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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-20954
COCENSYS, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0538836
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
213 Technology Drive, Irvine, CA 92618
(Address of principal executive offices including zip code)
(714) 753-6100
(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock $.001 par value 22,002,552
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(Class) (Outstanding at August 1, 1996)
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COCENSYS, INC.
TABLE OF CONTENTS
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PAGE NUMBER
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
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Condensed Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995 3
Condensed Consolidated Statements of Operations for the
three and six-month periods ended June 30, 1996 and 1995
and the period from inception (February 15, 1989) through
June 30, 1996 4
Condensed Consolidated Statements of Cash Flows for the
six-month periods ended June 30, 1996 and 1995 and the
period from inception (February 15, 1989) through
June 30, 1996 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. 10
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 15
SIGNATURES 16
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2
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COCENSYS, INC.
(A development stage company)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and par value amounts)
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<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
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(Unaudited)
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ASSETS
Current assets:
Cash and cash equivalents $ 15,462 $ 6,895
Short-term investments 15,047 6,554
Other current assets 651 455
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TOTAL CURRENT ASSETS 31,160 13,904
Property and equipment, net 2,834 2,777
Notes receivable from officers 355 264
Deferred patent costs, net 197 394
Deferred sales organization costs, net 325 650
Other assets, net 125 212
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$ 34,996 $ 18,201
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LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,113 $ 880
Other accrued liabilities 2,100 2,418
Advances from corporate partners 4,141 3,144
Capital lease obligation - current portion 731 709
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TOTAL CURRENT LIABILITIES 8,085 7,151
Capital lease obligation, less current portion 317 357
Other liabilities 45 49
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value
Authorized shares -- 5,000,000
Issued and outstanding shares -- 100,000 at June 30, 1996
and none at December 31, 1995 7,000 -
Common stock, $.001 par value
Authorized shares -- 75,000,000
Issued and outstanding shares -- 21,955,072 at June 30, 1996
and 19,395,341 at December 31, 1995 91,015 76,296
Deficit accumulated during the development stage (70,916) (64,674)
Deferred compensation (461) (956)
Unrealized loss on investments (89) (22)
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TOTAL STOCKHOLDERS' EQUITY 26,549 10,644
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$ 34,996 $ 18,201
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</TABLE>
SEE ACCOMPANYING NOTES.
3
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COCENSYS, INC.
(A development stage company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
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PERIOD FROM
INCEPTION
(FEBRUARY 15,
THREE MONTHS ENDED SIX MONTHS ENDED 1989) TO
JUNE 30, JUNE 30, JUNE 30,
------------------------- -------------------------
1996 1995 1996 1995 1996
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REVENUES
Co-promotion revenues from corporate partners $ 3,213 $ 1,315 $ 4,011 $ 1,549 $ 21,827
Co-development revenues from corporate partners 3,716 595 4,549 595 6,519
---------- ---------- ---------- ---------- ----------
Total revenues 6,929 1,910 8,560 2,144 28,346
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OPERATING EXPENSES
Research and development 4,182 4,074 8,536 7,084 51,988
General and administrative 1,488 840 2,765 1,623 14,304
Sales and marketing 2,217 2,939 4,072 5,035 20,072
Acquired research and development - - - - 14,879
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Total operating expenses 7,887 7,853 15,373 13,742 101,243
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OPERATING LOSS (958) (5,943) (6,813) (11,598) (72,897)
Interest income 357 166 629 250 2,880
Interest expense (28) (58) (58) (114) (899)
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NET LOSS $ (629) $ (5,835) $ (6,242) $ (11,462) $ (70,916)
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Net loss per share $ (0.03) $ (0.36) $ (0.29) $ (0.74)
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Shares used in computing net loss per share 21,916,558 16,256,334 21,555,004 15,402,350
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</TABLE>
SEE ACCOMPANYING NOTES.
4
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COCENSYS, INC.
(A development stage company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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<CAPTION>
PERIOD FROM
INCEPTION
SIX MONTHS ENDED (FEBRUARY 15,
JUNE 30, 1989) TO
------------------------- JUNE 30,
1996 1995 1996
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OPERATING ACTIVITIES
Net loss $ (6,242) $ (11,462) $ (70,916)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,025 919 4,842
Amortization of deferred compensation 374 362 3,032
Issuance of stock and warrants for services - - 129
Loss on sale of fixed assets - - 26
Acquired research and development - - 12,279
Increase in other current assets (196) (585) (723)
Decrease in receivable from corporate partner - 535 -
Increase (decrease) in accounts payable and other accrued liabilities (89) (1,049) 2,983
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NET CASH USED IN OPERATING ACTIVITIES (5,128) (11,280) (48,348)
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INVESTING ACTIVITIES
Increase in short-term investments (8,560) (9,880) (15,139)
Purchase of property and equipment (475) (219) (5,288)
Decrease (increase) in other assets and notes receivable from officers (89) 32 (596)
Cash received on sale of fixed assets - - 19
Increase in deferred sales organization costs - - (1,571)
Increase in deferred patent costs - - (904)
Acquisition of Acea Pharmaceuticals, net of cash acquired - - (62)
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NET CASH USED IN INVESTING ACTIVITIES (9,124) (10,067) (23,541)
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FINANCING ACTIVITIES
Net cash proceeds from issuance of common stock 14,840 16,953 58,352
Net cash proceeds from issuance of preferred stock 7,000 - 23,381
Advances from corporate partners 997 4,448 4,141
Proceeds from sale/leaseback of fixed assets and notes payable 535 29 4,119
Payments on capital lease obligations and notes payable (553) (367) (2,642)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 22,819 21,063 87,351
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,567 (284) 15,462
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,895 6,939 -
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15,462 $ 6,655 $ 15,462
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 58 $ 69 $ 673
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SEE ACCOMPANYING NOTES.
5
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COCENSYS, INC.
(A development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The interim financial information for the three and six-month periods ended
June 30, 1996 and 1995 is unaudited but includes all adjustments
(consisting only of normal recurring entries) which the Company's
management believes to be necessary for the fair presentation of the
financial position, results of operations and cash flows for the periods
presented. The accompanying interim financial statements should be read in
conjunction with the financial statements and related notes included in the
Company's 1995 Annual Report on Form 10-K for the year ended December 31,
1995. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
Securities and Exchange Commission rules and regulations. Interim results
of operations for the three and six-month periods ended June 30, 1996, are
not necessarily indicative of operating results to be expected for the full
year.
REVENUE AND EXPENSE RECOGNITION
See Notes 2, 3, 4 and 5 for revenue recognition policies related to the
Ciba Promotion and Ciba Research and Development Agreements; the Warner
Collaboration Agreement and the Parke-Davis Promotion Agreement; the
Somerset Promotion Agreement; and the Searle Development and
Commercialization Agreement, respectively. The initial costs incurred in
establishing the sales and marketing organization were deferred until
initiation of the Company's sales efforts on August 1, 1994. Such costs
are being amortized over the contract term of the Ciba Promotion Agreement
(through December 31, 1996). In the second quarter of 1996, the Company
recognized $2.3 million of co-promotion revenues related to prior years'
co-promotion activities, the determination of which was agreed between the
Company and one of its corporate partners in the second quarter of 1996.
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of shares
of common stock outstanding during the periods.
6
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COCENSYS, INC.
(A development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. MARKETING AND DEVELOPMENT COLLABORATION WITH CIBA-GEIGY LIMITED
In May 1994, the Company entered into a marketing and development
collaboration with Ciba-Geigy Limited (Ciba Basel) and its U.S. affiliate
Ciba-Geigy Corporation (Ciba U.S.) for the co-promotion by the Company of
certain Ciba U.S. products and the development and commercialization of
ACEA 1021, a compound being developed by the Company. This collaboration
consists of the Ciba Promotion Agreement with Ciba U.S. and the Ciba
Research and Development Agreement with Ciba Basel.
Pursuant to the Ciba Promotion Agreement, CoCensys established a sales
force to co-promote and market certain Ciba U.S. products in the United
States initially to psychiatrists. The agreement provides for the advance
of funds to the Company to cover a portion of the expenses incurred by the
CoCensys sales force in promoting the Ciba U.S. products. CoCensys
realizes co-promotion revenues from its share of sales of the Ciba U.S.
products above certain baseline levels specified in the contract. In the
event sales levels are insufficient to cover the advanced expenses in a
given year, CoCensys will have an obligation for repayment. Any such
repayment obligations may be deferred for up to five years, with the first
two years at no interest. The Ciba Promotion Agreement is scheduled to
terminate at the end of 1996.
Under the Ciba Research and Development Agreement, each party is obligated
to pay one-half of the U.S. development costs of ACEA 1021. The parties
will co-promote ACEA 1021 in the United States and share equally the
profits generated, if any. Ciba Basel will have the exclusive right to
develop and market the compound, at its own cost, for markets outside the
United States, subject to a specified royalty payment to the Company.
In connection with the Ciba Research and Development Agreement, Ciba Basel
purchased $7.0 million of CoCensys common stock. In addition, the Company
will receive nonrefundable milestone payments upon the occurrence of
certain events in the course of the development of ACEA 1021 for the United
States and Japanese markets. Under certain circumstances, Ciba Basel will
also make available to the Company a revolving line of credit. The balance
outstanding will bear interest and will be due upon attainment of certain
milestones for ACEA 1021, as defined in the Agreement.
3. MARKETING AND DEVELOPMENT COLLABORATION WITH WARNER-LAMBERT COMPANY
In October 1995, the Company entered into a collaboration with
Warner-Lambert Company and its Parke-Davis division to develop and market
therapeutic drugs for the treatment of certain CNS disorders. This
arrangement consists of the Research, Development and Marketing
Collaboration
7
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COCENSYS, INC.
(A development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. MARKETING AND DEVELOPMENT COLLABORATION WITH WARNER-LAMBERT COMPANY
(CONTINUED)
Agreement (the Warner Collaboration Agreement), for the development and
commercialization of a new class of neurological and psychiatric drugs,
termed subtype selective NMDA receptor antagonists ("SSNRAs"), and the
Parke-Davis Promotion Agreement, pursuant to which the Company co-promotes
Parke-Davis' CNS drug, Cognex-Registered Trademark-, to U.S. neurologists
for the treatment of Alzheimer's disease.
Under the Parke-Davis Promotion Agreement, the Company realizes
co-promotion revenues from its share of sales of Cognex above certain
baseline levels specified in the contract. The agreement provides that
funds will be advanced to the Company each quarter to cover training and
operating expenses incurred by the CoCensys sales force to promote Cognex.
In the event sales are insufficient to cover the advances, the Company is
obligated to repay the advances. During the first year, one-half of the
repayment obligation may be deferred for one year. After the first year,
repayment obligations may not be deferred.
Under the Warner Collaboration Agreement, both companies will share
technology and resources to develop SSNRA candidates. The parties are
obligated to make specified contributions to development costs with respect
to any development candidates. Promotion costs of, and profits from, any
products developed under the agreement will be shared equally in the United
States and Japan. Warner-Lambert will have the exclusive right to develop
and market any product, at its own cost, for markets outside the United
States and Japan, subject to a specified royalty payment to the Company.
Pursuant to the Warner Collaboration Agreement, Warner-Lambert purchased
$2.0 million of CoCensys common stock in October 1995. Warner-Lambert is
obligated to purchase an additional $2.0 million of CoCensys common stock
during the first quarter of 1997. Upon achievement of certain clinical
development and regulatory milestones, Warner-Lambert will be obligated to
make certain milestone payments for each development compound.
4. PROMOTION AGREEMENT WITH SOMERSET PHARMACEUTICALS, INC.
In January 1996, the Company and Somerset Pharmaceuticals, Inc. (Somerset)
entered into the Somerset Promotion Agreement, pursuant to which the
Company promotes Somerset's drug Eldepryl-Registered Trademark- to
neurologists in the United States for the treatment of Parkinson's disease.
The initial term of the Somerset Promotion Agreement expires December 31,
1997, subject to certain provisions for early termination and renewal.
Under the Somerset Promotion Agreement, CoCensys has the exclusive right to
detail Eldepryl to neurologists in the United States. During the term of
the Somerset Promotion Agreement, CoCensys realizes co-promotion revenues
based upon the number of details undertaken for Eldepryl, new prescriptions
written and sales. Compensation to CoCensys
8
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COCENSYS, INC.
(A development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROMOTION AGREEMENT WITH SOMERSET PHARMACEUTICALS, INC. (CONTINUED)
is subject to adjustment in the event of generic competition. In addition,
such compensation is subject to review in the event of certain governmental
or third-party actions. To finance a portion of its sales force to promote
Eldepryl, CoCensys receives quarterly advances from Somerset, which are
repayable in full at the end of each quarter.
5. DEVELOPMENT AND COMMERCIALIZATION AGREEMENT WITH G.D. SEARLE & CO.
In May 1996, the Company entered into an agreement with G.D. Searle & Co.
(Searle) to co-develop and co-promote CCD 3693, the Company's lead compound
for the treatment of insomnia, along with its back-up compounds. Pursuant
to the agreement, Searle paid a $3.0 million license fee(which was
recognized as co-development revenue) and purchased 100,000 shares of the
Company's Series B Convertible Preferred Stock for $7.0 million. The
preferred stock is convertible to common stock on May 18, 1998, or earlier
at the Company's discretion. The number of shares issuable upon conversion
shall be equal to $7.0 million divided by the then current common stock
price (subject to certain minimum and maximum limits).
Under the agreement, both companies are obligated to pay a portion of the
development costs of CCD 3693 and its back-up compounds. In addition, the
Company will receive nonrefundable milestone payments upon the occurrence
of certain events in the development of CCD 3693.
The parties will co-promote any products derived from the collaboration in
the United States, while Searle will have the right to develop, register
and market the products in the rest of the world, subject to specified
royalty payments.
6. EQUITY FINANCING
In January 1996, the Company completed a public offering of common
stock, obtaining net proceeds of $14.6 million through the sale of 2.4
million shares at $6.50 per share.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE
NOT LIMITED TO, THOSE DISCUSSED BELOW AND IN THE COMPANY'S 1995 ANNUAL
REPORT ON FORM 10-K.
OVERVIEW
Since its inception in February 1989, the Company has devoted substantially
all of its resources to the discovery and development of
neuropharmaceutical products for the treatment of disorders affecting the
central nervous system. The Company has incurred losses since inception
and expects losses to continue for the foreseeable future, primarily due to
the expansion of programs for research and development. Operating results
are expected to fluctuate as a result of uncertainty in the timing and
amount of revenues to be earned from product sales and from achievement of
research and development milestones, and uncertainty in the timing and
amount of expenses for product development, including clinical trials. As
of June 30, 1996, the Company's accumulated deficit was approximately $70.9
million.
RESULTS OF OPERATIONS
In connection with the Ciba, Parke-Davis and Somerset Promotion Agreements,
co-promotion revenues increased to $3.2 million and $4.0 million for the
three and six-month periods ended June 30, 1996, respectively, from $1.3
and $1.5 million during the same periods in 1995. This increase is
partially attributable to the commencement of sales activities in October
1995 and January 1996 under the Parke-Davis and Somerset Promotion
Agreements, respectively. In the second quarter of 1996, the Company
recognized $2.3 million of co-promotion revenues related to prior years'
co-promotion activities, the determination of which was agreed between the
Company and one of its corporate partners in the second quarter of 1996.
Included in co-development revenues for the three and six-month periods
ended June 30, 1996, is $3.0 million which represents a one-time license
fee received pursuant to the Searle Development and Commercialization
Agreement.
In connection with the Ciba Research and Development Agreement, the Company
recognized $716,000 and $1.5 million in co-development revenues for the
three and six-month periods ended June 30, 1996, respectively. Development
activities subject to the agreement began in June 1995. The increase in
co-development revenues over the $595,000 recognized for the same periods
in 1995 was due to the increase in costs associated with the development of
ACEA 1021.
Research and development ("R&D") expenses increased to $4.2 million and
$8.5 million for the three and six-month periods ended June 30, 1996,
respectively, from $4.1 million and $7.1 million
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during the same periods in 1995. The increase resulted from higher
development costs and staffing levels to support the Phase I clinical
studies for ACEA 1021 and the CCD 1042 Phase II clinical program.
General and administrative expenses increased to $1.5 million and $2.8
million for the three and six-month periods ended June 30, 1996,
respectively, from $0.8 million and $1.6 million during the same periods in
1995. Such increase was primarily due to additional staffing and related
expenses to support increased R&D activities, as well as higher legal,
accounting and other expenses in support of expanded levels of business
development.
Sales and marketing expenses decreased to $2.2 million and $4.1 million for
the three and six-month periods ended June 30, 1996, respectively, from
$2.9 million and $5.0 million during the same periods in 1995. The
decrease relates to changes in the co-promotion agreements, whereby the
Company no longer undertakes certain promotional activities.
Interest income increased to $357,000 and $629,000 for the three and
six-month periods ended June 30, 1996, respectively, from $166,000 and
$250,000 for the same periods in 1995. The increase was due to higher cash
and short-term investment balances in 1996 than for the same period in
1995.
Interest expense decreased to $28,000 and $58,000 for the three and
six-month periods ended June 30, respectively, from $58,000 and $114,000
for the same periods in 1995. The decrease in 1996 resulted from reduced
capital lease obligations used to finance equipment.
LIQUIDITY AND CAPITAL RESOURCES
From its inception in February 1989 through June 30, 1996, the Company has
financed its operations primarily through private and public offerings of
its equity securities, raising net proceeds of approximately $82.4 million
through sales of these securities. In May 1996, the Company issued $7.0
million in Convertible Preferred Stock to G.D. Searle & Co. in conjunction
with the Searle Development and Commercialization Agreement. In January
1996, the Company completed a registered direct public offering, obtaining
net proceeds of $14.6 million through the sale of 2.4 million shares of
common stock at $6.50 per share. As of June 30, 1996, the Company's
balance of cash, cash equivalents and short-term investments totaled $30.5
million, compared to $13.4 million at December 31, 1995.
As of June 30, 1996, the Company had invested $5.3 million in leasehold
improvements, laboratory and computer equipment and office furnishings and
equipment. The Company has financed $2.6 million of these capital
additions through capital lease lines. In addition, the Company leases its
laboratory and office facilities under operating leases. Additional
equipment will be needed as the Company increases its research and
development activities. The Company has no material commitments for the
acquisition of property and equipment.
11
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Pursuant to the Ciba Promotion Agreement, the Company co-promotes and
markets the Ciba Products in the United States. Under the agreement, funds
are advanced to the Company to cover a portion of sales expenses incurred
to co-promote the Ciba Products. The Company is obligated to reimburse
Ciba U.S. for these advances. CoCensys realizes co-promotion revenues from
its share of sales of the Ciba Products above certain baseline levels
specified in the contract. Sales of the Ciba Products are the primary
source of cash the Company intends to use to meet its reimbursement
obligation to Ciba U.S. Although product sales were sufficient to cover
the Company's reimbursement obligation in 1995 and 1994, there can be no
assurance that they will do so in 1996, the final year of the contract.
Pursuant to the Ciba Research and Development Agreement, Ciba Basel is
obligated to pay one-half of the development costs of ACEA 1021 for the
United States market and all incremental development costs for the rest of
the world, along with additional payments upon the achievement of certain
milestones. The agreement also provides that Ciba Basel will make
available to CoCensys, under certain circumstances, a revolving line of
credit of up to $7 million to fund the Company's share of the development
costs for ACEA 1021. Repayment of amounts advanced will be secured by
future milestone payments. No amounts are currently outstanding.
Pursuant to the Parke-Davis Promotion Agreement, the Company promotes
Parke-Davis' CNS drug, Cognex-Registered Trademark-, to neurologists in the
United States. Funds are advanced to the Company quarterly to cover the
training and operating expenses incurred by the Company's sales force in
promoting Cognex. The Company is obligated to reimburse Parke-Davis for
these advances.
Pursuant to the Warner Collaboration Agreement, Warner-Lambert is also
obligated to make certain milestone payments for each compound selected for
development, as well as pay for its share of development costs. Warner is
obligated to purchase $2.0 million of CoCensys Common Stock in the first
quarter of 1997.
Pursuant to the Somerset Promotion Agreement, the Company promotes
Somerset's drug Eldepryl-Registered Trademark- to neurologists in the
United States. Funds are advanced to the Company quarterly to cover a
portion of the training and operating expenses incurred by the Company's
sales force in promoting Eldepryl. The Company is obligated to reimburse
Somerset for these advances.
Pursuant to the Searle Development and Commercialization Agreement, Searle
is obligated to pay for a portion of the development costs of CCD 3693 and
its backup compounds, as well as additional payments upon the achievement
of certain milestones. The parties will co-promote any products derived
from the collaboration in the United States, while Searle will have the
right to develop, register and market the products in the rest of the
world, subject to certain royalty payments due to the Company.
CoCensys' operations to date have consumed substantial amounts of cash.
The negative cash flow from operations is expected to continue and will
likely increase over the foreseeable future, subject to the Company's
ability to offset such negative cash flows by revenues, if any, derived
from the sale
12
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of products from current and potential future marketing collaborations.
The Company anticipates that its existing capital resources, including
funding expected to be available through current partner collaborations
(including milestone payments and co-promotion revenues), will be adequate
to satisfy its capital needs through at least 1997. There can be no
assurance that milestone-based payments or co-promotion revenues will be
sufficient to meet the Company's capital requirements. The Company will
need to obtain substantial additional funds to conduct the costly and
time-consuming research, preclinical development and clinical trials
necessary to bring its products to market. The Company intends to seek
funding through new research and development collaborations, through
additional marketing collaborations to increase revenues generated from
sales of products and/or through public or private financing. There can be
no assurance that financings or suitable collaborations will be available
on favorable terms, if at all. Insufficient funds may require the Company
to delay, scale back or eliminate some or all of its research and product
development programs or to license third parties to commercialize products
or technologies that the Company would otherwise seek to develop itself.
The Company's future capital requirements will depend on many factors,
including the progress of the Company's research and development programs,
the level of co-promotion revenues, the scope and results of preclinical
testing and clinical trials, the time and costs involved in obtaining
regulatory approvals, the rate of technological advances, the
determinations as to the commercial potential of the Company's products
under development, the status of competitive products, the expansion of
sales and marketing capabilities, the establishment of third-party
manufacturing arrangements and the establishment of additional
collaborative relationships.
ADDITIONAL RISKS
The Company's products are in an early stage of development and face a high
degree of technological, regulatory and competitive risks. Drug discovery
and development are capital-intensive activities, and there can be no
assurance the Company will be able to raise the additional capital
necessary to develop and commercialize products. Human clinical trials
require considerable time and funding, and results from any stage of
testing may not predict results of later stages. In addition, if results
of any clinical trial fail to meet the Company's requirements, the study
plan for such compound may be adjusted or another compound may be
substituted, either of which may result in delays in future clinical
studies. Unfavorable clinical trials could result in cancellation of
future clinical studies.
The Company has established relationships to manufacture the limited
quantities of its products required for human clinical trials. However,
the Company will need to finance and construct manufacturing facilities or
find other means of securing adequate production capacity before any
product approved for marketing may be launched. No assurance can be given
that the Company can successfully develop any of its products for marketing
or that it can successfully manufacture commercial quantities of any
products that are approved for marketing. Inherent in the fact that
CoCensys is an early stage biopharmaceutical company are a range of
additional risks, including the
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Company's history of losses, the risk of technological and commercial
competition, uncertainties associated with obtaining and enforcing patents
and protecting proprietary technology and the risk of regulatory change,
among others.
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COCENSYS, INC.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held an Annual Meeting of Stockholders on June 12,
1996.
The stockholders elected the Board's nominees as Class
I directors by the votes indicated:
NOMINEE VOTES IN FAVOR VOTES WITHHELD
------- -------------- --------------
James C. Blair, Ph.D. 16,261,490 136,650
Alan C. Mendelson 16,195,492 202,648
Eckard Weber, M.D. 16,260,490 137,650
The Company's Certificate of Incorporation was amended to
increase the authorized number of shares of Common Stock from
30,000,000 to 75,000,000, with 14,659,812 in favor, 833,910
against, 19,133 abstentions and 885,285 broker non-votes.
The Company's 1990 Stock Option Plan, as amended to increase the
number of shares of Common Stock reserved for issuance thereunder
by 1,000,000 shares as approved with 12,610,493 votes in favor,
2,139,161 against, 45,035 abstentions and 1,603,451 broker
non-votes.
The selection of Ernst & Young, LLP as the Company's independent
auditors was ratified with 16,358,940 votes in favor, 29,950
against and 9,250 abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Development and Commercialization Agreement between the
Company and G.D. Searle & Co. dated May 17, 1996. *
10.2 Preferred Stock Purchase Agreement between the Company
and G.D.Searle & Co. dated May 17, 1996 (included as
Exhibit C to the Development and Commercialization
Agreement between the two parties).
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1996.
* Confidential treatment requested.
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COCENSYS, INC.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
CoCensys, Inc.
Date: August 13, 1996 By: /s/ Peter E. Jansen
------------------- -----------------------------------------
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS AND DENOTED BY AN ASTERISK, HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
DEVELOPMENT AND COMMERCIALIZATION AGREEMENT
This Agreement is entered into as of May 17, 1996 ("Effective Date"),
between COCENSYS, INC. ("CoCensys"), and G.D. SEARLE & CO. ("Searle")
(individually a "Party" or collectively the "Parties").
WHEREAS, CoCensys and Searle wish to establish the framework for the joint
development and commercialization of Co 3-2693 or a back-up compound as set
forth in this Agreement;
NOW, THEREFORE, the Parties agree as follows:
ARTICLE 1. DEFINITIONS.
1.1 "ACT" means the U.S. Food, Drug and Cosmetics Act and applicable
regulations thereunder, as amended from time to time.
1.2 "AFFILIATE(S)" means any entity which directly or indirectly controls,
is controlled by or is under common control with a Party. "Control" shall mean
the power to direct or cause the direction of the management and policies of an
entity, whether through ownership of voting securities, by contract or
otherwise.
1.3 "BACK-UP COMPOUND" means any Back-Up Compound Candidate selected by
the JDC for Development as a replacement for the Compound.
1.4 "BACK-UP COMPOUND CANDIDATE" means any compound identified pursuant to
Section 4.1 as a potential Back-Up Compound.
1.5 "COMPOUND" means 3ALPHA-hydroxy-3BETA-tri-fluoro-methyl-19-nor-
pregnan-20-one (Co 3-2693). The term "Compound" shall include any Back-Up
Compound which replaces CO 3-2693 or a prior Back-Up Compound. The terms
"Compound", "Back-Up Compound" and "Back-Up Compound Candidate" shall also
include any [ * ].
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1.6 "CO-PROMOTION" means the promotion and marketing of the Product by the
Parties in the USA and the sale by Searle, all as described in Article 8.
1.7 "CO-PROMOTION EXPENSES" shall include, without limitation, the
following expenses incurred by a Party to the extent allocable to the Co-
Promotion in accordance with U.S. Generally Accepted Accounting Practices,
consistently applied ("GAAP"):
(a) [ * ]
(b) [ * ];
(c) [ * ];
(d) [ * ];
(e) [ * ];
(f) [ * ]
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[ * ];
(g) [ * ];
(h) [ * ]; and
(i) [ * ].
Co-Promotion Expenses will not include [ * ].
1.8 "COST OF GOODS" means the cost of the Product in bulk or finished form
(including samples) calculated in accordance with GAAP. Cost of Goods shall
include: [ * ].
1.9 "COST OF MANUFACTURE" means the fully allocated cost of manufacturing
the Product (calculated in accordance with GAAP), including [ * ] in accordance
with normal accounting practices for all products manufactured in the applicable
facility.
1.10 "DEVELOPMENT" means: (a) the pre-clinical and clinical development
for use in the Field in the USA of the Compound through and including Regulatory
Approval; and (b) the back-up program as described in Section 4.1.
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1.11 "DEVELOPMENT COSTS" means all costs incurred by a Party identifiable
to the Development as well as [ * ](as calculated in accordance with GAAP and
using the same allocation methods that the Party incurring such costs uses
throughout its operations, but in all events [ * ], all as specified in the
Development Plan and the Development Budget. Development Costs shall consist
of [ * ]. Such costs shall include, without limitation:
(a) [ * ];
(b) [ * ];
(c) [ * ];
(d) [ * ]; and
(e) [ * ].
1.12 "FDA" means the Food and Drug Administration of the USA.
1.13 "FIELD" means the treament of insomnia in humans.
1.14 "IND" means an Investigational New Drug Application as defined in the
Act.
1.15 "INTELLECTUAL PROPERTY RIGHTS" means all Patent Rights, trademarks,
copyrights, Know-How and/or trade secrets owned or controlled by CoCensys or one
of its Affiliates (with the right to
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license) as of the Effective Date or acquired during the term of this Agreement
or owned or controlled jointly by the Parties, which relate to the development,
manufacture, use, marketing or sale of the Product.
1.16 "JDC" means the Joint Development Committee described in Section 2.3.
1.17 "JMT" means the Joint Marketing Team described in Section 2.4.
1.18 "KNOW-HOW" means all know-how, trade secrets, discoveries,
technology, processes, information and data (including any related copyright),
including all improvements thereto, whether patentable or otherwise, relating
to:
[ * ].
1.19 "NDA" means a New Drug Application for the Product, as defined in
the Act.
1.20 "NET SALES" means the proceeds from sale of the Product by Searle
or its Affiliates or sublicensees to Third Parties, less the following
deductions, [ * ](all determined in accordance with such Party's or its
Affiliate's or sublicensee's standard accounting practices):
(a) [ * ];
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(b) [ * ];
(c) [ * ]; and
(d) [ * ].
It is understood between the parties that certain amounts shall be made on an
estimated accrual basis and will be reconciled subsequently. "Net Sales" shall
be deemed to refer to CoCensys rather than Searle if CoCensys sells the Product
pursuant to sub-sections 15.2.2, 15.3.2 or 15.4.3.
1.21 "PATENT RIGHTS" means all patents or patent applications and all
divisions, continuations, continuations-in-part, reissues, extensions, renewals,
supplementary protection certificates and foreign counterparts thereof, existing
as of the Effective Date or filed or issuing during the term of this Agreement,
at least one claim of which covers the Know-How.
The Patent Rights owned or controlled by CoCensys (with the right to license)
existing as of the Effective Date are set forth in Exhibit A.
1.22 "PHASE I", "PHASE II" AND "PHASE III" means the phases of clinical
development of pharmaceuticals as defined in the Act.
1.23 "PRODUCT" means any pharmaceutical product(s) containing the
Compound.
1.24 "REGULATORY APPROVAL" means all authorizations by the competent
authorities required for marketing, promoting, pricing, reimbursement and
selling of the Product in a given country.
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1.25 "RoW" means all countries except the USA and Japan.
1.26 "THIRD PARTY" means any person or entity other than CoCensys, Searle
or their Affiliates.
1.27 "TRADEMARK" means the trademark which the Product shall be marketed
under in the USA as set out in Article 11.
1.28 "USA" means the United States of America, its territories and
possessions.
ARTICLE 2. MANAGEMENT.
2.1 COMMITTEES. The Parties agree that the relationship hereunder in the
USA will be managed by an executive committee (the "Executive Committee"), the
JDC and the JMT.
2.2 EXECUTIVE COMMITTEE.
2.2.1 COMPOSITION. Promptly after the Effective Date, Searle will
appoint [ * ] representatives and CoCensys will appoint [ * ] representatives
to the Executive Committee. The chairperson will be a [ * ]representative.
A Party may change any of its representatives at any time by giving written
notice to the other Party.
2.2.2 RESPONSIBILITIES. The Executive Committee will oversee and
manage the relationship hereunder in the USA, including the JDC and the JMT. In
particular, the Executive Committee will:
(a) approve the Development Plan and the Development Budget
(both as defined in Section 3.2) and the Marketing Plan and the Marketing Budget
(both as defined in Section 8.2);
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(b) approve any deviation of [ * ] or more in the Development
Budget or the Marketing Budget;
(c) approve any material change in the Development Plan or the
Marketing Plan;
(d) coordinate the Parties' activities hereunder;
(e) resolve budget disputes referred by the JDC or JMT pursuant
to Section 2.7;
(f) decide whether to abandon for any reason the Development of
the Compound or the Back-Up Compound and substitute a Back-Up Compound or a
Back-Up Compound Candidate, as applicable;
(g) approve filing of the NDA; and
(h) perform such other functions as determined by the Parties.
2.2.3 MEETINGS AND VOTING. The Executive Committee will meet at such
times as a Party may request, but in no event less frequently than twice per
year, alternating between the principal places of business of the Parties and
will otherwise communicate regularly by telephone, facsimile and video
conference. Each Party recognizes the importance of the Executive Committee in
the success of the Co-Promotion and will use diligent efforts to cause all its
representatives to attend all meetings. The Executive Committee shall make
decisions by [ * ]. Voting by proxy is permissible. All decisions of the
Executive Committee shall be final and non-appealable. Additional
participants may be invited by any member to attend meetings where
appropriate (e.g., representatives of regulatory affairs or outside
consultants). Such additional participants shall have no vote.
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2.3 JOINT DEVELOPMENT COMMITTEE ("JDC").
2.3.1 COMPOSITION. Promptly after the Effective Date,
[ * ] representatives to the JDC. [ * ] will appoint the chairperson of the
JDC. A Party may change any of its representatives at any time by giving
written notice to the other Party.
2.3.2 RESPONSIBILITIES. The JDC shall be responsible for overseeing
and directing all aspects of the Development. In particular, the JDC shall:
(a) resolve problems and issues;
(b) facilitate the exchange of all Development information and
data;
(c) designate the individuals responsible for preparing the
Development Plan and the Development Budget (both as defined in Section 3.2);
(d) submit the Development Plan and the Development Budget to
the Executive Committee for approval together with any deviation in the
Development Budget of [ * ] or more and any material change in the Development
Plan;
(e) monitor compliance with the Development Plan and the
Development Budget and approve any deviation in the Development Budget of less
than [ * ] and any immaterial change in the Development Plan;
(f) allocate the Development activities among CoCensys, Searle
and Third Parties in accordance with this Agreement;
(g) agree on specifications for the Product and the processes
for manufacturing the Product;
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(h) oversee, directly or indirectly, all FDA filings and
recommend to the Executive Committee when it is appropriate to file the NDA;
(i) evaluate and select as the Back-Up Compound a Back-Up
Compound Candidate meeting the criteria set forth in Exhibit B; and
(j) approve and monitor the Development activities with respect
to the Back-Up Compound conducted pursuant to Article 4.
2.4 JOINT MARKETING TEAM ("JMT").
2.4.1 COMPOSITION. At least two (2) years before anticipated
Regulatory Approval in the USA, Searle will appoint [ * ] and CoCensys will
appoint [* ] will appoint the chairperson of the JMT. [ * ] may add more
representatives and a Party may change any of its representatives at any time
by giving written notice to the other Party.
2.4.2 RESPONSIBILITIES. The JMT will:
(a) designate the individuals responsible for preparing the
Marketing Plan and the Marketing Budget (both as defined in Section 8.2);
(b) submit the Marketing Plan and the Marketing Budget to the
Executive Committee for approval together with any deviation in the Marketing
Budget of [ * ] or more and any material change in the Marketing Plan;
(c) monitor compliance with the Marketing Plan and the Marketing
Budget and approve any deviation in the Marketing Budget of
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less than [ * ] and any immaterial change in the Marketing Plan;
(d) review and approve Co-Promotion Expenses; and
(e) oversee the Co-Promotion as discussed in Article 8.
2.5 MEETINGS OF THE JDC AND THE JMT. The chairperson of the JDC or the
JMT shall call meetings when deemed appropriate, currently anticipated to be no
less frequently than [ * ] for the JDC and [ * ] for the JMT. If possible, the
meetings shall be held in person, or where appropriate, by video or telephone
conference. The chairperson shall determine the form of the meeting.
Additional participants may be invited by any member to attend meetings where
appropriate (E.G., representatives of regulatory affairs or outside
consultants). Such additional participants shall have no vote. Minutes of each
meeting of the JDC shall be exchanged for review and comment by the members.
Thereafter, they shall be signed by the chairperson. CoCensys, [ * ] may have
its representative(s) on the JMT occupy space at Searle on a full-time basis
in order to participate in JMT activities.
2.6 VOTING OF THE JDC AND THE JMT. The JDC and the JMT shall make
decisions by [ * ]. Voting by proxy is permissible. Urgent matters
(including regulatory and adverse event matters) may be decided by unanimous
vote of the relevant chairperson and a representative designated by [ * ].
2.7 BUDGET DISPUTES. [ * ].
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ARTICLE 3. DEVELOPMENT.
3.1 GENERAL PRINCIPLES. The Parties agree to use diligent efforts to
develop the Compound for use in the Field, making use of each Party's special
expertise with the intent of obtaining world-wide Regulatory Approval and
bringing the Product to the market as soon as reasonably practicable. Each
Party shall ensure that its Development tasks are carried out adhering to the
highest ethical and safety standards. Each Party shall have the right to
decline to conduct any Development activity assigned to it. In such case, the
JDC shall determine whether the other Party is able to conduct such activity or
whether it will be contracted out to a Third Party. Although the JDC will have
no responsibilities for development or registration of the Compound or the
Product outside the USA, Searle shall keep the JDC reasonably informed
concerning its activities outside the USA.
3.2 DEVELOPMENT PLAN AND BUDGET. Promptly following the Effective Date,
the JDC shall initiate preparation of the development plan for the Development
(the "Development Plan") and a budget for proposed Development Costs (the
"Development Budget"). The Development Plan shall set time lines and priorities
for the various Development activities and identify which Party, or whether a
Third Party, is to be responsible for each activity. The Development Plan will
also include, to the extent practicable, the then-expected profile for the
Product, the desired labelling and the criteria for determining acceptable
requirements for filing the NDA. In preparing the Development Plan and the
Development Budget, the JDC shall ensure that there is adequate marketing input
and shall give due consideration to worldwide development of the Product. The
Development Budget and the Development Plan shall be updated as deemed
appropriate by the JDC, but in no event less frequently than [ * ]. The
Development Plan and the Development Budget and certain changes therein shall
be subject to approval of the Executive Committee as provided in sub-section
2.2.2.
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3.3 SCIENTIFIC FTE. In preparing the Development Budget and determining
Development Costs, the Parties will use a rate of [ * ]. "Scientific FTE"
means [ * ] dedicated to the Development as carried out by an employee of
either Party having skills in [ * ]. Such rate shall be adjusted annually
for inflation based on changes in the Bureau of Labor Statistics Consumer
Price Index for Urban Wage Earners -- U.S. City Average, from the prior
January 1st.
3.4 OTHER DEVELOPMENT. [ * ].
[ * ].
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ARTICLE 4. DEVELOPMENT OF BACK-UP COMPOUND.
4.1 BACK-UP PROGRAM. Until the end of Phase I for the Compound, CoCensys
shall use its best efforts to present to the JDC for evaluation at least
[ * ] Back-Up Compound Candidates meeting the criteria set forth in Exhibit
B. During such time period, CoCensys shall submit to the JDC on an ongoing
basis all Back-Up Compound Candidates which meet such criteria and shall
provide the JDC periodic reports on the status of the Back-Up Program.
4.2 BACK-UP COMPOUND SELECTION AND DEVELOPMENT. The JDC shall evaluate
the Back-Up Compound Candidates and select [ * ] as the Back-Up Compound.
Concurrently with the Development of the Compound, the JDC will conduct
pre-clinical Development of the Back-Up Compound as deemed appropriate by the
JDC.
4.3 MILESTONE PAYMENTS FOR BACK-UP COMPOUNDS. Each milestone payment
payable pursuant to Section 6.3 shall [ * ].
ARTICLE 5. FINANCING OF THE DEVELOPMENT.
5.1 SHARING OF DEVELOPMENT COSTS.
5.1.1 USA. CoCensys shall be responsible for [ * ] of the
Development Costs for pre-clinical and clinical studies deemed appropriate by
the JDC for obtaining Regulatory
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Approval in the USA and Searle shall be responsible for [ * ] thereof.
5.1.2 EX-USA. Searle shall bear all other costs for such Regulatory
Approvals outside the USA. Searle shall have the right to use all data,
studies and analyses from the Development for such Regulatory Approvals [ * ].
5.2 PAYMENT OF DEVELOPMENT COSTS. Each Party shall be responsible for
paying its Development Costs as set forth in the Development Plan and the
Development Budget. [ * ], each Party shall provide the JDC detailed
information concerning the Development Costs incurred by such Party during
[ * ]. Promptly after receipt thereof, the JDC will determine the amount, if
any, which either Party has paid in excess of the amount to be borne by such
Party for [ * ] pursuant to sub-section 5.1.1 (an "Overpayment"). In the
event of an Overpayment, the other Party shall pay the amount thereof to the
Party making the Overpayment within [ * ] after receipt of notice from the
JDC, but in no event shall such payment be due earlier than [ * ] after the
end of the relevant [ * ].
ARTICLE 6. PAYMENTS TO COCENSYS.
6.1 UPFRONT FEE. Simultaneous with signature of this Agreement, Searle
shall pay CoCensys Three Million Dollars (US$3,000,000) which amount shall be
non-refundable.
6.2 EQUITY INVESTMENT. Simultaneously with signature of this Agreement,
Searle shall enter into the Stock Purchase Agreement in the form of Exhibit C
with CoCensys pursuant to which Searle shall purchase Seven Million Dollars
(US$7,000,000) worth of capital stock of CoCensys.
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6.3 MILESTONE PAYMENTS
6.3.1 [ * ].
6.3.2 [ * ].
6.3.3 [ * ].
6.3.4 [ * ].
6.3.5 [ * ].
6.3.6 [ * ].
6.3.7 NON-REFUNDABILITY AND METHOD OF PAYMENT. All milestone
payments shall be non-refundable and shall be made by wire transfer to CoCensys
within thirty (30) days after the date of the event triggering the payment.
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ARTICLE 7. LICENSE GRANTS.
7.1 LICENSES TO SEARLE. CoCensys hereby grants Searle a license, with the
right to sub-license, under the Intellectual Property Rights to make, have made,
use, offer for sale, import and sell the Product in the Field in the USA, Japan
and the RoW. Such license shall be sole in the USA (i.e., exclusive except as
to CoCensys so long as the Parties are co-promoting the Product under Article 8)
and shall be exclusive in Japan and the RoW. Any sub-licensee of rights in the
USA shall be [ * ].
7.2 [ * ]
7.3 LICENSES UPON EXPIRATION. Upon expiration of the royalty obligations
in the USA set forth in Section 8.9 and upon expiration of the royalty
obligations in Japan and the RoW set forth in Section 9.3 or 9.4, as applicable,
on a country by country basis, [ * ].
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ARTICLE 8. CO-PROMOTION.
8.1 CO-PROMOTION RIGHTS. CoCensys shall co-promote the Product with
Searle in the USA from initiation of pre-launch activities for the Product in
the USA until the expiration of the last to expire of the CoCensys Patent Rights
in the USA claiming the Compound per se. Each Party shall work diligently and
use the same effort such Party puts forth to promote other products of similar
commercial value to co-promote the Product.
8.2 MARKETING PLAN AND BUDGET. No later than [ * ], the JMT shall
initiate preparation of a marketing plan (the "Marketing Plan") and a
marketing budget (the "Marketing Budget"). The Marketing Plan and the
Marketing Budget will describe, to the extent practicable, the proposed plan
for commercialization of the Product, including overall marketing strategy,
anticipated marketing, sales and promotion efforts by each Party, market and
sales forecasts, pricing and discounting analysis and estimated launch date,
as well as advertising and other promotional materials to be used in the
Co-Promotion. The Marketing Budget will include projected Co-Promotion
Expenses. The Marketing Plan and the Marketing Budget shall be updated as
deemed appropriate by the JMT, but in no event less frequently than [ * ].
The Marketing Plan and the Marketing Budget and certain changes therein shall
be subject to approval of the Executive Committee as provided in sub-section
2.2.2.
8.3 CO-PROMOTION EXPENSES. CoCensys shall be responsible for
[ * ] of all Co-Promotion Expenses and Searle shall be responsible for [ * ]
thereof.
8.4 CO-PROMOTION PROFITS AND LOSSES.
8.4.1 PROFITS. If Net Sales during any calendar quarter exceed Co-
Promotion Expenses during such quarter, such excess shall be allocated [ * ]
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[ * ].
8.4.2 LOSSES. If Net Sales are less than Co-Promotion Expenses
during any calendar quarter, Net Sales shall be allocated [ * ].
8.5 PAYMENT AND REPORTING. Within [ * ], or earlier if possible, during
the Co-Promotion, CoCensys shall furnish Searle a statement setting forth its
Co-Promotion Expenses incurred in such quarter. Within [ * ], or earlier if
possible, during the Co-Promotion, Searle shall furnish CoCensys a statement
(the "P&L Statement") setting forth Net Sales in the USA and all data on
which the determination of Co-Promotion Profit was calculated. If either
Party owes an amount to the other Party pursuant to Section 8.4, it shall
make such payment within [ * ] after receipt of the P&L Statement,
but in no event shall such payment be due earlier than [ * ] after the end of
the relevant quarter.
8.6 PROMOTION. Searle shall have the primary responsibility for
promoting the Product to [ * ]. CoCensys shall have the primary
responsibility for promoting the Product to [ * ] and, subject to Section
8.3, will maintain appropriate capacity in its sales force for such
promotion. In addition, CoCensys shall provide [ * ]
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[ * ].
8.7 PROMOTIONAL AND ADVERTISING MATERIALS. All promotional and
advertising materials shall be consistent with the relevant Marketing Plan and
Marketing Budget. Neither Party shall make any claim or representation in
respect of the Product that has not been approved by the JMT. In any such
materials which identify either Party, the Parties will be presented and
described to the medical communities (including, for example, the physician,
pharmacy, governmental, reimbursement and hospital sectors) as joining in the
Co-Promotion. All such materials and all documentary information, promotional
material and oral presentations (where practical) regarding the Co-Promotion
will display the Searle and CoCensys names and logos with equal prominence as
permitted by applicable law.
8.8 ORDERS AND SALES. All customer orders for and returns of the Product
shall be received and processed by [ * ]. [ * ] shall promptly transmit any
such orders that it receives to [ * ]. All sales of the Product will be
completed, distributed, accounted for, billed and booked by [ * ].
8.9 ROYALTIES UPON EXPIRATION OF CO-PROMOTION. In consideration of the
license of the remaining Intellectual Property Rights, Searle shall pay CoCensys
royalties on Net Sales in the USA beginning after
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expiration of CoCensys' right to co-promote the Product as provided in the first
sentence of Section 8.1 as follows:
Year Following Expiration Royalty Rate
------------------------- -------------
[ * ] [ * ]
Such royalties shall be subject to Section 8.10 and shall [ * ] (subject to
Section 15.5).
8.10 ROYALTY ADJUSTMENTS. If at any time [ * ].
ARTICLE 9. MARKETING AND ROYALTIES IN JAPAN AND THE ROW.
9.1 MARKETING BY SEARLE. Searle shall have exclusive rights and
discretion with respect to development, registration, distribution and
commercialization of the Product in Japan and the RoW. Searle shall
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use the same efforts as with its comparable products to market, sell and
distribute the Product at its discretion in such countries.
9.2 REGULATORY AND COMMERCIAL DILIGENCE.
9.2.1 JAPAN. [ * ].
9.2.2 EX-USA. Searle will file for Regulatory Approval in the
countries in the RoW and Japan in which Searle intends to market the Product and
will use best efforts to launch the Product in such countries after receipt of
Regulatory Approval, all in such time frame as is normal and customary in the
pharmaceutical industry. Annually, Searle shall notify CoCensys of any country
in which it determines not to market the Product.
9.3 ROYALTIES IN THE RoW AND JAPAN.
9.3.1 ROYALTIES IN THE RoW. Subject to Sections 9.4 and 9.5, Searle
shall pay CoCensys royalties in the RoW on a country by country basis of [ * ].
9.3.2 ROYALTY IN JAPAN. Subject to Sections 9.4 and 9.5, Searle shall
pay CoCensys royalties in Japan of [ * ].
9.4 NON-PATENT COUNTRIES. If Searle sells the Product in Japan or in any
country in the RoW in which no CoCensys Patent Rights claiming the Compound per
se have issued in such country as of the date of first commercial sale, the
royalty rate payable in such country under Section 9.3 shall be [ * ]
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unless and until such a patent issues, in which case Searle shall thereafter pay
royalties in such country as provided in Section 9.3. Such royalty shall be
subject to Section 9.5 and shall be payable [ * ].
9.5 ROYALTY ADJUSTMENTS. [ * ].
ARTICLE 10. ACCOUNTS, RECORDS AND PAYMENT OF ROYALTIES.
10.1 RECORDS. Each Party shall keep accurate books and records in
connection with the manufacture, use and/or sale by or for it of the Product in
sufficient detail to permit accurate determination of all figures necessary for
verification of Development Costs, Co-Promotion Expenses, royalties, profits and
other amounts payable hereunder. Searle and CoCensys shall maintain such
records for three (3) years after the year in which they were generated.
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10.2 AUDITS. A Party, at its expense, through a certified public
accountant reasonably acceptable to the other Party, shall have the right to
access the books and records of the other Party, and to make copies thereof, for
the sole purpose of verifying such statements. Such access shall be conducted
after reasonable prior written notice to the Party during ordinary business
hours and shall not be more frequent than [ * ]. Each Party's right to have
such records examined shall survive termination or expiry of this Agreement
for three (3) calendar years. If such audit reveals an underpayment of [ * ]
or more of the amount due, the audited Party shall reimburse the auditing
Party for the costs of such audit in addition to promptly paying the amount
of the underpayment to the auditing Party.
10.3 FOREIGN EXCHANGE. For computing Net Sales for Product sold in a
currency other than US Dollars and determining Development Costs or Co-Promotion
Expenses incurred in a currency other than US Dollars, such currency shall be
converted into US Dollars in accordance with Searle's customary and usual
translation procedures, consistently applied.
10.4 PAYMENTS OF ROYALTIES. Searle or its Affiliate(s) or CoCensys, as
applicable, shall pay the royalties due under this Agreement within [ * ] to
such bank as the receiving Party shall designate in writing. Within the same
period, the paying Party shall furnish the receiving Party a written
statement setting forth total Net Sales during the relevant calendar quarter
on a country-by-country basis and the amount of royalty due thereon. Such
royalties shall be net of all taxes, duties or other amounts which the paying
Party is required to pay on behalf of the receiving Party. The paying Party
shall provide the receiving Party certificates or receipts evidencing the
same.
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ARTICLE 11. TRADEMARKS.
11.1 TRADEMARK IN THE USA. The JMT shall select the Trademark for the
Product in the USA, taking into consideration the global marketing requirements
of the Product. [ * ] shall own the Trademark. Upon expiration of the
period of Co-Promotion, [ * ] shall have the exclusive right to use the
Trademark.
11.2 TRADEMARK(S) IN JAPAN AND THE RoW. Searle shall select and own the
trademark(s) for marketing the Product in Japan and the RoW, taking into
consideration the Trademark. All expenses for registering and defending the
trademark(s) in Japan or the RoW shall be borne by Searle. After termination of
this Agreement, Searle shall continue to have unrestricted ownership of such
trademark(s).
ARTICLE 12. MANUFACTURE
12.1 MANUFACTURE FOR CLINICAL TRIALS THROUGH PHASE II. [ * ] shall
supply the Product in bulk form for conducting the Development through Phase
II. In addition, [ * ] shall be responsible for establishing the commercial
manufacturing process for the Product in such timely way as to ensure
adequate clinical supplies for the Product to enter Phase III clinical
trials. The JDC shall be responsible for arranging for manufacture of the
Product in finished form for conducting the Development through Phase II.
12.2 MANUFACTURE FOR PHASE III CLINICAL TRIALS AND SALES. [ * ]
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[ * ].
ARTICLE 13. INTELLECTUAL PROPERTY RIGHTS.
13.1 PATENTABLE INVENTIONS. Each Party shall own all Inventions (as
defined in this sub-section) made solely by its employees and agents and all
patent applications and patents claiming such Inventions. All Inventions made
jointly by employees or agents of the Parties and all patent applications and
patents claiming such Inventions shall be owned jointly by the Parties.
"Invention" means an invention conceived in the course of and within the scope
of the Development and reduced to practice during the term of this Agreement.
The Party owning an Invention shall make the final decision with respect to any
patent filings. With respect to jointly owned Inventions, the JDC shall
determine which Party shall file and prosecute any patent applications
thereon. [ * ]
13.2 PROSECUTION AND MAINTENANCE OF PATENT RIGHTS. Each Party, [ * ],
shall be responsible for filing, prosecuting and maintaining its Patent
Rights. If a Party decides not to pursue patent protection for any invention
claimed in any patent application or patent within the Patent Rights
(including any Invention) in any country, it shall give the other Party
reasonable notice to this effect. The other Party, [ * ], may file,
prosecute or maintain a patent application or patent covering such invention
in its name in such country subject to the rights of any Third Party licensor.
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13.3 PATENT EXTENSIONS. The Party holding a Patent Right, if requested by
and with the assistance of the other Party, shall apply in a timely manner for
such patent term extensions or supplemental protection certificates for such
Patent Right as are available under any applicable legislation. All expenses
incurred in connection with such patent term extensions or supplemental
protection certificates shall be: [ * ].
13.4 COOPERATION. Each Party shall sign or have its appropriate employees
and agents sign such documents as may be necessary to obtain, perfect or
maintain any Patent Rights filed or to be filed pursuant to this Agreement, and
shall furnish all information in its possession reasonably necessary in
connection therewith.
13.5 INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS.
13.5.1
(a) If either Party becomes aware of any infringement or
threatened infringement or misappropriation of any Intellectual Property Rights,
it shall promptly notify the other Party in writing. The Party holding such
Intellectual Property Rights, at its expense (subject to sub-section 13.5.1(d)),
shall have the right, but not the obligation, to institute, prosecute and
control any legal proceeding in its name and by its counsel to prevent or
restrain such infringement. The other Party, [ * ], may be represented by
its counsel. If a Party brings any such proceeding, the other Party may be
joined as a party plaintiff. In such case, the other Party will give the
first Party reasonable assistance and authority to file and prosecute such
suit.
(b) Notwithstanding the foregoing, the JDC or the JMT, as
appropriate, shall determine which party shall have the primary right and
responsibility (but not the obligation) to
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institute, prosecute, and control any proceeding with respect to infringement or
misappropriation of jointly owned Intellectual Property Rights. The other
Party, [ * ], may be represented by its counsel.
(c) If one Party alone asserts Intellectual Property Rights,
[ * ], any damages and costs recovered in any proceeding or by way of
settlement under sub-section 13.5.1(a) and (b) above or sub-section 13.5.2
shall [ * ].
(d) If both Parties participate in asserting the Intellectual
Property Rights, the costs and expenses of all suits under this sub-section
shall be [ * ]. Any remaining damages shall be [ * ].
13.5.2 If the Party having the primary right to institute, prosecute
and control any proceeding under sub-section 13.5.1 fails to do so within [ * ]
after receiving notice of the infringement or if such Party, after initiating
an action, determines to discontinue such action, the other Party, at its
expense, may bring and control or take over any such action by its counsel,
unless prevented from doing so by applicable laws.
13.5.3 In connection with any proposed settlement in respect of any
infringement or threatened infringement of any Intellectual Property Rights, the
Party intending to settle shall notify and consult with the other Party as to
the terms of settlement, whose written consent shall be required prior to any
such settlement, such consent shall not be unreasonably withheld.
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13.5.4 In connection with any action taken by either Party against a
Third Party to protect or enforce any Intellectual Property Rights, the other
Party shall, if requested, consult with the Party taking such action, and make
available as witnesses its employees or as evidence any materials and/or data as
are reasonably necessary for the furtherance of such action. The expenses in
connection with the providing of witnesses and/or the making available of any
materials and/or data shall be [ * ].
13.6 INFRINGEMENT OF THIRD PARTY PATENT RIGHTS
13.6.1 If either Party believes that it cannot commercially make,
import, use, market and/or sell the Product under the Intellectual Property
Rights without infringing a Third Party's patent, it shall notify the other
Party. The Parties then shall seek an opinion of patent counsel acceptable to
both Parties. If such counsel does not concur with the notifying Party's
opinion, the Parties shall proceed in accordance with the terms of this
Agreement. If such counsel concurs with the notifying Party's opinion, they
shall jointly endeavor to secure a license from the Third Party on terms
acceptable to both Parties. [ * ].
13.6.2 If either Party is sued for patent infringement of any Third
Party patents arising out of the manufacture, use, sale or importation of the
Product, the Parties shall promptly meet to discuss the course of action to be
taken to resolve or defend any such infringement litigation. Each Party shall
provide the other with such assistance as is reasonably necessary and shall
cooperate in the defense of any such action. [ * ]
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[ * ].
ARTICLE 14. REGULATORY AFFAIRS.
14.1 REGULATORY APPROVALS.
14.1.1 USA. The NDA shall be filed in accordance with a decision of
the Executive Committee. [ * ] shall own the IND and the NDA. [ * ] shall
have the right of reference to the NDA to the extent necessary to exercise
its rights and meet its obligations hereunder.
14.1.2 JAPAN AND THE RoW. Subject to Section 9.2, the filing of
Regulatory Approvals in Japan and the RoW shall be made by decision of Searle
alone. Searle shall own such Regulatory Approvals, and CoCensys shall have the
right of reference thereto to the extent necessary to meet its manufacturing
obligations under this Agreement.
14.2 COMMUNICATIONS WITH REGULATORY AGENCIES.
14.2.1 USA. [ * ] shall be responsible for all communications
with regulatory agencies in the USA, subject to keeping the JDC or the JMT,
as appropriate, informed. [ * ] shall maintain a single database of clinical
trial material accumulated by both Parties in the course of the Development.
The JDC shall develop a procedure for exchanging such data.
14.2.2 JAPAN AND THE RoW. Searle will inform CoCensys promptly of
communications between Searle and any regulatory agencies in Japan and the RoW
insofar as such communications may affect the Regulatory Approval in the USA.
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ARTICLE 15. TERM AND TERMINATION.
15.1 TERM. Subject to Sections 15.2, 15.3, 15.4 and 15.5, this Agreement
shall be in effect from the Effective Date and shall continue in effect until
Searle is no longer obligated to pay royalties hereunder.
15.2 TERMINATION FOR BREACH.
15.2.1 NOTICE. Either Party may terminate this Agreement upon
[ * ] written notice if the other Party commits a material breach of its
obligations to pay any amount due hereunder and does not remedy such breach
within said [ * ]. Either Party may also terminate this Agreement upon [ * ]
written notice if the other Party commits a material breach of any obligation
other than to pay an amount hereunder and does not remedy such breach within
said [ * ].
15.2.2 BREACH BY SEARLE. If termination is due to a breach by
Searle, Searle's rights granted hereunder shall terminate; [ * ].
15.2.3 BREACH BY COCENSYS. If termination is due to a breach by
CoCensys, Searle's rights hereunder shall [ * ]:
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[ * ]
15.3 VOLUNTARY TERMINATION OF THE DEVELOPMENT.
15.3.1 NOTICE. Either Party unilaterally may terminate its
participation in the Development provided the Party so terminating gives the
other Party as much advance notice as reasonably possible. In no event shall
such notice be less than [ * ]. The Parties shall cooperate in good faith to
wind-down the Development in order to minimize disruption of the Development
efforts.
15.3.2 TERMINATION BY SEARLE. In the event of termination by Searle,
Searle's rights granted hereunder shall terminate; [ * ].
15.3.3 TERMINATION BY COCENSYS. In the event of termination by
CoCensys, Searle's rights hereunder shall [ * ]:
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[ * ]
15.4 VOLUNTARY TERMINATION OF CO-PROMOTION.
15.4.1 NOTICE. Either Party unilaterally may terminate its
participation in the Co-Promotion upon [ * ] notice.
15.4.2 TERMINATION BY COCENSYS. In the event of termination by
CoCensys, Searle's rights hereunder shall [ * ]:
[ * ]
15.4.3 TERMINATION BY SEARLE. In the event of termination by Searle,
Searle's rights granted hereunder shall terminate; [ * ].
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15.5 CHANGE IN CONTROL.
15.5.1 In the event of a Change of Control (as defined below) of
[ * ] shall promptly notify [ * ] of such Change in Control. [ * ]. "Change
in Control" means: [ * ].
15.5.2 [ * ].
15.5.3 [ * ]
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[ * ].
15.6 ROYALTY ADJUSTMENTS. [ * ].
15.7 BANKRUPTCY. All rights and licenses granted pursuant to this
Agreement by CoCensys to Searle are, and shall otherwise be deemed to be, for
purposes of Section 365(n) of the Bankruptcy Code, licenses of rights to
"intellectual property" as defined under Section 101(52) of the Bankruptcy Code.
Searle, as licensee of such rights, shall retain and may fully exercise all of
its rights and elections under the Bankruptcy Code. If a bankruptcy proceeding
is commenced by or against CoCensys under the Bankruptcy Code, Searle shall be
entitled to a complete duplicate of (or complete access to, as appropriate) any
such intellectual property and all embodiments of such intellectual property,
and same, if not already in its possession, shall be promptly delivered to
Searle: (a) upon any such commencement of a bankruptcy proceeding upon written
request by Searle, unless CoCensys elects to continue to perform all its
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obligations under this Agreement pending any rejection or assumption of this
Agreement; or (b) if not delivered under (a) above, upon the rejection of this
Agreement by or on behalf of CoCensys upon written request by Searle.
15.8 SURVIVAL AND EFFECT OF TERMINATION. The provisions of Articles
7 (unless this Agreement shall be terminated by CoCensys pursuant to sub-section
15.2.1 or by Searle pursuant to sub-section 15.3.1 or 15.4.1), 15 and 18 and
Sections 10.1 and 10.2 shall survive termination or expiration of this
Agreement. Termination or expiration of this Agreement shall not deprive either
Party of any rights or remedies either at law or in equity or relieve either
Party of any of its obligations incurred prior to such termination or
expiration.
ARTICLE 16. ASSIGNMENT.
16.1 ASSIGNMENT TO AFFILIATES. Either Party may assign any of its rights
or obligations under this Agreement in any country to any of its Affiliates
provided the assigning Party guarantees performance of such obligations.
16.2 OTHER PERMITTED ASSIGNMENTS. [ * ].
16.3 BINDING NATURE OF ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the successors and permitted assigns of the Parties.
Any assignment not in accordance with this Article shall be void.
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ARTICLE 17. WARRANTIES AND REPRESENTATIONS.
17.1 WARRANTIES AND REPRESENTATIONS. Each Party warrants to the other
that:
(a) it has full power and authority to execute and deliver this
Agreement and to perform its obligations hereunder;
(b) the execution and delivery by it of this Agreement and the
performance of its obligations hereunder have been duly approved by all
necessary corporate action; do not require any shareholder action or the
approval and consent of any trustee or the holders of any indebtedness which has
not been obtained; do not and will not contravene any law, regulation, rules or
order binding on it; and do not and will not contravene the provisions of, or
constitute an act of default under, any debenture, mortgage contract or other
agreement or instrument to which it is a party; and
(c) it will perform all its obligations hereunder in material
compliance with all applicable laws, including the Act.
[ * ].
17.2 EXISTING PROMOTION AGREEMENTS. Searle acknowledges and understands
that CoCensys has entered into a Promotion Agreement with Ciba-Geigy
Corporation, dated May 11, 1994; a Promotion Agreement with Parke-Davis, a
division of Warner-Lambert Company, dated October 26, 1995; and a Promotion
Agreement with Somerset Pharmaceuticals, dated January 4, 1996 (collectively,
the "Existing Promotion Agreements") and that such agreements contain
obligations on the part of CoCensys
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with respect to the exclusivity of the CoCensys sales force. [ * ].
17.3 USC/ROCKEFELLER LICENSE. Searle acknowledges and understands that
certain technology sublicensed to Searle hereunder was licensed to CoCensys
under the terms of the Exclusive License Agreement among CoCensys, the
University of Southern California and the Rockefeller University (the
"USC/Rockefeller License"), a copy of which has been provided to Searle.
[ * ].
ARTICLE 18. CONFIDENTIAL INFORMATION.
18.1 INFORMATION. Each Party shall keep all information received from the
other Party (the "Information") confidential and shall not disclose nor use the
Information without the other Party's written consent except to the extent
contemplated by this Agreement.
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This restriction shall not, however, prevent disclosure of the Information if
and to the extent that disclosure is required by law, PROVIDED that the
disclosing Party informs the other Party without delay of any such requirement
to allow such other Party to object to such disclosure and to seek an
appropriate protective order or similar protection prior to disclosure. This
obligation shall survive for five (5) years after termination or expiration of
this Agreement.
18.2 EXCEPTIONS. The above obligations shall not apply or shall cease to
apply if such Information:
(a) has become generally available to the public otherwise than
through violation of this Agreement;
(b) was already in the recipient's possession prior to its
acquisition from the disclosing Party;
(c) has been received from a Third Party who did not acquire it
directly or indirectly from the disclosing Party; or
(d) has been independently developed by the receiving Party
without the aid or use of Information of the disclosing Party.
18.3 PERMITTED DISCLOSURES. Information may be disclosed to employees,
agents, consultants, sublicensees or suppliers of the recipient Party or its
Affiliates, but only to the extent required to accomplish the purposes of this
Agreement and only if the recipient Party obtains prior agreement from the
recipients to hold in confidence and not use such information for any purpose
other than those permitted by this Agreement. Each Party will use at least the
same standard of care as it uses to protect proprietary or confidential
information of its own to ensure that such recipients do not disclose or make
any unauthorized use of the Information.
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18.4 PUBLICITY AND DISCLOSURE OF AGREEMENT. All publicity relating to
this Agreement shall be subject to the approval of both Parties. Except as
required by law, neither Party shall disclose any non-public information with
respect to the terms of this Agreement or concerning the collaboration hereunder
without the prior written consent of the other Party, which consent will not be
unreasonably withheld or delayed. Notwithstanding any other provision of this
Agreement, each Party may disclose the terms of this Agreement to lenders,
investment bankers and other financial institutions solely for purposes of
financing its operations if the disclosing Party uses reasonable efforts to
obtain a signed confidentiality agreement with such financial institution with
respect to such information, upon terms substantially similar to those contained
in this Section.
18.5 PUBLICATION. The Parties shall cooperate in appropriate publication
of the results of research and development work performed pursuant to this
Agreement, subject to the predominating interest in obtaining patent protection
for any patentable subject matter. Prior to any public disclosure of such
results, the Party proposing disclosure shall send the other Party a copy of the
information to be disclosed. The other Party shall have thirty (30) days from
receipt to determine whether the information to be disclosed contains subject
matter for which patent protection should be sought prior to disclosure, or
otherwise contains Information of the reviewing Party which such Party desires
to maintain as a trade secret. If notification is not received during the
thirty (30) day period, the Party proposing disclosure shall be free to proceed
with the disclosure. If due to a valid business reason or a belief by the non-
disclosing Party that the disclosure contains subject matter for which a
patentable invention should be sought, then prior to the expiration of the
thirty (30) day period, the non-disclosing Party shall so notify the disclosing
Party, who shall then delay public disclosure of the information for an
additional period of up to [ * ] to permit the preparation and filing of a
patent application on the
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subject matter to be disclosed or other action to be taken. The Party proposing
disclosure shall thereafter be free to publish or disclose the information. The
determination of authorship for any paper shall be in accordance with accepted
scientific practice.
ARTICLE 19. MISCELLANEOUS.
19.1 WAIVER. The failure by either Party to require performance by the
other Party of any of its obligations hereunder shall in no manner affect the
right of such Party to enforce the same at a later time. No waiver by either
Party of any condition, or of the breach of any provision of this Agreement,
whether by conduct or otherwise shall be deemed to be or construed as a further
or continuing waiver thereof.
19.2 AMENDMENTS. This Agreement may not be amended except in writing by
the Party to be charged.
19.3 SEVERABILITY. If any provision of this Agreement is held invalid or
unenforceable, such provision shall be deleted, and, if possible, replaced by a
provision which achieves the intent of the Parties.
19.4 RELATIONSHIP BETWEEN THE PARTIES. Nothing in this Agreement is
intended nor shall be construed to constitute CoCensys or Searle as partners or
joint venturers. Neither Party shall have the express or implied authority to
assume or create any obligations on behalf of or in the name of the other Party.
19.5 CORRESPONDENCE AND NOTICES. Extraordinary notices and communications
(including but not limited to notices of termination, force majeure, material
breach, change of address) shall be in writing and sent by prepaid registered or
certified air mail, or by facsimile
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confirmed by prepaid registered or certified air mail letter, and shall be
deemed to have been property served to the addressee upon receipt of such
written communication.
In the case of CoCensys, such address shall be:
CoCensys, Inc.
213 Technology Drive
Irvine, California 92718, USA
Attn: Chief Executive Officer
and in the case of Searle, such address shall be:
G. D. Searle & Co.
5200 Old Orchard Road
Skokie, Illinois 60077
Attn: Chief Executive Officer
cc: General Counsel
19.6 CHOICE OF LAW. This Agreement is subject to and governed by the laws
of Delaware (except the choice of laws rules).
19.7 FORCE MAJEURE. Neither Party shall be liable to the other for delay
or failure in performing any of its obligations if and to the extent that such
failure or delay is due to circumstances beyond its control which it could not
have avoided by the exercise of reasonable diligence. It shall notify the other
Party promptly should such circumstances arise, giving an indication of the
likely extent and duration thereof, and shall use all commercially reasonable
efforts to resume performance of its obligations as soon as practicable.
19.8 ENTIRE AGREEMENT. This Agreement together with its Exhibits and
further agreements mentioned herein constitutes the entire agreement of the
Parties with respect to the subject matter hereof as of its date, and supersedes
all prior agreements, understandings, representations and proposals, written or
oral, relating thereto.
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19.9 REGISTRATION AND FILING OF THE AGREEMENT. To the extent, if any,
that a Party concludes in good faith that it is required to file or register
this Agreement or a notification thereof with any governmental authority,
including without limitation the U.S. Securities and Exchange Commission, the
Competition Directorate of the Commission of the European Communities or the
U.S. Federal Trade Commission, in accordance with applicable laws and
regulations, such Party may do so, and the other Party shall cooperate in such
filing or notification and shall execute all documents reasonably required in
connection therewith. In such situation, the Parties will request confidential
treatment of sensitive provisions of the Agreement, to the extent permitted by
law. The Parties shall promptly inform each other as to the activities or
inquiries of any such governmental authority relating to this Agreement, and
shall cooperate to respond to any request for further information therefrom.
Without limiting the foregoing, the Parties agree to make all necessary filings
required under the Hart-Scott-Rodino Antitrust Improvements act of 1976, as
amended, and to cooperate with each other so as to comply therewith on a timely
basis in light of the provisions of this Agreement.
IN WITNESS WHEREOF, the parties have signed this Agreement effective as of
the year first set forth above.
G.D. SEARLE & CO. COCENSYS, INC.
By:___________________________ By:___________________________
R. U. De Schutter Daniel L. Korpolinski
Chairman and Chief Executive President & Chief
Officer and President Executive Officer
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EXHIBIT A
CO-CENSYS PATENT RIGHTS
U.S. Patent/Application Foreign Counterparts
----------------------- --------------------
[ * ] [ * ]
__________________________
[ * ]
(continued on next page)
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EXHIBIT A
CO-CENSYS PATENT RIGHTS
_________________________
[ * ]
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EXHIBIT B
TARGET CRITERIA FOR BACK-UP COMPOUND CANDIDATES
[ * ]
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EXHIBIT C
COCENSYS, INC.
----------
PREFERRED STOCK PURCHASE AGREEMENT
----------
MAY 17, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
1. PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 SHARES.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 CLOSING DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 DELIVERY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 REGISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 EXPENSES OF REGISTRATION . . . . . . . . . . . . . . . . . . . . . 3
2.4 OBLIGATIONS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . 3
2.5 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.6 INFORMATION BY HOLDER. . . . . . . . . . . . . . . . . . . . . . . 6
2.7 TRANSFER OF REGISTRATION RIGHTS. . . . . . . . . . . . . . . . . . 7
2.8 DELAY OF REGISTRATION. . . . . . . . . . . . . . . . . . . . . . . 7
2.9 RULE 144 REPORTING.. . . . . . . . . . . . . . . . . . . . . . . . 7
2.10 "MARKET STAND-OFF" AGREEMENT.. . . . . . . . . . . . . . . . . . . 7
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . 8
3.1 ORGANIZATION AND STANDING; ARTICLES AND BYLAWS . . . . . . . . . . 8
3.2 AUTHORIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 VALIDITY OF SHARES AND CONVERSION SHARES . . . . . . . . . . . . . 9
3.4 OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.5 FULL DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.6 SEC FILINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.7 VOTING ARRANGEMENTS. . . . . . . . . . . . . . . . . . . . . . . . 9
3.8 NO CONFLICT; NO VIOLATION. . . . . . . . . . . . . . . . . . . . . 9
3.9 CONSENTS AND APPROVALS.. . . . . . . . . . . . . . . . . . . . . . 10
3.10 ABSENCE OF CERTAIN DEVELOPMENTS. . . . . . . . . . . . . . . . . . 10
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER . . . . . . . . . . . . 10
4.1 LEGAL POWER. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 DUE EXECUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.3 INVESTMENT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . 10
5. CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.1 CONDITIONS TO OBLIGATIONS OF PURCHASER . . . . . . . . . . . . . . 12
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY . . . . . . . . . . . . . 12
6. COVENANTS OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . 13
6.1 INFORMATION RIGHTS.. . . . . . . . . . . . . . . . . . . . . . . . 13
6.2 DURATION OF RIGHTS.. . . . . . . . . . . . . . . . . . . . . . . . 13
6.3 PREFERRED STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . 14
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TABLE OF CONTENTS
(CONTINUED)
PAGE
7. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.1 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.2 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.3 SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . . 14
7.4 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.5 SEPARABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.6 AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . 14
7.7 DELAYS OR OMISSIONS. . . . . . . . . . . . . . . . . . . . . . . . 15
7.8 NOTICES, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.9 FINDER'S FEES. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.10 FEES AND EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . 16
7.11 INFORMATION CONFIDENTIAL . . . . . . . . . . . . . . . . . . . . . 16
7.12 TITLES AND SUBTITLES . . . . . . . . . . . . . . . . . . . . . . . 17
7.13 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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COCENSYS, INC.
PREFERRED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of May 17, 1996, by and among COCENSYS, INC., a
Delaware corporation (the "Company"), and G.D. SEARLE & CO., a Delaware
corporation ("Purchaser").
1. PURCHASE AND SALE
1.1 SHARES. Subject to the terms and conditions hereof, and in
reliance upon the representations, warranties and agreements contained herein,
the Company hereby agrees to issue and sell to Purchaser, and Purchaser hereby
agrees to purchase from the Company, for $7,000,000 (the "Purchase Price"),
100,000 shares (the "Shares") of the Company's Series B Convertible Preferred
Stock (the "Preferred Stock"). The terms of the Preferred Stock are set forth
in the Certificate of Designation annexed hereto as Exhibit A (the "Certificate
of Designation").
1.2 CLOSING DATE. The closing of the sale and purchase of the Shares
(the "Closing") shall take place on May 20, 1996 (the "Closing Date").
1.3 DELIVERY. At the Closing, the Company will deliver to Purchaser
a certificate or certificates, in such denominations and registered in such
names as Purchaser may designate by notice to the Company, representing the
Shares to be purchased by Purchaser from the Company, dated the Closing Date,
against payment of the Purchase Price by wire transfer, a check made payable to
the order of the Company, or any combination thereof.
2. REGISTRATION RIGHTS.
The Company hereby grants to Purchaser the registration rights set
forth in this Section 2, with respect to the Registrable Securities (as
hereinafter defined) owned by Purchaser.
2.1 DEFINITIONS. As used in this Section 2:
(a) The term "Holder" or "Holders" shall mean (i) Purchaser and
(ii) any other person holding or having the right to acquire Registrable
Securities to whom these registration rights have been transferred pursuant to
Subsection 2.7 hereof.
(b) The terms "register," "registered," and "registration" refer
to a registration effected by filing with the Securities and Exchange Commission
(the "SEC") a registration statement (the "Registration Statement") in
compliance with the Securities Act of 1933, as amended (the "1933 Act") and the
declaration or ordering by the SEC of the effectiveness of such Registration
Statement.
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(c) The term "Registrable Securities" means (i) the shares of
Common Stock of the Company issued upon conversion of the Shares (the
"Conversion Shares") in accordance with the Certificate of Designation and (ii)
any Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right, or other security that is issued as) a dividend
or other distribution with respect to, or in exchange or in replacement of, the
Conversion Shares; PROVIDED, HOWEVER, that Registrable Securities shall cease to
be Registrable Securities when they may be sold pursuant to Rule 144(k) under
the 1933 Act. In the event of any recapitalization by the Company, whether by
stock split, reverse stock split, stock dividend or the like, the number of
shares of Registrable Securities shall be proportionately increased or
decreased.
2.2 REGISTRATION.
(a) REGISTRATION. If at any time or from time to time the
Company shall determine to register any of its securities for its own account,
other than a registration relating solely to employee benefit plans or a
registration on Form S-4 relating solely to an SEC Rule 145 transaction, the
Company will:
(i) promptly give to each Holder written notice thereof
(which shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other state
securities laws); and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within 20 calendar days after receipt of such written notice
from the Company, by any Holder or Holders, except as set forth in
Subsection 2.2(b) below.
(b) (i) UNDERWRITING. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Subsection 2.2(a)(i). In such event the right of any Holder to
registration pursuant to this Section 2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting
shall, together with the Company and any other parties distributing their
securities through such underwriting, enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of this
Subsection 2.2, if the underwriter determines that marketing factors require a
limitation of the number of shares to be underwritten, the underwriter may limit
the number of Registrable Securities to be included in the registration and
underwriting, or may exclude Registrable Securities entirely from such
registration and underwriting subject to the terms of this paragraph. The
Company shall so advise all holders of the Company's securities that would
otherwise be registered and underwritten pursuant hereto, and the number of
shares of such securities, including Registrable Securities, that may be
included in the registration and underwriting shall be allocated in the
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following manner: shares, other than Registrable Securities and other
securities carrying registration rights, requested to be included in such
registration by stockholders shall be excluded and if a limitation on the number
of shares is still required, the number of securities that may be included shall
first be allocated among the holders of piggyback registration rights having
priority over those set forth herein, if any, in proportion, as nearly as
practicable, to the respective amounts of such securities held by such holders
and then shall be allocated among the Holders and holders of securities having
PARI PASSU registration rights, if any, in proportion, as nearly as possible, to
the respective amounts of such securities held by each such holder, in each case
at the time of filing the Registration Statement. In the event of any
underwriter cutback, if any selling stockholder which is a Holder of Registrable
Securities is a partnership or corporation, the partners, retired partners and
stockholders of such Holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single "selling Holder", and any pro
rata reduction with respect to such "selling Holder" shall be based upon the
aggregate amount of shares carrying registration rights owned by all entities
and individuals included in such "selling Holder", as defined in this sentence.
No securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. If any Holder
disapproves of the terms of the underwriting, it may elect to withdraw therefrom
by written notice to the Company and the underwriter. The Registrable
Securities so withdrawn shall also be withdrawn from registration.
(ii) SHELF REGISTRATION. In the event Purchaser is
unable to sell all of the Registrable Securities requested to be included in
a registration hereunder as a result of exclusion of such Registrable
Securities by the underwriter pursuant to subparagraph (i), the Company
shall, if so requested by Purchaser following the later of (A) 90 days after
the completion of such offering or (B) the expiration of any lock-up or
market stand-off agreements applicable to such offering, promptly prepare and
file with the SEC a registration statement on Form S-3 to register the resale
of such Registrable Securities by the Purchaser. Following effectiveness of
such registration statement, Purchaser agrees to provide the Company with
prior written notice of its intention to sell shares thereunder.
2.3 EXPENSES OF REGISTRATION. All expenses incurred in connection
with a registration effected pursuant to Subsection 2.2, including without
limitation all registration, filing, and qualification fees (including blue sky
fees and expenses), printing expenses, escrow fees, fees and disbursements of
counsel for the Company and, if there are more than two (2) participating
Holders, of one special counsel for the participating Holders, and expenses of
any special audits incidental to or required by such registration (collectively,
"Registration Expenses"), shall be borne by the Company; provided, however, that
the term Registration Expenses shall not include, and in no event will the
Company be obligated to pay, stock transfer taxes or underwriters' discounts or
commissions relating to Registrable Securities.
2.4 OBLIGATIONS OF THE COMPANY. Whenever required under Section 2.2
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
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(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its diligent best efforts to
cause such registration statement to become effective, and, upon the request of
the Holders of a majority of the Registrable Securities registered thereunder,
keep such registration statement effective until the earlier of (i) one hundred
eighty (180) days or (ii) until the Holder or Holders have completed the
distribution relating thereto; PROVIDED HOWEVER, that the Company may delay the
filing of such registration statement for up to 60 days following such request
by giving notice to Purchaser if the Company shall have determined that the
Company may be required to disclose any material corporate development which
disclosure may have a material effect on the Company. Following the
effectiveness of a registration statement filed pursuant to Rule 415 under the
1933 Act, the Company may, at any time, but not more than once in any six-month
period, suspend the effectiveness of such registration statement for up to 60
days, as appropriate (a "Suspension Period"), by giving notice to Purchaser, if
the Company shall have determined that the Company may be required to disclose
any material corporate development which disclosure may have a material effect
on the Company. The duration of any Suspension Period shall be added to the
period of time the Company agrees to keep the registration statement effective.
Purchaser agrees that, upon receipt of any notice from the Company of a
Suspension Period, Purchaser shall forthwith discontinue disposition of shares
covered by such registration statement or prospectus until Purchaser (i) is
advised in writing by the Company that the use of the applicable prospectus may
be resumed, (ii) has received copies of a supplemental or amended prospectus, if
applicable, and (iii) has received copies of any additional or supplemental
filings which are incorporated or deemed to be incorporated by reference in such
prospectus.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all securities
covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
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(f) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act, of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Section 2, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Section 2, if such securities
are being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a letter
dated such date, from the independent accountants of the Company, in form and
substance as is customarily given by independent accountants to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities.
2.5 INDEMNIFICATION.
(a) The Company will, and does hereby undertake to, indemnify
and hold harmless each Holder of Registrable Securities, each of such Holder's
officers, directors, partners and agents, and each person controlling such
Holder, with respect to any registration, qualification, or compliance effected
pursuant to this Section 2, and each underwriter, if any, and each person who
controls any underwriter, of the Registrable Securities held by or issuable to
such Holder, against all claims, losses, damages, and liabilities (or actions in
respect thereto) to which they may become subject under the 1933 Act, the
Securities Exchange Act of 1934, as amended, (the "1934 Act"), or other federal
or state law arising out of or based on (i) any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular, or other similar document (including any related Registration
Statement, notification, or the like) incident to any such registration,
qualification, or compliance, or based on any 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 (ii) any violation or alleged
violation by the Company of any federal, state or common law rule or regulation
applicable to the Company in connection with any such registration,
qualification, or compliance, and will reimburse, as incurred, each such Holder,
each such underwriter, and each such director, officer, partner, agent and
controlling person, for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability, or action; provided that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense,
arises out of or is based on any untrue statement or omission based upon written
information furnished to the Company by an instrument duly executed by such
Holder or underwriter and stated to be specifically for use therein.
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(b) Each Holder will, if Registrable Securities held by or
issuable to such Holder are included in such registration, qualification, or
compliance, indemnify the Company, each of its directors, and each officer who
signs a Registration Statement in connection therewith, and each person
controlling the Company, each underwriter, if any, and each person who controls
any underwriter, of the Company's securities covered by such a Registration
Statement, and each other Holder, each of such other Holder's officers,
partners, directors and agents and each person controlling such other Holder,
against all claims, losses, damages, and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such Registration Statement,
prospectus, offering circular, or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse, as
incurred, the Company, each such underwriter, each such other Holder, and each
such director, officer, partner, and controlling person, for any legal or any
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability, or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) was made in such Registration Statement,
prospectus, offering circular, or other document, in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein. In
no event will any Holder be required to enter into any agreement or undertaking
in connection with any registration under this Section 2 providing for any
indemnification or contribution obligations on the part of such Holder greater
than such Holder's obligations under this Subsection 2.5.
(c) Each party entitled to indemnification under this
Subsection 2.5 (the "Indemnified Party") shall give notice to the party required
to provide such indemnification (the "Indemnifying Party") of any claim as to
which indemnification may be sought promptly after such Indemnified Party has
actual knowledge thereof, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom; provided that
counsel for the Indemnifying Party, who shall conduct the defense of such claim
or litigation, shall be subject to approval by the Indemnified Party (whose
approval shall not be reasonably withheld) and the Indemnified Party may
participate in such defense at the Indemnifying Party's expense if
representation of such Indemnified Party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other party
represented by such counsel in such proceeding; and provided further that the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Section 2, except
to the extent that such failure to give notice shall materially adversely affect
the Indemnifying Party in the defense of any such claim or any such litigation.
No Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff therein, to such
Indemnified Party, of a release from all liability in respect to such claim or
litigation.
2.6 INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such
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Holder or Holders and the distribution proposed by such Holder or Holders as
the Company may reasonably request in writing and as shall be required in
connection with any registration, qualification, or compliance referred to in
this Section 2.
2.7 TRANSFER OF REGISTRATION RIGHTS. The rights contained in this
Section 2 to cause the Company to register the Registrable Securities, may be
assigned or otherwise conveyed to (i) any affiliate (as such term is defined in
Rule 405 under the 1933 Act) of Purchaser who is a transferee or assignee of
Registrable Securities or (ii) any transferee or assignee of all of the
Registrable Securities, in either case who shall be considered a "Holder" for
purposes of this Section 2, provided that the Company is given written notice by
Purchaser, at the time of or within a reasonable time after said transfer,
stating the name and address of said transferee or assignee and identifying the
securities with respect to which such registration rights are being assigned.
2.8 DELAY OF REGISTRATION. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
2.9 RULE 144 REPORTING. With a view to making available to the
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without registration
or pursuant to a registration on Form S-3, the Company agrees to use its best
efforts to:
(a) Make and keep public information available, in accordance
with subsection (c) of Rule 144 under the 1933 Act ("Rule 144") or any similar
or analogous rule promulgated under the 1933 Act, as long as Registrable
Securities are outstanding;
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the 1933 Act and 1934 Act;
(c) So long as a Holder owns any Registrable Securities, furnish
to such Holder forthwith upon request: a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 and of the 1934 Act;
a copy of the most recent annual or quarterly report of the Company; and such
other reports and documents as a Holder may reasonably request in availing
itself of any rule or regulation of the SEC allowing it to sell any such
securities without registration or pursuant to a registration on Form S-3.
(d) Take all such action (including without limitation the
furnishing of the information described in Rule 144(d)(4)) as may be necessary
or helpful to facilitate a sale of Registrable Securities by a Holder to a
"qualified institutional buyer," as such term is defined in Rule 144A of the
1933 Act.
2.10 "MARKET STAND-OFF" AGREEMENT. Purchaser hereby agrees that
during the ninety (90)-day period following the effective date of a registration
statement of the Company
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filed under the 1933 Act, it shall not, to the extent requested by the
Company or any underwriter, sell or otherwise transfer or dispose of any
Common Stock of the Company held by it at any time during such period (except
Common Stock included in such registration); provided, however, that:
(a) Such agreement shall be applicable only to registration
statements of the Company which cover Common Stock (or other securities) to be
sold on its behalf to the public;
(b) Such Agreement shall be applicable only if Purchaser holds
at least one percent (1%) of the Common Stock of the Company then outstanding;
and
(c) All executive officers and directors of the Company enter
into similar agreements.
The Company may impose stop-transfer instructions with respect to
securities subject to the foregoing restriction until the end of such period.
The agreement of the Purchaser set forth in this Section 2.10 shall lapse three
(3) years after the Closing provided that Purchaser is not at such time an
affiliate of the Company (as defined in Rule 405 under the 1933 Act), in which
case such restrictions shall lapse at such time as Purchaser ceases to be an
affiliate.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as otherwise set forth on the Schedule of Exceptions which is
attached hereto as Exhibit B and which shall contain section numbers
specifically corresponding to the section numbers in this Agreement, the Company
hereby represents and warrants to Purchaser as follows:
3.1 ORGANIZATION AND STANDING; ARTICLES AND BYLAWS. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and has full power and authority to own and operate
its properties and assets and to carry on its business as presently conducted
and as proposed to be conducted. The Company is qualified as a foreign
corporation to do business in each jurisdiction in the United States in which
the ownership of its property or the conduct of its business requires such
qualification, except where any statutory fines or penalties or any corporate
disability imposed for the failure to qualify would not materially or adversely
affect the Company, its assets, financial condition or operations.
3.2 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the performance of
all the Company's obligations hereunder and thereunder, and for the
authorization, issuance, sale and delivery of the Shares has been taken or
will be taken prior to the Closing. This Agreement, when executed and
delivered, shall constitute a valid and legally binding obligation of the
Company in accordance with its terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors.
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3.3 VALIDITY OF SHARES AND CONVERSION SHARES. The sale of the Shares
is not and will not be subject to any preemptive rights or rights of first
refusal that have not been waived and, when issued, sold and delivered in
compliance with the provisions of this Agreement and the Certificate of
Designation, the Shares and the Conversion Shares will be validly issued, fully
paid and nonassessable, and will be free of any liens or encumbrances; PROVIDED,
HOWEVER, that the Shares and the Conversion Shares may be subject to
restrictions on transfer under state and/or federal securities laws, and the
Shares may be subject to additional restrictions on transfer, in each case as
set forth herein, or as otherwise required by such laws at the time a transfer
is proposed.
3.4 OFFERING. Assuming the accuracy of the representations and
warranties of Purchaser contained in Section 4.3 hereof on the date hereof and
on the Closing Date, the offer, issue, and sale of the Shares are and will be
exempt from the registration and prospectus delivery requirements of the 1933
Act, and have been registered or qualified (or are exempt from registration and
qualification) under the registration, permit, or qualification requirements of
all applicable state securities laws.
3.5 FULL DISCLOSURE. The Company has furnished to Purchaser the
following documents, and the Company warrants that the information contained in
such documents, as of their respective dates (or if amended, as of the date of
such amendment), did not contain any untrue statement of a material fact, and
did not omit to state any material fact necessary to make any statement, in
light of the circumstances under which such statement was made, not misleading:
(a) The Company's annual report on Form 10-K for the fiscal year
ended December 31, 1995, as amended; the Company's quarterly report on Form 10-Q
for the quarter ended March 31, 1996 and the Company's proxy statement relating
to its 1996 annual meeting of stockholders.
(b) All other documents subsequently filed by the Company with
the SEC pursuant to the reporting requirements of the 1934 Act.
3.6 SEC FILINGS. The Company has timely filed with the SEC all
reports and other documents required to be so filed.
3.7 VOTING ARRANGEMENTS. To the best of the Company's knowledge,
there are no outstanding stockholder agreements, voting trusts, proxies or other
arrangements or understandings among the stockholders of the Company relating to
the voting of their respective shares.
3.8 NO CONFLICT; NO VIOLATION. The execution, delivery and
performance of this Agreement and consummation of the transactions contemplated
hereby will not (a) conflict with any provisions of the Amended and Restated
Certificate of Incorporation or Bylaws of the Company; (b) result in any
violation of or default or loss of a benefit under, or permit the acceleration
of any obligation under (in each case, upon the giving of notice, the passage of
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time, or both) any mortgage, indenture, lease, agreement or other instrument,
permit, franchise, license, judgment, order, decree, law, ordinance, rule or
regulation applicable to the Company or its properties.
3.9 CONSENTS AND APPROVALS. All consents, approvals, orders, or
authorizations of, or registrations, qualifications, designations, declarations,
or filings with, any governmental authority, required on the part of the Company
in connection with the valid execution and delivery of this Agreement, the
offer, sale or issuance of the Shares, or the consummation of any other
transaction contemplated hereby have been obtained, or will be effective at the
Closing, except for notices required or permitted to be filed with certain state
and federal securities commissions after the Closing, which notices will be
filed on a timely basis.
3.10 ABSENCE OF CERTAIN DEVELOPMENTS. Since December 31, 1995, the
Company has not (a) incurred or become subject to any material liabilities
(absolute or contingent) except current liabilities incurred, and liabilities
under contracts entered into, in the ordinary course of business, consistent
with past practices; (b) mortgaged, pledged or subjected to lien, charge or any
other encumbrance any of its assets, tangible or intangible; (c) sold, assigned
or transferred any of its assets or canceled any debts or obligations except in
the ordinary course of business, consistent with past practices; (d) suffered
any extraordinary losses, or waived any rights of substantial value; (e) entered
into any material transaction other than in the ordinary course of business,
consistent with past practices; or (f) otherwise had any material change in its
condition, financial or otherwise, except for changes in the ordinary course of
business, consistent with past practices, none of which individually or in the
aggregate has been materially adverse.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
Purchaser hereby represents and warrants to the Company as follows:
4.1 LEGAL POWER. It has the requisite legal power to enter into this
Agreement, to purchase the Shares hereunder, and to carry out and perform its
obligations under the terms of this Agreement.
4.2 DUE EXECUTION. This Agreement has been duly authorized, executed
and delivered by it, and, upon due execution and delivery by the Company, this
Agreement will be a valid and binding agreement of it.
4.3 INVESTMENT REPRESENTATIONS.
(a) It is acquiring the Shares, and intends to acquire the
Conversion Shares, for its own account, not as nominee or agent, for investment
and not with a view to, or for resale in connection with, any distribution or
public offering thereof within the meaning of the 1933 Act.
10
<PAGE>
(b) It understands that (i) the Shares have not been and, when
issued, the Conversion Shares will not be, registered under the 1933 Act by
reason of a specific exemption therefrom, that they must be held by it
indefinitely, and that it must, therefore, bear the economic risk of such
investment indefinitely, unless a subsequent disposition thereof is registered
under the 1933 Act or is exempt from such registration; (ii) each certificate
representing the Shares and the Conversion Shares will be endorsed with the
following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE 1933 ACT, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS (A) PURSUANT TO RULE 144 UNDER THE
1933 ACT OR (B) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
1933 ACT COVERING SUCH SECURITIES OR (C) THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY
SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT;
(iii) each certificate representing the Shares also will be endorsed with the
following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS (A) THE TRANSFEREE IS AN
AFFILIATE OF THE HOLDER WITHIN THE MEANING OF RULE 144 UNDER THE 1933
ACT OR (B) ALL SUCH SECURITIES ARE TRANSFERRED TO A SINGLE INDIVIDUAL
OR ENTITY;
and (iv) the Company will instruct any transfer agent not to register the
transfer of any of the Shares unless the conditions specified in the foregoing
legends are satisfied.
(c) It has been furnished with such materials and has been given
access to such information relating to the Company as it or its qualified
representative has requested and it has been afforded the opportunity to ask
questions regarding the Company and the Shares, all as it has found necessary to
make an informed investment decision.
(d) It is an "accredited investor" within the meaning of
Regulation D under the 1933 Act.
(e) It was not formed for the specific purpose of acquiring the
Shares or the Conversion Shares.
11
<PAGE>
5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO OBLIGATIONS OF PURCHASER. Purchaser's obligation
to purchase the Shares at the Closing is subject to the fulfillment, at or prior
to the Closing, of all of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in
Section 3 hereof shall be true and correct in all material respects on the date
of the Closing with the same force and effect as if they had been made on and as
of said date; the business and assets of the Company shall not have been
adversely affected in any material way prior to the Closing; and the Company
shall have performed all obligations and conditions herein required to be
performed by it on or prior to the Closing.
(b) OPINION OF THE COMPANY'S COUNSEL. Purchaser shall have
received from Cooley Godward Castro Huddleson & Tatum, counsel to the Company,
an opinion letter substantially in the form attached hereto as Exhibit C,
addressed to it, dated the date of the Closing.
(c) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to Purchaser, and Purchaser shall
have received all such counterpart originals or certified or other copies of
such documents as they may reasonably request.
(d) QUALIFICATIONS, LEGAL INVESTMENT. All authorizations,
approvals, or permits, if any, of any governmental authority or regulatory body
of the United States or of any state that are required in connection with the
lawful sale and issuance of the Initial Shares pursuant to this Agreement shall
have been duly obtained and shall be effective on and as of the Closing. No
stop order or other order enjoining the sale of the Shares shall have been
issued and no proceedings for such purpose shall be pending or, to the knowledge
of the Company, threatened by the SEC or any commissioner of corporations or
similar officer of any other state having jurisdiction over this transaction.
At the time of the Closing, the sale and issuance of the Shares shall be legally
permitted by all laws and regulations to which Purchaser and the Company are
subject.
(e) COMPLIANCE CERTIFICATE. The Company shall have delivered to
Purchaser a Certificate, executed by the President of the Company, dated the
date of the Closing, certifying to the fulfillment of the conditions specified
in subparagraphs (a) and (d) of this Subsection 5.1.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligation to issue and sell the Shares at the Closing is subject to the
fulfillment to the Company's satisfaction, on or prior to the Closing, of the
following conditions, any of which may be waived by the Company:
12
<PAGE>
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties made by Purchaser in Section 4 hereof shall be true and correct
at the date of the Closing, with the same force and effect as if they had been
made on and as of said date.
(b) PERFORMANCE OF OBLIGATIONS. Purchaser shall have performed
and complied with all agreements and conditions herein required to be performed
or complied with by it on or before the Closing.
(c) QUALIFICATIONS, LEGAL INVESTMENT. All authorizations,
approvals, or permits, if any, of any governmental authority or regulatory body
of the United States or of any state that are required in connection with the
lawful sale and issuance of the Shares pursuant to this Agreement shall have
been duly obtained and shall be effective on and as of the Closing. No stop
order or other order enjoining the sale of the Shares shall have been issued and
no proceedings for such purpose shall be pending or, to the knowledge of the
Company, threatened by the SEC or any commissioner of corporations or similar
officer of any state having jurisdiction over this transaction. At the time of
the Closing, the sale and issuance of the Shares shall be legally permitted by
all laws and regulations to which Purchaser and the Company are subject.
6. COVENANTS OF THE COMPANY
6.1 INFORMATION RIGHTS. Except as set forth below, Purchaser shall
receive copies of all materials distributed to the Board of Directors of the
Company. In addition, the Company's Chief Executive Officer, or such other
members of the Company's senior management as the Chief Executive Officer may in
his sole discretion designate, shall on one occasion each calendar quarter, be
available for a reasonable amount of time, during the Company's normal business
hours, to discuss the business of the Company with a representative of
Purchaser's senior management. The information rights provided in this Section
6.1 are subject to the right of the Board of Directors and the Company, in their
reasonable judgment, to withhold information when issues of confidentiality,
competition, attorney-client privilege or protection of intellectual property so
require. Such rights are also subject to the Purchaser's, and any individual
recipient's, agreement to hold in confidence and trust all materials and
information so received and to be bound by all federal and state securities laws
applicable to the use and disclosure of nonpublic information, including any
Company-imposed proscriptions on trading in its securities by insiders.
6.2 DURATION OF RIGHTS. The rights granted to Purchaser pursuant to
Section 6.1 shall continue so long as Purchaser holds the Shares (including
Shares held by affiliates (within the meaning set forth in Rule 144 under the
1933 Act) of Purchaser) and, subsequent to issuance of the Conversion Shares, so
long as Purchaser holds 90% of the Conversion Shares (including Conversion
Shares held by affiliates (within the meaning set forth in Rule 144 under the
1933 Act) of Purchaser). Notwithstanding any termination of rights hereunder,
Purchaser shall continue to be subject to the restrictions set forth in Section
6.1 with respect to information and materials received until such time as such
information has been disclosed to the public by the Company or otherwise is made
available to the public by lawful means.
13
<PAGE>
6.3 PREFERRED STOCK. The Company hereby agrees that, so long as the
Shares are outstanding, it will not issue additional shares of the Preferred
Stock without Purchaser's consent.
7. MISCELLANEOUS.
7.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Delaware.
7.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by Purchaser and the
closing of the transactions contemplated hereby. All statements as to factual
matters contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto or in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder as of the date of such certificate or instrument.
7.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto.
7.4 ENTIRE AGREEMENT. This Agreement, the Exhibits hereto, and the
other documents delivered pursuant hereto constitute the full and entire
understanding and agreement among the parties with regard to the subjects hereof
and no party shall be liable or bound to any other party in any manner by any
representations, warranties, covenants, or agreements except as specifically set
forth herein or therein. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto and their
respective successors and assigns, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
7.5 SEPARABILITY. In case any provision of this Agreement shall be
invalid, illegal, or unenforceable, it shall to the extent practicable, be
modified so as to make it valid, legal and enforceable and to retain as nearly
as practicable the intent of the parties, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
7.6 AMENDMENT AND WAIVER. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance, either retroactively or prospectively, and either
for a specified period of time or indefinitely), with the written consent of the
Company and the holders of not less than a majority-in-interest of the aggregate
of outstanding Shares. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon Purchaser, each future holder of the Shares, and
the Company. Upon the effectuation of each such amendment or waiver, the
Company shall promptly give written notice thereof to the record holders of the
Shares who have not previously consented thereto in writing, if any.
14
<PAGE>
7.7 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power, or remedy accruing to Purchaser or any subsequent holder of any Shares
upon any breach, default or noncompliance of the Company under this Agreement,
shall impair any such right, power, or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent, or approval
of any kind or character on Purchaser's part of any breach, default or
noncompliance under this Agreement or any waiver on Purchaser's part of any
provisions or conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such writing, and that
all remedies, either under this Agreement, by law, or otherwise afforded to
Purchaser, shall be cumulative and not alternative.
7.8 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
(a) upon personal delivery, (b) on report of successful transmission by
facsimile machine that automatically generates a printed diagnostic report,
indicating whether transmission was completed successfully, at the conclusion of
each transmission, (c) on the first business day after receipted delivery to a
courier service which guarantees next business-day delivery, under circumstances
in which such guaranty is applicable, or (d) on the earlier of delivery or five
(5) business days after mailing by United States certified by mail, postage and
fees prepaid, to the appropriate party at the address set forth below or to such
other address as the part so notifies the other in writing:
(a) if to the Company, to:
COCENSYS, INC.
213 Technology Drive
Irvine, CA 92718
Attention: Daniel L. Korpolinski, President and Chief
Executive Officer
Fax: (714) 753-6141
with a copy to:
COOLEY GODWARD CASTRO HUDDLESON & TATUM
5 Palo Alto Square
4th Floor
Palo Alto, CA 94306-2155
Attention: Alan C. Mendelson, Esq.
Fax: (415) 857-0663
15
<PAGE>
(b) if to Purchaser, to:
G.D. SEARLE & CO.
5200 Old Orchard Road
Skokie, IL 60077
Attention: President
Fax: (847) 470-6706
with a copy to:
G.D. SEARLE & CO.
5200 Old Orchard Road
Skokie, IL 60077
Attention: General Counsel
Fax: (847) 967-2045
Notwithstanding the foregoing, all notices and other communications to
an address outside of the United States shall be sent by telecopy and confirmed
in writing to be sent by first class mail.
7.9 FINDER'S FEES.
(a) The Company (i) represents and warrants that it has retained
no finder or broker in connection with the transactions contemplated by this
Agreement and (ii) hereby agrees to indemnify and to hold Purchaser harmless of
and from any liability for any commission or compensation in the nature of a
finder's fee to any broker or other person or firm (and the costs and expenses
of defending against such liability or asserted liability) for which the Company
or any of its employees or representatives is responsible.
(b) Purchaser (i) represents and warrants that it has retained
no finder or broker in connection with the transactions contemplated by this
Agreement, and (ii) hereby agrees to indemnify and to hold the Company harmless
of and from any liability for any commission or compensation in the nature of a
finder's fee to any broker or other person or firm (and the costs and expenses
of defending against such liability or asserted liability) for which Purchaser
or any of its employees or representatives are responsible.
7.10 FEES AND EXPENSES. Each party agrees to pay all its own fees,
costs and expenses, including legal and accounting fees, relating to this
Agreement and the transactions contemplated hereby. If legal action is brought
by, or on behalf of, Purchaser to enforce or interpret this Agreement, the
prevailing party shall be entitled to recover its attorneys' fees and legal
costs in connection therewith.
7.11 INFORMATION CONFIDENTIAL. Purchaser acknowledges that the
information received by it pursuant hereto is confidential and for Purchaser's
use only, and it will refrain
16
<PAGE>
from using such information or reproducing, disclosing, or disseminating such
information to any other person (other than its employees, affiliates,
agents, or partners having a need to know the contents of such information
and its attorneys, in each case who agree to be bound by this Section 6.11),
except in connection with the exercise of rights under this Agreement, unless
such information (i) is or becomes, through no fault of Purchaser, available
to the public generally; (ii) was already known by Purchaser, as demonstrated
by competent evidence, at the time of its receipt from the Company; (iii) is
obtained by Purchaser from a third party legally free to disclose such
information; or (iv) Purchaser is required by a governmental body or court of
competent jurisdiction to disclose such information.
7.12 TITLES AND SUBTITLES. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
7.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
17
<PAGE>
The foregoing Agreement is hereby executed as of the date first above
written.
COCENSYS, INC. G.D. SEARLE & CO.
213 Technology Drive 5200 Old Orchard Road
Irvine, CA 92718 Skokie, IL 60077
By: /s/ Daniel L. Korpolinski By: /s/ R.U. DeSchutter
------------------------------ ------------------------------
Daniel L. Korpolinski R.U. DeSchutter
President and Chief Executive Chairman and Chief Executive
Officer Office and President
18
<PAGE>
EXHIBITS
Exhibit A - CERTIFICATE OF DESIGNATION
Exhibit B - SCHEDULE OF EXCEPTIONS
Exhibit C - OPINION OF COMPANY'S COUNSEL
<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATION
<PAGE>
CERTIFICATE OF POWERS, DESIGNATION, PREFERENCES,
RIGHTS AND LIMITATIONS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
COCENSYS, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
COCENSYS, INC., a corporation organized and existing under the General
Corporation Law of the State of Delaware (hereinafter called the "Corporation"),
hereby certifies that the following resolution was adopted by the Board of
Directors of the Corporation as required by Section 151 of the General
Corporation Law at meetings duly called and held on February 27 and May 16,
1996:
RESOLVED, that pursuant to the authority granted to and
vested in the Board of Directors of the Corporation in
accordance with the provisions of its Amended and Restated
Certificate of Incorporation, the Board of Directors hereby
creates a series of Preferred Stock, par value $.001 per
share, of the Corporation and hereby states the designation
and number of shares, and fixes the relative rights,
preferences and limitations thereof (in addition to the
provisions set forth in the Restated Certificate of
Incorporation of the Corporation, which are applicable to
the Preferred Stock of all classes and series), as follows:
Series B Convertible Preferred Stock:
SECTION 1. DESIGNATION AND AMOUNT. One Hundred
Thousand (100,000) shares of Preferred Stock, $.001 par
value, are designated "Series B Convertible Preferred Stock"
with the rights, preferences, privileges and restrictions
specified herein (the
1.
<PAGE>
"Series B Preferred Stock"). Subject to Section 7
hereof, such number of shares may be increased or
decreased by resolution of the Board of Directors.
SECTION 2. DIVIDENDS AND DISTRIBUTIONS. The holders
of the Series B Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors,
out of funds legally available therefor, dividends at the
rate per share equal to any dividend declared or paid per
share to the Common Stock of the Corporation ("Common
Stock"). The right to such dividends on the Series B
Preferred Stock shall be non-cumulative.
SECTION 3. VOTING RIGHTS. Except as set forth
herein, or as otherwise provided by law, holders of Series B
Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as
set forth herein) for taking any corporate action.
SECTION 4. LIQUIDATION PREFERENCE. In the event of any
liquidation, dissolution or winding up of the Corporation,
either voluntary or involuntary (a "Liquidation Event"),
the holders of the Series B Preferred Stock shall be
entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the
Corporation to the holders of the Common Stock or Junior
Preferred Stock of the Corporation, an amount per share (as
adjusted for any combinations, consolidations, stock
distributions or stock dividends with respect to such
shares) equal to the quotient of (a) $7,000,000 divided by
(b) the number of Series B Preferred Stock issued and
outstanding as of the date of such Liquidation Event. If
upon the occurrence of such Liquidation Event, the assets
and funds thus distributed among the holders of the Series B
Preferred Stock shall be insufficient to permit the payment
to such holders of the full aforesaid preferential amount,
then the entire assets and funds of the Corporation legally
available for distribution shall be distributed among the
holders of the Series B Preferred Stock in proportion to the
shares of Series B Preferred Stock then held by them.
SECTION 5. CONVERSION. Subject to the limitations set
forth in Subsection (C) below, the Series B Preferred Stock
shall convert only as follows:
(A) AUTOMATIC CONVERSION. The Series B Preferred
Stock outstanding on May 17, 1998 (the "Automatic Conversion
2.
<PAGE>
Date") shall automatically convert on such date, in whole
and not in part, into such number of fully paid and
nonassessable shares of Common Stock equal to the quotient
of $7,000,000 divided by the average closing price of the
Corporation's Common Stock (as reported in THE WALL STREET
JOURNAL, WESTERN ADDITION) for a period of thirty (30)
trading days prior to the Automatic Conversion Date.
(B) CONVERSION AT CORPORATION'S OPTION. At any time
prior to the Automatic Conversion Date, the Corporation
shall have the option, in its sole discretion, to convert
the Series B Preferred Stock, in whole and not in part, into
such number of fully paid and nonassessable shares of Common
Stock equal to the quotient of $7,000,000 divided by the
average closing price of the Corporation's Common Stock (as
reported in THE WALL STREET JOURNAL, WESTERN ADDITION) for a
period of thirty (30) trading days prior to date upon which
the Corporation issues notice to the holders of Series B
Preferred Stock of such optional conversion.
(C) LIMITATION ON CONVERTED SHARES. The number of
shares of Common Stock issuable upon conversion of the
Series B Preferred Stock shall not be fewer than the
quotient of $7,000,000 divided by two times the closing
price of the Common Stock on May 17, 1996 (as reported in
the WALL STREET JOURNAL, WESTERN EDITION) (the "Market
Price"), nor greater than the quotient of $7,000,000 divided
by one-half of the Market Price.
(D) ADJUSTMENTS FOR COMBINATIONS OR SUBDIVISIONS OF
COMMON STOCK. In the event the Corporation at any time or
from time to time shall declare or pay any dividend on the
Common Stock payable in Common Stock or in any right to
acquire Common Stock, or shall effect a subdivision of the
outstanding shares of Common Stock into a greater number of
shares of Common Stock (by stock split, reclassification or
otherwise), or in the event the outstanding shares of Common
Stock shall be combined or consolidated, by reclassification
or otherwise, into a lesser number of shares of Common
Stock, then the maximum and minimum number of shares of
Common Stock into which the Series B Preferred Stock may be
converted, shall be proportionately decreased or increased,
as appropriate.
(E) MECHANICS OF CONVERSION. Before any holder of
Series B Preferred Stock shall be entitled to receive shares
of Common Stock, he shall surrender the certificate or
certificates thereof, duly endorsed, at the office of the
Corporation or of any transfer agent for such stock, and
shall state therein the name or
3.
<PAGE>
names in which he wishes the certificate or certificates
for shares of Common Stock to be issued. The Corporation
shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series B
Preferred Stock, a certificate or certificates for the
number of shares of Common Stock to which he shall be
entitled as aforesaid. Such conversion shall be deemed
to have been made immediately prior to the close of
business on the Automatic Conversion Date or the Optional
Conversion Date, as appropriate, and the person or
persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares
of Common Stock on such date.
(F) RESERVATION OF STOCK ISSUABLE UPON CONVERSION.
The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series B Preferred Stock,
such number of its shares of Common Stock as shall from time
to time be sufficient to effect the conversion of all
outstanding shares of the Series B Preferred Stock.
(G) FRACTIONAL SHARES. No fractional share shall be
issued upon the conversion of any share or shares of Series
B Preferred Stock. All shares of Common Stock (including
fractions thereof) issuable upon conversion of Series B
Preferred Stock shall be aggregated for purposes of
determining whether the conversion would result in the
issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in
the issuance of a fraction of a share of Common Stock, the
Corporation shall, in lieu of issuing any fractional share,
pay the holder otherwise entitled to such fraction a sum in
cash equal to the closing price of the Common Stock on the
date of conversion, multiplied by such fraction.
(H) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION,
MERGER OR SALE. If any (i) reorganization of the capital
stock of the Corporation, (ii) consolidation or merger of
the Corporation in which the Corporation is not the
surviving corporation, or (iii) sale of all or substantially
all of the Corporation's assets to another corporation
(each, an "Event") shall be effected in such a way that
holders of Common Stock shall be entitled to receive
securities, cash or other assets or property, the Automatic
Conversion Date shall be accelerated to the date immediately
preceding such Event, or such other date necessary to assure
that any holder of Series B Preferred Stock receives such
shares of stock, securities or other
4.
<PAGE>
assets or property as may be issued or payable with
respect to or in exchange for shares of Common Stock.
SECTION 6. NO REDEMPTION. The shares of Series B
Preferred Stock shall not be redeemable.
SECTION 7. AMENDMENT. The Restated Certificate of
Incorporation of the Corporation shall not be amended in any
manner which would materially alter or change the powers,
preferences or special rights of the Series B Preferred
Stock so as to affect them adversely without the affirmative
vote of the holders of at least two-thirds of the
outstanding shares of Series B Preferred Stock, voting
together as a single class.
5.
<PAGE>
IN WITNESS WHEREOF the undersigned have executed this certificate as of May
16, 1996.
/s/ Daniel L. Korpolinski
---------------------------------------
Daniel L. Korpolinski
President and Chief Executive Officer
/s/ Alan C. Mendelson
---------------------------------------
Alan C. Mendelson
Secretary
6.
<PAGE>
EXHIBIT B
SCHEDULE OF EXCEPTIONS
NONE.
<PAGE>
EXHIBIT C
OPINION OF COMPANY'S COUNSEL
<PAGE>
EXHIBIT C
FORM OF OPINION
May 17, 1996
G.D. Searle & Co.
Box 5110
Chicago, Illinois 60680-5110
RE: SALE AND PURCHASE OF COCENSYS, INC. SERIES B PREFERRED STOCK
Gentlemen:
We have acted as counsel for CoCensys, Inc., a Delaware corporation (the
"Company"), in connection with the issuance and sale of 100,000 shares of the
Company's Series B Preferred Stock to G.D. Searle & Co., a Delaware corporation
("Purchaser"), pursuant to the terms of that certain Stock Purchase Agreement,
dated May 17, 1996, by and between the Company and Purchaser (the "Agreement").
The shares of Company Series B Preferred Stock issued to Purchaser at the
closing (the "Closing") are referred to herein as the "Shares". We are
rendering this opinion pursuant to Section 5.1(b) of the Agreement. Except as
otherwise defined herein, capitalized terms used but not defined herein have the
respective meanings given to them in the Agreement.
In connection with this opinion, we have examined and relied upon the
representations and warranties as to factual matters contained in and made
pursuant to the Agreement by the parties thereto and originals or copies
certified to our satisfaction, of such records, documents, certificates,
opinions, memoranda and other instruments as in our judgment are necessary or
appropriate to enable us to render the opinion expressed below. Where we render
an opinion "to the best of our knowledge" or concerning an item "known to us" or
our opinion otherwise refers to our knowledge, it is based solely upon (i) an
inquiry of attorneys within this firm who perform legal services for the
Company, (ii) receipt of a certificate executed by an officer of the Company
covering such matters, and (iii) such other investigation, if any, that we
specifically set forth herein.
In rendering this opinion, we have assumed: the genuineness and authenticity of
all signatures on original documents; the authenticity of all documents
submitted to us as originals; the conformity to originals of all documents
submitted to us as copies; the accuracy, completeness and authenticity of
certificates of public officials; and the due authorization, execution and
delivery of all documents where authorization, execution and delivery are
prerequisites to the effectiveness of such documents (except the due
authorization, execution and delivery of the Agreement by the Company). We have
also assumed: that all individuals executing and delivering documents had the
legal capacity to so execute and deliver; that you have received all documents
you were to receive under the Agreement; that the Agreement is an obligation
binding upon you; if you are a corporation or other entity, that you have filed
any required California franchise or income tax returns and have paid any
required California franchise or income taxes; and that there are no extrinsic
agreements or understandings
<PAGE>
G.D. Searle & Co.
May 17, 1996
Page 2
among the parties to the Agreement that would modify or interpret the terms
of the Agreement or the respective rights or obligations of the parties
thereunder.
Our opinion is expressed only with respect to the federal laws of the United
States of America and the laws of the State of California and the General
Corporation Law of the State of Delaware. We express no opinion as to whether
the laws of any particular jurisdiction apply, and no opinion to the extent that
the laws of any jurisdiction other than those identified above are applicable to
the subject matter hereof. We are not rendering any opinion as to compliance
with any antifraud law, rule or regulation relating to securities, or to the
sale or issuance thereof.
With regard to our opinion in paragraph 4 below, we have examined and relied
upon a certificate executed by an officer of the Company, to the effect that the
consideration for all outstanding shares of capital stock of the Company was
received by the Company in accordance with the provisions of the applicable
Board of Directors resolutions and any plan or agreement relating to the
issuance of such shares, and we have undertaken no independent verification with
respect thereto.
On the basis of the foregoing, in reliance thereon and with the foregoing
qualifications, we are of the opinion that:
1. The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of Delaware.
2. The Company has the requisite corporate power to own or lease its
property and assets and to conduct its business as it is currently being
conducted and, to the best of our knowledge, is qualified as a foreign
corporation to do business in each jurisdiction in the United States in which
the ownership of its property or the conduct of its business requires such
qualification and where any statutory fines or penalties or any corporate
disability imposed for the failure to qualify would materially or adversely
affect the Company, its assets, financial condition or operations.
3. The Agreement has been duly and validly authorized, executed and
delivered by the Company and constitutes a valid and binding agreement of the
Company enforceable against the Company in accordance with its terms, except as
rights to indemnity under Section 2.5 of the Agreement may be limited by
applicable laws and except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar
laws affecting creditors' rights, and subject to general equity principles and
to limitations on availability of equitable relief, including specific
performance.
<PAGE>
G.D. Searle & Co.
May 17, 1996
Page 3
4. The outstanding shares of the Company have been duly authorized and
validly issued and are fully paid and nonassessable. The Shares have been duly
authorized and, upon issuance and delivery in accordance with the terms of the
Agreement, will be validly issued, fully paid and nonassessable.
5. The issuance and sale of the Shares as contemplated by the Agreement
does not violate any provision of the Company's Amended and Restated Certificate
of Incorporation or Bylaws and does not violate or contravene (a) any
governmental statute, rule or regulation applicable to the Company or (b) any
order, writ, judgment, injunction, decree, determination or award which has been
entered against the Company and of which we are aware, the violation or
contravention of which would materially and adversely affect the Company, its
assets, financial condition or operations.
6. All consents, approvals, authorizations, or orders of, and filings,
registrations, and qualifications with any regulatory authority or governmental
body in the United States required for the issuance and sale of the Shares as
contemplated by the Agreement, have been made or obtained.
7. The issuance and sale of the Shares as contemplated by the Agreement
is exempt from the registration requirements of the Securities Act of 1933, as
amended.
<PAGE>
G.D. Searle & Co.
May 17, 1996
Page 4
This opinion is intended solely for your benefit and is not to be made available
to or be relied upon by any other person, firm, or entity without our prior
written consent.
Very truly yours,
COOLEY GODWARD CASTRO
HUDDLESON & TATUM
By
---------------------------
Alan C. Mendelson
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 15,462
<SECURITIES> 15,047
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 31,160
<PP&E> 5,462
<DEPRECIATION> 2,628
<TOTAL-ASSETS> 34,996
<CURRENT-LIABILITIES> 8,085
<BONDS> 317
0
7,000
<COMMON> 91,015
<OTHER-SE> (71,466)
<TOTAL-LIABILITY-AND-EQUITY> 34,996
<SALES> 0
<TOTAL-REVENUES> 8,560
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58
<INCOME-PRETAX> (6,242)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,242)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,242)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
