale representing good recovery or moderate
disability six months after the injury. An interim analysis is planned to be
performed on the three-month Glasgow Outcome Scale data of approximately the
first half of the patients. The main purpose of the interim analysis is
administrative, and the trial would be halted only if continuation were futile.
To date, over 170 patients have been enrolled in this trial. This trial is being
monitored by an independent safety committee. In TBI patients, no adverse
drug-related effects have been observed to date.
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CERESTAT: Stroke
In 1994, the American Heart Association estimated that there are
approximately 500,000 incidents of stroke in the United States each year and
that approximately 350,000 people survive the event. Currently, there are
approximately three million disabled stroke survivors in the United States, and
the annual economic cost of stroke to the United States has been estimated at
$30.0 billion. In July 1996, the FDA approved the use of tissue plasminogen
activator ("tPA") for the treatment of patients who had suffered a stroke within
the preceding three hours and for whom a CT scan showed no evidence of
hemorrhage. This action was based on a study published in the New England
Journal of Medicine in 1995, in which the percent of patients deemed eligible to
participate was less than 4% of all patients screened. Intravenous tPA acts by
dissolving blood clots that might have led to a stroke. To date, there are no
FDA-approved treatments for stroke that act by any mechanism other than
dissolving blood clots which limit or reduce the brain damage associated with
the cerebral ischemia.
A Phase III clinical trial of CERESTAT in stroke patients was initiated in
July 1996. The intent is to enroll 900 patients at approximately 110 centers in
the United States, Canada, Australia, South Africa and the United Kingdom.
Patients enrolled in the trial are randomized for intravenous treatment with
either placebo or one of two dosing regimens of CERESTAT. The primary outcome
measure has been defined as the modified Rankin Scale (a measure of disability)
three months after the stroke. An interim analysis is planned to be performed on
the seven day post-stroke NIH Stroke Scale data of the first 300 patients. The
main purpose of the interim analysis is administrative, and the trial would be
halted only if continuation were futile. To date, over 150 patients have been
enrolled in this trial. This trial is being monitored by an independent safety
committee.
In stroke patients, the central nervous system side effects of CERESTAT
include sedation, paresthesias (numbness) and occasional episodes of altered
sensorium, including hallucinations. The Company believes that these side
effects are transitory and manageable. Increases in blood pressure have also
been observed and have been controlled, when necessary.
CNS 5161: Post-Surgical Neuropathic Pain and Neurological Deficits From
Cardiac Surgery.
The potential market for prophylaxis against neuropathic pain has been
identified based on approximately 650,000 procedures performed annually in the
United States. Glutamate (particularly NMDA) receptors have been implicated in
the induction and maintenance of such pain in animal models and NMDA antagonists
have been shown to be effective in animal models of persistent pain.
It has been estimated that there were over 600,000 open heart surgery
procedures in the United States in 1993. Neuropsychological deficits are
observed within an eight-day period in up to 70% of patients undergoing such
procedures and in up to 30% of patients one year after the surgery. The Company
believes that these deficits are related to the transient cerebral ischemia that
occurs in some patients undergoing open-heart surgery. The Company believes that
an NMDA ion-channel blocker given prophylactically could attenuate these
undesirable consequences of the surgery.
CNS 5161 is a blocker of the NMDA ion channel that was synthesized by the
Company's chemists to be chemically distinct from CERESTAT. Based on its method
of action and its pharmacokinetic profile in animals, CNS 5161 is being advanced
toward clinical evaluation for the prevention of post-surgical neuropathic pain
and of neuropsychological deficits that result from transient cerebral ischemia
during major cardiac surgeries, such as coronary artery bypass graft (CABG)
surgery. Studies in animals have shown that CNS 5161 can limit the extent of
brain damage following periods of cerebral ischemia. Other animal studies have
shown that this compound can also prevent the development of a delayed pain
response, which is thought to be related to the development of chronic
neuropathic pain in humans following certain surgeries or trauma. The Company
intends to initiate clinical trials of CNS 5161 in human volunteers by mid-1997.
BI has the right to negotiate a development and marketing agreement for CNS 5161
for the treatment of brain or spinal cord ischemia. See "-- Strategic
Alliances."
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Ion-Channel Blockers for Ophthalmic Disorders
Ion-channel blockers may have utility in certain diseases outside the
central nervous system, such as glaucoma and other ophthalmic indications. To
this end, in November 1996, the Company entered into a collaboration with
Allergan, a pharmaceutical company specializing in ophthalmology. In this
collaboration, the Company's molecules which block NMDA ion channels, sodium ion
channels or both will be evaluated for their ability to prevent vision loss in
animal models of the degeneration of the retina and optic nerve which occurs in
glaucoma. See "--Strategic Alliances."
Other Ion-Channel Blockers for Nervous System Disorders
The Company believes that molecules which block the ion channels of nerve
cells have potential as treatments for a number of nervous system disorders.
Accordingly, the Company continues to synthesize and evaluate molecules for
their ability to block ion channels of therapeutic importance.
To discover new treatments for preventing disorders of the central nervous
system which arise from cerebral or spinal cord ischemia, the Company has
synthesized ion-channel blockers with enhanced potency in the environment of
ischemic tissues relative to their potency in the environment of normal tissues.
The Company believes that such targeted ion-channel blockers could achieve
efficacy with fewer unwanted side effects.
In addition to molecules which block NMDA ion channels, the Company has
created a library of small organic molecules which block the sodium ion channels
of nerve cells. In vitro and in vivo studies have demonstrated that sodium
ion-channel blockers can protect nerve cells from ischemic damage and can exert
other beneficial effects, such as preventing seizure activity, reducing
responses to painful stimuli, limiting the consequences of traumatic damage to
nerve fiber bundles and arresting migraine attacks. The Company believes that
molecules which block neuronal sodium ion channels have potential as treatments
for various forms of acute and chronic disorders of the nervous system,
including stroke, epilepsy, pain and migraine. The Company has recently been
working with the Epilepsy Branch at the National Institutes of Health to explore
the potential of its sodium ion-channel blockers as treatments for epilepsy.
As an extension of its work in NMDA and sodium ion-channel blockers, the
Company has synthesized molecules which have the capacity to block both NMDA ion
channels and sodium ion channels. The Company is currently conducting in vitro
and in vivo studies to test the hypothesis that such combination compounds have
enhanced efficacy in treating neurological disorders when compared to the
efficacy of compounds which block only one of these classes of ion channels.
PROTEIN GROWTH FACTORS
rhGGF2: Multiple Sclerosis
The Company is developing the protein growth factor rhGGF2 for the
treatment of multiple sclerosis. MS is a disease of the central nervous system
that is characterized by chronic inflammation and demyelination at multiple
sites in the brain and spinal cord. Approximately 350,000 people in the United
States suffer from MS. The Company is aware of three therapeutics currently
being marketed to treat MS, which are Betaseron[R] (Chiron Corporation/Schering
AG), Avonex[R] (Biogen, Inc.) and Copaxone[R] (Teva Pharmaceutical Industries
Ltd./Hoechst Marion Roussel Ltd.) and are all based on an immunosuppression
approach to the disease, rather than the growth factor approach being pursued by
the Company.
Cambridge NeuroScience is investigating rhGGF2 in preclinical studies as a
therapeutic intervention in the pathological processes involved in MS. rhGGF2 is
a trophic factor for the glial cells that form and maintain the myelin sheath
insulating nerve axons in the central nervous system. These cells are primary
targets involved early in the pathogenesis of MS. The Company has produced
purified rhGGF2 and is currently examining its efficacy in animal models of MS,
including experimental autoimmune encephalomyelitis ("EAE"). In the acute phase
of this model, rhGGF2 significantly reduced and delayed the clinical symptoms.
In the chronic, relapsing-remitting phase of EAE, rhGGF2 significantly reduced
the
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clinical effects of the disease as well as the number of observed relapses. The
Company has initiated the process leading to the production of GMP quantities of
rhGGF2 for use in clinical trials.
rhGGF2: Peripheral Neuropathies
The Company believes that rhGGF2 may also be a potential treatment for
peripheral neuropathies as a result of its activity on peripheral glial cells.
Peripheral neuropathies comprise a collection of disorders that are
characterized by the degeneration of sensory and/or motor nerves. This
degeneration may be caused by injury, chemotherapy, diabetes, inherited
disorders and other factors. It was estimated in 1991 that in excess of one
million individuals in the United States suffered from some form of peripheral
neuropathy. The largest segments of this population are those with
chemotherapy-induced neuropathies and those with diabetic neuropathies. There
are, at present, no FDA-approved therapeutic agents for the prevention,
reduction or reversal of the degeneration and atrophy caused by these disorders
and injuries.
The Company is currently testing rhGGF2 in animal models of peripheral
neuropathies, such as cancer-chemotherapy-induced neuropathy. In two different
experimental paradigms (cisplatin-induced and vincristine-induced neuropathies),
rhGGF2 administration protected peripheral nerves from the effects of these
chemotherapies. The Company also believes that rhGGF2 may be a potential
treatment of other degenerative diseases of the peripheral nerves.
rhGGF2: Other Indications
Cambridge NeuroScience continues to explore the therapeutic potential of
rhGGF2 in applications beyond the central nervous system. For example, rhGGF2
has been shown to have survival actions on retinal nerve cells and inner ear
cells. Company scientists continue to monitor these findings and are currently
investigating the therapeutic potential of rhGGF2 in an animal model of hearing
loss.
Small Molecule Discovery Program Related to GGF2
Based on its experience with rhGGF2 and other members of this protein
family, referred to as neuregulins, the Company entered into a collaboration
with ProsCure, Inc. ("ProsCure") in 1995 to identify small molecule compounds
for cancer treatments. As a result of this collaboration, it was discovered that
certain compounds can antagonize the activity of neuregulins. The Company
believes that compounds with such activity may be useful in the treatment of
breast, ovarian, brain and other cancers.
Other Protein Growth Factors
The Company is also conducting research into other growth factors that may
have utility in the treatment of other disorders of the nervous system. GDF-1 is
a member of the TGF-SS superfamily, and is broadly and exclusively expressed in
the nervous system. The Company believes that GDF-1 is likely to play a role in
responses to injury, ischemia and demyelination. Human recombinant GDF-1 is
currently being produced at Cambridge NeuroScience and will be evaluated as a
potential therapeutic for nerve injury or neurological disease. Several members
of the TGF-SS gene family have biological activities that potentially can be
employed for therapeutic effects in the nervous system, including: the promotion
of dopaminergic neuron survival, which may be applicable as a treatment for
Parkinson's disease, the promotion of motor neuron survival, which may be
applicable as a treatment for amyotrophic lateral sclerosis, and
immunosuppression, which may be applicable as a treatment for MS.
F-Spondin is a protein made by an important region of the developing spinal
cord, the floorplate. Since it is related to a protein known to be active in the
sciatic nerve injury model, recombinant F-Spondin will be tested for peripheral
nerve regeneration. The Company believes that F-Spondin is an attractive
candidate molecule for therapeutic situations involving repair of the spinal
cord or peripheral nervous system.
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STRATEGIC ALLIANCES
The Company's strategy includes forming collaborations with pharmaceutical
companies to assist in the development of its potential products, provide
capital for such development and share development risk. The Company is also
interested in broadening its product portfolio and technology base. To this end,
the Company from time to time conducts discussions with selected companies
regarding collaborations, mergers, acquisitions or product-licensing
arrangements. No assurance can be given, however, that any collaborations,
mergers, acquisitions or licensing arrangements will be completed in the
foreseeable future or on terms favorable to the Company.
Boehringer Ingelheim International GmbH
In March 1995, Cambridge NeuroScience and BI entered into an agreement to
collaborate on the worldwide development and commercialization of CERESTAT.
Under the terms of the agreement, BI is obligated to fund 75% of the development
costs for CERESTAT in the United States and Europe and all of the development
costs in Japan. Under the agreement, product development is managed by a Joint
Development Team, with equal representation from both companies. This team is
supervised by a Joint Steering Committee, with two members from each company.
Upon signing the agreement, the Company received $15.0 million, consisting of
$5.0 million for expense reimbursement and $10.0 million for 1,250,000 shares of
Common Stock. In September 1996, and in connection with the commencement of the
pivotal stroke trial by BI, the Company received a milestone payment of $10.0
million for 1,237,624 shares of Common Stock. The Company may receive up to an
additional $18.0 million in cash without the issuance of additional equity after
achieving certain other milestones and will receive royalties on product sales.
Cambridge NeuroScience has an option to co-promote CERESTAT in the United
States with BI and the Company has notified BI of its intent to exercise this
option upon completion of a separate agreement. BI will market the product in
Europe and other geographic regions exclusively and will pay the Company
royalties on sales. Cambridge NeuroScience has retained worldwide manufacturing
rights. BI has an option to acquire the worldwide manufacturing rights in
exchange for increased royalty payments. Under the terms of the agreement, BI
has certain termination rights, including the right to terminate the agreement
upon 90 days written notice to the Company. See "-- Marketing and Sales" and
"-- Manufacturing."
Allergan
In November 1996, the Company entered into a collaboration with Allergan to
jointly develop NMDA ion-channel blockers, sodium ion-channel blockers and
combination ion-channel blockers, initially for the treatment of ophthalmic
indications, including glaucoma. Glaucoma is the second leading cause of
preventable blindness in the world, with almost three million patients in the
United States alone. The disease is usually associated with increased pressure
within the eye, which can damage the retina and the optic nerve and eventually
lead to blindness. The Company and Allergan believe that it may be possible to
treat glaucoma by blocking ion channels and thereby protecting the retina and
the optic nerve from damage. This collaboration combines the Company's
proprietary technology in the area of ion-channel blockers and Allergan's
expertise in the global marketing of treatments for eye disease and allows
Cambridge NeuroScience to explore additional areas of clinical need.
Upon signing the agreement, Allergan purchased 175,103 shares of Common
Stock from the Company for $3.0 million. Allergan will provide an additional
$3.0 million in research funding over the next three years, subject to certain
provisions, and has established a $2.0 million line of credit for the Company.
The collaboration is supervised by a Research Management Committee, with equal
representation from both parties. Allergan will be responsible for the
development of potential products and will bear all of the development costs.
Cambridge NeuroScience may receive up to an additional $18.5 million in cash
upon the achievement of certain milestones and will receive a royalty on any
product sales.
Allergan will manufacture and market products developed under the
collaboration worldwide. Allergan has certain termination rights under the terms
of the agreement. Allergan may terminate the research phase of the collaboration
if the Research Management Committee determines that there is no reasonable
scientific
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basis for the commercialization of products covered by the collaboration.
Allergan may terminate the agreement at any time after May 1998 upon six months
prior written notice. Either party may, in its sole discretion, terminate the
agreement upon 90 days prior written notice upon a material breach by the other
party.
ProsCure, Inc.
The Company continues to explore the therapeutic potential of rhGGF2 in
applications beyond the nervous system. Toward this end, in November 1995, the
Company entered into a collaboration with ProsCure, a startup biotechnology
company, in an effort to explore the possible development of compounds for
cancer treatments.
MARKETING AND SALES
Cambridge NeuroScience does not currently sell any products and therefore
has no marketing, sales, or distribution organization. However, under the terms
of the licensing agreement with BI for developing and commercializing CERESTAT,
Cambridge NeuroScience has an option to co-promote this product in the United
States. The Company has informed BI of its intent to exercise this option. If
the Company exercises this option, and upon completion of a separate
co-promotion agreement, the Company intends either to hire and train a qualified
sales force to perform its promotional activities to prescribing physicians in
the United States or to contract with a third party to perform such activities.
Cambridge NeuroScience believes that, in the case of TBI and stroke
patients, ion-channel blocker treatments would be administered in the context of
emergency medicine. Prophylactic treatments for preventing brain damage from
surgical complications would likely be administered by anesthesiologists. In
addition, treatments for most peripheral neural and muscular disorders will
typically be administered as chronic therapy under the direction of
neurologists. Because all of these drug treatments would be hospital- or
specialty-clinic-based, the Company believes that significant United States
sales of these product candidates could be generated with a moderately sized
sales force, rather than the more expansive sales force which would be necessary
to sell products directly to physicians.
In conjunction with establishing sales and marketing capabilities, the
Company may obtain marketing rights to products in advanced stages of
development or currently on the market which might benefit from the marketing
efforts of an organization focused on disorders of the nervous system. To market
such products, Cambridge NeuroScience will utilize the sales force which may be
developed for CERESTAT or make other distribution arrangements.
MANUFACTURING
Cambridge NeuroScience has no manufacturing facilities and plans to rely
upon outside manufacturers to produce any near- or intermediate-term products.
To date, the Company has contracted with chemical synthesis groups to produce
kilogram quantities of several of its product candidates. The Company intends to
establish and maintain its own quality-control program for each line of
products, including a set of standard operating procedures, designed not only to
assure that the Company's products are manufactured in accordance with Good
Manufacturing Practice ("GMP") guidelines and other applicable regulations, but
also to maintain consistent product quality. However, no specific arrangements
have been made, and there can be no assurance that the Company will be able to
establish such capabilities. BI has an option to acquire manufacturing rights
for CERESTAT in exchange for increased royalty payments. The Company is in the
process of finalizing the production process to produce gram quantities of
rhGGF2 under GMP guidelines and has secured production arrangements with a
contract manufacturer.
COMPETITION
The fields in which Cambridge NeuroScience is involved are characterized by
rapid technological progress. New developments are expected to continue at a
rapid pace in both industry and academia. There are many companies, both public
and private, including large pharmaceutical companies, chemical companies
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and specialized genetic engineering companies, engaged in developing products
competitive with products under development by the Company. Many of these
companies have greater capital, human resources and research and development,
manufacturing and marketing experience than Cambridge NeuroScience. Such
companies may succeed in developing products that are more effective or less
costly than any that may be developed by Cambridge NeuroScience and may also
prove to be more successful than Cambridge NeuroScience in production and
marketing. Competition may increase further as a result of potential advances in
the commercial applicability of biotechnology and greater availability of
capital for investment in these fields. In addition, academic, government and
industry-based research is intense, resulting in considerable competition in
obtaining qualified research personnel, submitting patent filings for protection
of intellectual property rights and establishing corporate strategic alliances.
There can be no assurance that research, discoveries and commercial developments
by others will not render any of the Company's programs or potential products
noncompetitive.
In July 1996, the FDA approved the use of tPA for the treatment of patients
who had suffered a stroke within the preceding three hours and for whom a CT
scan showed no evidence of hemorrhage. Intravenous tPA acts by dissolving blood
clots that might have led to a stroke. The Company is aware of three
therapeutics currently being marketed to treat MS, which are Betaseron[R]
(Chiron Corporation/Schering AG), Avonex[R] (Biogen, Inc.) and Copaxone[R] (Teva
Pharmaceuticals Industries Ltd./Hoechst Marion Roussel Ltd.) and are all based
on an immunosuppression approach to the disease, rather than the growth factors
approach being pursued by the Company. In addition, a number of companies are
developing other drugs to treat TBI and/or stroke. The Company believes that the
most significant competition for CERESTAT will come from other inhibitors of
responses mediated via specific ion channels. In particular, Sandoz AG is
currently preparing to conduct a Phase III clinical trial of D-CPPene, which
acts through a mechanism similar to, but distinct from, that of CERESTAT, and is
being developed for TBI only. Lubeluzole (Janssen Pharmaceutica, N.V., a
subsidiary of Johnson & Johnson), currently in Phase III clinical trials, is
being developed for stroke. Fosphenytoin (Warner-Lambert Company), currently in
Phase III clinical trials, and SNX-111 (Neurex Corporation), currently in Phase
II clinical trials, are being developed for TBI. Lubeluzole, Fosphenytoin and
SNX-111 have actions on ion channels and are claimed to be neuroprotective, but
act through mechanisms other than the NMDA ion-channel complex. Some compounds
under development act at different stages in the nerve cell death cascade. The
Company believes that, even if these compounds prove to be efficacious, those
that act at other stages in the cascade will be synergistic, rather than
competitive with CERESTAT. Citicoline[R] (Interneuron Pharmaceuticals, Inc.),
currently in a Phase III clinical trial, and enlimomab (BI), currently in a
Phase III clinical trial, are being developed for stroke. The Company believes
that Citicoline[R] and enlimomab do not act on ion channels but on other aspects
of the nerve cell death cascade. There can be no assurance that the introduction
of these or other products that the Company is unaware of will not have an
adverse affect on the Company's business, financial condition and results of
operations. See "Risk Factors -- Uncertainties Related to Clinical Trials" and
"-- Intense Competition and Risk of Technological Change."
The Company will, for the foreseeable future, rely on its strategic
partners for certain preclinical evaluation and clinical development of its
product candidates and manufacturing and marketing of any products. In addition,
the Company relies on its strategic partners, in part, for support in its drug
discovery operations. The pharmaceutical companies with which the Company has
collaborations are in some cases attempting to develop other products to treat
diseases within the fields of the collaborations with the Company. Generally,
the Company's agreements with its strategic partners do not prohibit the
strategic partners from engaging in competitive activities with the Company. Any
product candidate of the Company, therefore, may be subject to competition with
a potential product under development by the pharmaceutical company with which
the Company is collaborating in connection with such product candidate.
Biotechnology and related pharmaceutical technology have undergone rapid
and significant change. The Company expects the technology associated with the
Company's research and development will continue to develop rapidly, and the
Company's future success will depend in large part on its ability to maintain a
competitive position with respect to this technology. Rapid technological
development by the Company or others may result in compounds, products or
processes becoming obsolete before the Company recovers any expenses it incurs
in connection with developing such products.
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PATENTS AND PROPRIETARY TECHNOLOGY
Proprietary protection for the Company's products, technology and processes
is essential to its business. The Company's policy is to protect its technology
by, among other things, filing or causing to be filed patent applications for
technology that it considers important to the development of its business. As of
November 30, 1996, Cambridge NeuroScience had licensed or owned rights in 22
issued U.S. patents. Research and development efforts by the Company and its
collaborators led to the issuance of six U.S. patents and the allowance of 11
others in 1996. In addition, 17 U.S. patent applications were filed in 1996 on
behalf of the Company and its collaborators, bringing the total number of
pending U.S. applications to 73. These U.S. filings have corresponding patent
filings in other countries as well. Of the nine issued U.S. patents covering the
NMDA ion-channel blockers and their use, none will expire prior to 2007. The
Company is awaiting action on various patent applications that have either been
filed by it or by academic institutions with which it collaborates.
The Company intends to file, or cause to be filed, additional patent
applications, where appropriate, relating to new product discoveries or
improvements. The use of patents to protect proprietary positions for synthetic
chemicals is well established within the pharmaceutical industry. While the
precedents for gaining patent protection for biologically derived or produced
products through recombinant DNA technology are not as well developed, many
patents have been issued for products of this technology. There can be no
assurance, however, that patents will provide meaningful proprietary protection
to the Company, given the uncertain and complex legal and factual questions
relating to their breadth and enforceability.
There are patents held by third parties that relate to the manufacture,
development and use of the Company's product candidates for which the Company
has licenses. There can be no assurance that the Company will not in the future
require licenses to additional patents, that such licenses will be available on
commercially reasonable terms, if at all, that existing or future licenses will
not be terminated or that any such termination or failure to obtain a license
will not have a material adverse effect on the Company's business, financial
condition or results of operations.
The Company has licensed rights to inventions relating to rhGGF2 which are
covered by one issued U.S. patent, several allowed U.S. patent applications and
other pending patent applications in the United States and foreign countries.
The Company believes that its employees and those of its licensor are the
original inventors and that the Company and its licensor are entitled to patent
protection in the United States, but the Company is aware of a third-party
patent and pending patent applications in the United States and corresponding
patent applications pending in some foreign countries that, if issued and valid,
may be construed to cover aspects of the Company's rhGGF2 product candidates.
There can be no assurance that the claims of the U.S. patent issued to the third
party are not infringed, and that the claims of future patents issuing from the
third-party patent applications, if any, will not be infringed by the Company's
proposed manufacture, use or sale of products based on the rhGGF2 technology.
There can be no assurance that Cambridge NeuroScience would prevail in any legal
action seeking damages or injunctive relief for infringement of the existing
third-party patent or any patent that might issue from such third-party
applications or that any license required under such patent would be available
or, if available, would be available on commercially reasonable terms. Failure
to obtain a required license or to successfully establish non-infringement of,
or the invalidity or unenforcability of, such third-party patents could preclude
the manufacture, sale and use of the Company's products based on such rhGGF2
technology.
Patents granted to the Company in any areas of the Company's technology may
be subject to interference proceedings in the United States or opposition
proceedings in foreign countries brought by third parties. There can be no
assurance that the Company would prevail in any such proceedings or that such
proceedings would not result in a material adverse effect on the Company's
business, financial condition or results of operations. An unfavorable decision
in an interference or opposition proceeding may have a material adverse effect
on the business, financial condition and results of operations of the Company.
The Company also relies upon trade secrets, know-how and continuing
technological advances to develop and maintain its competitive position. To
maintain the confidentiality of trade secrets and proprietary information, the
Company maintains a policy of requiring employees, Science Advisory Board
members,
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consultants and collaborators to execute confidentiality and invention
assignment agreements upon commencement of a relationship with the Company.
These agreements are designed both to enable the Company to protect its
proprietary information by controlling the disclosure and use of technology to
which it has rights and to provide for ownership in the Company of proprietary
technology developed at the Company. There can be no assurance, however, that
these agreements will provide meaningful protection for the Company's trade
secrets in the event of unauthorized use or disclosure of such information. In
addition, whenever the U.S. government funds research programs, it may obtain
nonexclusive rights to patented subject matter otherwise subject to exclusive
rights.
GOVERNMENT REGULATION
The manufacture and marketing of pharmaceutical products in the United
States require the approval of the FDA under the Federal Food, Drug and Cosmetic
Act. Similar approvals by comparable agencies are required in most foreign
countries. The FDA has established mandatory procedures and safety standards
which apply to the preclinical testing and clinical trials, as well as to the
manufacture and marketing of pharmaceutical products. Pharmaceutical
manufacturing facilities are also regulated by state, local and other
authorities.
As an initial step in the FDA regulatory approval process, preclinical
studies are typically conducted in animal models to assess a drug's efficacy and
to identify potential safety problems. The results of these studies must be
submitted to the FDA as part of an IND application, which must be reviewed by
the FDA before proposed clinical testing can begin. Typically, clinical testing
involves a three-phase process. Phase I clinical trials are conducted with a
small number of subjects and are designed to provide information about both
product safety and the expected dose of the drug. Phase II clinical trials are
designed to provide additional information on dosing and safety in a limited
patient population; on occasion, they may provide evidence of product efficacy.
Phase III clinical trials are large-scale studies designed to provide
statistically valid proof of efficacy as well as safety in the target patient
population. The results of the preclinical testing and clinical trials of a
pharmaceutical product are then submitted to the FDA in the form of an NDA, or
for a biological product in the form of a Product License Application ("PLA"),
for approval to commence commercial sales. Preparing such applications involves
considerable data collection, verification, analysis, and expense. In responding
to an NDA or a PLA, the FDA may grant marketing approval, request additional
information, or deny the application if it determines that the application does
not satisfy its regulatory approval criteria.
Prior to marketing, any product developed by Cambridge NeuroScience must
undergo an extensive regulatory approval process, which includes preclinical
testing and clinical trials of such product to demonstrate safety and efficacy.
This regulatory process can require many years and the expenditure of
substantial resources. Data obtained from preclinical testing and clinical
trials are subject to varying interpretations, which can delay, limit, or
prevent FDA approval. In addition, changes in FDA approval policies or
requirements may occur or new regulations may be promulgated which may result in
delay or failure to receive FDA approval. Similar delays or failures may be
encountered in foreign countries. Delays and costs in obtaining regulatory
approvals would have a material adverse effect on the Company's business,
financial condition and results of operations.
Among the conditions for NDA or PLA approval is the requirement that the
prospective manufacturer's quality-control and manufacturing procedures conform
on an ongoing basis with GMP. In complying with GMP, manufacturers must continue
to expend time, money, and effort in the area of production and quality control
to ensure full technical compliance. After the establishment is licensed, it is
subject to periodic inspections by the FDA.
The requirements, which the Company must satisfy to obtain regulatory
approval by governmental agencies in other countries prior to commercialization
of its products in such countries, can be as rigorous and costly as those
described above.
The Company is also subject to various laws and regulations relating to
safe working conditions, laboratory and manufacturing practices, the
experimental use of animals, and the use and disposal of hazardous or
potentially hazardous substances, including radioactive compounds and infectious
disease agents
37
<PAGE> 39
used in connection with the Company's research. Compliance with laws and
regulations relating to the protection of the environment has not had a material
effect on capital expenditures or the competitive position of the Company.
However, the extent of government regulation which might result from any
legislative or administrative action cannot be accurately predicted.
REIMBURSEMENT
The Company's ability to commercialize pharmaceutical products may depend
in part on the extent to which reimbursement for the costs of such products and
related treatments will be available from government health administration
authorities, private health insurers and other third-party payors. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products, and third-party payors are increasingly challenging the prices charged
for medical products and services. There can be no assurance that any
third-party insurance coverage will be available to patients for any products
developed by the Company. Government and other third-party payors are
increasingly attempting to contain health care costs by limiting both coverage
and the level of reimbursement for new therapeutic products, and by refusing, in
some cases, to provide coverage for uses of approved products for disease
indications for which the FDA has not granted marketing approval. In particular,
the Company anticipates that a large percentage of patients who receive CERESTAT
for the treatment of stroke will be covered by Medicare and be subject to
limitations on reimbursement. If adequate coverage and reimbursement levels are
not provided by government and third-party payors for the Company's products,
the market acceptance of these products would be adversely affected.
The Company's business may be materially adversely affected by the
continuing efforts of governmental and third-party payors to contain or reduce
the costs of health care through various means. For example, in certain foreign
markets, pricing or profitability of prescription pharmaceuticals is subject to
government control. In the United States, there have been, and the Company
expects that there will continue to be, a number of federal and state proposals
to implement similar government control. In addition, an increasing emphasis on
managed care in the United States has and will continue to put pressure on
pharmaceutical pricing. Such initiatives and proposals, if adopted, could
decrease the price that the Company receives for any products it may develop and
sell in the future and thereby have a material adverse effect on the Company's
business, financial condition and results of operations. Further, to the extent
that such proposals or initiatives have a material adverse effect on other
pharmaceutical companies that are collaborators or prospective collaborators for
certain of the Company's potential products, the Company's ability to
commercialize its potential products may be adversely affected.
EMPLOYEES
On November 30, 1996, the Company had 72 full-time employees, of whom 56
were engaged in research and development and 16 in administration and finance.
Doctorates or other advanced degrees are held by 39 of the Company's employees.
Each of the Company's employees has signed a confidentiality agreement. The
Company's employees are not covered by a collective bargaining agreement. The
Company considers its employee relations to be good.
FACILITIES
The Company has facilities in Cambridge, Massachusetts, where it leases and
occupies a total of approximately 42,000 square feet of space, which includes
approximately 33,000 square feet of research laboratories.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
38
<PAGE> 40
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of November 30, 1996
with respect to the executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- -----------------------------------------------
<S> <C> <C>
Elkan R. Gamzu, Ph.D.......... 53 President and Chief Executive Officer; Director
Robert N. McBurney, Ph.D...... 48 Senior Vice President, Research;
Chief Scientific Officer
Harry W. Wilcox, III.......... 42 Senior Vice President, Finance and Business
Development; Chief Financial Officer;
Treasurer
Ross S. Gibson................ 38 Chief Administrative Officer
Nancy S. Amer (1)(2).......... 35 Director
Burkhard Blank, M.D. (2)...... 41 Director
Ira A. Jackson (2)............ 48 Director
S. Joshua Lewis (1)(2)........ 34 Director
Joseph B. Martin, M.D.,Ph.D... 58 Director
Paul C. O'Brien (1)........... 57 Director
Peter Stalker, III............ 38 Director
</TABLE>
- ---------------
(1) Member of the Compensation and Benefits Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
Elkan R. Gamzu, Ph.D., joined the Company as Vice President of Development
in October 1989. Dr. Gamzu served as President, Chief Operating Officer, and
Director of the Company from June 1990 through December 1993, at which time he
became Chief Executive Officer. Prior to joining the Company, Dr. Gamzu held a
number of positions at the Parke-Davis Pharmaceutical Research Division of
Warner-Lambert Company from 1985 to 1989, most recently as Vice President, Drug
Development. Prior thereto, he held various positions at Hoffmann-LaRoche, Inc.,
from 1971 to 1985. Dr. Gamzu's industry experience includes efforts to develop
products to treat severe neurological and psychiatric disorders such as
Alzheimer's disease, epilepsy, schizophrenia, and depression. While at
Warner-Lambert Company, he focused on the development of tacrine (Cognex[R]),
the first drug approved in the United States for use in the treatment of
Alzheimer's disease, and gabapentin (Neurontin[R]) for use in the treatment of
epilepsy. Dr. Gamzu earned a B.A. degree in Psychology and Sociology from Hebrew
University (Jerusalem, Israel), and M.A. and Ph.D. degrees in Psychology from
the University of Pennsylvania.
Robert N. McBurney, Ph.D., joined the Company as Director of
Electrophysiology and Cell Biophysics in December 1987, and served as Vice
President, Research from June 1990 through December 1993, at which time he
became Senior Vice President, Research and Chief Scientific Officer. Prior to
joining Cambridge NeuroScience, Dr. McBurney served from 1984 to 1987 as the
Assistant Director of the Medical Research Council Neuroendocrinology Unit in
Newcastle upon Tyne, England. Dr. McBurney earned B.Sc. and Ph.D. degrees in
Physiology from the University of New South Wales, and conducted postdoctoral
studies in Neurophysiology at Cambridge University and the National Institutes
of Health. Dr. McBurney has had numerous articles published on neurophysiology
in various scientific journals.
Harry W. Wilcox, III joined the Company as Senior Vice President, Finance
and Business Development and Chief Financial Officer in December 1995. Prior to
joining Cambridge NeuroScience, Mr. Wilcox served as Vice President, Finance and
Chief Financial Officer of Cellcor, Inc., a biotechnology company, since 1990.
While at Cellcor, Mr. Wilcox was also named Treasurer and Senior Vice President
of Business Development.
39
<PAGE> 41
From 1988 to 1990, he was a founder and general partner and Chief Financial
Officer of Highland Capital Partners, L.P., a venture capital firm. From 1983 to
1987, Mr. Wilcox was Controller, Vice President of Finance and Chief Financial
Officer at Charles River Ventures, Inc., a venture capital firm. Mr. Wilcox
earned an M.B.A. degree from Boston University and a B.A. degree in Finance from
the University of Arizona. Mr. Wilcox is a Certified Public Accountant.
Ross S. Gibson joined the Company as Manager, Human Resources in April
1992, and served as Director of Human Resources from September 1992 to April
1994, and as Senior Director of Corporate Resources from April 1994 to March
1995, at which time he was appointed as Chief Administrative Officer. Prior to
joining the Company, Mr. Gibson served from 1989 to 1992 as Manager, Human
Resources, at Lifeline Systems, Inc., a personal emergency response systems
company, and prior thereto he served for two years as Senior Benefits Specialist
at Lotus Development Corp., a computer company. Mr. Gibson earned his M.A.
degree in Management from Brandeis University and a B.A. degree in
Social-Psychology from Tufts University.
Nancy S. Amer has been a Director of the Company since September 1994.
Since December 1994, Ms. Amer has been a Managing Director of the Harvard
Private Capital Group, Inc., a subsidiary of Harvard Management Company, Inc.,
which manages the Harvard University endowment. Prior to joining Harvard, Ms.
Amer was a senior consultant with the Boston Consulting Group, Inc. She is also
a director of Procept, Inc., a biotechnology company, Playtex Products, Inc., a
consumer products company, and several privately held companies. Ms. Amer earned
a B.A. and an M.B.A. from Harvard University.
Burkhard Blank, M.D., has been a Director of the Company since July 1995.
Dr. Blank joined Boehringer Ingelheim GmbH, an operating division of BI, in 1986
and has served as the head of worldwide international project management for
Boehringer Ingelheim GmbH since 1993. From 1988 to 1993, Dr. Blank served as a
project leader for worldwide development of various programs at BI.
Ira A. Jackson has been a Director of the Company since May 1992. Mr.
Jackson has served as Senior Vice President of The First National Bank of
Boston, a commercial bank, since 1987. Prior thereto, Mr. Jackson was
Commissioner of Revenue for the Commonwealth of Massachusetts for a period of
five years. Earlier, he was Associate Dean of the John F. Kennedy School of
Government at Harvard University. Mr. Jackson received an A.B. from Harvard
University and an M.P.A. from the Kennedy School of Government.
S. Joshua Lewis has been a Director of the Company since April 1996. Mr.
Lewis, a Vice President of E.M. Warburg, Pincus & Co., Inc. ("EMW"), a venture
capital investment company, has held several positions at EMW since 1989. Mr.
Lewis is a director of CN Biosciences, Inc. and several privately held
companies.
Joseph B. Martin, M.D., Ph.D., has been a Director of the Company since
February 1987. Dr. Martin has been Chancellor of the University of California,
San Francisco since July 1993 and prior thereto was Dean and Professor of
Neurology of the School of Medicine at the University of California, San
Francisco since 1989. From 1978 to 1989, he was Chairman of the Neurology
Department at Massachusetts General Hospital and Professor of Neurology at
Harvard Medical School.
Paul C. O'Brien has been a Director of the Company since 1992. Since
January 1995, Mr. O'Brien has been President and Chief Executive Officer of The
O'Brien Group Inc., a consulting company. From 1993 until December 1994, Mr.
O'Brien was Chairman of New England Telephone and Telegraph Company, a
wholly-owned subsidiary of NYNEX Corporation. Prior thereto he served as
President and Chief Executive Officer of New England Telephone and Telegraph
Company. He is a director of BankBoston, The First National Bank of Boston, and
Shiva Corp. and First Pacific Networks Co., manufacturers of communications and
network products. Mr. O'Brien earned a B.S. in electrical engineering from
Manhattan College, an M.B.A. from New York University and holds three honorary
doctorates.
Peter Stalker, III has been a Director of the Company since December 1985.
Mr. Stalker, a partner of Warburg, Pincus & Co., a venture capital investment
company and the general partner of Warburg, Pincus Capital Partners, L.P.
("WPCP"), and a Managing Director of EMW, has been with EMW since 1984. He is
40
<PAGE> 42
a director of Biosys, Inc., a bioinsecticide company, IA Corporation, a computer
software company, and a number of private companies.
At each meeting of the Company's stockholders at which directors are to be
elected, the Company has agreed to nominate, recommend the election by the
Company's stockholders and use its best efforts to effect the election to the
Board of Directors of the Company (i) two individuals jointly designated by WPCP
and WPM, Inc., an affiliate of WPCP, as long as collectively they beneficially
own a least 20% of the outstanding Common Stock of the Company, (ii) one
individual designated by WPCP and WPM, Inc., as long as collectively they
beneficially own at least 5% or more but less than 20% of the outstanding Common
Stock of the Company and (iii) one individual designated by Aeneas Venture
Corporation ("Aeneas") as long as it beneficially owns 5% or more of the
outstanding Common Stock of the Company. Ms. Amer and Messrs. Lewis and Stalker
were appointed to the Board of Directors in accordance with this agreement.
Pursuant to the terms and conditions of the Stock Purchase Agreement
executed in connection with the BI collaboration, BI is entitled to designate
one nominee for election to the Board of Directors until such time as one of its
NMDA ion-channel blockers obtains final marketing approval and BI beneficially
owns less than 7% or more of the outstanding Common Stock of the Company.
Burkhard Blank, M.D., head of international project management for BI, was
appointed to the Board of Directors in accordance with this agreement. In the
event that BI owns more than 20% of the outstanding Common Stock of the Company,
BI is entitled to designate two nominees to the Board of Directors, provided
that the two nominees designated by BI shall not at any time represent more than
20% of the total number of members of the Company's Board of Directors.
41
<PAGE> 43
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's outstanding Common Stock as of November
30, 1996, and as adjusted to reflect the sale of the Common Stock offered
hereby, by (i) each person who is known by the Company to own beneficially more
than 5% of the Company's Common Stock, (ii) each of the Company's directors,
(iii) the Chief Executive Officer of the Company, (iv) each of the other three
most highly compensated executive officers and (v) all directors and executive
officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY
OWNED(1)(2)
SHARES -----------------------
BENEFICIALLY PRIOR TO AFTER
BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- ---------------------------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
Warburg, Pincus Capital Partners, L.P.(3)................. 3,057,929 20.4% 18.0%
466 Lexington Avenue
New York, New York 10017
Boehringer Ingelheim International GmbH................... 2,487,624 16.6% 14.6%
Postbox 200
D-55216 Ingelheim, Rhein
Germany
Aeneas Venture Corporation(4)............................. 1,192,033 7.9% 7.0%
c/o Harvard Management Company, Inc.
600 Atlantic Avenue
Boston, Massachusetts 02210
State of Wisconsin Investment Board....................... 970,000 6.5% 5.7%
P.O. Box 7842
Madison, Wisconsin 53703
S. Joshua Lewis(5)........................................ 3,057,929 20.4% 18.0%
Peter Stalker, III(5)..................................... 3,057,929 20.4% 18.0%
Burkhard Blank(6)......................................... 2,487,624 16.6% 14.6%
Nancy S. Amer(7).......................................... 1,192,033 7.9% 7.0%
Elkan R. Gamzu(8)......................................... 381,423 2.5% 2.2%
Robert N. McBurney(9)..................................... 209,701 1.4% 1.2%
Joseph B. Martin(10)...................................... 47,500 * *
Paul C. O'Brien(11)....................................... 45,000 * *
Ross S. Gibson(12)........................................ 26,165 * *
Ira A. Jackson(13)........................................ 20,000 * *
Harry W. Wilcox, III(14).................................. 2,748 * *
All current executive officers and directors as a group
(11 persons)(15)........................................ 7,470,123 48.5% 43.0%
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1% of the outstanding shares
of the Company's Common Stock.
(1) As of November 30, 1996, there were 15,000,703 shares of the Company's
Common Stock outstanding. The number of shares of Common Stock deemed
outstanding after this offering includes the 2,000,000 shares of Common
Stock which are being offered for sale by the Company in this offering.
Except as otherwise indicated, each owner has sole voting and investment
power of the shares owned. Ownership of shares held in the Cambridge
NeuroScience, Inc. 401(k) Plan is as of November 30, 1996.
(2) Shares issuable upon the exercise of options described in the following
notes are treated as outstanding solely for purposes of calculating the
percentage ownership of such person or group.
(3) The sole general partner of WPCP is Warburg, Pincus & Co. ("WP"), a New
York general partnership. EMW, through a wholly owned subsidiary, manages
WPCP. WP owns all of the outstanding stock of
42
<PAGE> 44
EMW and, as the sole general partner of WPCP, has a 20% interest in the
profits of WPCP. EMW owns 1.5% of the limited partnership interests in
WPCP. Mr. Lewis, a director of the Company, is a Vice President of EMW. Mr.
Stalker, a director of the Company, is a Managing Director of EMW and a
general partner of WP. Messrs. Lewis and Stalker may be deemed to have,
directly or indirectly, shared voting or investment power over these shares
and therefore may be deemed to be the beneficial owners of such shares. See
Note (5) below.
(4) Aeneas is a wholly owned subsidiary of the President and Fellows of Harvard
College, and is an investment affiliate of Harvard Private Capital Group,
Inc.
(5) All of the shares indicated as owned by Messrs. Lewis and Stalker are owned
directly by WPCP and are included because of Messrs. Lewis and Stalker's
affiliation with WPCP. Messrs. Lewis and Stalker each disclaim beneficial
ownership of these shares. See Note (3) above.
(6) All of the shares indicated as owned by Dr. Blank are owned directly by BI
and are included because of Dr. Blank's affiliation with BI. Dr. Blank may
be deemed to have, directly or indirectly, shared voting or investment
power over these shares and therefore may be deemed to be the beneficial
owner of such shares. Dr. Blank disclaims beneficial ownership of these
shares.
(7) All of the shares indicated as owned by Ms. Amer are owned directly by
Aeneas, an investment affiliate of Harvard Private Capital Group, Inc. of
which Ms. Amer is a Managing Director. Ms. Amer may be deemed to have,
directly or indirectly, shared voting or investment power over these shares
and therefore may be deemed to be the beneficial owner of such shares. Ms.
Amer disclaims beneficial ownership of these shares.
(8) Includes 176,093 shares which may be acquired within the 60-day period
following November 30, 1996 by Dr. Gamzu pursuant to the exercise of stock
options and 6,330 shares held in the Cambridge NeuroScience, Inc. 401(k)
Plan. See Note (1) above.
(9) Includes 126,875 shares which may be acquired within the 60-day period
following November 30, 1996 by Dr. McBurney pursuant to the exercise of
stock options and 6,326 shares held in the Cambridge NeuroScience, Inc.
401(k) Plan. See Note (1) above.
(10) Includes 20,000 shares which may be acquired within the 60-day period
following November 30, 1996 by Dr. Martin pursuant to the exercise of stock
options.
(11) Includes 20,000 shares which may be acquired within the 60-day period
following November 30, 1996 by Mr. O'Brien pursuant to the exercise of
stock options.
(12) Includes 23,000 shares which may be acquired within the 60-day period
following November 30, 1996 by Mr. Gibson pursuant to the exercise of stock
options and 2,944 shares held in the Cambridge NeuroScience, Inc. 401(k)
Plan. See Note (1) above.
(13) Consists of shares which may be acquired within the 60-day period following
November 30, 1996 by Mr. Jackson pursuant to the exercise of stock options.
(14) Includes 748 shares held in the Cambridge NeuroScience, Inc. 401(k) Plan.
See Note (1) above.
(15) See Notes (1), (2) and (5) through (14) above.
43
<PAGE> 45
DESCRIPTION OF CAPITAL STOCK
As of the date of this Prospectus, the authorized capital stock of the
Company consists of 30,000,000 shares of Common Stock, par value $0.001 per
share, and 10,000,000 shares of Preferred Stock, par value $0.01 per share.
Currently, there are no outstanding shares of Preferred Stock. The following
summary of the respective rights of the Common Stock and the Preferred Stock is
qualified in its entirety by reference to the Company's Restated Certificate of
Incorporation.
COMMON STOCK
As of November 30, 1996, there were 15,000,703 shares of Common Stock
outstanding. The holders of Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders. Subject to
preferences applicable to any outstanding Preferred Stock, holders of Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor. The Company has paid
no cash dividends on any of its capital stock and does not anticipate paying
cash dividends in the foreseeable future.
In the event of a liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities and the liquidation preference of any outstanding
Preferred Stock. The outstanding shares of Common Stock are, and the Common
Stock to be outstanding upon completion of the offering will be, fully paid and
nonassessable. No pre-emptive rights, conversion rights, redemption rights or
sinking fund provisions are applicable to the Common Stock.
PREFERRED STOCK
The Company's Board of Directors has the authority to issue 10,000,000
shares of Preferred Stock in one or more series and to fix the relative rights,
preferences, privileges, qualifications, limitations and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without
further vote or action by the stockholders.
REGISTRATION RIGHTS
Under the terms of a Stockholders' Agreement dated December 29, 1988, as
amended, by and among the Company and the investors listed therein, subject to
certain conditions, holders of shares of Common Stock, and future transferees of
such shares are entitled to certain rights with respect to registration under
the Securities Act. If the Company proposes to register any of its securities
under the Securities Act, either for its own account or for the account of other
security holders, the Company is required under this agreement to use its best
efforts to include such holders' registrable shares in such registration. In
addition, subject to certain conditions, the holders of not less than 30% of
such registrable securities, with the consent of holders of 66 2/3% of the
shares issued upon the conversion of the Series B Preferred Stock at the closing
of the Company's initial public offering, may require the Company on not more
than two occasions to file a registration statement under the Securities Act
with respect to at least 15% of such registrable securities.
Under the terms of a Stock Purchase Agreement dated as of March 21, 1995,
as amended, between the Company and BI, BI has the right to require that the
Company effect registration of its securities under the Act, at any time after
March 1997. Certain other conditions and restrictions apply to such
registrations.
Under the terms of a Stock Purchase Agreement dated as of November 20, 1996
between the Company and Allergan, at any time after November 1998, Allergan has
the right to require that the Company effect registration of its securities
under the Act and, in the event that the Company proposes to register any of its
securities under the Securities Act, either for its own account or for the
account of other security holders, the Company is required under this agreement
to use its best efforts to include Allergan's securities in such registration.
Certain other conditions and restrictions apply to such registrations.
44
<PAGE> 46
DELAWARE TAKEOVER STATUTE
In February 1988, a law regulating corporate takeovers (the "Takeover Law")
took effect in Delaware. In certain circumstances, the Takeover Law prevents
certain Delaware corporations, including those whose securities are listed on
the Nasdaq National Market, from engaging in a "business combination" (which
includes a merger or sale of more than 10% of the corporation's assets) with any
"interested stockholder" (a stockholder who owns 15% or more of the
corporation's outstanding voting stock) for three (3) years following the date
on which such stockholder became an "interested stockholder." A Delaware
corporation may "opt out" of the Takeover Law with an express provision either
in its original Certificate of Incorporation or in its Certificate of
Incorporation or By-laws resulting from an amendment approved by at least a
majority of the outstanding voting shares. The Company is a Delaware corporation
that is subject to the Takeover Law and has not "opted out" of its provisions.
The foregoing provisions of Delaware law could have the effect of
discouraging others from attempting hostile takeovers of the Company and, as a
consequence, they may also inhibit temporary fluctuations in the market price of
the Common Stock that often result from actual or rumored hostile takeover
attempts. Such provisions may also have the effect of preventing changes in the
management of the Company. It is possible that such provisions could make it
more difficult to accomplish transactions which stockholders may otherwise deem
to be in their best interests.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock of the Company is
ChaseMellon Shareholder Services, 450 West 33rd Street, New York, New York.
45
<PAGE> 47
UNDERWRITING
The Underwriters named below, acting through their representatives,
Robertson, Stephens & Company LLC and PaineWebber Incorporated (the
"Representatives"), have severally agreed with the Company, subject to the terms
and conditions of the Underwriting Agreement, to purchase from the Company the
number of shares of Common Stock set forth opposite their respective names
below. The Underwriters are committed to purchase and pay for all such shares if
any are purchased.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------------------------------------------------ ----------------
<S> <C>
Robertson, Stephens & Company LLC.....................
PaineWebber Incorporated..............................
---------
Total........................................ 2,000,000
=========
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not more than $ per share, of which
$ may be reallowed to other dealers. After the public offering, the
public offering price, concession and reallowance to dealers may be reduced by
the Representatives. No such reduction shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
additional 300,000 shares of Common Stock at the same price per share as the
Company will receive for the 2,000,000 shares that the Underwriters have agreed
to purchase. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of Common Stock
to be purchased by it shown in the above tables represents as a percentage of
the 2,000,000 shares offered hereby. If purchased, such additional shares will
be sold by the Underwriters on the same terms as those on which the 2,000,000
shares are being sold.
The Underwriting Agreement contains covenants of indemnity between the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liability arising from breaches of
representations and warranties contained in the Underwriting Agreement.
The executive officers, director and certain additional stockholders of the
Company have agreed with the Representatives for a period of 90 days from the
date of this Prospectus (the "Lock-Up Period") not to offer to sell, contract to
sell, or otherwise sell, dispose of, loan, pledge or grant any option to
purchase any shares of Common Stock, or any securities convertible into, or
exchangeable for, or any rights to purchase or acquire, shares of Common Stock,
now owned or hereafter acquired directly by such holders or with respect to
which they have the power of disposition, without the prior written consent of
Robertson, Stephens & Company LLC which may, in its sole discretion and at any
time or from time to time, without notice, release all or any portion of the
shares subject to the lock-up agreements. In addition, the Company has agreed
that, during the Lock-Up Period, the Company will not, without the prior written
consent of Robertson, Stephens & Company LLC, issue, sell, contract to sell or
otherwise dispose of any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock or any securities convertible into,
exercisable for or exchangeable for shares of Common Stock other than the
issuance of Common Stock upon the exercise of outstanding options and the
Company's grant of options under existing stock option plans.
The offering price for the Common Stock has been determined by negotiations
among the Company and the Representatives of the Underwriters, based largely
upon the market price for the Common Stock as reported on the Nasdaq National
Market.
46
<PAGE> 48
The rules of the Commission generally prohibit the Underwriters and other
members of the selling group, if any, from making a market in the Company's
Common Stock during the period immediately preceding the commencement of sales
in the offering. The Commission has, however, adopted exemptions from these
rules that permit passive market making under certain conditions. These rules
permit an Underwriter or other member of the selling group, if any, to continue
to make a market in the Company's Common Stock subject to the conditions, among
others, that its bid not exceed the highest bid by a market maker not connected
with the offering and that its net purchases on any one trading day not exceed
prescribed limits. Pursuant to these exemptions, certain Underwriters and other
members of the selling group intend to engage in passive market making in the
Company's Common Stock during such period.
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Palmer & Dodge LLP, Boston, Massachusetts. William T.
Whelan, a partner of Palmer & Dodge LLP, is an Assistant Secretary of the
Company. Certain matters relating to the offering will be passed upon for the
Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of the Company at December 31, 1995
and 1994, and for each of the three years in the period ended December 31, 1995,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing and incorporated by reference herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. Statements contained in this Prospectus as to the contents of any
contract or any other document referred to are not necessarily complete. For
further information pertaining to the Company and the Common Stock, reference is
made to such Registration Statement and the exhibits and schedules thereto,
which may be inspected without charge at the office of the Commission at 450
Fifth Street, N.W., Washington DC 20549, and copies of which may be obtained
from the Commission at prescribed rates. Statements contained in this Prospectus
as to the contents of any contract or other document filed, or incorporated by
reference, as an exhibit to the Registration Statement are qualified in all
respects by such reference.
47
<PAGE> 49
CAMBRIDGE NEUROSCIENCE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................................ F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Cash Flows................................................. F-5
Consolidated Statement of Changes in Stockholders' Equity............................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 50
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
CAMBRIDGE NEUROSCIENCE, INC.
We have audited the accompanying consolidated balance sheets of Cambridge
NeuroScience, Inc. as of December 31, 1995 and 1994, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Cambridge NeuroScience, Inc., at December 31, 1995 and 1994, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
February 2, 1996
F-2
<PAGE> 51
CAMBRIDGE NEUROSCIENCE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents........................... $ 6,268,757 $ 21,937,450 $ 27,336,831
Prepaid expenses and other current assets........... 373,844 506,721 537,113
------------ ------------ ------------
Total Current Assets.................................. 6,642,601 22,444,171 27,873,944
Equipment, Furniture, and Fixtures, net............... 2,687,496 1,876,473 1,294,832
------------ ------------ ------------
$ 9,330,097 $ 24,320,644 $ 29,168,776
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses............... $ 3,149,318 $ 3,797,308 $ 2,667,972
Research and development advances................... -- 995,205 5,918,942
------------ ------------ ------------
Total Current Liabilities............................. 3,149,318 4,792,513 8,586,914
Stockholders' Equity
Preferred stock, par value $.01, 10,000,000 shares
authorized; none issued.......................... -- -- --
Common stock, par value $.001, 30,000,000 shares
authorized; 10,774,217 shares issued and
outstanding at December 31, 1994; 13,539,214 at
December 31, 1995 and 14,813,682 at September 30,
1996............................................. 10,774 13,539 14,814
Additional paid-in capital.......................... 75,771,351 96,169,488 106,125,324
Accumulated deficit................................. (69,601,346) (76,654,896) (85,558,276)
------------ ------------ ------------
Total Stockholders' Equity............................ 6,180,779 19,528,131 20,581,862
------------ ------------ ------------
$ 9,330,097 $ 24,320,644 $ 29,168,776
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
<PAGE> 52
CAMBRIDGE NEUROSCIENCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- -------------------------
1993 1994 1995 1995 1996
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues
Research and development,
net......................... $ -- $ -- $ 8,155,039 $ 6,968,644 $ 1,897,135
Government grants............. 416,806 299,530 63,400 63,400
------------ ------------ ----------- ----------- -----------
416,806 299,530 8,218,439 7,032,044 1,897,135
Operating expenses
Research and development...... 12,763,362 12,721,964 13,849,665 10,411,694 9,747,856
General and administrative.... 3,487,930 2,863,425 2,158,332 1,685,229 1,874,568
------------ ------------ ----------- ----------- -----------
16,251,292 15,585,389 16,007,997 12,096,923 11,622,424
------------ ------------ ----------- ----------- -----------
Loss from operations.......... (15,834,486) (15,285,859) (7,789,558) (5,064,879) (9,725,289)
Interest income............... 515,452 400,727 736,008 498,670 821,909
Interest expense.............. 149,560 -- -- -- --
------------ ------------ ----------- ----------- -----------
Net loss...................... $(15,468,594) $(14,885,132) $(7,053,550) $(4,566,209) $(8,903,380)
=========== =========== ========== ========== ==========
Net loss per common share..... $ (1.79) $ (1.46) $ (0.59) $ (0.39) $ (0.65)
=========== =========== ========== ========== ==========
Number of shares outstanding
for purposes of computing
net loss per share.......... 8,633,970 10,229,894 11,927,450 11,677,152 13,674,170
=========== =========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
<PAGE> 53
CAMBRIDGE NEUROSCIENCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- -------------------------
1993 1994 1995 1995 1996
------------ ------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities
Net loss....................... $(15,468,594) $(14,885,132) $(7,053,550) $(4,566,209) $(8,903,380)
Expenses not requiring cash
Depreciation and
amortization.............. 854,380 1,081,475 1,134,325 884,800 780,000
Common stock issued pursuant
to an employee benefit
plan...................... 142,085 168,725 140,825 103,097 131,809
------------ ------------ ----------- ----------- -----------
(14,472,129) (13,634,932) (5,778,400) (3,578,312) (7,991,571)
Change in current assets and
liabilities
Prepaid expenses and other
current assets............ 203,922 48,170 (132,877) (88,781) (30,392)
Accounts payable and accrued
expenses.................. 529,896 (365,567) 647,990 (18,601) (1,129,336)
Research and development
advances.................. -- -- 995,205 922,925 4,923,737
------------ ------------ ----------- ----------- -----------
733,818 (317,397) 1,510,318 815,543 3,764,009
------------ ------------ ----------- ----------- -----------
Cash used for operating
activities........... (13,738,311) (13,952,329) (4,268,082) (2,762,769) (4,227,562)
Investing Activities
Purchase of equipment,
furniture, and fixtures, net
of disposals................ (932,204) (939,158) (323,302) (232,080) (198,359)
------------ ------------ ----------- ----------- -----------
Cash used for investing
activities........... (932,204) (939,158) (323,302) (232,080) (198,359)
Financing Activities
Sale of Common stock, net of
offering costs and
repurchases................. -- 13,253,385 10,926,744 10,064,919 125,302
Issuance of Common stock
pursuant to a Stock Purchase
Agreement, net of costs of
$666,667 in 1995 and
$300,000 in the nine months
ended September 30, 1996.... -- -- 9,333,333 -- 9,700,000
Repayment of long-term debt.... (2,500,000) -- -- -- --
------------ ------------ ----------- ----------- -----------
Cash provided by (used
for) financing
activities........... (2,500,000) 13,253,385 20,260,077 10,064,919 9,825,302
------------ ------------ ----------- ----------- -----------
Net Increase (Decrease) in Cash
and Cash Equivalents........... (17,170,515) (1,638,102) 15,668,693 7,070,070 5,399,381
Cash and cash equivalents at
beginning of year.............. 25,077,374 7,906,859 6,268,757 6,268,757 21,937,450
------------ ------------ ----------- ----------- -----------
Cash and cash equivalents at
end of year.................... $ 7,906,859 $ 6,268,757 $21,937,450 $13,338,827 $27,336,831
============ ============ =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
<PAGE> 54
CAMBRIDGE NEUROSCIENCE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
----------- ------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992...... 8,624,746 $8,625 $ 62,209,305 $(39,247,620) $22,970,310
Common stock, issued pursuant to
employee benefit plan........ 17,638 17 141,132 141,149
Sale of Common stock............ 156 1 935 936
Net loss........................ (15,468,594) (15,468,594)
---------- ------- ------------ ------------ -----------
Balance at December 31, 1993...... 8,642,540 8,643 62,351,372 (54,716,214) 7,643,801
Common stock, issued pursuant to
employee benefit plans....... 37,927 38 195,679 195,717
Sale of Common stock, pursuant
to private placement, net of
offering costs of $957,000... 2,100,000 2,100 13,216,175 13,218,275
Repurchase of Common stock...... (7,500) (8) (8)
Exercise of options............. 1,250 1 8,125 8,126
Net loss........................ (14,885,132) (14,885,132)
---------- ------- ------------ ------------ -----------
Balance at December 31, 1994...... 10,774,217 10,774 75,771,351 (69,601,346) 6,180,779
Sale of Common stock, net of
offering costs of $730,000... 1,200,000 1,200 8,868,800 8,870,000
Sale of Common stock, net of
offering costs of $175,000... 187,500 188 1,324,812 1,325,000
Common stock issued pursuant to
a Stock Purchase Agreement,
net of costs of $666,667..... 1,250,000 1,250 9,332,083 9,333,333
Common stock, issued pursuant to
employee benefit plans....... 34,129 34 186,381 186,415
Exercise of options............. 93,368 93 686,061 686,154
Net loss........................ (7,053,550) (7,053,550)
---------- ------- ------------ ------------ -----------
Balance at December 31, 1995...... 13,539,214 13,539 96,169,488 (76,654,896) 19,528,131
Common stock issued pursuant to
a Stock Purchase Agreement,
net of costs of $300,000
(unaudited).................. 1,237,624 1,238 9,698,762 9,700,000
Common stock, issued pursuant to
employee benefit plans
(unaudited).................. 22,584 23 180,978 181,001
Exercise of options
(unaudited).................. 14,260 14 76,096 76,110
Net loss (unaudited)............ (8,903,380) (8,903,380)
---------- ------- ------------ ------------ -----------
Balance at September 30, 1996
(unaudited)..................... 14,813,682 $14,814 $106,125,324 $(85,558,276) $20,581,862
========== ======= ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 55
CAMBRIDGE NEUROSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. Cambridge NeuroScience, Inc. (the "Company") is
engaged in the development of proprietary pharmaceuticals to prevent, reduce, or
reverse damage caused by severe disorders of the nervous system. Upon completion
of product development and receipt of regulatory approvals, it intends to
manufacture and market products developed through its research programs. Since
inception, the Company has been primarily engaged in research and development.
In the course of its development activities, the Company has sustained
continuing operating losses and expects such losses to continue for the
foreseeable future. The Company's most advanced product candidate, CERESTAT, is
currently being tested in Phase II clinical trials. In March 1995, the Company
entered into an agreement to collaborate in the worldwide development and
commercialization of CERESTAT (See Note F). As a result, the Company has
concluded that it is no longer in the development stage.
Principles of Consolidation. The consolidated financial statements include
the accounts of Cambridge NeuroScience, Inc., and its wholly owned subsidiary.
All inter-company accounts and transactions have been eliminated in
consolidation.
Interim Financial Information. The consolidated financial information at
September 30, 1996 and the nine months ended September 30, 1995 and 1996 is
unaudited but includes all adjustments (consisting only of normal recurring
adjustments) which the Company considers necessary for a fair presentation of
the consolidated financial position at such date and of the operating results
and cash flows for those periods. Results of the 1996 period are not necessarily
indicative of results expected for the entire year.
Use of Estimates. The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Impact of Recently Issued Accounting Standards. In March 1995, the FASB
issued Statement No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The Company will adopt Statement No. 121 in the first quarter of 1996. Due
to the fact that no indicators of impairment currently exist, the Company does
not believe that the effect of adoption will be material.
Cash and Cash Equivalents. The Company considers all highly liquid
instruments with a maturity of three months or less to be cash equivalents. The
Company's policy regarding investments, pending their use, is to ensure safety,
liquidity, and capital preservation while obtaining a reasonable rate of return.
Accordingly, at December 31, 1995, $21,584,886 are invested in a U.S. Government
portfolio investment fund that consists principally of U.S. Government and
agency obligations and repurchase agreements. Given the short-term nature of
these investments and their availability for use in the Company's current
operations, these amounts are classified as "available-for-sale." Management
determines the appropriate classification of its securities at the time of
purchase and reevaluates such classification at each balance sheet date.
Available-for-sale securities are carried at fair market value and unrealized
gains or losses are reported as a separate component of Stockholders' Equity. At
December 31, 1995, the cost of these investments approximates fair market value.
Equipment, Furniture, and Fixtures. Equipment, furniture, and fixtures are
recorded at cost. Depreciation is provided using the straight-line method over
the following estimated useful lives:
<TABLE>
<S> <C>
Equipment, furniture, and fixtures......................... 3 - 5 years
Leasehold improvements..................................... Term of the lease
</TABLE>
F-7
<PAGE> 56
CAMBRIDGE NEUROSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Based Compensation. The Company accounts for its stock based
compensation arrangements under the provisions of APB 25, "Accounting for Stock
Issued to Employees," and intends to continue to do so.
Revenue Recognition. Research and development revenue is recognized as
earned and represents reimbursement of the excess of the Company's expenditures
over its obligations pursuant to a collaboration agreement (See Note F). Revenue
from government grants is recorded, as earned, based on the performance
requirements of the grant. Expenses relating to these performance requirements
are recorded as research and development expenses. Payments received in advance
of research and development performed are designated as research and development
advances.
Income Taxes. The liability method is used to account for income taxes.
Deferred tax assets and liabilities are determined based on differences between
financial reporting and income tax bases of assets and liabilities as well as
net operating loss carryforwards and are measured using the enacted tax rates
and laws that will be in effect when the differences reverse. Deferred tax
assets may be reduced by a valuation allowance to reflect the uncertainty
associated with their ultimate realization.
Significant Customers. Revenue in 1995 consisted primarily of revenue
arising from a collaborative agreement (See Note F). Grants from the U.S.
Government accounted for 100% of total revenues in 1994 and 1993.
Net loss per share. Net loss per share is computed using the
weighted-average number of common shares outstanding during the period. Common
equivalent shares from stock options are excluded as their effect is
antidilutive.
NOTE B -- EQUIPMENT, FURNITURE, AND FIXTURES
Equipment, furniture, and fixtures consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
Equipment................................................... $3,795,015 $4,073,546
Furniture and fixtures...................................... 434,055 434,760
Leasehold improvements...................................... 2,134,116 2,134,116
---------- ----------
6,363,186 6,642,422
Less accumulated depreciation and amortization.............. 3,675,690 4,765,949
---------- ----------
Equipment, furniture and fixtures, net...................... $2,687,496 $1,876,473
========= =========
</TABLE>
NOTE C -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
Accounts payable............................................ $ 750,467 $ 973,715
Accrued compensation........................................ 546,019 235,989
Accrued research and development expenses................... 769,682 1,380,500
Accrued other............................................... 1,083,150 1,207,104
---------- ----------
$3,149,318 $3,797,308
========= =========
</TABLE>
F-8
<PAGE> 57
CAMBRIDGE NEUROSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1994, the Company had accrued for costs to be incurred
pursuant to a reduction in workforce implemented in January 1995. Total cost
relating to this reduction in workforce, consisting primarily of severance and
related benefits, was approximately $350,000.
NOTE D -- INCOME TAXES
At December 31, 1995, the Company has a potential tax benefit of
approximately $27 million resulting primarily from approximately $75 million in
net operating loss carryforwards which expire through 2010. Since the Company
has incurred only losses since inception and due to the degree of uncertainty
related to the ultimate use of the loss carryforwards, the Company has fully
reserved this tax benefit. Additionally, the future utilization of net operating
loss carryforwards may be subject to limitations under the change in stock
ownership rules of the Internal Revenue Code.
Significant components of the Company's deferred tax assets are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards............................. $ 23,500 $ 25,500
Tax credits.................................................. 1,300 1,500
-------- --------
Total deferred tax assets...................................... 24,800 27,000
Valuation allowance.......................................... (24,800) (27,000)
-------- --------
Net deferred tax assets........................................ $ -- $ --
======== ========
</TABLE>
NOTE E -- STOCKHOLDERS' EQUITY
Preferred Stock. The Board of Directors is authorized to fix designations,
relative rights, preferences, and limitations on the preferred stock at the time
of issuance.
Equity Incentive Plans. The Company has a 1991 Equity Incentive Plan (the
"Plan") which provides for the granting of options to purchase 1,600,000 shares
of the Company's Common Stock. The Plan provides for the issuance or award of
incentive stock options at no less than the fair market value at the date of the
grant, non-qualified stock options, stock appreciation rights, performance
shares, restricted Common Stock, and stock units at prices to be determined by
the Board of Directors. All employees and, in the case of awards other than
incentive stock options, consultants to the Company are eligible for awards
under the Plan. The term of all stock options granted may not exceed ten years,
and vesting generally is over a four-year period.
F-9
<PAGE> 58
CAMBRIDGE NEUROSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes stock option activity for the 1991 Equity
Incentive Plan:
<TABLE>
<CAPTION>
SHARES
UNDER
OPTION OPTION PRICE
--------- -------------
<S> <C> <C>
Outstanding at December 31, 1992.......................... 621,693 $4.75 - 12.75
Granted................................................. 398,805 6.25 - 9.75
Canceled................................................ (87,312) 6.00 - 10.50
Exercised............................................... (156) 6.00
--------- -------------
Outstanding at December 31, 1993.......................... 933,030 4.75 - 12.75
Granted................................................. 433,750 3.75 - 8.00
Canceled................................................ (75,450) 4.25 - 10.25
Exercised............................................... (1,250) 7.50
--------- -------------
Outstanding at December 31, 1994.......................... 1,290,080 3.75 - 12.75
Granted................................................. 374,125 4.88 - 11.00
Canceled................................................ (351,864) 3.75 - 12.50
Exercised............................................... (93,368) 4.25 - 9.00
--------- -------------
Outstanding at December 31, 1995.......................... 1,218,973 $4.00 - 12.75
======== =============
</TABLE>
At December 31, 1995, options for the issuance of 539,772 shares were
exercisable.
In addition, the Company has a 1992 Director Stock Option Plan (the "1992
Plan") pursuant to which nonstatutory stock options to purchase 20,000 shares of
the Company's Common Stock are automatically granted at fair market value upon
initial election to the Board of Directors. The 1992 Plan has reserved an
aggregate of 100,000 shares for this purpose. At December 31, 1995, options to
purchase 40,000 shares have been granted under this plan, of which 35,000 were
exercisable.
Benefit Plans. The Company has an employee savings plan that qualifies
under Section 401(k) of the Internal Revenue Code in which all eligible
employees may participate. For the plan years ended December 31, 1993, 1994, and
1995, the Company matched 100% of all qualified employee contributions with
Company Common Stock. Of the 100,000 shares authorized for issuance pursuant to
this plan, 85,053 were issued and outstanding at December 31, 1995. In January
1996, the Board of Directors authorized an additional 100,000 shares of Common
Stock for issuance pursuant to this plan.
Employee Stock Purchase Plan. The 1993 Employee Stock Purchase Plan (the
"ESPP") provides for the grant of rights to eligible employees to purchase up to
250,000 shares of the Company's Common Stock at the lesser of 85% of the fair
market value at the beginning or the end of the established offering period. No
shares were issued under the ESPP in 1993. During 1994, 6,351 shares were issued
at $4.25 per share. During 1995, 12,620 shares were issued at $3.61 per share.
At December 31, 1995, subscriptions were outstanding for 4,068 shares at $4.99
per share.
The aggregate number of shares of Common Stock reserved and available for
issuance under all stock plans was 588,161 at December 31, 1995.
NOTE F -- COLLABORATIVE AGREEMENT
In March 1995, the Company entered into agreements with Boehringer
Ingelheim International GmbH ("BI") to collaborate on the development and
commercialization of the Company's lead product, CERESTAT. On the signing of
these agreements, the Company received proceeds of $15 million, before related
costs of $1 million, consisting of $10 million for the purchase of 1,250,000
shares of the Company's Common Stock and $5 million for the reimbursement of
previously incurred CERESTAT-related costs. The
F-10
<PAGE> 59
CAMBRIDGE NEUROSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
terms of the agreements generally provide that BI will fund at least 75% of the
development costs for the product in the United States and Europe, and 100% of
the development costs in Japan. In addition, the Company may receive up to an
additional $28 million in cash, including an equity investment, upon the
achievement of certain milestones. However, there can be no assurance as to when
or if these milestones will be achieved. The Company has retained the right to
co-promote CERESTAT in the United States and has granted BI exclusive marketing
rights in other countries in exchange for royalties on product sales. BI has
certain termination rights including the right at its sole discretion to
terminate its agreement with the Company upon 90 days' written notice.
Research and development revenue consists of the reimbursement by BI of the
$5 million of costs incurred prior to signing the agreements, net of related
costs of $333,000, as well as $3.5 million representing the excess of the
Company's expenditures over its estimated obligation. Under the terms of the
agreements, an accounting of annual total costs incurred by both parties will
occur 120 days after year end. Any costs incurred in excess of one party's
contractual obligation will be reimbursed by the other party. The calculation of
revenue for the year ended December 31, 1995 is based in part upon an estimate
of costs incurred by BI during the contract period. During 1995, BI remitted to
the Company a predetermined amount, on a quarterly basis, in the form of
advances against the estimated 1995 reimbursable costs. At December 31, 1995,
the difference of $995,000 between cash advances received and revenue recognized
is recorded as research and development advances.
NOTE G -- COMMITMENTS
The Company leases its office and research facilities under the terms of a
five-year agreement, which expires June 1997. The agreement contains an option
to extend the lease for an additional five-year period. Under the terms of this
lease, the Company pays the property taxes, insurance, maintenance, and expenses
related to the leased property. Minimum future obligations under the terms of
the facilities lease are:
<TABLE>
<S> <C>
1996................................................... $781,000
1997................................................... 392,000
</TABLE>
Total rent expense relating to this lease was approximately $976,000,
$1,073,000, and $1,087,000 in 1993, 1994, and 1995, respectively.
In connection with its research and development activities, primarily
clinical trials, and an employment agreement with an executive officer, the
Company has total noncancelable commitments of approximately $300,000 at
December 31, 1995.
NOTE H -- SUBSEQUENT EVENTS (UNAUDITED)
Pursuant to the terms of the collaboration agreement with BI and in
connection with the commencement of the pivotal stroke trial by BI, the Company
received a milestone payment in September 1996 of $10.0 million, before related
costs of $300,000, in exchange for 1,237,624 shares of the Company's Common
Stock.
In November 1996 the Company entered into a collaboration with Allergan
Inc. ("Allergan") to develop certain NMDA ion-channel blockers, sodium
ion-channel blockers and combination ion-channel blockers for the treatment of
ophthalmic disorders, including glaucoma. Upon signing the agreement, Allergan
purchased 175,103 shares of the Company's Common Stock for $3.0 million.
Allergan will provide an additional $3.0 million in research funding over the
next three years and has established a $2.0 million line of credit for the
Company. Allergan will be responsible for the development of potential products
and will bear all of the development costs. The Company may receive up to an
additional $18.5 million in cash upon the achievement of certain milestones and
will receive a royalty on product sales.
F-11
<PAGE> 60
COMPANY LOGO
<PAGE> 61
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following expenses incurred in connection with the sale of the
securities being registered will be borne by the Registrant. Other than the SEC
and NASD registration fees, the amounts stated are estimates.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 9,148
NASD fee.......................................................... 3,519
Nasdaq listing fee................................................ 17,500
Blue Sky fees and expenses........................................ 5,000
Printing and engraving expenses................................... 100,000
Accounting fees and expenses...................................... 60,000
Legal fees and expenses........................................... 150,000
Transfer Agent and Registrar fees................................. 3,500
Miscellaneous expenses............................................ 51,333
-------
Total................................................... $400,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law permits the Registrant
to indemnify directors, officers, employees and agents of the Registrant against
actual and reasonable expenses (including attorneys' fees) incurred by them in
connection with any action, suit or proceeding brought against them by reason of
their status or service as a director, officer, employee or agent by or on
behalf of the Registrant, and against expenses (including attorneys' fees),
judgments, fines and settlements actually and reasonably incurred by him or her
in connection with any such action, suit or proceeding, if (i) he or she acted
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the Registrant and (ii) in the case of a
criminal proceeding, he or she had no reasonable cause to believe his or her
conduct was unlawful. Except as ordered by a court, no indemnification shall be
made in connection with any proceeding brought by or in the right of the
corporation where the person involved is adjudged to be liable to the
Registrant.
Article EIGHTH of the Registrant's Restated Certificate of Incorporation
provides that the Registrant shall, to the fullest extent permitted by Section
145 of the Delaware General Corporation Law, as that section may be amended and
supplemented from time to time, indemnify any and all persons whom it shall have
power under that Section to indemnify against any expenses, liabilities or other
matters referred to or covered by that Section. The indemnification provided for
in Article EIGHTH is expressly not exclusive of any other rights to which those
seeking indemnification may be entitled under any By-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in their
official capacities and as to action in another capacity while holding such
office, and continues as to a person who has ceased to be a director, officer,
employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
Pursuant to the Delaware General Corporation Law, Article NINTH of the
Registrant's Restated Certificate of Incorporation eliminates the directors'
personal liability for monetary damages to the Registrant and its stockholders
for breaches of fiduciary duty, except in circumstances involving a breach of
the directors duty of loyalty to the Registrant to its stockholders, bad faith,
intentional misconduct, knowing violations of law, the unlawful payment of
dividends or repurchase of stock or transaction from which the director derived
an improper personal benefit.
Article VII, Section 7 of the Registrant's Amended and Restated By-laws
also provides that the Registrant shall indemnify its officers, directors,
employees and agents to the extent permitted by the Delaware General Corporation
Law. The Registrant has entered into indemnification agreements with certain of
the directors and executive officers of the Registrant. In addition, the
Registrant carries a Director and Officers' liability insurance policy.
II-1
<PAGE> 62
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement. Filed herewith.
4.1 Restated Certificate of Incorporation of Cambridge NeuroScience, Inc. Filed as
Exhibit 4.1 to Registration Statement on Form S-8 (File No. 33-42933) and
incorporated by reference.
4.2 Amended and Restated By-laws of Cambridge NeuroScience, Inc. Filed as Exhibit
4.2 to Registration Statement on Form S-8 (File No. 33-42933) and incorporated
herein by reference.
5.1 Opinion of Palmer & Dodge LLP as to the legality of the securities registered
hereunder. Filed herewith.
23.1 Consent of Ernst & Young LLP, independent auditors. Filed herewith.
23.2 Consent of Palmer & Dodge LLP (included in Exhibit 5.1).
24.1 Power of Attorney (contained on Signature Page).
</TABLE>
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 63
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cambridge, Commonwealth of Massachusetts, on December
19, 1996.
CAMBRIDGE NEUROSCIENCE, INC.
By: /s/ Elkan R. Gamzu
-----------------------------
Elkan R. Gamzu, Ph.D.
President and Chief Executive
Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of Cambridge NeuroScience, Inc.,
hereby severally constitute and appoint Elkan R. Gamzu, Harry W. Wilcox, III and
William T. Whelan, and each of them singly, our true and lawful attorneys, with
full power to them in any and all capacitates, to sign any amendments to this
Registration Statement on Form S-3 (including Pre- and Post-Effective
Amendments) and any and all registration statements (including any amendments
thereto) relating to the offering covered hereby which may be filed with the
Securities and Exchange Commission pursuant to Rule 462(b) under the Securities
Act of 1933, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact may do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------- -------- ----
<S> <C> <C>
/s/ Elkan R. Gamzu President, Chief Executive December 19, 1996
- ----------------------------------------------- Officer and Director
Elkan R. Gamzu, Ph.D. (Principal Executive
Officer)
/s/ Harry W. Wilcox, III Senior Vice President, December 19, 1996
- ----------------------------------------------- Finance and Business
Harry W. Wilcox, III Development and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Nancy S. Amer Director December 19, 1996
- -----------------------------------------------
Nancy S. Amer
/s/ Burkhard Blank, M.D. Director December 19, 1996
- -----------------------------------------------
Burkhard Blank, M.D.
/s/ Ira A. Jackson Director December 19, 1996
- -----------------------------------------------
Ira A. Jackson
</TABLE>
II-3
<PAGE> 64
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------- -------- ----
<S> <C> <C>
/s/ S. Joshua Lewis Director December 19, 1996
- -----------------------------------------------
S. Joshua Lewis
/s/ Joseph B. Martin Director December 19, 1996
- -----------------------------------------------
Joseph B. Martin, M.D., Ph.D.
/s/ Paul C. O'Brien Director December 19, 1996
- -----------------------------------------------
Paul C. O'Brien
/s/ Peter Stalker, III Director December 19, 1996
- -----------------------------------------------
Peter Stalker, III
</TABLE>
II-4
<PAGE> 65
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------ -----------------------------------------------------------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement. Filed herewith.........................
4.1 Restated Certificate of Incorporation of Cambridge NeuroScience, Inc.
Filed as Exhibit 4.1 to Registration Statement on Form S-8 (File No.
33-42933) and incorporated by reference................................
4.2 Amended and Restated By-laws of Cambridge NeuroScience, Inc. Filed as
Exhibit 4.2 to Registration Statement on Form S-8 (File No. 33-42933)
and incorporated herein by reference...................................
5.1 Opinion of Palmer & Dodge LLP as to the legality of the securities
registered hereunder. Filed herewith...................................
23.1 Consent of Ernst & Young LLP, independent auditors. Filed herewith.....
23.2 Consent of Palmer & Dodge LLP (included in Exhibit 5.1)................
24.1 Power of Attorney (contained on Signature Page)........................
</TABLE>
<PAGE> 1
2,000,000 SHARES(1)
CAMBRIDGE NEUROSCIENCE, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
January __, 1997
ROBERTSON, STEPHENS & COMPANY LLC
PAINEWEBBER INCORPORATED
As Representatives of the several Underwriters
c/o Robertson, Stephens & Company LLC
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
Cambridge NeuroScience, Inc., a Delaware corporation (the "COMPANY"),
addresses you as the Representatives of each of the persons, firms and
corporations listed in Schedule A hereto (herein collectively called the
"UNDERWRITERS") and hereby confirms its agreement with the several Underwriters
as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell 2,000,000
shares of its authorized and unissued Common Stock, $.001 par value per share
(the "FIRM SHARES"), to the several Underwriters. The Company also proposes to
grant to the Underwriters an option to purchase up to 300,000 additional shares
of the Company's Common Stock, $.001 par value per share (the "OPTION SHARES"),
as provided in Section 7 hereof. As used in this Agreement, the term "SHARES"
shall include the Firm Shares and the Option Shares. All shares of Common Stock,
$.001 par value per share, of the Company to be outstanding after giving effect
to the sales contemplated hereby, including the Shares, are hereinafter referred
to as "COMMON STOCK."
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
I. The Company represents and warrants to and agrees with each
Underwriter that:
(a) A registration statement on Form S-3 (File No. 333-_______) with
respect to the Shares, including a prospectus subject to completion, has been
prepared by the Company
- ------------------
(1) Plus an option to purchase up to 300,000 additional shares from the Company
to cover over-allotments.
<PAGE> 2
in conformity with the requirements of the Securities Act of 1933, as amended
(the "ACT"), and the applicable rules and regulations (the "RULES AND
REGULATIONS") of the Securities and Exchange Commission (the "COMMISSION") under
the Act and has been filed with the Commission; such amendments to such
registration statement, such amended prospectuses subject to completion and such
abbreviated registration statements pursuant to Rule 462(b) of the Rules and
Regulations as may have been required prior to the date hereof have been
similarly prepared and filed with the Commission; and the Company will file such
additional amendments to such registration statement, such amended prospectuses
subject to completion and such abbreviated registration statements as may
hereafter be required. Copies of such registration statement and amendments of
each related prospectus subject to completion (the "PRELIMINARY PROSPECTUSES"),
including all documents incorporated by reference therein, and of any
abbreviated registration statement pursuant to Rule 462(b) of the Rules and
Regulations have been delivered to you or your counsel and, to the extent
applicable, were identical to the electronically transmitted copies thereof
filed with the Commission pursuant to the Commission's Electronic Data
Gathering, Analysis and Retrieval System ("EDGAR"), except to the extent
permitted by Regulation S-T. The Company and the transactions contemplated by
this Agreement meet the requirements for using Form S-3 under the Act.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information omitted from the registration
statement pursuant to Rule 430A(a) or, if Robertson, Stephens & Company LLC, on
behalf of the several Underwriters, shall agree to the utilization of Rule 434
of the Rules and Regulations, the information required to be included in any
term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the Rules
and Regulations or as part of a post-effective amendment to the registration
statement (including a final form of prospectus). If the registration statement
relating to the Shares has not been declared effective under the Act by the
Commission, the Company will prepare and promptly file an amendment to the
registration statement, including a final form of prospectus, or, if Robertson,
Stephens & Company LLC, on behalf of the several Underwriters, shall agree to
the utilization of Rule 434 of the Rules and Regulations, the information
required to be included in any term sheet filed pursuant to Rule 434(b) or (c),
as applicable, of the Rules and Regulations. The term "REGISTRATION STATEMENT"
as used in this Agreement shall mean such registration statement, including
financial statements, schedules and exhibits, in the form in which it became or
becomes, as the case may be, effective (including, if the Company omitted
information from the registration statement pursuant to Rule 430A(a) or files a
term sheet pursuant to Rule 434 of the Rules and Regulations, the information
deemed to be a part of the registration statement at the time it became
effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules and Regulations)
and, in the event of any amendment thereto or the filing of any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations
relating thereto after the effective date of such registration statement, shall
also mean (from and after the effectiveness of such amendment or the filing of
such abbreviated registration statement) such registration statement as so
amended, together with any such abbreviated registration statement. The term
"PROSPECTUS" as used in this Agreement shall mean the prospectus relating to the
Shares as included in such Registration Statement at the time it becomes
effective (including, if the Company omitted
2
<PAGE> 3
information from the Registration Statement pursuant to Rule 430A(a) of the
Rules and Regulations, the information deemed to be a part of the Registration
Statement at the time it became effective pursuant to Rule 430A(b) of the Rules
and Regulations), provided, however, that if in reliance on Rule 434 of the
Rules and Regulations and with the consent of Robertson, Stephens & Company LLC,
on behalf of the several Underwriters, the Company shall have provided to the
Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable, prior
to the time that a confirmation is sent or given for purposes of Section
2(10)(a) of the Act, the term "PROSPECTUS" shall mean the "prospectus subject to
completion" (as defined in Rule 434(g) of the Rules and Regulations) last
provided to the Underwriters by the Company and circulated by the Underwriters
to all prospective purchasers of the Shares (including the information deemed to
be a part of the Registration Statement at the time it became effective pursuant
to Rule 434(d) of the Rules and Regulations). Notwithstanding the foregoing, if
any revised prospectus shall be provided to the Underwriters by the Company for
use in connection with the offering of the Shares that differs from the
prospectus referred to in the immediately preceding sentence (whether or not
such revised prospectus is required to be filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations), the term "PROSPECTUS" shall refer to
such revised prospectus from and after the time it is first provided to the
Underwriters for such use. If in reliance on Rule 434 of the Rules and
Regulations and with the consent of Robertson, Stephens & Company LLC, on behalf
of the several Underwriters, the Company shall have provided to the Underwriters
a term sheet pursuant to Rule 434(b) or (c), as applicable, prior to the time
that a confirmation is sent or given for purposes of Section 2(10)(a) of the
Act, the Prospectus and the term sheet, together, will not be materially
different from the prospectus in the Registration Statement. Any reference to
the Registration Statement or the Prospectus shall be deemed to refer to and
include the documents incorporated by reference therein pursuant to Item 12 of
Form S-3 under the Act, as of the date of the Registration Statement or the
Prospectus, as the case may be, and any reference to any amendment or supplement
to the Registration Statement or the Prospectus shall be deemed to refer to and
include any documents filed after such date under the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), which, upon filing, are incorporated by
reference therein, as required by paragraph (b) of Item 12 of Form S-3. As used
in this Agreement, the term "INCORPORATED DOCUMENTS" means the documents which
at the time are incorporated by reference in the Registration Statement, the
Prospectus or any amendment or supplement thereto. For purposes of this
Agreement, all references to the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement to any of the
foregoing shall be deemed to include the respective copies thereof filed with
the Commission pursuant to EDGAR.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus or instituted proceedings for that
purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and at the time
the Registration Statement became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date (hereinafter
defined) and on any later date on which Option Shares are to be purchased, (i)
the Registration Statement and the Prospectus, and any amendments or
3
<PAGE> 4
supplements thereto, contained and will contain all material information
required to be included therein by the Act and the Rules and Regulations and
will in all material respects conform to the requirements of the Act and the
Rules and Regulations, (ii) the Registration Statement, and any amendments or
supplements thereto, did not and will not include any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (iii) the
Prospectus, and any amendments or supplements thereto, did not and will not
include any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; PROVIDED, HOWEVER, that none of the
representations and warranties contained in this subparagraph (b) shall apply to
information contained in or omitted from the Registration Statement or
Prospectus, or any amendment or supplement thereto, in reliance upon, and in
conformity with, written information relating to any Underwriter furnished to
the Company by such Underwriter specifically for use in the preparation thereof.
The Incorporated Documents heretofore filed, when they were filed
(or, if any amendment with respect to any such document was filed, when such
amendment was filed), conformed in all material respects with the requirements
of the Exchange Act and the rules and regulations of the Commission thereunder;
any further Incorporated Documents so filed will, when they are filed, conform
in all material respects with the requirements of the Exchange Act and the rules
and regulations of the Commission thereunder; no such document when it was filed
(or, if an amendment with respect to any such document was filed, when such
amendment was filed), contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and no such further amendment will
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation with full power and authority
(corporate and other) to own, lease and operate its properties and conduct its
business as described in the Prospectus; the Company owns all of the outstanding
capital stock of its subsidiaries free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest; each of the Company and its
subsidiaries is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the ownership or leasing of its
properties or the conduct of its business requires such qualification, except
where the failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise; no proceeding has been instituted in any such
jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification; each of the Company and its
subsidiaries is in possession of and operating in compliance with all
authorizations, licenses, certificates, consents, orders and permits from state,
federal and other regulatory authorities including, without limitation, the
United States Food and Drug Administration (the "FDA"), the Drug Enforcement
Agency (the "DEA") and the United States Environment Protection Agency (the
"EPA"), which are material to the conduct of its business,
4
<PAGE> 5
all of which are valid and in full force and effect; there are no FDA, DEA or
EPA enforcement actions pending or threatened against the Company or any of its
subsidiaries; the Company and its subsidiaries are conducting their business in
compliance with all the laws, rules and regulations of the jurisdictions in
which they are conducting business, including, without limitation, the FDA, the
DEA and the EPA, except where failure to be so in compliance would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise; neither the Company nor any of its subsidiaries is
in violation of its respective charter or bylaws or in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any material bond, debenture, note or other evidence of
indebtedness, or in any material lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument to which
the Company or any of its subsidiaries is a party or by which it or any of its
subsidiaries or their respective properties may be bound; and neither the
Company nor any of its subsidiaries is in material violation of any law, order,
rule, regulation, writ, injunction, judgment or decree of any court, government
or governmental agency or body, domestic or foreign, having jurisdiction over
the Company or any of its subsidiaries or over their respective properties of
which it has knowledge. The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than those
subsidiaries listed in Exhibit 21 to the Registration Statement.
(d) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and is
a valid and binding agreement on the part of the Company, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument to which
the Company or any of its subsidiaries is a party or by which it or any of its
subsidiaries or their respective properties may be bound, (ii) the charter or
bylaws of the Company or any of its subsidiaries, or (iii) any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or over their respective properties. No
consent, approval, authorization or order of or qualification with any court,
government or enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; the performance
of this Agreement and the consummation of the transactions herein contemplated
will not result in a material breach or violation of any of the terms and
provisions of, or constitute a default under, (i) any bond, debenture, note or
other evidence of indebtedness, or under any lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which it or any of its subsidiaries or their respective properties may be bound,
or (ii) any law, order, rule, regulation, writ, injunction, judgment or decree
of any court, government or governmental agency or body, domestic or foreign,
having jurisdiction over the Company or any of its subsidiaries or over their
respective properties. No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective properties is required for the
5
<PAGE> 6
execution and delivery of this Agreement and the consummation by the Company or
any of its subsidiaries of the transactions herein contemplated, except such as
may be required under the Act or under state or other securities or Blue Sky
laws, or under the rules and regulations of the National Association of
Securities Dealers, Inc. (the "NASD"), all of which requirements have been
satisfied in all material respects.
(e) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the Company, any
of its subsidiaries or any of their respective officers or any of their
respective properties, assets or rights before any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or over their respective officers or
properties or otherwise which (i) might result in any material adverse change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise or might materially and adversely affect their properties, assets or
rights, (ii) might prevent consummation of the transactions contemplated hereby
or (iii) is required to be disclosed in the Registration Statement or Prospectus
and is not so disclosed; and there are no agreements, contracts, leases or
documents of the Company or any of its subsidiaries of a character required to
be described or referred to in the Registration Statement or Prospectus or any
Incorporated Document or to be filed as an exhibit to the Registration Statement
or any Incorporated Document by the Act or the Rules and Regulations or by the
Exchange Act or the rules and regulations of the Commission thereunder which
have not been accurately described in all material respects in the Registration
Statement or Prospectus or any Incorporated Document or filed as exhibits to the
Registration Statement or any Incorporated Document.
(f) All outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities, and the authorized and outstanding capital
stock of the Company is as set forth in the Prospectus under the caption
"Capitalization" and conforms in all material respects to the statements
relating thereto contained in the Registration Statement and the Prospectus (and
such statements correctly state the substance of the instruments defining the
capitalization of the Company); the Firm Shares and the Option Shares have been
duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company against payment therefor
in accordance with the terms of this Agreement, will be duly and validly issued
and fully paid and nonassessable, and will be sold free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest; and no
preemptive right, co-sale right, registration right, right of first refusal or
other similar right of stockholders exists with respect to any of the Firm
Shares or Option Shares or the issuance and sale thereof other than those that
have been expressly waived prior to the date hereof and those that will
automatically expire upon the consummation of the transactions contemplated on
the Closing Date. No further approval or authorization of any stockholder, the
Board of Directors of the Company or others is required for the issuance and
sale or transfer of the Shares except as may be required under the Act, the
Exchange Act or under state or other securities or Blue Sky laws or pursuant to
the rules and regulations of the NASD. All issued and outstanding shares of
capital stock of each subsidiary of the Company have been
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duly authorized and validly issued and, are fully paid and nonassessable, and
were not issued in violation of or subject to any preemptive right, or other
rights to subscribe for or purchase shares and are owned by the Company free and
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest. Except as disclosed in or contemplated by the Prospectus and the
financial statements of the Company, and the related notes thereto, included or
incorporated by reference in the Prospectus, neither the Company nor any
subsidiary has outstanding any options to purchase, or any preemptive rights or
other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth or incorporated by reference in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights.
(g) Ernst & Young LLP, which has examined the consolidated financial
statements of the Company, together with the related schedules and notes, as of
December 31, 1994 and 1995 and for each of the years in the three (3) years
ended December 31, 1995 filed with the Commission as a part of or incorporated
by reference into the Registration Statement, which are included or incorporated
by reference in the Prospectus, are independent accountants within the meaning
of the Act and the Rules and Regulations; the audited consolidated financial
statements of the Company, together with the related schedules and notes, and
the unaudited consolidated financial information, forming part of the
Registration Statement and Prospectus, fairly present the financial position and
the results of operations of the Company and its subsidiaries at the respective
dates and for the respective periods to which they apply; and all audited
consolidated financial statements of the Company, together with the related
schedules and notes, and the unaudited consolidated financial information, filed
with the Commission as part of or incorporated by reference into the
Registration Statement, have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved
except as may be otherwise stated therein. The selected and summary financial
and statistical data included or incorporated by reference in the Registration
Statement present fairly the information shown therein and have been compiled on
a basis consistent with the audited financial statements presented therein. No
other financial statements or schedules are required to be included or
incorporated by reference in the Registration Statement.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been (i) any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise, (ii) any transaction that is material to the
Company and its subsidiaries considered as one enterprise, except transactions
entered into in the ordinary course of business, (iii) any obligation, direct or
contingent, that is material to the Company and its subsidiaries considered as
one enterprise, incurred by the Company or its subsidiaries, except obligations
incurred in the ordinary course of business, (iv) any change in the capital
stock or outstanding indebtedness of the Company or any of its subsidiaries that
is material to the Company and its subsidiaries considered as one enterprise,
(v) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or any of its
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subsidiaries, or (vi) any loss or damage (whether or not insured) to the
property of the Company or any of its subsidiaries which has been sustained or
will have been sustained which has a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise.
(i) Except as set forth in the Registration Statement and Prospectus
and any Incorporated Document, (i) each of the Company and its subsidiaries has
good and marketable title to all properties and assets described in the
Registration Statement and Prospectus and any Incorporated Document as owned by
it, free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest, other than such as would not have a material adverse effect
on the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise, (ii) the agreements to which the Company or any of its subsidiaries
is a party described in the Registration Statement and Prospectus and any
Incorporated Document are valid agreements, enforceable by the Company and its
subsidiaries (as applicable), except as the enforcement thereof may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by general
equitable principles and, to the best of the Company's knowledge, the other
contracting party or parties thereto are not in material breach or material
default under any of such agreements, and (iii) each of the Company and its
subsidiaries has valid and enforceable leases for all properties described in
the Registration Statement and Prospectus and any Incorporated Document as
leased by it, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles. Except as set forth in the Registration Statement and Prospectus and
any Incorporated Document, the Company owns or leases all such properties as are
necessary to its operations as now conducted or as proposed to be conducted.
(j) The Company and its subsidiaries have timely filed all necessary
federal, state and foreign income and franchise tax returns and have paid all
taxes shown thereon as due, and there is no tax deficiency that has been or, to
the best of the Company's knowledge, might be asserted against the Company or
any of its subsidiaries that might have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise; and
all tax liabilities are adequately provided for on the books of the Company and
its subsidiaries.
(k) The Company and its subsidiaries maintain insurance with
insurers of recognized financial responsibility of the types and in the amounts
generally deemed adequate for their respective businesses and consistent with
insurance coverage maintained by similar companies in similar businesses,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company or its subsidiaries against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect; neither the Company nor any
such subsidiary has been refused any insurance coverage sought or applied for;
and neither the Company nor any such subsidiary has any reason to believe that
it will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers
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<PAGE> 9
as may be necessary to continue its business at a cost that would not materials,
and adversely affect the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise.
(l) To the best of Company's knowledge, no labor disturbance by the
employees of the Company or any of its subsidiaries exists or is imminent; and
the Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers or subcontractors that might be
expected to result in a material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise. No collective bargaining
agreement exists with any of the Company's employees and, to the best of the
Company's knowledge, no such agreement is imminent.
(m) To the best of the Company's knowledge and except as described
in the Registration Statement and Prospectus and any Incorporated Document, the
Company owns, licenses or otherwise possesses adequate rights to use all
patents, patent rights, inventions, trade secrets, know-how, trademarks,
trademark applications, service marks, service mark applications, trade names,
copyrights or other information (collectively, "INTELLECTUAL PROPERTY") which
are necessary to conduct its business as now or as proposed to be conducted by
it as described in the Registration Statement and Prospectus and any
Incorporated Document; the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of the
Company by others with respect to any Intellectual Property (except as disclosed
in the Prospectus); the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any Intellectual Property which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company; and to the knowledge of the
Company, none of the patents owned or licensed by the Company are unenforceable
or invalid. The Company has duly and properly filed or caused to be filed with
the United States Patent and Trademark Office (the "PTO") and applicable foreign
and international patent authorities all patent applications described or
referred to in the Prospectus, and believes it has complied with the PTO's duty
of candor and disclosure for each of the United States patent and patent
applications described or referred to in the Prospectus; the Company is unaware
of any facts which would preclude the grant of a patent from each of the patent
applications described or referred to in the Prospectus; the Company has no
knowledge of any facts which would preclude it from having clear title to its
patent applications referenced in the Prospectus; and the Company has not
terminated or breached and is not in violation of any material agreement
covering its Intellectual Property rights. The Company is not aware of the
granting of any patents to third parties or the filing of patent applications by
third parties or any other rights of third parties to any of the Company's
Intellectual Property.
(n) The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act and is listed on The Nasdaq National Market, and the Company has
taken no action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the Common
Stock from The Nasdaq National Market, nor has the
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<PAGE> 10
Company received any notification that the Commission or NASD is contemplating
terminating such registration or listing.
(o) The Company has been advised concerning the Investment Company
Act of 1940, as amended (the "1940 ACT"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it will not become an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the 1940 Act and such rules and regulations.
(p) The Company has not distributed and will not distribute prior to
the later of (i) the Closing Date, or any date on which Option Shares are to be
purchased, as the case may be, and (ii) completion of the distribution of the
Shares, any offering material in connection with the offering and sale of the
Shares other than any Preliminary Prospectuses, the Prospectus, the Registration
Statement and other materials, if any, permitted by the Act.
(q) Neither the Company nor any of its subsidiaries has at any time
during the last five (5) years (i) made any unlawful contribution to any
candidate for foreign office or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(s) Each officer and director of the Company and certain previously
identified stockholders of the Company, has agreed in writing that such person
will not, directly or indirectly, without the prior written consent of
Robertson, Stephens & Company LLC, sell, offer, contract to sell, pledge, grant
any option to purchase or otherwise dispose (collectively, a "Disposition") of
any shares of Common Stock or any securities convertible into or exchangeable
for, or any rights to purchase or acquire, Common Stock held by such person,
acquired by such person after the date hereof or which may be deemed to be
beneficially owned by such person pursuant to the Rules and Regulations
promulgated under the Act (the "LOCK-UP SHARES"), for a period of 90 days from
the date hereof (the "LOCK-UP PERIOD"). The foregoing restriction is expressly
agreed to preclude the holder of Lock-Up Shares from engaging in any hedging or
other transaction which is designed to or reasonably expected to lead to or
result in a Disposition of Lock-Up Shares during the Lock-Up Period, even if
such Lock-Up Shares would be disposed of by someone other than such holder. Such
prohibited hedging or other transactions would include, without limitation, any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including, without limitation, any put or call option) with respect
to any Lock-Up Shares or with respect to any security (other than a broad-based
market basket or index) that includes, relates to or derives any significant
part of its value from Lock-Up Shares. Notwithstanding the foregoing, such
person may transfer any or all of the Lock-Up Shares (i) as a bona fide gift or
gifts or (ii) as a distribution to limited partners or shareholders of such
person;
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PROVIDED, HOWEVER, that in any case it shall be a condition to the transfer that
the transferee is receiving and holding the Lock-Up Shares subject to the
foregoing restrictions. Such person will also agree to notify Robertson,
Stephens & Company LLC in writing prior to any transfer of Lock-Up Shares.
Furthermore, such person will also agree and consent to the entry of stop
transfer instructions with the Company's transfer agent against the transfer of
the Lock-Up Shares held by such person except in compliance with this
restriction. The Company has provided to counsel for the Underwriters a complete
and accurate list of all securityholders of the Company and the number and type
of securities held by each securityholder. The Company has provided to counsel
for the Underwriters true, accurate and complete copies of all of the agreements
pursuant to which its officers, directors and shareholders have agreed to such
or similar restrictions (the "LOCK-UP AGREEMENTS") presently in effect or
effected hereby. The Company hereby represents and warrants that it will not
release any of its officers, directors or other shareholders from any Lock-Up
Agreements currently existing or hereafter effected without the prior written
consent of Robertson, Stephens & Company LLC.
(t) Except as set forth in the Registration Statement and Prospectus
and any Incorporated Document, (i) the Company is in compliance with all rules,
laws and regulations relating to the use, treatment, storage and disposal of
toxic substances and protection of health or the environment ("ENVIRONMENTAL
LAWS") which are applicable to its business, (ii) the Company has received no
notice from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus and any Incorporated Document, (iii) the Company
will not be required to make future material capital expenditures to comply with
Environmental Laws and (iv) no property which is owned, leased or occupied by
the Company has been designated as a Superfund site pursuant to the
Comprehensive Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. [section]9601, ET SEQ), or otherwise designated as a contaminated site
under applicable state or local law.
(u) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(v) There are no outstanding loans, advances (except normal advances
for business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus and any
Incorporated Document.
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(w) The Company has complied with all provisions of Section 517.075,
Florida Statutes relating to doing business with the Government of Cuba or with
any person or affiliate located in Cuba.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and each Underwriter agrees severally and not jointly, to purchase
from the Company, at a purchase price of $___ per share, the respective number
of Firm Shares as hereinafter set forth. The obligation of each Underwriter to
the Company shall be to purchase from the Company that number of Firm Shares
which is set forth opposite the name of such Underwriter in Schedule A hereto
(subject to adjustment as provided in Section 10).
Delivery of definitive certificates for the Firm Shares to be purchased by
the Underwriters pursuant to this Section 3 shall be made against payment of the
purchase price therefor by the several Underwriters by certified or official
bank check or checks drawn in next-day funds, payable to the order of the
Company (and the Company agrees not to deposit any such check in the bank on
which it is drawn, and not to take any other action with the purpose or effect
of receiving immediately available funds, until the business day following the
date of its delivery to the Company, and, in the event of any breach of the
foregoing, the Company shall reimburse the Underwriters for the interest lost
and any other expenses borne by them by reason of such breach), at the offices
of Palmer & Dodge LLP, One Beacon Street, Boston, Massachusetts, (or at such
other place as may be agreed upon among the Representatives and the Company), at
7:00 A.M., San Francisco time (a) on the third (3rd) full business day following
the first day that Shares are traded, (b) if this Agreement is executed and
delivered after 1:30 P.M., San Francisco time, the fourth (4th) full business
day following the day that this Agreement is executed and delivered or (c) at
such other time and date not later than seven (7) full business days following
the first day that Shares are traded as the Representatives and the Company may
determine (or at such time and date to which payment and delivery shall have
been postponed pursuant to Section 10 hereof), such time and date of payment and
delivery being herein called the "Closing Date" provided, however, that if the
Company has not made available to the Representatives copies of the Prospectus
within the time provided in Section 4(d) hereof, the Representatives may, in
their sole discretion, postpone the Closing Date until no later than two (2)
full business days following delivery of copies of the Prospectus to the
Representatives. The certificates for the Firm Shares to be so delivered will be
made available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the Closing Date and will be in such
names and denominations as you may request, such request to be made at least two
(2) full business days prior to the Closing Date. If the Representatives so
elect, delivery of the Firm Shares may be made by credit through full fast
transfer to the accounts at The Depository Trust Company designated by the
Representatives.
It is understood that you, individually, and not as the Representatives of
the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the Closing Date for the
Firm Shares to be purchased by such Underwriter or
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Underwriters. Any such payment by you shall not relieve any such Underwriter or
Underwriters of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make a public offering (as such term is described in
Section 11 hereof) of the Firm Shares at an initial public offering price of
$____ per share. After the public offering, the several Underwriters may, in
their discretion, vary the public offering price.
The information set forth in the last paragraph on the front cover page
(insofar as such information relates to the Underwriters), under the last two
paragraphs on the inside front cover page of the Prospectus concerning
stabilization and over-allotment by the Underwriters, and under the first and
second paragraphs under the caption "Underwriting" in any Preliminary Prospectus
and in the final form of Prospectus filed pursuant to Rule 424(b) of the Rules
and Regulations constitutes the only information furnished by the Underwriters
to the Company for inclusion in any Preliminary Prospectus, the Prospectus or
the Registration Statement or any Incorporated Document, and you, on behalf of
the respective Underwriters, represent and warrant to the Company that the
statements made therein do not include any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
4. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with the several
Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as promptly as possible; the Company will use its best efforts to
cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if the Company files a term sheet pursuant to Rule
434 of the Rules and Regulations, the Company will provide evidence satisfactory
to you that the Prospectus and term sheet meeting the requirements of Rule
434(b) or (c), as applicable, of the Rules and Regulations, have been filed,
within the time period prescribed, with the Commission pursuant to subparagraph
(7) of Rule 424(b) of the Rules and Regulations, if for any reason the filing of
the final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the
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<PAGE> 14
time period prescribed; it will notify you promptly of any request by the
Commission for the amending or supplementing of the Registration Statement or
the Prospectus or for additional information; promptly upon your request, it
will prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of counsel for the
several Underwriters ("UNDERWRITERS' COUNSEL"), may be necessary or advisable in
connection with the distribution of the Shares by the Underwriters; it will
promptly prepare and file with the Commission, and promptly notify you of the
filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect would include
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; in case any Underwriter is required
to deliver a prospectus nine (9) months or more after the effective date of the
Registration Statement in connection with the sale of the Shares, it will
prepare promptly upon request, but at the expense of such Underwriter, such
amendment or amendments to the Registration Statement and such prospectus or
prospectuses as may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the Act; and it will file no amendment or supplement to the
Registration Statement or Prospectus or the Incorporated Documents, or, prior to
the end of the period of time in which a prospectus relating to the Shares is
required to be delivered under the Act, file any document which upon filing
becomes an Incorporated Document, which shall not previously have been submitted
to you a reasonable time prior to the proposed filing thereof or to which you
shall reasonably object in writing, subject, however, to compliance with the Act
and the Rules and Regulations, the Exchange Act and the rules and regulations of
the Commission thereunder and the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge, of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that purpose; and it will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal at
the earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the Company
shall not be required in connection therewith or as a condition thereof to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be reasonably required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available, and, in
the case of the Prospectus and any term sheet or abbreviated term sheet under
Rule 434, in no event later than the first (1st) full business day following the
first day that Shares are traded, copies of the
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<PAGE> 15
Registration Statement (two of which will be signed and which will include all
exhibits), each Preliminary Prospectus, the Prospectus and any amendments or
supplements to such documents, including any prospectus prepared to permit
compliance with Section 10(a)(3) of the Act, and the Incorporated Documents (two
of which will include all exhibits,) all in such quantities as you may from time
to time reasonably request. Notwithstanding the foregoing if Robertson, Stephens
& Company LLC, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the Company shall provide
to you copies of a Preliminary Prospectus updated in all respects through the
date specified by you in such quantities as you may from time to time reasonably
request. To the extent applicable, such documents shall be identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
(e) The Company will make generally available to its securityholders
as soon as practicable, but in any event not later than the forty-fifth (45th)
day following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited) complying
with the provisions of Section 11(a) of the Act and covering a twelve (12) month
period beginning after the effective date of the Registration Statement. To the
extent applicable, such reports or documents shall be identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
(f) During a period of five (5) years after the date hereof, the
Company will furnish to its stockholders as soon as practicable after the end of
each respective period, annual reports (including financial statements audited
by independent certified public accountants) and unaudited of quarterly reports
of operations for each of the first three quarters of the fiscal year, and will
furnish to you and the other several Underwriters hereunder, upon request (i)
concurrently with furnishing such reports to its stockholders, statements of
operations of the Company for each, of the first three (3) quarters in the form
furnished to the Company's stockholders, (ii) concurrently with furnishing to
its stockholders, a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations, of stockholders' equity, and of
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent certified public accountants, (iii)
as soon as they are available, copies of all reports (financial or other) mailed
to stockholders, (iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, any securities
exchange or the NASD, (v) every material press release and every material news
item or article in respect of the Company or its affairs which was generally
released to stockholders or prepared by the Company or any of its subsidiaries,
and (vi) any additional information of a public nature concerning the Company or
its subsidiaries, or its business which you may reasonably request. During such
five (5) year period, if the Company shall have active subsidiaries, the
foregoing financial statements shall be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and
shall be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
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(g) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not consummated by
reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its parts to be performed hereunder or to fulfill any
condition of the Underwriters' obligations hereunder, or if the Company shall
terminate this Agreement pursuant to Section 11(a) hereof, or if the
Underwriters shall terminate this Agreement pursuant to Section 11(b)(i), the
Company will reimburse the several Underwriters for all out-of-pocket expenses
(including fees and disbursements of Underwriters' Counsel) incurred by the
Underwriters in investigating or preparing to market or marketing the Shares.
(j) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, and subject to the advice of the Company's counsel, forthwith prepare,
consult with you concerning the substance of and disseminate a press release or
other public statement, reasonably satisfactory to you, responding to or
commenting on such rumor, publication or event.
(k) During the Lock-Up Period, the Company will not, without the
prior written consent of Robertson, Stephens & Company LLC, effect the
Disposition of, directly or indirectly, any securities other than the sale of
the Firm Shares and the Option Shares hereunder and the Company's issuance of
options or Common Stock under the Company's 1991 Equity Incentive Plan and the
1992 Director Option Plan (the "OPTION PLANS"), or the issuance of Common Stock
upon the exercise of stock options issued under the Option Plans by directors,
employees, or consultants of the Company.
5. Expenses.
--------
(a) The Company agrees with each Underwriter that:
(i) The Company will pay and bear all costs and expenses in
connection with the preparation, printing and filing of the Registration
Statement (including financial statements, schedules and exhibits),
Preliminary Prospectuses and the Prospectus and the Incorporated Documents
and any amendments or supplements thereto; the printing of this Agreement,
the Preliminary Blue Sky Survey and any Supplemental Blue Sky Survey, and
any instruments related to any of the foregoing; the issuance and delivery
of the Shares hereunder to the several Underwriters, including transfer
taxes, if
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<PAGE> 17
any, the cost of all certificates representing the Shares and transfer
agents' and registrars' fees; the fees and disbursements of counsel for
the Company; all fees and other charges of the Company's independent
certified public accountants; the cost of furnishing to the several
Underwriters copies of the Registration Statement (including appropriate
exhibits), Preliminary Prospectus and the Prospectus and the Incorporated
Documents, and any amendments or supplements to any of the foregoing; NASD
filing fees and the cost of qualifying the Shares under the laws of such
jurisdictions as you may designate (including filing fees and fees and
disbursements of Underwriters' Counsel in connection with such NASD
filings and Blue Sky qualifications); and all other expenses directly
incurred by the Company in connection with the performance of their
obligations hereunder.
(ii) In addition to its other obligations under Section 8(a)
hereof, the Company agrees that, as an interim measure during the pendency
of any claim, action, investigation, inquiry or other proceeding described
in Section 8(a) hereof, it will reimburse the Underwriters on a monthly
basis for all reasonable legal or other expenses incurred in connection
with investigating or defending any such claim, action, investigation,
inquiry or other proceeding, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the Company's
obligation to reimburse the Underwriters for such expenses and the
possibility that such payments might later be held to have been improper
by a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Underwriters
shall promptly return such payment to the Company together with interest,
compounded daily, determined on the basis of the prime rate (or other
commercial lending rate for borrowers of the highest credit standing)
listed from time to time in The Wall Street Journal which represents the
base rate on corporate loans posted by a substantial majority of the
nation's thirty (30) largest banks (the "PRIME RATE"). Any such interim
reimbursement payments which are not made to the Underwriters within
thirty (30) days of a request for reimbursement shall bear interest at the
Prime Rate from the date of such request.
(b) In addition to their other obligations under Section 8(b)
hereof, the Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim, action investigation, inquiry or other
proceeding described in Section 8(b) hereof, they will reimburse the Company on
a monthly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company shall
promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within thirty (30) days
of a request for reimbursement shall bear interest at the Prime Rate from the
date of such request.
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<PAGE> 18
(c) It is agreed that any controversy arising out of the operation
of the interim reimbursement arrangements set forth in Sections 5(a)(ii) and
5(b) hereof, including the amounts of any requested reimbursement payments, the
method of determining such amounts and the basis on which such amounts shall be
apportioned among the reimbursing parties, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 5(a)(ii) and 5(b)
hereof and will not resolve the ultimate propriety or enforceability of the
obligation to indemnify for expenses which is created by the provisions of
Sections 8(a) and 8(b) hereof or the obligation to contribute to expenses which
is created by the provisions of Section 8(d) hereof.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the several
Underwriters to purchase and pay for the Shares as provided herein shall be
subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company herein, to the performance by
the Company of their respective obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have become effective not later
than 2:00 P.M., San Francisco time, on the date of this Agreement or such later
date as shall be consented to in writing by you; and no stop order suspending
the effectiveness thereof shall have been issued and no proceedings for that
purpose shall have been initiated or, to the knowledge of the Company or any
Underwriter, threatened by the Commission, and any request of the Commission for
additional information (to be included in the Registration Statement or the
Prospectus or any Incorporated Document or otherwise) shall have been complied
with to the satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement and the Prospectus, and
the registration, authorization, issue, sale and delivery of the Shares, shall
have been reasonably satisfactory to Underwriters' Counsel, and such counsel
shall have been furnished with such papers and information as they may
reasonably have requested to enable them to pass upon the matters referred to in
this Section.
(c) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date there shall not have been any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise from that set
forth in the Registration Statement or Prospectus, which, in your sole judgment,
is material and adverse and that makes it, in your sole judgment,
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<PAGE> 19
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus; and
(d) You shall have received on the Closing Date and on any later
date on which Option Shares are purchased, as the case may be, the following
opinion of counsel for the Company, dated the Closing Date or such later date on
which Option Shares are purchased addressed to the Underwriters and with
reproduced copies or signed counterparts thereof for each of the Underwriters,
to the effect that:
(i) The Company and each subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the laws
of the jurisdiction of its incorporation;
(ii) The Company and each subsidiary has the corporate power
and authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus;
(iii) The Company and each subsidiary is duly qualified to do
business as a foreign corporation and is in good standing in each
jurisdiction, if any, in which the ownership or leasing of its properties
or the conduct of its business requires such qualification, except where
the failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise),
earnings, operations or business of the Company and its subsidiaries
considered-as one enterprise. To such counsel's knowledge, the Company
does not own or control, directly or indirectly, any corporation,
association or other entity other than CNS Investments, Inc.;
(iv) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein, the issued and
outstanding shares of capital stock of the Company have been duly and
validly issued and are fully paid and nonassessable, and, to such
counsel's knowledge, will not have been issued in violation of or subject
to any preemptive right, co-sale right, registration right, right of first
refusal or other similar right;
(v) All issued and outstanding shares of capital stock of each
subsidiary of the Company have been duly authorized and validly issued and
are fully paid and nonassessable, and, to such counsel's knowledge, have
not been issued in violation of or subject to any preemptive right,
co-sale right, registration right, right of first refusal or other similar
right and are owned by the Company free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest;
(vi) The Firm Shares or the Option Shares, as the case may be,
to be issued by the Company pursuant to the terms of this Agreement have
been duly authorized and, upon issuance and delivery against payment
therefor in accordance with the terms hereof, will be duly and validly
issued and fully paid and nonassessable, and
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<PAGE> 20
will not have been issued in violation of or subject to any preemptive
right, co-sale right, registration right, right of first refusal or other
similar right of stockholders;
(vii) The Company has the corporate power and authority to
enter into this Agreement and to issue, sell and deliver to the
Underwriters the Shares to be issued and sold by it hereunder;
(viii) This Agreement has been duly authorized by all
necessary corporate action on the part of the Company and has been duly
executed and delivered by the Company and, assuming due authorization,
execution and delivery by you, is a valid and binding agreement of the
Company, enforceable in accordance with its terms, except insofar as
indemnification provisions may be limited by applicable law and except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting creditors' rights
generally or by general equitable principles;
(ix) The Registration Statement has become effective under the
Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Act;
(x) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements
(including supporting schedules) and financial data derived therefrom as
to which such counsel need express no opinion), as of the effective date
of the Registration Statement, complied as to form in all material
respects with the requirements of the Act and the applicable Rules and
Regulations; and each of the Incorporated Documents (other than the
financial statements (including supporting schedules) and the financial
data derived therefrom as to which such counsel need express no opinion)
complied when filed pursuant to the Exchange Act as to form in all
material respects with the requirements of the Act and the Rules and
Regulations and the Exchange Act and the applicable rules and regulations
of the Commission thereunder;
(xi) The terms and provisions of the capital stock of the
Company conform in all material respects to the description thereof
contained in the Registration Statement and the Prospectus and the
Incorporated Documents, and the statements in or incorporated by reference
into the Prospectus under the captions "Capitalization" and "Description
of Capital Stock," to the extent that they constitute summaries of matters
of law or legal conclusions, have been reviewed by such counsel and are
accurate and complete statements or summaries of the matters set forth
therein, and the form of certificate evidencing the Common Stock complies
with Delaware law;
(xii) The description in the Registration Statement and the
Prospectus of the charter and bylaws of the Company and of statutes are
accurate and fairly present the information required to be presented by
the Act and the applicable Rules and Regulations;
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<PAGE> 21
(xiii) To such counsel's knowledge, there are no agreements,
contracts, leases or documents to which the Company is a party of a
character required to be described or referred to in the Registration
Statement or Prospectus or any Incorporated Document or to be filed as an
exhibit to the Registration Statement or any Incorporated Document which
are not described or referred to therein or filed as required;
(xiv) The performance of this Agreement and the consummation
of the transactions herein contemplated (other than performance of the
Company's indemnification obligations hereunder, concerning which no
opinion need be expressed) will not (a) result in any violation of the
Company's charter or bylaws or (b) to such counsel's knowledge, result in
a material breach or violation of any of the terms and provisions of, or
constitute a default under, any bond, debenture, note or other evidence of
indebtedness, or under any lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument
known to such counsel to which the Company is a party or by which its
properties are bound, or any applicable statute, rule or regulation known
to such counsel or, to such counsel's knowledge, any order, writ or decree
of any court, government or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries, or over any of
their properties or operations;
(xv) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries, or over
any of their properties or operations is necessary in connection with the
consummation by the Company of the transactions herein contemplated,
except such as have been obtained under the Act or such as may be required
under state or other securities or Blue Sky laws in connection with the
purchase and the distribution of the Shares by the Underwriters;
(xvi) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company or any
of its subsidiaries of a character required to be disclosed in the
Registration Statement or the Prospectus or any Incorporated Document by
the Act or the Rules and Regulations or by the Exchange Act or the
applicable rules and regulations of the Commission thereunder, other than
those described therein;
(xvii) To such counsel's knowledge, neither the Company nor
any of its subsidiaries is presently (a) in material violation of its
respective charter or bylaws, or (b) in material breach of any applicable
statute, rule or regulation known to such counsel or. to such counsel's
knowledge, any order, writ or decree of any court or governmental agency
or body having jurisdiction over the Company or any of its subsidiaries,
or over any of their properties or operations; and
(xviii) To such counsel's knowledge, except as set forth in
the Registration Statement and Prospectus and any Incorporated Document,
all holders of
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<PAGE> 22
securities of the Company having rights known to such counsel to
registration of such shares of Common Stock or other securities, because
of the filing of the Registration Statement by the Company have, with
respect to the offering contemplated thereby, waived such rights or such
rights have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement.
(xix) The statements in the Registration Statement and
Prospectus under the captions "Risk Factors -- Government Regulation; No
Assurance of Regulatory Approval" and "Business-- Government Regulation,"
insofar as such statements purport to summarize applicable provisions
of regulatory law, have been reviewed by such counsel and are accurate
and complete statements or summaries of the matters set forth therein.
(xx) To such counsel's knowledge, there are no FDA, DEA or EPA
enforcement actions pending against the Company and no such actions are
threatened.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the Closing Date and on any later date on which
Option Shares are to be purchased, the Registration Statement and any amendment
or supplement thereto and any Incorporated Document, when such documents became
effective or were filed with the Commission (other than the financial statements
including supporting schedules and other financial and statistical information
derived therefrom, as to which such counsel need express no comment) contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or at the Closing Date or any later date on which the Option Shares
are to be purchased, as the case may be, the Registration Statement, the
Prospectus and any amendment or supplement thereto and any Incorporated Document
(except as aforesaid) contained any untrue statement of a material fact or
omitted to stated material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading. Such
counsel shall also state that the conditions for the use of Form S-3 set forth
in the General Instructions thereto have been satisfied.
Counsel rendering the foregoing opinion may rely as to
questions of fact upon representations or certificates of officers of the
Company, and of government officials, in which case their opinion is to state
that they are so relying and that they have no knowledge of any material
misstatement or inaccuracy in any such opinion, representation or certificate.
Copies of any opinion, representation or certificate so relied upon shall be
delivered to you, as Representatives of the Underwriters, and to Underwriters'
Counsel.
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<PAGE> 23
(e) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, an
opinion of Testa, Hurwitz & Thibeault, LLP, in form and substance satisfactory
to you, with respect to the sufficiency of all such corporate proceedings and
other legal matters relating to this Agreement and the transactions contemplated
hereby as you may reasonably require, and the Company shall have furnished to
such counsel such documents as they may have requested for the purpose of
enabling them to pass upon such matters.
(f) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, a
letter from Ernst & Young LLP addressed to the Company and the Underwriters,
dated the Closing Date or such later date on which Option Shares are to be
purchased, as the case may be, confirming that they are independent certified
public accountants with respect to the Company within the meaning of the Act and
the applicable published Rules and Regulations and based upon the procedures
described in such letter delivered to you concurrently with the execution of
this Agreement (herein called the "ORIGINAL LETTER"), but carried out to a date
not more than five (5) business days prior to the Closing Date or such later
date on which Option Shares are to be purchased, as the case may be, (i)
confirming, to the extent true, that the statements and conclusions set forth in
the Original Letter are accurate as of the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, and (ii) setting
forth any revisions and additions to the statements and conclusions set forth in
the Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of such letter, or to reflect
the availability of more recent financial statements, data or information. The
letter shall not disclose any change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company from that
set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus. The Original Letter from Ernst & Young LLP
shall be addressed to or for the use of the Underwriters in form and substance
satisfactory to the Underwriters and shall (i) represent, to the extent true
that they are independent certified public accountants with respect to the
Company within the meaning of the Act and the applicable published Rules and
Regulations, (ii) set forth their opinion with respect to their examination of
the consolidated balance sheet of the Company as of December 31, 1995 and
related consolidated statements of operations, stockholders' equity, and cash
flows for the twelve (12) months ended December 31, 1995, (iii) state that Ernst
& Young LLP has performed the procedure set out in Statement on Auditing
Standards No. 71 ("SAS 71") for a review of interim financial information and
providing the report of Ernst & Young LLP as described in SAS 71 on the
financial statements for each of the quarters ended March 31, 1996, June 30,
1996 and September 30, 1996, and (iv) address other matters agreed upon by Ernst
& Young LLP and you. In addition, you shall have received from Ernst & Young LLP
a letter addressed to the Company and made available to you for the use of the
Underwriters stating that their review of the Company's system of internal
accounting controls, to the extent they deemed necessary in establishing the
scope of their examination of the Company's consolidated financial statements as
of December 31, 1995, did not disclose any weaknesses in internal controls that
they considered to be material weaknesses.
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(g) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, signed by the Chief
Executive Officer and Chief Financial Officer of the Company, to the effect
that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date
or any later date on which Option Shares are to be purchased, as the case
may be, and the Company has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at or prior to
the Closing Date or any later date on which Option Shares are to be
purchased, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective and at
all times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or
supplements thereto and the Incorporated Documents, when such Incorporated
Documents became effective or were filed with the Commission, contained
all material information required to be included therein by the Act and
the Rules and Regulations or the Exchange Act and the applicable rules and
regulations of the Commission thereunder, as the case may be, and in all
material respects conformed to the requirements of the Act and the Rules
and Regulations or the Exchange Act and the applicable rules and
regulations of the Commission thereunder, as the case may be, the
Registration Statement, and any amendment or supplement thereto, did not
and does not include any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, the Prospectus, and any amendment
or supplement thereto, did not and does not include any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, and, since the effective date of the
Registration Statement, there has occurred no event required to be set
forth in an amended supplemented Prospectus which has not been so set
forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there
has not been (a) any material adverse change in the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise, (b) any
transaction that is material to the Company and its subsidiaries
considered as one enterprise, except transactions entered into in the
ordinary course of business, (c) any obligation, direct or contingent,
that is material to the Company and its subsidiaries considered as one
enterprise, incurred by the Company or its subsidiaries, except
obligations incurred in the ordinary course of business, (d) any change in
the capital stock
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<PAGE> 25
or outstanding indebtedness of the Company or any of its subsidiaries that
is material to the Company and its subsidiaries considered as one
enterprise, (e) any dividend or distribution of any kind declared, paid or
made on the capital stock of the Company or any of its subsidiaries, or
(f) any loss or damage (whether or not insured) to the property of the
Company or any of its subsidiaries which has been sustained or will have
been sustained which has a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one
enterprise.
(h) You shall have received on the Closing Date, and on any later
date on which Option Shares are to be purchased, the opinions of Dike,
Bronstein, Roberts & Cushman, LLP and Clark & Elbing LLP, patent counsel to the
Company, dated the Closing Date, addressed to the Underwriters in substantially
the forms previously supplied to counsel for the Underwriters.
(i) The Company shall have obtained and delivered to you an
agreement from each executive officer, director and certain of the stockholders
of the Company in writing prior to the date hereof that such person will not,
during the Lock-Up Period, effect a Disposition of any Lock-Up Shares now owned
or hereafter acquired directly by such person or with respect to which such
person has or hereafter acquires the power of disposition, otherwise than (i) as
a bona fide gift or gifts, provided the donee or donees thereof agree in writing
to be bound by this restriction, (ii) as a distribution to limited partners or
shareholders of such person, provided that the distributees thereof agree in
writing to be bound by the terms of this restriction, or (iii) with the prior
written consent of Robertson, Stephens & Company LLC. The foregoing restriction
is expressly agreed to preclude the holder of the Lock-Up Shares from engaging
in any hedging or other transaction which is designed to or reasonably expected
to lead to or result in a Disposition of Lock-Up Shares during the Lock-Up
Period, even if such Lock-Up Shares would be disposed of by someone other than
the such holder. Such prohibited hedging or other transactions would including,
without limitation, any short sale (whether or not against the box) or any
purchase, sale or grant of any right (including, without limitation, any put or
call option) with respect to any Lock-Up Shares or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from Lock-Up Shares. Furthermore, such
person will have also agreed and consented to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of the
Lock-Up Shares held by such person except in compliance with this restriction.
(j) The Company shall have furnished to you such further
certificates and documents as you shall reasonably request (including
certificates of officers of the Company as to the accuracy of the
representations and warranties of the Company herein, as to the performance by
the Company of its obligations hereunder and as to the other conditions
concurrent and precedent to the obligations of the Underwriters hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The
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Company will furnish you with such number of conformed copies of such opinions,
certificates, letters and documents as you shall reasonably request.
7. Option Shares.
-------------
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants to the several Underwriters, for the purpose of
covering over-allotments in connection with the distribution and sale of the
Firm Shares only, a nontransferable option to purchase up to an aggregate of
300,000 Option Shares at the purchase price per share for the Firm Shares set
forth in Section 3 hereof. Such option may be exercised by the Representatives
on behalf of the several Underwriters on one (1) or more occasions in whole or
in part during the period of thirty (30) days after the date on which the Firm
Shares are initially offered to the public, by giving written notice to the
Company. The number of Option Shares to be purchased by each Underwriter upon
the exercise of such option shall be the same proportion of the total number of
Option Shares to be purchased by the several Underwriters pursuant to the
exercise of such option as the number of Firm Shares purchased by such
Underwriter (set forth in Schedule A hereto) bears to the total number of Firm
Shares purchased by the several Underwriters (set forth in Schedule A hereto),
adjusted by the Representatives in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to
be purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in next-day funds, payable to the order of the Company (and the
Company agrees not to deposit any such check in the bank on which it is drawn,
and not to take any other action with the purpose or effect of receiving
immediately available funds, until the business day following the date of its
delivery to the Company). In the event of any breach of the foregoing, the
Company shall reimburse the Underwriters for the interest lost and any other
expenses borne by them by reason of such breach. Such delivery and payment shall
take place at the offices of Palmer & Dodge LLP, One Beacon Street, Boston,
Massachusetts, or at such other place as may be agreed upon among the
Representatives and the Company (i) on the Closing Date, if written notice of
the exercise of such option is received by the Company at least two (2) full
business days prior to the Closing Date, or (ii) on a date which shall not be
later than the third (3rd) full business day following the date the Company
receives written notice of the exercise of such option, if such notice is
received by the Company less than two (2) full business days prior to the
Closing Date.
The certificates for the Option Shares to be so delivered will
be made available to you at such office or such other location including,
without limitation, in New York City, as you may reasonably request for checking
at least one (1) full business day prior to the date of payment and delivery and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to such date of payment and
delivery. If the Representatives so elect or at any time after the Closing Date,
delivery of the
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<PAGE> 27
Option Shares may be made by credit through full fast transfer to the accounts
at The Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a)
hereof, the obligations of the several Underwriters to purchase such Option
Shares will be subject (as of the date hereof and as of the date of payment and
delivery for such Option Shares) to the accuracy of and compliance with the
representations, warranties and agreements of the Company herein, to the
accuracy of the statements of the Company and officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, and to the condition that all proceedings taken at or
prior to the payment date in connection with the sale and transfer of such
Option Shares shall be satisfactory in form and substance to you and to
Underwriters' Counsel, and you shall have been furnished with all such
documents, certificates and opinions as you may request in order to evidence the
accuracy and completeness of any of the representations, warranties or
statements, the performance of any of the covenants or agreements of the Company
or the compliance with any of the conditions herein contained.
8. Indemnification and Contribution.
--------------------------------
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Rule 2720(a)(15) of the Conduct Rules
promulgated by the NASD), under the Act, the Exchange Act or otherwise,
specifically including, but not limited to, losses, claims, damages or
liabilities, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon (i) any breach of any
representation, warranty, agreement or covenant of the Company herein contained,
(ii) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement or any amendment or supplement thereto,
including any Incorporated Document, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and agrees to reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that the Company shall not be liable in
any such case to the extent that any
27
<PAGE> 28
such loss, claim, damage, liability or action arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, such Preliminary Prospectus or the
Prospectus, or any such amendment or supplement thereto, in reliance upon, and
in conformity with, written information relating to any Underwriter furnished to
the Company by such Underwriter, directly or through you, specifically for use
in the preparation thereof and, PROVIDED FURTHER, that the indemnity agreement
provided in this Section 8(a) with respect to any Preliminary Prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
losses, claims, damages, liabilities or actions based upon any untrue statement
or alleged untrue statement of material fact or omission or alleged omission to
state therein a material fact purchased Shares, if a copy of the Prospectus in
which such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company against any losses, claims, damages or
liabilities, joint or several, to which the Company may become subject under the
Act or otherwise, specifically including, but not limited to, losses, claims,
damages or liabilities, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon (i) any breach of
any representation, warranty, agreement or covenant of such Underwriter herein
contained, (ii) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment or supplement
thereto, including any Incorporated Document, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or the omission or alleged omission to state therein a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, in the case of subparagraphs (ii) and (iii) of
this Section 8(b) to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by such Underwriter, directly or through you, specifically for use in
the preparation thereof, and agrees to reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action.
The indemnity agreement in this Section 8(b) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
officer of the Company who signed the Registration Statement and each director
of the Company, and each person, if any,
28
<PAGE> 29
who controls the Company within the meaning of the Act or the Exchange Act. This
indemnity agreement shall be in addition to any liabilities which each
Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section 8, notify the indemnifying party in writing of the
commencement thereof but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 8. In case any such action is brought against
any indemnified party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it shall elect by written notice delivered to
the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; PROVIDED, HOWEVER, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of the indemnifying party's election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel (together with appropriate
local counsel) approved by the indemnifying party representing all the
indemnified parties under Section 8(a) or 8(b) hereof who are parties to such
action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. In no event shall any
indemnifying party be liable in respect of any amounts paid in settlement of any
action unless the indemnifying party shall have approved the terms of such
settlement; PROVIDED that such consent shall not be unreasonably withheld. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnification
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such proceeding.
(d) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section 8
but it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification
29
<PAGE> 30
may not be enforced in such case notwithstanding the fact that this Section 8
provides for indemnification in such case, all the parties hereto shall
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (after contribution from others) in such proportion so that the
Underwriters severally and not jointly are responsible pro rata for the portion
represented by the percentage that the underwriting discount bears to the
initial public offering price, and the Company are responsible for the remaining
portion, PROVIDED, HOWEVER, that (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discount applicable to the
Shares purchased by such Underwriter in excess of the amount of damages which
such Underwriter is otherwise required to pay and (ii) no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. The contribution agreement in this Section 8(d)
shall extend upon the same terms and conditions to, and shall inure to the
benefit of, each person, if any, who controls the Underwriters or the Company
within the meaning of the Act or the Exchange Act and each officer of the
Company who signed the Registration Statement and each director of the Company.
(e) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
9. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties, covenants and agreements of the
Company and the Underwriters herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Section 8
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any controlling person
within the meaning of the Act or the Exchange Act, or by or on behalf of the
Company or any of its officers, directors or controlling persons within the
meaning of the Act or the Exchange Act, and shall survive the delivery of the
Shares to the several Underwriters hereunder or termination of this Agreement.
10. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters shall
fail to take up and pay for the number of Firm Shares agreed by such Underwriter
or Underwriters to be purchased hereunder upon tender of such Firm Shares in
accordance with the terms hereof, and if the aggregate number of Firm Shares
which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay
30
<PAGE> 31
for exceeds 10% of the Firm Shares, the remaining Underwriters shall have the
right, but shall not be obligated, to take up and pay for (in such proportions
as may be agreed upon among them) the Firm Shares which the defaulting
Underwriter or Underwriters so agreed but failed to purchase. If such remaining
Underwriters do not, at the Closing Date, take up and pay for the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase, the Closing Date shall be postponed for twenty-four (24) hours to
allow the several Underwriters the privilege of substituting within twenty-four
(24) hours (including non-business hours) another underwriter or underwriters
(which may include any nondefaulting Underwriter) satisfactory to the Company.
If no such underwriter or underwriters shall have been substituted as aforesaid
by such postponed Closing Date, the Closing Date may, at the option of the
Company, be postponed for a farther twenty-four (24) hours, if necessary, to
allow the Company the privilege of finding another underwriter or underwriters,
satisfactory to you, to purchase the Firm Shares which the defaulting
Underwriter or Underwriters so agreed but failed to purchase. If it shall be
arranged for the remaining Underwriters or substituted underwriter or
underwriters to take up the Firm Shares of the defaulting Underwriter or
Underwriters as provided in this Section 10, (i) the Company shall have the
right to postpone the time of delivery for a period of not more than seven (7)
full business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary, and (ii) the respective number of Firm Shares to
be purchased by the remaining Underwriters and substituted underwriter or
underwriters shall be taken as the basis of their underwriting obligation. If
the remaining Underwriters shall not take up and pay for all such Firm Shares so
agreed to be purchased by the defaulting Underwriter or Underwriters or
substitute another underwriter or underwriters as aforesaid and the Company
shall not find or shall not elect to seek another underwriter or underwriters
for such Firm Shares as aforesaid, then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, neither the Company shall be liable to
any Underwriter (except as provided in Sections 5 and 8 hereof) nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than for
some reason permitted under this Agreement, to purchase the number of Firm
Shares agreed by such Underwriter to be purchased hereunder, which Underwriter
shall remain liable to the Company and the other Underwriters for damages, if
any, resulting from such default) be liable to the Company (except to the extent
provided in Sections 5 and 8 hereof).
The term "UNDERWRITER" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
------------------------------------------------
(a) This Agreement shall become effective at the earlier of (i) 6:30
A.M., San Francisco time, on the first full business day following the effective
date of the Registration Statement, or (ii) the time of the public offering of
any of the Shares by the Underwriters after the Registration Statement becomes
effective. The time of the public offering shall mean the time of
31
<PAGE> 32
the release by you, for publication, of the first newspaper advertisement
relating to the Shares, or the time at which the Shares are first generally
offered by the Underwriters to the public by letter, telephone, telegram or
telecopy, whichever shall first occur. By giving notice as set forth in Section
12 before the time this Agreement becomes effective, you, as Representatives of
the several Underwriters, or the Company, may prevent this Agreement from
becoming effective without liability of any party to any other party, except as
provided in Sections 4(i), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters, shall have
the right to terminate this Agreement by giving notice as hereinafter specified
at any time at or prior to the Closing Date or on or prior to any later date on
which Option Shares are to be purchased, as the case may be, (i) if the Company
shall have failed, refused or been unable to perform any agreement on its part
to be performed, or because any other condition of the Underwriters' obligations
hereunder required to be fulfilled is not fulfilled, including, without
limitation, any change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise from that set forth in the Registration Statement
or Prospectus, which, in your sole judgment, is material and adverse, or (ii) if
additional material governmental restrictions, not in force and effect on the
date hereof, shall have been imposed upon trading in securities generally or
minimum or maximum prices shall have been generally established on the New York
Stock Exchange or on the American Stock Exchange or in the over the counter
market by the NASD, or trading in securities generally shall have been suspended
on either such exchange or in the over the counter market by the NASD, or if a
banking moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political or
economic conditions or financial markets as in your reasonable judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Shares, or (v) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration by
the United States of a national emergency which, in the reasonable opinion of
the Representatives, makes it impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. In the event of
termination pursuant to subparagraph (i) above, the Company shall remain
obligated to pay costs and expenses pursuant to Sections 4(i), 5 and 8 hereof.
Any termination pursuant to any of subparagraphs (ii) through (v) above shall be
without liability of any party to any other party except as provided in Sections
5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
32
<PAGE> 33
12. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o Robertson, Stephens & Company LLC, 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel; if sent to the Company, such
notice shall be mailed, delivered, telegraphed (and confirmed by letter) or
telecopied (and confirmed by letter) to One Kendall Square, Building 700,
Cambridge, Massachusetts 02139, telecopier number (617) 225-2741, Attention:
Chief Executive Officer.
13. PARTIES. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters and the Company and their respective executors,
administrators, successors and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person or corporation,
other than the parties hereto and their respective executors, administrators,
successors and assigns, and the controlling persons within the meaning of the
Act or the Exchange Act, officers and directors referred to in Section 8 hereof,
any legal or equitable right, remedy or claim in respect of this Agreement or
any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of the parties hereto and their respective executors, administrators,
successors and assigns and said controlling persons and said officers and
directors, and for the benefit of no other person or corporation. No purchaser
of any of the Shares from any Underwriter shall be construed a successor or
assign by reason merely of such purchase.
In all dealings with the Company under this Agreement, you shall act
on behalf of each of the several Underwriters, and the Company shall be entitled
to act and rely upon any statement, request, notice or agreement made or given
by you jointly or by Robertson, Stephens & Company LLC on behalf of you.
14. APPLICABLE LAW. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of California.
15. COUNTERPARTS. This Agreement may be signed in several counterparts,
each of which will constitute an original.
33
<PAGE> 34
If the foregoing correctly sets forth the understanding among the Company
and the several Underwriters, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
the Company and the several Underwriters.
Very truly yours,
CAMBRIDGE NEUROSCIENCE, INC.
By:
----------------------------------
Name:
Title:
Accepted as of the date first above written:
ROBERTSON, STEPHENS & COMPANY LLC
PAINEWEBBER INCORPORATED
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
ROBERTSON, STEPHENS & COMPANY LLC
By: ROBERTSON, STEPHENS & COMPANY GROUP, L.L.C.
By:
-------------------------------------
Authorized Signatory
34
<PAGE> 35
SCHEDULE A
Number of
Firm Shares
To Be
Underwriters Purchased
------------ ---------
Robertson, Stephens & Company LLC..........................
PaineWebber Incorporated
[NAMES OF OTHER UNDERWRITERS]
---------------
Total......................................................
===============
35
<PAGE> 1
Exhibit 5.1
PALMER & DODGE LLP
ONE BEACON STREET, BOSTON, MA 02108-3190
Telephone: (617) 573-0100 Facsimile: (617) 227-4420
December 18, 1996
Cambridge NeuroScience, Inc.
One Kendall Square, Building 700
Cambridge, Massachusetts 02139
Ladies and Gentlemen:
We are rendering this opinion in connection with the Registration
Statement on Form S-3 (the "Registration Statement") filed by Cambridge
NeuroScience, Inc. (the "Company") with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, on or about the date hereof. The
Registration Statement relates to up to 2,300,000 shares of the Company's
Common Stock, $0.001 par value (the "Shares"). We understand that the Shares
are to be offered and sold in the manner described in the Registration
Statement.
We have acted as your counsel in connection with the preparation of the
Registration Statement. We are familiar with the resolutions adopted by the
Board of Directors by written consent on December 17, 1996 in connection with
the authorization, issuance and sale of the Shares (the "Resolutions"). We have
examined such other documents as we consider necessary to render this opinion.
Based upon the foregoing, we are of the opinion that the Shares have
been duly authorized and, when issued and delivered by the Company against
payment therefor at the price to be determined pursuant to the Resolutions,
will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as a part of the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus filed as part thereof.
Very truly yours,
/s/ Palmer & Dodge LLP
-----------------------
Palmer & Dodge LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated
February 2, 1996, in the Registration Statement (Form S-3) and related
Prospectus of Cambridge NeuroScience, Inc. for the registration of 2,300,000
shares of its common stock.
We also consent to the incorporation by reference therein of our report
dated February 2, 1996 with respect to the consolidated financial statements of
Cambridge NeuroScience, Inc. for the years ended December 31, 1995, 1994, and
1993 included in its Annual Report (Form 10-K) for 1995 filed with the
Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
December 17, 1996
