<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-20954
COCENSYS, INC.
(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)
201 TECHNOLOGY DRIVE, IRVINE, CA 92618
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICE)
(949) 753-6100
(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
$0.001 PER
SHARE
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. / /
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 March 31, 1999, was $8,019,656.
The number of shares of Common Stock outstanding as of March 31, 1999, was
4,258,543 (as restated taking into account a one share for eight shares reverse
stock split implemented by registrant effective April 15, 1999).
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information regarding directors and executive officers of the
Company.
<TABLE>
<CAPTION>
NAME POSITION WITH THE COMPANY
- ---- -------------------------
<S> <C>
F. Richard Nichol, Ph.D. Chairman of the Board, President and Chief
Executive Officer
Joann L. Data, M.D., Ph.D. Executive Vice President, Product Development
and Regulatory Affairs
Robert R. Holmen Vice President, General Counsel and
Secretary; acting Chief Financial Officer
Nancy C. Lan, Ph.D. Vice President, Scientific Affairs and
Intellectual Property
Kelvin W. Gee, Ph.D. Chief Scientific Officer and Director
James C. Blair, Ph.D. Director (1) (3)
Alan C. Mendelson Director (2) (3)
Timothy J. Rink, M.D., Sc.D. Director (1)
Robert L. Roe, M.D. Director (2)
Lowell E. Sears Director (1) (2) (3)
Eckard Weber, M.D. Director
</TABLE>
- ---------------------------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Member of the Nominating Committee
The Board of Directors is divided into three classes, each having a three year
term. Drs. Blair and Weber and Mr. Mendelson are Class I directors, whose terms
expire in 1999; Drs. Nichol and Rink are Class II directors, whose terms expire
in 2000; and Drs. Roe and Gee and Mr. Sears are Class III directors, whose terms
expire in 2001.
Dr. Nichol, 57, joined the Company as its President, Chief Executive Officer and
a director in January 1997, and was named Chairman of the Board in November
1998. From October 1995 until joining CoCensys, Dr. Nichol was a consultant
providing clinical research and clinical data management expertise to
biopharmaceutical and pharmaceutical organizations through his firm, Nichol
Clinical Technologies Corporation. From 1975 until October 1995, he was
co-founder, President, Chief Executive Officer and a director (including serving
as Chairman of the Board from 1983 to 1990) of IBRD, Inc., which has since
become IBRD - Rostrum Global, Inc., a contract clinical research organization.
Dr. Nichol served as a Senior Research Scientist specializing in virology at the
Upjohn Company from 1967 until 1975. Dr. Nichol is a director of Cytovia, Inc.,
and of G Recordings. He earned his B.S. in Science, his M.S. in
Microbiology/Biophysics and his Ph.D. in Microbiology from Pennsylvania State
University.
Dr. Data, 54, has been the Company's Executive Vice President, Product
Development and Regulatory Affairs, since January 1998. Dr. Data joined the
Company in September 1996 as Senior Vice President, Regulatory Affairs, and was
promoted to Senior Vice President, Clinical Development and Regulatory Affairs,
in March 1997. From 1990 until 1996, Dr. Data held several positions at The
Upjohn Company, a pharmaceutical company, the most recent of which was Corporate
Vice President for Worldwide Pharmaceutical Regulatory Affairs and Project
Management. Previously, she held a number of positions at Hoffmann-LaRoche,
including Vice President of Clinical Research and Development, from 1985 to
1990. Dr. Data has been an adjunct assistant professor in medicine and
pharmacology at Duke University Medical Center since 1982 and at Cornell Medical
Center since 1986. She earned her M.D. from Washington University School of
Medicine and her Ph.D. in Pharmacology from Vanderbilt University.
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Mr. Holmen, 35, is the Company's Vice President, General Counsel and Secretary
and is currently serving as acting Chief Financial Officer. He joined the
Company as General Counsel in November 1997, was named Secretary of the Company
in December 1997 and was promoted to Vice President and General Counsel in
October 1998. From March 1994 to October 1997, he served as Corporate Counsel
of National Education Corporation, a publicly traded company based in Irvine,
California. Prior to that, Mr. Holmen was an associate at the law firms of
Morrison & Foerster and Latham & Watkins. He received his B.S. in electrical
engineering from Stanford University and his J.D. from Boalt Hall School of Law
at the University of California, Berkeley.
Dr. Lan, 52, co-founded the Company in February 1989 and has served as its Vice
President, Scientific Affairs and Intellectual Property since August 1996. She
also served as Director of Research and Development from August through October
1992 and Executive Director of Research and Development from October 1992 to
January 1993 when she was named as Vice President, Research and Drug Discovery.
From 1987 to August 1992, she was a Research Associate Professor of Molecular
Pharmacology and Toxicology at the University of Southern California School of
Pharmacy. From July 1989 to August 1992, she was the Principal Investigator for
research sponsored by the Company at the University of Southern California.
Dr. Gee, 46, co-founded CoCensys in February 1989 and has been a director since
that time. He also served as Chairman of the Board of the Company from
inception until October 1991. He has served as the Company's Chief Scientific
Officer on a consulting basis since October 1991. Since July 1996, Dr. Gee has
been a Professor of Pharmacology at the University of California, Irvine,
College of Medicine. Currently, Dr. Gee also is President and Chief Executive
Officer of Zygelan, Inc. From January 1992 to July 1996, Dr. Gee was an
Associate Professor of Pharmacology at the same institution. From July 1985 to
January 1992, Dr. Gee was an Assistant and then Associate Professor of
Pharmacology at the University of Southern California. Dr. Gee received his
Ph.D. in Pharmacology and Toxicology from the University of California, Davis in
1981.
Dr. Blair, 59, has served as a director of the Company since August 1990. He
has been a general partner of Domain Associates, a venture capital management
company, since July 1985. Dr. Blair is a director of Amylin Pharmaceuticals,
Inc., Aurora Biosciences Corporation, Cytovia, Inc., Dura Pharmaceuticals, Inc.,
Trega Biosciences, Inc., and Vista Medical Technologies, Inc. Dr. Blair holds a
B.S.E. in Electrical Engineering from Princeton University and M.S.E. and Ph.D.
degrees in Electrical Engineering from the University of Pennsylvania.
Mr. Mendelson, 51, has served as a director of the Company since April 1994 and
served as Secretary of the Company from July 1990 to December 1997. He has been
a partner of Cooley Godward LLP, a private law firm and counsel to the Company,
since 1980, and served as managing partner of its Palo Alto office from May 1990
through March 1995 and from November 1996 to November 1997. Mr. Mendelson also
served as Acting General Counsel of Cadence Design Systems, Inc., an electronic
design automation software company, from November 1995 to June 1996. Mr.
Mendelson is currently a director of Isis Pharmaceuticals, Inc. Mr. Mendelson
received his J.D. from Harvard University in 1973.
Dr. Rink, 52, has served as a director of the Company since August 1990. Dr.
Rink is Chairman of the Board of Directors, Chief Executive Officer and
President of Aurora Biosciences Corporation. From February 1990 until November
1995, he served as President, Chief Technical Officer and as a director of
Amylin Pharmaceuticals, Inc., a pharmaceutical company. From 1984 to January
1990, he served as Vice President, Research (U.K.) for SmithKline Beecham, PLC.
From 1988 to February 1990, he was a founding member of the Emerging
Technologies Committee of the Prime Minister's Advisory Council of Science and
Technology in the United Kingdom. Dr. Rink received his M.D. and Sc.D. degrees
from the University of Cambridge.
Dr. Roe, 58, has served as a director of the Company since June 1998. He has
served since 1996 as Executive Vice President, Chief Operating Officer and a
director of Cytel Corporation, a biotechnology company. From 1995 to 1996, Dr.
Roe served as Executive Vice President, Chief Operating Officer and a director
of Chugai Biopharmaceuticals, Inc., a subsidiary of Chugai Pharmaceuticals Co.,
Ltd., of Japan, and from 1976 to 1995, Dr. Roe served in a number of positions
at Syntex Corporation, a pharmaceutical company, the most recent of which was
President, Development Research Division, and Senior Vice President. Dr. Roe
received his M.D. from the University of California, San Francisco School of
Medicine and his B.A. in Biological Sciences with Honors from
3
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Stanford University. Dr. Roe is a Fellow of the American College of Physicians
and the American College of Rheumatology.
Mr. Sears, 48, has served as a director of the Company since November 1994; he
also served as Chairman of the Board of the Company from June 1995 to November
1998. He is the Chairman and Chief Executive Officer of Sears Capital
Management, Inc., a private holding and investment company. From 1988 to April
1994, he was Chief Financial Officer of Amgen, Inc., a biotechnology company.
In addition to his role as Chief Financial Officer of Amgen, Mr. Sears served
from 1992 to 1994 as Senior Vice President, responsible for the Asia-Pacific
region. In this role, he established development, marketing and sales
capabilities in a number of countries, including Japan and the People's Republic
of China. He also served as Chief Executive Officer for the joint venture
Kirin-Amgen Inc. Mr. Sears is a director of Techne Corporation, Neose
Technologies, Inc., Dendreon, Inc., Integrated Biosystems, Inc. and Encore
Pharmaceuticals, Inc. Mr. Sears holds a B.A. in Economics from Claremont
McKenna College and an M.B.A. from Stanford University.
Dr. Weber, 49, was elected to the Board of Directors of CoCensys in June 1994
pursuant to the terms of the agreement governing the Company's acquisition of
Acea Pharmaceuticals, Inc. Since January 1998, Dr. Weber has been a director
and President and Chief Executive Officer of Cytovia, Inc., which was founded by
CoCensys and Dr. Weber to develop and commercialize proprietary drug screening
technology in the field of apoptosis or programmed cell death. He was the
Company's Senior Vice President, Research and Drug Discovery, from November 1995
through December 1997, and he has been a Professor of Pharmacology at the
University of California, Irvine since 1989. Dr. Weber received his Doctor of
Medicine degree from the University of Ulm School of Medicine, West Germany. He
also completed his internship at the University Hospital, University of Ulm
School of Medicine.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) ("Section 16(a)") of the Exchange Act requires the Company's
directors and executive officers, and persons who own more that 10 percent of a
registered class of the Company's equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater
than 10 percent stockholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1998, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10 percent beneficial owners were complied with except for the
following: (i) in April 1998, Robert G. McNeil, Ph.D., (former director and
greater than 10 percent beneficial owner), and Sanderling Biomedical, L.P.
(affiliated with Dr. McNeil) filed a Form 4 reporting an October 1997 pro rata
distribution to a limited partner of Sanderling Biomedical, L.P.; and (ii) in
April 1998, Dr. Blair filed an amended Form 4 correcting the number of shares
held directly by Dr. Blair that had been reported on his Form 4 for October
1997.
ITEM 11. EXECUTIVE COMPENSATION
On April 15, 1999, the Company implemented a reverse stock split pursuant to
which each stockholder received one share of post-reverse split CoCensys common
stock for every eight shares of CoCensys common stock held prior to the reverse
stock split. All the share numbers and stock option and warrant exercise prices
listed in this item have been restated to account for implementation of that
reverse stock split.
4
<PAGE>
COMPENSATION OF DIRECTORS
Each non-employee director of the Company receives a fee of $2,500 for each
meeting of the Board attended by such director in person and $500 for each
telephonic meeting of the Board. In addition, each non-employee director of the
Company receives a fee of $500 for each committee meeting attended by such
director unless the committee meeting is held in conjunction with a regular or
telephonic meeting of the full Board, in which case no additional fee is paid.
The Chairman of the Board, if he or she is a not an employee of the Company,
receives an additional $500 per month. Directors may elect to receive meeting
fees in the form of cash or shares of Company common stock, based on the market
value of such stock at the time of each meeting. During 1998, Dr. Blair and Mr.
Mendelson elected to receive meeting fees in the form of Company common stock;
all other non-employee directors received their fees in cash. All non-employee
directors are reimbursed for expenses incurred in connection with attendance at
meetings of the Board of Directors and committees thereof in accordance with
Company policy.
In addition, each non-employee director of the Company receives stock options
under the 1992 Non-Employee Directors' Stock Option Plan, as amended (the
"Directors' Plan"). Option grants under the Directors' Plan are automatic and
non-discretionary. Each non-employee director receives an option to purchase
2,500 shares when he or she is first elected to the Board, which option (i) is
granted with an exercise price equal to 100 percent of the fair market value of
the stock on the date of grant, (ii) vests in five equal installments over a
period of five years, and (iii) expires ten years from the date of grant or
three months after termination of an optionee's services as non-employee
director of the Company (12 months in the event of death of the director).
Non-employee directors also receive annual grants of options to purchase 1,000
shares (1,500 shares in the case of a non-employee Chairman of the Board).
Annual grants have an exercise price equal to 100 percent of the fair market
value of the stock on the date of grant, vest in full one year from the date of
grant and expire ten years from the date of grant or three months after
termination of an optionee's services as non-employee director of the Company
(12 months in the event of death of the director). Vesting of options is
suspended in any year that the non-employee director fails to attend at least 75
percent of the Board meetings and the meetings of Board committees of which he
is a member.
The Directors' Plan provides that, in the event of a merger or consolidation in
which the Company is not the surviving corporation, a reverse merger in which
the Company's common stock is converted into other property or any other capital
reorganization involving a change in control of the Company, then the time
during which such options may be exercised will be accelerated and the options
terminated if not exercised prior to such event.
From October 1996 until November 1998 (when Mr. Sears stepped down as Chairman
of the Board), Mr. Sears and the Company were parties to an agreement pursuant
to which Mr. Sears was paid $3,300 per eight-hour day for additional services
performed as Chairman, payable one-third in cash and two-thirds in common stock
of the Company. Mr. Sears did not receive any compensation under this agreement
in the fiscal year ended December 31, 1998.
Directors, including the Chairman of the Board, who are employees of the Company
do not receive separate compensation for their services as directors.
COMPENSATION OF EXECUTIVE OFFICERS
In addition to cash compensation, the Company's executive officers are eligible
to receive stock options and other stock awards under the 1996 Equity Incentive
Plan (the "Equity Plan") and to receive stock options under the 1990 Stock
Option Plan (the "1990 Plan").
The Equity Plan provides for grants of incentive stock options ("ISOs"),
nonstatutory stock options ("NSOs"), stock appreciation rights, rights to
purchase restricted stock and stock bonuses to employees (including officers),
directors and consultants, although ISOs may be granted only to employees
(including officers). The Equity Plan provides that, in the event of dissolution
or liquidation of the Company or specified types of mergers or other corporate
reorganizations, any surviving corporation is required to either assume awards
outstanding under the Equity Plan or substitute similar awards; otherwise,
outstanding awards will continue in full force and effect. If any surviving
5
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corporation declines to assume, substitute or continue awards outstanding under
the Equity Plan, then the time during which such awards may be exercised will be
accelerated and the awards terminated if not exercised during such time.
The 1990 Plan provides for grants of ISOs and NSOs to employees (including
officers), directors and consultants, although ISOs may be granted only to
employees (including officers). The 1990 Plan provides that, in the event of
dissolution, liquidation or sale of substantially all of the assets of the
Company, a merger or consolidation in which the Company is not the surviving
corporation or a reverse merger in which the Company is the surviving
corporation but the shares of the Common 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, then to the extent permitted by
applicable law: (i) any surviving corporation must assume any options
outstanding under the 1990 Plan or must substitute similar options for those
outstanding under the 1990 Plan, or (ii) such options will continue in full
force and effect. If any surviving corporation refuses to assume or continue
such options, or to substitute similar options for those outstanding under the
1990 Plan, then the time during which such options may be exercised will be
accelerated and the options terminated if not exercised prior to such event.
The following table shows for the fiscal years ended December 31, 1998, 1997 and
1996, certain compensation awarded or paid to or earned by the Company's Chief
Executive Officer and its other four most highly compensated executive officers
at December 31, 1998 (the "Named Executives Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
AWARDS/
NAME AND PRINCIPAL ------------------------------- SECURITIES ALL OTHER
POSITION SALARY BONUS UNDERLYING COMP.
YEAR ($) ($) OPTIONS (#) ($)
- --------------------------------- ----- ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
F. Richard Nichol,Ph.D(1) 1998 282,375 54,000 37,657 1,000(2)
President and Chief 1997 251,654 100,000 71,250 3,200(2)
Executive Officer
Peter E. Jansen(3) 1998 188,526(4) 22,500 -- 209,245(5)
Former Vice President and 1997 179,010 20,000 2,500 35,300(6)
Chief Financial Officer 1996 72,917 28,229 14,375 28,193(7)
Nancy C. Lan, Ph.D 1998 167,333 15,000 2,875 1,333(2)
Vice President, Scientific 1997 159,069 35,000 2,563 3,181(2)
Affairs and Intellectual 1996 145,294 37,210 11,875 1,453(2)
Property
Joann L. Data, M.D., Ph.D.(8) 1998 225,000 30,000 9,375 63,310(9)
Executive Vice President, 1997 203,820 50,000 6,250 105,116(10)
Product Development and 1996 66,667 56,667 15,000 60,410(11)
Regulatory Affairs
Robert Holmen(12) 1998 117,567 16,000 3,750 1,580(2)
Vice President, General 1997 17,029 4,928 6,250 --
Counsel and Secretary
</TABLE>
- --------------------------
(1) Dr. Nichol joined the Company on January 29, 1997.
(2) Consists of 401(k) employer matching contributions.
(3) Mr. Jansen joined the Company on August 1, 1996 and separated from the
Company September 22, 1998.
(4) Includes $7,772 in vacation payout at termination and $48,581 in severance
pay.
6
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(5) Consists of $2,793 in 401(k) employer matching funds, cancellation of
indebtedness and related interest of $101,058 and tax gross up of $105,394.
(6) Consists of $2,691 in 401(k) employer matching funds, cancellation of
indebtedness and related interest of $17,254, and tax gross up of $15,355.
(7) Consists of relocation expenses of $10,208 and tax gross ups.
(8) Dr. Data joined the Company on September 1, 1996.
(9) Consists of $2,857 in 401(k) employer matching funds, cancellation of
indebtedness and related interest of $29,592 and tax gross up of $30,861.
(10) Consists of $2,034 in 401(k) employer matching funds, cancellation of
indebtedness and related interest of $27,126, relocation expenses of
$27,415, and tax gross up of $48,541.
(11) Consists of relocation expenses of $13,127 and tax gross ups.
(12) Mr. Holmen joined the company on November 10, 1997.
STOCK OPTION GRANTS AND EXERCISES
The following tables show for the fiscal year ended December 31, 1998, certain
information regarding options granted to, exercised by and held at year end by
the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS EXERCISE PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE EXPIR- OPTION TERM(2)
OPTIONS/SARS EMPLOYEES IN PRICE ATION -----------------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ------------------------------- ------------- -------------- -------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
F. Richard Nichol, Ph.D 37,657 16.94 9.00 09/15/08 213,136 540,129
Peter E. Jansen -- -- -- -- -- --
Nancy C. Lan, Ph.D 2,875 1.29 9.00 09/15/08 16.273 41,238
Joann L. Data, M.D., Ph.D 9,375 4.22 9.00 09/15/08 53,063 134,472
Robert R. Holmen 3,750 1.69 9.00 09/15/08 21,225 53,789
</TABLE>
- ------------------------------
(1) All options granted in this table vest at the rate of 25 percent six months
following grant, 25 percent on the first anniversary date of grant and
1/48th of the original amount per month thereafter over the next 24 months
so that the grant is fully vested three years from the date of grant. The
options continue in full force and effect upon a change in control, as
defined in the Company's option plans, unless the acquiring company refuses
to continue or assume the options or to substitute similar options, in
which event the vesting of such options is accelerated. In addition, if the
Named Executive Officer is terminated in connection with a change in
control of the Company, the vesting of such options is accelerated as of
the date of termination. See "Employment and Severance Agreements" below.
(2) The potential realizable value is calculated based on the term of the
option at its time of grant (10 years). It is calculated by assuming that
the stock price on the date of grant appreciates at the indicated annual
rate, compounded annually for the entire term of the option, and that the
option is exercised and sold on the last day of its term for the
appreciated stock price. No gain to the optionee is possible unless the
stock price increases over the option term.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES VALUE OPTIONS AT FY-END (#) OPTIONS AT FY-END
ACQUIRED ON REALIZED EXERCISABLE/ ($) EXERCISABLE/
NAME EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
- ---------------------------- ------------ -------- ---------------------- -------------------
<S> <C> <C> <C> <C>
F. Richard Nichol, Ph.D. -- -- 30,704/78,204 0/0
Peter E. Jansen -- -- 8,594/8,282 0/0
Nancy C. Lan, Ph.D. -- -- 24,224/6,665 0/0
Joann L. Data, M.D., Ph.D. -- -- 9,766/20,860 0/0
Robert R. Holmen -- -- 1,823/8,178 0/0
</TABLE>
EMPLOYMENT AND SEVERANCE AGREEMENTS
In January 1997, the Company entered into a severance agreement with Dr. Nichol
which provides that, if Dr. Nichol's employment is terminated without cause, the
Company will continue payment of Dr. Nichol's base salary for a period of six
months. In November 1997, the Board approved a severance agreement for Dr. Data
which provides the following benefits if Dr. Data's employment is terminated
without cause: (i) the Company will continue payment of Dr. Data's base salary
for a period of six months; (ii) the Company will pay Dr. Data her pro-rated
target bonus through her termination date; (iii) options to acquire Company
common stock held by Dr. Data will continue to vest during the salary
continuation period, with 50% of any unvested options accelerating at the end of
the salary continuation period and vested options remaining exercisable for
three years beyond Dr. Data's termination date; and (iv) any remaining principal
balance and interest due on Dr. Data's housing loan will be forgiven.
In December 1997, the Board of Directors approved a severance arrangement
available to the executive officers of the Company (including the President and
Chief Executive Officer, the Vice Presidents and the General Counsel) upon
termination of employment in connection with a change in control of the Company.
A termination is deemed to have occurred in connection with a change in control
if the executive is terminated without cause during the period beginning three
months prior to and ending 15 months after one of the following events: (a)
dissolution, liquidation or sale of substantially all of the assets of the
Company; (b) a reorganization, merger or consolidation of the Company in which
the Company is not the surviving entity; (c) a reorganization, merger or
consolidation of the Company in which the Company is the surviving entity but a
person or group of persons other than the existing stockholders control the
Company following the event; or (d) at such time that a person or group of
persons acquires a controlling interest in the Company through a tender or
exchange offer. Under the arrangement, eligible officers receive the following
benefits: (i) base salary and target bonus continuation for 12 months (24
months for the President and Chief Executive Officer); (ii) acceleration of
options not vested as of the termination date, which vested options will remain
exercisable for two years after the end of the salary continuation period; and
(iii) continued payment by the Company of its share of the executive's health
insurance premiums under COBRA for up to 18 months, so long as the executive
continues to pay his or her share of the premiums.
In March 1998, the Board of Directors approved a severance arrangement
available to the executive officers of the Company (including the President
and Chief Executive Officer, the Vice Presidents and the General Counsel)
upon termination of employment without cause (other than in connection with a
change in control of the Company that entitles the executives to benefits
under the preceding arrangement). Under this arrangement, eligible officers
receive the following benefits: (i) base salary continuation for six months
(12 months for the President and Chief Executive Officer); (ii) payment of
target bonus through the date of termination; and (iii) continued payment by
the Company of its share of the executive's health insurance premiums under
COBRA for the salary continuation period so long as the executive continues
to pay his or her share of the premiums. An executive becomes eligible
8
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for benefits under this arrangement only after completing six months of service
to the Company; in addition, for the period from six months after the executive
joins the Company until the executive has been with the Company for one year,
the salary continuation period is reduced by 50%.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors currently is composed of
Drs. Blair and Rink and Mr. Sears. In addition, Dr. McNeil served on the
committee until June 1998. Dr. McNeil served as the Company's Chief Executive
Officer from February 1989 to October 1991. There are no compensation committee
interlocks between any executive officer of the Company and any entity whose
directors or executive officers serve on the Company's Board or Compensation
Committee.
In January 1998, the Company announced the formation of Cytovia, Inc.
("Cytovia"), as a separate, stand-alone venture to develop and commercialize
drug discovery and screening technology in the field of apoptosis or programmed
cell death. Dr. Weber left employment with the Company to join Cytovia as its
President and Chief Executive Officer and as a director. Dr. Weber remains on
the Board of the Company and will continue to consult on and oversee the
Company's research program with Warner-Lambert Company under the terms of a
Consulting Agreement entered into by Dr. Weber and the Company effective January
1, 1998.
On March 25, 1998, the Company entered into an Assignment Agreement with Cytovia
pursuant to which the Company assigned certain technology to Cytovia in exchange
for (i) a share of revenues realized by Cytovia on commercialization of a
segment of that technology and (ii) a license back to the Company of certain
rights to the technology to develop products for central nervous system
disorders. In addition, pursuant to an Option, Services and Release Agreement
entered into on that same date, Cytovia granted to CoCensys, among other things,
a right of first refusal to enter into a license agreement with Cytovia to
develop and commercialize any Cytovia technology for central nervous system
disorders.
On March 27, 1998, the Company and Dr. Weber entered into separate Founder's
Stock Purchase Agreements with Cytovia, pursuant to which the Company and Dr.
Weber acquired, respectively, approximately 55% and 45% of the initial common
stock of Cytovia. On that date, Cytovia completed the sale of preferred stock
to a number of equity investors, including without limitation the following
investors: Dr. Weber; Dr. Nichol; The Sears Living Trust dated March 11, 1991,
for which Mr. Sears is a Trustee; and Domain Partners III, L.P. and DP III
Associates, L.P., for each of which Dr. Blair is a general partner in the
general partner. In connection with the foregoing, the Company and Dr. Weber
(as founding stockholders) and the preferred stock equity investors (including
all those listed above) entered into an Investor Rights Agreement and a Voting
Agreement; under the Voting Agreement, Drs. Weber, Nichol and Blair, among
others, have been named to the Board of Directors of Cytovia.
9
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership of
the Company's Common Stock as of March 31, 1999 by the following stockholders:
(i) each director; (ii) each of the executive officers named in the Summary
Compensation Table later in this proxy statement; (iii) all executive officers
and directors of the Company as a group; and (iv) all those known by the Company
to be beneficial owners of more than five percent of the Company's Common Stock.
On April 15, 1999, the Company implemented a reverse stock split pursuant to
which each stockholder received one share of post-reverse split CoCensys common
stock for every eight shares of CoCensys common stock held prior to the reverse
stock split. All the share numbers listed in this item have been restated to
account for implementation of that reverse stock split.
<TABLE>
<CAPTION>
NUMBER PERCENT
BENEFICIAL OWNER(1) OF SHARES OF TOTAL
- ---------------- --------- --------
<S> <C> <C>
Novartis AG(2)
Schwarzwaldallee 215
CH402 Basel, Switzerland ......................317,987 7.5
James C. Blair, Ph.D.(3) ...........................165,038 3.8
Joann L. Data, M.D., Ph.D.(4) .......................17,343 *
Kelvin W. Gee, Ph.D.(5) .............................62,334 1.5
Robert R. Holmen(6) ..................................4,328 *
Peter E. Jansen(7) ..................................12,686 *
Nancy C. Lan, Ph.D.(8) ..............................36,154 *
Alan C. Mendelson(9) ................................12,433 *
F. Richard Nichol, Ph.D.(10) ........................52,789 1.2
Timothy J. Rink, M.D., Sc.D.(11) .....................8,625 *
Robert L. Roe, M.D.(12) ..............................1,250 *
Lowell E. Sears(13) .................................30,260 *
Eckard Weber, M.D.(14) ..............................63,487 1.5
All current executive officers and directors
as a group (11 persons)(15) ...................454,041 10.2
</TABLE>
- -------------------------
* Less than one percent.
(1) The table is based on information supplied by officers, directors and
principal stockholders and on Schedules 13D and 13G filed with the
Securities and Exchange Commission ("SEC"). Applicable percentages are
based on 4,258,543 shares outstanding on March 31, 1999, adjusted as
required by SEC rules and regulations. Unless otherwise indicated in the
footnotes to this table, and subject to community property laws where
applicable, the Company believes that each of the stockholders named in
this table has sole voting and investment power with respect to the shares
indicated as beneficially owned.
(2) Consists of the following shares: (i) 297,274 shares held by Novartis
Produkte AG, a subsidiary of Novartis AG; (ii) 10,037 shares held by
Sanderling Ventures Limited, L.P., over which Novartis AG has shared voting
and investment power; and (iii) 10,676 shares held by Sanderling III
Limited, L.P., over which Novartis AG has shared voting and investment
power.
(3) Dr. Blair is a director of the Company. Shares held by Dr. Blair include
2,158 shares held directly by Dr. Blair and 4,125 shares subject to stock
options exercisable within 60 days following March 31, 1999, plus the
shares held by the following entities affiliated with Domain Associates
(the "Domain Shares"): (i) 3,130 shares held by Domain Associates
("Domain"); (ii) 105,769 shares held by Domain Partners III, L.P. ("Domain
III") and 42,308 shares issuable to Domain III on exercise of warrants;
(iii) 3,701 shares held by DP III Associates, L.P. ("DP III") and 1,481
shares issuable to DP III on exercise of warrants; and (iv) 2,366
10
<PAGE>
shares issuable to Domain Partners II, L.P. ("Domain II") on exercise of
warrants. Dr. Blair is a general partner of Domain, and is a general
partner in the general partner of each of Domain II, Domain III and DP III.
Dr. Blair has voting and investment power with respect to, and may be
deemed beneficial owner of, the Domain Shares. Dr. Blair disclaims
beneficial ownership of the Domain Shares, and any proceeds thereof, that
exceed his pecuniary interest therein and/or that are not actually
distributed to him.
(4) Dr. Data is the Company's Executive Vice President, Product Development and
Regulatory Affairs. Shares listed include 15,782 shares subject to stock
options exercisable within 60 days following March 31, 1999.
(5) Dr. Gee is the Company's Chief Scientific Officer and a director. Shares
listed include 4,125 shares subject to stock options exercisable within 60
days following March 31, 1999, 2,100 shares held by members of Dr. Gee's
immediate family and 10,129 shares held in the Kelvin & Kay Gee Living
Trust.
(6) Mr. Holmen is the Company's Vice President, General Counsel and Secretary.
Shares listed include 4,328 shares subject to stock options exercisable
within 60 days following March 31, 1999.
(7) Mr. Jansen was the Company's Vice President and Chief Financial Officer
until September 22, 1998. Shares listed include 10,352 shares subject to
stock options exercisable within 60 days following March 31, 1999.
(8) Dr. Lan is the Company's Vice President, Scientific Affairs and
Intellectual Property. Shares listed include 2,500 shares held by Dr. Lan
as Custodian for a family member and 26,225 shares subject to stock options
exercisable within 60 days following March 31, 1999.
(9) Mr. Mendelson is a director of the Company. Shares listed include the
following: (i) 8,625 shares subject to stock options exercisable within 60
days following March 31, 1999; (ii) 50 shares held in trust for the benefit
of Mr. Mendelson's children, for which Mr. Mendelson's spouse is trustee;
(iii) 1,673 shares held by CGCH&T Profit Sharing Trust FBO Mr. Mendelson
(the "Mendelson Trust"); (vi) 1,815 shares held by Cooley Godward LLP, of
which Mr. Mendelson is a partner; and (v) 270 shares issuable pursuant to
warrants held in the Mendelson Trust. Mr. Mendelson disclaims beneficial
ownership of shares held in trust for the benefit of his children. Mr.
Mendelson also disclaims beneficial ownership of shares held by Cooley
Godward LLP, except to the extent of his pecuniary interest therein.
(10) Dr. Nichol is President, Chief Executive Officer and Chairman of the Board
of the Company. Shares listed include 50,039 shares subject to stock
options exercisable within 60 days following March 31, 1999.
(11) Dr. Rink is a director of the Company. Shares listed include 8,625 shares
subject to stock options exercisable within 60 days following March 31,
1999.
(12) Dr. Roe is a director of the Company. Shares listed include 625 shares
subject to stock options exercisable within 60 days following March 31,
1999.
(13) Mr. Sears is a director of the Company. Shares listed include the
following: (i) 18,187 shares held in The Sears Living Trust dated March 11,
1991 (the "Sears Trust"); (ii) 11,573 shares subject to stock options
exercisable within 60 days following March 31, 1999; and (iii) 500 shares
issuable pursuant to warrants held in the Sears Trust.
(14) Dr. Weber is a director of the Company. Shares listed include 24,329 shares
subject to stock options exercisable within 60 days following March 31,
1999.
(15) Includes 158,401 shares subject to stock options exercisable within 60 days
following March 31, 1999 and 46,925 shares issuable pursuant to warrants
held by directors or entities affiliated with such directors. See Notes (3)
through (6) and (8) through (14) above.
11
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LOANS TO OFFICERS
In January 1997, in connection with her relocation to California, the Company
made a housing loan in the principal amount of $100,000 to Dr. Data. The loan
bears interest at the rate of 8.5% per year. The loan is repayable (forgivable)
over four years in equal monthly installments. As of March 31, 1999, principal
in the amount of $50,072 was outstanding on the loan.
In May 1997, in connection with his relocation to California, the Company made a
housing loan in the principal amount of $100,000 to Mr. Jansen. In accordance
with the terms of his employment, the outstanding principal balance and accrued
interest on the loan were forgiven in connection with his separation from the
Company on September 22, 1998.
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnity agreements with certain officers and
directors which provide, among other things, that the Company will indemnify
such officers and directors, under the circumstances and to the extent provided
therein, for expenses, damages, judgments, fines and settlements he or she may
be required to pay in actions or proceedings which he or she is or may be made a
party because he or she is a director, officer or other agent of the Company,
and otherwise to the full extent permitted under Delaware law and the Company's
Bylaws.
ADDITIONAL TRANSACTIONS
In fiscal year ended December 31, 1998, the Company paid Dr. Gee $111,064 as
Chief Scientific Officer, which payments covered his services as Chief
Scientific Officer from January 1, 1998 through June 30, 1999. The payments
were made under a consulting agreement with Dr. Gee pursuant to which Dr. Gee
must pay back to the Company any royalties received from any university or other
institution for rights to technology invented or developed by Dr. Gee as the
Company's Chief Scientific Officer (capped at the aggregate amount paid by the
Company to Dr. Gee under the consulting agreement).
See "Compensation Committee Interlocks and Insider Participation" above for
additional transactions.
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: April 23, 1999 By: /s/ F. Richard Nichol, Ph.D.
----------------------------------
(F. Richard Nichol, Ph.D.)
Chairman of the Board,
President and Chief Executive Officer
12
