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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-20954
COCENSYS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0538836
- ------------------------------- -------------------
(STATE OR OTHER JURISDICTION OF (I.R.S.EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
201 TECHNOLOGY DRIVE, IRVINE, CA 92618
------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(714) 753-6100
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(TITLE OF CLASS)
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 and 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. /X/
The approximate aggregate market value of the Common Stock held by
non-affiliates of the registrant, based upon the closing price of the Common
Stock reported on the Nasdaq National Market on February 26, 1998, was
$53,856,957.
The number of shares of Common Stock outstanding as of February 26,
1998, was 22,892,143.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's definitive proxy statement, to be filed
not later than 120 days after December 31, 1997 in connection with the
registrant's 1998 Annual Meeting of Stockholders, are incorporated by
reference into Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
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 IN THIS SECTION AS WELL AS THOSE UNDER THE
CAPTION, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
OVERVIEW
CoCensys, Inc. ("CoCensys" or the "Company") is a biopharmaceutical
company dedicated to the discovery and development of small molecule drugs to
treat neurological and psychiatric disorders. The Company's product
discovery and development programs are focused on the exploration of novel
receptors and their ligands and inhibitors through three technology
platforms: specific GABAa receptor modulators named Epalons; glutamate
receptor antagonists; and sodium channel blockers.
CoCensys' business strategy is to build a portfolio of products for
disorders of the central nervous system, both through discovery and
development of products utilizing the technical expertise and creativity of
its scientists and through the in-licensing of new technology and product
candidates. This strategy includes developing the Company's technology and
compounds to the maximum value-added point prior to entering into development
agreements to obtain direct funding from co-development partners.
BACKGROUND
In the brain, chemical messengers called neurotransmitters carry signals
between nerve cells (neurons). The signals, which are received by cell
surface receptors, can be either excitatory or inhibitory. Excitatory
signals increase the electrical firing of neurons receiving the signals,
while inhibitory signals decrease firing. The proper functioning of the
brain hinges on a delicate balance between excitatory and inhibitory signals.
Each neurotransmitter has a specific receptor, and the Company is
working to design products that are highly selective for specific receptor
types. Many of the current central nervous system ("CNS") drugs targeting
the receptor for a particular neurotransmitter also affect other receptors
distributed throughout the CNS or throughout the body. This lack of receptor
specificity produces unwanted side effects such as alcohol potentiation
(increased alcohol toxicity), anxiety, sedation, impaired memory and
learning, delirium and hallucinations.
TECHNOLOGY AND PRODUCT DEVELOPMENT
As described below, the Company's product discovery and development
programs are focused on three technology platforms: specific GABAa receptor
modulators named Epalons; glutamate receptor antagonists; and sodium channel
blockers. In January 1998, the Company announced plans to transfer rights to
its technology platform relating to apoptosis (programmed cell death) to
Cytovia, Inc. ("Cytovia") in exchange for equity ownership in and royalties
and certain
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future development rights from Cytovia. The following table sets forth the
status of each of the Company's technologies.
COCENSYS PRODUCTS IN DEVELOPMENT
<TABLE>
<CAPTION>
PRODUCTS INDICATIONS STATUS COMMERCIALIZATION
RIGHTS
- ---------------- ----------------------- ------------------------------- -----------------
<S> <C> <C> <C>
GABAA RECEPTOR
MODULATORS:
- ----------------
CCD 1042 - Migraine Completed Phase IIA clinical CoCensys
Ganaxolone trials in 1997; beginning
(Anti-migraine) evaluation of tablet form and
Phase IIB trials in 1998
CCD 1042 - Epilepsy, including Completed Phase IIA trials for CoCensys
Ganaxolone complex partial seizures infantile spasms and complex
(Anticonvulsant) and infantile spasms partial seizures in adults
CCD 3693 Insomnia Undergoing Phase I clinical CoCensys/
(Sedative/Hypnotic) trials G.D. Searle & Co.
Co 2-6749 Anxiety disorders Pre-clinical development CoCensys/
(Anxiolytic) Wyeth-Ayerst
- -------------------------------------------------------------------------------------------------------
GLUTAMATE
RECEPTOR
ANTAGONISTS:
- ----------------
ACEA 1021 - Stroke Phase I trials completed CoCensys
Licostinel
SSNRAs Cerebral ischemia, Research CoCensys/
Parkinson's disease, Warner-Lambert
epilepsy and chronic
pain
AMPA Antagonists Neurodegenerative Research CoCensys
disorders
- --------------------------------------------------------------------------------------------------------
SODIUM CHANNEL
BLOCKERS:
- ----------------
Co 102862 Neuropathic pain Pre-clinical development CoCensys
APOPTOSIS INHIBITOR
AND SCREENING
TECHNOLOGY:
- -----------------
Apoptosis Degenerative disorders; Research Cytovia,
Inhibitors; a spin-off
Apoptosis drug screening from CoCensys
Screening Cells
</TABLE>
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GABA RECEPTOR ENHANCERS OR EPALONS
The Company's proprietary Epalon compounds are based on the discovery by
CoCensys' founding scientists of a novel neuroreceptor site located on the type
A of the gamma-amino butyric acid ("GABAa") receptor complex, and the
molecules, or ligands, that specifically interact with that receptor site.
GABA (gamma-amino butyric acid) is the predominant inhibitory neurotransmitter
in the brain. Numerous brain activities are affected by the degree to which
GABA opens the chloride channels that allow the calming of neurons. A decrease
in GABA activity allows neurons to remain excited for longer periods, which can
lead to anxiety and, at the extreme, convulsions. A significant increase in
levels of GABA activity can result in sedation and sleep. GABA binds to GABAa
receptor complexes to calm excited neurons. When GABA binds with its receptor,
it opens a chloride channel in the membrane of the stimulated neuron, admitting
chloride ions that calm the excited neuron. Augmentation of the functions of
the GABAa receptor-gated chloride channel may be beneficial in the treatment of
disease states such as epilepsy, migraine, anxiety and insomnia.
The Company's founders were among the first to demonstrate that an
endogenous (naturally occurring) class of related ligands (molecules that
interact specifically with receptors), called Epalons, modulates the activity
of GABA in opening the chloride channel at the GABAa receptor complex. Studies
indicate that Epalons themselves have limited activity on the chloride channel.
However, Epalons modulate the GABAa receptor by enhancing the ability of GABA
to open the chloride channel. Thus, Epalons work only when GABA is present.
The Company's scientists have synthesized over one thousand analogs of
endogenous Epalons. The Company has selected its several development
candidates from this group of synthetic Epalons. The Company's Epalon
development programs target migraine, epilepsy, insomnia and anxiety. The
Company is considering additional targets for Epalons, such as anesthesia. In
the United States, the drugs currently prescribed to treat these conditions
exceeded $1.8 billion in sales in 1996.
CCD 1042 (GANAXOLONE). CCD 1042 is being developed for oral
administration to treat migraine and certain types of epilepsy, including
complex partial seizures and infantile spasm. In November 1993, the Company
filed an investigational new drug applications ("IND") with the United States
Food and Drug Administration (the "FDA") for the treatment of epilepsy. In
June 1994, the FDA granted CCD 1042 Orphan Drug designation for infantile
spasm, a severe form of infantile epilepsy. The Company completed Phase I
clinical trials of CCD 1042 in 163 healthy volunteers, providing preliminary
indications of the drug's safety, tolerability and pharmacokinetics; no
significant adverse effects were observed. The Company commenced Phase II
trials at the end of 1994 with pediatric epilepsy patients and at the end of
1996 for adult epilepsy patients. Further, the Company filed an IND for
migraine in January 1997 and initiated a Phase II trial in migraine patients in
March 1997.
CCD 1042 FOR MIGRAINE. Migraine, a severe and frequently debilitating
headache, is the most common neurological disorder. It is estimated that
approximately 23 million people in the United States suffer some degree of
recurrent migraine headaches. In 1996, the worldwide market for migraine
prescription drugs was approximately $1.1 billion, and it is estimated that the
market will grow to almost $4.0 billion by the year 2000.
The underlying cause of migraine is poorly understood, but the pain has
long been believed to arise from the dilation of blood vessels in a layer of
the brain lining. Recent findings, however,
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suggest that the local inflammation caused by substances released by nerve
endings attached to those blood vessels may exacerbate the pain. Most of the
currently approved drugs as well as those in development for migraine are
targeted at regulating dilation of the blood vessels in the brain lining. In
pre-clinical studies conducted by researchers at Massachusetts General
Hospital, a teaching hospital affiliated with the Harvard Medical School,
naturally occurring Epalons were shown to suppress the inflammation that can
occur in the brain lining. This inflammation is believed to be associated
with the symptoms of migraine. Moreover, these studies showed that CCD 1042
is potently effective in the same animal model of migraine.
Using pre-clinical and clinical data generated on the compound through the
epilepsy program, the Company initiated a Phase II trial for migraine in March
1997. In this trial, 252 pre-menopausal women between the ages of 18 and 55
were given oral doses of placebo or one of four dose levels of ganaxolone.
Preliminary results from the trial, which were released in November 1997,
showed that, although there was no significant difference among the treated and
placebo groups overall, there was a substantial increase in response as a
function of plasma drug level at two and four hours after the patients were
dosed. In the trial, 14 of the 23 patients who achieved plasma drug levels of
80 ng/ml or more achieved pain relief in two hours, while an additional six
patients (for a total of 20 out of 23) achieved pain relief in four hours.
Importantly, no serious adverse events or cardiovascular side effects were
reported in the trial.
In 1998, the Company intends to initiate and complete a dose escalation
study of its newly developed tablet formulation of CCD 1042, and then initiate
a Phase IIB clinical trial in migraine sufferers using the tablet formulation.
After the findings from these studies have been analyzed, the Company hopes to
identify and enter into a collaboration agreement with a partner to fund
further development of CCD 1042.
CCD 1042 FOR EPILEPSY. Epilepsy is a chronic brain disorder that affects
approximately 1 percent of the world population. In 1996, sales in the United
States of drugs to treat epilepsy amounted to approximately $200 million. Many
of these drugs are administered in high doses and have the potential for
significant toxicity. In addition, these drugs also have nonspecific
interactions with receptors throughout the brain, resulting in significant side
effects, including sedation and adverse impacts on learning and memory. Animal
studies conducted by the Company, which included side-by-side comparisons with
existing anti-epileptic drugs, suggest that CCD 1042 has a broad profile of
anti-seizure activity and a favorable side-effect profile. Based upon these
studies, the Company believes that CCD 1042 may have therapeutic potential in a
variety seizure types.
The Company completed its first Phase II clinical trial in France in
pediatric patients with epilepsy refractory to current treatments. In November
1996, the Company announced that the study showed a clinically meaningful
response in this difficult to treat patient population. In 1997, the Company
replicated those results in similar Phase II pediatric trials in France and the
United States.
In 1997, the Company also announced positive results from its Phase II
U.S. trial in adult epilepsy patients, which commenced at the end of 1996. The
trial included 52 epilepsy patients, ages 18 to 65, who had experienced such
debilitating seizures that they were candidates for possible surgical
treatment. Following their pre-surgical evaluations, while they were not
taking any other anti-epileptic medications, the patients were given oral doses
of either ganaxolone or a placebo for up to eight days or until a predefined
seizure frequency or type caused them to drop out of the study. The patients
who received placebo were twice as likely to experience an unacceptable
frequency or
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severity of seizures as those taking ganaxolone. There were two serious
adverse events reported. Both of the events appeared to be related to
withdrawal from the subjects' original drug regimen, and one of the events
occurred in a patient who received placebo.
Future development of CCD 1042 for epilepsy will be determined in
conjunction with the Company's efforts to develop CCD 1042 for migraine and
pursuant to any collaboration agreement that the Company enters into for
development of CCD 1042.
CCD 3693 FOR INSOMNIA. In 1996, sales in the United States of drugs to
treat insomnia amounted to over $400 million. Currently the prescription
market for the treatment of insomnia is largely served by Ambien-Registered
Trademark-, marketed by G.D. Searle & Co. ("Searle"), which works on a specific
sub-type of the benzodiazepine receptor. Ambien is a "Schedule 4" drug,
meaning it may have limited potential to cause physical or psychological
dependence. Current hypnotic drugs may affect short-term memory, cause rebound
insomnia and have "day after" effects. The Company believes that because CCD
3693 has a different mechanism of action, it may have a better side-effect
profile.
In 1996, the Company entered into a collaboration agreement with Searle to
develop CCD 3693 for the treatment of insomnia. CCD 3693 appears to have a
therapeutic profile superior to naturally occurring Epalons in animal models
for insomnia. The companies initiated Phase I clinical studies in Europe in
1997 and are collaborating on an active back-up program to identify additional
compounds for the target indication.
CO 2-6749 FOR ANXIETY. Sales of drugs in the United States to treat
anxiety disorders amounted to over $400 million in 1996. This market is
currently served by a class of drugs called benzodiazepines, such as Valium-
Registered Trademark- and Xanax-Registered Trademark-, and to a lesser extent,
by drugs such as BuSpar-Registered Trademark-. Benzodiazepines cause several
serious side effects, including sedation, potentiation of alcohol toxicity,
cognitive impairment and abuse potential. BuSpar, while exhibiting fewer side
effects than benzodiazepines, requires up to several days of administration
before producing a therapeutic effect. Because of its highly specific and
natural mode of action, the Company believes that its class of anxiolytic
Epalons may prove to have a more favorable ratio between efficacy and side
effects in treating anxiety disorders than existing drug therapies.
In May 1997, CoCensys licensed to American Home Products Corporation,
through its Wyeth-Ayerst Laboratories Division, CoCensys' Epalon compound Co 2-
6749, along with its back-up compounds, for development as anxiolytics. The
program currently is in the pre-clinical development stage.
GLUTAMATE RECEPTOR ANTAGONISTS
The Company's proprietary glutamate receptor antagonist program includes
three classes of compounds. To date, two programs are targeted at the
N-methyl-D-aspartate ("NMDA") receptor complex and a third focuses on the -
amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid ("AMPA") receptor.
Glutamate is the most abundant excitatory amino acid in the central
nervous system and is the principal excitatory neurotransmitter in the brain.
Glutamate triggers three major receptor complexes in the brain: NMDA, AMPA and
Kainate. Glutamate's effect on these receptors enables brain cells to direct
cognition, memory, movement and sensation. However, glutamate can over-
stimulate neurons, which can lead to neuronal death. When over-stimulated
neurons die, they
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release more glutamate, triggering a spreading cascade of glutamate
over-stimulation in other neurons that may continue for hours or even days,
thereby producing significant brain damage in stroke patients or a worsening
condition in individuals with neurodegenerative disorders such as
schizophrenia, epilepsy and Alzheimer's disease.
The NMDA receptor has binding sites for a number of different agents,
including glutamate and glycine. When both of these neurotransmitters bind to
the NMDA receptor complex, a calcium ion channel is opened that permits calcium
ions to enter and stimulate the neuron. A number of compounds that block the
effect of glutamate on the NMDA receptor have been tested by others in animal
models of stroke and head trauma and have been found to be effective in
preventing the ischemic cascade, thereby limiting brain damage. Some of these
drugs block the influx of calcium ions to the neuron by binding to the
phencyclidine ("PCP") binding site located on the interior of the ion channel
associated with the NMDA receptor. While this leads to effective nerve cell
protection, it also produces the psychotic side effects, such as hallucination
and agitation, associated with the drug PCP.
Like the NMDA receptor/ion channel complex, the AMPA receptor responds to
glutamate binding by opening an ion channel. Long-lasting over-activation of
AMPA receptors by glutamate, such as is believed to occur in chronic
neurodegenerative diseases and in global brain ischemia (e.g., after cardiac
arrest), is believed to result in a slow over-stimulation of the neurons by
calcium, resulting in slowly progressing nerve cell degeneration.
Glystasins are compounds that block the glycine binding site on the NMDA
receptor complex. Research indicates that glycine acts as a modulator or
co-transmitter with glutamate on the NMDA receptor, so blocking its action
would lessen the effects of glutamate on neurons. CoCensys has synthesized a
series of proprietary glystasins that are strong antagonists of the glycine
receptor on the NMDA receptor complex.
ACEA 1021(LICOSTINEL) FOR STROKE. Cerebral ischemia is oxygen deprivation
to the brain that may occur when blood flow is interrupted by stroke. There
are approximately 700,000 strokes per year in the United States. It is
estimated that costs associated with strokes exceed $25 billion annually in
healthcare expenses and lost productivity in the United States. The drug
market for this indication is under-served, with few effective therapies for
treating stroke.
The Company is developing its lead glystasin, ACEA 1021, for stroke
suffers. The Company filed an IND in December 1994 for cerebral ischemia
resulting from stroke. CoCensys completed short-term infusion Phase I studies
in healthy volunteers and in stroke patients in 1995 and 1996, respectively.
Results of these studies showed no evidence of serious side effects, including
PCP-like psychosis, agitation or adverse cardiovascular effects. In 1997 the
Company reported that preliminary results from additional safety trials
involving long-term infusion showed crystals of ACEA 1021 in the urine of some
subjects, a potentially dose-limiting side effect. However, the crystal
formation occurred only in subjects with four times the blood plasma level of
ACEA 1021 that was therapeutically effective in animals. Novartis Pharma A.G.
(successor to Ciba-Geigy Ltd.) had entered into a collaboration agreement with
the Company in 1994 to develop ACEA 1021. However, influenced by the results
of the recent trials, Novartis ceased further participation in the development
efforts in April 1997. The Company continues to study ACEA 1021 and is actively
seeking a new development partner for the glystasin program.
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SUBTYPE-SELECTIVE NMDA RECEPTOR ANTAGONISTS ("SSNRAs") are antagonist
drugs that selectively block only one of the NMDA receptor subtypes. Recent
gene cloning studies have identified at least four different NMDA receptor
subtypes, each of which has a distinct anatomical distribution in the brain.
CoCensys has discovered several novel classes of drugs that selectively target
one subtype without producing an effect on other subtypes. In animal models,
the Company's SSNRAs appear to be free of side effects seen with other NMDA
antagonists that block all four subtypes.
SSNRAs effectively cross the blood-brain barrier and have exhibited
efficacy in animal models of cerebral ischemia, Parkinson's Disease, epilepsy
and chronic pain. Some SSNRAs have been shown to have IN VIVO efficacy after
oral administration in an animal model of Parkinson's disease, suggesting oral
bioavailability in this class of compounds. The Company believes SSNRAs are
potential drug candidates for a variety of neurological and psychiatric
diseases, including cerebral ischemia, Parkinson's disease, epilepsy and
chronic pain. The Company has been working with its collaborative partner,
Warner-Lambert Company ("Warner-Lambert"), since 1995 to identify and develop
SSNRA product candidates for a broad range of CNS diseases; in October 1997,
the Company and Warner-Lambert agreed to extend the collaborative research
program through at least the end of 1999.
AMPA RECEPTOR ANTAGONISTS prevent glutamate from activating the AMPA
receptor and are believed to prevent or slow calcium entry into neurons.
Calcium entry into neurons through AMPA receptors is believed to play a role in
nerve cell destruction in chronic neurodegenerative diseases. AMPA receptor
antagonists have shown neuroprotective efficacy in animal models of global
cerebral ischemia (such as may occur following cardiac arrest or near
drowning), epilepsy and pain. They also are believed to have potential as
therapeutic agents in chronic neurodegenerative diseases.
CoCensys scientists have discovered several different chemical classes of
novel AMPA receptor antagonists and are working to develop compounds through
this program that may prove useful in the treatment of diseases such as
epilepsy, schizophrenia, amyotrophic lateral sclerosis (ALS or Lou Gehrig's
disease) and other neurodegenerative disorders.
In October 1997, as part of the extension of the collaboration agreement
between the Company and Warner-Lambert (for development of SSNRAs), the
companies agreed to expand the collaboration to allow the companies to analyze
and consider for collaborative development each company's AMPA modulator
technologies. In January 1998, the parties agreed to narrow the focus of their
collaboration agreement to its original scope of only the SSNRAs in exchange
for payment by the Company of $1 million in common stock in 1999; accordingly,
the Company's AMPA modulator technology remains available for partnership.
SODIUM CHANNEL BLOCKERS
Voltage-gated sodium channels ("VGSCs") are essential for the initiation
and propagation of nerve impulses and therefore play a fundamental role in the
normal function of the nervous system. Under conditions of abnormal neuronal
firing, such as during an epileptic seizure or during spontaneous discharge
from an injured sensory nerve fiber, VGSCs determine the threshold for neuronal
activation and modulate the frequency and duration of repetitive neuronal
firing. Drugs that selectively block the inactivated state of VGSCs (such as
Lamictal-Registered Trademark- and Tegretol-Registered Trademark-) have
therefore proven clinically effective in the treatment of epilepsy and
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neuropathic pain (including pain resulting from inflammation or damage to
peripheral nerve endings).
In 1997, the Company licensed from The University of Saskatchewan, through
its technology transfer company, University of Saskatchewan Technologies, Inc.,
rights to a class of novel, small molecule compounds that block the VGSCs. The
compounds licensed include Co 102862, a structurally-novel VGSC blocker that is
selective for the inactivated state of VGSCs. Co 102862 currently is undergoing
pre-clinical development at the Company for the treatment of neuropathic pain
and epilepsy. In pre-clinical animal models, Co 102862 demonstrates an
anticonvulsant and side-effect profile superior to that of Lamictal-Registered
Trademark- and Tegretol-Registered Trademark-. Both Lamictal-Registered
Trademark- and Tegretol-Registered Trademark- paradoxically lower seizure
threshold at high doses; however, Co 102862 does not. Co 102862 may find
utility in the treatment of non-seizure related disorders such as neuropathic
pain where effective doses are often greater than those that are used in
epilepsy. In 1996, the U.S. market alone for pain drugs was close to $4
billion.
APOPTOSIS INHIBITORS AND SCREENING CELLS
Cell death can be a natural physiological process that occurs during
embryonic development as well as during remodeling of certain adult tissues.
This natural death of cells, called apoptosis or programmed cell death, occurs
by a discrete series of molecular events. Apoptosis also can be triggered
inappropriately in many diseases (including stroke, heart disease and certain
neurodegenerative disorders). This pathological form of apoptosis is thought
to play an important role in the loss of cells that occurs in these diseases.
CoCensys discovered novel small molecules that may inhibit apoptosis.
In addition, the Company discovered certain compounds that permeate living
cells and fluoresce when apoptosis is triggered. Although promising for use
in a variety of disorders, the Company determined that the technology was
outside of CoCensys' focus on development of therapeutics for disorders of
the central nervous system. Accordingly, in January 1998, the Company
announced the formation of Cytovia, Inc., as a technology spin-off to
commercialize the apoptosis inhibitor and screening cell technology.
Cytovia will be led by Eckard Weber, M.D., former head of research and
discovery for CoCensys and a current member of CoCensys' Board of Directors; in
addition, eleven other CoCensys employees are joining Cytovia. CoCensys will
retain an equity stake in Cytovia and a seat on Cytovia's Board of Directors
(to be held initially by CoCensys' President and Chief Executive Officer, F.
Richard Nichol, Ph.D.). In addition CoCensys will retain the right to enter
into contracts on favorable terms with Cytovia to screen CoCensys' neuroscience-
related therapeutic compounds and retained a right of first refusal for four
years to develop for central nervous systems disorders any compound discovered
by Cytovia. Dr. Weber remains on as a CoCensys Board member and will continue
as a leader and advisor to CoCensys on selected scientific development
projects. Cytovia currently is in negotiations to obtain venture financing to
fund its initial operations. While there are no assurances that Cytovia will
obtain such financing, Cytovia anticipates completing the financing by the end
of the first quarter of 1998.
SALES AND MARKETING
In 1994, the Company established its Pharmaceutical Sales and Marketing
Division to co-promote other companies' commercialized drugs as part of the
Company's strategy to generate non-
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equity funding. This Division focused on the neurological and psychiatric
markets, in part to establish a presence in CoCensys' target markets in
advance of CoCensys receiving FDA approval for marketing of any of its
compounds. In October 1997, in an effort to better focus the Company's
resources and energies on its core competency of discovering and developing
therapies for brain and central nervous system disorders, the Company sold
the Division to Watson Pharmaceuticals, Inc.
The transaction included the sale of the Division's operating and other
assets, assignment of co-promotion agreements (including the Company's
Promotion Agreement with Somerset Pharmaceuticals for promotion of Eldepryl)
and grant of the right to hire approximately 70 sales and marketing personnel
employed by the Division. The transaction was valued at approximately $9
million (of which $8 million was paid at or near closing, with up to an
additional $1 million due if Watson is able to hire and retain, as of specified
dates, certain percentages of the employees of the Division). In the future,
CoCensys has the potential opportunity, through collaborative relationships
with Watson, to leverage the sales force and Watson's manufacturing capacity as
CoCensys products come to market. The Company currently does not employ any
sales personnel.
COLLABORATIVE ARRANGEMENTS
WARNER-LAMBERT
In October 1995, the Company entered into a relationship with
Warner-Lambert Company ("Warner-Lambert"), and its Parke-Davis division, to
develop and market therapeutic drugs for the treatment of CNS disorders. This
two-part arrangement consisted of the Warner Collaboration Agreement, for the
worldwide development and commercialization of SSNRAs, and the Parke-Davis
Promotion Agreement, pursuant to which the Company promoted Parke-Davis' drug
for the treatment of Alzheimer's disease, Cognex-Registered Trademark-. The
Parke-Davis Promotion Agreement was revised in January 1997 and terminated in
June 1997. The Warner Collaboration Agreement was revised and extended in
October 1997.
Under the Warner Collaboration Agreement, the parties are conducting a
research program directed toward the identification of SSNRAs as drug
development candidates. The parties are obligated to devote the time of
specified numbers of scientists under the research program and to fund
specified activities. Warner is obligated to pay for all costs to develop any
development candidates arising from the Agreement, subject to CoCensys' right
to re-engage in the development by funding a percentage of the development
costs. Warner is also obligated to pay for all costs to promote any product
developed under the Warner Collaboration Agreement, subject to CoCensys' right
to co-promote in the United States (including sharing of costs to promote) any
product for which CoCensys re-engaged development rights. CoCensys will
receive royalties on sales of any products developed under the Warner
Collaboration Agreement, at rates based in part upon whether CoCensys co-
developed and co-promoted such product. In addition, upon achievement of
certain clinical development and regulatory milestones, Warner will make
nonrefundable milestone payments to CoCensys.
Either party may terminate its participation in the Warner Collaboration
Agreement voluntarily. In the event of a termination by either party during
the research period, the terminating party would forfeit all rights and
obligations to co-develop and co-promote any compounds arising thereunder,
subject to a specified royalty payment to the terminating party, and would be
precluded from conducting additional research in the SSNRA field for a fixed
period of time. After the
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research period, each party may terminate on a product-by-product basis. In
the event of such termination, the terminating party would forfeit all rights
and obligations to co-develop and co-promote such product, subject to a
specified royalty payment to the terminating party. There can be no assurance
that CoCensys will have the substantial resources needed to fulfill its
research, development and commercialization obligations under the Warner
Collaboration Agreement. If CoCensys is unable to fulfill such obligations,
it may be required to terminate early under the Collaboration Agreement and
forfeit its rights thereunder; in such case, CoCensys would be entitled to
royalties on future product sales.
As discussed above, as part of the extension of the Warner Collaboration
Agreement in October 1997, the companies agreed to expand the collaboration to
allow the companies to analyze and consider for collaborative development each
company's AMPA modulator technologies. In January 1998, the parties agreed to
return the focus of their collaboration agreement solely to SSNRAs. Each party
retained all rights to its respective AMPA modulator technology.
Pursuant to the Warner Collaboration Agreement, Warner-Lambert purchased
$2 million of CoCensys common stock in October 1995 and $2 million of CoCensys
common stock in March 1997. In addition, as part of the October 1997 extension
of the Warner Collaboration Agreement, Warner-Lambert purchased 100,000 shares
of the Company's Series D Convertible Preferred Stock for $7 million. The
preferred stock is convertible to common stock on October 13, 2001, or earlier
at the Company's discretion. The number of shares issuable upon conversion at
the election of CoCensys will equal $7 million divided by the greater of the
then current common stock price or the common stock price in effect at the time
of the original issuance of the Preferred Stock; the number of shares issuable
upon conversion on October 13, 2001 will equal $7 million divided by the then
current common stock price (in each case subject to a limit on the maximum
number of shares that may be issued). In addition, as part of removal of the
AMPA modulator technology from the Warner Collaboration Agreement, the Company
is obligated to issue to Warner-Lambert $1 million in CoCensys common stock in
January 1999, based on the then current stock price.
G.D. SEARLE & CO.
In May 1996, the Company entered into an agreement with G.D. Searle & Co.
("Searle") to jointly develop and commercialize the Company's lead compound for
the treatment of insomnia along with its back-up compounds. Under the
agreement, both companies are obligated to pay a portion of the development
costs of CCD 3693 and its back-up compounds for the U.S. market. In addition,
the Company will receive nonrefundable milestone payments upon the occurrence
of certain events in the development of the compound. The parties will co-
promote in the United States CCD 3693 or its back-up compound and share any
profits, proportionally. Searle has the exclusive right to develop, register
and market the compound in the rest of the world, subject to specified royalty
payments.
Pursuant to the agreement, Searle paid a $3 million license fee and
purchased 100,000 shares of the Company's Series B Convertible Preferred Stock
for $7 million. The preferred stock is convertible to common stock on May 17,
1998, or earlier at the Company's discretion. The number of shares issuable
upon conversion will equal $7 million divided by the then current common stock
price (subject to certain minimum and maximum limits).
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WYETH-AYERST
In May 1997, the Company entered into an agreement with American Home
Products Corporation ("AHP"), through its Wyeth-Ayerst Laboratories Division
("Wyeth-Ayerst"), to develop and commercialize the Company's lead compound for
the treatment of anxiety along with its back-up compounds. Under the
agreement, Wyeth-Ayerst will fund all development of Co 2-6749, CoCensys' lead
anxiolytic compound, and back-up compounds. In addition, Wyeth-Ayerst will
support CoCensys' research to identify back-up compounds for up to three years
at $3 million per year; however, if Co 2-6749 fails to meet certain criteria,
and the back-up program fails to produce a back-up compound that meets other
certain criteria, Wyeth-Ayerst has the right to terminate the back-up program
and require CoCensys to reimburse to Wyeth-Ayerst a portion of the funds paid
by Wyeth-Ayerst to CoCensys to fund the back-up program.
Wyeth-Ayerst is obligated to pay to CoCensys certain nonrefundable
milestone payments under the Wyeth-Ayerst Agreement upon the achievement of key
development events and the outcome of product labeling. CoCensys has the right
to co-promote in the United States Co 2-6749 or a replacement compound and
share any profits proportionally. Wyeth-Ayerst has the exclusive right to
develop, register and market the compound in the rest of the world, subject to
specified royalty payments.
In addition to an up front licensing fee of $5 million, AHP purchased
100,000 shares of the Company's Series C Convertible Preferred Stock for $5
million. The preferred stock is convertible to common stock at the election of
AHP at any time after May 11, 1999. The number of shares issuable upon
conversion will equal $5 million divided by a conversion price based, in part,
on the then current common stock price, subject to certain minimum and maximum
prices.
MANUFACTURING
The Company is currently relying on third-party manufacturers to produce
its compounds for pre-clinical studies and clinical trials. The Company
expects to continue in the foreseeable future to rely on such third-party
manufacturers for adequate supply of products needed for subsequent clinical
trials and, ultimately, for commercial distribution. However, there can be no
assurance that the Company will be successful in arranging for adequate
supplies of its products on acceptable terms, or at all.
The Company believes that all of its compounds will be produced using
traditional pharmaceutical synthesis. The Company also believes that there is
currently adequate worldwide capacity for the production of its compounds and
that the Company will be able to establish commercially reasonable arrangements
for the long-term supply of its products for clinical trial purposes and for
commercialization, if such compounds receive required regulatory approvals.
Generally, the equipment required for the manufacture of the Company's
compounds is commercially available and is widely used in pharmaceutical
industry operations.
PATENTS, PROPRIETARY RIGHTS AND LICENSES
The Company's success will depend in part on its ability to obtain
patents, maintain trade secrets and operate without infringing on the
proprietary rights of others, both in the United States and in other countries.
The Company's policy is to file patent applications to protect technology,
inventions and improvements that are important to the development of its
business. The Company
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also relies upon trade secrets, know-how, continuing technological
innovations and licensing opportunities to develop and maintain its
competitive position.
The Company files and prosecutes patent applications both on its own
behalf and in connection with technology licensed from others. CoCensys has 19
issued patents with expiration dates ranging from June 9, 2009 to September 29,
2015; in addition, another 23 filed patents are pending. Certain of the
pending, issued and allowed patents are owned by the University of Southern
California and the Rockefeller University, the University of California, or the
University of Oregon and have been exclusively licensed to CoCensys. In
December 1996 (as amended December 1997), CoCensys received an exclusive
license to a patent application filed by Massachusetts General Hospital for the
use of GABA, receptor modulators, including neuroactive steroids (Epalons), to
treat migraine. In June 1997, the Company licensed from The University of
Saskatchewan, through its technology transfer company, University of
Saskatchewan Technologies, Inc., rights to a class of novel, small molecule
sodium channel blockers which the Company is developing to treat chronic pain
and epilepsy. CoCensys has made related patent filings in selected foreign
countries, and intends to file additional domestic and foreign applications as
appropriate. The Company's issued and allowed patents relate to certain
aspects of the Company's Epalon and glutamate receptor antagonist compounds.
The Company's patent applications include claims for processes, methods and
therapeutic uses, as well as composition of matter claims for compounds which
the Company believes are not naturally occurring or previously known. There
can be no assurance that the Company will develop additional products or
processes that are patentable, that patents will issue from any more of these
applications, or that claims allowed will be sufficient to protect the
Company's technology.
The patent positions of pharmaceutical and biotechnology firms, including
the Company, are uncertain and involve complex legal and factual questions. In
addition, the coverage claimed in a patent application can be denied or
significantly reduced before the patent is issued, and challenged, circumvented
or invalidated after issuance. Consequently, the Company does not know whether
any more of its applications will result in the issuance of patents or, if any
patents are issued, whether they will provide significant proprietary
protection or will be circumvented or invalidated. Since patent applications
in the United States are maintained in secrecy until patents issue, and since
publication of discoveries in the scientific or patent literature often lags
behind actual discoveries, the Company cannot be certain that it was the first
to discover subject matter covered by its patent applications or patents or
that it was the first to file patent applications for such inventions.
Moreover, the Company may have to participate in interference proceedings
declared by the United States Patent and Trademark Office or litigation to
determine priority of invention, which could result in substantial cost to the
Company, even if the eventual outcome is favorable to the Company.
The Company is aware of a patent application containing claims which, if
covered by a valid, issued patent, could block the use of the Company's
glutamate receptor antagonists as adjunct therapy in an indication for which
the Company is currently conducting research. The Company is also aware of a
patent that has issued that contains claims which may, if valid, block the
Company from selling certain compounds for one particular indication not
currently being pursued by the Company. In the event the Company proceeds with
an interference or interferences, there can be no assurance that the Company
will be successful. There can be no assurance that the Company's patents, if
issued, would be held valid and infringed by a court of competent jurisdiction.
An adverse outcome with regard to a third-party claim could subject the Company
to significant
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liabilities to third parties, require disputed rights to be licensed from
third parties or require the Company to cease using such technology.
A number of pharmaceutical companies, biotechnology companies,
universities and research institutions have filed patent applications or
received patents in the fields in which the Company conducts research and
development, which patent applications and patents may conflict in certain
respects with claims made under the Company's applications. Such conflict
could result in a significant reduction of the coverage of the Company's
patents, if issued. In addition, if patents are issued to other companies
which contain competitive or conflicting claims and such claims are ultimately
determined to be valid, the Company may be required to obtain licenses to these
patents or to develop or obtain alternative technology. If any licenses are
required, there can be no assurance that the Company will be able to obtain any
such licenses on commercially favorable terms, if at all. The Company's breach
of an existing license or failure to obtain a license to any technology that it
may require to commercialize its products may have a material adverse impact on
the Company.
The Company also relies upon trade secret protection for its confidential
and proprietary information. Third parties may independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets or disclose such technology, in
which case the Company may not be able to protect its trade secret rights.
The Company requires its employees, consultants, members of the Clinical
Advisory Boards, outside scientific collaborators and sponsored researchers and
other consultants and advisors to execute confidentiality agreements upon the
commencement of employment or consulting relationships with the Company. These
agreements provide that all confidential information developed or made known to
the individual during the course of the individual's relationship with the
Company is to be kept confidential and not disclosed to third parties except in
specific circumstances. In the case of employees, the agreements provide that
all inventions conceived by the individual as a result of work performed for
the Company or relating to the Company's business shall be the exclusive
property of the Company. These agreements may not provide meaningful
protection or adequate remedies for the Company's trade secrets in the event of
unauthorized use or disclosure of such information.
GOVERNMENT REGULATION
The Company's research, pre-clinical development and clinical trials, as
well as the manufacturing and marketing of its potential products, are subject
to extensive regulation by governmental authorities in the United States and
other countries. The Company currently is conducting clinical trials in the
United States and Europe. Clinical trials and the marketing and manufacturing
of the Company's potential products will be subject to the rigorous testing and
approval processes of the FDA and the independent processes of foreign
regulatory authorities. The process of obtaining FDA and other required
regulatory approvals is lengthy and expensive. The Company has received
approvals in the past to conduct clinical trials for certain of its potential
products and to manufacture the products for such trials. There can be no
assurance that the Company will be able to obtain future approvals for clinical
testing or for the manufacturing and marketing of products. Furthermore, there
can be no assurance that any approvals will be granted on a timely basis. Data
obtained from pre-clinical and clinical trials are subject to varying
interpretations which can delay, limit or prevent FDA approval. Similar delays
may be encountered in foreign countries. Delays and costs in obtaining
regulatory approvals would
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adversely affect the marketing of products developed by the Company and the
Company's ability to receive product revenues or royalties.
If regulatory approval of a drug is obtained, such approval may involve
limitations and restrictions on the drug's use. In addition, any marketed drug
and its manufacturer are subject to continual review and any discovery of
previously unrecognized problems with a product or manufacturer could result in
suspension or limitation of approvals or recall and withdrawal of the product
from the market. Failure to comply with the applicable regulatory requirements
can, among other things, result in fines, suspensions of regulatory approvals,
product recalls, seizure of products, operating restrictions and criminal
prosecution. Furthermore, additional government regulation may be established
that could prevent or delay regulatory approval of the Company's potential
products. To market its products abroad, the Company also must satisfy foreign
regulatory requirements, implemented by foreign health authorities, governing
human clinical trials and marketing approval. The foreign regulatory approval
process includes all of the risks associated with FDA approval set forth above.
There is no assurance that a foreign regulatory body will accept the data
developed by the Company for any of its products.
Under the Orphan Drug Act, the FDA may designate a product as an orphan
drug, or one that addresses a "rare disease or condition" affecting populations
of fewer than 200,000 individuals in the United States. An orphan drug may
also treat victims of a disease numbering more than 200,000 if the sponsor
establishes that it does not realistically anticipate its product sales will be
sufficient to recover its costs. If a product is designated an orphan drug,
then the sponsor is entitled to receive certain incentives to undertake the
development and marketing of the product. In addition, the sponsor that
obtains the first marketing approval for a designated orphan drug for a given
rare disease is eligible to receive marketing exclusivity for a period of seven
years. CCD 1042 has been granted orphan drug designation for the treatment of
infantile spasms and, where appropriate, the Company may apply for orphan drug
designation for other indications and/or other drug products. There is no
assurance that CoCensys would be the first sponsor to obtain marketing approval
for a drug for infantile spasms or that the FDA would grant orphan drug
designation or marketing exclusivity for any future indications or products.
The Company is not currently marketing or promoting any of its own drugs
in the United States or elsewhere. At such time that the Company does market
and promote drugs, the Company will be responsible for complying with FDA's
regulations governing labeling and promotional activities. Generally,
labeling, advertising and other promotional materials are prepared by the
manufacturer, and the manufacturer is responsible for regulatory compliance.
In addition, as a distributor of drugs, CoCensys could be liable for regulatory
violations if it distributes a drug in interstate commerce in the United States
that is misbranded or adulterated. In marketing products, CoCensys and its
employees are responsible for any oral or written representation that CoCensys
personnel may make or endorse which cause any such products to be misbranded.
The Company also would be subject to penalties for adulteration or misbranding
that results from acts or omissions by CoCensys or its employees or agents.
Moreover, even if CoCensys is not subject to other penalties, adulterated or
misbranded drugs in CoCensys' possession may be seized and condemned,
regardless of whether the Company is responsible for the adulteration or
misbranding. Such products may also be the subject of a voluntary recall, and
CoCensys could be enjoined from further distribution of the products.
To market its products abroad, the Company also must satisfy foreign
regulatory requirements, implemented by foreign health authorities, governing
human clinical trials and
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marketing approval. Manufacturers of biotechnology products and certain high
technology products must submit an application to a central EU agency - the
European Medicines Evaluation Agency ("EMEA"). Approval by the EMEA will give
the manufacturer access to the markets of all EU member states.
Manufacturers of medicinal products other than those handled by the EMEA must
utilize a "mutual recognition" procedure. Under this procedure, an
application is made first to the medicines agency of any one member state,
after which the approval gained in that state is used as the basis for a
request to the other member states to recognize the first approval and grant
a parallel authorization on the strength of that initial approval. Approvals
in the other member states are to follow as a matter of course, unless there
is an objection on the grounds of a safety or efficacy problem. In the event
that such an objection is made, the issue is submitted to the EU's Committee
on Proprietary Medicinal Products ("CPMP") for resolution. The foreign
regulatory approval process includes all of the risks associated with FDA
approval set forth above. There is no assurance that the EMEA or the
national regulatory agency in any member state will accept the data developed
by the Company for any of its drug products and grant a marketing
authorization.
In both domestic and foreign markets, sales of the Company's products, if
any, will depend, in part, on the availability of reimbursement from third-
party payors, such as government health administration authorities, private
health insurers and other organizations. Third-party payors are increasingly
challenging the price and cost-effectiveness of medical products and services.
Significant uncertainty exists as to the reimbursement status of newly approved
health care products. There can be no assurance that the Company's products
will be considered cost effective or that adequate third-party reimbursement
will be available to enable CoCensys to maintain price levels sufficient to
realize an appropriate return on its investment in product development. In
certain foreign markets, the Company's products may be subject to
governmentally mandated prices. If adequate reimbursement is not provided by
governments and third-party payors for the Company's potential products or if
adverse pricing is mandated by foreign governments, the Company's business,
financial condition and results of operations would be materially adversely
affected. Legislation and regulations affecting the formula for pricing
pharmaceuticals may change before the Company's products are approved for
marketing.
COMPETITION
Competition for therapeutic products that address brain disorders is
intense and expected to increase. The Company's most significant competitors
are fully integrated pharmaceutical companies and more established
biotechnology companies. Smaller companies may also prove to be significant
competitors, particularly through collaborative arrangements with large
pharmaceutical companies. In addition, the Company faces competition from
academic institutions, governmental agencies, and other public and private
research organizations that conduct research, seek patent protection, and
establish collaborative arrangements for product and clinical development and
marketing. Furthermore, these companies and institutions compete with the
Company in recruiting and retaining highly qualified scientific and management
personnel.
Many of the Company's competitors have substantially greater financial,
technical and human resources than the Company and have significant products
approved or in development. In addition, many of these competitors have
significantly greater experience than the Company in undertaking pre-clinical
testing and human clinical trials of new pharmaceutical products and obtaining
FDA approval for products. Furthermore, if the Company is permitted to
commence commercial sales of products, it will also be competing with respect
to manufacturing efficiency and marketing capabilities.
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Any product that the Company succeeds in developing and for which it gains
regulatory approval must then compete for market acceptance and market share.
For certain of the Company's potential products, an important competitive
factor will be the timing of market introduction. Accordingly, the Company
expects that important competitive factors will be the relative speed with
which companies can develop products, complete the clinical testing and
approval processes and supply commercial quantities of the product to the
market. With respect to clinical testing, competition may delay progress by
limiting the number of clinical investigators and patients available to test
the Company's potential products.
In addition to the above factors, competition is based on product
efficacy, safety, the timing and scope of regulatory approvals, availability of
supply, marketing and sales capability, reimbursement coverage, price and
patent position.
HUMAN RESOURCES
As of February 27, 1998, the Company had 89 full-time employees and one
part time employee, of which 58 are directly involved in research and
development programs and 32 provide general and administrative support. The
Company's staff includes 30 employees with doctoral degrees and three medical
doctors. The Company believes its employee relations are good.
BUSINESS RISKS
THE COMPANY'S BUSINESS IS SUBJECT TO THE FOLLOWING RISKS IN ADDITION TO
THOSE DISCUSSED ABOVE AND ELSEWHERE IN THIS REPORT.
EARLY STAGE OF DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY. CoCensys is at an
early stage of development. All of its products are in research and
development, and no revenues have been generated from sales of its products.
The physiology of brain disorders is highly complex, and the causes of these
disorders are not fully known. All of the compounds currently under
development by the Company will require significant additional research and
development, including pre-clinical testing and extensive clinical testing,
prior to submission of any regulatory application for commercial use. There
can be no assurance that the Company's research or product development efforts
will be successfully completed, that the compounds currently under development
will be safe and efficacious, that required regulatory approvals can be
obtained, that products can be manufactured at acceptable cost and with
appropriate quality or that any approved products can be successfully marketed
or will be accepted by patients, health care providers and third-party payors.
UNCERTAINTY OF PRODUCT DEVELOPMENT AND CLINICAL TRIALS. Before obtaining
regulatory approvals for the commercial sale of any of its products under
development, the Company must demonstrate, through pre-clinical studies and
clinical trials, that the product is safe and efficacious for use in each
target indication. None of the Company's products has completed testing for
efficacy in humans and there can be no assurance that results of animal testing
will be replicated in human clinical trials. There can be no assurance that
the Company's clinical trials will be completed, that they will demonstrate the
safety and efficacy of any products or that they will result in marketable
products. There can be no assurance that the Company will not encounter
problems with clinical trials that will cause the Company to delay or suspend
clinical trials. The Company's lead compounds, and all of the Company's
products in research or development, may prove to have undesirable and
unintended side effects or other characteristics that may prevent or limit
their
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commercial use. For example, as discussed above, Novartis Pharma A.G.
(successor to Ciba-Geigy Ltd.) had entered into a collaboration agreement
with the Company in 1994 to develop ACEA 1021. However, influenced by the
results of the recent trials, Novartis ceased further participation in the
development efforts in April 1997. In addition, there can be no assurance
that any of the Company's products will ultimately obtain FDA or foreign
marketing approval for any indication or that an approved compound will be
capable of being produced in commercial quantities at a reasonable cost and
successfully marketed. Products, if any, resulting from the Company's
research and development programs are not expected to be commercially
available for several years.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. The Company's
operations to date have consumed substantial amounts of cash. The negative
cash flow from operations is expected to continue and to accelerate in the
foreseeable future. The development of the Company's products will continue to
require a commitment of substantial funds to conduct the research, pre-clinical
and clinical testing necessary to bring such products to market and to
establish manufacturing and expand marketing capabilities. The Company's
future capital requirements will depend on many factors, including the progress
of the Company's research and development programs, the scope and results of
pre-clinical testing and clinical trials, the time and costs involved in
obtaining regulatory approvals, the rate of technological advances,
determinations as to the commercial potential of the Company's products under
development, the status of competitive products, the establishment of sales and
marketing capabilities, the establishment of third-party manufacturing
arrangements and the establishment of additional collaborative relationships.
Currently, the Company anticipates that its existing capital resources,
including funding expected to be available through current partner
collaborations, will be adequate to satisfy its capital needs for at least the
next 12 months. The Company will need to raise substantial additional capital
to fund its operations, continue development of its products and bring products
to market. The Company intends to seek required additional funding through
collaborative arrangements and through public or private equity or debt
financings. There can be no assurance that additional financing will be
available on acceptable terms or at all.
COLLABORATIVE ARRANGEMENTS. The Company is party to collaboration
agreements with three corporate partners (each, a "Collaboration Agreement").
The Company has entered into Collaboration Agreements with Warner-Lambert for
research and development of subtype-selective NMDA receptor antagonists, Searle
for the development of CCD 3693 for insomnia and Wyeth-Ayerst for the
development of Co 2-6749 for anxiety. There can be no assurance that CoCensys
will have the substantial resources needed to fulfill its research, development
and commercialization obligations under the Collaboration Agreements. If
CoCensys is unable to fulfill such obligations, it may be required to terminate
early under the agreements and forfeit substantial rights thereunder.
The Collaboration Agreement with Searle provides that if Searle terminates
voluntarily, it will lose all development and marketing rights to CCD 3693.
However, if Searle were to terminate after the filing of an IND for CCD 3693,
the Company will be required to reimburse Searle for any development costs
borne by Searle out of proceeds from any sales of CCD 3693. If CoCensys were
to terminate, Searle would be granted exclusive worldwide rights in CCD 3693,
subject to a specified royalty payment to CoCensys.
The Collaboration Agreement with Warner-Lambert allows either party to
terminate voluntarily its participation in the collaboration. If either party
terminates the Collaboration Agreement during the research period, the
terminating party would forfeit all rights and obligations
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to co-develop and co-promote any compounds arising thereunder, subject to a
specified royalty payment to the terminating party, and would be precluded
from conducting additional research in the SSNRA field for a fixed period of
time. After the research period, each party may terminate on a
product-by-product basis, in which case the terminating party would forfeit
all rights and obligations to co-develop and co-promote such product, subject
to a specified royalty payment to the terminating party.
The Collaboration Agreement with Wyeth-Ayerst provides that if Co 2-6749
fails to meet certain criteria, and the back-up program fails to produce a back-
up compound that meets other certain criteria, Wyeth-Ayerst has the right to
terminate the back-up program and require CoCensys to reimburse to Wyeth-Ayerst
a portion of the funds paid by Wyeth-Ayerst to CoCensys to fund the back-up
program.
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT. The Company has
experienced significant operating losses since its inception. As of December
31, 1997, the Company had an accumulated deficit of $99.0 million. The Company
will incur significant additional operating losses over the next several years.
In addition, if the Company is successful in moving compounds into large-scale
Phase II and Phase III clinical trials, it will incur substantial increases in
research and development expenses, which in turn may cause cumulative losses to
increase substantially.
DEPENDENCE ON FUTURE COLLABORATIONS; DEPENDENCE ON THIRD PARTIES. The
Company's strategy for the development, clinical testing, manufacturing and
commercialization of its products includes entering into various collaborations
with corporate partners, licensors, licensees and others. There can be no
assurance that the Company will be able to negotiate further collaborative
arrangements on acceptable terms, if at all, or that current or future
collaborative arrangements will be successful. To the extent that the Company
is not able to establish such arrangements, it would experience increased
capital requirements to undertake such activities at its own expense. In
addition, the Company may encounter significant delays in introducing its
products into certain markets or find that the development, manufacture or sale
of its products in such markets is adversely affected by the absence of such
collaborative agreements. To the extent the Company enters into co-promotion
or other licensing arrangements, revenues received by the Company will depend
upon the efforts of third parties, and there can be no assurance that such
parties will devote such efforts or that such efforts will be successful.
GOVERNMENT REGULATION; NO ASSURANCE OF PRODUCT APPROVALS. The production
and marketing of the Company's potential products and its ongoing research and
development activities are subject to extensive regulation by governmental
authorities in the United States and other countries. Prior to marketing in
the United States, any drug developed by the Company must undergo rigorous pre-
clinical (animal) and clinical (human) testing and an extensive regulatory
approval process implemented by the FDA under the United States Food, Drug and
Cosmetic Act. Satisfaction of such regulatory requirements, which includes
satisfying the FDA that the product is both safe and effective, typically takes
several years or more depending upon the type, complexity and novelty of the
product and requires the expenditure of substantial resources. Clinical trials
are rigorously regulated. There can be no assurance that the Company will not
encounter problems in clinical trials that will cause the Company or the FDA to
delay or suspend clinical trials.
If regulatory approval of a product is granted, such approval will be
limited to those disease states and conditions for which the product is useful,
as demonstrated through clinical studies. Furthermore, approval may entail
ongoing requirements for post-marketing studies. Even if such
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regulatory approval is obtained, a marketed product, its manufacturer and its
manufacturing facilities are subject to continual review and periodic
inspections. The regulatory standards for manufacturing are currently being
applied stringently by the FDA. Discovery of previously unknown problems
with a product, manufacturer or facility may result in restrictions on such
product or manufacturer, including withdrawal of the product from the market.
The Company is also responsible for complying with the FDA's regulations
governing labeling and promotional activities and could be liable for
regulatory violations if it distributes a drug in interstate commerce that is
misbranded or adulterated. In order to market its products abroad, the
Company also must comply with foreign regulatory requirements, implemented by
foreign health authorities, governing the design and process includes all of
the risks associated with FDA approval set forth above, and may introduce
additional requirements or risks. There is no assurance that a foreign
regulatory body will accept the data developed by the Company for any of its
products and approval by the FDA does not ensure approval in other countries.
UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS. The
Company's success will depend, in part, on its ability to obtain patents,
maintain trade secrets and operate without infringing on the propriety rights
of others, both in the United States and other countries. No assurance can be
given that patents will issue from any pending applications, or that, if
patents do issue, the claims allowed will be sufficiently broad to protect the
Company's technology. In addition, no assurance can be given that any patents
issued to or licensed by the Company will not be challenged, invalidated,
infringed or circumvented, or that the rights granted thereunder will provide
competitive advantages to the Company. In addition, the Company may be
required to obtain licenses to patents or other proprietary rights of others.
No assurance can be given that any required licenses can be obtained at a
reasonable cost, if at all. If the required licenses cannot be obtained, the
Company could generate additional costs as it attempts to design around such
patents; find that the development, manufacture or sale of products requiring
such licenses is foreclosed; or incur substantial costs in defending patent
infringement claims. The Company also protects its proprietary technology by
confidentiality agreements with its collaborative partners, employees and
consultants and reliance on secrets and know-how. There can be no assurance
that such confidentiality agreements will not be breached, that the Company
will have adequate remedies for any breach, or that the Company's trade secrets
will not otherwise become known or be independently discovered by competitors.
COMPETITION; RAPID TECHNOLOGICAL CHANGE. CoCensys is engaged in business
in a rapidly changing field. Competition from fully integrated pharmaceutical
companies, including the Company's collaborative partners, and more established
biotechnology companies is expected to increase. Most of these companies have
significantly greater financial resources and expertise than the Company in
research and development, manufacturing, pre-clinical and clinical testing,
obtaining regulatory approvals, marketing and distribution. Smaller companies
may also prove to be significant competitors, particularly through
collaborative arrangements with large pharmaceutical companies. Many of these
competitors have significant CNS products approved or in development and
operate large, well-funded CNS research and development programs. Academic
institutions, governmental agencies and other public and private research
organizations also conduct research, seek patent protection and establish
collaborative arrangements for product and clinical development and marketing.
In addition, these companies and institutions compete with the Company in
recruiting and retaining highly qualified scientific and management personnel.
Further, CoCensys faces competition based on product efficacy, safety, the
timing and scope of regulatory approvals, availability of supply, marketing and
sales capability, reimbursement coverage, price and patent position. There can
be no assurance that the Company's competitors will
19
<PAGE>
not develop more effective or more affordable products, or achieve earlier
patent protection or product commercialization than the Company.
NEED TO ATTRACT AND RETAIN KEY EMPLOYEES AND CONSULTANTS. The Company is
highly dependent on the principal members of its scientific and management
staff, the loss of whose services might significantly delay the achievement of
development objectives. In addition, the Company relies on consultants and
advisors to assist the Company in formulating its research and development
strategy. Attracting and retaining qualified personnel, consultants and
advisors is critical to the Company's success. In order to pursue its product
development and marketing plans, the Company will be required to hire
additional qualified scientific personnel to perform research and development,
as well as personnel with expertise in clinical testing, government regulation,
manufacturing and marketing. Growth in product development and marketing is
also expected to require the addition of management personnel and the
development of additional expertise by existing management personnel. The
Company faces competition in hiring qualified individuals from numerous
pharmaceutical and biotechnology companies, universities and other research
institutions. There can be no assurance that the Company will be able to
attract and retain such individuals on acceptable terms or at all.
LACK OF MANUFACTURING EXPERIENCE; RELIANCE ON CONTRACT MANUFACTURERS. The
Company has no manufacturing facilities for clinical or commercial production
of any compounds currently under development and relies on contract
manufacturers to produce its compounds for pre-clinical and clinical purposes
and intends to rely on contract manufacturers for commercial production. The
pharmaceutical products under development by the Company have never been
manufactured on a commercial scale and there can be no assurance that such
products can be manufactured in commercial quantities at an acceptable cost.
The Company intends to establish arrangements with contract manufacturers to
supply compounds for subsequent clinical trials as well the manufacture,
packaging, labeling and distribution of its products. If the Company is unable
to contract for sufficient supply of its compounds on acceptable terms, the
Company's pre-clinical and human clinical testing schedule would be delayed,
resulting in the delay of submission of products for regulatory approval and
initiation of new development programs, which would have a material adverse
effect on the Company. If the Company should encounter delays or difficulties
in establishing relationships with manufacturers to produce, package and
distribute its products, market introduction and subsequent sales of such
products would be adversely affected. Moreover, contract manufacturers that
the Company may use must adhere to current good manufacturing practice
regulations enforced by the FDA through its facilities inspection program. If
these facilities cannot pass a pre-approval plant inspection, FDA pre-market
approval of the products will be adversely affected.
LACK OF SALES AND MARKETING EXPERIENCE. The Company's sales and marketing
organization was sold to Watson Pharmaceuticals in 1997. Accordingly, if the
Company, in the future, is to market its own products (subject to successful
development and receipt of regulatory approvals for such products), the Company
must develop or acquire, and thereafter maintain and expand, a new sales and
marketing organization with technical expertise and with supporting
distribution capability. There can be no assurance that the Company will be
successful developing or acquiring and, thereafter, maintaining and expanding
such a capability or in gaining market acceptance for any products.
UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT. In both domestic and foreign
markets, sales of the Company's products, if any, will depend, in part, on the
availability of reimbursement from
20
<PAGE>
third-party payors, such as government health administration authorities,
private health insurers and other organizations. Third-party payors are
increasingly challenging the price and cost-effectiveness of medical products
and services. Significant uncertainty exists as to the reimbursement status
of newly approved health care products. There can be no assurance that the
Company's products will be considered cost effective or that adequate
third-party reimbursement will be available to enable CoCensys to maintain
price levels sufficient to realize an appropriate return on its investment in
product development. In certain foreign markets, the Company's products may
be subject to governmentally mandated prices. If adequate reimbursement is
not provided by governments and third-party payors for the Company's
potential products or if adverse pricing is mandated by foreign governments,
the Company's business, financial condition and results of operations would
be materially adversely affected. Legislation and regulations affecting the
formula for pricing pharmaceuticals may change before the Company's products
are approved for marketing.
RISK OF PRODUCT LIABILITY; AVAILABILITY OF INSURANCE. The Company's
business will expose it to potential product liability risks that are inherent
in the testing, manufacturing and marketing of therapeutic products for humans.
Although the Company currently has liability insurance covering its clinical
trials, there can be no assurance that such coverage would be sufficient to
cover all potential claims or that the Company will be able to obtain and
maintain such insurance for all of its clinical trials and future products.
The Company will need to increase such coverage in the event it commercializes
any products under development. There can be no assurance that the Company
will be able to obtain or maintain product liability insurance in the future on
acceptable terms or with adequate coverage against potential liabilities.
HAZARDOUS MATERIALS. The Company's research and development involves the
controlled use of hazardous materials, chemicals and various radioactive
compounds. Although the Company believes that its safety procedures for
handling and disposing of such materials comply with the standards prescribed
by state and federal regulations, the risk of accidental contamination or
injury from these materials cannot be completely eliminated. In the event of
such an accident, the Company could be held liable for any damages that result
and any such liability could exceed the resources of the Company. The Company
may incur substantial costs to comply with environmental regulations if the
Company develops manufacturing capacity.
UNCERTAINTY OF ORPHAN DRUG DESIGNATION. Under the Orphan Drug Act, the
FDA may designate a product as an orphan drug. An orphan drug is a drug
intended to treat a "rare disease or condition," which is a disease or
condition that affects populations of less than 200,000 individuals in the
United States or, if victims of a disease number more than 200,000, the sponsor
establishes that it does not realistically anticipate its product sales will be
sufficient to recover its costs. CCD 1042 has received orphan drug designation
for its use in treating infantile spasm. If a product is designated an orphan
drug, then the sponsor is entitled to receive certain incentives to undertake
the development and marketing of the product, including limited tax credits and
high-priority FDA review of a New Drug Application ("NDA"). In addition, the
sponsor that obtains the first marketing approval for a designated orphan drug
for a given rare disease is eligible to receive marketing exclusivity for a
period of seven years. There may be multiple designations of an orphan drug
for different rare diseases. However, only the sponsor of the first approved
NDA for a given drug for its use in treating a given rare disease may receive
marketing exclusivity. There can be no assurance that the precise scope of
protection that is currently afforded by orphan drug designation will be
available in the future or that the current level of exclusivity and tax
credits will remain in effect.
PRICE VOLATILITY. The securities markets have from time to time
experienced significant price and volume fluctuations that may be unrelated to
the operating performance of particular companies. In addition, the market
prices of the common stock of many publicly traded biopharmaceutical companies
have in the past been, and can in the future be expected to be, especially
volatile. Announcements of technological innovations or new products by the
Company or its competitors, developments or disputes concerning patents or
proprietary rights, publicity regarding actual or potential medical results
relating to products under development by the Company or its competitors,
regulatory developments in both the United States and foreign countries, public
concern as to the safety of biotechnology products and economic and other
external factors, as well as period-to-period fluctuations in the Company's
financial results, may have a significant impact on the market price of the
Company's Common Stock.
21
<PAGE>
ITEM 2. PROPERTIES
The Company's administrative offices and main research facilities are
currently housed in two adjacent buildings occupying approximately
54,700/33,000 square feet of leased space in Irvine, California. The lease
on these facilties expires in 2002, subject to the Company's earlier right to
terminate, and contains provisions for one five-year renewal option and for
rights of first refusal to expand to adjacent space similar in size to the
Company's present facility.
The Company leases additional laboratory facilities in Irvine,
California under a twelve-month lease renewable automatically for successive
twelve-month terms, subject to either party's earlier right to terminate.
ITEM 3. LEGAL PROCEEDINGS
CoCensys knows of no pending or threatened material litigation or
proceedings involving the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1997, no matters were submitted to a vote
of the stockholders.
22
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
A) MARKET INFORMATION
The Company's Common Stock, par value $ .001 per share, trades on the
Nasdaq National Market under the symbol "COCN." The following table presents
quarterly information on the price range of the Company's Common Stock. This
information indicates the high and low sale prices reported by the Nasdaq
National Market. These prices do not include retail markups, markdowns or
commissions.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1996
First quarter $ 8.88 $ 6.38
Second quarter $ 9.88 $ 6.00
Third quarter $ 9.25 $ 5.75
Fourth quarter $ 7.50 $ 5.13
1997
First quarter $ 7.88 $ 4.50
Second quarter $ 5.88 $ 2.69
Third quarter $ 6.25 $ 2.88
Fourth quarter $ 6.06 $ 2.94
</TABLE>
B) HOLDERS
As of February 26, 1998, there were 404 holders of record of the Company's
Common Stock.
C) DIVIDENDS
The Company has not paid any dividends since its inception and does not
intend to pay any dividends on its Common Stock in the foreseeable future.
D) RECENT SALES OF UNREGISTERED SECURITIES
Pursuant to a Stock Purchase Agreement dated October 13, 1997, the Company
issued and sold to Warner-Lambert (i) 14,286 shares of unregistered Series D
Convertible Preferred Stock (the "Preferred Stock") for $1 million on October
14, 1997, and (ii) 85,714 shares of unregistered Series D Convertible Preferred
Stock for $6 million on January 9, 1998. The Preferred Stock is automatically
convertible into Common Stock on October 13, 2001, or earlier at the option of
Warner-Lambert, at a price determined pursuant to a formula based on the market
price of the Common Stock at the time of the conversion. The issuance was
exempt from registration under section 4(2) of the Securities Act of 1933, as
amended, as a transaction not involving any public offering.
23
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes selected consolidated financial data. Certain
reclassifications have been made to prior year data to conform to the 1997
presentation.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ----------- ---------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Co-promotion revenues $ 3,264 $ 9,085 $ 10,414 $ 7,402 $ -
Co-development revenues 8,650 6,073 1,970 - -
---------- ---------- ----------- ---------- ----------
Total revenues 11,914 15,158 12,384 7,402 -
Operating expenses:
Research and development 23,308 20,949 17,662 11,569 8,987
Marketing, general and administrative 9,975 13,862 13,383 7,673 1,739
Acquired research and development - - - 14,879 -
---------- ---------- ----------- ---------- ----------
Total operating expenses 33,283 34,811 31,045 34,121 10,726
---------- ---------- ----------- ---------- ----------
Operating loss (21,369) (19,653) (18,661) (26,719) (10,726)
---------- ---------- ----------- ---------- ----------
Gain on disposition of sales force 4,728 - - - -
Interest income 898 1,304 717 373 735
Interest expense (78) (139) (178) (240) (282)
---------- ---------- ----------- ---------- ----------
Net loss $(15,821) $ (18,488) $ (18,122) $ (26,586) $ (10,273)
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
Basic and diluted loss per share (1) $ (0.70) $ (0.85) $ (1.05) $ (2.33) $ (1.16)
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
Shares used in computing basic
and diluted loss per share 22,574 21,783 17,288 11,406 8,890
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ----------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
investments $ 12,960 $ 17,999 $ 13,449 $ 8,924 $ 16,622
Working capital 8,374 14,434 6,753 3,766 15,427
Total assets 16,916 22,051 18,201 15,216 20,990
Long-term obligations 1,101 324 406 696 969
Accumulated deficit (98,983) (83,162) (64,674) (46,552) (19,966)
Total stockholders' equity 10,831 16,947 10,644 8,547 18,397
</TABLE>
(1) The earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standard No. 128,
"Earnings per Share" ("SFAS No. 128"). For further discussion of earnings
per share and the impact of SFAS No. 128, see the Notes to Financial
Statements.
24
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
CERTAIN 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 ELSEWHERE IN THIS REPORT.
OVERVIEW
Since its inception in February 1989, the Company has devoted
substantially all of its resources to the discovery and development of
pharmaceutical products for the treatment of disorders affecting the brain.
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 expenses for product
development and in the timing and amount of revenues to be earned from the
achievement of research and development milestones and sales of Company
products, if any. As of December 31, 1997, the Company's accumulated deficit
was approximately $99.0 million.
RESULTS OF OPERATIONS
REVENUES
The Company's revenues consist of co-development revenues and, through
October 1997, co-promotion revenues. Co-promotion revenues arose from
contractual agreements that call for the Company promote other pharmaceutical
company's products in return for commissions. Co-development revenues arise
from contractual agreements with large pharmaceutical companies pursuant to
which the Company provides various commercialization or development rights
relating to compounds or performs research activities in exchange for licensing
fees, milestone payments or research funding. In October 1997, the Company
sold its sales and marketing division to Watson Pharmaceuticals, Inc.
("Watson") and is no longer involved in co-promotional activities.
In connection with the Company's co-promotion activities, revenues of $3.3
million were recognized for the year ended December 31, 1997, compared to $9.1
million and $10.4 million in 1996 and 1995, respectively. The decrease in
1997 resulted from the termination of the Novartis co-promotion agreement in
December 1996, the loss of Cognex-Registered Trademark- co-promotion rights in
June 1997 and the sale of the sales and marketing division in October 1997.
The decrease in 1996 was primarily related to the declining market for the
products under the Novartis Pharma A.G. co-promotion agreement. Going forward,
co-promotion revenue will be limited to residual payments relating to activity
prior to the disposition of the sales and marketing division.
In connection with its co-development agreements, the Company recognized
revenues of $8.6 million for the year ended December 31, 1997, compared to $6.1
million and $2.0 million in 1996 and 1995, respectively. The increase in 1997
is primarily partially attributable to the Development
25
<PAGE>
and Commercialization Agreement entered into with the Wyeth-Ayerst
Laboratories Division of American Home Products Corporation in May 1997,
which provided for a one-time license fee of $5.0 million plus an additional
$2.2 million during 1997 to fund research on a back-up compound in
connection with the Company's anxiolytic program. In fiscal 1996, the
Company recognized $3.6 million related to the G.D. Searle & Co. Development
and Commercialization Agreement in connection with its insomnia program and
$2.5 million related to Novartis Research and Development Agreement in
connection with its compound to treat stroke and traumatic brain injury.
Fiscal 1995 revenue is wholly attributable to the Novartis program. In April
1997, Novartis announced that it was terminating its Research and Development
Agreement with the Company effective October 1997. No further revenue is
expected from Novartis.
EXPENSES
Research and development expenses increased to $23.3 million in 1997,
compared to $20.9 million and $17.7 million in 1996 and 1995, respectively.
The increase in 1997 compared to 1996 is primarily due to increased
expenditures for clinical and development activity associated with the Phase II
ganaxolone (CCD 1042) trials in the treatment of migraine and epilepsy,
partially offset by lower spending on licostinel (ACEA 1021). The increase in
1996 compared to 1995 was due to higher spending for Phase II clinical trials
for licostinel in the treatment of stroke and traumatic brain injury and for
pre-clinical development work on ganaxolone.
Marketing, general and administrative expenses decreased to $10.0 million
in 1997, compared to $13.9 million in 1996 and $13.4 million in 1995. The
decrease in 1997 is due to the disposition of the sales and marketing division
in October 1997. As a result of this transaction, the Company incurred only
nine months of expense associated with the sales function in 1997 compared to
twelve months of expense in fiscal years 1996 and 1995.
GAIN ON DISPOSITION OF THE SALES DIVISION
In October 1997, the Company recognized a gain of $4.7 million on the
disposition of its sales and marketing division.
INTEREST INCOME AND EXPENSE
Interest income totaled $0.9 million in 1997, compared to $1.3 million in
1996 and $0.7 million in 1995. The level of interest income is directly
related to the average level of investments held during each year.
Interest expense decreased to $78,000 in 1997, compared to $139,000 in
1996 and $178,000 in 1995. The decrease in each period was attributable to
lower average level of capital lease obligations used to finance equipment.
LIQUIDITY AND CAPITAL RESOURCES
From its inception in February 1989 through December 31, 1997, the Company
has financed its operations primarily through private and public offerings of
its equity securities,
26
<PAGE>
raising net proceeds of approximately $90.6 million through sales of these
securities. At December 31, 1997, the Company's balances of cash, cash
equivalents and investments totaled $13.0 million, compared to $18.0 million
at December 31, 1996.
As of December 31, 1996, the Company had invested $7.1 million in
leasehold improvements, laboratory and computer equipment and office
furnishings and equipment. The Company has financed $3.5 million of these
capital additions through capital lease lines. In addition, the Company leases
its laboratory and office facilities under operating leases. While Aadditional
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.
Pursuant to an agreement with Watson, in October 1997, the Company sold it
sales and marketing division, related co-promotion agreements and certain other
assets to Watson for $9.0 million in cash. Of this amount, $8.0 million was
paid by Watson in October 1997 and $1.0 million is payable in installments over
the next twelve months subject to the occurrence of specified events. Of the
$8.0 million received to date, the Company netted approximately $5.4 million in
cash after expenditures necessary to fulfill its obligations related to the
Watson Agreement. These obligations included the acquisition of specified new
drug approval, the purchase of leased assets, a portion of which were
transferred to Watson, and payment of certain transaction and severance costs.
Pursuant to the 1995 collaboration agreement with Warner-Lambert Company,
as amended and extended in October 1997, Warner-Lambert is obligated to make
certain milestone payments for each compound selected for development, as well
as pay for its share of development costs. Under the terms of the 1995
agreement, Warner-Lambert purchased $2.0 million of CoCensys Common Stock in
October 1995 and an additional $2.0 million of CoCensys Common Stock in March
1997. Under the terms of the 1997 amendment, Warner-Lambert purchased 14,286
shares of the Company's Series D Convertible Preferred Stock for $1.0 million
in October 1997 and an additional 85,714 shares of the same series for $6.0
million in January 1998.
Pursuant to the May 1997 Development and Commercialization Agreement with
Wyeth-Ayerst, Wyeth-Ayerst paid the Company a $5.0 million license fee and
purchased 100,000 shares of the Company's Series C Convertible Preferred stock
for $5.0 million. Furthermore, Wyeth-Ayerst is obligated to pay all
development costs associated with Co 2-6749, as well as make milestone payments
upon the occurrence of certain agreed upon events and pay the Company $3.0
million per year for up to three years to identify back-up compounds.
Pursuant to the Development and Commercialization Agreement G.D. Searle &
Co., both companies are obligated to pay a portion of the development costs of
CCD 3693 and its back-up compounds for the U.S. market. The Company will
receive nonrefundable milestone payments upon the occurrence of certain events
in the development of the compound. In addition, Searle purchased 100,000
shares of the Company's Series B Convertible Preferred Stock for $7.0 million
during 1996.
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
mitigate such negative cash flows with revenues, if any,
27
<PAGE>
derived from the sale 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, will be adequate to satisfy its capital needs for at least
the next 12 months.
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
additional funding through additional research and development collaborations
with suitable corporate partners and/or through public or private financing.
There can be no assurance that additional 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
scope and results of preclinical testing and clinical trials, the time and
costs involved in obtaining regulatory approvals, the rate of technological
advances, determinations as to the commercial potential of the Company's
products under development, the status of competitive products, the
establishment of third-party manufacturing arrangements and the establishment
of additional collaborative relationships.
IMPACT OF YEAR 2000
Some of the Company's older computer programs were written using two
digits rather than four to define the applicable year. As a result, those
computer programs recognize a date using "00" as the year 1900 rather than the
year 2000. This could cause a system failure or miscalculations causing
disruptions of operations, including a temporary inability to process
transactions or engage in normal business activities.
The Company has completed a preliminary assessment and will have to modify
or replace portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. However, the
majority of software used by the Company consists of commercially available,
off-the-shelf programs that have already been modified, or are soon to be
modified, by their manufacturers to handle the year 2000 correctly. As such,
management believes that the year 2000 issue does not pose a significant
problem for the Company and it is expected that this project will be completed
not later than December 31, 1998 at a total cost of less than $50,000. The
Company has incurred minimal costs to date. However, if such modifications and
conversions are not made, or are not completed timely, the year 2000 issue
could have a material impact on the operations of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data of the Company are
provided at the pages indicated in Item 14 (a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has not been any change of accountants or any disagreements with the
Company's accountants on any matter of accounting practice or financial
disclosure during the reporting periods.
28
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to executive officers and directors of the
Company appearing in the Proxy Statement for the Company's 1998 Annual Meeting
of Stockholders (the "Proxy Statement") under the captions "Election of
Directors", "Management" and "Compliance with Section 16(a) of the Securities
Exchange Act of 1934" is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation appearing in the Proxy
Statement under the caption "Executive Compensation" is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference
to the information in the Proxy Statement labeled "Security Ownership of
Certain Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference
to the section in the Proxy Statement labeled "Certain Relationships and
Related Transactions."
29
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(A) FINANCIAL STATEMENTS
The financial statements required by this item are submitted in a
separate section beginning on Page 38 of this report.
Financial Statements of CoCensys, Inc.
Report of Independent Auditors 37
Balance Sheets as of December 31, 1997 and 1996 38
Statements of Operations for the three years ended
December 31, 1997, 1996 and 1995; and the period from
inception (February 15, 1989) to December 31, 1997 39
Statements of Stockholders' Equity for the period from
inception (February 15, 1989) to December 31, 1997 40
Statements of Cash Flows for the three years ended
December 31, 1997, 1996 and 1995; and the period from
inception (February 15, 1989) to December 31, 1997 43
Notes to Financial Statements 44
Schedules are omitted as the required information is not present or
is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the
financial statements or notes thereto.
(B) REPORTS ON FORM 8-K
The Company filed a current report on Form 8-K dated October 8, 1997,
in connection with the sale of its Sales and Marketing Division to
Watson Pharmaceuticals.
(C) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NOTES DESCRIPTION
<S> <C> <C>
3(i).1 Amended and Restated Certificate of Incorporation
of the Company.
3(i).2 Certificate of Designation of Series A Junior
Participating Preferred Stock of the Company.
3(i).3 Certificate of Powers, Designation, Preferences,
Rights and Limitations of Series B Convertible
Preferred Stock of the Company.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NOTES DESCRIPTION
<S> <C> <C>
3(i).4 Certificate of Amendment of Amended and Restated
Certificate of Incorporation of the Company.
3(i).5 Certificate of Powers, Designation, Preferences,
Rights and Limitations of Series C Convertible
Preferred Stock of the Company.
3(i).6 Certificate of Powers, Designation, Preferences,
Rights and Limitations of Series D Convertible
Preferred Stock of the Company.
3(ii) (1) By-laws of the Company.
10.1 (1) Form of Indemnity Agreement entered into between
the Company and its directors and officers.
10.2 (10)+ Company's 1990 Stock Option Plan, as amended
(the "Option Plan").
10.3 (1) + Form of Incentive Stock Option Agreement under
the Option Plan.
10.4 (1) + Form of Non-qualified Stock Option Agreement
under the Option Plan.
10.5 (1) + Non-qualified Stock Option Agreement between the
Company and Timothy J. Rink, M.D., Sc.D., dated
as of September 13, 1991.
10.6 (4) + Company's 1992 Non-Employee Directors' Stock
Option Plan, as amended (the "Directors' Plan").
10.7 (1) + Form of Stock Option Agreement under the
Directors' Plan.
10.8 (1) Exclusive License Agreement among the Company,
The Rockefeller University and the University of
Southern California, dated as of August 28, 1990.
10.9 (1) Research Agreement between the Company and the
University of Southern California, dated as of
August 28, 1990, as amended.
10.10 (1) Sponsored Research Agreement between the Company
and the University of Dundee, dated as of
January 1, 1992.
10.11 (1) Research Agreement between the Company and The
Regents of the University of California, on behalf
of its Irvine campus, dated as of March 2, 1992.
10.12 (1) Research Agreement between the Company and The
Regents of the University of California, on behalf
of its Irvine campus, dated as of July 1, 1992.
10.13 (1) Option Agreement between the Company and Kelvin W.
Gee, Ph.D. dated as of August 14, 1992.
10.14 (9) Amendment No. 1 to Option Agreement between the
Company and Kelvin W. Gee, Ph.D., dated
August 1, 1994.
10.15 (1) Multi-tenant Lease between the Company and The
Irvine Company, dated as of January 30, 1992.
10.16 (2) Common Stock Purchase Agreement, dated as of
December 13, 1993, between the Company and the
persons listed on the Schedule of Purchasers
attached thereto.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NOTES DESCRIPTION
<S> <C> <C>
10.17 (3) Stock Purchase Agreement, dated as of December 23,
1994, between the Company and Ciba-Geigy Limited
(included as Exhibit C to the Research and
Development Agreement, dated as of December 23,
1994, between the Company and Ciba-Geigy Limited.
10.18 (3) Form of First Amendment to the Multi-tenant Lease
between the Company and the Irvine Company, dated
April 1, 1994.
10.19 (3) Form of Lease Agreement between the Company and
Livingston Corporate Park Associates, dated
October 1, 1994.
10.20 (5) Common Stock and Warrant Purchase Agreement, dated
June 6, 1995, between the Company and each of the
purchasers listed on the Schedule of Purchasers
attached thereto.
10.21 (6) + Company's 1995 Employee Stock Purchase Plan.
10.22 (7) * Research, Development and Marketing Collaboration
Agreement between CoCensys, Inc., Acea
Pharmaceuticals, Inc. and Warner-Lambert Company,
dated as of October 26, 1995.
10.23 (8) Stock Purchase Agreement, dated October 26, 1995,
between CoCensys, Inc. and Warner-Lambert Company.
10.24 (10) Form of Amendment to the Multi-tenant Lease
between the Company and The Irvine Company, dated
as of February 9, 1996.
10.25 (11)* Development and Commercialization Agreement
between the Company and G.D. Searle & Co. dated
May 17, 1996.
10.26 (11) 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).
10.27 (15)+ Transition and Consulting Agreement between the
Company and Daniel L. Korpolinski, dated as of
November 1, 1996.
10.28 (15)+ Employment Agreement between the Company and
Rick A. Henson, dated as of October 13, 1996.
10.29 (15)+ Company's 1996 Equity Incentive Plan.
10.30 (15)+ Letter Agreement between F. Richard Nichol, Ph.D.
and the Company, dated as of January 20, 1997.
10.31 (15)+ Form of Incentive Stock Option Agreement under
the 1996 Equity Incentive Plan.
10.32 (15)+ Form of Nonstatutory Stock Option Agreement
under the 1996 Equity Incentive Plan.
10.33 (12)* Promotion Agreement between the Company and
Parke-Davis, dated as of January 1, 1997.
10.34 (12)* License Agreement between the Company and
Massachusetts General Hospital, dated as of
December 15, 1996.
10.35 (13)* Asset Purchase Agreement between the Company and
Watson Pharmaceuticals, dated October 8, 1997.
10.36 (14)* 1997 Promotion Agreement, effective April 7, 1997,
between Somerset Pharmaceuticals, Inc. and the
Company.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NOTES DESCRIPTION
<S> <C> <C>
10.37 (14)* Development and Commercialization Agreement
(No. 1), dated May 12, 1997, between Wyeth-Ayerst
Laboratories and the Company ("Wyeth-Ayerst
Agreement No. 1").
EXHIBIT
NUMBER NOTES DESCRIPTION
10.38 (14)* Development and Commercialization Agreement
(No. 2), dated May 12, 1997, between Wyeth-Ayerst
Laboratories and the Company.
10.39 (14) Preferred Stock Purchase Agreement, dated May 12,
1997, between American Home Products, Inc. and
the Company (included as Exhibit F to Wyeth-Ayerst
Agreement No. 1).
10.40 ** Amended and Restated Research, Development and
Marketing Collaboration Agreement (II), dated as
of October 13, 1997, between Warner-Lambert
Company and the Company.
10.41 Series D Convertible Preferred Stock Purchase
Agreement, dated October 13, 1997, between
Warner-Lambert Company and the Company.
10.42 ** Amended and Restated License Agreement, dated
December 16, 1997, between Massachusetts General
Hospital and the Company.
23.1 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule.
</TABLE>
--------------------
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1, file number 33-55522, or amendments thereto.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993, and the Company's Current
Report on Form 8-K filed July 15, 1994.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994.
(4) Incorporated by reference to the Company's Registration Statement on
Form S-8, file number 33-97258.
(5) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995.
(6) Incorporated by reference to the Company's Registration Statement on
Form S-8, file number 33-92760.
33
<PAGE>
(7) Incorporated by reference to the Company's Current Report on Form 8-K
dated October 26, 1995.
(8) Incorporated by reference to the Company's Registration Statement on
Form S-3, file number 33-80809.
(9) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994.
(10) Incorporated by reference to the Company's Annual Report on Form 10-
K, as amended by Form 10-K/A, for the year ended December 31, 1995.
(11) Incorporated by reference to the Company's Quarterly Report on Form
10-Q, as amended by Form 10-Q/A, for the quarter ended June 30, 1996.
(12) Incorporated by reference to the Company's Current Report on Form 8-K
dated December 15, 1996.
(13) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997.
(14) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997.
(15) Incorporated by reference to the Company's Annual Report on Form 10-
K, as amended by Form 10-K/A, for the year ended December 31, 1996.
+ Compensatory plan.
* Confidential treatment granted.
** Confidential treatment requested.
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
COCENSYS, INC.
Date: March 13, 1998 By: /s/ F. Richard Nichol, Ph.D.
-----------------------------
(F. Richard Nichol, Ph.D.)
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Lowell E. Sears Chairman of the Board February 28, 1998
---------------------------
(Lowell E. Sears)
/s/ F. Richard Nichol, Ph.D. President and March 13, 1998
--------------------------- Chief Executive Officer
(F. Richard Nichol, Ph.D.) (PRINCIPAL EXECUTIVE OFFICER)
/s/ Peter E. Jansen Vice President and March 8, 1998
--------------------------- Chief Financial Officer
(Peter E. Jansen) (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
/s/ James C. Blair, Ph.D. Director March 11, 1998
---------------------------
(James C. Blair, Ph.D.)
/s/ Kelvin Gee, Ph.D. Director March 11, 1998
---------------------------
(Kelvin W. Gee, Ph.D.)
/s/ Robert G. McNeil, Ph.D. Director March 13, 1998
---------------------------
(Robert G. McNeil, Ph.D.)
</TABLE>
35
<PAGE>
SIGNATURES CONTINUED
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Alan C. Mendelson Director March 2, 1998
---------------------------
(Alan C. Mendelson)
/s/ Timothy J. Rink, M.D., Sc.D. Director March 2, 1998
---------------------------------
(Timothy J. Rink, M.D., Sc.D.)
/s/ Eckard Weber, M.D. Director March 2, 1998
---------------------------------
(Eckard Weber, M.D.)
</TABLE>
36
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
CoCensys, Inc.
We have audited the accompanying balance sheets of CoCensys, Inc. (a
development stage company) as of December 31, 1997 and 1996 and the related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1997, and the period from
inception (February 15, 1989) to December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CoCensys, Inc. at December
31, 1997 and 1996, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1997, and for the
period from inception (February 15, 1989) to December 31, 1997, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Orange County, California
February 6, 1998
37
<PAGE>
<TABLE>
<CAPTION>
COCENSYS, INC.
(A development stage company)
BALANCE SHEETS
(In thousands, except share and par value amounts)
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,410 $ 1,050
Short-term investments 9,050 16,949
Receivables from corporate partners 414 659
Other current assets 484 556
------------ ------------
TOTAL CURRENT ASSETS 13,358 19,214
Property and equipment, net 2,823 2,685
Investments 500 -
Notes receivable from officers 178 126
Other assets, net 57 26
------------ ------------
$ 16,916 $ 22,051
------------ ------------
------------ ------------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 866 $ 1,437
Accrued compensation and benefits 1,107 1,053
Due to corporate partners 747 446
Other accrued liabilities 1,911 1,503
Capital lease obligation - current portion 353 341
------------ ------------
TOTAL CURRENT LIABILITIES 4,984 4,780
Capital lease obligation, less current portion 567 284
Other liabilities 534 40
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value
Authorized shares -- 5,000,000
Issued and outstanding shares - 214,286 at
December 31, 1997 and 100,000
at December 31, 1996 13,000 7,000
Common stock, $.001 par value
Authorized shares -- 75,000,000
Issued and outstanding shares - 22,857,506 at
December 31, 1997 and 22,083,346
at December 31, 1996 97,230 93,986
Deficit accumulated during the development stage (98,983) (83,162)
Deferred compensation (430) (905)
Unrealized gain on investments 14 28
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 10,831 16,947
------------ ------------
$ 16,916 $ 22,051
------------ ------------
------------ ------------
</TABLE>
See accompanying notes
38
<PAGE>
COCENSYS, INC.
(A development stage company)
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(FEBRUARY 15,
YEAR ENDED DECEMBER 31, 1989) TO
---------------------------------------- DECEMBER 31,
1997 1996 1995 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Co-promotion revenues from corporate partners $ 3,264 $ 9,085 $ 10,414 $ 30,165
Co-development revenues from corporate partners 8,650 6,073 1,970 16,693
----------- ----------- ----------- -----------
Total revenues 11,914 15,158 12,384 46,858
----------- ----------- ----------- -----------
OPERATING EXPENSES
Research and development 23,308 20,949 17,662 90,929
Marketing, general and administrative 9,975 13,862 13,383 48,156
Acquired research and development - - - 14,879
----------- ----------- ----------- -----------
Total operating expenses 33,283 34,811 31,045 153,964
----------- ----------- ----------- -----------
Operating loss (21,369) (19,653) (18,661) (107,106)
Gain on disposition of sales force 4,728 - - 4,728
Interest income 898 1,304 717 4,453
Interest expense (78) (139) (178) (1,058)
----------- ----------- ----------- -----------
Net loss $ (15,821) $ (18,488) $ (18,122) $ (98,983)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic and diluted loss per share $ (0.70) $ (0.85) $ (1.05)
----------- ----------- -----------
----------- ----------- -----------
Shares used in computing basic
and diluted loss per share 22,574 21,783 17,288
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes
39
<PAGE>
COCENSYS, INC.
(A development stage company)
STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
DEFICIT UNREALIZED
ACCUMULATED GAIN/ TOTAL
CONVERTIBLE DURING THE DEFERRED (LOSS) ON STOCK-
PREFERRED STOCK COMMON STOCK DEVELOPMENT COMPEN- INVEST- HOLDERS'
SHARES AMOUNT SHARES AMOUNT STAGE SATION MENTS EQUITY
-------- -------- --------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock for
cash at $.005 per share - $ - 980,000 $ 5 $ - $ - $ - $ 5
Net loss - - - - (147) - - (147)
-------- -------- --------- -------- --------- -------- -------- --------
BALANCE AT DECEMBER 31, 1989 - - 980,000 5 (147) - - (142)
Issuance of Series A convertible
preferred stock upon conversion
of promissory note, net of offering
costs of $5 at $.25 per share 400,000 95 - - - - - 95
Issuance of common in exchange for
services at $.05 per share - - 6,668 - - - - -
Issuance of Series B convertible
preferred stock for $3,110 cash and
conversion of $515 of convertible
promissory notes, net of offering costs
of $46 at $1.50 per share 2,416,666 3,579 - - - - - 3,579
Issuance of warrants to purchase 30,100
shares of Series B convertible preferred
stock in connection with a note payable - 8 - - - - - 8
Net loss - - - - (910) - - (910)
-------- -------- --------- -------- --------- -------- -------- --------
BALANCE AT DECEMBER 31, 1990 2,816,666 3,682 986,668 5 (1,057) - - 2,630
Issuance of common stock in exchange
for services at $.05 per share - - 3,332 - - - - -
Net loss - - - - (2,369) - - (2,369)
-------- -------- --------- -------- --------- -------- -------- --------
BALANCE AT DECEMBER 31, 1991 2,816,666 3,682 990,000 5 (3,426) - - 261
Issuance of Series C convertible preferred
stock for cash, net of offering costs of
$60 at $5.00 per share 2,631,218 13,096 - - - - - 13,096
Issuance of Series C convertible preferred
stock in exchange for services at $5.00
per share 3,332 17 - - - - - 17
Deferred compensation related to the
issuance of certain stock options - - - 2,842 - (2,842) - -
Amortization of deferred compensation - - - - - 152 - 152
Issuance of Series C convertible preferred
stock in exchange for stock purchase
option at $5.00 per share 20,000 100 - - - - - 100
Net loss - - - - (6,267) - - (6,267)
-------- -------- --------- -------- --------- -------- -------- --------
BALANCE AT DECEMBER 31, 1992 5,471,216 16,895 990,000 2,847 (9,693) (2,690) - 7,359
Issuance of Series B convertible preferred
stock in exchange for noncash exercise
of warrants 25,083 226 - - - - - 226
Conversion of convertible preferred stock
into common stock at the close of the
initial public offering (5,496,299) (17,121) 5,496,299 17,121 - - - -
Issuance of common stock for cash in
initial public offering at $9.00 per share,
net of offering costs and underwriters'
discount of $2,193 - - 2,500,000 20,307 - - - 20,307
Issuance of common stock for cash pursuant
to option exercises at $.05 to $.50 per share - - 116,798 18 - - - 18
Deferred compensation related to the
issuance and termination of certain
stock options - - - 43 - (43) - -
Amortization of deferred compensation - - - - - 760 - 760
Net loss - - - - (10,273) - - (10,273)
-------- -------- --------- -------- --------- -------- -------- --------
BALANCE AT DECEMBER 31, 1993 - - 9,103,097 40,336 (19,966) (1,973) - 18,397
</TABLE>
See accompanying notes
40
<PAGE>
COCENSYS, INC.
(A development stage company)
STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
DEFICIT UNREALIZED
CONVERTIBLE ACCUMULATED GAIN/ TOTAL
PREFERRED STOCK COMMON STOCK DURING THE DEFERRED (LOSS)ON STOCK-
--------------- ------------------- DEVELOPMENT COMPEN- INVEST- HOLDERS'
SHARES AMOUNT SHARES AMOUNT STAGE SATION MENTS EQUITY
------ ------ ----------- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Purchase of common stock by Acea
shareholders pursuant to merger
agreement at $4.56 and $5.11 per share - - 415,368 2,002 - - - 2,002
Issuance of common stock for cash pursuant
to option exercises at $.125 to $.50 per share - - 68,380 32 - - - 32
Acquisition of Acea in exchange for
common stock at $3.00 per share - - 3,784,332 11,353 - - - 11,353
Exchange of Acea options and warrants
for equivalent options and warrants - - - 592 - - - 592
Gift of common stock at $3.75 per share - - 20,000 75 - - - 75
Purchase of common stock by corporate
partner at $4.51 per share - - 443,214 2,000 - - - 2,000
Deferred compensation related to the
issuance and termination of certain
stock options - - - 110 - (110) - -
Amortization of deferred compensation - - - - - 707 - 707
Unrealized loss on investments - - - - - - (25) (25)
Net loss - - - - (26,586) - - (26,586)
------- ----- ---------- ----- -------- ------ ---- --------
BALANCE AT DECEMBER 31, 1994 - - 13,834,391 56,500 (46,552) (1,376) (25) 8,547
Purchase of common stock by corporate
partner at $3.48 per share - - 1,434,978 5,000 - - - 5,000
Issuance of common stock for cash pursuant
to option exercises at $.05 to $5.21 per share - - 88,579 109 - - - 109
Deferred compensation related to the
issuance and termination of certain
stock options - - - 619 - (619) - -
Issuance of common stock and related
warrants for cash at $3.25 per share,
net of cost of $149 - - 3,707,693 11,901 - - - 11,901
Issuance of common stock to employees,
share price at issuance of $7.375 - - 4,000 29 - - - 29
Purchase of common stock by corporate partner
at $7.00 per share, net of costs of $14 - - 285,970 1,986 - - - 1,986
Issuance of common stock pursuant to the
1995 Employee Stock Purchase Plan at
$3.83 to $4.36 per share - - 39,730 152 - - - 152
Amortization of deferred compensation - - - - - 1,039 - 1,039
Change in unrealized loss on investments - - - - - - 3 3
Net loss - - - - (18,122) - - (18,122)
------- ----- ------- ----- -------- ------ ---- --------
BALANCE AT DECEMBER 31, 1995 - - 19,395,341 76,296 (64,674) (956) (22) 10,644
Issuance of common stock for cash at
$6.50 per share, net of costs of $1,162 - - 2,430,000 14,633 - - - 14,633
Issuance of Series B convertible preferred
stock for cash to corporate partner 100,000 7,000 - - - - - 7,000
Issuance of common stock for cash pursuant
to option exercises at $.1969 to $5.21 per share - - 138,762 194 - - - 194
Issuance and termination of certain stock
options - - - 2,363 - (629) - 1,734
Issuance of common stock to employees,
share price at issuance of $6.625 to $8.75 - - 6,500 54 - - - 54
Issuance of common stock pursuant to the
1995 Employee Stock Purchase Plan at
$3.83 to $7.12 per share - - 112,743 446 - - - 446
Amortization of deferred compensation - - - - - 680 - 680
Change in unrealized gain on investments - - - - - - 50 50
Net loss - - - - (18,488) - - (18,488)
------- ----- ------- ----- -------- ------ ---- --------
BALANCE AT DECEMBER 31, 1996 100,000 7,000 22,083,346 93,986 (83,162) (905) 28 16,947
</TABLE>
See accompanying notes
41
<PAGE>
COCENSYS, INC.
(A development stage company)
STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
DEFICIT UNREALIZED
ACCUMULATED GAIN/ TOTAL
CONVERTIBLE DURING THE DEFERRED (LOSS) ON STOCK-
PREFERRED STOCK COMMON STOCK DEVELOPMENT COMPEN- INVEST- HOLDERS'
SHARES AMOUNT SHARES AMOUNT STAGE SATION MENTS EQUITY
------ ------ ------ ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series C convertible preferred
stock for cash to corporate partner 100,000 5,000 - - - - - 5,000
Issuance of Series D convertible preferred
stock for cash to corporate partner 14,286 1,000 - - - - - 1,000
Issuance of common stock for cash at
$6.16 per share to corporate partner - - 324,465 2,000 - - - 2,000
Issuance of common stock for services - - 23,322 8 - - - 8
Issuance of common stock for cash pursuant
to option exercises at $.05 to $5.21 per share - - 315,300 202 - - - 202
Issuance and termination of certain stock
options - - - 783 - 206 - 989
Issuance of common stock pursuant to the
1995 Employee Stock Purchase Plan at
$2.66 to $2.87 per share - - 90,900 251 - - - 251
Issuance of common stock pursuant to
noncash exercise of warrants - - 20,173 - - - - -
Amortization of deferred compensation - - - - - 269 - 269
Change in unrealized gain on investments - - - - - - (14) (14)
Net loss - - - - (15,821) - - (15,821)
------- -------- ---------- -------- ---------- -------- ----- --------
BALANCE AT DECEMBER 31, 1997 214,286 $ 13,000 22,857,506 $ 97,230 $ (98,983) $ (430) $ 14 $ 10,831
------- -------- ---------- -------- ---------- -------- ----- --------
------- -------- ---------- -------- ---------- -------- ----- --------
</TABLE>
See accompanying notes
42
<PAGE>
COCENSYS, INC.
(A development stage company)
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(FEBRUARY 15,
YEAR ENDED DECEMBER 31, 1989) TO
----------------------------------------- DECEMBER 31,
1997 1996 1995 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (15,821) $ (18,488) $ (18,122) $ (98,983)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 936 2,072 1,928 6,825
Amortization of deferred compensation 269 680 1,039 3,607
Issuance of stock, stock options and warrants for 419 1,788 29 2,336
services
Loss on sale of fixed assets 74 - 26 100
Gain on disposition of sales division (4,728) - - (4,728)
Acquired research and development - - - 12,279
Decrease (increase) in other current assets 72 (101) (175) (556)
Decrease (increase) in receivables from partners 245 (659) 535 (414)
Increase (decrease) in amounts due to partners 301 (2,698) 1,244 747
Increase (decrease) in accounts payable and other
accrued liabilities (991) 685 (174) 2,766
------------ ------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (19,224) (16,721) (13,670) (76,021)
------------ ------------ ------------ ------------
INVESTING ACTIVITIES
Decrease (increase) in investments 7,886 (10,343) (4,569) (9,036)
Purchase of property and equipment (1,475) (812) (888) (7,100)
Decrease (increase) in other assets and notes
receivable from officers (1,083) 199 98 (1,391)
Cash received on sale of fixed assets 1 - 19 20
Cash received on disposition of sales division 8,000 - - 8,000
Purchase of investments (500) - - (500)
Increase in deferred costs - - - (2,475)
Acquisition of Acea, net of cash acquired - - - (62)
------------ ------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 12,829 (10,956) (5,340) (12,544)
------------ ------------ ------------ ------------
FINANCING ACTIVITIES
Net cash proceeds from issuance of common stock 2,460 15,273 19,148 61,245
Net cash proceeds from issuance of preferred stock 6,000 7,000 - 29,381
Proceeds from sales/leaseback of fixed assets and
notes payable 1,002 649 834 5,235
Payments on capital lease obligations and notes
payable (707) (1,090) (1,016) (3,886)
------------ ------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,755 21,832 18,966 91,975
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,360 (5,845) (44) 3,410
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,050 6,895 6,939 -
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,410 $ 1,050 $ 6,895 $ 3,410
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 66 $ 139 $ 133 $ 820
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes
43
<PAGE>
COCENSYS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
CoCensys, Inc. ("CoCensys" or the "Company") was incorporated in 1989 for the
purpose of discovering, developing and commercializing novel products to
treat disorders of the brain. Since inception, the Company has devoted
substantially all of its resources to the discovery and development of such
products. The Company has not generated any revenues from the development of
its own products and has sustained continuing operating losses from its
development activities. Such losses could continue for several years.
The Company plans to finance its future development activities through a
combination of sales of equity securities and payments from corporate
development partners. There can be no assurance that the Company will be
successful in these areas.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates. Significant
estimates made in preparing the financial statements include the
determination of co-promotion and co-development revenues, and the valuation
allowance for deferred tax assets.
CASH EQUIVALENTS AND INVESTMENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Short-term investments consist of debt securities classified as "available
for sale" and have maturities greater than three months and less than twelve
months from the date of acquisition. Investments classified as "available
for sale" are reported at fair value with unrealized gains and losses
reported as a separate component of shareholders' equity. Investments
consist, either directly or indirectly, of obligations of the United States
government, or other Federal agencies.
At December 31, 1997, the Company had $1,000,000 in an escrow account
established to satisfy an obligation related to the purchase of certain drug
marketing rights and new drug approvals (NDAs) in connection with the
disposition of its sales and marketing division in October 1997. The
obligation is payable in equal installments in October 1998 and October 1999.
Accordingly, at December 31, 1997, of the amount held in escrow, $500,000 was
classified as short-term investments and $500,000 as noncurrent investments.
44
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consists of the following at
December 31, (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Laboratory equipment $ 2,218 $ 1,703
Computer equipment 1,107 1,288
Office equipment 930 961
Leasehold improvements 2,105 1,847
-------- --------
6,360 5,799
Less accumulated depreciation (3,537) (3,114)
-------- --------
Net property and equipment $ 2,823 $ 2,685
-------- --------
-------- --------
</TABLE>
The value of leased assets (treated as capital leases) at December 31, 1997,
was $2,744,000, net of accumulated amortization of $1,522,000.
Depreciation of property and equipment, including assets under capital lease
obligations, has been provided using the straight-line method over the
estimated useful lives of the assets which range from three to five years,
except for leasehold improvements which are amortized over the lease term.
REVENUE AND EXPENSE RECOGNITION
See Notes 3, 4, 5, 6 and 7 for revenue recognition policies related to
co-promotion and co-development revenues from corporate partners.
Co-promotion revenue is a commission earned for marketing products of another
company to a specified class of medical doctors. The amount of commission
earned is, generally, a base fee with a bonus calculated by reference to an
agreed upon measure of activity such as sales volume or prescriptions
written. The Company recognizes revenue from co-promotion activities in the
period in which the promotional services are provided.
Co-development revenue is earned pursuant to agreements with other
pharmaceutical companies to develop and commercialize CoCensys' compounds.
Revenue is earned in the form of licensing fees, payment for the attainment
of developmental milestones or funding for research. The Company recognizes
co-development revenue in the period in which the underlying event occurs.
LOSS PER SHARE
In 1997, Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS No. 128"), replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effect of options, warrants and convertible securities. All per share
amounts for all prior periods have been presented and, where appropriate,
restated to conform to the SFAS No. 128 requirements.
Both basic and diluted loss per share are computed using the weighted average
number of shares of common stock outstanding. Common equivalent shares from
stock options and warrants are excluded from the computation of diluted
earnings per share as their effect would be antidilutive.
45
<PAGE>
STOCK OPTION PLANS
Effective January 1, 1996, the Company has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123") and accordingly,
is continuing to account for its stock-based compensation plans under
previous accounting standards. The adoption of SFAS No. 123 had no impact on
the Company's results of operations or financial position.
NOTES RECEIVABLE FROM OFFICERS
The Company advanced funds to certain officers in exchange for notes secured
by mortgages on real property. Interest on these notes accrues at 8.5% per
annum.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year data to conform to the
1997 presentation.
2. DISPOSITION OF SALES AND MARKETING DIVISION
On October 8, 1997, the Company entered into an Asset Purchase Agreement (the
"Agreement") to sell its sales and marketing division (the "Division") to
Watson Laboratories, Inc. ("Watson"), a wholly owned subsidiary of Watson
Pharmaceuticals, Inc. Under the terms of the Agreement, Watson assumed the
Division's co-promotion agreements, acquired certain of its operating assets
and the right to hire approximately 70 employees of the Division. As
consideration for these assets, the Company received $8.0 million from
Watson, with up to $1.0 million more due to the Company if Watson is able to
hire and retain, as of specified future dates, certain percentages of the
employees from the Division.
In order to satisfy certain provisions of the Agreement, the Company entered
into, and transferred to Watson, agreements with two pharmaceutical companies
for marketing rights and NDAs for two drugs with an aggregate cost of $2.0
million, of which the Company paid $1.0 million in October 1997. An
additional $1.0 million is payable by the Company in future installments.
Pursuant to the Agreement, $1.0 million of the $8.0 million in proceeds from
the sale of the Division was deposited into an escrow account to satisfy the
Company's future obligations related to the acquisition of these marketing
rights and NDAs.
3. DEVELOPMENT AND COMMERCIALIZATION AGREEMENT WITH WYETH-AYERST
LABORATORIES
In May 1997, the Company entered into a development and commercialization
agreement for Co 2-6749, its lead anxiolytic compound, with the Wyeth-Ayerst
Laboratories Division ("Wyeth-Ayerst") of American Home Products Corporation
("AHP"). Under the terms of the agreement, Wyeth-Ayerst paid CoCensys a
non-refundable $5.0 million licensing fee and AHP paid $5.0 million to
purchase 100,000 shares of the Company's Series C Convertible Preferred
Stock. Additionally, CoCensys will receive specified milestone payments
dependent upon the achievement of key development events and $750,000 per
quarter for up to three years to identify back-up compounds. However, if Co
2-6749 fails to meet certain criteria, and the back-up program fails to
produce a back-up compound that meets other certain criteria, Wyeth-Ayerst
has the right to terminate the back-up program and require CoCensys to
reimburse a portion of the funds paid to fund the back-up program.
Wyeth-Ayerst will be responsible for the costs associated with developing Co
2-6749. The Company and Wyeth-Ayerst will co-promote any resulting
46
<PAGE>
product in certain market segments in the United States, while Wyeth-Ayerst
will have rights to develop, register and market any drugs derived from the
collaboration in the rest of the world, subject to royalty obligations to
CoCensys. The preferred stock is convertible into common stock after May 12,
1999, into a number of shares of common stock equal to $5.0 million divided
by the conversion price, which will be determined pursuant to a formula based
partially on the market price of the common stock at the time of conversion
(subject to certain minimum and maximum limits).
4. MARKETING AND DEVELOPMENT COLLABORATION WITH WARNER-LAMBERT COMPANY
In October 1995, the Company entered into a collaboration with Warner-Lambert
Company ("Warner-Lambert") and its Parke-Davis division to develop and market
therapeutic drugs for the treatment of certain central nervous system
disorders. This arrangement consists of the Research, Development and
Marketing Collaboration Agreement (the "1995 Warner Collaboration Agreement"),
for the worldwide 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
the Parke-Davis Promotion Agreement, the Company co-promoted Parke-Davis'
central nervous system drug, Cognex-Registered Trademark-, until June 1997 when
Parke-Davis terminated the co-promotion agreement. In October 1997, the 1995
Wartner Collaboration Agreement was extended until October 1999.
Under the 1995 Warner Collaboration Agreement, both companies 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.
Warner-Lambert is obligated to pay its specified portion of the development
costs and to make certain milestone payments, upon achievement of certain
clinical development and regulatory milestones, for each development
compound. Payments received under the 1995 Warner Collaboration Agreement
are recognized as co-development revenues and payments made are recognized as
expenses.
Pursuant to the 1995 Warner Collaboration Agreement, Warner-Lambert purchased
$2.0 million of CoCensys Common Stock in October 1995 and an additional $2.0
million of CoCensys Common Stock in March 1997. Pursuant to the 1997
extension of the Warner Collaboration Agreement, Warner-Lambert purchased
14,286 shares of the Company's Series C Convertible Preferred Stock for $1.0
million in October 1997 and an additional 85,714 shares of the same series of
convertible preferred stock for $6.0 million in January 1998.
As part of the extension of the Warner Collaboration Agreement in October
1997, the companies agreed to expand the collaboration to allow the companies
to analyze and consider for collaborative development each company's AMPA
modulator technologies. In January 1998, the parties agreed to return the
focus of their collaboration agreement solely to SSNRAs. Each party retained
all rights to its respective AMPA modulator technology. In addition, as part
of removal of the AMPA modulator technology from the Warner Collaboration
Agreement, the Company is obligated to issue to Warner-Lambert $1 million in
CoCensys common stock in January 1999, based on the then current stock price.
47
<PAGE>
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 and purchased 100,000
shares of the Company's Series B Convertible Preferred Stock for $7.0
million. The license fee was recognized as co-development revenue in 1996.
The preferred stock is convertible to common stock on May 17, 1998, or
earlier at the Company's option. 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 the compound and its back-up compounds. In addition,
the Company will receive nonrefundable milestone payments upon the occurrence
of certain events in the development of the compound. 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. 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,
through its Sales Division, promoted Somerset's drug Eldepryl-Registered
Trademark- to neurologists in the United States for the treatment of
Parkinson's disease. Effective January 1, 1997, the initial agreement was
superseded by the 1997 Somerset Promotion Agreement. Under the 1997 Somerset
Promotion Agreement, CoCensys had the exclusive right to detail Eldepryl to
certain neurologists and other physicians in the United States and was
compensated based upon the number of details undertaken and gross sales of
Eldepryl. In October 1997 the Company sold its sales and marketing division,
and all related co-promotion agreements, to Watson.
7. MARKETING AND DEVELOPMENT COLLABORATION WITH NOVARTIS PHARMA, A.G.
In May 1994, the Company entered into a marketing and development
collaboration with Novartis Pharma, A.G. (formerly Ciba-Geigy Limited) for
the co-promotion by the Company of certain Novartis products and the
development and commercialization of ACEA 1021, a compound being developed by
the Company. This collaboration consisted of the Novartis Promotion Agreement
and the Novartis Research and Development Agreement.
Pursuant to the Novartis Promotion Agreement, CoCensys established a sales
force to co-promote and market certain Novartis products in the United States
initially to psychiatrists. The agreement provided for the advance of funds
to the Company to cover a portion of the expenses incurred by the CoCensys
sales force in promoting the Novartis products. CoCensys realized
co-promotion revenues from its share of sales of Novartis products above
certain baseline levels specified in the contract. The Novartis Promotion
Agreement terminated at the end of 1996.
In connection with the Novartis Research and Development Agreement, Novartis
purchased $7.0 million of CoCensys common stock and agreed to make certain
nonrefundable milestone payments in connection with specified events in the
course of the development of ACEA 1021. In April 1997, Novartis advised
48
<PAGE>
the Company that it would not continue the development of ACEA 1021, and the
agreement terminated effective October 1997. The Company is seeking a new
partner to develop ACEA 1021. There can be no assurance that the Company
will be able to secure another partner to continue the development of this
compound.
8. LEASE COMMITMENTS
The Company leases office and research facilities and certain equipment under
operating leases and capital leases with varying terms extending through July
2002. Annual future minimum payments under operating and capital leases as
of December 31, 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
Year ending December 31,
1998 $ 968 $ 430
1999 861 325
2000 858 280
2001 852 29
2002 530 -
--------- -------
Total minimum payments $ 4,069 1,064
--------
--------
Less amount representing interest (144)
-------
Present value of future minimum payments 920
Current portion (353)
-------
Long-term portion $ 567
-------
-------
</TABLE>
Rent expense for the years ended December 31, 1997, 1996 and 1995 was
$1,040,000, $1,082,000, and $677,000, respectively.
9. COMMON STOCK
The Company has reserved 11.1 million shares of common stock for issuance
upon conversion of preferred stock, exercise of options and warrants, and for
issuance under the 1995 Employee Stock Purchase Plan.
STOCKHOLDER RIGHTS PLAN
In April 1995, the Company adopted a Stockholder Rights Plan (the "Plan")
which provides for the distribution of rights ("Rights") to holders of
outstanding shares of common stock. Pursuant to the Plan, a portion of
Convertible Preferred Stock was designated as Junior Preferred Stock, of
which 350,000 shares were reserved for issuance upon exercise of the Rights.
The Rights will become exercisable only in the event, with certain
exceptions, that an acquiring party accumulates or announces an offer to
acquire 20 percent or more of the Company's voting stock. Each Right
entitles the holder to buy one-hundredth of a share of Junior Preferred Stock
at a price of $25. In addition, upon the occurrence of certain events,
holders of Rights will be entitled to purchase either CoCensys' stock or
shares in an "acquiring entity" at half of market value. The Company will
generally be entitled to redeem the Rights at $.001 per right at
49
<PAGE>
any time until the tenth day following acquisition of a 20 percent position
in its voting stock. The Rights expire in April 2005.
10. STOCK OPTION PLANS
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided under SFAS
No. 123 requires use of option valuation models that were that were not
developed for use in valuing employee stock options. Under APB 25, for
certain options the Company recognizes as deferred compensation expense the
excess of fair market value of the common stock at the date of grant over the
aggregate exercise price of such options. This deferred compensation expense
is amortized ratably over the vesting period of each option. During the
years ended December 31, 1997 and 1996, the Company recorded deferred
compensation of $579,000 and $629,000, respectively, in connection with the
issuance and termination of certain stock options.
Pro forma information regarding net income and earnings per share is required
by SFAS No. 123, and has been determined as if the Company hashad accounted
for its employee stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using
the a Black-Scholes option pricing model with the following weighted-average
assumptions for 1997 and 1996 respectively: risk-free interest rates of 6.1%
and 6.2%, dividend yield of 0%, volatility factors of the expected market
price of the Company's common stock of 44.2% and a weighted-average expected
life of the option of 4.6 years and 5.0 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide for a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information is as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net loss $(17,974) $(19,745) $(18,395)
--------- --------- ---------
--------- --------- ---------
Net loss per share $ ($0.80) $ (0.91) $ (1.06)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The results above are not likely to be representative of the effects of
applying SFAS No. 123 on reported net income or loss for future years as
these amounts reflect the expense for only one or two years of vesting.
50
<PAGE>
A summary of the Company's stock option activity, including those issued
outside of plans, and related information is as follows (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
SHARES WEIGHTED-
AVAILABLE SHARES OPTION AGGREGATE AVERAGE
FOR OUT- PRICE EXERCISE EXERCISE
GRANT STANDING PER SHARE PRICE PRICE
--------- -------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 33 1,601 $0.05 -$5.21 2,006 $ 1.25
Authorized 1,945 - - -
Granted (940) 940 $0.50 -$8.13 5,258 5.59
Exercised - (89) $0.05 -$5.21 (109) 1.22
Canceled and forfeited 43 (43) $0.20 -$3.29 (92) 2.14
-------- ------- -----
BALANCE, DECEMBER 31, 1995 1,081 2,409 $0.05 -$8.13 7,063 2.93
Authorized 2,800 - - -
Granted (961) 961 $3.25 -$9.13 5,705 5.94
Exercised - (139) $0.20 -$5.21 (194) 1.40
Canceled and f Forfeited 184 ( 184) $0.20 -$5.21 (942) 5.12
-------- ------- ------
BALANCE, DECEMBER 31, 1996 3,104 3,047 $0.05 -$9.13 11,632 3.82
Granted (1,703) 1,703 $3.00 -$7.13 8,698 5.11
Exercised - (315) $0.05 -$5.21 (199) 0.63
Canceled and f Forfeited 174 ( 174) $2.50 -$8.38 (815) 4.68
-------- ------- ------
BALANCE, DECEMBER 31, 1997 1,575 4,261 $0.05 -$9.13 $19,316 $ 4.56
-------- ------- ------
-------- ------- ------
</TABLE>
The weighted-average fair value of options granted was $3.06 and $3.25 during
1997 and 1996, respectively. The weighted-average remaining contract life
was 7.3 years and 6.8 years for 1997 and 1996, respectively.
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
RANGE WEIGHTED EXERCISE
OF NUMBER REMAINING AVERAGE NUMBER PRICE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE WEIGHTED-
PRICES (IN THOUSANDS) LIFE PRICE (IN THOUSANDS) AVERAGE
------------- -------------- ----------- ------- -------------- ---------
<S> <C> <C> <C> <C> <C>
$0.05 to 0.50 650 3.5 $ 0.31 650 $ 0.31
1.50 to 3.93 1,279 8.5 3.34 457 3.11
4.00 to 9.13 2,332 7.6 6.43 746 6.52
</TABLE>
As of December 31, 1996, oOptions to purchase approximately 1.9 million, 1.5
million and 1.1 million shares of common stock were exercisable as of
December 31, 1997, 1996 and 1995, respectively.
1990 STOCK OPTION PLAN
Under the Company's 1990 Stock Option Plan, as amended, options granted to
purchase common stock of the Company may be either incentive stock options to
employees or nonqualified stock options to employees, directors or
consultants, at the discretion of the Board of Directors. The plan permits
the Company to grant incentive stock options at 100% of the fair value at the
date of grant, while statutory stock options may be granted at 50% of the
fair value at the grant date. Options granted to date generally
51
<PAGE>
vest at the rate of 25% of the total shares upon the first anniversary of the
vesting commencement date, and 2.08% of the total shares per month
thereafter. Vesting begins on either the grant date or, if different, on the
vesting commencement date specified by the Board of Directors. Such vesting
is subject to continued employment with the Company. The options expire ten
years from the date of grant or 90 days from termination, if sooner.
1992 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In December 1992, the Company adopted the 1992 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan"), as amended, to provide for the automatic
grant of options to purchase shares of common stock to non-employee directors
of the Company. Each such director is granted an option to purchase 20,000
shares of common stock (40,000 shares for the Chairman of the Board). At the
beginning of each fiscal year, each non-employee director will be granted an
option to purchase an additional 8,000 shares of common stock (12,000 for the
Chairman). Vesting on the initial grant occurs in five equal annual
installments from the date of the grant for each year that the optionee
remains a director. Annual grants vest in full one year from the date of
grant. Vesting accelerates upon certain changes in ownership of the Company.
The exercise price of options under the Directors' Plan must equal or exceed
the fair market value of the common stock on the date of the grant.
1995 EMPLOYEE STOCK PURCHASE PLAN
In March 1995, the Company adopted the 1995 Employee Stock Purchase Plan and
reserved 350,000 shares of common stock for issuance thereunder. In June
1997, the Company, subject to stockholder approval, reserved an additional
200,000 shares for issuance under the plan. Pursuant to the provision of the
plan, employees purchased 90,900, 112,743 and 39,730 shares of common stock
in 1997, 1996 and 1995, respectively, at $2.66 to $7.12 per share.
1996 EQUITY INCENTIVE PLAN
In December 1996, the Company adopted the 1996 Equity Incentive Plan to
provide for the issuance of stock options, restricted stock, stock bonuses
and stock appreciation rights to employees, directors or consultants, at the
discretion of the Board of Directors. The plan permits the Company to grant
incentive stock options at 100% of the fair value at the date of grant, while
nonqualified stock options may be granted at 85% of the fair value at the
grant date. Options granted will generally vest at the rate of 25% of the
total shares upon the first anniversary of the vesting commencement date, and
2.08% of the total shares per month thereafter. Vesting will begin on either
the grant date or, if different, on the vesting commencement date specified
by the Board of Directors. Such vesting will be subject to continued
employment with the Company. The options will expire ten years from the date
of grant or 90 days from termination, if sooner. The Company has reserved
2.8 million shares of common stock for issuance under this plan.
OTHER OPTIONS AND WARRANTS
In September 1990, the Company granted to a director of the Company an option
to purchase 20,000 shares of common stock at $.05 per share, outside of any
plans. The option is fully vested and expires in September 2001, or three
months after termination as a director, if sooner.
52
<PAGE>
In November 1995, the Company granted to an officer of the Company an option
to purchase 25,000 shares of common stock at $.50 per share, outside of any
plans. The option is fully vested and expires in November 2005.
In connection with the June 1994 purchase of Acea Pharmaceuticals, Inc., the
Company issued warrants to purchase 31,982 shares of common stock at $0.04
per share. The warrants expire on December 13, 1998.
In July 1992, the Company issued a warrant to purchase 42,000 shares of
common stock at $5.00 per share in connection with a capital lease agreement.
The warrant expires in July 2002.
As part of a private offering in June 1995 that included the sale of 3.7
million shares of common stock, the Company issued 1.5 million warrants.
Each warrant entitles the holder to purchase one share of common stock at a
pre-determined price ranging from $3.90 per share to $4.40 per share during
the five-year exercise period. As of December 31, 1997, approximately 1.4
million of these warrants were outstanding.
11. DEFERRED INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
at December 31, are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
DEFERRED TAX LIABILITIES
Book/tax depreciation difference $ (161) $ (115)
---------- ----------
Total deferred tax liabilities (161) (115)
DEFERRED TAX ASSETS
Net operating loss carryovers 27,860 22,937
Research and development credit carryovers 4,822 3,612
Capitalized state research and development costs 5,376 4,005
Others 152 158
---------- ----------
Total deferred tax assets 38,210 30,712
Valuation allowance for deferred tax assets (38,049) (30,597)
---------- ----------
Net deferred tax assets 161 115
---------- ----------
Net deferred taxes $ - $ -
---------- ----------
---------- ----------
</TABLE>
At December 31, 1997, the Company had operating loss carryovers of
approximately $82.0 million for federal income tax purposes. The federal
loss carryovers begin to expire in 2004. For federal and California income
tax purposes, the Company also had unused research and development credits of
approximately $3.7 million and $1.2 million respectively, which expire
beginning in 2004. The difference between the financial reporting and tax
loss carryforwards for California purposes is attributable to the
capitalization of research and development expenses and the 50% limitation on
loss carryforwards for California tax purposes.
53
<PAGE>
The Tax Reform Act of 1986 includes provisions which significantly limit
potential use of net operating losses and tax credit carryovers in situations
where there is a change in ownership, as defined in Internal Revenue Service
Section 382, of more than 50% during a three-year period. Accordingly, if a
change in ownership occurs, the ultimate benefit realized from these
carryovers may be significantly reduced in total, and the amount that may be
utilized in any given year may be significantly limited. The limitation is
computed based upon the fair market value of the Company at the time of the
ownership change multiplied by the federal long-term tax-exempt borrowing
rate. California has enacted similar legislation. The Company has had stock
issuances and ownership changes have occurred. The first ownership change
occurred in 1990 with an annual limitation of approximately $400,000 on
accumulated net operating losses of approximately $800,000. Another
ownership change occurred as a result of the Acea acquisition in June 1994.
The annual limitation is approximately $2.4 million on accumulated net
operating losses of approximately $24.6 million.
In addition to the net operating losses discussed above, Acea had net
operating loss carryovers at June 30, 1994 of approximately $6.3 million for
federal income tax purposes resulting from operations before being acquired
by the Company. As a result of the acquisition, Acea experienced greater
than 50% change in ownership. Accordingly, under the provisions of the 1986
Tax Reform Act, the use of the Acea net operating loss carryovers is limited
to approximately $900,000 per year. These carryovers begin to expire in 2007
for federal income tax purposes. The ultimate realization of the benefit of
these loss carryovers is dependent on future profitable operations.
12. EMPLOYEE SAVINGS PLAN
The Company has an employee savings plan which permits participants to make
contributions by salary reduction pursuant to section 401(k) of the Internal
Revenue Service. During 1996, the Company began matching 50% of a
participant's contribution up to a maximum participant contribution of 4% of
eligible compensation. In connection with this matching contribution, the
Company recognized expense of $176,000 and $51,000 in 1997 and 1996,
respectively.
13. SUBSEQUENT EVENT
On January 8, 1998, the Company announced plans to license certain non-core
technology to a separate stand alone venture named Cytovia, Inc. ("Cytovia").
This new company will focus on the commercialization of patented drug
screening technology, using living cells, in the area of apoptosis or
programmed cell death. In exchange for transferring the rights to the
underlying technology to Cytovia, CoCensys will receive approximately 55% of
the initial outstanding common stock of Cytovia, will be entitled to receive
certain royalties and will retain certain rights relating to the development
of future therapeutic agents for central nervous system disorders. Except
for a short term bridge loan to cover initial organization and start up
costs, CoCensys is not expected to provide any additional funding to Cytovia.
Management estimates that this bridge loan will not exceed $750,000. It is
anticipated that Cytovia will secure venture funding during the first quarter
of 1998 and that it will repay CoCensys in full for any funds that have been
advanced. However, there can be no assurance that Cytovia will secure such
funding or, in the absence of such funding, that Cytovia will be able to
repay the Company.
54
<PAGE>
Exhibit 3(i).1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
COCENSYS, INC.
I.
The name of this corporation is CoCensys, Inc.
II.
The address of the registered office of the corporation in the State of
Delaware is 32 Loockerman Square, Suite L-100, City of Dover, County of Kent,
and the name of the registered agent of the corporation in the State of Delaware
at such address is the Prentice Hall Corporation System.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is thirty-five
million (35,000,000) shares. Thirty million (30,000,000) shares shall be Common
Stock, each having a par value of one-tenth of One Cent ($.001). Five million
(5,000,000) shares shall be Preferred Stock, each having a par value of
one-tenth of One Cent ($.001).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate
pursuant to the Delaware General Corporation Law, to fix or alter from time to
time the designation, powers, preferences and rights of the shares of each such
series and the qualifications, limitations or restrictions thereof, including
without limitation the dividend rights, dividend rate, conversion rights, voting
rights, rights and terms of redemption (including sinking fund provisions),
redemption price or prices, and the liquidation preferences of any wholly
unissued series of Preferred Stock, and to establish from time to time the
number of shares constituting any such series and the designation thereof, or
any of them (a "Preferred Stock Designation"); and to increase or decrease the
number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be decreased in accordance with
the foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
1.
<PAGE>
C. No share or shares of any series of Preferred Stock acquired by the
Corporation by reason of redemption, purchase, conversion or otherwise shall be
reissued as part of such series, and the Board of Directors is authorized,
pursuant to Section 243 of the Delaware General Corporation law, to retire any
such share or shares. The retirement of any such share or shares shall not
reduce the total authorized number of shares of Preferred Stock.
V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed exclusively
by one or more resolutions adopted by the Board of Directors.
Following the closing of the initial public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "1933 Act"), covering the offer and sale of Common Stock to the public (the
"Initial Public Offering"), the directors shall be divided into three (3)
classes designated as Class I, Class II and Class III, respectively. Directors
shall be assigned to each class in accordance with a resolution or resolutions
adopted by the Board of Directors. At the first annual meeting of stockholders
following the closing of the Initial Public Offering, the term of office of the
Class I directors shall expire and Class I directors shall be elected for a full
term of three (3) years. At the second annual meeting of stockholders following
the closing of the Initial Public Offering, the term of office of the Class II
directors shall expire and Class II directors shall be elected for a full term
of three (3) years. At the third annual meeting of stockholders following the
closing of the Initial Public Offering, the term of office of the Class III
directors shall expire and Class III directors shall be elected for a full term
of three years. At each succeeding annual meeting of stockholders, directors
shall be elected for a full term of three (3) years to succeed the directors of
the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
Any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other causes shall be filled by either (i) the
affirmative vote of the holders of a majority of the voting power of the
then-outstanding shares of voting stock of the corporation entitled to vote
generally in the election of directors (the "Voting Stock") voting together as a
single class; or (ii) by the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of the Board of
Directors. Newly created directorships resulting from any increase in the
number of directors shall, unless the Board of
2.
<PAGE>
Directors determines by resolution that any such newly created directorship
shall be filled by the stockholders, be filled only by the affirmative vote of
the directors then in office, even though less than a quorum of the Board of
Directors. Any director elected in accordance with the preceding sentence shall
hold office for the remainder of the full term of the class of directors in
which the new directorship was created or the vacancy occurred and until such
director's successor shall have been elected and qualified.
B. The Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the Voting Stock. In
furtherance and not in limitation of the power conferred by statute, the Board
of Directors is expressly authorized to adopt, amend, supplement or repeal the
Bylaws.
C. The directors of the corporation need not be elected by written ballot
unless the Bylaws so provide.
D. Following the closing of the Initial Public Offering, no action shall
be taken by the stockholders of the corporation except at an annual or special
meeting of stockholders called in accordance with the Bylaws and no action shall
be taken by the stockholders by written consent.
E. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
F. Any director, or the entire Board of Directors, may be removed from
office at any time (i) with cause by the affirmative vote of the holders of at
least a majority of the voting power of all of the then-outstanding shares of
the Voting Stock, voting together as a single class; or (ii) without cause by
the affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
Voting Stock.
VI.
(1) A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.
(2) The corporation is authorized to provide indemnification of agents (as
defined in Section 145 of the Delaware General Corporation Law) for breach of
duty to the corporation and its stockholders through bylaw provisions, through
agreements with the agents, and/or through
3.
<PAGE>
stockholder resolutions, or otherwise, in excess of the indemnification
otherwise permitted by Section 145 of the Delaware General Corporation Law,
subject to the limitations on such excess indemnification set forth in Section
102 of the Delaware General Corporation Law.
(3) Any repeal or modification of this Article VI by the stockholders of
the corporation shall not adversely affect any right or protection of a director
of the corporation existing at the time of such repeal or modification.
VII.
Notwithstanding any other provisions of this Amended and Restated
Certificate of Incorporation or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any affirmative vote of the
holders of any particular class or series of the Voting Stock required by law,
this Amended and Restated Certificate of Incorporation or any Preferred Stock
Designation, the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding
shares of the Voting Stock, voting together as a single class, shall be required
to alter, amend or repeal Article V or Article IX.
VIII.
The corporation is to have perpetual existence.
IX.
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, except as provided in
Article VII of this Certificate, and all rights conferred upon the stockholders
herein are granted subject to this right.
4.
<PAGE>
Exhibit 3(i).2
CERTIFICATE OF DESIGNATION
OF
SERIES A JUNIOR PARTICIPATING 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 a meeting duly called and held on April 25, 1995:
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 A Junior Participating Preferred Stock:
SECTION 1. DESIGNATION AND AMOUNT. Three Hundred Fifty Thousand
(350,000) shares of Preferred Stock, $.001 par value, are designated
"Series A Junior Participating Preferred Stock" with the rights,
preferences, privileges and restrictions
1.
<PAGE>
specified herein (the "Junior Preferred Stock"). Such number of
shares may be increased or decreased by resolution of the Board of
Directors; PROVIDED, that no decrease shall reduce the number of
shares of Junior Preferred Stock to a number less than the number of
shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants
or upon the conversion of any outstanding securities issued by the
Corporation convertible into Junior Preferred Stock.
SECTION 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and
superior to the Junior Preferred Stock with respect to dividends, the
holders of shares of Junior Preferred Stock, in preference to the
holders of Common Stock, par value $.001 per share (the "Common
Stock"), of the Corporation, and of any other junior stock, shall be
entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the first day of March, June, September
and December in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Junior Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $l.00 or (b)
subject to the provision for adjustment hereinafter set forth, 100
times the aggregate per share amount of all cash dividends, and 100
times the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions, other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise) declared on the Common
Stock since the immediately preceding Quarterly Dividend Payment Date
or, with respect to the first Quarterly Dividend Payment Date, since
the first issuance of any share or fraction of a share of Junior
Preferred Stock. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock)
into a greater or lesser number of shares of Common Stock, then in
each such case the amount to which holders of shares of Junior
Preferred
2.
<PAGE>
Stock were entitled immediately prior to such event under clause (b)
of the preceding sentence shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on
the Junior Preferred Stock as provided in paragraph (A) of this
Section immediately after it declares a dividend or distribution on
the Common Stock (other than a dividend payable in shares of Common
Stock); provided that, in the event no dividend or distribution shall
have been declared on the Common Stock during the period between any
Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $1.00 per share on the Junior
Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Junior Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date
for the first Quarterly Dividend Payment Date, in which case dividends
on such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of
holders of shares of Junior Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the
shares of Junior Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Junior
Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.
3.
<PAGE>
SECTION 3. VOTING RIGHTS. The holders of shares of Junior
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Junior Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall
at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to which
holders of shares of Junior Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a
fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Certificate of Determination of Preferences creating a series of
Preferred Stock or any similar stock, or by law, the holders of shares
of Junior Preferred Stock and the holders of shares of Common Stock
and any other capital stock of the Corporation having general voting
rights shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Junior 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. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Junior Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Junior Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
4.
<PAGE>
(I) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Junior Preferred Stock;
(II) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with the
Junior Preferred Stock, except dividends paid ratably on the Junior
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(III) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Junior Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such junior stock
in exchange for shares of any stock of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation or winding
up) to the Junior Preferred Stock; or
(IV) redeem or purchase or otherwise acquire for
consideration any shares of Junior Preferred Stock, or any shares of
stock ranking on a parity with the Junior Preferred Stock, except in
accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares
upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine in
good faith will result in fair and equitable treatment among the
respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
SECTION 5. REACQUIRED SHARES. Any shares of Junior Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their
5.
<PAGE>
cancellation become authorized but unissued shares of Preferred Stock
and may be reissued as part of a new series of Preferred Stock subject
to the conditions and restrictions on issuance set forth herein, in
the Restated Certificate of Incorporation, or in any other Certificate
of Determination of Preferences creating a series of Preferred Stock
or any similar stock or as otherwise required by law.
SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any
liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (1) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Junior Preferred Stock unless, prior
thereto, the holders of shares of Junior Preferred Stock shall have
received $100 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the
date of such payment, provided that the holders of shares of Junior
Preferred Stock shall be entitled to receive an aggregate amount per
share, subject to the provision for adjustment hereinafter set forth,
equal to 100 times the aggregate amount to be distributed per share to
holders of shares of Common Stock, or (2) to the holders of shares of
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Junior Preferred Stock, except
distributions made ratably on the Junior Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders
of all such shares are entitled upon such liquidation, dissolution or
winding up. In the event the Corporation shall at any time declare or
pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such
case the aggregate amount to which holders of shares of Junior
Preferred Stock were entitled immediately prior to such event under
the proviso in clause (1) of the preceding sentence shall be adjusted
by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
SECTION 7. CONSOLIDATION, MERGER, ETC. In case the Corporation
shall enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for or
changed into other stock or securities, cash and/or any other
property, then in any such case each share of Junior Preferred Stock
shall at the same time be similarly exchanged or changed into an
amount per share, subject to the provision for adjustment hereinafter
set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or
6.
<PAGE>
any other property (payable in kind), as the case may be, into which
or for which each share of Common Stock is changed or exchanged. In
the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such
case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Junior Preferred Stock shall be
adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.
SECTION 8. NO REDEMPTION. The shares of Junior Preferred Stock
shall not be redeemable.
SECTION 9. RANK. The Junior Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets,
junior to all series of any other class of the Corporation's Preferred
Stock.
SECTION 10. 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 Junior 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 Junior Preferred Stock, voting
together as a single class.
7.
<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
8.
<PAGE>
Exhibit 3(i).3
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 3. 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
1.
<PAGE>
(the "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 3(i).4
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
COCENSYS, INC.
Daniel L. Korpolinski and Alan C. Mendelson hereby certify that:
FIRST: They are the duly elected and acting President and Secretary,
respectively, of CoCensys, Inc., a Delaware corporation.
SECOND: The name of this Corporation is COCENSYS, INC. (the "Corporation").
THIRD: The date on which the Amended and Restated Certificate of
Incorporation was filed with the Secretary of State of the State of Delaware is
February 5, 1993. A Certificate of Retirement of Series A, Series B and Series
C Preferred Stock was filed with the Secretary of State of the State of Delaware
on February 5, 1993. A Certificate of Designation of Series A Junior
Participating Preferred Stock was filed with the Secretary of State of the State
of Delaware on May 15, 1995. A Certificate of Powers, Designation, Preferences,
Rights and Limitations of Series B Convertible Preferred Stock was filed with
the Secretary of State of the State of Delaware on May 17, 1996.
FOURTH: The amendment to the Corporation's Amended and Restated Certificate
of Incorporation set forth below was duly adopted by the Board of Directors of
the Corporation, and approved by the Stockholders in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FIFTH: Article IV, Paragraph A of the Corporation's Certificate of
Incorporation is amended to read in its entirety as follows:
"IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is eighty million
(80,000,000) shares. Seventy-five million (75,000,000) shares shall be Common
Stock, each having a par value of one-tenth of one cent ($.001). Five million
(5,000,000) shares shall be Preferred Stock, each having a par value of
one-tenth of one cent ($.001)."
1.
<PAGE>
IN WITNESS WHEREOF, the undersigned have signed this Certificate of
Amendment of Amended and Restated Certificate of Incorporation this 12th day of
June, 1996 and hereby affirm and acknowledge under penalty of perjury that the
filing of this Certificate of Amendment of Amended and Restated Certificate of
Incorporation of CoCensys, Inc. is the act and deed of COCENSYS, INC.
COCENSYS, INC.
By: /s/ Daniel L. Korpolinski
______________________________________
Daniel L. Korpolinski, President and
Chief Executive Officer
ATTEST:
By: /s/ Alan C. Mendelson
____________________________________
Alan C. Mendelson,
Secretary
2.
<PAGE>
CERTIFICATE OF POWERS, DESIGNATION, PREFERENCES,
RIGHTS AND LIMITATIONS
OF
SERIES C 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 a meeting duly called and held on April 29, 1997:
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 C Convertible Preferred Stock:
SECTION 1. DESIGNATION AND AMOUNT. One Hundred
Thousand (100,000) shares of Preferred Stock, $.001 par
value, are designated "Series C Convertible Preferred Stock"
with the rights, preferences, privileges and restrictions
specified herein (the
1.
<PAGE>
"Series C Preferred Stock"). Such number of shares may be not
increased or decreased without the consent of the holder.
SECTION 2. DIVIDENDS AND DISTRIBUTIONS. The holders
of the Series C 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 C
Preferred Stock shall be non-cumulative.
SECTION 3. VOTING RIGHTS. Except as set forth
herein, or as otherwise provided by law, holders of Series C
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 C 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) $5,000,000 divided by
(b) the number of shares of Series C 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 C
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 C Preferred Stock in proportion to the
shares of Series C Preferred Stock then held by them.
SECTION 5. CONVERSION. Subject to the limitations set
forth in Subsection (B) below, the Series C Preferred Stock
shall convert only as follows:
(A) CONVERSION AT HOLDER'S OPTION. At any time after
May 11, 1999, the Series C Preferred Stock shall be
convertible, in whole or in part, on a maximum of three
occasions, at the
2.
<PAGE>
option of the holder, into such number of fully paid and
nonassessable shares of Common Stock equal to the quotient
of (a) the product of $50 and the number of shares of
Series C Preferred Stock being converted, divided by (b)
the Conversion Price.
The "Conversion Price" shall be equal to the greater of:
(i) $5.43 or
(ii) the lesser of:
(x) the Future Market Price x 0.80 or
(y) $7.76;
PROVIDED, HOWEVER, that if the Future Market Price is less
than $3.88, the Conversion Price shall be $4.37.
The "Future Market Price" set forth above shall be the
average closing price of the Common Stock for the period
commencing on the 23rd trading day prior to the date upon
which the holder delivers notice to the Corporation of such
conversion (each, a "Conversion Date") and ending on the
third trading day prior to the Conversion Date, as reported
in the WALL STREET JOURNAL, WESTERN EDITION.
(B) 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 C Preferred Stock may be
converted, shall be proportionately decreased or increased,
as appropriate.
(C) MECHANICS OF CONVERSION. Before any holder of
Series C 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 C 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 on the
Conversion Date, 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.
(D) 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 C 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 C Preferred Stock.
(E) FRACTIONAL SHARES. No fractional share shall be
issued upon the conversion of any share or shares of Series
C Preferred Stock. All shares of Common Stock (including
fractions thereof) issuable upon conversion of Series C
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.
(F) 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 first
Conversion Date shall be accelerated to the date immediately
preceding such Event, or such other date necessary to assure
that any holder of Series C Preferred Stock receives such
shares of stock, securities or other assets or property as
may be issued or payable with respect to or in exchange for
shares of Common Stock.
4.
<PAGE>
SECTION 6. NO REDEMPTION. The shares of Series C
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 C 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 C Preferred Stock, voting
together as a single class.
5.
<PAGE>
IN WITNESS WHEREOF the undersigned have executed this certificate as of May
12, 1997.
/s/ F. Richard Nichol, Ph.D.
--------------------------------------------
President and Chief Executive Officer
/s/ Alan C. Mendelson
--------------------------------------------
Secretary
6.
<PAGE>
CERTIFICATE OF POWERS, DESIGNATION, PREFERENCES,
RIGHTS AND LIMITATIONS
OF
SERIES D 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 by unanimous written consent on October 9, 1997:
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 D Convertible Preferred Stock:
SECTION 1. DESIGNATION AND AMOUNT. One Hundred
Thousand (100,000) shares of Preferred Stock, $.001 par
value, are designated "Series D Convertible Preferred Stock"
with the rights, preferences, privileges and restrictions
specified herein (the "Series D Preferred Stock"). Subject
to Section 7 hereof, such number of shares may be increased
or decreased by resolution of the Board of Directors.
1.
<PAGE>
SECTION 2. DIVIDENDS AND DISTRIBUTIONS. The holders
of the Series D 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 D
Preferred Stock shall be non-cumulative.
SECTION 3. VOTING RIGHTS. Except as set forth herein,
or as otherwise provided by law, holders of Series D
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 D 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, $70 (the "Original Issue
Price") per share (as adjusted for any combinations,
consolidations, stock distributions or stock dividends with
respect to such shares) of Series D 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 D
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 D Preferred Stock in proportion to the
shares of Series D Preferred Stock then held by them.
SECTION 5. CONVERSION. Subject to the limitations set
forth in Subsection (C) below, the Series D Preferred Stock
shall convert only as follows:
(A) AUTOMATIC CONVERSION. The Series D Preferred
Stock outstanding on October 13, 2001 (the "Automatic
Conversion 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 the aggregate Original Issue Price of such shares divided
by the average of the closing prices of the Corporation's
Common Stock
2.
<PAGE>
(as reported in The Wall Street Journal, Western Edition) for a
period of thirty (30) Trading Days ending on the third Trading Day
prior to the Automatic Conversion Date. A "Trading Day" shall mean
any day on which shares of the Corporation's Common Stock have been
traded on a national securities exchange, the Nasdaq Stock Market
or otherwise, as reported in the Wall Street Journal, Western
Edition.
(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 D Preferred Stock, in whole or in part (and on no
more than [four] occasions), into such number of fully paid
and nonassessable shares of Common Stock equal to the
aggregate Original Issue Price of such shares divided by the
greater of (a) the average of the closing prices of the
Corporation's Common Stock (as reported in The Wall Street
Journal, Western Edition) for the 30 Trading Days during the
period ending on the third Trading Day prior to the date of
original issuance of such shares or (b) the average of the
closing prices of the Corporation's Common Stock (as
reported in The Wall Street Journal, Western Edition) for a
period commencing thirty (30) Trading Days and ending on the
third Trading Day prior to the date upon which the
Corporation issues notice to the holders of Series D
Preferred Stock of such optional conversion.
(C) LIMITATION ON CONVERTED SHARES. The number of
shares of Common Stock issuable upon conversion of the
Series D Preferred Stock shall not be greater than
4,600,000.
(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 D Preferred Stock may be
converted, shall be proportionately decreased or increased,
as appropriate.
(E) MECHANICS OF CONVERSION. Before any holder of
Series D Preferred Stock shall be entitled to receive shares
of
3.
<PAGE>
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
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 D 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 D 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 D Preferred Stock.
(G) FRACTIONAL SHARES. No fractional share shall be
issued upon the conversion of any share or shares of Series
D Preferred Stock. All shares of Common Stock (including
fractions thereof) issuable upon conversion of Series D
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
4.
<PAGE>
shall be accelerated to the date immediately preceding such Event,
or such other date necessary to assure that any holder of Series D
Preferred Stock receives such shares of stock, securities or other
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 D
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 D 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 D Preferred Stock, voting
together as a single class.
IN WITNESS WHEREOF the undersigned have executed this certificate as of
October 13, 1997.
/s/ F. Richard Nichol, Ph.D.
--------------------------------------
F. Richard Nichol, Ph.D.
President and Chief Executive Officer
/s/ Alan C. Mendelson
--------------------------------------
Alan C. Mendelson
Secretary
5.
<PAGE>
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, 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.
AMENDED AND RESTATED RESEARCH, DEVELOPMENT AND MARKETING
COLLABORATION AGREEMENT
THIS AMENDED AND RESTATED RESEARCH, DEVELOPMENT AND MARKETING
COLLABORATION AGREEMENT ("Amendment") is made as of October, 1997, by and
between CoCensys, Inc., a Delaware corporation ("CoCensys"), located at 201
Technology Drive, Irvine, California 92618, Acea Pharmaceuticals, Inc., a
wholly owned subsidiary of CoCensys, Inc. ("Acea"), located at 201 Technology
Drive, Irvine, California 92618, and Warner-Lambert Company, a Delaware
corporation ("Warner"), located at 201 Tabor Road, Morris Plains, New Jersey
07950. As used in this Amendment, "CoCensys" shall include Acea.
WITNESSETH:
WHEREAS, CoCensys, Acea and Warner entered into that certain Research,
Development and Marketing Agreement as of October 26, 1995 relating to a
collaborative effort to discover and develop NMDA receptor subtype selective
antagonists (the "Original Agreement"); and
WHEREAS, the parties desire to amend and restate the original Agreement to
expand the scope of the research and development efforts thereunder and to
otherwise modify certain terms thereof.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises, covenants and conditions contained herein, CoCensys, Acea and Warner
hereby agree that, effective as of the date hereof, that certain Research,
Development and Marketing Collaboration Agreement among the parties, dated
October 26, 1995 is hereby amended and restated as follows:
SECTION 1. DEFINITIONS
The following capitalized terms shall have the meanings indicated for
purposes of this Amendment:
1.1. "AFFILIATE" shall mean any corporation, association, or other entity
which directly or indirectly controls, is controlled by or is under common
control with the party in question. As used in this definition of "Affiliate",
the term "control" shall mean direct
1
<PAGE>
or indirect beneficial ownership of more than 50% of the voting or income
interest in such corporation or other business entity.
1.2. "AGREEMENT" shall mean the Original Agreement as amended and restated
by this Amended and Restated Research, Development and Marketing Collaboration
Agreement.
1.3. "AMPA ANTAGONIST" shall mean an AMPA-type glutamate receptor
antagonist or a positive AMPA receptor modulator, the chemical structure of
which does not match that described in part (a) of Schedule 1.3 which is
attached hereto and incorporated herein by reference.
1.4 "BACKGROUND TECHNOLOGY" shall mean all technology, inventions,
information, data, know-how, compounds (including compounds arising from
research performed by CoCensys, Oregon, or UC pursuant to the Oregon/UC
Agreements), and materials (whether or not patented or patentable) that
(i) relate to the discovery, design, synthesis, delivery, development, testing,
use, manufacture or sale of NRSSAs or AMPA Antagonists that; (ii) with respect
to NRSSAs exist as of the Effective Date and with respect to AMPA Antagonists,
exist as of the Restatement Date; and (iii) are owned or Controlled by a party
hereto. Background Technology shall not include (i) any CoCensys Compounds or
(ii) any compounds which have been identified as active in the Field and which
were discovered, synthesized or developed by either party pursuant to the
Screening Collaboration Agreement, which such compounds shall be considered
"Collaboration Compounds." Background Technology also shall not include (i)
any compound described in part (a) of Schedule 1.3 owned or Controlled by
either Warner or by CoCensys or (ii) licostinel (ACEA-1021) or any backup
compound candidates that are primarily glycine site antagonists of the NMDA
receptor type of glutamate receptor, such compounds being identified by
CoCensys or its licensees and including but not limited to the compounds
covered by the patents listed in part (b) of Schedule 1.3.
1.5. "BULK PRODUCT" shall mean the active ingredient of any Product, in
bulk form.
1.6. "CIBA COLLABORATION" shall mean that research and development
collaboration regarding licostinel (Acea 1021), and certain back-up compounds
therefore, conducted pursuant to that certain Research and Development
Agreement by and between CoCensys, Acea, and Ciba-Geigy Limited, dated as of
December 23, 1994.
1.7. "COCENSYS COMPOUNDS" shall mean those compounds identified by
CoCensys prior to or following the term of the Screening Collaboration
Agreement, but prior to the Effective Date, as showing activity in the Field,
including, but not limited to, those compounds which are described in the
patent application referenced on Schedule 1.7 hereto. CoCensys Compounds
excludes any compound which has been identified by CoCensys (or its licensee)
as a Development Candidate and which was not discovered or designated primarily
as an NRSSA or an AMPA Antagonist.
2
<PAGE>
1.8 "CO-DEVELOPMENT PERCENTAGE" shall have the meaning set forth in
Section 5.3.
1.9 "COLLABORATION COMPOUND(S)" shall mean:
(i) any compound identified, discovered, synthesized, or developed
by either party during the Term of the Research Program and pursuant to the
Research Program, including without limitation, a compound which constitutes a
Non-Field Invention; or
(ii) any compound which was identified as active in the Field,
discovered, synthesized, or developed pursuant to research conducted by
CoCensys or Warner pursuant to the Screening Collaboration Agreement; or
(iii) any CoCensys Compound; or
(iv) any compound which is an analog or derivative of any compound
described in subsections (i), (ii), or (iii) of this definition of
"Collaboration Compound" and which analog or derivative is identified,
discovered, synthesized, or developed within 1 year after the end of the Term
of the Research Program.
Notwithstanding the foregoing, "Collaboration Compound" shall not
include (x) any Development Candidate identified, discovered, synthesized, or
developed by either party or (y) any compound identified, discovered,
synthesized, or developed independently by a party either prior to or after the
Effective Date as the result of research activities outside the Field
(including any efforts conducted under the Ciba Collaboration), if such
compound has no NRSSA or AMPA Antagonist activity or has only, or is later
discovered to have only, Incidental NRSSA Activity or Incidental AMPA Activity.
"Incidental NRSSA Activity" means NRSSA activity which is not a substantial
contributor to the compound's pharmacological activity. "Incidental AMPA
Activity" shall mean AMPA activity which is not a substantial contributor to
the compound's pharmacological activity.
1.10. "COLLABORATION LEAD COMPOUND(S)" shall have the meaning set
forth in Section 5.1.
1.11. "COLLABORATION PRODUCT(S)" shall mean any Collaboration Lead
Compound(s) in development from and after the date of filing of an IND with
respect to such Collaboration Lead Compound, through and including product
registration and commercial sales.
1.12. "COLLABORATION TECHNOLOGY" shall mean all (a) Collaboration
Compounds and information related thereto; (b) such technology, inventions,
information, data, know-how, and materials (whether or not patented or
patentable) that (i) a party hereto owns or Controls, (ii) relate to the Field,
and (iii) are conceived, generated, or reduced to practice during the Term of
the Research Program and pursuant
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to the Research Program or pursuant to Preclinical Development or
Development, including, without limitation, improvements on either party's
Background Technology; and (c) all patents and trade secrets covering any of
(a) or (b).
1.13. "CONTROL" shall mean possession of the ability to grant the
licenses or sub-licenses as provided for herein without violating the terms of
any agreement or other arrangement with any Third Party.
1.14. "CO-PROMOTION COUNTRY" shall mean with respect to a
Collaboration Lead Compound or Collaboration Product for which CoCensys has
exercised the Re-engagement Option, the United States of America and its
territories and possessions, including the Commonwealth of Puerto Rico.
1.15. "CO-PROMOTION EXPENSES" shall mean the following expenses
incurred by a party or for its account with respect to a Collaboration Product
which the parties are co-promoting pursuant to Section 7, to the extent
allocable to the preparation for the commercial launch of a Collaboration
Product in the Co-Promotion Country, or the marketing, promotion, and sales of
a Collaboration Product subsequent to the receipt of Regulatory Approval in the
Co-Promotion Country:
(i) the Cost of Goods; and
(ii) post-Regulatory Approval medical and clinical trial costs, costs
of monitoring adverse drug reactions, costs of quality control complaints, and
costs associated with maintenance of the Regulatory Approvals; and
(iii) costs of distribution and shipping of the Collaboration
Product to distributors and customers for the Collaboration Product; and
(iv) direct costs, specifically allocable to the Collaboration
Product, incurred for the sales (including cost of sales forces, specialty
sales force, call reporting and other monitoring/tracking costs; and regional
sales management and marketing management), advertising, promotion, and
marketing of the Collaboration Product through any means (including
advertisements, promotional literature, market research, symposia, exhibits,
and direct mail); and
(v) costs of product liability insurance and costs associated with
the defense and settlement of product liability claims; and
(vi) costs associated with the registration of the trademark used in
connection with such Collaboration Product or any trademark infringement
litigation; and
(vii) any consideration payable to Third Parties for licenses
required for the manufacture, importing, sale, marketing or use of the
Collaboration Product to the extent set forth in Sections 4.5(a) and 6.4(c);
and
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(viii) expenses associated with recalls; and
(ix) any other expenses on which the parties may mutually agree.
Co-Promotion Expenses will not include general corporate overhead.
1.16. "CORE U.S. DOSSIER" shall have the meaning set forth in
Section 5.3(c).
1.17. "COST OF GOODS" shall mean the cost of Bulk Products or Finished
Products sold and shall be computed in accordance with United States Generally
Accepted Accounting Standards. Cost of Goods shall include (i) in the case of
manufacturing services provided by Warner, its Cost of Manufacture of such
Finished Products, as well as the net cost or credit of any value-added taxes
actually paid or utilized in respect of the Finished Products and (ii) in the
case of Finished Products or Bulk Products acquired from Third Parties,
payments made by either party to such Third Parties, as well as the net cost or
credit of any value-added taxes actually paid or utilized in respect of the
Finished Products or Bulk Products.
1.18. "COST OF MANUFACTURE" shall mean, with respect to any Bulk
Product or Finished Product, the fully allocated cost of manufacturing such
Product (in accordance with Good Manufacturing Practices), which includes the
direct and indirect cost of any raw materials, packaging materials, and labor
(including benefits) utilized in such manufacturing (including formulation,
filling, finishing, labeling, and packaging, as applicable) plus an appropriate
share of all factory overhead, both fixed and variable, allocated to the
Product being manufactured, in accordance with the normal accounting practices
for all other products manufactured in the applicable facility.
1.19. "DEVELOPMENT" shall mean the development of any Collaboration
Product from and after the filing of an IND, through, and including product
registration.
1.20. "DEVELOPMENT CANDIDATE" shall mean a compound which, in the case
of NRSSA as of the Effective Date, and in the case of an AMPA Antagonist as of
the Restatement Date, is undergoing Preclinical Development, including clinical
development/scale-up, assay development, toxicology, pharmacokinetics,
metabolism, and safety pharmacology outside the Field.
1.21. "DEVELOPMENT COSTS" shall mean all costs and expenses reasonably
charged directly to Preclinical Development of any Collaboration Lead Compound
or Development of the applicable Collaboration Product, including preclinical
and clinical studies, pharmaceuticals development, manufacturing scale-up costs
and validation, qualification and certification costs (and after the effective
exercise of the Re-engagement Option shall be estimated in the Development Plan
and Budget). Development Costs shall include:
(i) the Costs of Goods for such Collaboration Product in Preclinical
Development or Development as set forth in Section 9.1(d); and
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(ii) direct and indirect labor (fringe benefits and overtime) at a
rate to be negotiated by the parties prior to the commencement of any
Preclinical Development; and
(iii) direct costs for outside professional services, including,
but not limited to, toxicology studies or clinical studies performed by Third
Parties, all to the extent supported by invoices and actual payments; and
(iv) direct charges (chemicals, lab supplies, animals and other
direct charges) at actual cost plus an allocation for overhead of 25% (cost
X 1.25).
General corporate overhead shall be excluded from Development Costs.
1.22. "DEVELOPMENT PLAN AND BUDGET" shall have the meaning set forth
in Section 5.3(c).
1.23. "DRUG APPROVAL APPLICATION" shall mean an application for
Regulatory Approval required before commercial sale or use of a Collaboration
Product as a drug in the Co-Promotion Country.
1.24. "EFFECTIVE DATE" shall mean October 26, 1995.
1.25. "EXECUTIVE COMMITTEE" shall have the meaning set forth in
Section 3.1.
1.26. "FDA" shall mean the United States Food and Drug Administration.
1.27. "FIELD" shall mean research, drug discovery and development
aimed at NRSSAs and AMPA Antagonists and all therapeutic benefits of NRSSAs and
AMPA Antagonists, including, without limitation, the treatment of stroke, head
trauma, pain, chronic neurodegenerative conditions, epilepsy, depression,
anxiety, psychosis, substance abuse, and other neurological and psychiatric
disorders.
1.28. "FINISHED PRODUCT" shall mean the finished pharmaceutical form,
in any formulation, of a Product, packaged for sales to Third Parties.
1.29. "IND" shall mean an Investigational New Drug Application.
1.30. "INDEPENDENT LEAD COMPOUND(S)" shall have the meaning set forth
in Section 5.3(j).
1.31. "INDEPENDENT PRODUCT(S)" shall have the meaning set forth in
Section 5.3(j).
1.32. "INVENTION(S)" shall have the meaning set forth in
Section 4.1(b).
1.33. "JOINT DEVELOPMENT COMMITTEE" or "JDC" shall have the meaning
set forth in Section 3.3.
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1.34. "MAA" shall mean a Marketing Approval Application filed with the
European Medicines Evaluation Agency or the appropriate health authority in the
applicable country in Europe.
1.35. "NDA" shall mean a New Drug Application.
1.36. "NET SALES" shall mean the gross amount actually received from
non-affiliated customers for all Products sold, after deduction for the
following items (i) trade, quantity, and cash discounts or rebates actually
allowed and taken, and any other adjustments, including, without limitation,
those granted on account of price adjustments, billing errors, rejected goods,
damaged goods and recall returns in such amounts as are customary in the trade;
(ii) credits, rebates, charge-back and prime vendor rebates, fees,
reimbursements or similar payments granted or given to wholesalers and other
distributors, buying groups, health care insurance carriers, pharmacy benefit
management companies, health maintenance organizations or other institutions or
health care organizations; (iii) any tax, tariff, customs duties, excise or
other duties or other governmental charge (other than an income tax) levied on
the sale, transportation or delivery of a Product and borne by the seller
thereof; (iv) payments or rebates paid in connection with sales of Products to
any governmental or regulatory authority in respect of any state or federal
Medicare, Medicaid or similar programs; and (v) any charge for freight,
insurance or other transportation costs.
1.37. "NON-FIELD INVENTIONS(S)" shall mean all technology, inventions,
information, data, know-how, compounds and material (whether or not patentable)
that a party hereto owns or Controls that are not useful or necessary for use
in the Field, but that are conceived, generated, or reduced to practice
(i) during the Term of the Research Program and pursuant to the Research
Program or (ii) pursuant to Preclinical Development or Development.
1.38. "NRSSA" shall mean an antagonist with selectivity for a specific
subtype of the NMDA type of glutamate receptor.
1.39. "OREGON" shall mean the University of Oregon, acting either
alone or on behalf of the University of California, Irvine, as the case may be.
1.40. "OREGON LICENSE AGREEMENT" shall mean that certain License
Agreement between Oregon (acting on its own behalf and on behalf of the
University of California, Irvine) and Acea, dated September 29, 1992, as may be
amended from time to time, and any successor agreements thereto.
1.41. "OREGON RESEARCH AGREEMENT" shall mean that certain Sponsored
Research Agreement between Oregon and Acea, dated September 10, 1992, as may be
amended from time to time, and any successor agreements thereto.
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1.42. "OREGON/UC AGREEMENTS" shall mean, collectively, the Oregon
License Agreement, the Oregon Research Agreement, the Oregon/UC Assignment
Agreement, and the UC Research Agreement.
1.43. "OREGON/UC ASSIGNMENT AGREEMENT" shall mean that certain
Agreement between Oregon and UC, dated September 23, 1992, as may be amended
from time to time, and any successor agreements thereto.
1.44. "ORIGINAL WARNER COMPOUND" shall mean any compound which is as
of the Restatement Date or thereafter, contained within Warner's internal
compound library and is other than a compound which is identified and first
synthesized during the Term of the Research Program pursuant to the Research
Program.
1.45. "PATENT RIGHTS" shall mean, with respect to CoCensys or Warner,
all United States and foreign patents (including all reissues, extensions,
substitutions, confirmations, re-registrations, re-examinations, revalidations,
and patents of addition) and patent applications (including, without
limitation, all continuations, continuations-in-part, and divisions thereof)
owned or Controlled by CoCensys or Warner, respectively, at any time during the
Term of this Agreement relating to the design, synthesis, delivery,
development, testing, use, manufacture, importation, offer for sale or sale of
Independent Lead Compounds, Independent Products, Collaboration Compounds,
Collaboration Lead Compounds, Collaboration Products, or other agents with
activity in the Field.
1.46. "PRECLINICAL DEVELOPMENT" shall mean all activities (including,
but not limited to, chemical development/scale-up, assay development,
toxicology, pharmacokinetics, metabolism, and safety pharmacology), which may
or may not be conducted pursuant to GMP/GLP, undertaken to develop a
Collaboration Lead Compound which are prior to the effective exercise of the Re-
engagement Option, determined by Warner (or after the effective exercise of the
Re-engagement Option, determined by the Joint Development Committee) to be
necessary or desirable to file an IND on such Collaboration Lead Compound,
including the preparation and filing of an IND.
1.47. "PRECLINICAL DEVELOPMENT CRITERIA" shall have the meaning set
forth in Section 5.1(a).
1.48. "PRODUCT" shall mean a Collaboration Product or Independent
Product, as applicable, in final packaged form.
1.49. "PROJECT TEAM LEADER" shall have the meaning set forth in
Section 3.3.
1.50. "RE-ENGAGEMENT OPTION" shall have the meaning set forth in
Section 5.3.
1.51. "REGULATORY APPROVAL" shall mean all approvals (including
pricing and reimbursement approvals), licenses, registrations, and
authorizations of all national, supra-national, regional, state or local
regulatory agencies, and departments and other
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governmental entities, necessary for the manufacture, distribution, use or
sale of a Collaboration Product in the Co-Promotion Country.
1.52. "REQUIRED SALES EFFORT" shall have the meaning set forth in
Section 7.4.
1.53. "RESEARCH MANAGEMENT COMMITTEE" or "RMC" shall have the meaning
set forth in Section 3.2.
1.54. "RESEARCH PLAN" shall have the meaning set forth in Section 2.1.
1.55. "RESEARCH PROGRAM" shall mean that program of research performed
by the parties pursuant to Section 2.
1.56. "RESTATEMENT DATE" shall mean the latest date set forth on the
signature page of this Agreement.
1.57. "SCIENTIFIC FTE" shall mean a full-time scientist (or in the
case of less than a full-time, dedicated scientist, a full-time, equivalent
scientist year), dedicated to research under the Research Program.
1.58. "SCREENING COLLABORATION AGREEMENT" shall mean that certain
Screening Collaboration Agreement, dated July 25, 1994, by and between Warner
and Acea.
1.59. "SECOND SOURCE" shall have the meaning set forth in
Section 10.3.
1.60. "TERM OF CO-PROMOTION" for a Collaboration Product approved for
sale in the Co-Promotion Country shall mean the period beginning upon the first
commercial sale of such Collaboration Product in the Co-Promotion Country and
ending on the later of (i) expiration of the last to expire Patent Right
necessary to make, use, import, offer for sale and sell such Collaboration
Product in the Co-Promotion Country, or (ii) 10 years from first commercial
sale of such Collaboration Product in the Co-Promotion Country.
1.61. "TERM OF THIS AGREEMENT" shall mean the period from the
Effective Date until, with respect to each Product, the expiration of the last
profit sharing or royalty obligation owed by one party to the other with
respect to such Product, or until this Agreement is otherwise terminated
pursuant to its terms.
1.62. "TERM OF THE RESEARCH PROGRAM" shall have the meaning set forth
in Section 2.4.
1.63. "THIRD PARTY" shall mean any party other than Warner or CoCensys
or an Affiliate of either of them.
1.64. "TOTAL PROFIT" shall mean, on a country-by-country basis, Net
Sales for each Collaboration Product less all Co-Promotion Expenses incurred by
the parties for such Collaboration Product in the applicable country.
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1.65. "UC" shall mean the Regents of the University of California.
1.66. "UC RESEARCH AGREEMENT" shall mean that certain Sponsored
Research Agreement between UC and Acea, dated June 29, 1992, as may be amended
from time to time, and any successor agreements thereto.
SECTION 2. RESEARCH PROGRAM
2.1. UNDERTAKING AND SCOPE. The Research Management Committee will agree
on and, in its discretion, modify the general direction of the Research Program
to be performed under this Section 2. Correspondence and other material
documenting such agreement and approved by the RMC are collectively referred to
herein as the Research Plan. Initially, the Research Plan shall be as set forth
on Schedule 2.1 which is attached hereto and incorporated herein by reference.
Each party agrees to use its best efforts to perform the activities detailed in
the Research Plan, in a professional and timely manner. Promptly after the
Effective Date and, in the case of AMPA Antagonists, the Restatement Date, each
party shall disclose to the other all Background Technology and Collaboration
Technology then possessed by it relevant to the Field and necessary or helpful
to perform the work described in the Research Plan. Notwithstanding the
foregoing, Warner shall not be obligated to disclose to CoCensys the structure
of any compound existing in the Warner Background Technology or Collaboration
Technology until NRSSA or AMPA Antagonist activity is confirmed in such
compound and CoCensys shall not be obligated to disclose to Warner the
structure of any compound existing in the CoCensys Background Technology or
Collaboration Technology until NRSSA or AMPA Antagonist activity is confirmed
in such compound. Each party shall also provide to the other samples of
compounds and biological materials that comprise its Background Technology or
Collaboration Technology to the extent necessary for such other party to
perform its obligations under the Research Plan and to the extent owned or
Controlled by such party, provided, however, that neither party shall be
obligated to unreasonably deplete its compound library. CoCensys acknowledges
that, as of the Effective Date, it is in possession of certain [*], which were
provided by a Third Party. CoCensys will use reasonable efforts to obtain
permission from such Third Party to share such [*] with Warner.
2.2. PERSONNEL AND RESOURCES. Each party agrees to commit the personnel,
facilities, expertise, and other resources necessary to perform its obligations
under the Research Plan; provided, however, that neither party warrants that
the Research Program shall achieve any of the research objectives contemplated
by them. From the Restatement Date until December 31, 1997, Warner and CoCensys
will each maintain at its cost a minimum of [*] Scientific FTEs. Thereafter,
and continuing until the end of the Term of the Research Program, CoCensys
shall maintain a minimum of [*] Scientific FTEs (who shall be CoCensys
employees). Commencing on [*], Warner shall reimburse CoCensys for a minimum of
[*] Scientific FTEs at a rate of [*] per Scientific FTE, per calendar year.
Warner shall pay CoCensys such amounts in advance on a quarterly basis. The
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scientific priorities and direction of such Scientific FTEs will be determined
by the Research Management Committee, which may increase or decrease the
minimum number of Scientific FTEs required to be maintained, provided, however,
that in no event shall the minimum number of Scientific FTEs be set by the
Research Management Committee at more than [*] or less than [*] during the
first [*] following the Effective Date. The Scientific FTEs maintained by
CoCensys may include, but shall not be limited to, scientists in the areas of
molecular biology, pharmacology, neuropharmacology, and medicinal chemistry.
The Scientific FTEs maintained by Warner may include, but shall not be limited
to, scientists in the areas of molecular biology, biochemistry, biochemical
pharmacology, neuropharmacology, behavioral pharmacology, medicinal chemistry,
and computer-assisted drug design.
CoCensys shall be permitted to contract with Oregon at CoCensys' cost, in
the form of a sponsored research agreement, to assist it in performing those of
its obligations under this Section 2 which CoCensys is required to perform
prior to December 31, 1997, and the number of Scientific FTEs performing such
services at Oregon shall be credited against the minimum number of Scientific
FTEs required to be maintained by CoCensys hereunder prior to December 31,
1997. CoCensys represents and warrants that if CoCensys utilizes personnel or
facilities of Oregon to perform any such work, it shall only do so pursuant to
a written agreement between CoCensys and Oregon which shall contain terms and
conditions consistent with the terms and conditions of this Agreement,
including, without limitation, terms protecting Warner's rights in any
Collaboration Technology arising from such performance. Warner shall have the
right to review any such agreement prior to the execution thereof and such
agreement shall not be signed until approved by the RMC. Warner shall review,
and the RMC shall consider approval of, such agreement in an expeditious
manner.
2.3. INFORMATION AND REPORTS CONCERNING COLLABORATION TECHNOLOGY. All
Collaboration Technology made by either party will be promptly disclosed to the
other, with significant discoveries or advances being communicated as soon as
practical after such information is obtained or its significance is
appreciated. The parties will exchange at least monthly verbal or written
reports presenting a meaningful summary of their activities performed under
this Agreement. In addition to the foregoing, each party shall promptly provide
to the other the structures of all Collaboration Compounds and other biological
materials prepared or developed by such party pursuant to the Research Program.
2.4. TERM OF THE RESEARCH PROGRAM. Work under the Research Plan will
commence as of the Effective Date and, unless terminated earlier by either
party pursuant to the terms of this Agreement or extended by mutual agreement
of the parties, will terminate on the [*] anniversary of the Restatement Date,
provided that the work may be extended for additional [*] terms upon the mutual
written consent of the parties (as terminated, expired or extended, the "Term
of the Research Program"). The Term of the Research Program may be terminated
by either party upon 6 months prior written notice to the other party,
provided, however, that the terminating party shall be obligated to
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continue all Research Program studies ongoing at the time of such written
notice until the effective date of such termination and shall provide the
data arising therefrom to the non-terminating party. Upon early termination
by a party of the Term of the Research Program pursuant to the preceding
sentence, each party shall retain such ownership interest in the
Collaboration Technology as it shall hold on the date of the termination;
provided, however, that (i) the licenses granted to the non-terminating party
under Section 2.5, Section 4.7, and Section 6 shall remain in full force and
effect, but the terminating party shall forfeit all rights to co-develop and
co-promote all Collaboration Compounds, (ii) the terminating party shall not
conduct any further research in the Field for a period of [*] from the
effective date of such early termination, and (iii) all licenses granted to
such terminating party under this Agreement may be immediately terminated by
the other party. Any Collaboration Compound pursued by the non-terminating
party in such event shall be deemed an Independent Product and the
non-terminating party shall pay to the terminating party a royalty on Net
Sales of such Independent Product equal to [*].
2.5. CROSS-LICENSES TO BACKGROUND TECHNOLOGY. Each party hereby grants and
agrees to grant to the other a non-exclusive, royalty-free license to use and
practice such party's Background Technology for research purposes in the Field
until [*]. In addition, for each Collaboration Compound which enters
Preclinical Development or Development, each party hereby grants and agrees to
grant to the other a non-exclusive, royalty-free license to use and practice
such party's Background Technology for the Preclinical Development or
Development of such Collaboration Compound until termination of such
Preclinical Development or Development. Notwithstanding the foregoing, the
granting party may terminate such license granted by it immediately upon its
termination of this Agreement for breach by the other party under Section 14.1,
or upon the other party's early termination of the Research Program pursuant to
Section 2.4.
SECTION 3. COMMITTEES
3.1. EXECUTIVE COMMITTEE.
(a) Promptly after the Effective Date, Warner and CoCensys will each
appoint 3 representatives to a management committee (the "Executive
Committee"). Chairmanship of the Executive Committee meetings will rotate
between a CoCensys member and a Warner member based on which party is hosting
the Executive Committee meeting. The Executive Committee will be charged with
overseeing and managing the entire Collaboration, including the Research
Management Committee, the Joint Development Committee, and the Marketing
Committee. In addition, the role of the Executive Committee will be to:
(1) coordinate the parties' activities hereunder; (2) resolve problems or
settle disagreements that are unresolved by the RMC, the JDC, and the Marketing
Committee unless otherwise indicated in this Agreement; (3) approve allocations
of tasks and resources required to carry out the goals of the Collaboration;
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(4) approve all plans and annual budgets for the various projects and programs
within the Collaboration; (5) designate Collaboration Lead Compounds;
(6) encourage and facilitate ongoing cooperation between the parties;
(7) coordinate and monitor the payments and repayments to be made by and
between the parties; and (8) perform such other functions as appropriate to
further the purposes of this Agreement as determined by the parties. Any
disputes or disagreements within the Executive Committee shall be resolved
pursuant to Section 3.6.
(b) The Executive Committee will meet every 6 months during the term
of this Agreement and at such other times as a party may request, alternating
between Ann Arbor, Michigan and Irvine, California 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
Collaboration and will use diligent efforts to cause all of its representatives
to such committee to attend all meetings of such committee. A party may change
any of its appointments to the Executive Committee at any time upon giving
written notice to the other party.
3.2. RESEARCH MANAGEMENT COMMITTEE. Promptly after the Effective Date,
Warner and CoCensys will each appoint 3 representatives to a Research
Management Committee (the "Research Management Committee" or "RMC"). CoCensys
will appoint the chairman of the RMC for the initial 12 months. Thereafter,
chairmanship will rotate between a Warner member and a CoCensys member every
12 months. The RMC will review, direct, and supervise all operational and
scientific aspects of the Research Program. The duties of the Research
Management Committee shall include determining the direction of the Research
Plan, adding molecular targets, conducting biological and medicinal chemical
studies, and proposing Collaboration Lead Compounds to the Executive Committee.
The Research Management Committee will meet quarterly, or more frequently if
mutually agreed, and will alternate sites of meetings between Irvine,
California and Ann Arbor, Michigan and will otherwise communicate regularly by
telephone, facsimile, and video conference. Each party recognizes the
importance of the Research Management Committee in the success of the
Collaboration and will use diligent efforts to cause all of its representatives
to such committee to attend all meetings of such committee. A party may change
any of its appointments to the Research Management Committee at any time upon
giving written notice to the other party. Any disputes or disagreements within
the RMC shall be resolved pursuant to Section 3.6.
3.3. JOINT DEVELOPMENT COMMITTEE. Within 30 days of the date CoCensys
exercises the Re-engagement Option in accordance with Section 5.3 to co-develop
a Collaboration Lead Compound, Warner shall appoint 4 representatives and
CoCensys shall appoint 2 representatives to a Joint Development Committee (the
"Joint Development Committee" or "JDC"). Such representatives will include
individuals with expertise and responsibilities in the areas of preclinical
development, clinical development, or regulatory affairs. The JDC will oversee
all aspects of the Preclinical Development and Development of each
Collaboration Lead Compound for which CoCensys has exercised the Re-engagement
Option through the filing of an NDA or its
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foreign equivalent on a Collaboration Product arising from such Collaboration
Lead Compound. With respect to each Collaboration Lead Compound in
Preclinical Development and each Collaboration Product in Development, the
Executive Committee will, upon nomination from each party, select one Warner
JDC representative as a "Project Team Leader" with respect to such
Collaboration Lead Compound or Collaboration Product. The Project Team Leader
will be responsible for overseeing the operational aspects of the Preclinical
Development and the Development of the applicable Collaboration Lead Compound
or Collaboration Product, as directed by the JDC, and will prepare and submit
to the JDC issues and problems to be decided by the JDC. The JDC will meet on
a quarterly basis, alternating between Ann Arbor, Michigan and Irvine,
California and will otherwise communicate regularly by telephone, facsimile
and video conference. Each party recognizes the importance of the Joint
Development Committee in the success of the Collaboration and will use
diligent efforts to cause all of its representatives to such committee to
attend all meetings of such committee. A party may change any of its
appointments to the Joint Development Committee at any time upon giving
written notice to the other party.
3.4 MARKETING COMMITTEE. At such time as registration and marketing in
the Co-Promotion Country for one or more Collaboration Products for which
CoCensys has exercised the Re-engagement Option in accordance with Section 5.3
is anticipated, and in any event, no later than at the conclusion of Phase II
clinical studies for any such Collaboration Product, Warner shall appoint 3
representatives and CoCensys shall appoint 1 representative to a marketing
committee (the "Marketing Committee"). Such representatives will include
individuals with expertise in sales, marketing , clinical trials, manufacturing
or regulatory affairs. The Marketing Committee shall develop a marketing plan
for each Collaboration Product in the Co-Promotion Country for which CoCensys
has exercised the Re-engagement Option, shall oversee quality control of each
such Collaboration Product as set forth in Section 9 and shall oversee
operational aspects of marketing and sales in the Co-Promotion Country
following launch of each such Collaboration Product, as further discussed in
Section 7. The Marketing Committee will meet on a quarterly basis, alternating
between Morris Plains, New Jersey and Irvine, California and will otherwise
communicate regularly by telephone, facsimile and video conference. Each party
recognizes the importance of the Marketing Committee in the success of the
Collaboration and will use diligent efforts to cause all of its representatives
to such committee to attend all meetings of such committee. A party may change
any of its appointments to the Marketing Committee at any time upon giving
written notice to the other party.
3.5. MEETINGS. All committees created hereunder may meet by telephone or
video conference or in person at such times as are agreeable to the members of
each such committee. Attendance at meetings shall be at the respective expense
of the participating parties. Each committee created hereunder shall assure
that agendas and minutes are prepared for each of its meetings. All actions
taken and decisions made by the Executive Committee and the Research Management
Committee shall be by unanimous agreement. All actions taken and decisions
made by the Joint Development Committee and the
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Marketing Committee shall be by majority vote. If personal attendance is not
possible for valid reasons, voting by proxy is permissible.
3.6. DISPUTE RESOLUTION. Any disputes or disagreements arising in the RMC
will be referred to the Executive Committee if the RMC is unable to resolve
such dispute or disagreement within 30 days. In addition, any other disputes or
disagreements between the parties arising hereunder will be referred to the
Executive Committee. If the Executive Committee is unable to resolve, after
30 days, a dispute regarding any issue presented to it or arising in it, such
dispute will be referred to the Chief Executive Officer of CoCensys and a
senior officer of Warner's pharmaceutical business for good faith resolution,
for a period of 90 days. If such dispute is not resolved by the end of such
90-day period, the parties shall be free to pursue any legal or equitable
remedy available to them.
SECTION 4. PATENTS, KNOW-HOW RIGHTS, AND INVENTIONS
4.1. OWNERSHIP OF TECHNOLOGY.
(a) BACKGROUND TECHNOLOGY. Except as otherwise set forth herein,
each party shall retain ownership or Control, as the case may be, over its
Background Technology. The owner of any patentable Background Technology shall
have the right, at its option and expense, to prepare, file and prosecute in
its own name any patent applications with respect to such Background Technology
and to maintain any patents issued.
(b) COLLABORATION TECHNOLOGY. Except as otherwise set forth herein,
ownership of Collaboration Technology (whether or not patentable) shall be
determined in accordance with United States laws of inventorship. Subject to
Section 4.2, the owner (the "Inventor") of any patentable Collaboration
Technology (an "Invention") shall have the right, at its option and expense, to
prepare, file, and prosecute in its own name any patent applications with
respect to any Invention owned by it and to maintain any patents issued. In
connection therewith, the non-Inventor party agrees to cooperate with the
Inventor at the Inventor's expense in the preparation and prosecution of all
such patent applications and in the maintenance of any patents issued. The
obligations set forth in this Section 4.1(b) shall survive the expiration or
termination of this Agreement.
(c) NON-FIELD TECHNOLOGY. Warner shall own all Non-Field Inventions
that constitute or claim the formulation, composition of matter or use of any
compound supplied to CoCensys by Warner. CoCensys shall own all Non-Field
Inventions that relate to any compound supplied to Warner by CoCensys. The
parties will co-own all other Non-Field Inventions. The parties will cooperate
in the joint filing of patent applications claiming Non-Field Inventions
described in the preceding sentence. All compounds which are Non-Field
Inventions shall be deemed Collaboration Compounds.
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4.2. JOINT INVENTIONS.
(a) Collaboration Technology jointly invented by CoCensys and Warner
and Collaboration Technology derived from the screening of the Warner compound
library or the CoCensys compound library using screening technology contributed
by CoCensys will be jointly owned by CoCensys and Warner; however, subject to
Section 4.2(b), Warner will have the rights and responsibilities of the
"Inventor" as described in this Section 4 in respect of any such patentable,
jointly owned Collaboration Technology and CoCensys shall have the rights and
responsibilities of a non-Inventor therein. Warner shall use patent counsel
reasonably acceptable to CoCensys [*] in connection with its preparation,
filing, and prosecution of patent applications that claim patentable, jointly
owned Collaboration Technology. If CoCensys exercises the Re-engagement Option,
then with respect to a Collaboration Lead Compound or Collaboration Product
claimed by any such patent and patent applications Warner shall, on a quarterly
basis, notify CoCensys of the amount of all expenses incurred by Warner in
connection with the preparation, filing and prosecution of such patents and
patent applications in the Co-Promotion Country relating to such Collaboration
Lead Compounds or Collaboration Products and provide CoCensys with an itemized
accounting of such expenses and CoCensys shall promptly thereafter pay Warner a
percentage of its out-of-pocket expenses for such preparation, filing, and
prosecution in the Co-Promotion Country equal to the [*]. CoCensys shall
further thereafter reimburse Warner for the [*] of such expenses thereafter
incurred by Warner in connection with such patents and patent applications.
All expenses in connection with the preparation, filing and prosecution in
non-Co-Promotion Countries of patent applications that claim patentable,
jointly owned Collaboration Technology shall be borne [*]. CoCensys may use
patent counsel reasonably acceptable to Warner to review and provide comments
with respect to the preparation, filing and prosecution of patent applications
that claim patentable, jointly owned Collaboration Technology and [*] in
connection therewith. As used in this Section 4.2(a), "out-of-pocket expenses"
shall mean direct costs, excluding internal labor costs.
(b) CoCensys shall have the sole right and responsibility to
prepare, prosecute and maintain any patents or patent applications covering the
composition of matter, use, manufacture, or formulation of the CoCensys
Compounds and Warner shall not have the rights and responsibilities of the
"Inventor" with respect to any such patents or patent applications. [*] in
connection with the preparation, filing, and prosecution of patent applications
that claim CoCensys Compounds. CoCensys shall, on a quarterly basis, notify
Warner of the amount of such expenses in the Co-Promotion Country relating to
any Collaboration Lead Compound or Collaboration Product for which CoCensys has
exercised the Re-engagement Option and provide Warner with an itemized
accounting of such expenses and Warner shall promptly thereafter pay CoCensys
[*] of its out-of-pocket expenses for such preparation, filing, and prosecution
in the Co-Promotion Country equal to [*]. All expenses in connection with the
preparation, filing, and prosecution in non-Co-Promotion Countries of patent
applications that claim
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patentable CoCensys Compounds shall be borne [*]. As used in this Section
4.2(b), "out-of-pocket expenses" shall mean direct costs, excluding internal
labor costs.
4.3. PROTECTION OF PATENT RIGHTS.
(a) The Inventor shall prepare, prosecute, and maintain (and shall
keep the other party currently informed of all steps to be taken in such
preparation, prosecution and maintenance of) all of its Patent Rights which
claim an Invention and at the other party's request, shall furnish the other
party with copies of such Patent Rights and other related correspondence
relating to such Invention to and from patent offices and permit the other
party to offer its comments thereon before the Inventor makes a submission to a
patent office which could materially affect the scope or validity of the patent
coverage that may result. The non-Inventor party shall offer-its comments
promptly. CoCensys and Warner shall each promptly notify the other of any
infringement or unauthorized use of an Invention which comes to its attention.
(b) If the Inventor fails to (i) fulfill its obligations under this
Section 4 or (ii) protect against abandonment of a Patent Right which claims an
Invention, the Inventor shall permit the non-Inventor party, at its option and
expense, to undertake such obligations. The party not undertaking such actions
shall fully cooperate with the other party and shall provide to the other party
whatever assignments and other documents that may be needed in connection
therewith. The party not undertaking such actions may require a suitable
indemnity against all damages, costs and expenses and impose such other
reasonable conditions as such party's advisors may require. If a party
undertakes the obligations of "Inventor" under this Section 4 with respect to
any Patent Rights of the other party under this Section 4.3(b), it shall
prosecute and maintain the same vigorously at its own expense, and shall not
abandon or compromise them or fail to exercise any rights of appeal without
giving the other party the right to take over the prosecuting party's conduct,
at such other party's own expense.
(c) In the event CoCensys or Warner becomes aware of any actual or
threatened infringement of any Patent Right of either party which claims an
Invention or a Non-Field Invention, that party shall promptly notify the other
and the Executive Committee shall promptly discuss how to proceed in connection
with such actual or threatened infringement. If both parties participate in the
conduct of a legal action pursuant to this Section 4.3(c), (i) if one party
files, the actual costs and expenses of such action shall be [*] or (ii) if
both parties file, the actual costs and expenses of such action shall be [*],
based on the actual costs and expenses incurred by each party in connection
with such action. Any remaining damages shall then be paid [*]. If one party
alone conducts such legal action, [*]. If either party commences any actions or
proceedings (legal or otherwise) pursuant to this Section 4.3(c), it shall
prosecute the same vigorously at its expense and shall not abandon or
compromise them or fail to exercise any rights of appeal without giving the
other party the right to take over the prosecuting party's conduct at such
other party's own expense.
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4.4. OREGON'S PATENT RIGHTS. Warner acknowledges and understands that
certain Collaboration Technology that is Controlled by CoCensys may be owned in
whole or in part by Oregon (and licensed to CoCensys) and is therefore subject
to the Oregon/UC Agreements. Warner further acknowledges that any rights
granted under this Section 4 to Warner as Inventor are subject to Oregon's
rights to prepare, prosecute, and maintain certain patents and patent
applications pursuant to the Oregon/UC Agreements.
4.5. ALLEGATIONS OF INFRINGEMENT BY THIRD PARTIES.
(a) If either party should be of the opinion that it or the other
party cannot commercially reasonably make, import, use, market and/or sell a
Collaboration Product without infringing a Third Party's patent or other
intellectual property rights, it shall notify the other party. Both parties
then shall seek an opinion of patent counsel acceptable to both parties. In the
Co-Promotion Country, if such patent counsel concurs with the notifying party's
opinion, the parties shall jointly or independently endeavor to secure a
license from the Third Party on terms that are acceptable to both parties. In a
non-Co-Promotion Country, if such patent counsel concurs with the notifying
party's opinion, Warner shall endeavor to secure a license from the Third Party
on terms that are acceptable to both parties. Any royalties payable by either
party in the Co-Promotion Country under any such Third Party license shall be
included as a Co-Promotion Expense in that country. [*] of any royalties
payable by [*] in a non-Co-Promotion Country under any such Third Party license
shall be deducted from royalty payments due to [*] pursuant to this Agreement
with respect to such Collaboration Product in such country, provided, however,
in no event shall royalties due CoCensys pursuant to this Agreement with
respect to sales of any Collaboration Product in any non-Co-Promotion country
be reduced by more than [*] of such Collaboration Product in such country. If
in the opinion of such patent counsel the Third Party patent is invalid or will
not be infringed by the manufacture, use, sale, or import of the Collaboration
Product, the parties shall proceed in accordance with the terms of this
Agreement, unless an action for infringement is brought against one or both
parties.
(b) If either party is sued for patent infringement of any Third
Party patents or other intellectual property right arising out of the
manufacture, use, sale, or importation of a Collaboration Product in a
Co-Promotion Country, 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. Any costs and expenses
of defending such action and any damages or other compensation imposed shall be
included as a Co-Promotion Expense in the Co-Promotion Country in which such
action arose.
(c) Warner shall be solely responsible for the defense of any
threatened or actual claims for Third Party patent infringement or other Third
Party
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intellectual property right arising out of the manufacture, use, sale or
importation of a Collaboration Product other than in the Co-Promotion Country.
Upon receiving notice of such actual or threatened claims, Warner shall
promptly meet with CoCensys to discuss the course of action to be taken to
resolve or defend any such infringement litigation. [*] of any costs and
expenses of defending such action and any damages or other compensation imposed
shall be deducted from [*] pursuant to this Agreement with respect to such
Collaboration Product in such Non-Co-Promotion Country, provided, however, in
no event shall [*] pursuant to this Agreement with respect to sales of any
Collaboration Product in any non-Co-Promotion Country be reduced by more than
[*] of such Collaboration Product in such country.
(d) Notwithstanding the foregoing, each party will pay 100% of any
costs and expenses and damages or other consideration resulting from a Third
Party infringement action if it relates solely to allegations of infringement
made against such party prior to the Effective Date.
4.6. INDEPENDENT EFFORTS. Except as expressly stated in Section 5.3(j), a
party shall not, during the Term of the Research Program, conduct any
activities independent of the Collaboration within the Field. Ownership rights
to inventions that do not rely in material part on technology, data or
knowledge contributed by the other party or derived under the Collaboration and
that are made by the employees of CoCensys (but not of Warner) or by the
employees of Warner (but not of CoCensys), as the case may be, whether or not
made during the Term of this Agreement, shall reside solely in CoCensys or
Warner, respectively, as the case may be. Neither party will claim or seek any
ownership rights, licenses or royalties or other compensation with respect to
such inventions of the other party. The applicable party shall have the right,
at its option and expense, to prepare in its own name, file and prosecute any
patent applications and to maintain any patents issued with respect to such
inventions. In connection therewith, the other party agrees to cooperate with
the filing party at the filing party's expense in the preparation and
prosecution of all such patent applications covering such independent
inventions to the extent that such party's cooperation is reasonably necessary
therefor. This obligation shall survive the expiration or termination of this
Agreement.
4.7. CROSS-LICENSES TO INVENTIONS AND OTHER COLLABORATION TECHNOLOGY. Each
party hereby grants and agrees to grant to the other a perpetual,
non-exclusive, royalty-free license to use such party's Inventions and other
Collaboration Technology for research purposes only in the Field.
SECTION 5. DEVELOPMENT PROGRAM
5.1. DESIGNATION OF COLLABORATION LEAD COMPOUND.
(a) From time to time the RMC will propose, or either party may
propose to the Executive Committee one or more Collaboration Compounds for
further Preclinical Development. Such proposal will be in writing, accompanied
by an outline of
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proposed studies and activities through Phase I or IIa for each Collaboration
Compound recommended. The Executive Committee will promptly determine whether
such Collaboration Compound meets Warner's then current criteria for lead
compound designation (the "Preclinical Development Criteria").
(b) If the Executive Committee determines that such Collaboration
Compound meets the Preclinical Development Criteria, then thereafter, such
Collaboration Compound shall be deemed to be a "Collaboration Lead Compound"
and later a "Collaboration Product". Warner shall commence the Preclinical
Development and Development of such Collaboration Lead Compound within [*] days
of such determination by the Executive Committee, provided that Warner shall
have the right, upon written notice to the Executive Committee, to decline to
develop a Collaboration Lead Compound, in which case CoCensys will have the
right to proceed independently with the development of such Collaboration Lead
Compound according to Section 5.3(j).
(c) If neither party desires to further develop a Collaboration
Compound and so indicates to the Executive Committee, such Collaboration
Compound shall be neither a Collaboration Lead Compound nor a compound which
may be developed under Section 5.3(j) (except as provided below), and this
Section 5.1(c) shall govern any future development of such discontinued
Collaboration Compound (a "Discontinued Compound"). If at any time on or before
the [*] of the date upon which the latter of the two parties hereto rejected
such Collaboration Compound as a Collaboration Lead Compound pursuant to
Section 5.l(b) (the "Rejection Date"), a party hereunder (the "Interested
Party") decides it is interested in reinitiating development of such
Discontinued Compound, it shall provide written notice to the other party of
such interest and the reasons therefor, in sufficient detail as to allow the
other party to make a reasoned judgment regarding the opportunities presented
by such development (including, in the case of CoCensys, the Co-Development
Percentage elected by CoCensys with respect to such Discontinued Compound). The
other party will then have [*] to provide written notice to the Interested
Party indicating whether it also is interested in the development of such
Discontinued Compound. If the other party is Warner and Warner indicates it is
interested in reinitiating Preclinical Development or Development of such
Discontinued Compound, the parties will proceed with Preclinical Development or
Development of such Discontinued Compound as a Collaboration Lead Compound for
which CoCensys has exercised the Re-engagement Option pursuant to the terms of
this Agreement. If the other party is Warner and Warner indicates it is not
interested in reinitiating Preclinical Development or Development of such
Discontinued Compound, CoCensys may proceed with development of such
Discontinued Compound as an Independent Product and CoCensys shall be deemed to
be the Independent Party, pursuant to Section 5.3(j). If the other party is
CoCensys, and CoCensys indicates it is not interested in reinitiating
Preclinical Development or Development or such Discontinued Compound, Warner
shall proceed with Preclinical Development or Development of such Collaboration
Lead Compound pursuant to the terms of this Agreement provided that CoCensys
shall not be permitted to thereafter exercise the Re-engagement Option. At any
time after the [*] of the Rejection Date, either party may, upon written notice
to the other party, proceed with
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development of a Discontinued Compound as an Independent Product and such
party shall be deemed to be the Independent Party, pursuant to Section 5.3(j).
(d) If a Collaboration Compound is not, at any time, presented to
the Executive Committee pursuant to Section 5.l(a), such Collaboration Compound
shall be neither a Collaboration Lead Compound nor a compound which may be
developed under Section 5.3(j) (except as provided below), and this
Section 5.l(d) shall govern any future development of such non-proposed
Collaboration Compound (a "Non-Proposed Compound"). If at any time on or before
the [*] of the date of termination or expiration of the Term of the Research
Program, a party hereunder (the "Non-Proposed Compound Interested Party")
decides it is interested in reinitiating development of such Non-Proposed
Compound, it shall provide written notice to the other party of such interest
and the reasons therefor, in sufficient detail as to allow the other party to
make a reasoned judgment regarding the opportunities presented by such
development. The other party will then have [*] to provide written notice to
the Non-Proposed Compound Interested Party indicating whether it also is
interested in the development of such Non-Proposed Compound. If the other party
is Warner and Warner indicates it is interested in reinitiating Preclinical
Development or Development of such Non-Proposed Compound, the parties will
proceed with Preclinical Development or Development of such Non-Proposed
Compound as a Collaboration Lead Compound for which CoCensys has exercised the
Re-engagement Option pursuant to the terms of this Agreement. If the other
party is Warner and Warner indicates it is not interested in reinitiating
Preclinical Development or Development of such Non-Proposed Compound, CoCensys
may proceed with development of such Non-Proposed Compound as an Independent
Product and CoCensys shall be deemed to be the Independent Party, pursuant to
Section 5.3(j). If the other party is CoCensys, and CoCensys indicates it is
not interested in reinitiating Preclinical Development or Development or such
Discontinued Compound, Warner shall proceed with Preclinical Development or
Development of such Collaboration Lead Compound pursuant to the terms of this
Agreement provided that CoCensys shall not be permitted to thereafter exercise
the Re-engagement Option. At any time after the [*] of the date of termination
or expiration of the Term of the Research Program, either party may, upon
written notice to the other party, proceed with development of a Non-Proposed
Compound as an Independent Product and such party shall be deemed to be the
Independent Party, pursuant to Section 5.3(j).
5.2. DEVELOPMENT BY WARNER. Unless and until CoCensys exercises its
Re-engagement Option pursuant to the terms of Section 5.3, Warner shall be
solely responsible for the strategy and the conduct and funding of the
Preclinical Development and Development with respect to any Collaboration Lead
Compound or Collaboration Product. Until the end of Phase II meeting with the
FDA for each Collaboration Lead Compound, Warner shall keep CoCensys fully
informed of the status and progress of the Pre-Clinical Development and
Development of such Collaboration Lead Compound. Upon receipt of written notice
from CoCensys that it is considering exercising the Re-engagement Option with
respect to any Collaboration Lead Compound or Collaboration Product, Warner
shall provide CoCensys with the amount of Development Costs incurred
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by Warner in the Preclinical Development or Development of such Collaboration
Lead Compound or Collaboration Product and shall otherwise discuss with
CoCensys the anticipated future Development Costs for such Collaboration Lead
Compound or Collaboration Product. In the event that Warner determines to
subcontract any of the Development to a Third Party, it shall notify CoCensys
and CoCensys shall have the right to submit one or more proposals to Warner
to perform such work. Warner shall in good faith consider any such proposals
of CoCensys which are competitive with Third Party proposals for the same
work, provided, however, that Warner shall be under no obligation to accept
any such proposal.
5.3 JOINT DEVELOPMENT. At any time after the Executive Committee
designates a Collaboration Lead Compound until the end of Phase II meeting with
the FDA relating to such Collaboration Lead Compound, CoCensys shall have the
right on a Collaboration Lead Compound-by-Collaboration Lead Compound basis to
elect to co-develop and co-promote such Collaboration Lead Compound with Warner
(such right is hereinafter referred to as the "Re-engagement Option").
CoCensys shall exercise such right by providing Warner with written notice of
such election and indicating the percentage of Total Profit that CoCensys
desires to obtain with respect to such Collaboration Lead Compound or
Collaboration Product, which shall be between [*] (the "Co-Development
Percentage"). Such election shall only be effective if such written notice is
accompanied by [*] of the Development Costs incurred by Warner with respect to
the applicable Collaboration Lead Compound or Collaboration Product prior to
the effective date of such written notice, calculated according to the
following table:
<TABLE>
<CAPTION>
Date of Exercise of Percentage of the
Re-engagement Option Co-Development Percentage
- -------------------- --------------------------
<S> <C>
[*] [*]
[*] [*]
[*] [*]
</TABLE>
Upon exercise of the Re-engagement Option in accordance with this Section
5.3, the following provisions shall apply, following the date of such exercise,
to the Preclinical Development and Development of the applicable Collaboration
Lead Compound or Collaboration Product for which the Re-engagement Option was
exercised as well as such other provisions of this Agreement which by their
terms shall also so apply:
(a) COSTS. The payment of the costs of conducting such
Preclinical Development shall be as set forth in Section 5.3(d). Under no
circumstances shall either
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party conduct studies of the Collaboration Lead Compound except as permitted
by the JDC.
(b) COLLABORATIVE DEVELOPMENT OF COLLABORATION PRODUCT. The parties
will each diligently collaborate in the Development of the Collaboration
Products and use diligent efforts to develop and bring such Collaboration
Product to the market as soon as reasonably practicable. The role of each party
in the research and development process will be proposed by the Project Team
Leader and approved by the JDC, with each party providing advisory and
supporting services with respect to each phase of the process in which such
party may not be actively or primarily involved. No clinical trials involving
the Collaboration Product shall be commenced by or on behalf of either party
without the prior approval of the JDC. Each party shall ensure that its
Development tasks are carried out adhering to the highest ethical and safety
standards.
(c) DEVELOPMENT PLAN AND BUDGET. The Preclinical Development and
Development of the Collaboration Product shall be governed by a specific and
comprehensive development plan, a detailed short-term budget and a preliminary,
estimated long-term budget forecast (the "Development Plan and Budget"). No
later than the date on which an IND (or its foreign equivalent) is filed for
the Collaboration Product, the JDC shall prepare for consideration and approval
by the Executive Committee a Development Plan and Budget for such Collaboration
Product. The Development Plan shall describe fully, to the extent practicable,
the proposed program of development for such Collaboration Product, including
formulation, process development, clinical studies and regulatory plans and
other key elements of obtaining Regulatory Approval in the Co-Promotion
Country. Without limiting the foregoing, the Development Plan and Budget shall,
to the extent practicable, set forth those preclinical and clinical studies
necessary or desirable for the filing of an NDA in the United States for the
Collaboration Product, as determined by the JDC (the "Core U.S. Dossier"). In
addition, the Development Plan shall provide a general overview of relevant
plans and timelines for development of such Collaboration Product outside of
the Co-Promotion Country. The budget for each development program shall include
a detailed short-term budget covering all proposed Development Costs of the
program expected during the subsequent 12 months (the "Short-Term Budget
Period") of the Development process and a long-term budget forecast covering
all proposed Development Costs of the program expected during the Development
process subsequent to such Short-Term Budget Period through obtaining
Regulatory Approval for commercial sale. Both parties recognize that each
Development Plan and Budget are only projections and will be subject to
frequent changes. Each such Development Plan and Budget shall be updated
semi-annually by the JDC and submitted to the Executive Committee for review
and approval not later than ninety (90) days prior to each January 1 and July 1
of each applicable calendar year.
(d) FUNDING OF PRECLINICAL DEVELOPMENT AND DEVELOPMENT. The
percentage of Development Costs of the Core U.S. Dossier which shall be borne
by CoCensys shall equal [*]. The balance of Development Costs shall be borne by
[*]. Warner shall have the right to use data from the Core U.S. Dossier for
Development for
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regulatory filings outside the Co-Promotion Country with no further
compensation to CoCensys. [*] shall bear the cost of those studies within the
scope of Development which are not part of the Core U.S. Dossier and which
are targeted by Warner for obtaining regulatory approval outside the
Co-Promotion Country.
(e) DRUG APPROVAL APPLICATIONS. Consistent with the Development Plan
and Budget and as directed by the Executive Committee, the parties will file
Drug Approval Applications and attempt to obtain Regulatory Approvals in the
Co-Promotion Country. Warner will own all IND's and NDAs for all Collaboration
Compounds, including any supplements thereto. Warner will be responsible for
all regulatory submissions including, without limitation, the assembly of
suitable Drug Approval Applications. The parties will cooperate in the
preparation of each Drug Approval Application and in obtaining Regulatory
Approvals under this Section 5.3(e). Regulatory Approvals for Independent
Products are not subject to this Section 5.3(e).
(f) LINE EXTENSIONS. Warner and CoCensys may each prepare and submit
to the Executive Committee for consideration, plans for development of line
extensions and the conduct of clinical trials covering additional indications
for Collaboration Products for sale in the Co-Promotion Country. Any such line
extensions or additional trials will be subject to the approval and supervision
of the JDC as part of the ongoing Development of such Collaboration Product.
(g) REIMBURSEMENT. Each Party shall bear its own Development Costs
incurred by it, subject to reimbursement as provided herein. Based on the
Development Plan and Budget, on a quarter-by-quarter basis, a party shall
invoice the other party for the other party's allocated percentage of the
Development Costs incurred by the invoicing party and such other party shall
pay such allocated percentage within 30 days of the end of such quarter.
(h) COMPLIANCE. The parties will comply with cGLP, cGCP, and cGMP in
the conduct of the Preclinical Development of any Collaboration Lead Compound
or Development of any Collaboration Product for sale in the Co-Promotion
Country. In addition, the parties agree to conduct such Preclinical Development
and Development in compliance with applicable good laboratory, clinical or
manufacturing practices of non-Co-Promotion Countries, provided, and only to
the extent that, Warner notifies CoCensys of such non-Co-Promotion Country's
practices and such practices are not in conflict with the Co-Promotion
Country's cGLP, cGCP, or cGMP. Where such compliance with such identified
non-Co-Promotion Countries practices results in any material additional
Development Costs, Warner shall promptly reimburse CoCensys in full for such
additional expenditures actually incurred by CoCensys.
(i) TERMINATION OF PARTICIPATION IN COLLABORATIVE DEVELOPMENT. On a
Collaboration Compound-by-Collaboration Compound basis, Warner and CoCensys may
elect (upon [*] prior written notice) to terminate their participation in the
Preclinical Development or Development of any Collaboration Lead Compound or
Collaboration
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Product for which CoCensys has exercised the Re-engagement Option and
thereby terminate its responsibility for bearing further Development Costs
for such Collaboration Compound, as specified herein, in which event the
other party will have the right to proceed independently to develop such
Collaboration Compound as an Independent Product, pursuant to Section 5.3(j).
In the event a party gives notice of termination under this Section 5.3(i),
the terminating party (i) will remain responsible for its share of
Development Costs for such Collaboration Compound until the effective date of
the termination, and (ii) will make its personnel, relevant data, and other
resources available to the other party as necessary to effect an orderly
transition of development responsibilities, with the costs of such personnel,
relevant data, and resources to be borne by the other party after the
effective date of the termination. The parties each recognize and agree that
a party's termination of participation in Development in accordance with this
Section 5.3(i) will not be considered a breach of its obligations under this
Agreement.
(j) INDEPENDENT DEVELOPMENT.
(i) In the event (i) a party, pursuant to Section 5.l(b), (c),
or (d) elects not to participate in and commit resources to conduct Preclinical
Development or Development of a Collaboration Lead Compound or Collaboration
Product or (ii) any party unilaterally terminates its participation in the
collaborative Preclinical Development or Development pursuant to
Section 5.3(i), or (iii) a party terminates its participation in the Research
Programs pursuant to Section 2.4, then the party that made an affirmative
election pursuant to Section 5.1(b), (c), or (d) or the non-terminating party
if it desires to continue Development (in each case, the "Independent Party"),
shall have the right to undertake the continued Preclinical Development and
Development of such Collaboration Lead Compound or Collaboration Product (an
"Independent Lead Compound" or "Independent Product") independently, at its
sole cost, and under its sole direction. No party may utilize the services of
the personnel committed to the Collaboration pursuant to Section 2.2 in
performance of research or development of an Independent Lead Compound or
Independent Product.
(ii) The Independent Party will inform the other party of all
material information in its research and development of each Independent Lead
Compound or Independent Product and will allow such other party to comment on
the direction of such research and development. The Independent Party will
provide the other party a complete and accurate copy of the proposed filing,
together with any additional information that the other party may request
regarding the relevant Independent Lead Compound or Independent Product, at
least 30 days prior to submitting such filing to the FDA or its foreign
equivalent.
(iii) In the event Warner elects to proceed as an
Independent Party, CoCensys shall forfeit its rights to develop such
Collaboration Compound (or Collaboration Product) and co-promote such
Collaboration Product in the Co-Promotion Country, and Warner shall be entitled
to develop and commercialize such Independent
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Product at its sole discretion, alone or with another partner, subject to the
payment to CoCensys of a royalty as set forth in Section 6.7.
(iv) In the event CoCensys elects to proceed as an Independent
Party, Warner shall forfeit its rights to develop such Collaboration Compound
(or Collaboration Product) and market and sell such Collaboration Product
worldwide, subject to Section 5.3(k), and CoCensys shall be entitled to develop
and commercialize such Independent Product worldwide, at its sole discretion,
alone or with another partner, subject to the payment to Warner of a royalty as
set forth in Section 6.7.
(k) WARNER'S RE-ENGAGEMENT OPTION. If CoCensys is the Independent
Party, Warner may elect to resume Preclinical Development and Development of an
Independent Lead Compound or Independent Product and regain its right to
commercialize such Independent Lead Compound or Independent Product if it
notifies CoCensys of such election, in writing, prior to the initiation of
Phase III clinical trials for the registration of such Independent Lead
Compound or Independent Product (the "Warner Re-engagement Notice"). In such
event, such Independent Lead Compound or Independent Product shall immediately
become a Collaboration Lead Compound or Collaboration Product, as the case may
be, for all purposes under this Agreement and Warner shall regain the right to
co-promote such Independent Product in the Co-Promotion Country and to market
and sell the Independent Product exclusively in all countries other than the
Co-Promotion Country. Promptly after Warner makes such election, Warner shall
pay CoCensys the percentage calculated according to the following table of the
costs of research and development of the Independent Lead Compound or
Independent Product incurred by CoCensys subsequent to the date upon which it
commenced independent development or research and prior to the date of the
Warner Re-engagement Notice, which payment shall be made in four equal
quarterly installments beginning on the first day of the calendar quarter
following the date of the election of the non-Independent Party:
<TABLE>
<CAPTION>
Date of Exercise of 100% less the Co-Development
Re-engagement Option Percentage, multiplied by:
- -------------------- ------------------------------
<S> <C>
[*] [*]
[*] [*]
[*] [*]
</TABLE>
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SECTION 6. LICENSES AND ROYALTIES
6.1. GRANT BY COCENSYS. Subject to the terms and conditions of this
Agreement, CoCensys hereby grants and agrees to grant to Warner an exclusive,
worldwide license under the Patent Rights, Background, Technology and
Collaboration Technology owned or Controlled by CoCensys to the extent
necessary to develop, make, have made, use, import, offer for sale, and sell
(with the right to sublicense) any Collaboration Product. Such licenses with
respect to a Collaboration Product are exclusive even as to CoCensys, except
that CoCensys shall retain the right to conduct Preclinical Development and
Development as set forth in Section 5, and to promote in the Co-Promotion
Country as set forth in Section 7 to the limited extent necessary for CoCensys
to exercise its rights thereunder. Warner may not sublicense any of its rights
granted under this Section 6.1 to any Third Party without the prior written
consent of CoCensys, not to be unreasonably withheld.
6.2. GRANT BY WARNER. Subject to the terms and conditions of this
Agreement, Warner hereby grants and agrees to grant to CoCensys an exclusive
(except as to Warner) license under the Patent Rights, Background Technology
and Collaboration Technology owned or Controlled by Warner to the extent
necessary for CoCensys to (a) participate in Preclinical Development and
Development as set forth in Section 5, and (b) use and promote any
Collaboration Product in the Co-Promotion Country pursuant to the terms of
Section 7, once it has exercised the Re-engagement Option with respect to such
Collaboration Product. CoCensys may not sublicense any of its rights granted
under this Section 6.2 without the prior written consent of Warner, not to be
unreasonably withheld.
6.3. INDEPENDENT PRODUCTS. Each of Warner and CoCensys hereby grants and
agrees to grant to the other an exclusive, worldwide license under the Patent
Rights, Background Technology and Collaboration Technology owned or Controlled
by the granting party to the extent necessary to develop Independent Lead
Compounds and make, have made, use, import, offer for sale and sell (with the
right to sublicense) any Independent Product in the event the receiving party
is designated the Independent Party with respect to such Independent Product
(or Independent Lead Compound) pursuant to Section 5.3(j). Such licenses are
exclusive even as to the granting party. Any such license with respect to an
Independent Product or Independent Lead Compound shall terminate in the event
such Independent Product or Independent Lead Compound becomes a Collaboration
Lead Compound or Collaboration Product pursuant to the terms of Section 5.3(k).
6.4. THIRD PARTY TECHNOLOGY.
(a) OREGON LICENSE.
(i) Warner acknowledges and understands that the licenses
granted by CoCensys under Sections 6.1 and 6.3 contemplate sublicenses of
technology licensed from Oregon to Acea pursuant to the Oregon License
Agreement and that these sublicenses to Warner are subject to the terms and
conditions of the Oregon License
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Agreement, including certain rights retained by Oregon and the United States
government thereunder. Warner further acknowledges that in no event shall the
license grants to Warner under this Agreement with respect to technology
licensed to Acea pursuant to the Oregon License Agreement be construed as
conferring upon Warner any greater rights than are conferred upon Acea or
CoCensys by Oregon under the Oregon License Agreement. CoCensys shall have
the right to negotiate or amend the terms of the Oregon License Agreement,
without involvement of Warner, provided that (i) the benefits to Warner under
any such renegotiated or amended license agreement shall not be less than
those contained in the Oregon License Agreement in effect as of the Effective
Date and (ii) CoCensys provides a draft copy of such renegotiated or amended
license agreement (which draft, in CoCensys' sole discretion, may have any or
all economic terms redacted) to Warner no later than 45 days prior to
execution of such agreement.
(ii) As between Warner and CoCensys, [*] of any royalties or
other amounts paid to or due and owing Oregon or UC by CoCensys, as of or after
the Effective Date, pursuant to the Oregon/UC Agreements shall be borne by [*].
(b) COVENANTS OF COCENSYS REGARDING OREGON/UC AGREEMENTS.
(i) CoCensys hereby covenants and agrees with Warner as
follows: (1) to perform its obligations, and use diligent efforts to cause
Oregon or UC, as the case may be, to perform its obligations, under the
Oregon/UC Agreements; (2) to notify Warner promptly in writing of any breach or
notice given or received by CoCensys, Oregon or UC (to the extent CoCensys has
knowledge thereof) under the Oregon/UC Agreements; (3) not to make any
decisions, agreements or elections, or refuse or not make any decisions,
agreements or elections, or take or refuse or not take any other action under
the Oregon/UC Agreements or otherwise which might adversely affect CoCensys'
rights under the Oregon/UC Agreements or Warner's rights or CoCensys'
obligations under this Agreement; and (4) not to take or allow to be taken any
action which could result in a breach of the Oregon/UC Agreements such that
such breach adversely affects Warner's rights under this Agreement.
(ii) In the event Warner incurs any damages, costs or other
expenses as a result of a breach of any of the covenants set forth in
Section 6.4(b)(i), CoCensys shall indemnify and hold harmless Warner and its
Affiliates for any such damages, costs or expenses incurred. This obligation
shall survive the expiration or termination of this Agreement.
(c) OTHER THIRD PARTY TECHNOLOGY. During the term of this Agreement,
if either party becomes aware of Third Party rights that may be desirable to
license in order to manufacture, market, import, use or sell a Collaboration
Product (other than rights granted under the Oregon/UC Agreements), it shall
notify the other party and the Executive Committee will determine whether a
license should be sought under such rights. If CoCensys has exercised the Re-
engagement Option, and in the event that such acquired rights result in
payments to a Third Party, [*] of such payments attributable to the
manufacture, marketing, importation, use or sale of the applicable
Collaboration Product in the Co-Promotion Country shall be included as a
Co-Promotion Expense of the party making such payment in that country. In the
event that such acquired rights result in payments to a Third Party, [*] of any
such payments attributable to
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the manufacture, marketing, importation, use or sale of such Collaboration
Product in the non-Co-Promotion Country shall be deducted from royalty
payments due to CoCensys pursuant to this Agreement with respect to such
Collaboration Product in such country, provided, however, in no event shall
royalties due CoCensys pursuant to this Agreement with respect to sales of
such Collaboration Product in any non-Co-Promotion country be reduced by more
than [*] of Net Sales of such Collaboration Product in such country.
6.5. USE OUTSIDE THE FIELD. Each party hereby covenants to the other that
it will not practice the Patent Rights, Background Technology, or Collaboration
Technology of the other party, except as explicitly permitted in this
Agreement.
6.6. ROYALTIES PAYABLE BY WARNER. Except as set forth in Section 2.4,
Warner will pay CoCensys a royalty equal to [*] of Warner's, its Affiliates' or
sublicensees' Net Sales of Collaboration Products in the Non-Co-Promotion
Countries, and a royalty calculated in accordance with the following table for
Warner's, its Affiliates' or sublicensees' Net Sales of all Collaboration
Products in the Co-Promotion Country for Collaboration Products for which
CoCensys has not exercised the Re-engagement Option.
<TABLE>
<CAPTION>
The primary active ingredient
of the applicable
Collaboration Product Royalty Percentage
- ---------------------------- ---------------------
<S> <C>
[*] [*]
[*] [*]
[*] [*] of annual Net Sales less
than or equal to [*]
[*] of annual Net Sales
greater than [*] but less
than [*]
[*] of annual Net Sales
greater than [*] but less
than or equal to [*]
[*] of annual Net Sales in
excess of [*]
</TABLE>
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[*] shall be owed on Net Sales in the Co-Promotion Country on any Collaboration
Products for which CoCensys has exercised the Re-engagement Option and not
elected to terminate its Co-Promotion Rights under Section 7.3. Such royalties
shall be payable until the expiration of the last to expire Patent Right owned
or Controlled by either CoCensys or Warner and necessary to make, use, import
for sale or sell such Collaboration Product in such country. In addition, the
percentage of royalty payable in any calendar quarter with respect to Net Sales
of each Collaboration Product shall be reduced by [*] of the number of
percentage points (or fraction thereof) by which the Cost of Goods for such
Collaboration Product [*] of Net Sales of such Collaboration Product in such
quarter, provided that the royalty payable by Warner shall not be reduced below
[*].
6.7. ROYALTIES PAYABLE BY THE INDEPENDENT PARTY. The Independent Party
will pay the other party a royalty equal to [*] of the Independent Party's, its
Affiliates', or sublicensees' Net Sales of Independent Products. Such royalties
shall be payable in respect of each country in which sales occur until the
expiration of the last to expire Patent Right owned or Controlled by either
CoCensys or Warner and necessary to make, use, import for sale or sell such
Product in such country.
6.8. CURRENCY OF PAYMENT. All payments to be made under this Agreement
shall be made in United States dollars in the United States to a bank account
designated by the party to be paid. Royalties earned shall first be determined
in the currency of the country in which they are earned and then converted to
its equivalent in United States currency. The buying rates of exchange for the
currencies involved into the currency of the United States quoted by Citibank
(or its successor in interest) in New York, New York, at the close of business
on the last business day of the quarterly period in which the royalties were
earned shall be used to determine any such conversion.
6.9. PAYMENT AND REPORTING. The royalties due under Sections 6.6 or 6.7
shall be paid quarterly, within 3 months after the close of each calendar
quarter, or earlier if practical (i.e., on or before the last day of each of
the months of June, September, December, and March), immediately following each
quarterly period in which such royalties are earned. With each such quarterly
payment, the payor shall furnish the payee a royalty statement setting forth on
a country-by-country basis the total revenues and the number of units of each
royalty-bearing Product sold hereunder for the quarterly period for which the
royalties are due, and the deductions applied in arriving at Net Sales.
6.10. TAXES WITHHELD. Any income or other tax that one party
hereunder, its Affiliates or sublicensees is required to withhold (the
"Withholding Party") and pay on behalf of the other party hereunder (the
"Withheld Party") with respect to the royalties payable under this Agreement
shall be deducted from and offset against said royalties prior to remittance to
the Withheld Party; provided, however, that in regard to any tax so deducted,
the Withholding Party shall give or cause to be given to the Withheld Party
such assistance as may reasonably be necessary to enable the Withheld Party to
claim
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exemption therefrom or credit therefor, and in each case shall furnish the
Withheld Party proper evidence of the taxes paid on its behalf.
6.11. COMPUTATION OF ROYALTIES. All sales of Products between the
selling party and any of its Affiliates and sublicensees shall be disregarded
for purposes of computing Net Sales and royalties under this Section 6, but in
such instances royalties shall be payable only upon sales to unlicensed Third
Parties. Nothing herein contained shall obligate either party to pay the other
party more than one royalty on any unit of a Product.
6.12. LICENSES TO AFFILIATES AND SUBLICENSEES. Each party shall, at
the other party's reasonable request, enter into license and/or royalty
agreements directly with the other party's Affiliates and permitted
sublicensees, in lieu of the license grant to or royalty obligation of the
requesting party; provided such agreements would not decrease the amount of
royalties which would be owed hereunder. Such agreements shall contain the same
language as contained herein with appropriate changes in parties and territory,
and this Agreement shall be amended as appropriate. No such license and/or
royalty agreement will relieve Warner or CoCensys, as the case may be, of its
obligations hereunder, and such party will guarantee the obligations of its
Affiliate or sublicensee in any such agreement. Royalties received directly
from one party's Affiliates and sublicensees shall be credited towards such
party's royalty obligations under Section 6.6 or 6.7 hereof, as applicable.
6.13. RESTRICTIONS ON PAYMENTS. The obligation to pay royalties under
this Agreement shall be waived and excused to the extent that statutes, laws,
codes or government regulations in a particular country prevent such royalty
payments by the seller of Products; provided, however, that if legally
permissible, the seller of Products shall pay the royalties owed to the other
party hereto by depositing such amounts in a bank account in such country that
has been designated by the party owed such royalties.
6.14. RECORDS. Warner and CoCensys each shall keep accurate books and
accounts of record in connection with the manufacture, use and/or sale by or
for it of the Collaboration Products and Independent Products in sufficient
detail to permit accurate determination of all figures necessary for
verification of royalties, profits, milestone payments and other compensation
required to be paid hereunder. Warner and CoCensys shall maintain such records
for a period of 3 years after the end of the year in which they were generated.
At such party's expense, a party, 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 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 once during each calendar year.
SECTION 7. CO-PROMOTION OF COLLABORATION PRODUCTS
7.1. APPLICABILITY. The terms of this Section 7 shall only apply to
Collaboration Products for which CoCensys has exercised the Re-engagement
Option in
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accordance with Section 5 and for which CoCensys has not subsequently
terminated its participation in the development of such Collaboration Product.
7.2. CO-PROMOTION RIGHTS. Subject to Section 7.4, CoCensys and Warner
shall each work diligently and use the same effort such party puts forth to
promote other products of similar commercial value, to co-promote each
Collaboration Product in the Co-Promotion Country during the Term of
Co-Promotion pursuant to the terms and conditions hereof. The Marketing
Committee shall oversee and implement all such commercialization activities,
based on the principle of maximizing profits from sales of Collaboration
Products in the Co-Promotion Country during the Term of Co-Promotion.
7.3. ELECTION OR REVOCATION OF CO-PROMOTION RIGHT. CoCensys may terminate
early the Term of Co-Promotion with respect to a Collaboration Product being
co-promoted by the parties in the Co-Promotion Country at any time following
[*] prior written notice to Warner, in which case Warner shall have the
exclusive right to promote, alone or with another party, in the Co-Promotion
Country, and CoCensys shall receive a royalty of (a) [*] on Net Sales of such
Collaboration Product in the Co-Promotion provided that CoCensys has provided
its Required Sales Effort for no less that [*] consecutive months following the
initial sale of the applicable Collaboration Product or (b) [*] on Net Sales of
Collaboration Products where CoCensys has failed to so provide its Required
Sales Effort. Warner may terminate early the Term of Co-Promotion with respect
to a Collaboration Product being co-promoted by the parties in the Co-Promotion
Country at any time following [*] months prior written notice to CoCensys, in
which case, should CoCensys desire to continue promotion of such Collaboration
Product, it shall be treated as an Independent Product being promoted by
CoCensys, which CoCensys may promote alone or with another party, in the
Co-Promotion Country, effective as of the date of termination, and Warner shall
receive a royalty on Net Sales in the Co-Promotion Country pursuant to
Section 6.7, except that such royalty shall equal [*] instead of [*] of Net
Sales. In the event (a) of early termination of the Term of Co-Promotion by
Warner in the Co-Promotion Country, or (b) Warner otherwise terminates the
Development or promotion in the Co-Promotion Country of a Collaboration Product
for which CoCensys has not exercised the Re-engagement Option, Warner shall
(i) assign to CoCensys all NDAs (or foreign equivalents) for such Collaboration
Product in such country, (ii) transfer to CoCensys any other relevant
information which will enable CoCensys to promote such product as an
Independent Product in such country, and (iii) continue to supply Finished
Product to CoCensys pursuant to Section 9.7. In the event of early termination
of the Term of Co-Promotion by CoCensys in the Co-Promotion Country, CoCensys
shall transfer to Warner any other relevant information which will enable
Warner to promote such product in such country. The Term of Co-Promotion with
respect to any Collaboration Product in the Co-Promotion Country may not be
reinstated after delivery of a notice of early termination thereof.
7.4. REQUIRED SALES EFFORT. Warner shall supply a percentage equal to [*]
and CoCensys shall supply a percentage equal to [*] of the total promotional
and marketing
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effort (including details, if determined to be an appropriate sales activity)
for each Collaboration Product being co-promoted by the parties in the
Co-Promotion Country, as determined by the Marketing Committee. Each party's
required promotional and marketing effort is hereinafter referred to as its
"Required Sales Effort" and is subject to adjustment as set forth in this
Section 7.4. The parties will mutually determine appropriate written
standards for measuring and accounting procedures to confirm and document
each party's performance of its Required Sales Effort, prior to the
commencement of the Term of Co-Promotion for any Collaboration Product. In
the event either party fails to meet its Required Sales Effort commitment in
any calendar year with respect to a Collaboration Product in a Co-Promotion
Country, the parties will meet to discuss the circumstances giving rise to
such shortfall. If such shortfall was not caused by an event of force
majeure, then the failing party's Share of Profit and Share of Loss (as
defined under Section 7.15) shall be reduced for that calendar year and for
all subsequent calendar quarters during the Term of Co-Promotion to [*],
unless further readjusted in subsequent calendar years due to a failure of
the other party to meet its Required Sales Effort. Notwithstanding any other
provisions of this Agreement, if a party's Share of Profit and Share of Loss
falls below [*] pursuant to this Section 7.4, the failing party shall instead
receive a royalty equal to [*] of the other party's (or the other party's
Affiliates' or sublicensees') Net Sales of Collaboration Products. Such
royalties shall be payable until the expiration of the last to expire Patent
Right owned or Controlled by either CoCensys or Warner and necessary to make,
use or sell such Collaboration Product in such country. Nothing contained in
this Section 7.4 shall be deemed to preclude either party from revoking its
right to co-promote, pursuant to Section 7.3, at any time. The parties have
provided in this Section 7.4 for the exclusive mechanisms to compensate for
failure to provide the Required Sales Effort and any such failure shall not
be deemed a breach of this Agreement.
7.5. MARKETING PLAN AND BUDGET. The co-promotion of each Collaboration
Product will be governed by a marketing plan and budget (the "Marketing Plan
and Budget"). Warner will be responsible for preparing and approving the
Marketing Plan and Budget. The Marketing Plan and Budget will describe fully,
to the extent practicable, the proposed plan for commercialization of the
Collaboration Product in the Co-Promotion Country, including overall marketing
strategy, anticipated marketing, sales and promotion efforts by each party,
market and sales forecasts, pricing analysis and estimated launch date, as well
as advertising and other promotional materials to be used in the co-promotion.
The Marketing Plan will be prepared taking into consideration factors such as
market conditions, regulatory factors and competition. The Budget will include
all projected Co-Promotion Expenses for the Collaboration Product. The initial
Marketing Plan and Budget shall be prepared and approved by Warner, after
discussions with CoCensys, no later than 3 months after the first filing of an
NDA (or its foreign equivalent) for a Collaboration Product in the Co-Promotion
Country.
7.6. PROMOTIONAL AND ADVERTISING MATERIALS. The parties shall disseminate
in the Co-Promotion Country only those promotional and advertising materials
which have been provided or approved for use by Warner, the cost of which shall
be a Co-Promotion
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Expense of the party incurring such cost. All such materials shall be
consistent with the relevant Marketing Plan and Budget approved by Warner and
neither party shall make any claims or representations in respect of the
applicable Collaboration Product that have not been approved by Warner. In
all written or visual materials related to Collaboration Products co-promoted
in the Co-Promotion Country which identify either of the parties, 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 promotion of the Collaboration Product in such
country. All such written and visual materials and all documentary
information, promotional material, and oral presentations (where practical)
regarding the promoting of the Collaboration Product being co-promoted in the
Co-Promotion Country will state this arrangement and will display the Warner
and CoCensys names and logos with equal prominence, as permitted by
applicable law.
7.7. PRICING. The parties will discuss, and the Marketing Plan will
include, the general operating guidelines and strategies for the pricing and
discounting of Collaboration Products co-promoted in the Co-Promotion Country
provided, however that Warner shall have absolute discretion as to pricing and
discounting in countries in which the Collaboration Product is not co-promoted.
If either party is selling, marketing or promoting a competing product in the
Co-Promotion Country at such time, the scope of such discussions shall be
adjusted accordingly.
7.8. NO DELEGATION. Each of the parties may use only its own employees or
the employees of one or more of its Affiliates in the course of exercising its
co-promotion rights under this Agreement.
7.9. RETURNS. Warner shall be responsible for handling all returns
relating to Collaboration Products. Any Collaboration Product returned to
CoCensys shall be shipped by CoCensys to the address designated by Warner with
shipping costs authorized by Warner to be paid by Warner.
7.10. ORDERS. All customer orders for Collaboration Products shall be
received and executed by Warner. CoCensys shall transmit any such orders that
it receives to Warner no later than the following business day.
7.11. SAMPLES. accurate records as to the distribution of samples of
Collaboration Products and comply with all applicable laws, rules and
regulations dealing with the distribution of samples.
7.12. COMPLETION OF SALES. All sales of Collaboration Products will be
completed, distributed, accounted for, billed and booked by Warner.
7.13. TRAINING. Consistent with the marketing plans established by
Warner, but not less than 90 days prior to the commencement of the Term of
Co-Promotion for each Collaboration Product, Warner shall provide reasonable
access to its sales training staff and facilities for appropriate, initial
training of the CoCensys sales force to the extent
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CoCensys lacks such facilities and training staff. Such training shall be at
CoCensys' expense and shall be a Co-Promotion Expense of CoCensys. Consistent
with the marketing plans established by Warner, all other training costs
shall be borne by the party incurring such cost and shall be a Co-Promotion
Expense of such party.
7.14. EXCHANGE OF MARKETING INFORMATION. From time-to-time Warner will
develop call lists, schedules, and other appropriate information for the
purpose of determining the physicians and other persons involved in the drug
purchase decision-making process to whom CoCensys and Warner, respectively, may
detail each Collaboration Product. The parties agree to cooperate in finding an
inexpensive and expeditious way to provide a call list and other information
indicating the identity of those physicians and other persons involved in the
decision-making process regarding the purchase of pharmaceuticals. Any expenses
incurred in connection therewith shall be Co-Promotion Expenses of the party
incurring such expense. If either party is selling, marketing, or promoting a
competing product in the Co-Promotion Country at such time, the scope of such
activities shall be adjusted accordingly.
7.15 DETERMINATION AND ALLOCATION OF TOTAL PROFIT.
(a) If Total Profit for a Collaboration Product is positive, Net
Sales in the Co-Promotion Country shall be allocated first to reimburse each
party for its Co-Promotion Expenses for such Collaboration Product and then to
pay each party its Share of Profit times such positive Total Profit. CoCensys'
"Share of Profit" shall equal [*] and Warner's "Share of Profit" shall equal
[*] unless adjusted pursuant to Section 7.4.
(b) If Total Profit for a Collaboration Product is negative, Net
Sales shall be allocated to partially reimburse the parties so that (w) the
proportion of each party's share of the total unreimbursed Co-Promotion
Expenses to the total amount of unreimbursed Co-Promotion Expenses for both
parties is equal to (x) [*]. If (y) the Co-Promotion Expenses actually incurred
by a party are less than (z) such party's Share of Loss times such negative
Total Profit, such party shall pay the other party the difference between (z)
and (y) at the time set forth in Section 7.16. Each party's "Share of Loss"
shall equal its Share of Profit, unless adjusted pursuant to Section 7.4.
7.16. PAYMENT AND REPORTING. Within [*] after the close of each
calendar quarter during the Term of Co-Promotion (i.e., on or before the last
day of each of the [*]), or earlier if possible, CoCensys shall furnish to
Warner a statement containing its Co-Promotion Expenses incurred in such
calendar quarter for the Co-Promotion Country. Within [*] after the close of
each calendar quarter during the Term of Co-Promotion (i.e., on or before the
last day of [*]), or earlier if possible, Warner shall furnish to CoCensys a
statement (the "P&L Statements") setting forth for each Co-Promotion Country,
Net Sales of each Collaboration Product and all data on which the determination
of Total Profit was calculated. Warner will submit any amount due to CoCensys
pursuant to Section 7.15 (a) or 7.15 (b), as the case may be, with the P&L
Statement. If CoCensys owes an amount to Warner pursuant to Section 7.15 (b),
it shall make such payment
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within 30 days of receipt of the P&L Statement. If the Term of Co-Promotion
ends during an accounting quarter, the amounts due hereunder shall be
calculated for such shortened calendar quarter.
SECTION 8. TRADEMARKS.
8.1 TRADEMARKS IN THE CO-PROMOTION COUNTRY. The following provisions
shall apply to each Collaboration Product for which CoCensys has exercised the
Re-engagement Option pursuant to Section 5.3.
(a) The parties, through the Marketing Committee, shall mutually
agree upon the trademark or trademarks to be used for each Collaboration
Product in the Co-Promotion Country (each a "Trademark") and shall take into
consideration the marketing efforts of Warner with respect to such
Collaboration Product in countries other than the Co-Promotion Country. Warner
and CoCensys shall be joint owners of each Trademark in the Co-Promotion
Country. In the Co-Promotion Country, each Trademark shall be used only in
connection with the applicable Collaboration Product and shall not be used by
either party on or in connection with any other product. The Marketing
Committee shall assign responsibility to one or both parties for searching,
clearing, filing, prosecuting, maintaining and all reasonable steps necessary
in defending each Trademark. All costs associated with the aforesaid actions
and all other necessary actions in connection with each Trademark, including,
without limitation, obtaining, owning, maintaining, defending and enforcing
such Trademark shall be deemed Co-Promotion Expenses of the party incurring
such costs.
(b) In the event any jurisdiction in the Co-Promotion Country does
not recognize joint ownership of a trademark by separate corporate entities,
Warner shall be the owner of each Trademark in such jurisdiction and CoCensys
shall be the exclusive (except as to Warner) licensee of such Trademark in such
jurisdiction, without payment of any additional consideration to Warner.
(c) In the event there is a challenge to the validity of any
Trademark, or enforceability against a third party infringer is at issue due to
joint ownership of any Trademark (even if a Certificate of Registration has
issued for such Trademark in accordance with the terms of this Agreement), the
owner of such Trademark shall be deemed to be either Warner or CoCensys, as
determined by the Marketing Committee, and nothing in the terms of this
Agreement shall be deemed to be a desire by either party to nullify or
disqualify the validity of such Trademark.
(d) The Marketing Committee shall approve all trade dress, logos,
slogans, designs and copyrights used on and in connection with any
Collaboration Product in the Co-Promotion Country. Warner and CoCensys shall
be joint owners of the trade dress, logos, slogans, designs and copyrights
specifically developed for and used on and in connection with any Collaboration
Product in the Co-Promotion Countries (the "Collaboration Product Logos and
Copy"). Warner and CoCensys shall each retain sole
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and exclusive ownership of their own respective and independently developed
and pre-existing names, trade dress, logos, slogans, designs and copyrights
regardless of whether such names, trade dress, logos, slogans, designs and
copyrights are used on or in connection with any Collaboration Product.
(e) Neither Warner nor CoCensys shall have the right to assign,
transfer, license, sublicense, or otherwise encumber any Trademark or
Collaboration Product Logos and Copy without the prior written consent of the
other party. Neither party shall use, file for or obtain, in the Co-Promotion
Country, a trademark registration for any trademark which is confusingly
similar to any Trademark used or to be used in the Co-Promotion Country. At the
expiration or termination of the Term of Co-Promotion in a Co-Promotion Country
for any Collaboration Product, only one party shall be permitted to continue to
use any Trademarks and Collaboration Product Logos and Copy used in the
marketing and sale of such Collaboration Product. The party desiring to
continue using such Trademarks and Collaboration Product Logos and Copy at the
expiration or termination of the Term of Co-Promotion for any Collaboration
Product shall compensate the other party, at a royalty rate equal to [*] of
such party's, its Affiliates' or sublicensees' Net Sales of such Collaboration
Product, for so long as such Collaboration Product is sold under such
Trademarks or Collaboration Product Logos and Copy. In the event both parties
desire to continue using such Trademarks and Collaboration Product Logos and
Copy at the expiration or termination of the Term of Co-Promotion, the party
willing to pay to the other party [*] shall be the only party permitted to
continue using such Trademarks and Collaboration Product Logos and Copy. The
party being compensated shall assign all of its right, title and interest in
such Trademarks and Collaboration Product Logos and Copy in the Co-Promotion
Country to the other party upon receipt of such compensation. No later than [*]
after receipt of such compensation, all rights to use such Trademarks and
Collaboration Product Logos and Copy by the compensated party shall cease.
(f) Each party shall be responsible for maintaining the quality
control in connection with its own manufacture of Bulk Products and Finished
Products and shall maintain such quality control standards as are established
by the Marketing Committee. To the extent Finished Products or Bulk Products
are manufactured by a Third Party, the party or parties contracting with such
Third Party shall provide in such contract that such Third Party will be held
to the quality control standards established by the Marketing Committee. During
the Term of Co-Promotion, the Marketing Committee shall approve all printed
materials bearing each Trademark, including but not limited to business
materials, printed materials, advertising materials, promotional materials, and
any such other materials that may reference such Trademark.
(g) In the event that Warner or CoCensys is charged with, or sued
for, the violation of any third party trademark, or an administrative action is
brought against either party in connection with any Trademark in any
Co-Promotion Country, each party shall promptly notify the other and cooperate
in the defense of any such charge, suit, or administrative proceeding as
applicable. The Marketing Committee shall be responsible
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for the management of such action. All costs and expenses of such action
(including damage awards and settlement awards) shall be [*].
(h) In the event CoCensys or Warner becomes aware of any actual or
threatened violation of any Trademark in the Co-Promotion Country, that party
shall promptly notify the other and the Marketing Committee shall promptly
discuss how to proceed in connection with such actual or threatened violation.
Any expenses incurred in connection with a legal action or administrative
action with respect to such actual or threatened violation shall be [*] and any
damages awarded to either Warner or CoCensys shall be paid [*] and be deemed to
be [*].
8.2. TRADEMARKS IN COUNTRY OTHER THAN CO-PROMOTION COUNTRY. Warner shall
select and own the trademark for marketing a Collaboration Product in countries
other than those in which the parties are co-promoting, taking into
consideration the Trademark selected for those countries in which the parties
are co-promoting. All expenses for (i) registration of such trademark and
(ii) bringing, maintaining, and prosecuting any action to protect or defend
such trademark in such countries shall be borne by Warner.
SECTION 9. SUPPLY OF PRODUCT
The following provisions shall only apply to Collaboration Products for
which CoCensys has exercised the Re-engagement Option pursuant to Section 5.3.
9.1. SUPPLY OF PRODUCT BY WARNER.
(a) Subject to Section 9.2, Warner will manufacture or have
manufactured the parties' requirements for clinical and commercial supplies of
each Collaboration Product (Bulk Product and Finished Product). In fulfilling
its manufacturing obligations hereunder, Warner will use at least the same
level of effort that it employs for its other products of similar scientific
and commercial promise.
(b) Warner shall be responsible for establishing, subject to
approval by the Executive Committee, the specifications, including any
necessary documentation, certificates of analysis and test results, for the
relevant Collaboration Product to be manufactured under this Section 9. Warner
will promptly provide CoCensys with copies of all such specifications and other
information and documentation if CoCensys has exercised its Re-engagement
Option. In addition, Warner will provide CoCensys with notice of, and results
and data from, all FDA audits relating to supply of Collaboration Products.
(c) Where CoCensys takes delivery of Finished Product, CoCensys
shall have the right to conduct quality assurance testing of Finished Product
which Warner manufactures or has manufactured. The cost of such testing shall
be a Development Cost or a Co-Promotion Expense, as the case may be.
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(d) Warner's Cost of Goods (including qualification batches for FDA
approval) for Collaboration Products actually used (and not sold) for all
studies in the Core U.S. Dossier shall be included in Development Costs.
9.2. TERMS OF MANUFACTURE AND SUPPLY.
(a) The Executive Committee shall establish procedures acceptable to
both parties regarding forecasts of requirements of the Collaboration Products.
(b) At all times during the Term of Co-Promotion, Warner shall
maintain reasonable commercial inventories of Collaboration Products necessary
to meet commercial supply requirements as determined by the Marketing
Committee.
(c) Warner shall be entitled to recover as a Co-Promotion Expense in
the Co-Promotion Country, its Cost of Goods for Collaboration Products which
the parties are co-promoting pursuant to Section 7, sold in the Co-Promotion
Country which are (i) manufactured by it or (ii) purchased from a Third Party
source. Warner shall, at the request and expense of CoCensys, permit an
independent accountant to whom Warner has no reasonable objection, to have
access to and to examine Warner's written records concerning its Cost of Goods,
during normal business hours, but not more than once in any 12-month period, to
verify the Cost of Goods. CoCensys shall keep in strict confidence all
information learned in the course of such audit.
9.3. SUPPLY OBLIGATION UPON REVOCATION OF CO-PROMOTION RIGHT. If Warner
terminates early the Term of Co-Promotion with respect to a Collaboration
Product pursuant to Section 7.2 and CoCensys desires to continue promotion of
such product as an Independent Product, and if Warner is supplying Finished
Products, Warner shall continue to supply Finished Product to CoCensys until
the earlier of (a) [*] following the end of the Term of Co-Promotion or (b) the
date CoCensys obtains an alternative source for such Finished Product, with
such Finished Product being supplied by Warner at a price and subject to
additional terms and conditions to be negotiated between the parties.
SECTION 10. REGULATORY MATTERS
The following provisions shall only apply to Collaboration Products for
which CoCensys has exercised the Re-engagement Option pursuant to Section 5.3.
10.1. SIDE EFFECTS AND ADVERSE EVENTS. Prior to and during the Term of
Co-Promotion of a Collaboration Product which the parties are co-promoting
pursuant to Section 7, each party shall promptly advise the other by telefax or
overnight delivery service of any unexpected side effect, adverse reaction, or
injury which has been brought to that party's attention at any place and which
is alleged to have been caused by such Collaboration Product. The party which
has filed the Drug Approval Application in the Co-Promotion Country or, if no
Drug Approval Application has been filed, the party which has filed the IND in
the Co-Promotion Country shall have all rights and
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responsibilities to report such side effect, adverse reaction or injury to
the appropriate regulatory authorities as required by applicable law. In
non-Co-Promotion Countries, Warner shall have all rights and responsibilities
to report such side effect, adverse reaction or injury to the appropriate
regulatory authorities as required by applicable law.
10.2. COMMUNICATION WITH REGULATORY AGENCIES. Upon being contacted by
the FDA in the Co-Promotion Country prior to or during the Term of Co-Promotion
for any regulatory purpose pertaining to this Agreement or to a Collaboration
Product which the parties are co-promoting pursuant to Section 7, CoCensys and
Warner shall promptly, but always within 2 business days, notify and consult
with one another and the party which has filed the Drug Approval Application in
the Co-Promotion Country or, if no Drug Approval Application has been filed,
the party which has filed the IND shall provide an appropriate response. Upon
being contacted by any drug regulatory agency in any non-Co-Promotion Country
prior to or during the Term of Co-Promotion for any regulatory purpose which is
relevant to the development or commercialization of such Collaboration Product,
Warner shall promptly, but always within 2 business days, notify CoCensys of
the content of such contact. In non-Co-Promotion Countries, Warner shall have
the sole right and responsibility to respond to any regulatory agency with
respect to any Collaboration Product.
10.3. PRODUCT RECALL. In the event that Warner or CoCensys determines
that an event, incident or circumstances has occurred which may result in the
need for a recall or other removal of any Collaboration Product which the
parties are co-promoting pursuant to Section 7 or any lot or lots thereof from
the market in a Co-Promotion Country, it shall advise and consult with the
other party with respect thereto. The holder of the NDA (or foreign equivalent)
shall, in its sole discretion, have the right to order a recall or other
removal after such consultations and the other party shall co-operate with such
recall. [*]. Warner shall make all decisions with respect to recall of a
Collaboration Product which the parties are co-promoting pursuant to Section 7
in a non-Co-Promotion Country, and Warner alone shall bear all costs associated
therewith.
SECTION 11. MILESTONES; EQUITY INVESTMENT
11.1. MILESTONES.
(a) Warner shall pay CoCensys the following amounts with respect to
each Collaboration Product to achieve each stated milestone (whether or not
CoCensys has exercised its Re-engagement Option):
<TABLE>
<CAPTION>
<S> <C> <C>
1. [*] .................................... [*]
2. [*] .................................... [*]
3. [*] .................................... [*]
4. [*] .................................... [*]
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5. [*] .................................... [*]
6. [*] .................................... [*]
7. [*] .................................... [*]
8. [*] .................................... [*]
9. [*] .................................... [*]
10. [*] .................................... [*]
11. [*] .................................... [*]
12. [*] .................................... [*]
13. [*] .................................... [*]
14. [*] .................................... [*]
</TABLE>
(b) CoCensys acknowledges and agrees that [*] of the payment under
milestone 2 and [*] of the payment under milestone 3 above shall be treated as
prepaid royalties of Warner owed under Section 6.6. Warner may reduce each
royalty payment due under Section 6.6 by up to [*] until the aggregate of all
such reductions equals the total amount of prepaid royalties.
11.2. ACQUISITION OF COCENSYS COMMON STOCK. Simultaneously with the
execution of the Amended and Restated Research, Development and Marketing
Collaboration Agreement, the parties shall enter into a certain Stock Purchase
Agreement pursuant to which Warner shall pay to CoCensys a total amount of
$7,000,000 in consideration for shares of CoCensys Convertible Preferred Stock.
Such purchase of Convertible Preferred Stock shall be divided into a payment
of $1,000,000 upon execution of the Stock Purchase Agreement and $6,000,000 on
January 9, 1998.
SECTION 12. CONFIDENTIALITY
12.1. CONFIDENTIALITY.
(a) Except as specifically permitted hereunder, each party hereby
agrees to hold in confidence and not use on behalf of itself or others all
Background Technology, and all other data, samples, technical and economic
information (including the economic terms hereof), commercialization, clinical
and research strategies, and know-how provided by the other party (the
"Disclosing Party") during the Term of this Agreement and all Collaboration
Technology and all other data, results and information developed pursuant to
the Collaboration and solely owned by the Disclosing Party or
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jointly owned by the parties (collectively the "Confidential Information"),
except that the term "Confidential Information" shall not include:
(1) information that is or becomes part of the public domain
through no fault of the non-Disclosing Party or its Affiliates; and
(2) information that is obtained after the date hereof by the
non-Disclosing Party or one of its Affiliates from any Third Party which is
lawfully in possession of such Confidential Information and not in violation of
any contractual or legal obligation to the Disclosing Party with respect to
such Confidential Information; and
(3) information that is known to the non-Disclosing Party or
one or more of its Affiliates prior to disclosure by the Disclosing Party, as
evidenced by the non-Disclosing Party's written records; and
(4) information that is necessary to be disclosed to any
governmental authorities or pursuant to any regulatory filings, but only to the
limited extent of such legally required disclosure; and
(5) information which has been independently developed by the
non-Disclosing Party without the aid or use of Confidential Information.
(b) The obligations of this Section 12.1 shall survive the
expiration or termination of this Agreement for a period of 3 years.
12.2. PERMITTED DISCLOSURES. Confidential Information may be disclosed
to employees, agents, consultants, sublicensees or suppliers of the
non-Disclosing Party or its Affiliates, but only to the extent required to
accomplish the purposes of this Agreement and only if the non-Disclosing Party
obtains prior agreement from its employees, agents, consultants, sublicensees,
or suppliers to whom disclosure is to be made to hold in confidence and not
make use of 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
employees, agents, consultants, sublicensees, or suppliers do not disclose or
make any unauthorized use of the Confidential Information. Notwithstanding any
other provision of this Agreement, each party may disclose the terms of this
Agreement to lenders, investment bankers and other financial institutions of
its choice solely for purposes of financing the business operations of such
party either (i) upon the written consent of the other party or (ii) if the
disclosing party obtains a signed confidentiality agreement with such financial
institution with respect to such information, upon terms substantially similar
to those contained in this Section 12.
12.3. PUBLICITY. All publicity, press releases, and other
announcements relating to this Agreement or the transaction contemplated hereby
shall be reviewed in advance by, and shall be subject to the approval of, both
parties; provided, however, that either
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party may (i) publicize the existence and general subject matter of this
Agreement without the other party's approval and (ii) disclose the terms of
this Agreement only to the extent required to comply with applicable
securities laws and in the case of (ii), the non-disclosing party shall have
the right to review and comment on such disclosure prior to its submission,
where practicable.
12.4. PUBLICATION. The parties shall cooperate in appropriate
publication of the results of research and development work performed pursuant
to this Agreement, but subject to the predominating interest to obtain patent
protection for any patentable subject matter. To this end, it is agreed that
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, and shall
allow the other party 30 days from the date of receipt in which to determine
whether the information to be disclosed contains subject matter for which
patent protection should be sought prior to disclosure, or otherwise contains
Confidential Information of the reviewing party which such party desires to
maintain as a trade secret. If notification is not received during the 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 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
6 months to permit the preparation and filing of a patent application on the
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.
SECTION 13. REPRESENTATIONS AND WARRANTS
13.1. LEGAL AUTHORITY. Each party represents and warrants to the other
that it has the legal power, authority and right to enter into this Agreement
and to perform its respective obligations set forth herein.
13.2. NO CONFLICTS. Each party represents and warrants that as of the
date of this Agreement it is not a party to any agreement or arrangement with
any Third Party or under any obligation or restriction, including pursuant to
its Certificate of Incorporation or By-Laws, which in any way limits or
conflicts with its ability to fulfill any of its obligations under this
Agreement. CoCensys further represents and warrants to Warner that it has
delivered to Warner a complete copy of all written agreements between (a) Acea
and Oregon, (b) Acea and UC ,and (c) CoCensys and Acea, relating to research
being conducted by any such parties in the Field and no oral agreements or
other arrangements exist between Acea and Oregon or Acea and UC which supersede
any of the terms of any such written agreements. CoCensys further represents to
Warner that there are no existing agreements between CoCensys, Inc. and Oregon
relating to research or development in the Field.
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13.3. OTHERS BOUND. Each party covenants that any contract it enters
into with a Third Party performing services under this Agreement on behalf of
such party will bind such Third Party to all of the relevant terms and
conditions of this Agreement.
13.4. OREGON/UC AGREEMENTS. CoCensys represents and warrants that:
(a) Subject only to the rights retained by Oregon or by UC or by the
United States government pursuant to the provisions of the Oregon/UC
Agreements, CoCensys is the sole owner and/or exclusive worldwide licensee free
and clear of any and all charges, claims or encumbrances of any kind, except
those present in the Oregon/UC Agreements, of the entire right, title and
interest in and to all intellectual property rights (including, without
limitation, all patent rights, inventions and discoveries) and all compounds
which are subject to the terms of the Oregon/UC Agreements (collectively, the
"Oregon/UC Agreement Rights").
(b) Other than Oregon, UC, and the United States government, no
other person or organization presently has any effective option or license with
respect to the manufacture, use, or sale of the CoCensys Compounds or any
compounds arising under the Oregon/UC Agreement Rights.
(c) By fax transmitted on September 27, 1995, as supplemented by fax
transmitted on September 28, 1995, CoCensys has provided to Warner true and
complete copies of the Oregon/UC Agreements, including all supplements thereto
and modifications or amendments thereof. CoCensys is not, and to its best
knowledge Oregon is not, in default under or in breach of the Oregon License
Agreement or the Oregon Research Agreement or the Oregon/UC Assignment
Agreement and such agreements are in full force and effect as of the date
hereof. CoCensys is not, and to its best knowledge UC is not, in default under
or in breach of the UC Research Agreement or the Oregon/UC Assignment Agreement
and such agreements are in full force and effect as of the date hereof.
13.5. SURVIVAL. The foregoing representations and warranties shall
survive the execution, delivery, and performance of this Agreement,
notwithstanding any investigation by or on behalf of either party.
13.6. DISCLAIMER. Except as otherwise expressly stated herein, Warner
hereby disclaims any warranty expressed or implied as to any Collaboration
Product or Independent Product sold or placed in commerce by or on behalf of
CoCensys. Except as otherwise expressly stated herein, CoCensys hereby
disclaims any warranty expressed or implied as to any Collaboration Product or
Independent Product sold or placed in commerce by or on behalf of Warner.
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SECTION 14. TERMINATION
14.1. TERMINATION FOR BREACH. In the event of a material breach of the
provisions of this Agreement, the breaching party shall have 60 days after
receipt of written notice from the non-breaching party to cure such breach, or
if cure cannot be reasonably effected within such 60-day period, to deliver to
the other party a plan for curing such breach which is reasonably sufficient to
effect a cure.
(a) In the event of an uncured breach of a material obligation under
the Research Program and during the Term of the Research Program, the
non-breaching party may terminate the Term of the Research Program and each
party shall retain such ownership interest in the Collaboration Technology as
it shall hold on the date of the termination, provided, however, that (i) the
licenses granted to the non-breaching party under Section 2.5, Section 4.7, and
Section 6 shall remain in full force and effect but the breaching party shall
forfeit all rights to develop and promote all Collaboration Compounds,
Collaboration Lead Compounds and Collaboration Products, and any resulting
products shall be deemed to be Independent Products of the non-terminating
party, (ii) the breaching party shall not conduct any further research in the
Field for a period of [*] from the effective date of such early termination,
(iii) all licenses granted to such breaching party under this Agreement may be
immediately terminated by the non-breaching party, and (iv) any royalties due
the breaching party under this Agreement shall be reduced by [*].
(b) In the event of an uncured material breach by Warner of its
obligations to pay any royalties due and owing with respect to a Collaboration
Product pursuant to Section 6.6, or CoCensys' Share of Profit under Section
7.16(a), CoCensys may terminate the licenses it has granted to Warner pursuant
to Section 6.1 in respect of such Collaboration Product whereupon, at CoCensys'
request, Warner shall grant to CoCensys an exclusive (even as to Warner)
worldwide license (with the right to sublicense) under the Patent Rights,
Collaboration Technology, and Background Technology relating to such Product
and owned or Controlled by Warner, to the extent necessary to make, use or sell
such Product (i) in countries other than those in which the parties are
co-promoting such Collaboration Product, if any, in the case of a failure to
pay royalties and (ii) in the Co-Promotion Country in the case of failure to
pay the Share of Profit, subject to payment of a [*] royalty to Warner on Net
Sales of such Collaboration Product, and shall further assign to CoCensys all
Regulatory Approvals (to the extent permitted by law) in such countries.
(c) In the event of an uncured material breach of Section 6.7 by the
Independent Party in respect of royalties owed thereunder on an Independent
Product, the other party may terminate the licenses granted by it pursuant to
Section 6.3 in respect of such Product, whereupon at the other party's request,
the Independent Party shall grant it an exclusive (even as to such party),
worldwide license (with the right to sublicense) under the Patent Rights,
Collaboration Technology, and Background Technology relating to such Product
and owned or Controlled by the Independent Party, to the extent
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necessary to make, use and sell such Independent Product subject to payment
of a [*] royalty to the breaching Independent Party and shall further assign
to the other party all Regulatory Approvals (to the extent permitted by law)
in such countries.
(d) In the event of an uncured material breach of either party's
obligations with respect to the Preclinical Development or Development of any
Collaboration Compound, including, but not limited to, the payment of such
party's share of Development Costs, the nonbreaching party shall have the right
to terminate the license granted to the breaching party under Section 6.1, 6.2,
or 6.3 with respect to such Collaboration Compound, and to declare such
Collaboration Compound to be an Independent Lead Compound or Independent
Product and such non-breaching party shall be deemed to be an Independent Party
with respect to such Independent Lead Compound or Independent Product, and
shall have such rights and obligations applicable to an Independent Party as
set forth herein, provided, however, any royalties due the breaching party on
sales of such Independent Product pursuant to Section 6.7 shall be reduced by
[*].
14.2. EFFECT OF BANKRUPTCY. If, during the Term of the Research
Program, either party files a voluntary petition in bankruptcy, is adjudicated
a bankrupt, makes a general assignment for the benefit of creditors, admits in
writing that it is insolvent or fails to discharge within 15 days an
involuntary petition in bankruptcy filed against it, then the Term of the
Research Program and the entirety of this Agreement may be immediately
terminated by the other party.
14.3. DETERMINATION OF CO-PROMOTION RIGHTS UPON CHANGE IN CONTROL.
(a) In the event of a Change of Control (as defined below) of either
party which results in the control of such party (the "Acquired Party") by a
Pharmaceutical Company (as defined below), the Acquired Party promptly shall
notify the other party (the "Non-Acquired Party") of such Change in Control and
the Non-Acquired Party shall have the right, upon written notice to the
Acquired Party (the "Notice of Intent"), [*] to be set forth in
Section 14.3(b), provided that the Notice of Intent is received by the Acquired
Party within 90 days after receipt of notice by the Non-Acquired Party of such
Change in Control.
(b) Within 30 days following receipt of the Notice of Intent, the
parties shall jointly select a Third Party arbitrator (the "Third Party
Arbitrator"), which shall be a Third Party with significant qualifications and
experience in the pharmaceutical business. Within 60 days following receipt of
the Notice of Intent, each party shall submit to the Third Party Arbitrator,
and to the other party, [*]. Within 15 days following receipt of such
information from both parties, the Third Party Arbitrator shall select [*] and
shall notify the parties of its selection. In making its determination pursuant
to the preceding sentence, the Third Party Arbitrator (i) shall select that
submitted [*] to a hypothetical, independent Pharmaceutical Company and
(ii) shall not take into account any unique
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circumstances [*] which the Acquired Party has undergone its Change in
Control. The [*] selected by the Third Party Arbitrator shall be deemed to be
the [*].
(c) Within 15 days after determination of the [*], the Non-Acquired
Party will notify the Acquired Party as to whether it wishes to purchase the
Agreement Rights at [*]. If the Non-Acquired Party elects not to [*], the
parties will continue to research, develop, and co-promote under this Agreement
and the Non-Acquired Party will pay all costs for the Third Party Arbitrator.
If the Non-Acquired Party elects to [*], the Non-Acquired Party shall pay to
the Acquired Party [*] on the date upon which it makes such election and [*].
If the Non-Acquired Party elects to [*], and the date upon which it makes such
election is [*], the Non-Acquired Party shall pay to the Acquired Party [*] on
the date upon which it makes such election and [*] on or before each of the
subsequent anniversaries of such date, until [*] has been paid, where [*],
rounded up to the nearest whole number. If the Non-Acquired Party elects to
[*], the parties will [*] all costs associated with the Third Party Arbitrator.
Each party will bear [*] for submission to the Third Party Arbitrator pursuant
to Section 14.3(b).
(d) For purposes of this Section 14.3, "Change in Control" shall
mean (1) a merger or consolidation in which a party hereto is not the surviving
corporation; (2) a reverse merger in which a party hereto is the surviving
corporation but the shares of such party's voting stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise; or (3) if, after giving
effect to any agreements among stockholders of a party hereto, any person holds
and may vote in excess of [*] of such party's voting stock.
(e) For purposes of this Section 14.3, "Pharmaceutical Company"
shall mean any person, as such term is defined in Section 12 (d) of the United
States Securities Exchange Act of 1934, as amended, which is engaged in the
pharmaceutical business in terms of researching, developing, marketing,
selling, or distributing pharmaceutical products for use in humans.
14.4. REMEDIES. In the event of any breach of any provision of this
Agreement, in addition and remedies at law or equity to enforce this Agreement.
14.5. VOLUNTARY TERMINATION. Either party may terminate the Term of
the Research Collaboration pursuant to Section 2.4.
SECTION 15. GENERAL PROVISIONS
15.1. INDEMNIFICATION. Each of Warner and CoCensys agrees to indemnify
and hold harmless the other party and its Affiliates and their respective
employees, agents, officers, directors and permitted assigns (such party's
"Indemnified Group") from and against any claims by a third party resulting in
the award or payment of any judgments, expenses (including reasonable
attorney's fees), damages and awards (collectively a "Claim") arising out of or
resulting from (i) its negligence or misconduct, (ii) a breach of
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any of its representations, warranties, or obligations hereunder or (iii)
such party's research and development, manufacture, use, promotion,
marketing, or sale of any Collaboration Compounds, except to the extent that
such Claim arises out of or results from the negligence or misconduct of a
party seeking to be indemnified and held harmless or the negligence or
misconduct of a member of such party's Indemnified Group. A condition of this
obligation is that, whenever a member of the Indemnified Group has
information from which it may reasonably conclude an incident has occurred
which could give rise to a Claim, such indemnified party shall immediately
give notice to the indemnifying party of all pertinent data surrounding such
incident and, in the event a Claim is made, all members of the Indemnified
Group shall assist the indemnifying party and cooperate in the gathering of
information with respect to the time, place and circumstances and in
obtaining the names and addresses of any injured parties and available
witnesses. No member of the Indemnified Group shall voluntarily make any
payment or incur any expense in connection with any such Claim or suit
without the prior written consent of the indemnifying party. The obligations
set forth in this Section 15.1 shall survive the expiration or termination of
this Agreement.
15.2. ASSIGNMENT. This Agreement shall not be assignable by either
party, without the prior written consent of the other party, such consent not
to be unreasonably withheld, except a party may, subject to Section 14.3, make
such an assignment without the other party's consent to Affiliates or to a
successor to substantially all of the pharmaceutical business of such party,
whether in merger, sale of stock, sale of assets or other transaction. In no
event will any assignment relieve the assigning party of its obligations
hereunder. This Agreement shall be binding upon and, subject to the terms of
the foregoing sentence, inure to the benefit of the panties' successors, legal
representatives and assigns.
15.3. NON-WAIVER. The waiver by either of the parties of any breach of
any provision hereof by the other party shall not be construed to be a waiver
of any succeeding breach of such provision or a waiver of the provision itself.
15.4. GOVERNING LAW. This Agreement shall be construed and interpreted
in accordance with the laws of the State of New York other than those
provisions governing conflicts of law.
15.5. PARTIAL INVALIDITY. If and to the extent that any court or
tribunal of competent jurisdiction holds any of the terms or provisions of this
Agreement, or the application thereof to any circumstances, to be invalid or
unenforceable in a final nonappealable order, the parties shall use their best
efforts to reform the portions of this Agreement declared invalid to realize
the intent of the parties as fully as practical, and the remainder of this
Agreement and the application of such invalid term or provision to
circumstances other than those as to which it is held invalid or unenforceable
shall not be affected thereby, and each of the remaining terms and provisions
of this Agreement shall remain valid and enforceable to the fullest extent of
the law.
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15.6. NOTICE. Any notice to be given to a party under or in connection
with this Agreement shall be in writing and shall be (i) personally delivered,
(ii) delivered by a nationally recognized overnight courier, or (iii) delivered
by certified mail, postage prepaid, return receipt requested to the party at
the address set forth below for such party:
To Warner: To CoCensys or Acea:
Senior Vice President, Research President & CEO
Parke-Davis Pharmaceutical Research CoCensys, Inc.
Division of Warner-Lambert Company 201 Technology Drive
2800 Plymouth Road Irvine, California 92618
Ann Arbor, MI 48105
With a copy to: with a copy to:
President, Parke-Davis, Alan Mendelson
North America Cooley Godward Castro
Warner-Lambert Company Huddleson & Tatum
201 Tabor Road Five Palo Alto Square
Morris Plains, NJ 07950 Palo Alto, California 94306
and a copy to:
Vice President and General Counsel
Warner-Lambert Company
201 Tabor Road
Morris Plains, NJ 07950
or to such other address as to which the party has given notice thereof. Such
notices shall be deemed given upon receipt.
15.7. HEADINGS. The headings appearing herein have been inserted
solely for the convenience of the parties hereto and shall not affect the
construction, meaning or interpretation of this Agreement or any of its terms
and conditions.
15.8. NO IMPLIED LICENSES OR WARRANTIES. No right or license under any
patent application, issued patent, know-how, or other proprietary information
is granted or shall be granted by implication. All such rights or licenses are
or shall be granted only as expressly provided in the terms of this Agreement.
Neither party warrants the success of any clinical or other studies undertaken
by it.
15.9. FORCE MAJEURE. No failure or omission by the parties hereto in
the performance of any obligation of this Agreement shall be deemed a breach of
this Agreement nor shall it create any liability if the same shall arise from
any cause or causes beyond the reasonable control of the affected party,
including, but not limited to, the following, which for purposes of this
Agreement shall be regarded as beyond the control
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of the party in question: acts of nature; acts or omissions of any
government; any rules, regulations, or orders issued by any governmental
authority or by any officer, department, agency or instrumentality thereof;
fire; storm; flood; earthquake; accident; war; rebellion; insurrection; riot;
invasion; strikes; and labor lockouts; provided that the party so affected
shall use its best efforts to avoid or remove such causes of nonperformance
and shall continue performance hereunder with the utmost dispatch whenever
such causes are removed.
15.10. SURVIVAL. The representations and warranties contained in this
Agreement as well as those rights and obligations contained in the terms of
this Agreement which by their intent or meaning have validity beyond the term
of this Agreement shall survive the termination or expiration of this
Agreement.
15.11. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding between the parties with respect to the subject matter contained
herein and supersedes any and all prior agreements, understandings and
arrangements whether oral or written between the parties relating to the
subject matter hereof, except for the terms of Articles 4 and 5 of the
Screening Collaboration Agreement. This Agreement will control in the event of
any conflict between this Agreement and the Research Plan.
15.12. AMENDMENTS. No amendment, change, modification, or alteration of
the terms and conditions of this Agreement shall be binding upon either party
unless in writing and signed by the party to be charged.
15.13. INDEPENDENT CONTRACTORS. It is understood that both parties
hereto are independent contractors and are engaged in the operation of their
own respective businesses, and neither party hereto is to be considered the
agent or partner of the other party for any purpose whatsoever. Neither party
has any authority to enter into any contracts or assume any obligations for the
other party or make any warranties or representations on behalf of the other
party.
15.14. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
COCENSYS, INC. WARNER-LAMBERT COMPANY
By: /s/ By: /s/
---------------------- -----------------------------
Name: Dr. Eckard Weber Name: Ronald M. Cresswell, Ph.D.
---------------------- ---------------------------
Title: Senior Vice Title: Vice President and
President, Research Chairman
and Drug Discovery Parke-Davis
Pharmaceutical Research
a Warner-Lambert Company
Date: October 13, 1997 Date: October 13, 1997
---------------------- -----------------------------
ACEA PHARMACEUTICALS, INC.
By: /s/
----------------------
Name Dr. Eckard Weber
----------------------
Title: Senior Vice
President, Research
and Drug Discovery
Date: October 13, 1997
----------------------
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SCHEDULE 1.3
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SCHEDULE 1.3(b)
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SCHEDULE 1.7
COCENSYS COMPOUNDS
[*]
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SCHEDULE 2.1
Parke-Davis/CoCensys Collaboration Research Plan - October, 1997
[*]
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PROPOSED RESEARCH PLAN
[*]
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SUBTYPE SELECTIVE NMDA ANTAGONISTS
Screening Strategy
[*]
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<PAGE>
NON-COMPETITIVE AMPA ANTAGONISTS
Preliminary Screening Strategy
[*]
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<PAGE>
SCHEDULE 5.1
PRE-CLINICAL DEVELOPMENT CRITERIA
[*]
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<PAGE>
COCENSYS, INC.
SERIES D CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of October 13, 1997, by and between COCENSYS,
INC., a Delaware corporation (the "Company"), and WARNER-LAMBERT COMPANY, a
Delaware corporation ("Purchaser").
1. PURCHASE AND SALE
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, the aggregate number of shares of the Company's Series D
Convertible Preferred Stock (the "Preferred Stock") set forth in Subsections 1.1
and 1.4 hereof (the "Shares"). The terms of the Preferred Stock are set forth
in the Certificate of Designation annexed hereto as Exhibit A (the "Certificate
of Designation").
1.1 INITIAL SHARES. On the First Closing Date (as defined below),
the Company shall issue and sell to Purchaser, and Purchaser shall purchase
from the Company for $1,000,000 (the "Initial Purchase Price"), 14,286 shares
of Preferred Stock (the "Initial Shares").
1.2 FIRST CLOSING DATE. The closing of the sale and purchase of
the Initial Shares (the "First Closing") shall take place on October 14, 1997
(the "First Closing Date").
1.3 DELIVERY. At the First 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 Initial Shares to be purchased by Purchaser from the
Company, dated the First Closing Date, against payment of the Initial
Purchase Price by wire transfer, a check made payable to the order of the
Company, or any combination thereof.
1.4 ADDITIONAL SHARES.
(a) On the Second Closing Date (as defined below), the
Company shall issue and sell to Purchaser, and Purchaser shall purchase from
the Company for $6,000,000 (the "Additional Purchase Price"), 85,714 shares
of Preferred Stock (the "Additional Shares").
1.5 SECOND CLOSING DATE. The closing of the sale and purchase of
the Additional Shares (the "Second Closing") shall take place on January 9,
1998 (the "Second Closing Date").
1.6 DELIVERY. At the Second Closing, the Company will deliver to
Purchaser a certificate or certificates, in such denominations and registered
in such name as Purchaser may designate by notice to the Company,
representing the Additional Shares to be purchased by Purchaser from the
Company, dated the Second Closing Date, against payment of the Additional
<PAGE>
Purchase Price by wire transfer, a check made payable to the order of the
Company, or any combination of the above.
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.
(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 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
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(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) 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 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.
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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 this
Section 2 to effect the registration of any Registrable Securities, the
Company shall, as expeditiously as reasonably possible:
(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 for up to ninety (90)
days or until the Holder or Holders have completed the distribution relating
thereto.
(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.
(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
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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 (including common 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
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instrument duly executed by such Holder or underwriter and stated to be
specifically for use therein.
(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
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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 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 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, 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, as those
terms are understood and defined in 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.
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(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 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 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 Second 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
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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 each of the First Closing and the Second Closing,
respectively. 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.
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 each of the First Closing Date and Second Closing Date, the offer,
issue, and sale of the Initial Shares and the Additional 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 as amended by
Form 10-K/A for the fiscal year ended December 31, 1996; the Company's
Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30,
1997; and the Company's Current Report on Form 8-K dated June 12, 1997.
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(b) All other documents subsequently filed by the Company
with the SEC pursuant to the reporting requirements of the 1934 Act.
3.6 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.
3.7 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, in each
case as amended to date; (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 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.
3.8 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 First Closing or the Second Closing, as
applicable, except for notices required or permitted to be filed with certain
state and federal securities commissions after the First Closing or the
Second Closing, as the case may be; which notices will be filed on a timely
basis.
3.9 ABSENCE OF CERTAIN DEVELOPMENTS. Since June 30, 1997, 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.
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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.
(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 SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS (A) PURSUANT TO
SEC RULE 144 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) 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
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HYPOTHECATED UNLESS THE TRANSFEREE IS AN AFFILIATE OF THE HOLDER
WITHIN THE MEANING OF RULE 144 UNDER THE 1933 ACT;
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
legend are satisfied.
Purchaser shall have the right to demand removal of the foregoing
legend with respect to any or all of the Shares if, in the opinion of counsel to
the Company, removal of such legend is permitted by the rules and regulations of
the SEC.
(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 offered hereunder.
5. CONDITIONS TO FIRST CLOSING.
5.1 CONDITIONS TO OBLIGATIONS OF PURCHASER. Purchaser's
obligation to purchase the Initial Shares at the First Closing is subject to
the fulfillment, at or prior to the First Closing, of all of the following
conditions, any of which may be waived by Purchaser:
(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 First 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 First Closing;
and the Company shall have performed all obligations and conditions herein
required to be performed by it on or prior to the First Closing.
(b) OPINION OF THE COMPANY'S COUNSEL. Purchaser shall have
received from Cooley Godward LLP, counsel to the Company, an opinion letter
substantially in the form attached hereto as Exhibit C, addressed to it,
dated the date of the First Closing.
(c) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the First
Closing hereby and all documents and instruments incident to such
transactions shall be reasonably satisfactory in
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substance and form to Purchaser and its special counsel, and Purchaser and
its special counsel 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 First Closing. No stop order or other order enjoining the sale of the
Initial 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 First Closing,
the sale and issuance of the Initial 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 First 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 Initial Shares at the First Closing is
subject to the fulfillment to the Company's satisfaction, on or prior to the
First Closing, of the following conditions, any of which may be waived by the
Company:
(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 First 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 First 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 Initial Shares pursuant to this
Agreement shall have been duly obtained and shall be effective on and as of
the First Closing. No stop order or other order enjoining the sale of the
Initial 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 First Closing, the
sale and issuance of the Initial Shares shall be legally permitted by all
laws and regulations to which Purchaser and the Company are subject.
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<PAGE>
6. CONDITIONS TO SECOND CLOSING.
6.1 CONDITIONS TO OBLIGATIONS OF PURCHASER. Purchaser's
obligation to purchase the Additional Shares at the Second Closing is subject
to the fulfillment, at or prior to the Second Closing, of all of the
following conditions, any of which may be waived by Purchaser:
(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 Second 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 Second Closing;
and the Company shall have performed all obligations and conditions herein
required to be performed by it on or prior to the Second Closing.
(b) OPINION OF THE COMPANY'S COUNSEL. Purchaser shall have
received from Cooley Godward LLP, counsel to the Company, an opinion letter
substantially in the form attached hereto as Exhibit C, addressed to it,
dated the date of the Second Closing.
(c) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Second
Closing hereby and all documents and instruments incident to such
transactions shall be reasonably satisfactory in substance and form to
Purchaser and its special counsel, and Purchaser and its special counsel
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 Additional Shares pursuant to this
Agreement shall have been duly obtained and shall be effective on and as of
the Second Closing. No stop order or other order enjoining the sale of the
Additional 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 Second
Closing, the sale and issuance of the Additional 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 Second Closing, certifying to the fulfillment of the conditions
specified in subparagraphs (a) and (d) of this Subsection 6.1.
<PAGE>
6.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligation to issue and sell the Additional Shares at the Closing is subject
to the fulfillment to the Company's satisfaction, on or prior to the Second
Closing, of the following conditions, any of which may be waived by the
Company:
(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 Second 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 Second 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 Additional Shares pursuant to this
Agreement shall have been duly obtained and shall be effective on and as of
the Second Closing. No stop order or other order enjoining the sale of the
Additional 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 Second Closing, the
sale and issuance of the Additional Shares shall be legally permitted by all
laws and regulations to which Purchaser and the Company are subject.
7. COVENANT
Each of the Company and Purchaser agree that, prior to any conversion
of the Preferred Stock in accordance with the Certificate of Designation, it
shall have observed, if applicable, the pre-merger notification and waiting
periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
8. MISCELLANEOUS.
8.1 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents, made and to be performed entirely within the
State of California.
8.2 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.
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8.3 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.
8.4 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.
8.5 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.
8.6 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 Initial Shares and
Additional Shares. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon Purchaser, each future holder of the Initial
Shares and the Additional 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 Initial Shares and the Additional Shares
who have not previously consented thereto in writing, if any.
8.7 DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power, or remedy accruing to Purchaser or any subsequent holder of any
Initial Shares or Additional 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.
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8.8 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.
201 Technology Drive
Irvine, CA 92718
Attention: President and Chief Executive Officer
with a copy to:
COOLEY GODWARD LLP
5 Palo Alto Square
4th Floor
Palo Alto, CA 94306-2155
Attention: Alan C. Mendelson, Esq.
(b) if to Purchaser, to:
WARNER-LAMBERT COMPANY
201 Tabor Road
Morris Plains, NJ 07950
Attention: Vice President and General Counsel
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.
8.9 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
17
<PAGE>
(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 (iii) represents and warrants that it has
retained no finder or broker in connection with the transactions contemplated
by this Agreement, and (iv) 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.
8.10 FEES AND EXPENSES. The Company agrees to pay all fees, costs
and expenses 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.
8.11 INFORMATION CONFIDENTIAL. Purchaser acknowledges that the
information received by it pursuant hereto is confidential and for
Purchaser's use only, and it will refrain 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 7.11), except in connection with the
exercise of rights under this Agreement, unless such information is available
to the public generally or it is required by a governmental body to disclose
such information.
8.12 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.
8.13 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.
The foregoing Agreement is hereby executed as of the date
first above written.
COCENSYS, INC. WARNER-LAMBERT COMPANY
201 Technology Drive 201 Tabor Road
Irvine, CA 92718 Morris Plains, NJ 07950
By: /s/ By: /s/
-------------------------------- -------------------------------------
F. Richard Nichol, Ph.D. Name: Ronald M. Cresswell, Ph.D.
President and Chief Title: Vice President and Chairman,
Executive Officer Parke-Davis Pharmaceutical Research
Division, Warner-Lambert Company
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EXHIBIT A
CERTIFICATE OF DESIGNATION
[filed separately]
<PAGE>
EXHIBIT B
SCHEDULE OF EXCEPTIONS
3.9 On October 9, 1997, the Company sold its Pharmaceutical Sales and
Marketing Division to Watson Laboratories, Inc., a wholly owned subsidiary of
Watson Pharmaceuticals, Inc. The Company received $6 million upon the
closing of the transaction, and may receive up to an additional $3 million,
contingent upon the occurrence of certain events.
<PAGE>
EXHIBIT C
FORM OF OPINION
October __, 1997
Warner-Lambert Company
201 Tabor Road
Morris Plains, NJ 07950
RE: SALE AND PURCHASE OF COCENSYS, INC. SERIES D CONVERTIBLE PREFERRED STOCK
Gentlemen:
We have acted as counsel for CoCensys, Inc., a Delaware corporation (the
"Company"), in connection with the issuance and sale of ____________ shares
of the Company's Series D Convertible Preferred Stock to Warner-Lambert
Company, a Delaware corporation ("Purchaser"), pursuant to the terms of that
certain Series D Convertible Preferred Stock Purchase Agreement, dated
October __, 1997, by and between the Company and Purchaser (the "Agreement").
The shares of Series D Convertible 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][6].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>
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 (a) any antifraud law, rule or regulation
relating to securities, or to the sale or issuance thereof or (b) federal
antitrust laws.
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 3.5 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.
4. 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.
<PAGE>
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.
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 LLP
By
---------------------------------
<PAGE>
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
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.
AMENDED AND RESTATED LICENSE AGREEMENT
THIS AMENDED AND RESTATED LICENSE AGREEMENT (the "AGREEMENT") is made and
entered into on December 16, 1997, between THE GENERAL HOSPITAL CORPORATION, a
not-for-profit corporation doing business as Massachusetts General Hospital,
having a place of business at Fruit Street, Boston, Massachusetts 02114
("GENERAL") and CoCensys, Inc. , a corporation having offices at 201 Technology
Drive, Irvine, California 92618 ("COMPANY") and amends and restates that certain
License Agreement between GENERAL and the COMPANY effective December 15, 1996
(the "EFFECTIVE DATE").
WHEREAS, under research programs funded by GENERAL and the U.S. Government,
GENERAL through research conducted by Dr. Michael Moskowitz has developed an
invention pertaining to a method for treating vascular headaches;
WHEREAS, GENERAL has filed a U.S. Patent Application covering said
invention and all Dr. Moskowitz's rights, title and interest in said application
have been assigned to GENERAL;
WHEREAS, GENERAL represents to the best of its knowledge and belief that it
is the owner of all rights, title and interest in said patent application and
has the right and ability to grant the license hereinafter described;
WHEREAS, as a center for research and education, GENERAL is interested in
licensing PATENT RIGHTS and thus benefiting the public and the GENERAL by
facilitating the dissemination of the results of its research in the form of
useful products, but is without capacity to commercially develop, manufacture,
and distribute any such product; and
WHEREAS, COMPANY having such capacity, desires to commercially develop,
manufacture, use and distribute such products throughout the world;
NOW THEREFORE, in consideration of the premises and of the faithful
performance of the covenants herein contained, the parties hereto agree as
follows:
1. DEFINITIONS
1.1 The term "ACCOUNTING PERIOD" shall mean each six month period ending
June 30 and December 31.
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1.2 The term "AFFILIATE" shall mean any corporation or other legal entity
other than COMPANY in whatever country organized, controlling, controlled by or
under common control with COMPANY. The term "control" means possession, direct
or indirect, of the powers to direct or cause the direction of the management
and policies of an entity, whether through the ownership of voting securities,
by contract or otherwise. The term "AFFILIATE" with respect to GENERAL shall
mean any company controlling, controlled by, or under common control, directly
or indirectly, with GENERAL.
1.3 The term "FIRST COMMERCIAL SALE" shall mean in each country the first
sale by COMPANY, its AFFILIATES or SUBLICENSEES of any PRODUCT used or intended
for use in the LICENSE FIELD.
1.4 The term "LICENSE FIELD" shall mean treatment of human or animal
diseases using NEUROSTEROID PRODUCTS or other PRODUCTS.
1.4A The term "NEUROSTEROID PRODUCT" shall mean a PRODUCT containing a
neuroactive steroid acting as a positive modulator of GABAA receptors.
1.4B The term "LICENSED INDICATION" shall mean the treatment of a human or
animal disease, disorder, condition or indication using any article, device,
composition, method or service, the manufacture, use, or sale of which, absent
the licenses granted herein, would infringe a VALID CLAIM of any PATENT RIGHT.
1.5 The term "NET SALES PRICE" shall mean the GROSS SALES PRICE as defined
in (c) below received by COMPANY or any of its AFFILIATES or SUBLICENSEES
("SELLERS") for the sale or distribution of any PRODUCT, less (to the extent
appropriately documented) the amounts set forth in clause (a) below actually
paid out by COMPANY, its AFFILIATE or SUBLICENSEE or credited against the
amounts received by them from the sale or distribution of PRODUCT:
(a) (i) credits and allowances for price adjustment, rejection, or return
of PRODUCTS previously sold;
(ii) rebates and cash discounts to purchasers allowed and taken;
(iii) amounts for transportation, insurance, handling or shipping
charges to purchasers;
(iv) taxes, duties and other governmental charges levied on or measured by
the sale of PRODUCTS, whether absorbed by COMPANY, its AFFILIATES or
SUBLICENSEES or paid by the purchaser so long as COMPANY's, its AFFILIATES' or
SUBLICENSEES' price is reduced thereby, but not franchise or income taxes of any
kind whatsoever;
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(b) For any sale by COMPANY, its AFFILIATES or SUBLICENSEES to the United
States or its designee, in which the United States government, on the basis of
its royalty-free license pursuant to 35 USC Sec. 202(c) to any of the PATENT
RIGHTS, requires that the GROSS SALES PRICE be reduced by the amount of royalty
owed GENERAL pursuant to paragraph 5.1, COMPANY, its AFFILIATES or SUBLICENSEES
shall have the right, in determining NET SALES for purposes of payment of the
royalty to GENERAL on such sales to the United States or its designee, to deduct
from the invoiced price the amount of such royalty otherwise owed GENERAL as
calculated using the deductions set forth in (a) above.
(c) For any bone fide sale to a bona fide customer by COMPANY or any of
its AFFILIATES or SUBLICENSEES, the GROSS SALES PRICE shall be the invoiced
price of the PRODUCT.
(d) If COMPANY or any of its AFFILIATES or SUBLICENSEES sell any PRODUCT
in a bona fide sale as a component of a combination of active functional
elements, the GROSS SALES PRICE of the PRODUCT shall be determined by
multiplying the GROSS SALES PRICE of the combination by the fraction A over A +
B, in which "A" is the GROSS SALES PRICE of the PRODUCT portion of the
combination when sold separately during the ACCOUNTING PERIOD in the country in
which the sale was made, and "B" is the gross sales price of the other active
elements of the combination sold separately during said ACCOUNTING PERIOD in
said country. In the event that no separate sale of either such PRODUCT or
active elements of the combination is made during said ACCOUNTING PERIOD in said
country, the GROSS SALES PRICE of the PRODUCT shall be determined by multiplying
the gross sales price of such combination by the fraction C over C + D, in which
"C" is the standard fully-absorbed cost of the PRODUCT portion of such
combination, and "D" is the sum of the standard fully-absorbed costs of the
other active elements component(s), such costs being arrived at using the
standard accounting procedures of COMPANY which will be in accord with generally
accepted accounting practices.
(e) If a SELLER commercially uses or disposes of any PRODUCT by itself (as
opposed to a use or disposition of the PRODUCT as a component of a combination
of active functional elements) other than in a bona fide sale to a bona fide
customer, the GROSS SALES PRICE hereunder shall be the price which would be then
payable in an arm's length transaction. If a SELLER commercially uses or
disposes of any PRODUCT as a component of a combination of active functional
elements other than in a bona fide sale to a bona fide customer, the GROSS SALES
PRICE of the PRODUCT shall be determined in accordance with paragraph (d) above,
using as the GROSS SALES PRICE of the combination that price which would be then
payable in an arm's length transaction.
(f) Transfer of a PRODUCT within COMPANY or between COMPANY and an
AFFILIATE or a PARTNERING SUBLICENSEE for sale by the transferee shall not be
considered a sale, commercial use or disposition for the purpose of the
foregoing paragraphs; in the case of such transfer the GROSS SALES PRICE shall
be based on sale of the PRODUCT by the transferee.
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1.5A The term "ANNUAL NET SALES" shall mean, for any PRODUCT, the sum of
the NET SALES PRICE of all units of said PRODUCT sold in any calendar year
ending December 31.
1.6 The term "PATENT RIGHT" shall mean the U.S. Patent Application Serial
Number [*] by Dr. Moskowitz entitled "Method for Treating Vascular Headaches",
or the equivalent of such application, including any division, continuation or
any equivalent foreign patent application or Letters Patent or the equivalent
thereof issuing thereon or reissue, reexamination or extension thereof. PATENT
RIGHTS shall also include those claims in any continuation-in-part of the
aforementioned patent application which claim an invention described or claimed
in said patent application.
1.7 The term "PRODUCT" shall mean any article, device, composition, method
or service, the manufacture, use, or sale of which, absent the licenses granted
herein, would infringe a VALID CLAIM of any PATENT RIGHT.
1.8 The term "SUBLICENSEE" shall mean any non-AFFILIATE third party
licensed by COMPANY or by an AFFILIATE to make, have made, use, sell, offer for
sale or import any PRODUCT.
1.8A The term "PARTNERING SUBLICENSEE" shall mean any SUBLICENSEE with whom
COMPANY has entered into a strategic partnership or other arrangement in which
COMPANY and said SUBLICENSEE agree that PRODUCTS will be developed and/or sold
by Co-development, wherein the term "Co-development" shall mean the sharing of
research, development, marketing and/or manufacturing costs by COMPANY and a
SUBLICENSEE in accordance with a predefined formula.
1.9 The term "VALID CLAIM" shall mean any claim of any PATENT RIGHT that
has not been (i) finally rejected or (ii) declared invalid by a patent office or
court of competent jurisdiction in any unappealed and unappealable decision.
2. LICENSE
2.1 GENERAL hereby grants COMPANY, to the extent not prohibited by
existing contractual obligations to any other sponsor of research at GENERAL:
(a) an exclusive, worldwide, royalty-bearing license in the LICENSE FIELD
under GENERAL's rights in PATENT RIGHTS to make, have made, use, sell, offer
for sale, and import PRODUCTS;
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(b) to the extent an exclusive license is not available to COMPANY in a
country, a non-exclusive, royalty-bearing license in the LICENSE FIELD under
PATENT RIGHTS to make, have made, use, sell, offer for sale, and import
PRODUCTS;
(c) the right to sublicense PATENT RIGHTS exclusively licensed to COMPANY,
provided that, if COMPANY's exclusive license in a country is converted to a
nonexclusive license in accordance with paragraph 2.1(b), and COMPANY has a
single PARTNERING SUBLICENSEE in said country, COMPANY shall retain the right to
sublicense PATENT RIGHTS solely to said PARTNERING SUBLICENSEE in said country.
All licenses pursuant to this paragraph 2.1 are subject to the rights,
conditions and limitations imposed by U.S. law with respect to inventions made
in the performance of federally funded research.
The above licenses to sell PRODUCTS include the right to grant to the
purchaser of products from COMPANY, its AFFILIATES, and SUBLICENSEES the right
to use such purchased PRODUCTS in a method coming within the scope of the PATENT
RIGHTS.
2.2 The granting of any license hereunder is subject to GENERAL's and
GENERAL's AFFILIATES' right to make and to use the subject matter described and
claimed in PATENT RIGHT for research and clinical purposes but not for
Commercial Purposes, as hereinafter defined. For this paragraph, "Commercial
Purposes" shall mean use of the subject matter described and claimed in PATENT
RIGHT in any product, or for the purpose of producing a product, which is sold
or otherwise commercially distributed.
2.3 It is understood that nothing herein shall be construed to grant
COMPANY a license express or implied under any patent owned solely or jointly by
GENERAL other than the PATENT RIGHTS expressly licensed hereunder.
3. DUE DILIGENCE OBLIGATIONS
3.1 COMPANY shall itself, or through its AFFILIATES or SUBLICENSEES, use
its commercially reasonable efforts to develop and make commercially available
PRODUCTS for commercial sales and distribution throughout the world in the
LICENSE FIELD. Such efforts shall consist of achieving the following objectives
within the time period designated below following the EFFECTIVE DATE:
(a) GENERAL acknowledges that COMPANY represents that it is developing the
drug ganaxolone for indications other than migraine headaches, and COMPANY
therefore agrees that it will commence a Phase II clinical trial of a PRODUCT
comprising ganaxolone ("GANAXOLONE PRODUCT") for a LICENSED INDICATION within
twelve (12) months, and that it will thereafter diligently pursue clinical
evaluations of a GANAXOLONE PRODUCT for a LICENSED INDICATION as long as a
GANAXOLONE PRODUCT continues to show
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clinical efficacy in accordance with commercially reasonable criteria for a
LICENSED INDICATION;
(b) within [*] of terminating diligent development of a GANAXOLONE PRODUCT
for a LICENSED INDICATION in accordance with (a) above, complete all animal
toxicity tests required in connection with securing U.S. Food and Drug
Administration approval of clinical evaluations of a PRODUCT not comprising
ganaxolone ("SECOND GENERATION PRODUCT");
(c) within [*] of completing the toxicity tests in accordance with (b)
above; COMPANY and GENERAL shall meet to establish additional time-limited
objectives for the development of a SECOND GENERATION PRODUCT. By way of
example, such objectives shall include requirements for the following
activities:
(i) the initiation and diligent pursuit of clinical evaluations of a
SECOND GENERATION PRODUCT under the Food, Drug and Cosmetic Act (21 USC
301-391);
(ii) the filing of a New Drug Application or equivalent application for a
SECOND GENERATION PRODUCT;
(iii) the determination whether to manufacture a SECOND GENERATION
PRODUCT for commercial sale;
(iv) the introduction into the market of a SECOND GENERATION PRODUCT, in
the United States and other major markets covered by the license;
provided, however, that GENERAL shall not unreasonably withhold its consent to
any revision in such time periods whenever requested in writing by COMPANY and
supported by evidence of technical difficulties or delays in clinical studies or
regulatory processes that the parties could not have reasonably avoided.
Failure to achieve one or more of the above objectives within the above stated
time periods or any of the objectives established in accordance with (c) above,
or within any extension granted by GENERAL shall result in GENERAL having the
right to cancel upon sixty (60) days notice any exclusive license granted
hereunder or convert any exclusive license to a non-exclusive license.
3.2 At intervals no longer than every twelve (12) months, COMPANY shall
report in writing to GENERAL on progress made toward the foregoing objectives.
4. FILING, PROSECUTION AND MAINTENANCE OF PATENT RIGHT
4.1 GENERAL shall be responsible for the preparation, filing, prosecution
and maintenance of all patent applications and patents included in PATENT
RIGHTS. As long as
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COMPANY retains an exclusive license to PATENT RIGHTS, COMPANY shall
reimburse GENERAL for all reasonable costs ("COSTS") incurred by GENERAL for
the preparation, filing, prosecution and maintenance of all PATENT RIGHTS as
follows:
(a) Subject to paragraph 4.2, for all COSTS incurred by GENERAL from and
after the EFFECTIVE DATE, COMPANY shall reimburse GENERAL within thirty (30)
days of receipt of invoices from GENERAL;
(b) For all COSTS incurred by GENERAL prior to the EFFECTIVE DATE, COMPANY
shall reimburse GENERAL upon execution of this Agreement.
In the event COMPANY's exclusive license is converted to a non-exclusive
license in any country in accordance with paragraph 3.1, or an exclusive
license is not available in any country as set forth in paragraph 2.1(b), and
GENERAL grants a license in any such country under PATENT RIGHTS to one or more
third parties (each a "THIRD PARTY LICENSEE"), COMPANY shall only be required to
reimburse GENERAL for the CoCensys Pro Rata Percentage of those COSTS incurred
by GENERAL with respect to PATENT RIGHTS in any country included in a license to
a THIRD PARTY LICENSEE after the effective date of such license to a THIRD PARTY
LICENSEE. The "COCENSYS PRO RATA PERCENTAGE" at any given point in time shall
equal 1 divided by the number of licensees (i.e., COMPANY plus each THIRD PARTY
LICENSEE) under the PATENT RIGHTS at such point in time.
4.2 With respect to any PATENT RIGHT, each document or a draft thereof
pertaining to the filing, prosecution, or maintenance of such PATENT RIGHT,
including but not limited to each patent application, office action, response
to office action, request for terminal disclaimer, and request for reissue or
reexamination of any patent issuing from such application shall be provided
to COMPANY as follows. Documents received from any patent office or
counsel's analysis thereof shall be provided promptly after receipt. For a
document to be filed in any patent office, a draft of such document shall be
provided sufficiently prior to its filing, to allow for review and comment by
the other party. If as a result of the review of any such document, COMPANY
shall elect not to pay or continue to pay the COSTS for such PATENT RIGHT,
COMPANY shall so notify GENERAL within thirty (30) days of COMPANY's receipt
of such document and COMPANY shall thereafter be relieved of the obligation
to pay any additional COSTS regarding such PATENT RIGHT incurred after the
receipt of such notice by GENERAL. Such U.S. or foreign patent application
or patent shall thereupon cease to be a PATENT RIGHT hereunder and GENERAL
shall be free to license its rights to that particular U.S. or foreign patent
application or patent to any other party on any terms.
5. ROYALTIES
5.1 Beginning with the FIRST COMMERCIAL SALE in any country, on all sales
of PRODUCTS to treat LICENSED INDICATIONS anywhere in the world by COMPANY, its
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AFFILIATES or SUBLICENSEES, COMPANY shall pay GENERAL royalties in accordance
with the following schedule, such undertaking and schedule having been agreed to
for the purpose of reflecting and advancing the mutual convenience of the
parties.
(a) For each NEUROSTEROID PRODUCT sold by COMPANY or its AFFILIATES and
SUBLICENSEES, [*] of the NET SALES PRICE for ANNUAL NET SALES of such
NEUROSTEROID PRODUCT of [*] or less, and [*] of the NET SALES PRICE for the
portion of ANNUAL NET SALES of such NEUROSTEROID PRODUCT that is greater than
[*] so long as the NEUROSTEROID PRODUCT, its manufacture, use or sale is covered
by a VALID CLAIM of any PATENT RIGHT licensed exclusively to COMPANY; and
(b) For each NEUROSTEROID PRODUCT sold by COMPANY or its AFFILIATES and
SUBLICENSEES, [*] of the NET SALES PRICE for ANNUAL NET SALES of such
NEUROSTEROID PRODUCT of [*] or less, and [*] of the NET SALES PRICE for the
portion of ANNUAL NET SALES of such NEUROSTEROID PRODUCT that is greater than
[*] whenever the NEUROSTEROID PRODUCT, its manufacture, use or sale is covered
by a VALID CLAIM of any PATENT RIGHT licensed non-exclusively to COMPANY in the
country in question pursuant to either paragraph 2.1(b) or 3.1 hereunder; and
(c) For each PRODUCT other than a NEUROSTEROID PRODUCT sold by COMPANY or
its AFFILIATES, [*] of the NET SALES PRICE for ANNUAL NET SALES of such PRODUCT
of [*] or less, and [*] of the NET SALES PRICE for the portion of ANNUAL NET
SALES of such PRODUCT that is greater than [*] so long as such PRODUCT, its
manufacture, use or sale is covered by a VALID CLAIM of any PATENT RIGHT
licensed exclusively to COMPANY; and
(d) For each PRODUCT other than a NEUROSTEROID PRODUCT sold by COMPANY or
its AFFILIATES, [*] of the NET SALES PRICE for ANNUAL NET SALES of such PRODUCT
of [*] or less, and [*] of the NET SALES PRICE for the portion of ANNUAL NET
SALES of such PRODUCT that is greater than [*] whenever such PRODUCT, its
manufacture, use or sale is covered by a VALID CLAIM of any PATENT RIGHT
licensed non-exclusively to COMPANY in the country in question pursuant to
either paragraph 2.1 (b) or 3.1 hereunder; and
(e) For each PRODUCT other than a NEUROSTEROID PRODUCT sold by COMPANY's
SUBLICENSEES, COMPANY shall retain [*] and pay GENERAL [*] of any royalty
payment received by COMPANY from SUBLICENCEES for such sales.
5.2 (a) In the event that more than one royalty rate under paragraph 5.1
is applicable to a PRODUCT, the highest of the applicable royalties shall apply.
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(b) Only one royalty under paragraph 5.1 shall be due and payable to
GENERAL by COMPANY for any PRODUCT regardless of the number of PATENT RIGHTS
covering such PRODUCT.
5.3 If any license granted pursuant to Article 2 shall be or become
non-exclusive pursuant to either paragraph 2.1(b) or 3.1 hereunder and
GENERAL shall license any PATENT RIGHT to another licensee for the purpose of
making, using or selling PRODUCTS in the LICENSE FIELD and accept a royalty
or royalties more favorable to such licensee than herein provided for
COMPANY, GENERAL shall give written notice thereof to COMPANY and as of the
effective date of such more favorable royalty or royalties, COMPANY's
obligation hereunder to pay royalty or royalties to GENERAL shall be revised
to the more favorable rate.
5.4 In addition to the royalties provided for above for NEUROSTEROID
PRODUCTS, COMPANY shall pay GENERAL [*] of any and all non-royalty income
received from its AFFILIATES and SUBLICENSEES in consideration for the
sublicensing of any right or license granted to COMPANY for NEUROSTEROID
PRODUCTS hereunder, including without limitation license fees and milestone
payments, but not including amounts received by COMPANY (a) for capital stock of
COMPANY, (b) in the form of a loan or advance, (c) as payment for research and
development services performed or to be performed by COMPANY, (d) as milestone
payments in consideration for past or future research and development expense in
any sublicensing arrangement with a PARTNERING SUBLICENSEE wherein COMPANY is
sharing research and development costs with the PARTNERING SUBLICENSEE and said
milestone payments are solely reimbursements for COMPANY's research and
development costs actually incurred, (e) as payment for manufacturing services
in any sublicensing arrangement wherein COMPANY retains the right to manufacture
PRODUCT which is then sold to a SUBLICENSEE provided that GENERAL receives the
full royalty due for sales of PRODUCT by said SUBLICENSEE under paragraph 5.1
hereunder or (f) from a PARTNERING SUBLICENSEE as payment for marketing, sales
or promotional activities which COMPANY or its AFFILIATE has agreed to undertake
as part of Co-development. It is understood that this paragraph shall not apply
to running royalties for PRODUCT sales received by COMPANY from its AFFILIATES
AND SUBLICENSEES, provided GENERAL receives the royalties specified in paragraph
5.1 for such PRODUCT sales.
5.5 In addition to the payments provided for in paragraphs 5.1 and 5.4,
COMPANY shall pay GENERAL the following amounts upon the first occurrence of
each of the following events:
[*] within five (5) business days of the EFFECTIVE DATE (and the parties
acknowledge that the COMPANY has made and GENERAL has received such payment),
which shall include the amount payable to GENERAL for past patent COSTS pursuant
to paragraph 4.1(b);
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[*] within thirty (30) days of the filing with the FDA of the first NDA,
PMA or PMA Supplement, or comparable application with respect to the first
PRODUCT to treat a LICENSED INDICATION for which such application is filed; and,
[*] within thirty (30) days of the actual approval by the FDA of the first
NDA, PMA or PMA Supplement, or comparable application with respect to the first
PRODUCT to treat a LICENSED INDICATION so approved by the FDA.
5.6 In addition to the royalties and other payments provided for above,
for each PRODUCT other than a NEUROSTEROID PRODUCT, COMPANY shall pay GENERAL
[*] of any and all non-royalty income received from its AFFILIATES and
SUBLICENSEES in consideration for the sublicensing of any right or license
granted to COMPANY for PRODUCTS other than NEUROSTEROID PRODUCTS hereunder, but
subject to the same exceptions and limitations described in paragraph 5.4.
5.7 (a) In the event that more than one non-royalty income rate under
paragraph 5.4 or 5.6 is applicable to a PRODUCT or a collaboration agreement
involving a third party, the highest of the applicable rates shall apply.
(b) Only one non-royalty income rate under either paragraph 5.4 or
5.6 shall be due and payable to GENERAL by COMPANY for any PRODUCT or
collaboration agreement involving a third party, regardless of the number of
PATENT RIGHTS covering such PRODUCT(s) or collaboration agreement.
5.8 (a) In the event that the royalty paid to GENERAL is a significant
factor in the return realized by COMPANY so as to diminish COMPANY's capability
to respond to competitive pressures in the market, GENERAL agrees to consider a
reasonable reduction in the royalty paid to GENERAL as to each such PRODUCT for
the period during which such market condition exists. Factors determining the
size of the reduction will include profit margin on PRODUCT and on analogous
products, prices of competitive products, total prior sales by COMPANY, and
COMPANY's expenditures in PRODUCT development.
(b) With respect to the definition of "NET SALES PRICE" (as contained in
Section 1.5) and the applicable rate of exchange for foreign currency conversion
(as set forth in Section 6.2) under this Agreement, it is understood that
COMPANY may enter into one or more agreements with SUBLICENSEES (each a
"SUBLICENSE AGREEMENT") pursuant to which COMPANY will be compensated by a
SUBLICENSEE based on net sales of PRODUCT and that, for sales outside the United
States, a foreign exchange rate will be applied. When negotiating a SUBLICENSE
AGREEMENT, COMPANY will use its best efforts to have such SUBLICENSE AGREEMENT
contain (i) a definition of net sales of PRODUCT and (ii) foreign exchange
provisions which are substantially equivalent to those contained in Sections 1.5
and
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6.2, respectively, of this Agreement. In the event, however, that COMPANY is
unable to have its prospective SUBLICENSEE agree to provisions that are
identical to the provisions of this Agreement, it shall so notify GENERAL and
submit for GENERAL's review the proposed versions of such provisions in the
proposed SUBLICENSE AGREEMENT. Within thirty (30) days of its receipt of such
notice and proposed revisions, GENERAL shall either notify COMPANY of its
acceptance of such proposed provisions or indicate its reasons for
withholding approval. If the SUBLICENSE AGREEMENT includes such provisions
that are acceptable to GENERAL, which acceptance shall not unreasonably be
withheld, then for sales of PRODUCT made under such SUBLICENSE AGREEMENT, (i)
the "NET SALES PRICE" in this Agreement shall be deemed amended to conform to
the definition of net sales of PRODUCT contained in such SUBLICENSE AGREEMENT
and (ii) the applicable foreign exchange rates provided for under this
Agreement shall be the same as those provided for under the SUBLICENSE
AGREEMENT. In the event that the SUBLICENSE AGREEMENT includes provisions
that are not acceptable to GENERAL and COMPANY is unable to compensate
GENERAL based on the NET SALES PRICE and foreign exchange provisions set
forth herein, any conflict between the provisions of the SUBLICENSE AGREEMENT
and the provisions of this Agreement shall be settled by the procedures of
paragraph 10.9.
5.9 The payments due under this Agreement shall, if overdue, bear interest
until payment at a per annum rate equal to one percent (1%) above the prime rate
in effect at the Bank of Boston on the due date, not to exceed the maximum
permitted by law. The payment of such interest shall not preclude GENERAL from
exercising any other rights it may have as a consequence of the lateness of any
payment.
6. REPORTS AND PAYMENTS
6.1 COMPANY shall keep, and shall cause each of its AFFILIATES and
SUBLICENSEES, if any, to keep full and accurate books of accounts containing all
particulars that may be necessary for the purpose of calculating all royalties
payable to GENERAL. Such books of account shall be kept at their principal
place of business and, with all necessary supporting data shall, during all
reasonable times for the three (3) years next following the end of the calendar
year to which each shall pertain, be open for inspection at reasonable times by
GENERAL or its designee at GENERAL's expense for the purpose of verifying
royalty statements or compliance with this Agreement.
6.2 In each year the amount of royalty due shall be calculated
semiannually as of the end of each ACCOUNTING PERIOD and shall be paid
semiannually within the sixty (60) days next following such date, every such
payment to be supported by the accounting prescribed in paragraph 6.3 and to be
made in United States currency. Whenever conversion from any foreign currency
shall be required, such conversion shall be at the rate of exchange thereafter
published in the Wall Street Journal for the business day closest to the end of
the applicable ACCOUNTING PERIOD.
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6.3 With each semiannual payment, COMPANY shall deliver to GENERAL a full
and accurate accounting to include at least the following information:
(a) Quantity of each PRODUCT(subdivided into (i) NEUROSTEROID PRODUCT and
(ii) PRODUCT other than NEUROSTEROID PRODUCT) sold or leased (by country) by
COMPANY, and its AFFILIATES or SUBLICENSEES;
(b) Total billings for each PRODUCT (subdivided into (i) NEUROSTEROID
PRODUCT and (ii) PRODUCT other than NEUROSTEROID PRODUCT)(by country, unless
such information is not provided to COMPANY by a SUBLICENSEE, in which case
COMPANY shall list total billings in as much detail as is available to COMPANY);
(c) Quantities of each PRODUCT (subdivided into (i) NEUROSTEROID PRODUCT
and (ii) PRODUCT other than NEUROSTEROID PRODUCT) used by COMPANY and its
AFFILIATES or SUBLICENSEES;
(d) Names and addresses of all SUBLICENSEES of COMPANY; and
(e) Total royalties payable to GENERAL.
7. INFRINGEMENT
7.1 GENERAL will protect its PATENT RIGHTS from infringement and prosecute
infringers when, in its sole judgement, such action may be reasonably necessary,
proper and justified.
7.2 If COMPANY shall have supplied GENERAL with written evidence
demonstrating to GENERAL's reasonable satisfaction prima facie infringement
of a claim of a PATENT RIGHT by a third party, COMPANY may by notice request
GENERAL to take steps to protect the PATENT RIGHT. GENERAL shall notify
COMPANY within three (3) months of the receipt of such notice whether GENERAL
intends to prosecute the alleged infringement. If GENERAL notifies COMPANY
that it intends to so prosecute, GENERAL shall, within three (three) months
of its notice to COMPANY either (i) cause infringement to terminate or (ii)
initiate legal proceedings against the infringer. In the event GENERAL
notifies COMPANY that GENERAL does not intend to prosecute said infringement
COMPANY may, upon notice to GENERAL, initiate legal proceedings against the
infringer at COMPANY's expense and in GENERAL's name if so required by law.
No settlement, consent judgment or other voluntary final disposition of the
suit which invalidates or restricts the claims of such PATENT RIGHTS may be
entered into without the consent of GENERAL, which consent shall not be
unreasonably withheld. COMPANY shall indemnify GENERAL against any order for
payment that may be made against GENERAL in such proceedings.
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<PAGE>
7.3 In the event one party shall initiate or carry on legal proceedings to
enforce any PATENT RIGHT against any alleged infringer, the other party shall
fully cooperate with and supply all assistance reasonably requested by the party
initiating or carrying on such proceedings. The party which institutes any suit
to protect or enforce a PATENT RIGHT shall have sole control of that suit and
shall bear the reasonable expenses (excluding legal fees) incurred by said other
party in providing such assistance and cooperation as is requested pursuant to
this paragraph. The party initiating or carrying on such legal proceedings
shall keep the other party informed of the progress of such proceedings and said
other party shall be entitled to counsel in such proceedings but at its own
expense. Any award paid by third parties as the result of such proceedings
(whether by way of settlement or otherwise) shall first be applied to
reimbursement of the unreimbursed legal fees and expenses incurred by either
party and then the remainder shall be divided between the parties as follows:
(a) (i) If the amount is based on lost profits, COMPANY shall receive an
amount equal to the damages the court determines COMPANY has suffered as a
result of the infringement less the amount of any royalties that would have been
due GENERAL on sales of PRODUCT lost by COMPANY as a result of the infringement
had COMPANY made such sales; and
(ii) GENERAL shall receive an amount equal to the royalties it would
have received if such sales had been made by COMPANY; or
(b) As to awards other than those based on lost profits, [*] to the party
initiating such proceedings and [*] to the other party.
7.4 For the purpose of the proceedings referred to in this Article 7, the
GENERAL and COMPANY shall permit the use of their names and shall execute such
documents and carry out such other acts as may be necessary. The party
initiating or carrying on such legal proceedings shall keep the other party
informed of the progress of such proceedings and said other party shall be
entitled to counsel in such proceedings but at its own expense, said expenses to
be off-set against any damages received by the party bringing suit in accordance
with the foregoing paragraph 7.3.
8. INDEMNIFICATION
8.1 (a) COMPANY shall indemnify, defend and hold harmless GENERAL and its
trustees, officers, medical and professional staff, employees, and agents and
their respective successors, heirs and assigns (the "Indemnitees"), against any
liability, damage, loss or expense (including reasonable attorney's fees and
expenses of litigation) incurred by or imposed upon the Indemnitees or any one
of them in connection with any claims, suits, actions, demands or judgments
arising out of any theory of product liability (including, but not limited to,
actions in the form of tort, warranty, or strict liability) concerning any
product, process or service made, used or sold pursuant to any right or license
granted under this Agreement.
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* Confidential treatment requested
<PAGE>
(b) COMPANY's indemnification under (a) above shall not apply to any
liability, damage, loss or expense to the extent that it is directly
attributable to the negligent activities, reckless misconduct or intentional
misconduct of the Indemnitees.
(c) COMPANY agrees, at its own expense to provide attorneys reasonably
acceptable to the GENERAL to defend against any actions brought or filed against
any party indemnified hereunder with respect to the subject of indemnity
contained herein, whether or not such actions are rightfully brought.
(d) This paragraph 8.1 shall survive expiration or termination of this
Agreement.
8.2 (a) Beginning at such time as any such product, process or service is
being commercially distributed or sold (other than for the purpose of obtaining
regulatory approvals) by COMPANY or by a SUBLICENSEE, AFFILIATE or agent of
COMPANY, COMPANY shall, at its sole cost and expense, procure and maintain
commercial general liability insurance in amounts not less than $2,000,000 per
incident and $2,000,000 annual aggregate and naming the Indemnitees as
additional insureds. Such commercial general liability insurance shall provide
(i) product liability coverage and (ii) broad form contractual liability
coverage for COMPANY's indemnification under paragraph 8.1 of this Agreement.
If COMPANY elects to self-insure all or part of the limits described above
(including deductibles or retentions which are in excess of $250,000 annual
aggregate) such self-insurance program must be acceptable to the GENERAL and the
Risk Management Foundation (GENERAL's current liability insurance carrier). The
minimum amounts of insurance coverage required under this paragraph 8.2 shall
not be construed to create a limit of COMPANY's liability with respect to its
indemnification under paragraph 8.1 of this Agreement.
(b) COMPANY shall provide GENERAL with written evidence of such insurance
upon request of GENERAL. COMPANY shall provide GENERAL with written notice at
least thirty (30) days prior to the cancellation, non-renewal or material change
in such insurance; if COMPANY does not obtain replacement insurance providing
comparable coverage prior to the expiration of such thirty (30) day period,
GENERAL shall have the right to terminate this Agreement effective at the end of
such thirty (30) day period without notice or any additional waiting periods.
(c) COMPANY shall maintain such commercial general liability insurance
beyond the expiration or termination of this Agreement during (i) the period
that any such product, process, or service is being commercially distributed or
sold (other than for the purpose of obtaining regulatory approvals) by COMPANY
or by a licensee, affiliate or agent of COMPANY and (ii) a reasonable period
after the period referred to in (c) (i) above which in no event shall be less
than ten (10) years.
(d) This paragraph 8.2 shall survive expiration or termination of this
Agreement.
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8.3 OTHER THAN WARRANTIES SET FORTH HEREIN, GENERAL MAKES NO WARRANTY,
EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT TO ANY PATENT, TRADEMARK, SOFTWARE, TRADE SECRET, TANGIBLE RESEARCH
PROPERTY, INFORMATION OR DATA LICENSED OR OTHERWISE PROVIDED TO COMPANY
HEREUNDER AND HEREBY DISCLAIMS THE SAME.
9. TERMINATION
9.1 Unless otherwise terminated as provided for in this Agreement, the
license to PATENT RIGHT granted hereunder will continue on a country by country
basis:
(i) for two (2) years after the date COMPANY, its AFFILIATES, or
SUBLICENSEES shall last sell any PRODUCT in such country, it being understood
that GENERAL shall have the right to terminate such license upon written notice
in any country in the event that after the FIRST COMMERCIAL SALE of PRODUCT in
such country there is a continuous two (2) year period in which no PRODUCT is
sold in such country, provided such sale is not prevented by force majeure,
government regulation or intervention, or institution of a law suit by any third
party, or
(ii) until the last to expire of any PATENT RIGHT, the claims of which but
for this Agreement would be infringed by the manufacture, use or sale of any
PRODUCT in the applicable country,
whichever shall first occur.
9.2 If either party shall fail to faithfully perform any of its material
obligations under this Agreement except the due diligence milestones specified
in Article 3 herein, the nondefaulting party may give written notice of the
default to the defaulting party. Unless such default is corrected within sixty
(60) days after such notice, the notifying party may terminate this Agreement
and the license hereunder upon sixty (60)days prior written notice, provided
that only one such sixty (60)day grace period shall be available in any twelve
(12) month period with respect to a default of any particular provision
hereunder. Thereafter notice of default of said provision shall constitute
termination.
9.3 In the event that any license granted to COMPANY under this Agreement
is terminated, any sublicense under such license granted prior to termination of
said license shall remain in full force and effect, provided that:
(i) the SUBLICENSEE is not then in breach of its sublicense agreement;
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<PAGE>
(ii) the SUBLICENSEE agrees to be bound to GENERAL as the licensor under
the terms and conditions of this sublicense agreement, as modified by the
provisions of this paragraph 9.3;
(iii) the SUBLICENSEE, at GENERAL's written request, assumes in a
signed writing the same obligations to GENERAL as those assumed by COMPANY under
Articles 8 and 10 hereof;
(iv) GENERAL shall have the right to receive any payments payable to
COMPANY under such sublicense agreement to the extent they are reasonably and
equitably attributable to such SUBLICENSEE's right under such sublicense to use
and exploit PATENT RIGHTS;
(v) the SUBLICENSEE agrees to be bound by the due diligence
obligations of COMPANY pursuant to paragraph 3.1 hereof (whether set by the
parties or by arbitration) in the field and territory of the sublicense;
(vi) GENERAL has the right to terminate such sublicense upon thirty
(30)days prior written notice to COMPANY and such SUBLICENSEE in the event of
any material breach of the obligation to make the payments described in clause
(iv) of this paragraph 9.3, unless such breach is cured prior to the expiration
of such thirty (30) day period, and shall further have the right to terminate
such sublicense in the event of SUBLICENSEE's failure to meet its due diligence
obligations pursuant to clause (v) hereof;
(vii) GENERAL shall not assume, and shall not be responsible to such
SUBLICENSEE for, any representations, warranties or obligations of COMPANY to
such SUBLICENSEE, other than to permit such SUBLICENSEE to exercise any rights
to PATENT RIGHTS that are granted under such sublicense agreement consistent
with the terms of this AGREEMENT.
9.4 Upon termination of any license granted hereunder COMPANY shall pay
GENERAL all royalties due or accrued on (i) the sale of PRODUCT up to and
including the date of termination and (ii) for twelve (12) months following the
date of termination, the sale of PRODUCT manufactured prior to the termination
date.
10. MISCELLANEOUS
10.1 This Amended and Restated Agreement constitutes the entire
understanding between the parties with respect to the subject matter hereof, and
supersedes and replaces all prior agreements, understandings, writings, and
discussions between the parties relating to said subject matter, specifically
including that certain License Agreement between GENERAL and the COMPANY
effective December 15, 1996.
16
<PAGE>
10.2 In order to facilitate implementation of this Agreement, GENERAL and
COMPANY are designating the following individuals to act on their behalf with
respect to this Agreement for the matter indicated below:
(a) with respect to all royalty payments, any correspondence pertaining to
any PATENT RIGHT, or any notice of the use of GENERAL's name, for GENERAL, the
Director, Office of Technology Affairs, and for COMPANY the President and CEO;
provided that correspondence relating to the billing of patent costs shall be
copied to, for GENERAL, the Business Manager, Office of Technology Affairs; and
for COMPANY, the Chief Financial Officer.
(b) any amendment of or waiver under this Agreement, any written notice
including progress reports or other communication pertaining to the Agreement:
for GENERAL, the Director, Office of Technology Affairs; and for COMPANY, the
President and CEO.
(c) the above designations may be superseded from time to time by
alternative designations made by: for GENERAL, the President or the Senior Vice
President for Research and Technology Affairs; and for COMPANY, the President
and CEO.
10.3 This Agreement may be amended and any of its terms or conditions may
be waived only by a written instrument executed by the parties or, in the case
of a waiver, by the party waiving compliance. The failure of either party at
any time or times to require performance of any provision hereof shall in no
manner affect its rights at a later time to enforce the same. No waiver by
either party of any condition shall be deemed as a further or continuing waiver
of such condition or term or of any other condition or term.
10.4 This Agreement shall be binding upon and inure to the benefit of and
be enforceable by the parties hereto and their respective successors and
permitted assigns.
10.5 Any delays in or failures of performance by either party under this
Agreement shall not be considered a breach of this Agreement if and to the
extent caused by occurrences beyond the reasonable control of the party
affected, including but not limited to: Acts of God; acts, regulations or laws
of any government; strikes or their concerted acts of worker; fires; floods;
explosions; riots; wars; rebellion; and sabotage. Any time for performance
hereunder shall be extended by the actual time of delay caused by such
occurrence.
10.6 Neither party shall use the name of the other party or of any staff
member, officer, employee or student of the other party or any adaptation
thereof in any advertising, promotional or sales literature, publicity or in any
document employed to obtain funds or financing without the prior written
approval of the party or individual whose name is to be used. For GENERAL, such
approval shall be obtained from the Director of Public Affairs. Notwithstanding
the foregoing, GENERAL hereby consents to COMPANY's use of the following
statement regarding the existence of this license agreement in connection with
any disclosure or filing by COMPANY
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pursuant to the rules and regulations of the Securities and Exchange
Commission or in any press release required by the same:
"CoCensys, Inc. has entered into an exclusive license agreement with The
General Hospital Corporation, doing business as Massachusetts General
Hospital, for certain patents and patent applications pertaining to the use
of neurosteroid drugs and other GABA modulators in the treatment of
vascular headaches"
In addition, COMPANY shall be permitted to disclose the name of GENERAL to the
extent required by federal, state or local law or regulation, including without
limitation federal and state securities laws.
10.7 This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
10.8 This Agreement shall not be assignable by GENERAL without COMPANY's
written consent except for the right to receive royalties or other payments
payable herein. COMPANY may at its own discretion and without approval by
GENERAL transfer its interest or any part thereof under this Agreement to a
wholly-owned subsidiary or any assignee or purchaser of the portion of its
business associated with the manufacture and sale of PRODUCT. In the event of
any such transfer, the transferee shall assume and be bound by the provisions of
this Agreement. Otherwise this Agreement shall be assignable by COMPANY only
with the consent in writing of GENERAL.
10.9 For any and all claims, disputes, or controversies arising under, out
of, or in connection with this Agreement, except issues relating to the
validity, construction or effect of any PATENT RIGHT, which the parties shall be
unable to resolve within sixty (60) days, the party raising such dispute shall
promptly advise the other party of such claim, dispute, or controversy in a
writing which describes in reasonable detail the nature of such dispute. By not
later than five (5) business days after the recipient has received such notice
of dispute, each party shall have selected for itself a representative who shall
have the authority to bind such party and shall additionally have advised the
other party in writing of the name and title of such representative. By not
later than ten (10) business days after the date of such notice of dispute, such
representatives shall agree upon a third party which is in the business of
providing Alternative Dispute Resolution (ADR) services (hereinafter, "ADR
Provider") and shall schedule a date with such ADR Provider to engage in ADR.
Thereafter, the representatives of the parties shall engage in good faith in an
ADR process under the auspices of the selected ADR Provider. If within the
aforesaid thirty (30) business days after the date of the notice of dispute the
representatives of the parties have not been able to agree upon an ADR Provider
and schedule a date to engage in ADR, or if they have not been able to resolve
the dispute within thirty (30) business days after the termination of ADR, the
parties shall have the right to pursue any other remedies legally available to
resolve such dispute. Notwithstanding the foregoing, nothing in this
18
<PAGE>
Paragraph 10.9 shall be construed to waive any rights or timely performance
of any obligations existing under this Agreement.
10.10 If any provision(s) of this Agreement are or become invalid, are
ruled illegal by any court of competent jurisdiction or are deemed unenforceable
under then current applicable law from time to time in effect during the term
hereof, it is the intention of the parties that the remainder of this agreement
shall not be effected thereby. It is further the intention of the parties that
in lieu of each such provision which is invalid, illegal or unenforceable, there
be substituted or added as part of this Agreement a provision which shall be as
similar as possible in economic and business objectives as intended by the
parties to such invalid, illegal or enforceable provision, but shall be valid,
legal and enforceable.
10.11 GENERAL represents that, to the best of its knowledge, it is the
owner of all rights, title and interest in PATENT RIGHTS, and it has no
obligations to other sponsors of research at GENERAL that would prevent GENERAL
from granting COMPANY the licenses granted hereunder.
19
<PAGE>
THE PARTIES have duly executed this Agreement as of the date first shown
above written.
COMPANY THE GENERAL HOSPITAL CORPORATION
BY: /s/ F. Richard Nichol, Ph.D. BY: /s/ David J. Glass
------------------------------- ----------------------------------
TITLE: President and CEO TITLE: Associate Director for Patents,
--------------------------- Office of Technology Affairs
DATE: December 16, 1997 DATE: December 15, 1997
---------------------------- -------------------------------
20
<PAGE>
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Forms S-3 No. 33-83050 and 33-97136) of CoCensys, Inc. and in the related
Prospectuses; and in the Registration Statements (Forms S-8 Nos. 33-97260,
33-97528, 333-07855, 333-21761 and 333-31013) of CoCensys, Inc., of our
report dated February 6, 1998, with respect to the financial statements of
CoCensys, Inc. included in this Annual Report (Form 10-K) for the year ended
December 31, 1997.
ERNST & YOUNG LLP
Orange County, California
March 20, 1998
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