<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: SEPTEMBER 30, 1998 Commission File No. 0-19193
CAMBRIDGE NEUROSCIENCE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3319074
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
ONE KENDALL SQUARE, BUILDING 700
CAMBRIDGE, MA 02139
(Address of principal executive offices including zip code)
617-225-0600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
At October 31, 1998, 18,071,459 shares of Common Stock, par value $.001 per
share, were issued and outstanding.
<PAGE> 2
CAMBRIDGE NEUROSCIENCE, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
PART I - FINANCIAL INFORMATION NUMBER
- ------------------------------- ------
<S> <C>
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
at September 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Operations for the
three and nine months ended September 30, 1998 and 1997 4 - 5
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7 - 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8 - 13
PART II - OTHER INFORMATION
- ---------------------------
ITEM 5 - OTHER INFORMATION 14
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
</TABLE>
2
<PAGE> 3
CAMBRIDGE NEUROSCIENCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 7,473 $ 12,020
Marketable securities 6,891 26,561
Prepaid expenses and other current assets 722 1,575
--------- ---------
TOTAL CURRENT ASSETS 15,086 40,156
Equipment, Furniture and Fixtures, net 448 735
--------- ---------
$ 15,534 $ 40,891
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,786 $ 3,668
Research and development advances 1,478 2,900
--------- ---------
TOTAL CURRENT LIABILITIES 3,264 6,568
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01, 10,000
shares authorized; none issued - -
Common stock, par value $.001, 30,000
shares authorized; 18,057 shares issued
and outstanding at September 30, 1998;
17,858 at December 31, 1997 18 18
Additional paid-in capital 120,072 137,787
Accumulated deficit (107,820) (103,482)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 12,270 34,323
========= =========
$ 15,534 $ 40,891
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE> 4
CAMBRIDGE NEUROSCIENCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenues
Research and development $ 1,422 $ 817
Operating expenses
Research and development 1,233 4,442
General and administrative 288 670
-------- --------
1,521 5,112
-------- --------
Loss from operations (99) (4,295)
Interest income 201 632
-------- --------
Net income (loss) $ 102 $ (3,663)
======== ========
Basic and diluted net income (loss)
per common share $ 0.01 $ (0.21)
======== ========
Number of shares outstanding for purposes of
computing basic and diluted net income (loss)
per share 18,022 17,820
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE> 5
CAMBRIDGE NEUROSCIENCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenues
Research and development $ 1,973 $ 3,011
Operating expenses
Research and development 5,150 13,989
General and administrative 1,227 2,058
Restructuring costs 921 -
-------- --------
7,298 16,047
-------- --------
Loss from operations (5,325) (13,036)
Interest income 987 1,816
-------- --------
Net loss $ (4,338) $(11,220)
======== ========
Basic and diluted net loss per common share $ (0.24) $ (0.64)
======== ========
Number of shares outstanding for purposes of
computing basic and diluted net loss per share 17,945 17,411
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE> 6
CAMBRIDGE NEUROSCIENCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------- --------
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (4,338) $(11,220)
Expenses not requiring cash:
Depreciation and amortization 266 666
Common stock issued pursuant to an
employee benefit plan 135 178
-------- --------
(3,937) (10,376)
Changes in current assets and liabilities:
Prepaid expenses and other current assets 853 (154)
Accounts payable and accrued expenses (1,882) 90
Research and development advances (1,422) (2,471)
-------- --------
(2,451) (2,535)
-------- --------
Cash used for operating activities (6,388) (12,911)
INVESTING ACTIVITIES
Purchase of marketable securities (11,878) (31,040)
Sale of marketable securities 31,548 -
Purchase of equipment, furniture and fixtures (18) (245)
Disposals of equipment, furniture and fixtures 39 -
-------- --------
Cash provided by (used for) investing activities 19,691 (31,285)
FINANCING ACTIVITIES
Sales of common stock, net of offering
costs and repurchases 57 28,284
Dividend (17,907) -
-------- --------
Cash (used for) provided by financing activities (17,850) 28,284
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,547) (15,912)
Cash and cash equivalents at beginning of period 12,020 26,664
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,473 $ 10,752
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
<PAGE> 7
CAMBRIDGE NEUROSCIENCE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Cambridge NeuroScience, Inc. (the "Company") as of September 30, 1998 and for
the three and nine month periods ended September 30, 1998 and 1997 have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, the accompanying consolidated financial statements include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the financial position, results of operations and cash flows for
the periods presented. The results of operations for the nine-month period ended
September 30, 1998 are not necessarily indicative of the results expected for
the full fiscal year.
The consolidated financial statements presented as of December 31, 1997 are
derived from the audited financial statements and footnotes thereto, included in
the Company's Annual Report on Form 10-K (File number 0-19193).
The Company is engaged in the development of proprietary pharmaceuticals to
prevent, reduce or reverse damage caused by severe disorders of and injuries to
the nervous system.
2. BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is based on the weighted-average number
of common shares outstanding during each of the periods. Common equivalent
shares from stock options are excluded as their effect is antidilutive. For the
three month period ended September 30, 1998, the average exercise price of
options outstanding during that period was less than the average market price
for the quarter. Therefore, these options were not included in the computation
of net income per share for the third quarter of 1998 as their effect would be
antidilutive.
3. RESEARCH AND DEVELOPMENT REVENUE
The Company recognizes research and development revenue as earned and such
revenue represents reimbursement of the Company's expenditures pursuant to the
terms of two collaboration agreements. In November 1996, the Company entered
into a collaboration agreement with Allergan, Inc. ("Allergan") for the
development of treatments for ophthalmic disorders, including glaucoma. Pursuant
to this agreement, Allergan provides $1.0 million in research funding per year
through November 1999. Revenue pursuant to this agreement is recognized as
payments are received, on a quarterly basis.
In 1995, the Company entered into a collaboration with Boehringer Ingelheim
International, GmbH ("BI") for the development and commercialization of
CERESTAT[R] (aptiganel). Pursuant to the collaboration agreement, the Company
was obligated to fund approximately 25% of the development expenses for
aptiganel in the United States and Europe. Revenue earned pursuant to this
agreement represents reimbursement by BI of expenditures by the Company in
excess of its contractual obligations. The agreement provided that BI would
advance cash to the Company in the event that it was expected that the Company's
expenditures would exceed its contractual obligations. In 1995 and 1996, the
7
<PAGE> 8
CAMBRIDGE NEUROSCIENCE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Company received advances from BI. As previously reported, the Company and BI
agreed to end this collaboration. In November 1998, the two companies signed a
termination agreement and have reached a final settlement of costs subject to
the collaboration. As a result, in the third quarter of 1998, the Company made
an adjustment to reduce the accrual for excess advances payable to BI and
recognized revenue earned. (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources").
4. RESTRUCTURING COSTS
On March 9, 1998, the Company announced the implementation of a cost
reduction plan which included a reduction in headcount from approximately 60 to
30 employees. Included in operating expenses in the nine months ended September
30, 1998 is a one-time cost of $921,000 associated with this reduction in staff,
consisting primarily of severance and related benefits.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Revenues
Research and development revenues in the three months ended September 30,
1998 were $1.4 million, compared to $817,000 in the same period in 1997. Revenue
for the third quarter of 1998 included $1.2 million recognized pursuant to the
collaboration agreement with Boehringer Ingelheim International, GmbH ("BI") for
the development of aptiganel, compared to $527,000 in the same period in 1997.
Revenue pursuant to the BI agreement represents reimbursement of the excess of
the Company's expenditures over its funding obligation under the agreement (see
Note 3 to the Condensed Consolidated Financial Statements). In the second half
of 1997, the Company and BI discontinued enrollment into the Phase III clinical
trials of aptiganel in both stroke and traumatic brain injury. As previously
reported, the Company and BI agreed to end this collaboration. In November 1998,
the two companies signed a termination agreement and have reached a final
settlement of costs subject to the collaboration. As a result, in the third
quarter of 1998, the Company recognized $1.2 million of revenue, representing
revenue earned in 1998 pursuant to this collaboration and an adjustment to
reduce the accrual for advances to be repaid to BI. Any future costs incurred
for the further development of aptiganel will not be subject to reimbursement
from BI and, as a result, the Company will not recognize any further revenue
pursuant to this collaboration. (See -"Liquidity and Capital Resources")
Revenue of $250,000 earned in the third quarter of 1998 pursuant to the
agreement with Allergan (see Note 3 to the Condensed Consolidated Financial
Statements), was comparable to the amount of revenue earned in the same period
in 1997.
8
<PAGE> 9
CAMBRIDGE NEUROSCIENCE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
Operating Expenses
Total operating expenses for the quarter ended September 30, 1998 were $1.5
million, compared to $5.1 million in the same period in 1997, a decrease of $3.6
million, or 70%. Research and development expenses decreased by $3.2 million, or
72%, to $1.2 million in the three months ended September 30, 1998, compared to
$4.4 million in the same period in 1997. This reduction in research and
development expenses was due to the discontinuation of the Phase III clinical
trial of aptiganel in traumatic brain injury ("TBI") in the second half of 1997,
as well as the decrease in costs as a result of the reduction in workforce in
March 1998 (see Note 4 to the Condensed Consolidated Financial Statements).
General and administrative expenses decreased by $382,000, or 57%, to $288,000
in the quarter ended September 30, 1998, compared to $670,000 in the same period
in 1997, reflecting the reduction in workforce which occurred in March 1998 as
well as the resignation of the former Chief Executive Officer in the second
quarter of 1998.
Interest Income
Interest income for the third quarter of 1998 was $201,000, compared to
$632,000 in the same period in 1997. This decrease was due to lower cash
balances available for investment in the third quarter of 1998, following the
payment of a dividend of $17.9 million in April 1998.
Net Income (Loss) Per Share
The Company had net income per share for the third quarter of 1998 of
$0.01, compared to a net loss per share of ($0.21) in the same period in 1997.
This fluctuation is a result of a decrease in operating expenses in the third
quarter of 1998, compared to the same period in 1997, and the recognition of
revenue pursuant to the BI collaboration, following the $1.2 million adjustment
to reduce the accrual for advances to be repaid to BI.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Revenues
In the nine months ended September 30, 1998, the Company had research and
development revenues of $2.0 million, compared to $3.0 million in the same
period in 1997, a decrease of $1.0 million, or 34%. Revenues in the first nine
months of 1998 included $1.2 million earned pursuant to the collaboration
agreement with BI, compared to $2.2 million in the first nine months of 1997.
This decrease in revenue pursuant to the BI agreement reflects the
discontinuation of the Phase III clinical trials of aptiganel in the second half
of 1997 as well as the termination of the collaboration agreement in 1998. (See
"--Liquidity and Capital Resources) Pursuant to the termination of the BI
collaboration, any future costs incurred for the further development of
aptiganel will not be subject to reimbursement from BI and, as a result, the
Company will not recognize any further revenue pursuant to this collaboration.
Revenues in both 1998 and 1997 included $750,000 earned pursuant to the Allergan
agreement.
9
<PAGE> 10
CAMBRIDGE NEUROSCIENCE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
Operating Expenses
In the first nine months of 1998, the Company had total operating expenses
of $7.3 million, compared to $16.0 million in the first nine months of 1997, a
decrease of $8.7 million, or 55%. Research and development expenses decreased by
$8.8 million, or 63%, to $5.2 million in the first nine months of 1998, compared
to $14.0 million in the same period in 1997, due primarily to the termination of
the Phase III clinical trial of aptiganel in TBI in the second half of 1997 as
well as to the reduction in workforce in March 1998.
General and administrative expenses decreased by $831,000, or 40%, to
$1.2 million in the first nine months of 1998, compared to $2.1 million in the
same period in 1997. This decrease reflects primarily the reduction in salaries
and benefits and related costs associated with the reduction in workforce in
March 1998. Operating expenses for the nine months ended September 30, 1998
included restructuring costs of $921,000, consisting primarily of severance and
related benefits associated with this reduction in staff (see Note 4 to the
Condensed Consolidated Financial Statements).
Interest Income
Interest income decreased by $829,000, or 46%, to $987,000 in the first
nine months of 1998, compared to $1.8 million in the same period in 1997. This
decrease was a result of the decrease in cash available for investment in 1998
following the payment of a dividend totaling $17.9 million in April 1998.
Net Loss Per Share
In the first nine months of 1998, the Company had a net loss of $4.3
million, or ($0.24) per share, compared to a net loss of $11.2 million, or
($0.64) per share in the same period in 1997. This decrease in net loss per
share reflects a 55% decrease in operating expenses, primarily as a result of
the discontinuation of the Phase III trials of aptiganel. This decrease in
operating expenses was offset in part by lower interest income and a decrease in
revenue earned pursuant to the BI agreement in 1998 due to the discontinuation
of the clinical trials of aptiganel and the decision to terminate the related
collaboration.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had cash and cash equivalents and
marketable securities of $14.4 million, compared to $38.6 million at December
31, 1997. In the first nine months of 1998, the Company used $6.4 million for
operating activities. On April 14, 1998, the Company paid a dividend in the
amount of $1.00 per share, totaling $17.9 million.
On March 9, 1998, the Company implemented a cost reduction plan which
included a reduction in headcount from approximately 60 to 30 employees. The
cost of $921,000 associated with this reduction in staff, consisting primarily
of severance and related benefits, was recognized as restructuring costs in the
first quarter of 1998. In an effort to reduce facilities-related costs, in June
1998, the Company entered into an agreement to sub-lease approximately half of
its office and laboratory facilities.
10
<PAGE> 11
CAMBRIDGE NEUROSCIENCE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
The Company is continuing to evaluate alternatives for maximizing
shareholder value, which may include the sale of some or all of the Company's
technology and other assets or the merger with or acquisition of another
company. Effective May 6, 1998, Harry W. Wilcox, III, the former Senior Vice
President of Business Development and Chief Financial Officer, was appointed
President and Chief Executive Officer of the Company. Mr. Wilcox also joined the
Company's Board of Directors at that time. Elkan R. Gamzu, the former President
and Chief Executive Officer, is now serving as a consultant to the Company in
the areas of clinical trial data analysis and strategy relating to the potential
future development of aptiganel.
In 1995, the Company entered into a collaboration with BI for the
development and commercialization of CERESTAT (aptiganel). Pursuant to the
collaboration agreement, the Company was obligated to fund approximately 25% of
the development expenses for aptiganel in the United States and Europe. BI was
obligated to pay the remaining 75% of such costs and all of the development
costs in Japan. Revenue earned pursuant to this agreement represents
reimbursement by BI of expenditures by the Company in excess of its contractual
obligations. (See Note 3 to the Condensed Consolidated Financial Statements). In
the second half of 1997, the Company and BI discontinued enrollment of patients
into the clinical trials of aptiganel in both stroke and traumatic brain injury.
The collaboration agreement provided that BI would advance cash to the
Company in the event that the Company's expenditures were expected to exceed its
contractual obligation. Such advances were received by the Company in 1995 and
1996. As previously reported, the Company and BI agreed to end this
collaboration. In November 1998, the two companies signed a termination
agreement and have reached a final settlement of costs subject to the
collaboration. As a result, in the third quarter of 1998, the Company recognized
$1.2 million of revenue, representing revenue earned in 1998 pursuant to this
collaboration and an adjustment to reduce the accrual for advances to be repaid
to BI. Included in Total Current Liabilities as of September 30, 1998 are
research and development advances relating to the BI collaboration of $1.5
million, which the Company will repay to BI in November 1998.
Pursuant to the agreement signed in November 1996 with Allergan, the
Company may receive up to $3.0 million in research and development funding
through 1999. At September 30, 1998, the Company had received $2.0 million
pursuant to this funding arrangement, of which $750,000 was recognized as
revenue in the first nine months of 1998. Under this agreement, Allergan is
responsible for the development of potential products and will bear all
associated costs. The collaboration also provides that the Company may receive
up to an additional $18.5 million upon the achievement of certain milestones.
However, there can be no assurance as to when or if these milestones will be
achieved. Allergan may terminate the agreement at any time upon six months prior
written notice.
In December 1996, the Company formed a subsidiary, Cambridge NeuroScience
Partners, Inc. ("CNPI"), to pursue the development of treatments for Alzheimer's
disease and other neurological disorders. CNPI entered into a collaboration
agreement with the J. David Gladstone Institutes ("Gladstone"). Pursuant to this
collaboration, Gladstone is conducting a research program over a three year
period, for which CNPI is providing at least $1.25 million in funding per year.
The Company owns 80% of the outstanding stock of CNPI and has guaranteed CNPI's
obligations with respect to its collaboration with Gladstone.
11
<PAGE> 12
CAMBRIDGE NEUROSCIENCE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
The Company believes that cash and cash equivalents and investments in
marketable securities available at September 30, 1998 will be sufficient to
maintain operations through 1999. Based on the continuing evaluations of the
data from the clinical trials, the Company may pursue further development of
aptiganel through a new collaboration, a business combination or government
funding. There can be no assurance, however, that any such further development
will be undertaken or that the Company will be successful in securing a new
collaboration, effecting a business combination or otherwise obtaining the
funding necessary for such further development. In addition, the Company has
focused resources on the Allergan/ion-channel blocker research program and the
advancement of the Glial Growth Factor 2 program. As a result of the reduction
in headcount that took place in March and the dividend payment in April, fewer
resources are being devoted to the Company's other research and development
programs. 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.
As previously reported, the Company was notified that its common stock has
not been in compliance with the closing bid price requirements of the Nasdaq
Stock Market ("Nasdaq") and would be delisted. On September 25, 1998, the
Company requested an oral hearing to stay delisting, which hearing has been
scheduled for November 12, 1998. Pending the results of this hearing, the
Company's common stock will continue to trade on Nasdaq without restriction. If,
based on the outcome of this hearing, the Company is not granted a temporary
stay of delisting, it intends to commence trading on the OTC Bulletin Board.
The Company is aware of the issues that many computer systems will face as
the year 2000 approaches. These issues are the result of computer programs
having been written using two digits rather than four digits to define the
applicable year. Any of the Company's programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000,
resulting in system failures or miscalculations. The Company is in the process
of conducting a review of its information technology ("IT") and non-IT systems
that could be affected by this issue and may contract with an outside consultant
to ensure the timely completion of this project. An inventory of key financial
systems has been compiled and an inventory of other key informational and
operational systems (including systems supporting the Company's research and
development programs) is in process. Upon completion of the assessment of these
systems, which is targeted for January 1999, the Company will adopt a formal
plan to upgrade or replace those systems that are not year 2000 compliant. This
plan will include testing of any new software and hardware purchased to ensure
that they are working properly and have adequately addressed the year 2000
issues identified. Remediation of any year 2000 problems identified may include
the upgrade of computer operating systems, the upgrade or replacement of certain
software programs and the replacement of equipment. The Company expects to have
identified and resolved any year 2000 problems before June 30, 1999.
12
<PAGE> 13
CAMBRIDGE NEUROSCIENCE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
At September 30, 1998, the Company had completed a preliminary assessment
of basic systems supporting the finance and accounting function. In connection
with this assessment, the Company has contacted and received assurance of
compliance, or plans to become compliant, from software vendors and major
service providers supporting this functional area. The Company does not
currently have any exclusive or material relationships with third parties, other
than certain utility providers, which, if impacted by lack of year 2000
compliance on the part of the third parties, would have a material impact on the
Company's operations. However, there can be no assurance that such third parties
will achieve compliance on a timely basis or that any lack of compliance on the
part of the third parties will not materially affect the Company's operations.
The identification of alternative vendors of services and supplies will be
considered in the development and implementation of a contingency plan.
Based on a preliminary assessment of existing systems, the Company does not
expect to incur material costs to evaluate and resolve any year 2000 problems.
However, if the evaluation and resolution of any year 2000 problems is not
completed on a timely basis, the year 2000 issue may impact the Company's daily
operations, resulting in the interruption or inaccurate processing of financial
information and data generated in the Company's research and development
efforts. The actual costs to be incurred by the Company will depend on a number
of factors which cannot be accurately predicted, including the availability and
cost of consultants and the extent and difficulty of the remediation and other
work to be done.
The Company does not have a contingency plan in place. The determination of
the necessity for a contingency plan will be made once the assessment and
remediation phases of this project have been completed. The Company expects to
have identified and resolved any year 2000 problems before June 30, 1999 and to
have established and tested a formal contingency plan, to the extent deemed
necessary, before the end of 1999.
The discussion contained in this section as well as elsewhere in this
Quarterly Report on Form 10-Q may contain forward-looking statements based on
the current expectations of the Company's management. The Company cautions
readers that there can be no assurance that the actual results or business
conditions will not differ materially from those projected or suggested in the
forward-looking statements as a result of various factors, including, but not
limited to, the following: uncertainties relating to the completion of clinical
trials of the Company's product candidates, particularly with respect to
aptiganel; uncertainties as to the Company's ability to continue operations and
achieve profitability; the early stage of development of many of the Company's
product candidates; the Company's reliance on current and prospective
collaborative partners to supply funds for research and development and to
commercialize its products; technical risks associated with the development of
new products; the competitive environment of the biotechnology industry; and,
the Company`s ability to identify and resolve potential year 2000 problems on a
timely basis. Readers are cautioned not to place undue reliance on these
forward-looking statements which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward- looking statements which may be made to reflect events or
circumstances occurring after the date hereof or to reflect the occurrence of
unanticipated events.
13
<PAGE> 14
CAMBRIDGE NEUROSCIENCE, INC.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
If any stockholder of the Company intends to present a proposal at the
1999 annual meeting of stockholders and desires it to be considered for
inclusion in the Company's proxy statement and form of proxy for that meeting,
such proposal must be received by the Company at One Kendall Square, Building
700, Cambridge, MA 02139, Attention: Harry W. Wilcox, III, no later than January
26, 1999. Stockholders who do not wish to include their proposals in such proxy
statement and form of proxy, but who wish to present their proposals at the
Company's 1999 annual meeting of stockholders must notify Mr. Wilcox in writing
at the aforementioned Company address no later than April 11, 1999 in order for
their proposals to be considered timely for purposes of Rule 14a-4 under the
Securities Exchange Act, as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.28 Termination agreement, dated November 4, 1998, between the
Company and Boehringer Ingelheim International, GmbH. Filed
herewith.
27.1 Financial Data Schedule for the interim year-to-date period ended
September 30, 1998 (for electronic filing only).
(b) Reports on Form 8-K
None
14
<PAGE> 15
CAMBRIDGE NEUROSCIENCE, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAMBRIDGE NEUROSCIENCE, INC.
Date NOVEMBER 6, 1998 /s/ Harry W. WilcoX, III
---------------------- -------------------------------------
Harry W. Wilcox, III
President and Chief Executive Officer
(Principal Executive Officer;
Acting Principal Financial Officer)
Date NOVEMBER 6, 1998 /s/ Glenn A. Shane
---------------------- -------------------------------------
Glenn A. Shane
(Principal Accounting Officer)
15
<PAGE> 16
CAMBRIDGE NEUROSCIENCE, INC.
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
10.28 Termination agreement, dated November 4, 1998, between the Company
and Boehringer Ingelheim International, GmbH. Filed herewith.
27.1 Financial Data Schedule for the interim year-to-date period ended
September 30, 1998 (for electronic filing only).
16
<PAGE> 1
Exhibit 10.28
TERMINATION AGREEMENT
This Termination Agreement, dated as of November 4, 1998, is made by and
between CAMBRIDGE NEUROSCIENCE, INC., a Delaware corporation having its
principal place of business at One Kendall Square, Building 700, Cambridge,
Massachusetts 02139 U.S.A. ("CNSI"), and BOEHRINGER INGELHEIM INTERNATIONAL
GmbH, a limited liability company organized under the laws of the Federal
Republic of Germany having its principal place of business at D-55216
Ingelheim/Rhein Germany ("BII").
WHEREAS, CNSI and BII entered into a license agreement having an effective
date of March 21, 1995 (the "LICENSE AGREEMENT");
WHEREAS, CNSI and BII desire to terminate the LICENSE AGREEMENT; and
WHEREAS, notwithstanding any contrary terms and conditions included in the
LICENSE AGREEMENT, CNSI and BII have agreed that their respective rights and
obligations upon termination of the LICENSE AGREEMENT shall be as set forth
herein.
NOW THEREFORE, in consideration of the foregoing premises and for good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, CNSI and BII mutually agree as follows:
1. USE OF DEFINED TERMS. All capitalized terms used but not expressly defined
herein shall have the meanings set forth in the LICENSE AGREEMENT.
2. TERMINATION. CNSI and BII agree to terminate the LICENSE AGREEMENT
effective as of November 4, 1998 (the "Effective Date of Termination") according
to the terms set forth in this Termination Agreement. The termination of the
LICENSE AGREEMENT pursuant to the terms and conditions set forth herein shall be
deemed to be a termination of the LICENSE AGREEMENT "in accordance with its
terms" as described and provided in Section 6.5 of the Stock Purchase Agreement
entered into by the parties hereto and having an effective date of March 21,
1995 (the "STOCK PURCHASE AGREEMENT").
3. RIGHTS UNDER CNSI PATENT RIGHTS AND CNSI TECHNOLOGY.
3.1 As of the Effective date of Termination, all rights and licenses
granted by CNSI to BII under the CNSI Patent Rights and the CNSI
Technology shall terminate, and all rights, if any, of BII with
respect to the Program Patent Rights and Program Technology shall be
assigned to CNSI as provided in Section 4.2.
3.2 The provisions of Section 3.1 notwithstanding, BII may retain a
quantity (the amount of which shall be mutually agreed) of Licensed
Compound on hand solely for its internal research purposes solely at
its facilities located in Germany and solely for use by employees of
BII and its Affiliates and who are obligated to assign all
inventions and discoveries made through the use of the Licensed
Compound to BII. To the extent such employees make an invention or
discovery,
<PAGE> 2
directly or indirectly as a result of the use of a Licensed Compound
as permitted by this Section 3.2, including, without limitation,
inventions or discoveries relating to the manufacture of Licensed
Compounds or corresponding Licensed Products (hereinafter a "New
Invention"), BII will promptly notify CNSI in writing of such New
Invention. BII hereby grants CNSI a royalty-free, exclusive license
to all such New Inventions, which license shall be fully paid and
irrevocable as of the Effective Date of Termination. Such license
shall be without additional charge to CNSI, except in the event and
only to the extent that BII is required to make payments to the
inventors under German Law regarding employees' inventions. CNSI
will reimburse BII in full for all payments made by BII to such
inventors; provided, that, CNSI shall not be required to reimburse
BII for any payments made in excess of the payment required by law.
CNSI shall have the sole authority and responsibility for preparing,
filing, prosecuting, maintaining, enforcing and defending any and
all patent applications or patents covering New Inventions, at
CNSI's expense, provided, however, that BII shall make available to
CNSI (or to its attorneys, agents, or representatives), at CNSI's
expense, BII's employees, agents or consultants to the extent
reasonably necessary or appropriate to enable CNSI to prepare, file,
prosecute, maintain, enforce and defend such patent applications and
patents; provided, further, that BII, its employees, agents or
consultants shall execute all documents relating to such New
Inventions at no charge to CNSI.
3.3 CNSI, alone or together with one or more Third Parties, shall have
the exclusive right to make and have made, sell and have sold, use
and have used, market and have marketed, distribute and have
distributed, import and have imported and export and have exported
Licensed Products and the Licensed Compound throughout the world,
including, without limitation, the right to grant licenses or
sublicenses to Third Parties.
4. PROGRAM TECHNOLOGY AND PROGRAM PATENT RIGHTS; TECHNOLOGY TRANSFER.
4.1 Within one year of the Effective Date of Termination, BII shall
disclose to CNSI the making, conception or reduction to practice of
any Program Technology and Program Patent Rights by its employees or
others acting on its behalf during the term of the LICENSE
AGREEMENT; provided, that, BII shall have no obligation to generate
additional formal or informal reports for CNSI, except as set forth
in Article 11. BII shall make available to CNSI, at CNSI's expense,
BII's employees, agents or consultants to the extent reasonably
necessary to enable CNSI to conduct a meaningful evaluation of and
to practice any such Program Patent Rights and/or Program
Technology.
4.2 BII hereby assigns and transfers to CNSI all of its right, title and
interest in and to any Program Technology and Program Patent Rights
in existence as of the Effective Date of Termination, including,
without limitation, Program Technology and Program Patent Rights
relating to the manufacture of Licensed Compounds or Licensed
Products; provided, that, BII may retain rights under the Program
2
<PAGE> 3
Technology and Program Patent Rights to the limited extent necessary
to exercise the rights set forth in Section 3.2 hereof.
4.3 As of the Effective Date of Termination CNSI shall be solely
responsible for the filing, prosecution, maintenance, enforcement
and defense of the Program Patent Rights; provided, however, that
BII shall make available to CNSI (or to its attorneys, agents, or
representatives), at CNSI's expense, BII's employees, agents or
consultants to the extent reasonably necessary or appropriate to
enable CNSI to file, prosecute and maintain patent applications and
resulting patents with respect to Program Patent Rights; and
provided, further, that BII, its employees agents or consultants
shall execute all documents relating to such Program Patent Rights
at no charge to CNSI.
5. TRADEMARK. BII shall retain all rights to the Trademark assigned to BII
pursuant to Section 3.1.4 of the LICENSE AGREEMENT.
6. ROYALTIES. In the event that CNSI or any CNSI Affiliate, or any licensee
of CNSI or any CNSI Affiliate, sells the Licensed Compound or corresponding
Licensed Products, CNSI shall pay BII royalties pursuant to this Article 6.
6.1 DEFINITIONS. For the purposes of this Termination Agreement, the
term Net Sales means the amount received by CNSI, its Affiliates or
licensees, in consideration for the sale, lease or other transfer of
Licensed Products to independent customers, less: (a) credited
allowances to such independent customers for such Licensed Product
which was spoiled, damaged, out-dated or returned; (b) freight and
insurance costs incurred in transporting Licensed Products to such
customers; (c) quantity and other trade discounts actually allowed
and taken; (d) sales, use, value added and other taxes or
governmental charges incurred in connection with the sale,
exportation or importation of the Licensed Products in finished
packaged form; and (e) charge back payments and/or rebates provided
to managed health care organizations or federal, state and local
governments, their agencies, purchasers and reimburses, including
reimbursements to social security organizations. The transfer of
Licensed Products by CNSI or one of its Affiliates to (i) another
Affiliate of CNSI, or (ii) a licensee of CNSI shall not be
considered a sale; in such cases, Net Sales shall be determined
based on the amount received by CNSI, its Affiliate or licensees to
its customer, less the deductions allowed under this Section. Every
other commercial use or disposition of Licensed Products by CNSI,
its Affiliates or licensees, other than reasonable quantities of
promotional samples, shall be considered a sale of the Licensed
Products at the weighted average Net Sales price then being invoiced
by the seller in arm's length transactions.
CNSI, its Affiliates or licensees shall be deemed to have sold a
"Bundled Product" if the Licensed Products are sold by CNSI, its
Affiliates or licensees pursuant to an agreement with an independent
customer specifying, for a combination of products or services, (i)
a single price, (ii) other terms of purchase not separately
3
<PAGE> 4
identifying either a price per product or the effective deductions
referred to above per product, or (iii) a price for units of the
Licensed Products which is discounted below CNSI's or its
Affiliates' or licensees' standard invoice price per unit of the
Licensed Products by at least five percentage points more than the
amount that any other product or service in the Bundled Product is
discounted below such other product's or service's standard invoice
price. In order to calculate the Net Sales of the Licensed Products
included in a Bundled Product (a) in the case of the foregoing
clauses (i) and (ii), the total Net Sales of the Bundled Product
shall be multiplied by a fraction, the numerator of which shall be
the product of the number of units of the Licensed Products sold
multiplied by the standard invoice price per unit of the Licensed
Products and the denominator of which shall be the sum, for all
products or services included in the Bundled Product, of the
products of the number of units sold for each product or service in
the Bundled Product multiplied by the standard invoice price per
unit for each such product or service, and (b) in the case of the
foregoing clause (iii), the parties will determine whether an
adjustment to Net Sales is appropriate and, if so, a mutually
agreeable method of calculation.
6.2 ROYALTIES RECEIVED BY CNSI AND CNSI AFFILIATES ON THE NET SALES OF
LICENSED PRODUCTS BY THIRD PARTY LICENSEES.
6.2.1 Subject to Section 6.4, CNSI shall pay BII a percentage of
the royalty received by CNSI on the Net Sales of Licensed
Products by CNSI's Third Party licensees at the following
rates:
PERCENT OF ROYALTIES
ROYALTY PAID TO CNSI BY THIRD PARTY RECEIVED BY CNSI
LICENSEE OWED TO BII
----------------------------------- --------------------
Ten percent (10%) or less 10%
Greater than ten percent (10%) and
less than twenty percent (20%) 15%
Twenty percent (20%) or greater 20%
CNSI will pay the above percentage of royalties to BII for the
duration of any royalty payments received by CNSI from a Third Party
licensee.
6.2.2 Subject to Section 6.4, to the extent that CNSI also
receives consideration in the form of up-front licensing
fees or milestone payments, or payments for the purchase of
outstanding shares of the capital stock of CNSI which are in
excess of the fair market value of such shares, but
excluding reimbursement of research and development costs
actually incurred by CNSI (hereinafter "Other Licensing
Income"), CNSI shall pay BII a percentage of such Other
Licensing Income actually received by CNSI
4
<PAGE> 5
according to the schedule for royalties received in the same
transaction as set forth in Section 6.2.1. By way of
example, but not limitation, if CNSI enters into an
agreement with a Third Party licensee for the development of
Licensed Products and the agreement provides that CNSI shall
receive an up-front license fee of Five Hundred Thousand
Dollars ($500,000.00) and a royalty of twelve percent (12%)
on the Net Sales of Licensed Products by such Third Party
licensee, CNSI shall owe BII fifteen percent (15%) of the
up-front license fee received from such Third Party and
fifteen percent (15%) of the royalties on Net Sales received
from such Third Party.
6.3 ROYALTIES ON THE NET SALES OF LICENSED PRODUCTS SOLD DIRECTLY BY
CNSI OR CNSI AFFILIATES. CNSI shall pay BII a royalty of three
percent (3%) on the Net Sales of Licensed Products sold directly to
Third Parties other than Third Party licensees by CNSI or its
Affiliates.
6.4 PAYMENTS ON SALES OF LICENSED COMPOUND OR LICENSED PRODUCTS BY CNSI
OR CNSI AFFILIATES. In the event CNSI supplies Licensed Compounds or
Licensed Products to a Third Party licensee, CNSI shall pay BII
three percent (3%) of the Net Sales of Licensed Products related
thereto by such Third Party licensee only if such three percent (3%)
of Net Sales is greater than the royalties and other amounts CNSI
would have owed BII on the Net Sales of Licensed Products by such
Third Party licensee pursuant to Sections 6.2.1 and 6.2.2 above, and
in such case, CNSI shall not owe BII the royalty set forth in
Sections 6.2.1 and 6.2.2.
6.5 OTHER. In the event CNSI is acquired, is merged with a Third Party,
is disposed of by a receiver in bankruptcy, or in the event that
CNSI sells or otherwise disposes of the program relating to the
Licensed Compounds or Licensed Products, such that the provisions of
Section 6.2, 6.3 and 6.4 do not apply, then CNSI's successor shall,
as a condition to the consummation of such transaction, assume
CNSI's obligations under those provisions.
6.6 PAYMENTS TO THIRD PARTIES.
6.6.1 If CNSI, its Affiliates or licensees can demonstrate that,
in order to manufacture or sell Licensed Products or
Licensed Compounds in any country they must make payments
(including without limitation royalties, option fees or
license fees) to one or more Third Parties to obtain a
license or similar right in the absence of which the
Licensed Compound and/or the Licensed Products could not be
legally manufactured or sold in such country, CNSI may
deduct from the royalty thereafter payable to BII on Net
Sales in such country an amount equal to fifty percent (50%)
of the payment to such Third Party, other than the
University of Oregon, subject to the limitations of Section
6.6.2 below.
5
<PAGE> 6
6.6.2. It is specifically understood and agreed that an aggregate
total sum of the reduction under Section 6.6.1 of royalty
payments described in Sections 6.2 and 6.3 shall not reduce
the royalty to be paid to BII by more than fifty percent
(50%) in any given quarter under any circumstance; provided,
however, that in the event that royalties paid by CNSI for
the use of Third Party patents, including, without
limitation, royalties payable to the University of Oregon,
together with the royalties paid to BII under this
Termination Agreement, are so significant a factor in the
return realized by CNSI as to diminish CNSI's ability to
respond to competitive pressures in the market, BII agrees
to negotiate a reasonable reduction in the royalty paid to
BII for the period during which such market condition
exists. Factors determining the size of the reduction will
include CNSI's profit margin on Licensed Products or
Licensed Compounds, as the case may be, and on analogous
products and prevailing prices for competitive products.
6.7 ROYALTY REPORTS, EXCHANGE RATES. During the term of this Termination
Agreement, following the First Commercial Sale of the Licensed
Products in any country, CNSI shall, (a) within thirty (30) days
after each calendar quarter in the case of Licensed Products sold
directly by CNSI or its Affiliates, or (b) within fifteen (15)
business days after receipt by CNSI of the applicable quarterly
report (as described below) in the case of the sale of Licensed
Products by a Third Party licensee, furnish to BII a written
quarterly report showing, on a country by country basis and as
applicable: (i) the gross sales of the Licensed Products sold, as
the case may be, by CNSI and its Affiliates or by CNSI's licensees,
during the reporting period and the calculation of Net Sales from
such gross sales; (ii) withholding taxes, if any, required by law to
be deducted in respect of such sales; (iii) the dates of the First
Commercial Sales of the Licensed Products in any countries during
the reporting period; and (iv) the exchange rates used in
determining the amount of United States dollars. If no royalty is
due for any royalty period hereunder, CNSI shall so report. CNSI
shall keep complete and accurate records in sufficient detail to
properly reflect all gross sales and Net Sales of Licensed Compounds
and Licensed Products to enable the royalties payable hereunder to
be determined. For the purposes of this Termination Agreement, the
term "First Commercial Sale" means the first sale for use or
consumption by the general public of the Licensed Products in the
applicable country based on the required marketing and pricing
approval granted by the governing health authority of such country.
6.8 AUDITS. Upon the written request of BII, CNSI shall permit an
independent public accountant selected by BII and acceptable to
CNSI, which acceptance shall not be unreasonably withheld, to have
access during normal business hours to such records of CNSI as may
be reasonably necessary to verify the accuracy of the royalty
reports described herein, in respect of any fiscal year ending not
more than thirty-six (36) months prior to the date of such request.
All such verifications shall be conducted at BII's expense and not
more than once in each calendar year.
6
<PAGE> 7
In the event such BII representative concludes that additional
royalties were owed to BII during such period, the additional
royalty shall be paid by CNSI within thirty (30) days of the date
BII delivers to CNSI such representative's written report so
concluding. The fees charged by such representative shall be paid by
BII unless the audit discloses that the royalties payable by CNSI
for the audited period are incorrect by more than five percent (5%),
in which case CNSI shall pay the reasonable fees and expenses
charged by such representative. CNSI shall include in each Third
Party license granted by it a provision requiring the licensee to
make reports to CNSI, to keep and maintain records of sales made
pursuant to such license and to grant access to such records by
BII's representatives to the same extent required of CNSI under this
Termination Agreement. BII agrees that all information subject to
review under this Section 6.8 or under any sublicense agreement is
confidential and that BII shall cause its representatives to retain
all such information in confidence and to treat such confidential
information with the same care that it treats its own confidential
information.
6.9 ROYALTY PAYMENT TERMS. Royalties shown to have accrued by each
royalty report provided for under this Termination Agreement shall
be due, (i) within thirty (30) days of the end of each calendar
quarter in the case of the sale of Licensed Products by CNSI or its
Affiliates, or (ii) within fifteen (15) business days of CNSI's
receipt of payment from a Third Party licensee in the case of sales
of Licensed Products by a Third Party licensee. Payment of royalties
in whole or in part may be made in advance of such due date.
Royalties determined to be owing with respect to any prior quarter
shall be added, together with interest thereon accruing at the rate
set forth in Section 6.11, from the date of the report for the
quarter for which such amounts are owing, to the next quarterly
payment hereunder.
6.10 WITHHOLDING TAXES. CNSI shall deduct any withholding taxes from the
payments agreed upon under this Article 6 and pay them to the proper
tax authorities required by the laws of the United States of America
applicable at the date of payment. CNSI shall not deduct any other
withholding or any other governmental charges from the payments
agreed upon under this Termination Agreement, including but not
limited to any such taxes or charges incurred as a result of an
assignment or sublicense by CNSI to any Affiliate or any Third
Party, except as noted above. CNSI shall maintain official receipts
of payment of any withholding taxes and forward these receipts to
BII. The parties will exercise their best efforts to ensure that any
withholding taxes imposed are reduced as far as possible under the
provisions of the current or any future double taxation agreement
between the United States and the Federal Republic of Germany. BII
shall provide CNSI with completed Form 1001 "Ownership, Exemption,
or Reduced Rate Certificate," or Form 4224 "Exemption From
Withholding of Tax on Income Effectively Connected With the Conduct
of a Trade or Business in the United States," as applicable.
7
<PAGE> 8
6.11 INTEREST ON LATE PAYMENTS. Any payments by CNSI to BII that are not
paid on or before the date such payments are due under this
Termination Agreement shall bear interest, to the extent permitted
by applicable law, at two (2) percentage points above the Prime Rate
of interest declared from time to time by BankBoston, N.A., in
Boston, Massachusetts, calculated on the number of days payment is
delinquent.
6.12 EXPIRATION OF ROYALTY OBLIGATION. CNSI's obligation to pay BII
royalties under this Section 6 shall expire twelve (12) years from
the Effective Date of Termination.
7. DEVELOPMENT COSTS. Within fifteen (15) business days of the Effective Date
of Termination, CNSI shall pay BII One Million Four Hundred and Seventy-Eight
Thousand Dollars ($1,478,000.00), which represents all outstanding amounts owed
BII pursuant to Section 4.2 of the LICENSE AGREEMENT. Such payment will be made
to BII's account at the Citibank, Frankfurt am Main, Account No. 120 3497 004,
Swift Code: CITIDEFF.
8. BULK DRUG SUPPLY. For a period of two (2) years after the execution of
this Agreement (the "Purchase Period"), CNSI shall have the right to purchase
some or all of the existing quantity of Licensed Compound from BII at a price of
9,500 DM/kg. of Licensed Compound. As of the Effective Date of Termination, the
amount of Licensed Compound in stock is 56.831 kg., and CNSI may purchase up to
a total of 54 kg. hereunder. CNSI shall purchase such Licensed Compounds in
amounts of 2kg. or greater. At the conclusion of the Purchase Period, BII may
destroy any quantities of Licensed Compound in stock; provided, that BII shall
provide CNSI with at least thirty (30) days advance written notice thereof, and
provided, further, that CNSI shall have the right to request that instead such
remaining quantity of Licensed Compound be purchased by CNSI on the above terms.
9. RIGHT TO DESIGNATE DIRECTOR.
9.1 The termination of the LICENSE AGREEMENT pursuant to the terms and
conditions set forth herein shall cause the termination of Section
6.0 of the STOCK PURCHASE AGREEMENT, including, without limitation,
BII's right to designate a nominee for election to CNSI's Board of
Directors.
9.2 The provisions of Section 9.1 notwithstanding, BII and CNSI agree
that Burkhard Blank, M.D., heretofore a designee of BII pursuant to
Section 6.1 of the STOCK PURCHASE AGREEMENT, shall serve on CNSI's
Board of Directors through March 31, 1999, and thereafter upon the
mutual agreement of the parties.
10. ASSIGNMENT OF REGULATORY APPROVALS, PRE-CLINICAL AND CLINICAL DATA AND
MANUFACTURING DATA.
10.1 Within sixty (60) days of the Effective Date of Termination, BII
shall provide to CNSI a copy of all correspondence to regulatory
agencies relating to the termination of their clinical
investigations of the Licensed Compound. BII shall
8
<PAGE> 9
also provide to CNSI copies of technical documentation related to
the manufacture, quality, purity and testing of the Licensed
Compound and the corresponding Licensed Products. The foregoing
notwithstanding, BII shall have no obligation to generate additional
formal or informal reports for CNSI, except as provided in Article
11.
10.2 BII shall retain the raw data and biological samples generated by
BII during the Program in industry standard archives for a period of
three (3) years after the Effective Date of Termination. If
requested by CNSI, BII shall provide such data and samples to CNSI
so as not to jeopardize any regulatory filings, and to assist CNSI
in completing, maintaining or supplementing, to the extent necessary
or desirable, any regulatory filings.
10.3 BII shall use reasonable efforts to cooperate with CNSI so as not to
jeopardize any regulatory proceedings or approvals or delay any
future regulatory filings undertaken by CNSI. BII agrees to make its
employees and non-employee consultants reasonably available at their
respective places of employment to consult with CNSI (at CNSI's
expense) in connection with any request from CNSI or from any
regulatory agency pertaining to any aspect of the development or
manufacture of Licensed Compounds or Licensed Products performed by
BII or under contract to BII during the Program, including
toxicology, pre-clinical data, clinical testing and manufacturing
issues.
11. THE FINAL ANALYSIS REPORT; PUBLICATIONS AND OTHER COMMUNICATIONS REGARDING
CLINICAL STUDY 534.11. The parties agree that BII shall prepare a Final Analysis
Report and publication regarding Phase III Clinical Study 534.11 on or before
December 31, 1999, and that CNSI shall have the right to review and provide
comments on the Final Analysis Report and any publications or disclosures
regarding Clinical Study 534.11 for a period of (30) business days after its
receipt thereof, which date shall be at least thirty (30) business days prior to
the release thereof to third parties who are not employees of BII or its
Affiliates. Until such review occurs, and CNSI has had the opportunity to
provide comments on the contents of the Final Analysis Report, publication or
other disclosure, the Final Analysis Report and any such publication or other
disclosure shall be treated as the Confidential Information of CNSI.
12. Each of CNSI and BII hereby release the other from any and all claims,
actions or causes of action by it and arising from or related to the LICENSE
AGREEMENT, the transactions contemplated thereby or the termination thereof;
provided, that, this Section shall not be interpreted to release either CNSI or
BII from any obligation expressly set forth in this Termination Agreement,
including, without limitation, their respective continuing obligations pursuant
to Section 13 hereof.
13. SURVIVAL. The following Articles and Sections of the LICENSE AGREEMENT
shall survive its termination: Articles 1, 11 and 13 and Sections 4.3, 5.3, 6.5,
8.1.2, 9.1, 9.3, 9.4 and 9.5.
9
<PAGE> 10
14. MISCELLANEOUS.
14.1 APPLICABLE LAW. This Termination Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of
Massachusetts, without giving affect to the choice of law provisions
thereof.
14.2 ASSIGNMENT. This Termination Agreement may be assigned by either
party without the consent of the other party, provided, that, any
assignee shall assume all obligations of its assignor under this
Termination Agreement.
14.3 SEVERABILITY. Each party hereby agrees that it does not intend to
violate any public policy, statutory or common laws, rules,
regulations, treaty or decision of any government agency or
executive body thereof of any country or community or association of
countries. Should one or more provisions of this Termination
Agreement be or become invalid, the parties hereto shall substitute,
by mutual consent, valid provisions for such invalid provisions
which valid provisions in their economic effect are sufficiently
similar to the invalid provisions that it can be reasonably assumed
that the party would have entered into this Termination Agreement
with such valid provision. In case such valid provisions cannot be
agreed upon, the invalidity of one or several provisions of this
Termination Agreement shall not affect the validity of this
Termination Agreement as a whole, unless the invalid provisions are
of such essential importance to this Termination Agreement that it
is to be reasonably assumed that the parties would not have entered
into this Termination Agreement without the invalid provisions.
14.4 NOTICES. Any consent, notice or report required or permitted to be
given or made under this Termination Agreement by one of the parties
thereto to the other shall be in writing, delivered personally or by
facsimile (and promptly confirmed by telephone, personal delivery or
courier) or courier, postage prepaid (where applicable), addressed
to such other party at its address indicated below, or to such other
address as the addressee shall have last furnished in writing to the
addressor and shall be effective upon receipt by the addressee.
If to CNSI: Cambridge NeuroScience, Inc.
One Kendall Square
Cambridge, Massachusetts 02139
Attention: President
Telephone:(617) 225-0600
Telecopy: (617) 225-0613
10
<PAGE> 11
with a copy to: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
Attention: William T. Whelan, Esq.
Telephone:(617) 542-6000
Telecopy: (617) 542-2241
If to BII: Boehringer Ingelheim International GmbH
Postbox 200
D-55216 Ingelheim, Rhein
Germany
Attention: Corporate Licensing
Telephone: 011 49 61 32 77 34 08
Telecopy: 011 49 61 32 77 35 83
with a copy to: Boehringer Ingelheim International GmbH
Postbox 200
D-55216 Ingelheim, Rhein
Germany
Attention: Head of Legal Department
Telephone: 011 49 61 32 77 21 06
Telecopy: 011 49 61 32 77 35 83
14.5 DISPUTE RESOLUTION; CHOICE OF FORUM. Any disputes arising between
the parties relating to, arising out of or in any way connected with
this Termination Agreement or any term or condition hereof, or the
performance by either party of its obligations hereunder, whether
before or after the expiration or termination of this Termination
Agreement, shall be promptly presented to the Chief Executive
Officer of CNSI and the Member of the Corporate Board of BII
responsible for Pharmaceuticals for resolution and if they or their
designees cannot promptly resolve such disputes, then either party
shall have the right to bring an action to resolve such dispute
before a court of competent jurisdiction. The parties hereby submit
to the jurisdiction of the federal or state courts located within
the Commonwealth of Massachusetts for the conduct of any suit,
action or proceeding arising out of or relating to this Termination
Agreement.
14.6 HEADINGS. The captions to the several Articles and Sections hereof
are not a part of this Termination Agreement, but are merely guides
or labels to assist in locating and reading the several Articles and
Sections hereof.
14.7 WAIVER. The waiver by either party hereto of any right hereunder or
the failure to perform or a breach by the other party shall not be
deemed a waiver of any other right hereunder or of any other breach
or failure by said other party whether of a similar nature or
otherwise.
11
<PAGE> 12
14.8 COUNTERPARTS. This Termination Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
15. This Termination Agreement together with the STOCK PURCHASE AGREEMENT,
contains the entire understanding of the parties with respect to the subject
matter hereof and, except where the LICENSE AGREEMENT is expressly referenced,
supersedes the LICENSE AGREEMENT. All express or implied agreements and
understandings, either oral or written, heretofore made are expressly merged in
and made a part of this Termination Agreement. This Termination Agreement may be
amended, or any term hereof modified, only by a written instrument duly executed
by both parties hereto.
[Remainder of page intentionally left blank.]
12
<PAGE> 13
IN WITNESS WHEREOF, the parties have executed this Termination Agreement
as of the date first set forth above.
CAMBRIDGE NEUROSCIENCE, INC.
/s/ Harry W. Wilcox
By: ___________________________________
President & CEO
Title: ________________________________
BOEHRINGER INGELHEIM INTERNATIONAL GMBH
ppa
/s/ David Mitchard
By: ___________________________________
Authorized Signatory
Title: ________________________________
ppa
/s/ Peter Muller
By: ___________________________________
Authorized Signatory
Title: ________________________________
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 7,473
<SECURITIES> 6,891
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,086
<PP&E> 6,641
<DEPRECIATION> (6,193)
<TOTAL-ASSETS> 15,534
<CURRENT-LIABILITIES> 3,264
<BONDS> 0
0
0
<COMMON> 18
<OTHER-SE> 12,252
<TOTAL-LIABILITY-AND-EQUITY> 15,534
<SALES> 0
<TOTAL-REVENUES> 1,973
<CGS> 0
<TOTAL-COSTS> 6,377
<OTHER-EXPENSES> 921
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,338)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,338)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,338)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
