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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
Commission file number 0-23280
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(Name of small business issuer as specified in its charter)
DELAWARE 94-3049219
(State of incorporation) (IRS Employer Identification No.)
1387 MARINA WAY SOUTH, RICHMOND, CALIFORNIA, 94804
(Address of principal executive offices)
(510) 215-8000
(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 $.001 PAR VALUE
(Title of Class)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days:
Yes X No ___
---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation SB contained herein, and no disclosure will be contained, to the best
of the Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Registrant's revenues for its most recent fiscal year were $2,100,000.
As of August 26, 1998 the Registrant had 7,553,699 shares of Common Stock, $.001
par value, outstanding, and the aggregate market value of the shares held by
non-affiliates on that date was $4,721,062 based upon the bid price of the
Issuer's Common Stock reported on the Over the Counter Bulletin Board, an
electronic stock listing service provided by The Nasdaq Stock Market, Inc.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10 through 12 of Part III incorporate by reference information from the
Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held
on November 12, 1998.
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ITEM 1. BUSINESS
Statements in this Business section and other parts of this Annual Report on
Form 10-KSB that are not historical are forward-looking statements. Such
forward-looking statements are subject to a number of risks and uncertainties
which could cause actual results to differ materially from those discussed in
the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those set forth under "Risks Associated with
Product Development," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and elsewhere in this Form 10-KSB.
OVERVIEW
Neurobiological Technologies, Inc. ("NTI" or the "Company") is an emerging drug
development company focused on the clinical evaluation and regulatory approval
of neuroscience drugs. NTI is developing neuroprotective and neuromodulatory
treatments for progressive neurological impairments characteristic of many
nervous system disorders, including diabetic neuropathy, brain cancer, and AIDS
dementia syndrome.
The Company's strategy is to in-license and develop early-stage drug candidates
that target major medical needs and that can be rapidly commercialized. The
Company's experienced management team oversees the human clinical trials
necessary to establish preliminary evidence of efficacy. NTI seeks partnerships
with pharmaceutical and biotechnology companies for late-stage development and
marketing of its product candidates. The Company currently has two product
candidates in Phase II human clinical testing: Memantine and XERECEPT(TM).
Memantine is an orally available compound which acts to modulate the N-methyl-D-
aspartate ("NMDA") receptor in the central nervous system. Modulating the NMDA
receptor may protect against neuronal injury associated with a number of
neurodegenerative conditions including dementia, Alzheimer's disease,
neuropathic pain, and AIDS. Memantine may be an effective and marketable
treatment for such conditions due to its favorable side effect profile and oral
availability. There are currently no approved neuroprotective treatments for
any of the pathologies associated with NMDA-receptor overstimulation. Memantine
has been marketed by Merz + Co. GmbH & Co. of Frankfurt, Germany ("Merz") in
Germany since 1989 with the labeling "dementia syndrome."
The Company is developing Memantine for the treatment of neuropathic pain
(persistent pain resulting from abnormal signals to the brain). The Company is
currently preparing to initiate a 375-patient Phase IIB human clinical trial of
Memantine to evaluate the analgesic efficacy and safety of Memantine in diabetic
patients who experience neuropathic pain due to peripheral neuropathy. The
Phase IIB trial is expected to begin in 1998 and the primary trial evaluation
will be reduction in nocturnal pain.
In this Phase IIB trial, the Company seeks to confirm and extend the results of
its controlled Phase IIA human clinical trial. In that trial, Memantine was
administered to patients with neuropathic pain due to diabetes or post-herpetic
neuralgia (a complication of shingles). The results of the Phase IIA trial,
announced during the third quarter of fiscal 1998, indicated Memantine to be
potentially effective in relieving pain due to diabetic neuropathy. Although
reduction in pain symptoms was not observed for post-herpetic patients, the
diabetic neuropathy patients taking Memantine exhibited considerably less
nocturnal pain compared to the placebo group, as well as efficacy trends for
greater pain relief and less daytime pain.
In April 1998, NTI entered into a strategic research and marketing partnership
with Merz and a new revenue sharing partnership with Children's Medical Center
Corporation of Boston, Massachusetts, to further the development and
commercialization of Memantine. This research collaboration and revenue
sharing partnership is a significant milestone for NTI. Pursuant to this new
collaboration, Children's Medical Center Corporation terminated its existing
license to NTI for AIDS-related dementia and neuropathic pain and granted
exclusive rights to Merz. In exchange, NTI received an up-front payment of
$2.1 million from Merz. NTI and Children's Medical Center Corporation will
share in future revenue from sales of Memantine for treatment of
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dementia and Alzheimer's disease, indications which Merz is developing. Merz is
also currently conducting a series of advanced clinical trials of Memantine for
the treatment of moderate to severe dementia and Alzheimer's disease. Merz has
completed a pivotal Phase III trial of Memantine for the treatment of dementia
in Europe with positive results, has two Phase III trials ongoing and will
institute a Phase III trial in the United States in the near future. Merz has
developed extensive clinical and pre-clinical data which, in combination with
the Company's clinical and pre-clinical data, the companies believe will
constitute a strong regulatory package.
Through their collaboration, NTI and Merz intend to assist each other to advance
their respective clinical development programs for neuropathic pain and dementia
and to share their scientific information and commercial expertise, including
preclinical and clinical trial data, to bring Memantine as rapidly as possible
to patients in need.
Memantine is also currently being evaluated as a treatment for AIDS-related
dementia in a Phase II human clinical trial funded by the National Institutes of
Health ("NIH"). The trial is being conducted by the Adult AIDS Clinical Trials
Group ("AACTG") and will evaluate Memantine's ability to reduce symptoms of
dementia in patients with AIDS. NTI is supplying the drug for the trial and will
have the right to use the resulting data for the commercial development of
Memantine for that indication.
NTI continues to develop XERECEPT(TM), its synthetic preparation of the natural
human peptide Corticotropin-Releasing Factor ("CRF"), as a treatment for brain
swelling due to brain tumors (peritumoral brain edema). The Company is
currently conducting a randomized, double-blind, positive-controlled Phase II
human clinical trial to evaluate the ability of XERECEPT to stabilize or improve
neurological symptoms resulting from brain swelling. Results from preclinical
studies and pilot human clinical trials previously sponsored by the Company have
demonstrated the compound's potential to reduce swelling of brain tissue and to
be well-tolerated and apparently safe. Thus, XERECEPT has the potential to
significantly improve the quality of life for brain cancer patients with
dysfunction due to brain swelling.
During fiscal 1998, the Company announced the publication of clinical data from
an open-label pilot Phase I/II trial of XERECEPT in patients with peritumoral
brain edema. The data were presented in the January 1998 issue of the peer-
reviewed journal Annals of Oncology. In this trial, 10 of 15 patients treated
with XERECEPT experienced clinical improvement in neurological symptoms. Also
during fiscal 1998, the United States Food and Drug Administration ("FDA")
conferred orphan drug designation on XERECEPT as a potential treatment of
peritumoral brain edema. In addition, the Company received a U.S. patent
covering certain liquid formulations of CRF and CRF-related peptides.
PRODUCT CANDIDATES
<TABLE>
<CAPTION>
Product/Indication Development Status Primary Benefit Sought
- ------------------ ------------------ ----------------------
<S> <C> <C>
MEMANTINE
Diabetic Neuropathic Pain Phase IIA trial completed Pain relief
Phase IIB trial expected to begin Nocturnal pain relief
fall 1998
AIDS-related Dementia and Phase II trial in progress Improvement in neurological
Neuropathic Pain function and pain relief
</TABLE>
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PRODUCT CANDIDATES, continued
XERECEPT(TM) (CORTICOTROPIN-RELEASING FACTOR)
<TABLE>
<CAPTION>
<S> <C> <C>
Peritumoral Brain Edema Multiple Phase I/II trials Reduction of edema and improvement
completed in neurological function
Phase II trial in progress Stabilization or improvement of
neurological symptoms
</TABLE>
SCIENTIFIC BACKGROUND
The Company's therapeutic focus is neuroprotection and neuromodulation: the
prevention and treatment of neurological impairment by preserving or restoring
neurological function of damaged neurons. The Company is developing
neuroprotective and neuromodulatory agents which may slow or reverse the
progressive neurological impairment associated with multiple nervous system
disorders, including diabetic neuropathy, brain cancer, and AIDS dementia
complex.
Neuroprotective compounds have been shown to protect neurons from injury in
laboratory experiments. Because neuronal injury contributes significantly to
functional impairment in many nervous system disorders, scientists believe that
such compounds are potentially powerful and flexible therapeutic agents.
Neuroprotective compounds are currently being tested in human clinical trials
conducted by multiple third parties for their ability to slow or halt
progressive functional neurologic impairment.
Common mechanisms of progressive neuronal injury are thought to result in
multiple neurologic symptoms such as chronic pain, motor difficulties, memory
loss and other cognitive deficits. By modulating such mechanisms,
neuroprotective agents may prevent or restore resulting loss of neurological
function. The Company's current scientific focus is on two mechanisms
contributing to progressive neuronal injury: excitotoxicity and edema. The
Company believes that Memantine prevents or ameliorates excitotoxicity, a
cascade of neuronal cell injury and death associated with the release of
abnormal levels of excitatory neurotransmitters. XERECEPT has the potential to
prevent the progressive neuronal injury resulting directly from cerebral edema
(swelling of the brain), damage that more frequently results in clinical
impairment than the damage due to the presence of a tumor.
PRODUCTS IN DEVELOPMENT
MEMANTINE
Memantine is an orally available neuromodulatory agent discovered by German
chemists and marketed in Germany since 1989 with the labeling "dementia
syndrome." It is one of a class of agents referred to as NMDA-receptor
antagonists. Scientific research has indicated that modulating the NMDA receptor
may protect against the neuronal injury and death associated with a number of
medical conditions. Accumulating evidence from several independent research
laboratories indicates that overstimulation of NMDA receptors contributes to the
injury and death of neurons. This occurs in a variety of chronic
neurodegenerative diseases including neuropathic pain, dementia, Alzheimer's
disease, and Huntington's disease. There are currently no approved
neuroprotective treatments for any of the pathologies associated with NMDA-
receptor overstimulation.
NTI is currently developing Memantine both as a treatment for neuropathic pain
as well as for the neurological deficits associated with AIDS. The Company
estimates that there are approximately 1,000,000 patients in the United States
suffering from intractable neuropathic pain. As many as one third of AIDS
patients eventually develop neurological problems, such as loss of cognition and
coordination.
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Nerve cells in the brain communicate by sending signals to excite or inhibit
each other. These signals are initiated by compounds known as
neurotransmitters. The principal excitatory neurotransmitter, glutamate, binds
to the NMDA receptor embedded in the cell membrane of the neuron. When
glutamate binds to the receptor, a channel in the neuron opens which enables
charged calcium molecules to flow freely into the neuron. Normally, the influx
of calcium triggers chemical reactions that cause the neuron to change its
electrical charge and fire a message to neighboring neurons. This basic
function of the NMDA receptor is essential for normal movement, sensation,
memory, and cognition. In certain medical conditions, glutamate levels
surrounding neurons are elevated, which results in overstimulation of the NMDA
receptor. In these situations, excessive amounts of calcium enter the neuron,
causing it to swell and burst, releasing internally stored glutamate into the
surrounding area. This glutamate further stimulates NMDA receptors on
neighboring neurons, causing a cascade of neuronal cell injury and/or death
throughout the area, referred to as excitotoxicity.
Neuroscientists have been trying to find a way to prevent the damaging influx of
excess calcium into neurons. One approach is to prevent glutamate from binding
to the receptor. This can be accomplished by using either a competitive NMDA-
receptor antagonist which prevents glutamate from binding to the receptor, or a
closed NMDA-receptor channel blocker, which binds to the entrance of the closed
channel. However, if such compounds prevent the channel from opening for too
long, they may impede the normal functioning of the NMDA receptor, causing side
effects including hallucinations, paranoia, delirium, and amnesia.
In the United States, scientists affiliated with Children's Hospital of Boston,
Massachusetts working on the function of the NMDA receptor found Memantine to
have an excellent profile in modulating the NMDA receptor's calcium ion channel.
Memantine binds uncompetitively to the NMDA receptor and appears to interfere
relatively little with normal functioning, while reducing the abnormal signals
associated with excessive calcium influx. Rather than blocking the NMDA
receptor for long periods of time, Memantine appears to restore regulation of
the channel to near normal activity, permitting routine neurotransmission.
The profound psychotic side effects associated with other NMDA receptor
antagonists previously evaluated by third parties in human clinical trials have
very rarely been reported with Memantine. Merz has carefully documented
Memantine's history of safe clinical use in Germany over years of post-launch
clinical experience and active surveillance. In a post-marketing surveillance
study sponsored by Merz with 1,420 dementia outpatients treated for up to more
than one year, Memantine was rated as having very good to good tolerability in
93.8% of the cases at the end of the observation period.
PRODUCT DEVELOPMENT STATUS
The Neuropathic Pain of Diabetes
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Diabetes mellitus is a chronic disorder which affects an estimated 16 million
Americans. One of its most common complications is nerve damage, particularly
damage to peripheral nerves that send sensory signals from the extremities to
the central nervous system ("CNS"). This condition, referred to as diabetic
peripheral neuropathy, is a large, unmet medical need. This condition most
frequently damages nerves in the feet, making walking or standing painful and
difficult. The Company estimates that approximately 800,000 patients in the
United States currently receive treatments for the symptoms of diabetic
peripheral neuropathy, including severe, chronic pain known as neuropathic pain
(persistent pain in the absence of an obvious stimulus). As the neuropathy
progresses, the sensation of pain may become more intense, encompass more areas,
and become increasingly difficult to treat with available therapeutic agents.
Peripheral nerve damage disrupts pain pathways in the nervous system, causing
peripheral nerves to send abnormal signals that the brain interprets as pain.
In effect, neurons in the CNS are bombarded with abnormal signals until their
ability to process pain signals is compromised. This leads to progressive
neuronal injury in the CNS and the hyper-sensitization of neurons to pain
impulses. Although the precise mechanisms of these events are not completely
understood, scientists believe that overactivation of NMDA receptors in the CNS
plays an important role.
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Memantine has been shown to inhibit abnormal pain signals through its modulation
of the NMDA receptor in several animal models of neuropathic pain. Based on the
results of these studies, the Company initiated and completed a 122-patient
placebo-controlled Phase IIA human clinical trial of Memantine in patients with
neuropathic pain due to diabetes or post-herpetic neuralgia (a complication of
shingles). No treatment benefit was observed in patients with post-herpetic
neuralgia. Trends indicating efficacy of Memantine were observed in patients
with diabetic neuropathy, however. The strongest efficacy trend was the
reduction of nocturnal pain associated with diabetic peripheral neuropathy.
Nocturnal pain is a major problem for these patients, frequently leading to
insomnia and associated health and psychological problems. After eight weeks of
treatment in the Company's clinical trial, subjects dosing with Memantine
reported a mean nocturnal pain rating of 31.2 millimeters (on a visual analogue
scale of 1-100 millimeters) compared to a mean of 44.4 millimeters for those who
received placebo. The difference between these means indicates that the
Memantine-treated subjects had 42% less nocturnal pain than those treated with
placebo. The results for the other primary variables of daytime pain and pain
relief, although not statistically significant, exhibited consistent trends
representative of the analgesic benefit with Memantine compared to placebo.
Based on the results from the Company's Phase IIA trial of Memantine in patients
with neuropathic pain, the Company is preparing to initiate a 375-patient dose-
ranging placebo-controlled Phase IIB trial of Memantine exclusively in patients
with diabetic neuropathy. The primary evaluation as defined in discussions with
the FDA will be to compare the difference in nocturnal pain between Memantine-
treated and placebo-treated patients as measured by patient self-assessment.
The trial design will be structured to identify the optimal Memantine dose and
to provide clinically and statistically significant data that will be acceptable
to worldwide regulatory authorities.
AIDS: Dementia and Neuropathic Pain
- -----------------------------------
Recent research indicates that infection of the CNS with HIV, the virus
associated with AIDS, also leads to neuronal damage. Such damage may result in
neurological complications, including loss of cognition, movement, and
sensation, referred to as AIDS dementia complex. Approximately one-half of
children and one-third of adults with AIDS are expected to develop these
symptoms. There are currently no therapies specifically directed towards HIV-
associated neuronal damage. Current AIDS therapies, even if effective at
reducing the circulating virus level, do not appear to be effective at
eliminating AIDS-induced damage to the CNS.
Besides the AIDS-related cognitive impairments, many AIDS patients experience
painful peripheral neuropathies due to overstimulation of the NMDA receptors.
This often occurs in the later stages of AIDS and results in a burning pain of
the feet as well as pain from anything that touches the skin. Walking in
particular may become extremely difficult. Effective treatments are still
unavailable for this incapacitating condition and certain AIDS therapies may
aggravate this type of neuropathic pain.
Memantine has been shown to reduce NMDA receptor-mediated neuronal damage in
both in vitro (outside the body) experiments and in in vivo animal models. The
neuronal injury caused by AIDS was shown to be modified by antagonists of the
NMDA receptor, including Memantine.
In December 1996, the Company announced the start of a Phase II clinical trial
that is being conducted by the AACTG, a clinical trials consortium associated
with the Division of AIDS of the NIH. Patient enrollment in this trial
accelerated in 1998. The trial is evaluating Memantine's ability to provide
relief from dementia and neuropathic pain symptoms in AIDS patients. The trial
protocol submitted under the Company's Investigational New Drug ("IND")
application calls for the enrollment of 120 AIDS patients with symptoms of
dementia, all of whom will have been treated with an FDA-approved anti-
retroviral drug for at least six weeks prior to study entry. The Company is
supplying Memantine for the trial and will have the right to use the resulting
data to further the commercial development of Memantine.
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Partnership with Merz and Additional Indications
- ------------------------------------------------
In April 1998, the Company entered into a strategic research and marketing
partnership with Merz + Co. GmbH & Co. of Frankfurt, Germany and a new revenue
sharing partnership with Children's Medical Center Corporation of Boston,
Massachusetts, to further the clinical development and commercialization of
Memantine. Pursuant to this new collaboration, Children's Medical Center
Corporation terminated its existing license to NTI for AIDS-related dementia
and neuropathic pain and granted exclusive rights to Merz. In exchange, NTI
received an up-front payment of $2.1 million from Merz. NTI and Merz will pool
scientific, clinical and regulatory information about Memantine, particularly
safety data, to facilitate regulatory review and marketing approval by the FDA
and foreign regulatory authorities.
Merz is currently conducting a series of advanced clinical trials for moderate
to severe dementia and Alzheimer's disease. Merz has completed a positive
pivotal Phase III trial of Memantine for dementia in Europe, has two Phase III
trials in process and will institute a Phase III trial in the U.S. in the third
quarter of calendar 1998. At the 6th International Conference on Alzheimer's
Disease and Related Disorders held in Amsterdam in July 1998, Merz presented
positive results from a double-blind placebo-controlled 166-patient clinical
trial of Memantine for severe dementia. In this trial, patients treated with
Memantine for 12 weeks had statistically significant improvements in standard
measures of functional independence, including washing, bathing, dressing and
group activities, as compared to patients in the placebo group. Memantine was
well tolerated in these subjects. Pursuant to their collaboration with Merz, NTI
and Children's Medical Center Corporation will share in future revenue from
sales of Memantine for treatment of dementia, Alzheimer's disease and
neuropathic pain, indications which Merz is developing.
XERECEPT(TM) (HUMAN CORTICOTROPIN-RELEASING FACTOR)
XERECEPT(TM) is the Company's synthetic preparation of the human peptide
Corticotropin-Releasing Factor (CRF) which the Company is developing as a
treatment for brain swelling due to brain tumors (peritumoral brain edema). The
Company believes that XERECEPT may be demonstrated to be a safer treatment than
synthetic corticosteroids, which are associated with serious adverse side
effects including muscle wasting, osteoporosis, hyperglycemia, vision problems,
and psychosis. Results from preclinical studies and pilot human clinical trials
previously sponsored by the Company have demonstrated the compound's potential
to reduce swelling of brain tissue and to be well-tolerated and apparently safe.
Thus, XERECEPT has the potential to significantly improve the quality of life
for brain cancer patients with dysfunction due to brain swelling.
In the United States, approximately 30,000 patients are diagnosed every year
with primary brain tumors. Patients with this condition are in need of a safe
alternative to corticosteroids, which have serious adverse effects at the high,
chronic doses required for efficacy. The FDA has approved the Company's
application for orphan drug designation for XERECEPT to treat this unmet medical
need. Orphan drug designation provides NTI with seven years market exclusivity
and makes the Company eligible to receive federal monies for clinical research
under the Orphan Drug Grant Program.
CRF is a natural neuroendocrine peptide hormone found both centrally (within the
brain) and peripherally (outside the brain). Researchers discovered novel anti-
edema affects of CRF when administered systemically. Research by NTI scientist
collaborators has revealed that XERECEPT significantly reduces edema or swelling
of damaged tissue in animal models. Edema is a condition characterized by
swelling after tissue injury when fluid, plasma proteins, and white blood cells
flow from small blood vessels into the surrounding tissues, further contributing
to the destruction of these tissues. Preclinical studies sponsored by the
Company have shown that XERECEPT reduces the flow of fluid through blood vessels
at sites of traumatic tissue injury. Specifically, the Company has shown that
XERECEPT injected systemically into animals can reduce brain edema after injury,
brain edema associated with cancer tumors, and swelling in muscle tissue
following surgical trauma.
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PRODUCT DEVELOPMENT STATUS
Peritumoral Brain Edema
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The Company is initially evaluating XERECEPT for the treatment of cerebral edema
caused by brain tumors. In these patients, the tumor promotes increased
permeability of the small blood vessels in the brain resulting in the excess
flow of fluids into the brain, swelling of brain tissue, and a consequent
impairment of neurological function. Current therapy for the treatment of
peritumoral brain edema, primarily corticosteroids, has serious adverse side
effects at the high, chronic doses required for efficacy. Reactions can include
muscle wasting, immunosuppression, osteoporosis, hyperglycemia, glaucoma, and
other potentially dose-limiting side effects.
Although endogenous CRF is involved in stimulating the release of natural
corticosteroids, studies sponsored by the Company have shown that XERECEPT
exerts its anti-edema action independent of cortisol release when administered
systemically.
Based on the pharmacologic profile of XERECEPT, the Company believes that the
compound may be efficacious without the adverse side effects associated with
current therapies. XERECEPT has been safely administered to several hundred
healthy volunteers and patients according to numerous studies published by third
parties. In human clinical trials sponsored by the Company, XERECEPT was well
tolerated and appeared to be safe when administered in more than 230 courses of
treatment.
In September 1997, the Company initiated a Phase II human clinical trial to
evaluate the efficacy of XERECEPT to stabilize or improve neurological symptoms
caused by peritumoral brain edema. Patient enrollment is continuing, and the
trial is expected to enroll a total of 90 patients with malignant brain tumors.
These patients must have neurological symptoms requiring stable dosing of
synthetic corticosteroids, the current standard treatment.
In this trial, the Company seeks to confirm and extend results of its Phase I/II
trials of XERECEPT for this indication. Data from such a trial were published
in the January 1998 issue of the peer-reviewed journal Annals of Oncology. In
this trial, 10 of 15 subjects treated with XERECEPT experienced clinical
improvement in neurological symptoms such as seizures, muscle weakness, loss of
coordination, and double vision. In another pilot Phase I/II trial conducted by
the Company, 6 of 7 subjects treated with XERECEPT showed similar improvements,
including an average objective improvement of 42% in their National Cancer
Institute Neurological Exam scores compared with their baseline scores.
Additional Indications
- ----------------------
During 1997, the Company also examined the potential and feasibility of XERECEPT
to treat patients with traumatic brain injury ("TBI"), and secured the
preliminary agreement of the American Brain Injury Consortium ("ABIC"), a
network of over 160 clinical trial centers, to collaborate to initiate a Phase
II human clinical trial for this indication. In TBI patients, tissue damage
results in brain swelling, subsequent decreased flow of blood to the brain, and
decreased brain function. In several animal models of traumatic brain injury,
XERECEPT significantly reduced brain water content shortly after injury and
significantly improved neurologic recovery during the month following an injury.
In order to focus resources on the clinical development of Memantine for
diabetic neuropathic pain, the Company postponed plans to initiate a Phase II
human clinical trial for TBI.
Though the Company had previously investigated the anti-inflammatory potential
of XERECEPT, it is no longer actively pursuing anti-inflammatory indications in
order to focus its efforts on XERECEPT as a treatment for peritumoral brain
edema.
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PATENTS AND PROPRIETARY TECHNOLOGY
Patents and other proprietary rights are critical to the Company's business.
The Company's policy is to file patent applications seeking to protect
technology, inventions and improvements to its inventions that are considered
important to the development of its business. The Company has also sought to
obtain, and intends to continue to seek, licenses from third parties to patent
rights covering the technology, inventions and improvements that the Company
considers important to the development of its business. The Company is
obligated to pay royalties pursuant to these license agreements and would be
responsible for the costs of patent prosecution of a number of the patent
applications to which it has exclusive licenses. In addition, most of the
license agreements can be terminated by the licensor if the Company does not
demonstrate diligence in commercializing the licensed rights.
The Company may be required to obtain additional licenses from third parties in
order to continue to develop its existing product candidates and to expand its
product development program. There can be no assurance that such licenses will
be available on commercially reasonable terms, if at all.
The patent positions of pharmaceutical and biotechnology companies, including
NTI, are uncertain and involve complex legal and factual questions. In
addition, the coverage claimed in a patent application can be significantly
reduced before a patent is issued. Consequently, the Company does not know
whether any of its patent applications, or the patent applications it has
licensed from others, will result in the issuance of patents or if any of the
patents which have issued or may issue will provide significant proprietary
protection. Since patent applications are maintained in secrecy until patents
issue in the United States or their foreign counterparts, if any, are published,
the Company cannot be certain that it or any licensor was the first to file
patent applications for such inventions. Moreover, the Company might have to
participate in interference proceedings declared by the U.S. Patent and
Trademark Office to determine priority of invention, which could result in
substantial cost to the Company, even if the eventual outcome was favorable.
There can be no assurance that the Company's patents, or the patents which the
Company has licensed, will be held valid or enforceable by a court or that a
competitor's technology or product would be found to infringe such patents.
A number of pharmaceutical and biotechnology companies and research and academic
institutions have developed technologies, filed patent applications or received
patents on various technologies that may be related to the Company's business.
Some of these technologies, applications or patents may conflict with the
Company's or any of its licensors' technologies or patent applications. Such
conflict could limit the scope of the patents, if any, that the Company may be
able to obtain or to which it has a license or result in the denial of the
Company's patent applications or the patent applications which the Company has
licensed. In addition, if patents that cover the Company's activities have been
or are issued to other companies, there can be no assurance that the Company
would be able to obtain licenses to these patents, at all, or at a reasonable
cost, or be able to develop or obtain alternative technology.
In addition to patent protection, the Company relies upon trade secret
protection for its confidential and proprietary information. There can be no
assurance that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the Company's
trade secrets or disclose such technology or that the Company can meaningfully
protect its trade secrets.
MEMANTINE
In April 1998, in connection with the Company's partnership with Merz, the
Company's exclusive license from Children's Medical Center Corporation to a
series of patents and patent applications relating to certain non-ophthalmic
uses of Memantine was terminated.
XERECEPT
The Company holds non-exclusive worldwide licenses to four issued U.S. patents
covering the composition of matter of XERECEPT and various analogues, together
with certain foreign patents and patent applications.
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The Company also has exclusive rights to four issued patents and one patent
application covering uses of XERECEPT and analogues. The Company is responsible
for the costs of prosecuting the patent applications related to XERECEPT for
which it has exclusive rights. In addition to the patents and pending
applications the Company has licensed from others, the Company holds U.S. Patent
No. 5,870,430 entitled "Pharmaceutical Formulations of Corticotropin-Releasing
Factor Having Improved Stability in Liquid Form" which covers certain liquid
formulations of CRF and CRF-related peptides.
MANUFACTURING
NTI currently is being supplied Memantine by its corporate collaborator, Merz.
NTI also uses outside contractors to manufacture compounds for the Company's
other pre-clinical studies and clinical trials. The manufacturers of clinical
products have represented to the Company that they are qualified to produce
drugs under FDA regulations and that they follow current Good Manufacturing
Practice ("cGMP"). The Company performs audits on its contractors who supply
XERECEPT from time to time to assess compliance with the cGMP regulations.
XERECEPT is manufactured by established methods using chemical synthesis and are
manufactured to NTI specifications. Alternative cGMP suppliers of the bulk
drugs and of finished dosage form products are available to the Company. The
Company currently has no plans to build or develop an in-house manufacturing
capability.
GOVERNMENT REGULATION
Regulation by governmental authorities in the United States and other countries
will be a significant factor in the production and marketing of any products
which may be developed by the Company. The nature and the extent to which such
regulation may apply to the Company will vary depending on the nature of any
such products. All of the Company's products will require regulatory approval
prior to commercialization. In particular, human therapeutic products are
subject to rigorous preclinical and clinical testing and other FDA requirements
in the United States and similar health authorities in foreign countries.
Various federal and, in some cases, state statutes and regulations also govern
or influence the manufacturing, safety, labeling, storage, recordkeeping and
marketing of such products, including the use, manufacture, storage, handling
and disposal of hazardous materials and certain waste products. The process of
obtaining these approvals and the subsequent compliance with appropriate
federal, state and foreign statutes and regulations require the expenditure of
substantial resources. The Company cannot yet accurately predict when it might
first submit for approval any products to the FDA or other regulatory review
agency.
In order to clinically test, produce and market products for diagnostic or
therapeutic use, a company must comply with mandatory procedures and safety
standards established by the FDA and comparable agencies in foreign countries.
Before beginning human clinical testing of an investigational new drug in the
United States, a company must file an IND and receive no objection from the FDA.
This application is a summary of the preclinical studies which were carried out
to characterize the drug, including toxicity and safety, as well as an in-depth
discussion of the human clinical studies which are being proposed.
The human clinical testing program required for approval by the FDA of an
investigational new drug typically involves a time-consuming and costly three-
phase process. In Phase I, clinical trials are conducted with a small number of
patients or healthy volunteers to determine the early safety profile and the
pattern of drug distribution and metabolism. Phase II clinical trials are
conducted with groups of patients afflicted with a target disease in order to
determine preliminary efficacy, optimal dosage and expanded evidence of safety.
When initial human testing is performed in patients afflicted with the disease,
rather than healthy volunteers, such studies may provide preliminary evidence of
efficacy traditionally obtained in Phase II trials. Such trials are frequently
referred to as "Phase I/II" trials. In Phase III, large-scale, multi-center,
comparative clinical trials are conducted with patients afflicted with the
specific disease in order to provide enough data for statistical proof of
efficacy and safety required by the FDA and non-U.S. regulatory agencies.
The FDA closely monitors the progress of each of the three phases of clinical
testing and may, at its discretion, reevaluate, alter, suspend or terminate the
testing based on the data which have been accumulated
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to that point and its assessment of the risk/benefit ratio to the patient.
Estimates of the total time required for carrying out such clinical testing vary
between two and ten years. The rate of completion of the Company's clinical
trials is dependent upon, among other factors, the rate of patient enrollment.
Patient enrollment is a function of many factors, including the size of the
patient population, the nature of the protocol, the proximity of patients to
clinical sites and the eligibility criteria for the study. Delays in planned
patient enrollment in clinical trials may result in increased costs and delays,
which could have a material adverse effect on the Company.
Upon completion of clinical testing, a company typically submits a New Drug
Application ("NDA") to the FDA which summarizes and analyzes the results and
observations of the clinical trials. The NDA also provides detailed
manufacturing information. Based on its review of the NDA, the FDA will decide
whether or not to approve the drug. This review process can be quite lengthy,
and approval may not be granted at all. Thus, the process of seeking and
obtaining approval for the marketing of a new pharmaceutical product can require
a number of years and substantial funding. There can be no assurance that any
approvals will be granted on a timely basis, if at all. Among the requirements
for product approval is the requirement that each domestic manufacturer of the
product conform to the FDA's cGMP regulations, which must be followed at all
times. In complying with standards set forth in these regulations,
manufacturers must continue to expend time, money and effort in the area of
production and quality control to ensure full technical compliance.
Once the sale of a product is approved, FDA regulations govern the manufacturing
process and marketing activities, and a post-marketing testing and surveillance
program may be required to continuously monitor a product's usage and effects.
Product approvals may be suspended or withdrawn if compliance with regulatory
standards is not maintained. Other countries, in which any products developed
by the Company may be marketed, impose a similar regulatory process. For
marketing outside the United States, the Company also is subject to foreign
regulatory requirements governing human clinical trials and marketing approval
for drugs. The requirements governing the conduct of clinical trials, product
licensing, pricing and reimbursement vary widely from country to country.
COMPETITION
Competition in the biopharmaceutical industry is intense and is expected to
increase. The development and sale of drugs for the treatment of the
therapeutic targets being pursued by the Company is highly competitive. There
are existing therapies under development for each of these therapeutic targets.
There can be no assurance that the Company will develop products that will be as
efficacious or as cost-effective as currently-marketed products. The Company
has both exclusive and non-exclusive licenses to patent rights covering certain
uses of XERECEPT. Consequently, others may develop, manufacture and market
products that could compete with those being developed by the Company.
The Company will be faced with intense competition from pharmaceutical, chemical
and biotechnology companies both in the United States and abroad in its attempt
to discover, develop and market such drugs. Companies that complete clinical
trials, obtain required regulatory approvals and commence commercial sales of
their products before their competitors may achieve a significant competitive
advantage. In addition, significant levels of research in biotechnology and
medicine occur in universities and other nonprofit research institutions. These
entities have become increasingly active in seeking patent protection and
licensing revenues for their research results.
The Company believes that its ability to compete successfully will depend on its
ability to create and maintain scientifically advanced technology, develop
proprietary products, attract and retain scientific personnel, obtain patent or
other protection for its products, obtain required regulatory approvals and
manufacture and successfully market products either alone or through other
parties. Most of the Company's competitors have substantially greater
financial, marketing and human resources than those of the Company. Therefore,
the Company expects to encounter significant competition.
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HUMAN RESOURCES
As of June 30, 1998, the Company had reduced its workforce to 13 people, many of
whom are employed part time, compared to 22 employees as of June 30, 1997.
These workforce reductions are a result of the Company's strategic planning
process in fiscal 1998, in which drug development expenditures were limited to
only two drug candidates.
It is the Company's policy that each employee enter into a confidentiality
agreement which contains provisions generally prohibiting the disclosure of
confidential information to anyone outside the Company and requiring disclosure
to the Company of ideas, developments, discoveries or inventions conceived
during employment and assignment to the Company of proprietary rights to such
matters related to the business and technology of the Company.
RISKS ASSOCIATED WITH PRODUCT DEVELOPMENT
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
Since 1987 when NTI was founded, the Company has applied a majority of its
resources to its research and development programs. The Company is a
development stage company and has not received any revenue from the sale of
products. The Company has incurred losses since its inception and expects to
incur substantial, increasing losses due to ongoing and planned research and
development efforts. As part of the strategic planning process, the Company has
limited expenditures to only two drug candidates. The Company will need to
obtain additional financing to continue operations beyond the first quarter of
fiscal 1999. The Company intends to seek such funding through public or private
financings, collaborative or other arrangements with corporate partners, or from
other sources. There can be no assurance that additional financing will be
available from any of these sources, or, if available, that it will be available
on acceptable terms. The Company may seek to raise additional funds whenever
market conditions so permit. If additional funds are raised by issuing equity
securities, further significant dilution to existing shareholders may result. If
adequate funds are not available, the Company may be required to delay, scale
back, or eliminate one or more of its research, discovery, or development
projects or to obtain funds through entering into arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies, product candidates or products that the
Company would not otherwise relinquish.
Further, the Company will require substantial additional funds to conduct the
research and development and preclinical and clinical testing of its potential
products and to market any products that may be developed. Although the Company
currently plans to contract with third parties to manufacture clinical and
commercial scale quantities of its potential products, to the extent the Company
subsequently determines to establish its own manufacturing facilities, the
Company will require substantial additional capital. The Company's future
capital requirements will depend on numerous factors, including the amount of
royalties received from Merz for future sales of Memantine; the progress of the
Company's research, preclinical development and clinical development programs;
the time and cost involved in obtaining regulatory approvals; the cost of
filing, prosecuting, defending, and enforcing patent claims and other
intellectual property rights; competing technological and market developments;
changes in the Company's existing research relationships; the ability of the
Company to establish collaborative relationships; the development of
commercialization activities and arrangements; and the purchase of additional
capital equipment.
GOING CONCERN DISCLOSURE IN INDEPENDENT AUDITORS' REPORT
The report of the Company's independent auditors with respect to the Company's
financial statements included in this Form 10-KSB includes a paragraph which
indicates that, as more fully described in the financial statements, the
Company's recurring losses during the development stage raise substantial doubt
about the Company's ability to continue as a going concern. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Notes to Financial Statements."
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EARLY STAGE OF DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY
NTI is at an early stage of development and currently has no marketed products.
All of the Company's potential products are in research, preclinical development
or clinical development, and no revenues have been generated from product sales.
To date, most of the Company's resources have been dedicated to the research and
development of selected candidate pharmaceutical products, and there can be no
assurance that the Company will be able to develop a candidate product that will
receive required regulatory approvals or be successfully commercialized. The
Company is currently evaluating two potential products in Phase II clinical
trials. Results attained in preclinical studies and in such early stage
clinical trials are not necessarily indicative of results that will be obtained
upon further human clinical testing. Although recently completed trials of
Memantine indicated effectiveness in relieving painful diabetic neuropathy,
larger clinical trials will be required. There can be no assurance that, if
trials are conducted, they will be successful in confirming Memantine's
efficacy.
The Company's potential products are subject to the risks of failure inherent in
the development of products based on new technologies. These risks include the
possibilities that any or all of the potential products will be found to be
unsafe, ineffective or toxic, or otherwise fail to receive necessary regulatory
clearances; that the products, if safe and effective, will be difficult to
manufacture on a large scale or uneconomical to market; that proprietary rights
of third parties will preclude the Company from marketing products; or that
third parties market or will market superior or equivalent products. There can
be no assurance that the Company's development activities will result in any
commercially viable products. The Company does not expect to be able to
commercialize any products for a number of years, if at all.
DEPENDENCE ON MERZ AND ON OTHER THIRD PARTIES
The Company has only limited internal resources and thus the Company has relied
and will continue to rely heavily on others for research, development,
manufacture and commercialization of its potential products. With respect to
Memantine, the Company is dependent on Merz for the manufacturing and supply of
drug for the Company's human clinical trials, and the successful
commercialization of the product to treat neuropathic pain and AIDS-related
dementia. The only revenues that the Company will receive in the future for
Memantine are royalties received on product sales by Merz. Any failure by Merz
to successfully commercialize Memantine after its development will have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company has entered into various arrangements (many of which are non-
exclusive) with consultants, academic collaborators, licensors, licensees,
contractors and others, and it is dependent upon the level of commitment and
subsequent success of these outside parties in performing their
responsibilities. Certain of these agreements place responsibility for
preclinical testing and human clinical trials and for preparing and submitting
submissions for regulatory approval for potential products on the collaborator,
licensor or contractor. Should such collaborator, licensor or contractor fail
to perform, the Company's business may be adversely affected.
The Company has entered into certain agreements and licenses with third parties,
a number of which require the Company to pay royalties and make other payments.
Failure by the Company to make such payments could cause the Company to lose
rights to technology or data under these agreements.
The Company has relied on scientific, technical, clinical, commercial and other
data supplied and disclosed by others in entering into these agreements and will
rely on such data in support of applications to enter human clinical trials for
its potential products. Although the Company has no reason to believe that this
information contains errors or omissions of fact, there can be no assurance that
there are no errors or omissions of fact that would change materially the
Company's view of the future likelihood of FDA approval or commercial viability
of these potential products.
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GOVERNMENT REGULATION AND PRODUCT APPROVAL
The FDA and state and local agencies, and comparable agencies and entities in
foreign countries impose substantial requirements on the manufacturing and
marketing of human therapeutics through lengthy and detailed laboratory and
clinical testing procedures, sampling activities and other costly and time
consuming procedures. Satisfaction of these requirements typically takes many
years and varies substantially based on the type, complexity, and novelty of the
drug. The effect of government regulation may be to delay for a considerable
period of time or prevent the marketing of any product that the Company may
develop and/or to impose costly procedures upon the Company's activities, the
result of which may be to furnish an advantage to its competitors. There can be
no assurance that FDA or other regulatory approval for any products developed by
the Company will be granted on a timely basis or at all. Any such delay in
obtaining or failure to obtain such approvals would adversely affect the
marketing of the Company's proposed products and its ability to earn product
revenues or royalties. In addition, success in preclinical or early stage
clinical trials does not assure success in later stage clinical trials. As with
any regulated product, additional government regulations may be promulgated
which could delay regulatory approval of the Company's potential products.
Adverse government regulation which might arise from future legislation or
administrative action cannot be predicted.
UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend, in large part, on its ability to obtain or
license patents, protect trade secrets and operate without infringing upon the
proprietary rights of others. There can be no assurance that any of the patent
applications licensed to the Company will be approved, that the Company will not
be challenged by others, or that the patents of others will not impair the
ability of the Company to do business.
The patent position of biotechnology firms generally is highly uncertain,
involving complex legal and factual questions, and has recently been the subject
of much litigation. No consistent policy has emerged from the United States
Patent and Trademark Office regarding the breadth of claims allowed or the
degree of protection afforded under biotechnology patents. Finally, there can
be no assurance that others will not independently develop similar products,
duplicate any of the Company's potential products, or design around any
potential patented products of the Company. As a result, there can be no
assurance that patent applications relating to the Company's potential products
or processes will result in patents being issued, or that patents, if issued,
will provide protection against competitors who successfully challenge the
Company's patents, obtain patents that may have an adverse effect on the
Company's ability to conduct business, or be able to circumvent the Company's
patent position. In view of the time delay in patent approval and the secrecy
afforded United States patent applications, the Company does not know if other
applications that would have priority over the Company's applications have been
filed.
MANUFACTURING LIMITATIONS
The Company's potential products will need to be manufactured under the current
Good Manufacturing Practices requirements prescribed by the FDA. The Company
does not have its own manufacturing facilities. The Company has established
arrangements with its corporate collaborator, Merz, and with contract
manufacturers to supply potential products for preclinical and clinical trials
and intends to establish similar arrangements for the manufacture, packaging,
labeling and distribution of products, if approved for marketing. If the
Company's contractors are unable to supply sufficient quantities of product
candidates manufactured in accordance with cGMP on acceptable terms, the
Company's preclinical and human clinical testing schedule would be delayed. 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, collaborators and contract manufacturers that the
Company may use must adhere to cGMP regulations enforced by the FDA through its
facilities inspection program. If these facilities cannot pass a pre-approval
plant inspection, the FDA pre-market approval of the products would be adversely
affected. The Company's dependence on third parties for the manufacture of
products
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may adversely affect the Company's results of operations and its ability to
develop and deliver products on a timely and competitive basis.
RISK OF PRODUCT LIABILITY
Clinical trials or marketing of any of the Company's potential products may
expose the Company to liability claims from the use of such products. The
Company's product liability insurance does not cover commercial sales of
products. The Company has a limited amount of product liability insurance to
cover liabilities arising from clinical trials. There can be no assurance that
the Company's insurance will be adequate to cover any liabilities arising from
the Company's clinical trials, that the Company will be able to obtain product
liability insurance covering commercial sales or, if obtained, that sufficient
coverage can be acquired at a reasonable cost. An inability to obtain insurance
at acceptable cost or otherwise protect against potential product liability
claims could prevent or inhibit commercialization of any products developed by
the Company.
DEPENDENCE ON QUALIFIED PERSONNEL AND ADVISORS
The Company is highly dependent upon its scientific and management staff and on
consultants and advisors, the loss of whose services might significantly delay
the achievement of planned development objectives. During fiscal year 1998, the
Company reduced its workforce from 22 to 13 persons, many of whom are employed
part time. The Company believes that this reduction in force has not damaged
its ability to manage ongoing human clinical trials. However, the reduction in
force could have a material adverse effect on the Company's operations.
In addition, the Company is dependent on collaborators at research institutions.
Recruiting and retaining qualified personnel, collaborators, advisors and
consultants will be critical to the Company's success. There is intense
competition for such qualified personnel in the area of the Company's
activities, and there can be no assurance that the Company will be able to
continue to attract and retain the personnel necessary for the development of
the Company's business. The inability to acquire services or to develop needed
expertise could have a material adverse effect on the Company's operations.
VOLATILITY OF STOCK PRICE AND DELISTING OF STOCK
The market price of the shares of the Company's Common Stock, like that of the
common stock of many other biopharmaceutical companies, has been and is likely
to continue to be, highly volatile. Factors such as the results of preclinical
studies and clinical trials by the Company, or its competitors, other evidence
of the safety or efficacy of products of the Company or its competitors,
announcements of technological innovations or new therapeutic products by the
Company or its competitors, government regulation, health care legislation,
developments in patent or other proprietary rights of the Company or its
competitors including litigation, fluctuations in the Company's operating
results, and market conditions for life sciences stocks in general could have a
significant adverse impact on the future price of the Common Stock. In
addition, the average daily trading volume of the Company's Common Stock
during fiscal 1998 has been low compared to that of other biopharmaceutical
companies.
The Company's Common Stock was delisted from The Nasdaq Stock Market in February
1998 because the Company failed to meet the financial conditions necessary to
remain listed. The delisting has adversely affected, and is expected to
continue to adversely affect, the trading volume and price volatility of the
Company's stock. The Company's Common Stock is now quoted on the OTC-Bulletin
Board(R) under the symbol NTII.
ITEM 2. PROPERTIES
The Company's executive offices are located in Richmond, California. Pursuant
to an amendment to its lease dated May 15, 1998, the Company decreased its
occupied office space from 12,500 square feet to 6,912 square feet. The lease,
which commenced in April 1995, is now renewable on a year-to-year basis.
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ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the
fourth quarter of the fiscal year ended June 30, 1998.
PART II.
ITEM 5. MARKET PRICE OF NTI COMMON STOCK; DIVIDENDS
Since February 1998, the Company's Common Stock has been quoted on the Over-the-
Counter (OTC) Bulletin Board(R), an electronic stock listing service provided by
The Nasdaq Stock Market, Inc., under the symbol NTII. The Company's Common
Stock was delisted from the Nasdaq National Market during the second quarter of
fiscal 1998 and subsequently traded on the Nasdaq SmallCap Market under the
symbol NTIIC, until it was delisted during the third quarter of fiscal 1998.
As of June 30, 1998 there were approximately 240 holders of record of the
Company's Common Stock and 7,553,699 shares of Common Stock outstanding. No
dividends have been paid on the Common Stock since the Company's inception, and
the Company does not anticipate paying any dividends in the foreseeable future.
The price range of the Company's Common Stock during the past two fiscal years
is shown below.
<TABLE>
<CAPTION>
Fiscal 1997 High Low
- ------------------------------------------------------------------------
<S> <C> <C>
First Quarter $7.00 $3.62
Second Quarter $5.12 $3.37
Third Quarter $3.62 $1.62
Fourth Quarter $2.75 $1.56
Fiscal 1998 High Low
- ------------------------------------------------------------------------
First Quarter $3.63 $1.56
Second Quarter $3.56 $0.44
Third Quarter* $1.28 $0.47
Fourth Quarter* $1.50 $0.69
</TABLE>
*Subsequent to the delisting of the Company's Common Stock from The Nasdaq
SmallCap Market in February 1998, high and low prices given here refer to the
high and low bid quoted on the (OTC) Bulletin Board(R), rather than the high and
low closing price of the stock.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Neurobiological Technologies, Inc. is an emerging drug development company
focused on the clinical evaluation and regulatory approval of neuroscience
drugs. NTI develops neuroprotective and neuromodulatory agents to treat
progressive neurological impairments characteristic of various nervous system
disorders, including diabetic neuropathy, brain cancer, and AIDS dementia
syndrome.
The Company's strategy is to in-license and develop early-stage drug candidates
that target major medical needs and which can be rapidly commercialized. The
Company's experienced management team oversees the human clinical trials
necessary to establish preliminary evidence of efficacy and seeks partnerships
with pharmaceutical and biotechnology companies for late-stage development and
marketing of its product candidates. The Company currently has two product
candidates in Phase II human clinical testing: Memantine and XERECEPT.
Memantine, an orally available compound, acts to modulate the NMDA receptor in
the central nervous system. Modulating the NMDA receptor may protect against
neuronal injury associated with a number of neurodegenerative conditions
including dementia, Alzheimer's disease, neuropathic pain, and AIDS. Memantine
has been marketed in Germany since 1989 by Merz with the labeling "dementia
syndrome." NTI is currently preparing to initiate a 375-patient Phase IIB human
clinical trial of Memantine to evaluate the analgesic efficacy and safety of
Memantine in diabetic patients who experience neuropathic pain (persistent pain
resulting from abnormal signals to the brain) due to peripheral neuropathy. In
this Phase IIB trial, the Company seeks to confirm and extend the results of its
completed controlled Phase IIA trial of Memantine in patients with neuropathic
pain due to diabetes or post-herpetic neuralgia (a complication of shingles).
Although reduction in pain symptoms was not seen in post-herpetic patients, the
results from this trial indicated Memantine to be potentially effective in
relieving diabetic neuropathic pain. Memantine is also currently being
evaluated as a treatment for AIDS-related dementia in a Phase II human clinical
trial funded by NIH. NTI is supplying the drug for the trial and will have the
right to use the resulting data for the commercial development of Memantine.
In April 1998, NTI entered into a strategic research and marketing partnership
with Merz and a new revenue sharing partnership with Children's Medical Center
Corporation to further the clinical development and commercialization of
Memantine. Pursuant to this collaboration, Children's Medical Center Corporation
terminated its existing license to NTI for AIDS-related dementia and neuropathic
pain and granted exclusive rights to Merz. In exchange, NTI received an up-front
payment of $2.1 million from Merz. NTI and Children's Medical Center Corporation
will share in future revenue from sales of Memantine for treatment of dementia,
Alzheimer's disease and neuropathic pain, indications which Merz is developing.
Merz is currently conducting a series of advanced clinical trials for moderate
to severe dementia and Alzheimer's disease. Merz has completed a positive
pivotal Phase III trial of Memantine for the treatment of dementia in Europe,
has two Phase III trials in process and will institute a Phase III trial in the
United States in the near future. Merz has developed extensive clinical and pre-
clinical data which, in combination with the Company's clinical and pre-clinical
data, the companies believe will constitute a strong regulatory package.
Through these collaborations, NTI and Merz intend to assist one another advance
their respective clinical development programs for neuropathic pain and dementia
and to share their scientific information and commercial expertise, including
preclinical and clinical trial data, to bring Memantine as rapidly as possible
to patients in need.
XERECEPT(TM) is the Company's synthetic preparation of the human peptide
Corticotropin-Releasing Factor (CRF). NTI is developing XERECEPT as a treatment
for brain swelling due to brain tumors (peritumoral brain edema). The Company is
currently conducting a randomized, double-blind, positive-controlled Phase II
human clinical trial to evaluate the ability of XERECEPT to stabilize or improve
neurologic symptoms of
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brain swelling. Results from preclinical studies and pilot human clinical
trials previously sponsored by the Company have demonstrated the compound's
potential to reduce swelling of brain tissue while being well-tolerated and
apparently safe. Thus, XERECEPT has the potential to significantly improve the
quality of life for brain cancer patients with dysfunction due to brain
swelling. The Company believes that XERECEPT may prove a safer treatment than
synthetic corticosteroids, the current standard treatment for peritumoral brain
edema, which are associated with serious adverse side effects including muscle
wasting, osteoporosis, hyperglycemia, vision problems, and psychosis. During
fiscal 1998, XERECEPT was granted orphan drug designation by the FDA for the
treatment of peritumoral brain edema.
Significant additional preclinical testing and clinical testing will be required
prior to submission of any regulatory application for the commercial use of any
of these products. There can be no assurance that future clinical trials will
demonstrate an adequate level of safety or efficacy required for
commercialization.
Since 1987 when the Company was founded, NTI has applied a majority of its
resources to its research and development programs. The Company is a
development stage company and has not received any revenue from the sale of
products. The Company has incurred losses since its inception and expects to
incur substantial, increasing losses due to ongoing and planned research and
development efforts. As part of the strategic planning process, the Company has
limited current expenditure to only two drug candidates. The Company will need
to obtain additional financing to continue operations beyond the first quarter
of fiscal 1999.
Results of Operations
The Company's research and development expenses increased from $4,321,000 in
fiscal 1996 to $5,478,000 in fiscal 1997, and decreased to $2,026,000 in fiscal
1998. The decrease in fiscal 1998 was primarily due to the Company's narrowing
its clinical focus to the development of two product candidates. The increase
in fiscal 1997 was primarily due to expansion of the Company's preclinical
studies and clinical trials as well as increased funding of the Company's
neuroprotection research program, as compared to the prior year.
General and administrative expenses increased from $1,397,000 in fiscal 1996 to
$2,298,000 in fiscal 1997 to $2,347,000 in fiscal 1998. The increase in fiscal
1998 was primarily due to expenditures relating to seeking financing and
corporate partnerships. The increase in fiscal 1997 was due to additional
business development expenses as well as increased professional fees.
The Company's total revenues increased to $2,100,000 in fiscal 1998 due to a
one-time payment received from Merz pursuant to a strategic research and
marketing partnership between NTI and Merz effective in April 1998. Interest
income decreased from $506,000 in fiscal 1996 to $407,000 in fiscal 1997 and
to $99,000 in fiscal 1998, primarily due to changes in average cash balances.
The Company expects to incur substantial costs in fiscal 1999 primarily for
Phase II clinical trials for its development programs and related administrative
support. The Company expects that its expenditures will continue to increase as
its products move through Phase II and, if the Phase II trials are successful,
Phase III clinical trials.
Liquidity and Capital Resources
Since 1987 when NTI was founded, the Company has applied a majority of its
resources to its research and development programs. The Company is a
development-stage company and has not received any revenue from the sale of
products. The Company has incurred losses since its inception and expects to
incur substantial, increasing losses due to ongoing and planned research and
development efforts. As part of the strategic planning process during fiscal
1998, the Company has limited expenditures to only two drug candidates, which
has allowed the Company to reduce its workforce from 22 to 13 persons, many of
whom are employed part time.
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The Company believes that its available cash, cash equivalents and short term
investments of $2.0 million as of June 30, 1998 are adequate to fund its
operations through the first quarter of fiscal 1999. The Company will need to
obtain additional financing to continue operations beyond the first quarter of
fiscal 1999. The Company intends to seek such additional funding through public
or private financings, collaborative or other arrangements with corporate
partners, or from other sources. There can be no assurance that additional
financing will be available from any of these sources, or, if available, that it
will be available on acceptable terms. The Company may seek to raise additional
funds whenever market conditions so permit. If additional funds are raised by
issuing equity securities, further significant dilution to existing shareholders
may result. If adequate funds are not available, the Company may be required to
delay, scale back, or eliminate one or more of its research, discovery, or
development funds or to obtain funds through entering into arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies, product candidates or products that the
Company would not otherwise relinquish.
Further, the Company will require substantial additional funds to conduct the
research and development and preclinical and clinical testing of its potential
products and to market any products that may be developed. Although the Company
currently plans to contract with third parties to manufacture clinical and
commercial scale quantities of its potential products, to the extent the Company
subsequently determines to establish its own manufacturing facilities, the
Company will require substantial additional capital. The Company's future
capital requirement will depend on numerous factors, including the amount of
royalties anticipated to be received from Merz for future sales of Memantine for
multiple indications; the progress of the Company's research, preclinical
development and clinical development programs; the time and cost involved in
obtaining regulatory approvals; the cost of filing, prosecuting, defending, and
enforcing patent claims and other intellectual property rights; competing
technological and market developments; changes in the Company's existing
research relationships; the ability of the Company to establish collaborative
relationships; the development of commercialization activities and arrangements;
and the purchase of additional capital equipment.
From inception through June 30, 1998, the Company has raised a total of $29.8
million in net proceeds from the sale of common and preferred stock.
Impact of Year 2000 Issue
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field and cannot distinguish
century dates prior to January 1, 2000 from dates on and after January 1, 2000.
These date code fields will need to distinguish dates prior to January 1, 2000
from dates on and after January 1, 2000 ("Year 2000 Compliance") and, as a
result, many companies' software and computer systems may need to be upgraded or
replaced in order to reach Year 2000 Compliance.
The Company has completed an assessment of its computer systems and believes
that such systems will function properly with respect to dates in the year 2000
and thereafter. The Company is assessing the possible effects on the Company's
operations of the year 2000 readiness of key subcontractors; however the
potential impact and related costs of reaching Year 2000 Compliance are not
known at this time.
Page 19
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors
THE BOARD OF DIRECTORS AND STOCKHOLDERS
Neurobiological Technologies, Inc.
We have audited the accompanying balance sheets of Neurobiological Technologies,
Inc. (a development stage company) as of June 30, 1998, and 1997, and the
related statements of operations, stockholders' equity and cash for each of the
three years in the period ended June 30, 1998, and for the period from August
27, 1987 (inception) through June 30, 1998. 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 Neurobiological Technologies,
Inc. at June 30, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended June 30, 1998, and for the
period from August 27, 1987 (inception) through June 30, 1998, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
Neurobiological Technologies, Inc. will continue as a going concern. As more
fully described in Note 1 to the financial statements, the Company has
experienced recurring losses during the development stage. In order to continue
operations into the second quarter of fiscal 1999, additional financing will be
required. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Ernst & Young LLP
San Francisco, California
August 12, 1998
Page 20
<PAGE>
Neurobiological Technologies, Inc. (A development stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
--------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,020,886 $ 1,278,402
Short-term investments - - 2,559,911
Prepaid expenses and other 59,016 171,436
----------------------------------------------
Total current assets 2,079,902 4,009,749
Property and equipment, net 53,447 197,355
----------------------------------------------
$ 2,133,349 $ 4,207,104
==============================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 44,998 $ 258,673
Accrued expenses 452,580 737,883
----------------------------------------------
Total current liabilities 497,578 996,556
Stockholders' equity:
Preferred stock, $.001 par value, 5,000,000 shares
authorized, none outstanding - - - -
Common stock, $.001 par value, 25,000,000 shares
authorized, 7,553,699 and 6,540,314 shares issued
and outstanding at June 30, 1998 and 1997,
respectively 29,980,898 29,382,471
Deficit accumulated during development stage (28,345,127) (26,171,923)
----------------------------------------------
Total stockholders' equity 1,635,771 3,210,548
----------------------------------------------
$ 2,133,349 $ 4,207,104
==============================================
</TABLE>
See accompanying notes.
Page 21
<PAGE>
Neurobiological Technologies, Inc. (A development stage company)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Period from
August 27, 1987
Year ended June 30, (inception) through
------------------------------------------------------------------
1998 1997 1996 June 30, 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
License $ 2,100,000 $ -- $ -- $ 2,100,000
Grant -- -- -- 49,900
-----------------------------------------------------------------------------------------
Total revenue 2,100,000 -- -- 2,149,900
EXPENSES
Research and development 2,025,646 5,477,504 4,321,059 22,288,381
General and administrative 2,346,893 2,298,391 1,396,626 10,338,151
-----------------------------------------------------------------------------------------
Total expenses 4,372,539 7,775,895 5,717,685 32,626,532
-----------------------------------------------------------------------------------------
Operating loss (2,272,539) (7,775,895) (5,717,685) (30,476,632)
Interest Income 99,335 407,307 506,242 2,131,505
-----------------------------------------------------------------------------------------
NET LOSS $ (2,173,204) $ (7,368,588) $ (5,211,443) $ (28,345,127)
=========================================================================================
BASIC AND DILUTED $ (.32) $ (1.13) $ (1.05)
NET LOSS PER SHARE
=========================================================================================
Shares used in basic and diluted
net loss per share calculation 6,862,186 6,527,392 4,985,229
=========================================================================================
</TABLE>
See accompanying notes.
Page 22
<PAGE>
Neurobiological Technologies, Inc. (A development stage company)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Deficit Total
Preferred ------------------------ Accumulated During Stockholders
Stock Shares Amount Development Stage Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Period from August 27, 1987
(inception) through June 30, 1995
Issuance of common stock $ -- 740,863 $ 1,616,706 $ -- $ 1,616,706
Issuance of common stock for services 72,428 84,500 -- 84,500
Issuance of common stock for license rights -- 10,820 12,625 -- 12,625
Issuance of warrants to purchase
179,786 shares of common stock -- -- 2,790 -- 2,790
Exercise of warrants -- 142,500 70,252 -- 70,252
Exercise of options -- 73,527 175,554 -- 175,554
Issuance of common stock under
employee stock purchase plan -- 21,082 58,651 -- 58,651
Issuance of 5,691,000 shares of Series A
preferred stock, net of issuance costs 5,573,194 -- -- -- 5,573,194
Issuance of 2,657,881 shares of Series B
preferred stock, net of issuance costs 1,653,888 -- -- -- 1,653,888
Conversion of preferred stock in connection
with the initial public offering (7,227,082) 1,046,912 7,227,082 -- --
Issuance of common stock at $8.00 per share
in connection with initial public offering,
net of issuance costs -- 1,840,000 12,817,000 -- 12,817,000
Net loss -- -- -- (13,591,892) (13,591,892)
-----------------------------------------------------------------------------------
Balances at June 30, 1995 -- 3,948,132 22,065,160 (13,591,892) 8,473,268
Exercise of options -- 13,093 40,284 -- 40,284
Issuance of common stock under
employee stock purchase plan -- 21,260 53,823 -- 53,823
Issuance of common stock at $3.25 per share
in connection with public offering,
net of issuance costs -- 2,530,000 7,143,279 -- 7,143,279
Net loss -- -- -- (5,211,443) (5,211,443)
-----------------------------------------------------------------------------------
Balances at June 30, 1996 -- 6,512,485 29,302,546 (18,803,335) 10,499,211
--
Issuance of common stock for services -- 5,000 23,750 -- 23,750
Exercise of options -- 2,999 10,331 -- 10,331
Issuance of common stock under
employee stock purchase plan -- 19,830 45,844 -- 45,844
Net loss -- -- -- (7,368,588) (7,368,588)
-----------------------------------------------------------------------------------
Balances at June 30, 1997 -- 6,540,314 29,382,471 (26,171,923) 3,210,548
Issuance of warrants to purchase 125,000
shares of common stock -- -- 40,500 -- 40,500
Issuance of common stock and warrants
at $0.55 per unit -- 1,010,410 555,725 -- 555,725
Issuance of common stock under
employee stock purchase plan -- 2,975 2,202 -- 2,202
Net loss -- -- -- (2,173,204) (2,173,204)
-----------------------------------------------------------------------------------
Balances at June 30, 1998 $ -- 7,553,699 $ 29,980,898 $ (28,345,127) $ 1,635,771
===================================================================================
</TABLE>
See accompanying notes.
Page 23
<PAGE>
Neurobiological Technologies, Inc. (A development stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
Year ended June 30, August 27, 1987
------------------------------------------------- (inception) through
1998 1997 1996 June 30, 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (2,173,204) $ (7,368,588) $ (5,211,443) $ (28,345,127)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 128,402 122,773 123,095 596,414
Issuance of common stock and warrants
for license rights and services 40,500 - - - - 139,775
Changes in assets and liabilities:
Prepaid expenses and other 112,420 165,986 (152,594) (59,016)
Accounts payable and accrued expenses (498,978) 103,404 102,338 497,578
------------------------------------------------------------------------
Net cash used in operating activities (2,390,860) (6,976,425) (5,138,604) (27,170,376)
INVESTING ACTIVITIES
Purchase of investments - - (1,462,723) (11,263,339) (33,839,678)
Maturity of investments 2,559,911 5,060,455 11,675,531 33,839,678
Purchases of property and equipment, net 15,506 (25,645) (90,039) (366,799)
Additions to patents and licenses - - - - - - (283,062)
------------------------------------------------------------------------
Net cash provided by (used in) investing
activities 2,575,417 3,572,087 322,153 (649,861)
FINANCING ACTIVITIES
Proceeds of short-term borrowings - - - - - - 235,000
Issuance of common stock 557,927 79,925 7,237,386 22,614,041
Issuance of preferred stock - - - - - - 6,992,082
------------------------------------------------------------------------
Net cash provided by financing activities 557,927 79,925 7,237,386 29,841,123
Increase (decrease) in cash and cash
equivalents 742,484 (3,324,413) 2,420,935 2,020,886
Cash and equivalents at beginning of period 1,278,402 4,602,815 2,181,880 - -
------------------------------------------------------------------------
Cash and equivalents at end of period $ 2,020,886 $ 1,278,402 $ 4,602,815 $ 2,020,886
========================================================================
SUPPLEMENTAL DISCLOSURES:
Conversion of short-term borrowings to
Series A preferred stock $ - - $ - - $ - - $ 235,000
========================================================================
Conversion of preferred stock to common
stock $ - - $ - - $ - - $ 7,227,082
========================================================================
</TABLE>
See accompanying notes.
Page 24
<PAGE>
Neurobiological Technologies, Inc. (a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Neurobiological Technologies, Inc. ("NTI" or the "Company") is an emerging drug
development company focused on the clinical testing and regulatory approval of
neuroscience drugs. The Company's strategy is to in-license and develop drug
candidates that target major medical needs and which can be rapidly
commercialized. Drawing upon the experience of the Company's management in drug
discovery, development, and clinical testing, The Company's efforts are focused
on developing its licensed drug candidates for commercialization.
BASIS OF PRESENTATION
In the course of its development activities, the Company has incurred
significant losses and expects additional losses in the fiscal year ending June
30, 1999. The Company believes that its available cash, cash equivalents and
short-term investments of $2.0 million as of June 30, 1998 are adequate to fund
its operations through the first quarter of fiscal 1999. The Company's ability
to continue as a going concern is dependent upon obtaining additional financing.
NTI will need to raise substantial additional capital to fund subsequent
operations. The Company intends to seek such funding through public or private
financings, collaborative or other arrangements with corporate partners, or from
other sources. The Company may seek to raise additional funds whenever market
conditions permit. However, there can be no assurance that additional financing
will be available from any of these sources, or, if available, that it will be
available on acceptable terms. The accompanying financial statements have been
prepared assuming the Company will continue as a going concern, and do not
include any adjustments that might result from the outcome of this
uncertainty.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amount of revenues and expenses during the reported period. Actual results could
differ from those estimates.
LICENSE REVENUE
In April 1998, the Company entered into a strategic research and marketing
partnership with one party and a revenue-sharing partnership with another.
Pursuant to this collaboration, the Company received a non-revocable license fee
of $2.1 million during fiscal 1998. All obligations under this collaboration
were completed by the Company as of June 30, 1998.
KEY SUPPLIER
The Company is dependent on one party for the manufacturing and supply of one of
its drugs for the Company's human clinical trials and for the successful
commercialization of the related product. Any failure on the part of this
company in this regard could adversely effect the Company's business and results
of operations.
CASH AND INVESTMENTS
Cash and cash equivalents include investments with original maturities of 90
days or less. Short-term investments consist of investments with original
maturities of greater than 90 days. The Company has not realized any losses on
its investments, which are highly liquid and subject to little risk.
Furthermore, the Company reduces its credit risk by limiting the amount of
credit exposure to any one financial institution.
The Company accounts for its investments in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." All of the Company's investment
securities are classified as available for sale and are stated at amounts which
approximate fair market value.
Page 25
<PAGE>
The Company did not have any material realized or unrealized gains or losses on
its investments. Realized gains or losses, amortization of premiums, accretion
of discounts and earned interest are included in investment income. The
following is a summary of available for sale securities at June 30, 1998 and
1997:
1998 1997
----------------------------------------
Corporate obligations $ -- $2,501,705
Commercial paper 1,088,589 1,197,836
US Government obligations 899,502 39,241
Accrued interest 4,450 58,480
----------------------------------------
Total $1,992,541 $3,797,262
========================================
Included in cash and cash equivalents at June 30, 1998 and 1997 are available
for sale securities of $1,992,541 and $1,237,351, respectively. Included in
short-term investments at June 30, 1997 are available for sale securities of
$2,559,911. By policy, the Company does not invest in securities that mature in
more than 18 months. At June 30, 1998, all securities in the investment
portfolio are classified as cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is calculated using the
straight line method based on estimated useful lives of 2 to 7 years. The
balances at June 30, 1998 and 1997 consisted of the following:
1998 1997
----------------------------
Machinery and equipment $ 185,820 $ 216,527
Furniture and fixtures 114,221 165,778
----------------------------
300,041 382,305
Less accumulated depreciation (246,594) (184,950)
----------------------------
$ 53,447 $ 197,355
============================
PATENTS AND LICENSES
Patents and licenses consist of the costs relating to license agreements
covering certain patent rights to the Company's products. The costs are
amortized using the straight line method over the shorter of the life of the
patent or its economic useful life. Patents and licenses were fully amortized at
June 30, 1998 and 1997.
NET LOSS PER SHARE
Net loss per share for all periods is presented under the requirements of FAS
No. 128, "Earnings per Share" which 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 effects of options, warrants, and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
Page 26
<PAGE>
earnings per share. The effects of potentially dilutive securities have been
excluded from the computation of basic and diluted net loss per share as their
effect is antidilutive.
STOCK-BASED COMPENSATION
The Company has adopted SFAS No. 123, "Accounting for Stock-Based Compensation"
which establishes the fair value method of accounting for stock based
compensation plans. The Company accounts for employee stock options in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") and has adopted the "disclosure only"
alternative described in SFAS 123.
RELATED PARTY TRANSACTION
The president and chief executive officer of the Company is a member of the
Board of Directors of a company that provided the Company with consulting
services during the last two fiscal years. Amounts paid to this company for such
services totaled $409,000 and $90,000 in the years ended June 30, 1998 and 1997,
respectively.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued FAS No. 130,
"Reporting Comprehensive Income," which established new standards for reporting
and displaying comprehensive income and its components in a full set of general
purpose financial statements. FAS 130 is effective for the Company's financial
statements for the year ending June 30, 1999. There is expected to be no
difference in the Company's historical net losses as reported and the
comprehensive net losses under the provisions of FAS 130. Accordingly, the
adoption of FAS 130 is expected to have no effect on the Company's reported
results of operations.
In June 1997, the Financial Accounting Standards Board issued FAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." FAS 131
will change the way companies report selected segment information in interim
financial reports to shareholders. FAS 131 is effective for the Company's
financial statements for the year ending June 30, 1999. The Company does not
expect any changes necessary to comply with the provisions of FAS 131.
NOTE 2. OPERATING LEASE COMMITMENTS
The Company's lease for its premises in Richmond, California expires in April
1999, with an option to extend the new term of the lease for an additional one
year period. Rent expense for the years ending June 30, 1998, 1997, and 1996 was
$147,000, $157,000, and $143,000, respectively. Future minimum payment in fiscal
1999 is $24,500.
NOTE 3. STOCKHOLDERS' EQUITY
WARRANTS TO PURCHASE COMMON STOCK
At June 30, 1998, warrants to purchase 2,563,106 shares of common stock were
outstanding at a weighted average exercise price of $1.98 per share. Of these,
warrants to purchase 2,020,820 shares of common stock were issued in connection
with a private financing completed in March 1998: warrants to purchase 1,010,410
of these shares at a price of $0.75 expire in September 1999; and 1,010,410 of
these shares at a price of $1.50 expire in March 2001. Warrants to purchase
100,000 and 25,000 shares of common stock were issued as of April 1998 at a
price per share of $1.25 and $3.00, respectively, in connection with the
termination of a licensing agreement and expire in April 2001. Warrants to
purchase 37,286 shares of common stock were issued between April 1990 and June
1991 at a price of $5.60 for licensing rights and consulting services and have
expiration dates
Page 27
<PAGE>
through June 30, 2001. Warrants to purchase 160,000 shares were issued in
February 1994 to the underwriters of the initial public offering at a price of
$9.60 and expire on February 15, 1999. Warrants to purchase 220,000 shares
were issued in February 1996 to the underwriters of the secondary offering at
a price of $3.90 and expire on February 15, 2001. The weighted average fair
value of warrants issued during 1998 was $0.13 per share.
STOCK OPTION PLAN
The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock option awards because, as discussed below, the
alternative fair value accounting provided under SFAS 123 requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, when the exercise price of the Company's employee stock
option equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
The Company's first stock option plans were adopted in 1989. In November 1993,
the plans were combined and the 1993 Stock Plan was adopted. The 1993 Stock Plan
was subject to amendment and/or restatement in February 1994, November 1994,
October 1996, and November 1997. Two million shares of common stock have been
reserved for issuance under the 1993 Stock Plan. In general, options are granted
at fair market value on the date of the grant, have a term of 10 years and
become exercisable over a period of up to 48 months.
In February 1998, the Board of Directors approved a stock option repricing
program pursuant to which all employees of the Company (excluding certain
executive officers) could elect to exchange their then outstanding employee
stock options for new employee stock options (at a three-for-two ratio) having
exercise prices of $0.563 per share (equal to the then fair market value), with
exercisability generally prohibited until July 1998. Options to purchase a total
of 105,146 shares of common stock with exercise prices ranging from $3.73 to
$6.63 per share were exchanged for options to purchase 70,096 shares of common
stock under this program.
A summary of the Company's stock option activity, and related information for
the three years ended June 30, 1998 follows (all repricing activity is reflected
as cancellations and subsequent grants):
<TABLE>
<CAPTION>
Number of Shares Weighted Average
Subject to Options Exercise Price
------------------------------------------------
<S> <C> <C>
Balance at June 30, 1995 907,386 $4.04
Options granted 73,760 5.59
Options canceled (34,225) 3.52
Options exercised (21,376) 3.68
-----------------------------
Balance at June 30, 1996 925,545 4.19
Options granted 338,304 2.58
Options canceled (28,591) 5.61
Options exercised (2,999) 3.44
-----------------------------
Balance at June 30, 1997 1,232,259 3.72
Options granted 844,454 1.66
Options canceled (501,632) 4.31
-----------------------------
Balance at June 30, 1998 1,575,081 2.42
=============================
</TABLE>
At June 30, 1998, options to purchase 368,981 shares of common stock remained
available for grant, and options to purchase 894,024 shares of common stock were
exercisable at prices ranging from $0.563 to $8.00. The weighted average
exercise price of options exercisable at June 30, 1998 was $3.06. The weighted
average fair value of options granted during 1998, 1997 and 1996 were $1.09,
$1.48 and $4.26, respectively.
Page 28
<PAGE>
The following table summarizes information concerning currently outstanding and
exercisable options:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Shares Contractual Exercise Shares Exercise
Prices Outstanding Life (years) Price Exercisable Price
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.01 - 1.99 600,054 9.45 $ 0.89 167,678 $ 1.59
2.00 - 3.99 869,259 6.61 3.22 634,128 3.24
4.00 - 5.99 92,768 6.85 4.23 82,218 4.25
6.00 - 8.00 13,000 7.44 6.94 10,000 7.04
--------- ----------
1,575,081 894,024
========= ==========
</TABLE>
Pro forma information regarding net loss and net loss per share is required by
SFAS 123, which requires that the information be determined as if the Company
had accounted for its employee stock options granted subsequent to June 30, 1995
under the fair value method. The fair value of each option grant has been
estimated as of the date of the grant using the Black-Scholes option pricing
model with the following weighted average assumptions used for fiscal 1996, 1997
and 1998: Expected volatility calculations based on historical data (.846), risk
free interest rates based on U.S. government bonds with maturities equal to the
expected option lives of 6 percent, expected option lives of five years, and no
dividend yield.
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 pricing models require the input of highly
subjective assumptions including the expected stock price volatility and
expected life of the option. 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 a reliable single measure of the fair value of employee's
options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized over the options' vesting period. The Company's pro forma
information follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year ended June 30,
--------------------------------------
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
Net loss - as reported $ (2,173) $ (7,369) $ (5,211)
Net loss - pro forma (2,695) (7,845) (5,742)
Basic and diluted net loss per share - as reported (0.32) (1.13) (1.05)
Basic and diluted net loss per share - pro forma (0.39) (1.20) (1.15)
</TABLE>
The effects on pro forma disclosures of applying SFAS 123 are not likely to be
representative of the effects on pro forma disclosures in future years.
STOCK PURCHASE PLAN
Effective February 1994, the Company established an employee stock purchase plan
under which the employees may purchase common stock at 85% of the lower of the
share price at the beginning or end of a
Page 29
<PAGE>
designated period. In November 1996, the amount of shares reserved for issuance
under the plan was increased by 50,000 to 100,000. Under the plan, 34,847 shares
remain available for issuance at June 30, 1998.
NOTE 4. INCOME TAXES
The Company uses the liability method to account for income taxes as required by
SFAS 109, "Accounting for Income Taxes." Under this method, deferred tax assets
and liabilities are determined based on the differences between financial
reporting and tax bases of assets and liabilities and are measured using enacted
tax rules and laws that will be in effect when the differences are expected to
reverse.
Significant components of the Company's deferred tax assets are as follows at
June 30, 1998 and 1997 (in thousands):
1998 1997
---------------------------
Net operating loss carryforward $ 10,000 $ 9,210
Research and development carryforward 1,100 900
Capitalized research and development 500 700
---------------------------
Gross deferred tax assets 11,600 10,810
Valuation allowance (11,600) (10,810)
---------------------------
Net deferred tax assets $ -- $ --
===========================
The valuation allowance increased by $790,000 and $3,160,000 in fiscal years
1998 and 1997, respectively.
At June 30, 1998, the Company had net operating loss carryforwards for federal
and state income tax purposes of approximately $27,000,000 and $12,000,000
respectively, which expire in tax years 1998 through 2012. The Company has
federal tax credit carryforwards of approximately $700,000 which expire in tax
years 2006 through 2012.
During the years ended June 30, 1991 and 1994, the Company experienced a "change
in ownership" as defined by Section 382 of the Internal Revenue Code. As a
result, utilization of the Company's net operating loss and credit carryforwards
incurred prior to the "change in ownership" may be subject to annual limitation.
If additional "changes in ownership" should occur, the availability of the
Company's net operating loss and credit carryforwards incurred subsequent to the
1994 "change in ownership" may also be subject to an annual limitation.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Page 30
<PAGE>
PART III.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
Name Age Position
- --------------------------------------------------------------------------------
Paul E. Freiman 64 President and CEO and Director
Jian H. Johnson 61 Vice President, Regulatory Affairs
Behzad Khosrovi, Ph.D. 54 Vice President, Pharmaceuticals Development
Calvert Y. Yee 46 Vice President, Operations and Administration
Abraham E. Cohen 62 Chairman of the Board of Directors
Enoch Callaway, M.D. 74 Director
Theodore L. Eliot, Jr. 70 Director
Abraham D. Sofaer 60 Director
John B. Stuppin 65 Director
PAUL E. FREIMAN joined the Company as a director in April 1997 and was elected
President and Chief Executive Officer in May 1997. He is the former chairman and
chief executive officer of Syntex Corporation ("Syntex"), where he had a long
and successful career and was instrumental in the sale of Syntex to Roche
Holdings for $5.3 billion. He is credited with much of the marketing success of
Syntex's lead product Naprosyn(R) and was responsible for moving the product to
over-the-counter status, marketed by Proctor & Gamble as Aleve(R). Mr. Freiman
is currently serving as chairman of the boards of Digital Gene Technologies,
Inc., a private genomics company, and Otsuka America Pharmaceuticals, Inc., and
serves on the boards of Penford Corporation, Calypte Biomedical Corporation and
LifeScience Economics, Inc. He has been chairman of the Pharmaceutical
Manufacturers Association of America (PhARMA) and has also chaired a number of
key PhARMA committees. Mr. Freiman is also an advisor to Burrill & Co., a San
Francisco merchant bank.
JIAN H. JOHNSON joined the Company in October 1992 as Director of Clinical and
Regulatory Affairs. In August 1995, Ms. Johnson was promoted to Vice President,
Regulatory Affairs. Prior to joining NTI, she spent twenty years with the Upjohn
Company. Three of those years were spent in the area of drug discovery followed
by positions of increasing responsibility in clinical research and drug
registration. Ms. Johnson has extensive experience in drug development strategy,
design of clinical protocols, management of clinical trials, and preparation of
regulatory submissions, including INDs and NDAs. Ms. Johnson holds a B.S. degree
from National Taiwan University and an M.S. degree from the University of
Minnesota.
BEHZAD KHOSROVI, PH.D. has been Vice President, Pharmaceuticals Development
since he joined the Company in January 1992. From July 1990 to December 1991,
Dr. Khosrovi was a consultant to the pharmaceutical industry. Prior to July
1990, Dr. Khosrovi was employed 14 years with Cetus Corporation ("Cetus"), where
he held various senior management positions, including Vice President,
Development from 1985 until June 1990. At Cetus, Dr. Khosrovi was responsible
for developing and managing Cetus' capability in manufacturing sciences. His
responsibilities included process development, formulation design, product
characterization and manufacture of products for clinical trials. Dr. Khosrovi
holds an M.A. degree in Natural Sciences from the University of Cambridge in
England and M.Sc. and Ph.D. degrees in Applied Microbiology from the University
of Manchester's Institute of Science and Technology.
CALVERT Y. YEE has been Vice President, Operations and Administration of the
Company since February 1991. Prior to joining NTI, Mr. Yee was employed for 15
years with Cetus, where he held both research and management positions, serving
as Senior Director, Research and Development Administration and Operations from
1987 until September 1990. Mr. Yee holds an A.B. degree in bacteriology and an
M.B.A. degree from the University of California, Berkeley.
Page 31
<PAGE>
ABRAHAM E. COHEN has been a director of the Company since March 1993 and has
been Chairman of the Board of Directors since August 1993. From 1982 to 1992,
Mr. Cohen served as Senior Vice President of Merck & Co. ("Merck") and from 1977
to 1988 as President of the Merck Sharp & Dohme International Division ("MSDI").
While at Merck, he played a key role in the development of Merck's international
business, initially in Asia, then in Europe and, subsequently, as President of
MSDI, which manufactures and markets human health products outside the United
States. Since his retirement from Merck and MSDI in January 1992, Mr. Cohen has
been active as an international business consultant. He is a director of six
public companies: Agouron Pharmaceuticals, Inc., Akzo Nobel N.V., Smith Barney,
Teva Pharmaceutical Industries, Ltd., Vion Pharmaceuticals, Inc., and
Vasomedical, Inc.
ENOCH CALLAWAY, M.D. is a founder and former employee of the Company and has
served as a director of the Company since September 1987. Dr. Callaway
previously served as Chairman of the Board of Directors of the Company from
September 1987 to November 1990, as Co-Chairman of the Board from November 1990
until August 1993, as Vice President from September 1988 until August 1993 and
as Secretary from September 1988 until September 1991. Dr. Callaway has been
Emeritus Professor of Psychiatry at the University of California, San Francisco
since 1986, where he also served as Director of Research at the Langley Porter
Psychiatric Institute from 1959 to 1988. He holds A.B. and M.D. degrees from
Columbia University.
THEODORE L. ELIOT, JR. served as a director of the Company from September 1988
until April 1992 and as a Vice President from September 1988 until September
1991. He subsequently has served as a director of the Company since August 1992.
Mr. Eliot retired from the United States Department of State in 1978 with the
rank of Ambassador. He served as Dean of the Fletcher School of Law and
Diplomacy from 1979 to 1985 and as Secretary General for the United States of
the Bilderberg Meetings from 1981 to October 1993. Mr. Eliot is a director of
Fiberstars, Inc., a publicly held company. Mr. Eliot holds B.A. and M.P.A.
degrees from Harvard University.
ABRAHAM D. SOFAER has served as a director of the Company since April 1997. Mr.
Sofaer is the first George P. Shultz Distinguished Scholar & Senior Fellow at
the Hoover Institution, Stanford University, appointed in 1994. From 1990 to
1994, Mr. Sofaer was a partner at the legal firm of Hughes, Hubbard and Reed in
Washington, D.C., where he represented several major U.S. public companies. From
1985 to 1990, he served as the Legal Adviser to the United States Department of
State, where he was principal negotiator on several key international disputes.
From 1979 to 1985, he served as a federal judge in the Southern District of New
York. Mr. Sofaer is registered as a qualified arbitrator with the American
Arbitration Association and is a member of the National Panel of the Center for
Public Resolution of Disputes (CPR), a leading organization in the area of
resolution of disputes outside litigation. He has mediated or is now mediating
merger-acquisition arbitrations, commercial cases involving valuation of
commercial technology, and major securities class action suits. Mr. Sofaer is on
the International Advisory Board of Chugai Biopharmaceuticals, Inc. Mr. Sofaer
holds a B.A. degree from Yeshiva College and a L.L.B. from New York University.
JOHN B. STUPPIN is a founder and employee of the Company and has served as a
director of the Company since September 1988 and Treasurer from April 1991 until
July 1994. From September 1987 until October 1990, Mr. Stuppin served as
President of the Company, and from November 1990 to August 1993 as Co-Chairman
of the Board of Directors, and from October 1990 until September 1991 as
Executive Vice President. He also served as acting Chief Financial Officer of
the Company from the Company's inception through December 1993. Mr. Stuppin is
an investment banker and a venture capitalist. He has over 25 years experience
in the start up and management of companies active in emerging technologies and
has been the president of a manufacturing company. He is a director of
Fiberstars, Inc. Mr. Stuppin holds an A.B. degree from Columbia College.
Page 32
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by reference to the
section entitled "Executive Compensation" in the Company's definitive Proxy
Statement to be filed with the Securities and Exchange Commission in connection
with the Company's 1998 Annual Meeting of Stockholders (the "Proxy Statement").
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is hereby incorporated by reference to the
section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is hereby incorporated by reference to the
section entitled "Certain Transactions" in the Proxy Statement.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Financial Statements
The following are included in Item 7 under Part II:
Report of Ernst & Young, Independent Auditors
Balance Sheets at June 30, 1998 and 1997
Statements of Operations for each of the three years in the period ended June
30, 1998 and for the period from August 27, 1987 (inception) through June 30,
1998
Statement of Stockholders' Equity for each of the three years in the period
ended June 30, 1998 and for the period from August 27, 1987 (inception)
through June 30, 1998
Statement of Cash Flows for each of the three years in the period ended June
30, 1998 and for the period for August 27, 1987 (inception) through June 30,
1998
Notes to Financial Statements
(b) Reports on Form 8-K
None.
(c) Exhibits
The following exhibits are incorporated by reference or filed as part of this
report.
Exhibit
Number Description
3.5 Restated Certificate of Incorporation of Registrant. (1)
3.2 Bylaws of Registrant. (1)
4.1 Form of Common Stock Certificate. (1)
Page 33
<PAGE>
(c) Exhibits, continued
4.2 Form of Warrant issued to Van Kasper & Co. (1)
4.3 Form of Warrant issued to Van Kasper & Co. and Gerard Klauer Mattison
& Co., LLC. (1)
4.4 Form of Class A Warrant to Purchase Common Stock
4.5 Form of Class B Warrant to Purchase Common Stock
4.7 Form of Warrant to Purchase 25,000 Shares of Common Stock
4.8 Form of Warrant to Purchase 100,000 Shares of Common Stock
10.2 1993 Stock Plan of Neurobiological Technologies, Inc. (5)*
10.4 Form of Indemnity Agreement between the Registrant and its directors
and officers. (1)*
10.5 Series B Preferred Stock Purchase and Exchange Agreement dated as of
December 6, 1993. (1)
10.6 License Agreement between the Registrant and Research Corporation
Technologies, Inc. dated May 30, 1990. (1)+
10.7 License Agreement among the Registrant, Dynorphin Partnership, Nancy
M. Lee and Horace C. Loh dated April 1, 1989, as amended. (1)+
10.8 License Agreement between the Registrant and Immuno-Dynorphin
Partnership dated October 1, 1990. (1)+
10.9 License Agreement between the Registrant and des-Tyr Dynorphin
Partnership dated December 20, 1992. (1)+
10.10 License Agreement between the Registrant and DUZ Partnership dated
December 20, 1992. (1)+
10.11 License Agreement between the Registrant and The Salk Institute for
Biological Studies dated March 31, 1989, as amended. (1)+
10.12 License Agreement between the Registrant and the Regents of the
University of California dated June 13, 1990, as amended. (1)+
10.13 Option Agreement between the Registrant and the Regents of the
University of California dated December 1, 1992. (1)+
10.14 Lease dated August 22, 1994 between Registrant and Marina Westshore
Partners, a Calif. limited partnership. (2)
10.15 License Agreement between the Registrant and Children's Hospital
effective September 11, 1995, as amended on March 11, 1996. (3)+
10.16 Amended and Restated Neurobiological Technologies, Inc. Employee
Stock Purchase Plan. (4)+
10.17 Second Amendment to Lease between Registrant and Marina Westshore
Partners, dated May 15, 1998.
10.18 Cooperative Agreement among Registrant, Merz + Co. GmbH & Co. and
Children's Medical Center Corp., effective as of April 16, 1998.++
10.19 Payment Agreement between the Registrant and Children's Medical
Center Corp., effective as of April 16, 1998. ++
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney. (See page 35)
27 Financial Data Schedule for the period ended June 30, 1998.
- ---------
(1) Previously filed as an exhibit to Issuer's Registration Statement on Form
SB-2 (Registration No. 33-74118-LA) and is incorporated herein by reference.
(2) This exhibit is filed as an exhibit to the Registrant's Annual Report on
Form 10-KSB for the year ended June 30, 1995 and is incorporated herein by
reference.
Page 34
<PAGE>
(c) Exhibits, continued
(3) This exhibit is filed as an exhibit to the Registrant's Annual Report on
Form 10- KSB for the year ended June 30, 1996 and is incorporated herein by
reference.
(4) This exhibit is filed as an exhibit to Registrant's Registration Statement
on Form S-8 (Registration Number 333-18519) filed December 20, 1996 and is
incorporated herein by reference.
(5) This exhibit filed as an exhibit to the Registrant's Registration Statement
on Form S-8 (Registration Number 333-44097) filed January 1, 1998 and is
incorporated herein by reference.
+Confidential treatment has been granted with respect to certain portions of
these agreements.
++Confidential treatment has been requested with respect to certain portions of
these agreements.
*This exhibit is a management contract or compensatory plan or
arrangement.
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.
Dated: September 28, 1998 /s/ Paul E. Freiman
Neurobiological Technologies, Inc. President, Chief Executive Officer
POWER OF ATTORNEY (Exhibit 24.1)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Paul E. Freiman his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments to this report, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each of said attorney-in-fact and agent or his
substitute may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Paul E. Freiman President, Chief Executive Officer September 28, 1998
- ------------------------------------
Paul E. Freiman (Principal Executive Officer
and Principal Financial Officer
and Principal Accounting Officer)
and Director
/s/ Abraham E. Cohen Chairman of the Board September 28, 1998
- -------------------------------------
Abraham E. Cohen
/s/ Enoch Callaway Director September 28, 1998
- -------------------------------------
Enoch Callaway
/s/ Theodore L. Eliot, Jr. Director September 28, 1998
- -------------------------------------
Theodore L. Eliot, Jr.
/s/ Abraham D. Sofaer Director September 28, 1998
- -------------------------------------
Abraham D. Sofaer
/s/ John B. Stuppin Director September 28, 1998
- -------------------------------------
John B. Stuppin
</TABLE>
Page 35
<PAGE>
EXHIBIT A
Warrant No. A-
---
CLASS A WARRANT TO PURCHASE A MAXIMUM OF
SHARES OF COMMON STOCK OF
---------
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(Void after _____, 1999)
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
THIS WARRANT AND THE SHARES PURCHASABLE HEREUNDER ARE SUBJECT TO RESTRICTIONS ON
TRANSFER AS SET FORTH HEREIN.
This certifies that (the "Holder"), or assigns, for
-------------
value received, is entitled to purchase from Neurobiological Technologies, Inc.,
a Delaware corporation (the "Company"), subject to the terms set forth below, a
maximum of (the "Warrant Shares") fully paid and nonassessable shares
----------
(subject to adjustment as provided herein) of the Company's Common Stock, $.001
par value (the "Common Stock"),for cash at a price of $.75 per share (the
"Exercise Price") (subject to adjustment as provided herein) at any time or from
time to time up to and including 5:00 p.m. (California Time) on ,
----
1999, (the "Expiration Date") upon surrender to the Company at its principal
office (or at such other location as the Company may advise the Holder in
writing) of this Warrant properly endorsed with the Form of Subscription
attached hereto duly filled in and signed and upon payment in cash or by check
of the aggregate Exercise Price for the number of shares for which this Warrant
is being exercised determined in accordance with the provisions hereof. The
Exercise Price is subject to adjustment as provided in Section 3 of this
Warrant. This Warrant is issued subject to the following terms and conditions:
<PAGE>
1. EXERCISE, ISSUANCE OF CERTIFICATES, REDUCTION IN NUMBER OF WARRANT
SHARES.
1.1 GENERAL. This Warrant is exercisable at the option of the Holder
of record hereof on or prior to the Expiration Date, at any time or from time to
time following its issuance, for all or any part of the Warrant Shares (but not
for a fraction of a share) which may be purchased hereunder, as that number may
be adjusted pursuant to Section 3 of this Warrant. The Company agrees that the
Warrant Shares purchased under this Warrant shall be and are deemed to be issued
to the Holder hereof as the record owner of such Warrant Shares as of the close
of business on the date on which this Warrant shall have been surrendered,
properly endorsed, the completed and executed Form of Subscription delivered,
and payment made for such Warrant Shares. Certificates for the Warrant Shares
so purchased, together with any other securities or property to which the Holder
hereof is entitled upon such exercise, shall be delivered to the Holder hereof
by the Company at the Company's expense not later than 10 days after the rights
represented by this Warrant have been so exercised. In case of a purchase of
less than all the Warrant Shares which may be purchased under this Warrant, the
Company shall cancel this Warrant and execute and deliver to the Holder hereof
within a reasonable time a new Warrant or Warrants of like tenor for the balance
of the Warrant Shares purchasable under the Warrant surrendered upon such
purchase. Each stock certificate so delivered shall be registered in the name
of such Holder.
1.2 NET ISSUE EXERCISE OF WARRANT. Notwithstanding any provisions
herein to the contrary, if the fair market value of one share of Common Stock is
greater than the Exercise Price (at the date of calculation as set forth below),
in lieu of exercising this Warrant for cash, Holder may elect to receive shares
of Common Stock equal to the value (as determined below) of this Warrant (or the
portion thereof being canceled) by surrender of this Warrant at the principal
office of the Company together with the properly endorsed Form of Subscription
in which event the Company shall issue to the Holder a number of shares of
Common Stock computed using the following formula:
X= Y (A-B)
-------
A
Where X= the number of shares of Common Stock to be issued to Holder;
Y= the number of shares of Common Stock purchasable under the Warrant
or, if only a portion of the Warrant is being exercised, the
portion of the Warrant being canceled (at the date of such
calculation);
2
<PAGE>
A= the fair market value of one share of the Company's Common Stock
(at the date of such calculation); and
B= Exercise Price (as adjusted to the date of such calculation).
For purposes of the above calculation, the fair market value of one share of
Common Stock shall be the average of the closing bid and asked prices of the
Common Stock quoted in the over-the-counter market summary or the last reported
sale price of the Common Stock or the closing price quoted on the Nasdaq
National Market System or on any exchange on which the Common Stock is listed,
whichever is applicable, as published in The Wall Street Journal for the five
trading days prior to the date of determination of fair market value.
2. SHARES TO BE FULLY PAID. The Company covenants and agrees that all
Warrant Shares, will, upon issuance and, if applicable, payment of the
applicable Exercise Price, be duly authorized, validly issued, fully paid and
nonassessable, and free of all liens and encumbrances, except for restrictions
on transfer provided for herein or under applicable federal and state securities
laws.
3. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The Exercise Price
and the total number of Warrant Shares shall be subject to adjustment from time
to time upon the occurrence of certain events described in this Section 3. Upon
each adjustment of the Exercise Price, the Holder of this Warrant shall
thereafter be entitled to purchase, at the Exercise Price resulting from such
adjustment, the number of shares obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment, and dividing the product
thereof by the Exercise Price resulting from such adjustment.
3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of Warrant Shares
issuable hereunder proportionately increased, and conversely, in case the
outstanding shares of the Common Stock of the Company shall be combined into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of Warrant Shares
issuable hereunder proportionately decreased.
3.2 RECLASSIFICATION. If any reclassification of the capital stock
of the Company or any reorganization, consolidation, merger, or any sale, lease,
license, exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all, of the business and/or assets of the
Company (the "Reclassification
3
<PAGE>
Events") shall be effected in such a way that holders of Common Stock shall be
entitled to receive stock, securities, or other assets or property, then, as a
condition of such Reclassification Event lawful and adequate provisions shall be
made whereby the Holder hereof shall thereafter have the right to purchase and
receive (in lieu of the shares of Common Stock of the Company immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby) such shares of stock, securities, or other assets or
property as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of such
stock immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby. In any Reclassification Event, appropriate
provision shall be made with respect to the rights and interests of the Holder
of this Warrant to the end that the provisions hereof (including, without
limitation, provisions for adjustments of the Exercise Price and of the number
of Warrant Shares), shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities, or assets thereafter deliverable
upon the exercise hereof.
3.3 NOTICE OF ADJUSTMENT. Upon any adjustment of the Exercise Price
or any increase or decrease in the number of Warrant Shares, the Company shall
give written notice thereof, by first class mail postage prepaid, addressed to
the registered Holder of this Warrant at the address of such Holder as shown on
the books of the Company. The notice shall be prepared and signed by the
Company's President and Chief Executive Officer and shall state the Exercise
Price resulting from such adjustment and the increase or decrease, if any, in
the number of shares purchasable at such price upon the exercise of this
Warrant, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
4. NO VOTING OR DIVIDEND RIGHTS. Nothing contained in this Warrant shall
be construed as conferring upon the holder hereof the right to vote or to
consent to receive notice as a shareholder of the Company on any other matters
or any rights whatsoever as a shareholder of the Company. No dividends or
interest shall be payable or accrued in respect of this Warrant or the interest
represented hereby or the shares purchasable hereunder until, and only to the
extent that, this Warrant shall have been exercised.
5. COMPLIANCE WITH SECURITIES ACT; TRANSFERABILITY OF WARRANT;
DISPOSITION OF SHARES OF STOCK.
5.1 COMPLIANCE WITH SECURITIES ACT. The Holder of this Warrant, by
acceptance hereof, agrees that this Warrant and the Warrant Shares to be issued
upon exercise hereof are being acquired for investment and that it will not
offer, sell, or otherwise dispose of this Warrant or any Warrant Shares except
under circumstances which will not result in a violation of the Securities Act
of 1933, as amended (the "Act") or any applicable state securities laws. The
Holder agrees that the Company is under no
4
<PAGE>
obligation to register the Warrants and the Warrant Shares, and Holder
acknowledges that the Company does not intend to cause such a registration. This
Warrant and all Warrant Shares shall be stamped or imprinted with a legend in
substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. THEY MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED, OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
5.2 ACCESS TO INFORMATION; PRE EXISTING RELATIONSHIP. Holder has had
the opportunity to ask questions of, and to receive answers from, appropriate
executive officers of the Company with respect to the terms and conditions of
the transactions contemplated hereby and with respect to the business, affairs,
financial condition and results of operations of the Company. Holder has had
access to such financial and other information as is necessary in order for
Holder to make a fully informed decision as to investment in the Company, and
has had the opportunity to obtain any additional information necessary to verify
any of such information to which Holder has had access. Holder further
represents and warrants that he has either (i) a pre-existing relationship with
the Company or one or more of its officers or directors consisting of personal
or business contacts of a nature and duration which enable him to be aware of
the character, business acumen and general business and financial circumstances
of the Company or the officer or director with whom such relationship exists or
(ii) such business or financial expertise as to be able to protect his own
interests in connection with the purchase of the Shares.
5.3 WARRANT TRANSFERABLE. Subject to compliance with Section 5.4
below and the applicable federal and state securities laws under which this
Warrant was purchased, this Warrant and all rights hereunder are transferable,
in whole or in part, without charge to the Holder (except for transfer taxes),
upon surrender of this Warrant properly endorsed; provided, however, that the
Holder shall notify the Company in writing in advance of any proposed transfer
and shall not transfer this Warrant or any rights hereunder to any person or
entity which is then engaged in a business that in the reasonable judgment of
the Company is in direct competition with the Company.
5.4 DISPOSITION OF WARRANT SHARES AND COMMON STOCK. With respect to
any offer, sale, or other disposition of the Warrant or any Warrant Shares, the
Holder hereof and each subsequent Holder of this Warrant agrees to give written
notice to the
5
<PAGE>
Company prior thereto, describing briefly the manner thereof, together with a
written opinion of such Holder's counsel, if reasonably requested by the
Company, to the effect that such offer, sale or other disposition may be
effected without registration or qualification (under the Act as then in effect
or any federal or state law then in effect) of such Warrant or Warrant Shares,
as the case may be, and indicating whether or not under the Act certificates for
such Warrant or Warrant Shares to be sold or otherwise disposed of require any
restrictive legend as to applicable restrictions on transferability in order to
insure compliance with the Act. Promptly upon receiving such written notice and
opinion, the Company, as promptly as practicable, shall notify such Holder that
such Holder may sell or otherwise dispose of such Warrant or Warrant Shares, all
in accordance with the terms of the notice delivered to the Company. If a
determination has been made pursuant to this Section 5.4 that the opinion of the
counsel for the Holder is not reasonably satisfactory to the Company, the
Company shall so notify the Holder promptly after such determination has been
made. Notwithstanding the foregoing, such Warrant or Warrant Shares may be
offered, sold or otherwise disposed of in accordance with Rule 144 under the
Act, provided that the Company shall have been furnished with such information
as the Company may request to provide reasonable assurance that the provisions
of Rule 144 have been satisfied. Each certificate representing the Warrant or
Warrant Shares thus transferred (except a transfer pursuant to Rule 144) shall
bear a legend as to the applicable restrictions on transferability in order to
ensure compliance with the Act, unless in the aforesaid opinion of counsel for
the Holder, such legend is not required in order to ensure compliance with the
Act. The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions.
6. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
changed, waived, discharged, or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
7. NOTICES. Any notice, request, or other document required or permitted
to be given or delivered to the Holder hereof or the Company shall be delivered
or shall be sent by certified mail, postage prepaid, to each such Holder at its
address as shown on the books of the Company or to the Company at the address
indicated therefor in the first paragraph of this Warrant or such other address
as either may from time to time provide to the other.
8. OTHER NOTICES. If at any time:
(1) the Company shall declare any cash dividend upon its Common Stock;
6
<PAGE>
(2) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to the
holders of its Common Stock;
(3) the Company shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class or other rights;
(4) there shall be any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the Company
with, or sale of all or substantially all of its assets to, another corporation;
or
(5) there shall be a voluntary or involuntary dissolution,
liquidation, or winding-up of the Company;
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the Holder of this Warrant at the address of
such Holder as shown on the books of the Company, (a) at least 10 days' prior
written notice of the date on which the books of the Company shall close or a
record shall be taken for such dividend, distribution, or subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, at least 10
days' prior written notice of the date when the same shall take place; provided,
however, that the Holder shall make a best efforts attempt to respond to such
notice as early as possible after the receipt thereof. Any notice given in
accordance with the foregoing clause (a) shall also specify, in the case of any
such dividend, distribution, or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto. Any notice given in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding-up or conversion, as the case may be.
9. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of California.
10. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the
7
<PAGE>
Company, at its expense, will make and deliver a new Warrant, of like tenor, in
lieu of the lost, stolen, destroyed or mutilated Warrant.
11. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise
of this Warrant. The Company shall, in lieu of issuing any fractional share,
pay the Holder entitled to such fraction a sum in cash equal to such fraction
(calculated to the nearest 1/100th of a share) multiplied by the then effective
Exercise Price on the date the Form of Subscription is received by the Company.
12. NO IMPAIRMENT. The Company will not, by charter amendment or by
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the Holder against impairment. Upon the request of the Holder, the Company will
at any time during the period this Warrant is outstanding acknowledge in
writing, in form satisfactory to Holder, the continued validity of this Warrant
and the Company's obligations hereunder.
13. SUCCESSORS AND ASSIGNS. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors of the Company
and the Holder. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant, and shall be
enforceable by any such Holder.
8
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officer, thereunto duly authorized as of this day
----
of , .
--------- ----
NEUROBIOLOGICAL TECHNOLOGIES, INC.,
a Delaware corporation
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
9
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: Neurobiological Technologies, Inc.
[Please mark one box]
[ ]The undersigned, the holder of the attached Common Stock Warrant, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
for, and to purchase thereunder, (1) shares of
-----------------------------
Common Stock of Neurobiological Technologies, Inc. (the "Company") and
herewith makes payment of $ therefor, and requests certificates for
--------
such shares be issued in the name of, and delivered to,
--------------------
whose address is .
----------------------------------------------------------
The undersigned, the holder of the attached Common Stock Warrant, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
for, and to purchase thereunder, (1) shares of
-----------------------------
Common Stock of the Company and herewith elects to pay for such shares by
reducing the number of shares issuable thereunder in accordance with Section
1.2 thereof. The undersigned hereby authorizes the Company to make the
required calculation under Section 1.2 of the Warrant.
The undersigned represents that it is acquiring such Common Stock for its
own account for investment and not with a view to or for sale in connection with
any distribution thereof.
DATED: ,
-------------- -----
--------------------------------------------------
(Signature must conform in all respects to name of
Holder as specified on the face of the Warrant)
Name:
--------------------------------------------
Title:
-------------------------------------------
10
<PAGE>
(1) Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the Warrant
is being exercised), in either case without making any adjustment for any stock
or other securities or property or cash which, pursuant to the adjustment
provisions of the Warrant, may be deliverable upon exercise.
11
<PAGE>
Warrant No. B-
---
CLASS B WARRANT TO PURCHASE A MAXIMUM OF
______ SHARES OF COMMON STOCK OF
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(Void after ________, 2001)
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
THIS WARRANT AND THE SHARES PURCHASABLE HEREUNDER ARE SUBJECT TO RESTRICTIONS ON
TRANSFER AS SET FORTH HEREIN.
This certifies that _____________ (the "Holder"), or assigns, for
value received, is entitled to purchase from Neurobiological Technologies, Inc.,
a Delaware corporation (the "Company"), subject to the terms set forth below, a
maximum of _______ (the "Warrant Shares") fully paid and nonassessable shares
(subject to adjustment as provided herein) of the Company's Common Stock, $.001
par value (the "Common Stock"), for cash at a price of $1.50 per share (the
"Exercise Price") (subject to adjustment as provided herein) at any time or from
time to time up to and including 5:00 p.m. (California Time) on _______, 2001,
(the "Expiration Date") upon surrender to the Company at its principal office
(or at such other location as the Company may advise the Holder in writing) of
this Warrant properly endorsed with the Form of Subscription attached hereto
duly filled in and signed and upon payment in cash or by check of the aggregate
Exercise Price for the number of shares for which this Warrant is being
exercised determined in accordance with the provisions hereof. The Exercise
Price is subject to adjustment as provided in Section 3 of this Warrant. This
Warrant is issued subject to the following terms and conditions:
<PAGE>
1. EXERCISE, ISSUANCE OF CERTIFICATES, REDUCTION IN NUMBER OF WARRANT
SHARES.
1.1 GENERAL. This Warrant is exercisable at the option of the Holder
of record hereof on or prior to the Expiration Date, at any time or from time to
time following its issuance, for all or any part of the Warrant Shares (but not
for a fraction of a share) which may be purchased hereunder, as that number may
be adjusted pursuant to Section 3 of this Warrant. The Company agrees that the
Warrant Shares purchased under this Warrant shall be and are deemed to be issued
to the Holder hereof as the record owner of such Warrant Shares as of the close
of business on the date on which this Warrant shall have been surrendered,
properly endorsed, the completed and executed Form of Subscription delivered,
and payment made for such Warrant Shares. Certificates for the Warrant Shares
so purchased, together with any other securities or property to which the Holder
hereof is entitled upon such exercise, shall be delivered to the Holder hereof
by the Company at the Company's expense not later than 10 days after the rights
represented by this Warrant have been so exercised. In case of a purchase of
less than all the Warrant Shares which may be purchased under this Warrant, the
Company shall cancel this Warrant and execute and deliver to the Holder hereof
within a reasonable time a new Warrant or Warrants of like tenor for the balance
of the Warrant Shares purchasable under the Warrant surrendered upon such
purchase. Each stock certificate so delivered shall be registered in the name
of such Holder.
1.2 NET ISSUE EXERCISE OF WARRANT. Notwithstanding any provisions
herein to the contrary, if the fair market value of one share of Common Stock is
greater than the Exercise Price (at the date of calculation as set forth below),
in lieu of exercising this Warrant for cash, Holder may elect to receive shares
of Common Stock equal to the value (as determined below) of this Warrant (or the
portion thereof being canceled) by surrender of this Warrant at the principal
office of the Company together with the properly endorsed Form of Subscription
in which event the Company shall issue to the Holder a number of shares of
Common Stock computed using the following formula:
X= Y (A-B)
-------
A
Where X= the number of shares of Common Stock to be issued to Holder;
Y= the number of shares of Common Stock purchasable under the Warrant
or, if only a portion of the Warrant is being exercised, the
portion of the Warrant being canceled (at the date of such
calculation);
2
<PAGE>
A= the fair market value of one share of the Company's Common Stock
(at the date of such calculation); and
B= Exercise Price (as adjusted to the date of such calculation).
For purposes of the above calculation, the fair market value of one share of
Common Stock shall be the average of the closing bid and asked prices of the
Common Stock quoted in the over-the-counter market summary or the last reported
sale price of the Common Stock or the closing price quoted on the Nasdaq
National Market System or on any exchange on which the Common Stock is listed,
whichever is applicable, as published in The Wall Street Journal for the five
trading days prior to the date of determination of fair market value.
2. SHARES TO BE FULLY PAID. The Company covenants and agrees that all
Warrant Shares, will, upon issuance and, if applicable, payment of the
applicable Exercise Price, be duly authorized, validly issued, fully paid and
nonassessable, and free of all liens and encumbrances, except for restrictions
on transfer provided for herein or under applicable federal and state securities
laws.
3. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The Exercise Price
and the total number of Warrant Shares shall be subject to adjustment from time
to time upon the occurrence of certain events described in this Section 3. Upon
each adjustment of the Exercise Price, the Holder of this Warrant shall
thereafter be entitled to purchase, at the Exercise Price resulting from such
adjustment, the number of shares obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment, and dividing the product
thereof by the Exercise Price resulting from such adjustment.
3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of Warrant Shares
issuable hereunder proportionately increased, and conversely, in case the
outstanding shares of the Common Stock of the Company shall be combined into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of Warrant Shares
issuable hereunder proportionately decreased.
3.2 RECLASSIFICATION. If any reclassification of the capital stock
of the Company or any reorganization, consolidation, merger, or any sale, lease,
license, exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all, of the business and/or assets of the
Company (the "Reclassification
3
<PAGE>
Events") shall be effected in such a way that holders of Common Stock shall be
entitled to receive stock, securities, or other assets or property, then, as a
condition of such Reclassification Event lawful and adequate provisions shall be
made whereby the Holder hereof shall thereafter have the right to purchase and
receive (in lieu of the shares of Common Stock of the Company immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby) such shares of stock, securities, or other assets or
property as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of such
stock immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby. In any Reclassification Event, appropriate
provision shall be made with respect to the rights and interests of the Holder
of this Warrant to the end that the provisions hereof (including, without
limitation, provisions for adjustments of the Exercise Price and of the number
of Warrant Shares), shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities, or assets thereafter deliverable
upon the exercise hereof.
3.3 NOTICE OF ADJUSTMENT. Upon any adjustment of the Exercise Price
or any increase or decrease in the number of Warrant Shares, the Company shall
give written notice thereof, by first class mail postage prepaid, addressed to
the registered Holder of this Warrant at the address of such Holder as shown on
the books of the Company. The notice shall be prepared and signed by the
Company's President and Chief Executive Officer and shall state the Exercise
Price resulting from such adjustment and the increase or decrease, if any, in
the number of shares purchasable at such price upon the exercise of this
Warrant, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
4. NO VOTING OR DIVIDEND RIGHTS. Nothing contained in this Warrant shall
be construed as conferring upon the holder hereof the right to vote or to
consent to receive notice as a shareholder of the Company on any other matters
or any rights whatsoever as a shareholder of the Company. No dividends or
interest shall be payable or accrued in respect of this Warrant or the interest
represented hereby or the shares purchasable hereunder until, and only to the
extent that, this Warrant shall have been exercised.
5. COMPLIANCE WITH SECURITIES ACT; TRANSFERABILITY OF WARRANT;
DISPOSITION OF SHARES OF STOCK.
5.1 COMPLIANCE WITH SECURITIES ACT. The Holder of this Warrant, by
acceptance hereof, agrees that this Warrant and the Warrant Shares to be issued
upon exercise hereof are being acquired for investment and that it will not
offer, sell, or otherwise dispose of this Warrant or any Warrant Shares except
under circumstances which will not result in a violation of the Securities Act
of 1933, as amended (the "Act") or any applicable state securities laws. The
Holder agrees that the Company is under no
4
<PAGE>
obligation to register the Warrants and the Warrant Shares, and Holder
acknowledges that the Company does not intend to cause such a registration. This
Warrant and all Warrant Shares shall be stamped or imprinted with a legend in
substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. THEY MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED, OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
5.2 ACCESS TO INFORMATION; PRE EXISTING RELATIONSHIP. Holder has had
the opportunity to ask questions of, and to receive answers from, appropriate
executive officers of the Company with respect to the terms and conditions of
the transactions contemplated hereby and with respect to the business, affairs,
financial condition and results of operations of the Company. Holder has had
access to such financial and other information as is necessary in order for
Holder to make a fully informed decision as to investment in the Company, and
has had the opportunity to obtain any additional information necessary to verify
any of such information to which Holder has had access. Holder further
represents and warrants that he has either (i) a pre-existing relationship with
the Company or one or more of its officers or directors consisting of personal
or business contacts of a nature and duration which enable him to be aware of
the character, business acumen and general business and financial circumstances
of the Company or the officer or director with whom such relationship exists or
(ii) such business or financial expertise as to be able to protect his own
interests in connection with the purchase of the Shares.
5.3 WARRANT TRANSFERABLE. Subject to compliance with Section 5.4
below and the applicable federal and state securities laws under which this
Warrant was purchased, this Warrant and all rights hereunder are transferable,
in whole or in part, without charge to the Holder (except for transfer taxes),
upon surrender of this Warrant properly endorsed; provided, however, that the
Holder shall notify the Company in writing in advance of any proposed transfer
and shall not transfer this Warrant or any rights hereunder to any person or
entity which is then engaged in a business that in the reasonable judgment of
the Company is in direct competition with the Company.
5.4 DISPOSITION OF WARRANT SHARES AND COMMON STOCK. With respect to
any offer, sale, or other disposition of the Warrant or any Warrant Shares, the
Holder hereof and each subsequent Holder of this Warrant agrees to give written
notice to the
5
<PAGE>
Company prior thereto, describing briefly the manner thereof, together with a
written opinion of such Holder's counsel, if reasonably requested by the
Company, to the effect that such offer, sale or other disposition may be
effected without registration or qualification (under the Act as then in effect
or any federal or state law then in effect) of such Warrant or Warrant Shares,
as the case may be, and indicating whether or not under the Act certificates for
such Warrant or Warrant Shares to be sold or otherwise disposed of require any
restrictive legend as to applicable restrictions on transferability in order to
insure compliance with the Act. Promptly upon receiving such written notice and
opinion, the Company, as promptly as practicable, shall notify such Holder that
such Holder may sell or otherwise dispose of such Warrant or Warrant Shares, all
in accordance with the terms of the notice delivered to the Company. If a
determination has been made pursuant to this Section 5.4 that the opinion of the
counsel for the Holder is not reasonably satisfactory to the Company, the
Company shall so notify the Holder promptly after such determination has been
made. Notwithstanding the foregoing, such Warrant or Warrant Shares may be
offered, sold or otherwise disposed of in accordance with Rule 144 under the
Act, provided that the Company shall have been furnished with such information
as the Company may request to provide reasonable assurance that the provisions
of Rule 144 have been satisfied. Each certificate representing the Warrant or
Warrant Shares thus transferred (except a transfer pursuant to Rule 144) shall
bear a legend as to the applicable restrictions on transferability in order to
ensure compliance with the Act, unless in the aforesaid opinion of counsel for
the Holder, such legend is not required in order to ensure compliance with the
Act. The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions.
6. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
changed, waived, discharged, or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
7. NOTICES. Any notice, request, or other document required or permitted
to be given or delivered to the Holder hereof or the Company shall be delivered
or shall be sent by certified mail, postage prepaid, to each such Holder at its
address as shown on the books of the Company or to the Company at the address
indicated therefor in the first paragraph of this Warrant or such other address
as either may from time to time provide to the other.
8. OTHER NOTICES. If at any time:
(1) the Company shall declare any cash dividend upon its Common Stock;
6
<PAGE>
(2) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to the
holders of its Common Stock;
(3) the Company shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class or other rights;
(4) there shall be any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the Company
with, or sale of all or substantially all of its assets to, another corporation;
or
(5) there shall be a voluntary or involuntary dissolution,
liquidation, or winding-up of the Company;
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the Holder of this Warrant at the address of
such Holder as shown on the books of the Company, (a) at least 10 days' prior
written notice of the date on which the books of the Company shall close or a
record shall be taken for such dividend, distribution, or subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, at least 10
days' prior written notice of the date when the same shall take place; provided,
however, that the Holder shall make a best efforts attempt to respond to such
notice as early as possible after the receipt thereof. Any notice given in
accordance with the foregoing clause (a) shall also specify, in the case of any
such dividend, distribution, or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto. Any notice given in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding-up or conversion, as the case may be.
9. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of California.
10. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the
7
<PAGE>
Company, at its expense, will make and deliver a new Warrant, of like tenor, in
lieu of the lost, stolen, destroyed or mutilated Warrant.
11. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise
of this Warrant. The Company shall, in lieu of issuing any fractional share,
pay the Holder entitled to such fraction a sum in cash equal to such fraction
(calculated to the nearest 1/100th of a share) multiplied by the then effective
Exercise Price on the date the Form of Subscription is received by the Company.
12. NO IMPAIRMENT. The Company will not, by charter amendment or by
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the Holder against impairment. Upon the request of the Holder, the Company will
at any time during the period this Warrant is outstanding acknowledge in
writing, in form satisfactory to Holder, the continued validity of this Warrant
and the Company's obligations hereunder.
13. SUCCESSORS AND ASSIGNS. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors of the Company
and the Holder. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant, and shall be
enforceable by any such Holder.
8
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officer, thereunto duly authorized as of this ____ day of
_________, ____.
NEUROBIOLOGICAL TECHNOLOGIES, INC.,
a Delaware corporation
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
9
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: Neurobiological Technologies, Inc.
[Please mark one box]
[ ]The undersigned, the holder of the attached Common Stock Warrant, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
for, and to purchase thereunder, (1) shares of
-----------------------------
Common Stock of Neurobiological Technologies, Inc. (the "Company") and
herewith makes payment of $ therefor, and requests certificates for
--------
such shares be issued in the name of, and delivered to,
--------------------
whose address is
-----------------------------------------------------------.
[ ]The undersigned, the holder of the attached Common Stock Warrant, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
for, and to purchase thereunder, (1) shares of
-----------------------------
Common Stock of the Company and herewith elects to pay for such shares by
reducing the number of shares issuable thereunder in accordance with Section
1.2 thereof. The undersigned hereby authorizes the Company to make the
required calculation under Section 1.2 of the Warrant.
The undersigned represents that it is acquiring such Common Stock for its
own account for investment and not with a view to or for sale in connection with
any distribution thereof.
DATED: ,
------------- -----
--------------------------------------------------
(Signature must conform in all respects to name of
Holder as specified on the face of the Warrant)
Name:
-------------------------------------------
Title:
------------------------------------------
10
<PAGE>
(1) Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the Warrant
is being exercised), in either case without making any adjustment for any stock
or other securities or property or cash which, pursuant to the adjustment
provisions of the Warrant, may be deliverable upon exercise.
11
<PAGE>
Warrant No.
---
WARRANT TO PURCHASE A MAXIMUM OF
25,000 SHARES OF COMMON STOCK OF
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(Void after April , 2001)
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
THIS WARRANT AND THE SHARES PURCHASABLE HEREUNDER ARE SUBJECT TO RESTRICTIONS ON
TRANSFER AS SET FORTH HEREIN.
This certifies that Children's Medical Center Corporation (the
"Holder"), or assigns, for value received, is entitled to purchase from
Neurobiological Technologies, Inc., a Delaware corporation (the "Company"),
subject to the terms set forth below, a maximum of 25,000 (the "Warrant Shares")
fully paid and nonassessable shares (subject to adjustment as provided herein)
of the Company's Common Stock, $.001 par value (the "Common Stock"), for cash at
a price of $3.00 per share (the "Exercise Price") (subject to adjustment as
provided herein) at any time or from time to time up to and including 5:00 p.m.
(California Time) on April , 2001, (the "Expiration Date") upon surrender to
the Company at its principal office (or at such other location as the Company
may advise the Holder in writing) of this Warrant properly endorsed with the
Form of Subscription attached hereto duly filled in and signed and upon payment
in cash or by check of the aggregate Exercise Price for the number of shares for
which this Warrant is being exercised determined in accordance with the
provisions hereof. The Exercise Price is subject to adjustment as provided in
Section 3 of this Warrant. This Warrant is issued subject to the following
terms and conditions:
1. EXERCISE, ISSUANCE OF CERTIFICATES, REDUCTION IN NUMBER OF WARRANT
SHARES. This Warrant is exercisable at the option of the Holder of record
hereof on or prior to the Expiration Date, at any time or from time to time
following its issuance, for
<PAGE>
all or any part of the Warrant Shares (but not for a fraction of a share) which
may be purchased hereunder, as that number may be adjusted pursuant to Section 3
of this Warrant. The Company agrees that the Warrant Shares purchased under this
Warrant shall be and are deemed to be issued to the Holder hereof as the record
owner of such Warrant Shares as of the close of business on the date on which
this Warrant shall have been surrendered, properly endorsed, the completed and
executed Form of Subscription delivered, and payment made for such Warrant
Shares. Certificates for the Warrant Shares so purchased, together with any
other securities or property to which the Holder hereof is entitled upon such
exercise, shall be delivered to the Holder hereof by the Company at the
Company's expense not later than 10 days after the rights represented by this
Warrant have been so exercised. In case of a purchase of less than all the
Warrant Shares which may be purchased under this Warrant, the Company shall
cancel this Warrant and execute and deliver to the Holder hereof within a
reasonable time a new Warrant or Warrants of like tenor for the balance of the
Warrant Shares purchasable under the Warrant surrendered upon such purchase.
Each stock certificate so delivered shall be registered in the name of such
Holder.
2. SHARES TO BE FULLY PAID. The Company covenants and agrees that
all Warrant Shares, will, upon issuance and payment of the applicable Exercise
Price, be duly authorized, validly issued, fully paid and nonassessable, and
free of all liens and encumbrances, except for restrictions on transfer provided
for herein or under applicable federal and state securities laws.
3. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The Exercise
Price and the total number of Warrant Shares shall be subject to adjustment from
time to time upon the occurrence of certain events described in this Section 3.
Upon each adjustment of the Exercise Price, the Holder of this Warrant shall
thereafter be entitled to purchase, at the Exercise Price resulting from such
adjustment, the number of shares obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment, and dividing the product
thereof by the Exercise Price resulting from such adjustment.
3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of Warrant Shares
issuable hereunder proportionately increased, and conversely, in case the
outstanding shares of the Common Stock of the Company shall be combined into a
smaller number of shares, the Exercise
2
<PAGE>
Price in effect immediately prior to such combination shall be proportionately
increased and the number of Warrant Shares issuable hereunder proportionately
decreased.
3.2 RECLASSIFICATION. If any reclassification of the capital stock
of the Company or any reorganization, consolidation, merger, or any sale, lease,
license, exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all, of the business and/or assets of the
Company (the "Reclassification Events") shall be effected in such a way that
holders of Common Stock shall be entitled to receive stock, securities, or other
assets or property, then, as a condition of such Reclassification Event lawful
and adequate provisions shall be made whereby the Holder hereof shall thereafter
have the right to purchase and receive (in lieu of the shares of Common Stock of
the Company immediately theretofore purchasable and receivable upon the exercise
of the rights represented hereby) such shares of stock, securities, or other
assets or property as may be issued or payable with respect to or in exchange
for a number of outstanding shares of such Common Stock equal to the number of
shares of such stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby. In any Reclassification Event,
appropriate provision shall be made with respect to the rights and interests of
the Holder of this Warrant to the end that the provisions hereof (including,
without limitation, provisions for adjustments of the Exercise Price and of the
number of Warrant Shares), shall thereafter be applicable, as nearly as may be,
in relation to any shares of stock, securities, or assets thereafter deliverable
upon the exercise hereof.
3.3 NOTICE OF ADJUSTMENT. Upon any adjustment of the Exercise
Price or any increase or decrease in the number of Warrant Shares, the Company
shall give written notice thereof, by first class mail postage prepaid,
addressed to the registered Holder of this Warrant at the address of such Holder
as shown on the books of the Company. The notice shall be prepared and signed by
the Company's President and Chief Executive Officer and shall state the Exercise
Price resulting from such adjustment and the increase or decrease, if any, in
the number of shares purchasable at such price upon the exercise of this
Warrant, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
4. NO VOTING OR DIVIDEND RIGHTS. Nothing contained in this Warrant
shall be construed as conferring upon the holder hereof the right to vote or to
consent to receive notice as a shareholder of the Company on any other matters
or any rights whatsoever as a shareholder of the Company. No dividends or
interest shall be payable or accrued in respect of this Warrant or the interest
represented hereby or the shares purchasable hereunder until, and only to the
extent that, this Warrant shall have been exercised.
3
<PAGE>
5. COMPLIANCE WITH SECURITIES ACT; TRANSFERABILITY OF WARRANT;
DISPOSITION OF SHARES OF STOCK.
5.1 COMPLIANCE WITH SECURITIES ACT. The Holder of this Warrant, by
acceptance hereof, agrees that this Warrant and the Warrant Shares to be issued
upon exercise hereof are being acquired for investment and that it will not
offer, sell, or otherwise dispose of this Warrant or any Warrant Shares except
under circumstances which will not result in a violation of the Securities Act
of 1933, as amended (the "Act") or any applicable state securities laws. The
Holder of this Warrant, by acceptance hereof, represents to the Company that
such Holder is an "accredited investor" within the meaning of the Act. The
Holder agrees that the Company is under no obligation to register the Warrants
and the Warrant Shares, and Holder acknowledges that the Company does not intend
to cause such a registration. This Warrant and all Warrant Shares shall be
stamped or imprinted with a legend in substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. THEY MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED, OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
5.2 ACCESS TO INFORMATION; PRE EXISTING RELATIONSHIP. Holder has
had the opportunity to ask questions of, and to receive answers from,
appropriate executive officers of the Company with respect to the terms and
conditions of the transactions contemplated hereby and with respect to the
business, affairs, financial condition and results of operations of the Company.
Holder has had access to such financial and other information as is necessary in
order for Holder to make a fully informed decision as to investment in the
Company, and has had the opportunity to obtain any additional information
necessary to verify any of such information to which Holder has had access.
Holder further represents and warrants that he has either (i) a pre-existing
relationship with the Company or one or more of its officers or directors
consisting of personal or business contacts of a nature and duration which
enable him to be aware of the character, business acumen and general business
and financial circumstances of the Company or the officer or director with whom
such relationship exists or (ii) such business or financial
4
<PAGE>
expertise as to be able to protect his own interests in connection with the
purchase of the Shares.
5.3 WARRANT TRANSFERABLE. Subject to compliance with Section 5.4
below and the applicable federal and state securities laws under which this
Warrant was purchased, this Warrant and all rights hereunder are transferable,
in whole or in part, without charge to the Holder (except for transfer taxes),
upon surrender of this Warrant properly endorsed; provided, however, that the
Holder shall notify the Company in writing in advance of any proposed transfer
and shall not transfer this Warrant or any rights hereunder to any person or
entity which is then engaged in a business that in the reasonable judgment of
the Company is in direct competition with the Company.
5.4 DISPOSITION OF WARRANT SHARES AND COMMON STOCK. With respect
to any offer, sale, or other disposition of the Warrant or any Warrant Shares,
the Holder hereof and each subsequent Holder of this Warrant agrees to give
written notice to the Company prior thereto, describing briefly the manner
thereof, together with a written opinion of such Holder's counsel, if requested
by the Company, to the effect that such offer, sale or other disposition may be
effected without registration or qualification (under the Act as then in effect
or any federal or state law then in effect) of such Warrant or Warrant Shares,
as the case may be, and indicating whether or not under the Act certificates for
such Warrant or Warrant Shares to be sold or otherwise disposed of require any
restrictive legend as to applicable restrictions on transferability in order to
insure compliance with the Act. Promptly upon receiving such written notice and
opinion, the Company, as promptly as practicable, shall notify such Holder that
such Holder may sell or otherwise dispose of such Warrant or Warrant Shares, all
in accordance with the terms of the notice delivered to the Company. If a
determination has been made pursuant to this Section 5.4 that the opinion of the
counsel for the Holder is not reasonably satisfactory to the Company, the
Company shall so notify the Holder promptly after such determination has been
made. Notwithstanding the foregoing, such Warrant or Warrant Shares may be
offered, sold or otherwise disposed of in accordance with Rule 144 under the
Act, provided that the Company shall have been furnished with such information
as the Company may request to provide reasonable assurance that the provisions
of Rule 144 have been satisfied. Each certificate representing the Warrant or
Warrant Shares thus transferred (except a transfer pursuant to Rule 144) shall
bear a legend as to the applicable restrictions on transferability in order to
ensure compliance with the Act, unless in the aforesaid opinion of counsel for
the Holder, such legend is not required in order to ensure compliance with the
Act. The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions.
5
<PAGE>
6. MODIFICATION AND WAIVER. This Warrant and any provision hereof
may be changed, waived, discharged, or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
7. NOTICES. Any notice, request, or other document required or
permitted to be given or delivered to the Holder hereof or the Company shall be
delivered or shall be sent by certified mail, postage prepaid, to each such
Holder at its address as shown on the books of the Company or to the Company at
the address indicated therefor in the first paragraph of this Warrant or such
other address as either may from time to time provide to the other.
8. OTHER NOTICES. If at any time:
(1) the Company shall declare any cash dividend upon its Common
Stock;
(2) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to the
holders of its Common Stock;
(3) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights;
(4) there shall be any capital reorganization or reclassification
of the capital stock of the Company, or consolidation or merger of the Company
with, or sale of all or substantially all of its assets to, another corporation;
or
(5) there shall be a voluntary or involuntary dissolution,
liquidation, or winding-up of the Company;
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the Holder of this Warrant at the address of
such Holder as shown on the books of the Company, (a) at least 10 days' prior
written notice of the date on which the books of the Company shall close or a
record shall be taken for such dividend, distribution, or subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, at least 10
days' prior written notice of the date when the same shall take place; provided,
however, that the Holder shall make a best efforts attempt to respond to such
notice as early as possible
6
<PAGE>
after the receipt thereof. Any notice given in accordance with the foregoing
clause (a) shall also specify, in the case of any such dividend, distribution,
or subscription rights, the date on which the holders of Common Stock shall be
entitled thereto. Any notice given in accordance with the foregoing clause (b)
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, winding-up or conversion, as the case may be.
9. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of California.
10. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
11. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional
share, pay the Holder entitled to such fraction a sum in cash equal to such
fraction (calculated to the nearest 1/100th of a share) multiplied by the then
effective Exercise Price on the date the Form of Subscription is received by the
Company.
12. NO IMPAIRMENT. The Company will not, by charter amendment or by
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the Holder against impairment. Upon the request of the Holder, the Company will
at any time during the period this Warrant is outstanding acknowledge in
writing, in form satisfactory to Holder, the continued validity of this Warrant
and the Company's obligations hereunder.
7
<PAGE>
13. SUCCESSORS AND ASSIGNS. This Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the successors of the
Company and the Holder. The provisions of this Warrant are intended to be for
the benefit of all Holders from time to time of this Warrant, and shall be
enforceable by any such Holder.
8
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officer, thereunto duly authorized as of this day of April,
1998. --
NEUROBIOLOGICAL TECHNOLOGIES, INC.,
a Delaware corporation
By:
------------------------------------------
Name: Paul E. Freiman
Title: Chief Executive Officer and President
9
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: Neurobiological Technologies, Inc.
The undersigned, the holder of the attached Common Stock Warrant, hereby
irrevocably elects to exercise the purchase right represented by such
Warrant for, and to purchase thereunder, (1)
-----------------------------
shares of Common Stock of Neurobiological Technologies, Inc. (the
"Company") and herewith makes payment of $ therefor, and requests
certificates for such shares be issued in the name of, and delivered to,
whose address is
------------------------------- ----------------------
-----------------------------------------------.
The undersigned represents that it is acquiring such Common Stock for its
own account for investment and not with a view to or for sale in connection with
any distribution thereof.
DATED:
-----------, -----
______________________________________
(Signature must conform in all respects to name of
Holder as specified on the face of the Warrant)
Name: _________________________________
Title: _________________________________
(1) Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the Warrant
is being exercised), in either case without making any adjustment for any stock
or other securities or property or cash which, pursuant to the adjustment
provisions of the Warrant, may be deliverable upon exercise.
10
<PAGE>
Warrant No.
------
WARRANT TO PURCHASE A MAXIMUM OF
100,000 SHARES OF COMMON STOCK OF
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(Void after April , 2001)
---
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
THIS WARRANT AND THE SHARES PURCHASABLE HEREUNDER ARE SUBJECT TO RESTRICTIONS ON
TRANSFER AS SET FORTH HEREIN.
This certifies that Children's Medical Center Corporation (the
"Holder"), or assigns, for value received, is entitled to purchase from
Neurobiological Technologies, Inc., a Delaware corporation (the "Company"),
subject to the terms set forth below, a maximum of 100,000 (the "Warrant
Shares") fully paid and nonassessable shares (subject to adjustment as provided
herein) of the Company's Common Stock, $.001 par value (the "Common Stock"), for
cash at a price of $1.25 per share (the "Exercise Price") (subject to adjustment
as provided herein) at any time or from time to time up to and including 5:00
p.m. (California Time) on April , 2001, (the "Expiration Date") upon surrender
---
to the Company at its principal office (or at such other location as the Company
may advise the Holder in writing) of this Warrant properly endorsed with the
Form of Subscription attached hereto duly filled in and signed and upon payment
in cash or by check of the aggregate Exercise Price for the number of shares for
which this Warrant is being exercised determined in accordance with the
provisions hereof. The Exercise Price is subject to adjustment as provided in
Section 3 of this Warrant. This Warrant is issued subject to the following
terms and conditions:
1. EXERCISE, ISSUANCE OF CERTIFICATES, REDUCTION IN NUMBER OF WARRANT
SHARES. This Warrant is exercisable at the option of the Holder of record
hereof on or prior to the Expiration Date, at any time or from time to time
following its issuance, for
<PAGE>
all or any part of the Warrant Shares (but not for a fraction of a share) which
may be purchased hereunder, as that number may be adjusted pursuant to Section 3
of this Warrant. The Company agrees that the Warrant Shares purchased under this
Warrant shall be and are deemed to be issued to the Holder hereof as the record
owner of such Warrant Shares as of the close of business on the date on which
this Warrant shall have been surrendered, properly endorsed, the completed and
executed Form of Subscription delivered, and payment made for such Warrant
Shares. Certificates for the Warrant Shares so purchased, together with any
other securities or property to which the Holder hereof is entitled upon such
exercise, shall be delivered to the Holder hereof by the Company at the
Company's expense not later than 10 days after the rights represented by this
Warrant have been so exercised. In case of a purchase of less than all the
Warrant Shares which may be purchased under this Warrant, the Company shall
cancel this Warrant and execute and deliver to the Holder hereof within a
reasonable time a new Warrant or Warrants of like tenor for the balance of the
Warrant Shares purchasable under the Warrant surrendered upon such purchase.
Each stock certificate so delivered shall be registered in the name of such
Holder.
2. SHARES TO BE FULLY PAID. The Company covenants and agrees that
all Warrant Shares, will, upon issuance and payment of the applicable Exercise
Price, be duly authorized, validly issued, fully paid and nonassessable, and
free of all liens and encumbrances, except for restrictions on transfer provided
for herein or under applicable federal and state securities laws.
3. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The Exercise
Price and the total number of Warrant Shares shall be subject to adjustment from
time to time upon the occurrence of certain events described in this Section 3.
Upon each adjustment of the Exercise Price, the Holder of this Warrant shall
thereafter be entitled to purchase, at the Exercise Price resulting from such
adjustment, the number of shares obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment, and dividing the product
thereof by the Exercise Price resulting from such adjustment.
3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of Warrant Shares
issuable hereunder proportionately increased, and conversely, in case the
outstanding shares of the Common Stock of the Company shall be combined into a
smaller number of shares, the Exercise
2
<PAGE>
Price in effect immediately prior to such combination shall be proportionately
increased and the number of Warrant Shares issuable hereunder proportionately
decreased.
3.2 RECLASSIFICATION. If any reclassification of the capital stock
of the Company or any reorganization, consolidation, merger, or any sale, lease,
license, exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all, of the business and/or assets of the
Company (the "Reclassification Events") shall be effected in such a way that
holders of Common Stock shall be entitled to receive stock, securities, or other
assets or property, then, as a condition of such Reclassification Event lawful
and adequate provisions shall be made whereby the Holder hereof shall thereafter
have the right to purchase and receive (in lieu of the shares of Common Stock of
the Company immediately theretofore purchasable and receivable upon the exercise
of the rights represented hereby) such shares of stock, securities, or other
assets or property as may be issued or payable with respect to or in exchange
for a number of outstanding shares of such Common Stock equal to the number of
shares of such stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby. In any Reclassification Event,
appropriate provision shall be made with respect to the rights and interests of
the Holder of this Warrant to the end that the provisions hereof (including,
without limitation, provisions for adjustments of the Exercise Price and of the
number of Warrant Shares), shall thereafter be applicable, as nearly as may be,
in relation to any shares of stock, securities, or assets thereafter deliverable
upon the exercise hereof.
3.3 NOTICE OF ADJUSTMENT. Upon any adjustment of the Exercise Price
or any increase or decrease in the number of Warrant Shares, the Company shall
give written notice thereof, by first class mail postage prepaid, addressed to
the registered Holder of this Warrant at the address of such Holder as shown on
the books of the Company. The notice shall be prepared and signed by the
Company's President and Chief Executive Officer and shall state the Exercise
Price resulting from such adjustment and the increase or decrease, if any, in
the number of shares purchasable at such price upon the exercise of this
Warrant, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
4. NO VOTING OR DIVIDEND RIGHTS. Nothing contained in this Warrant
shall be construed as conferring upon the holder hereof the right to vote or to
consent to receive notice as a shareholder of the Company on any other matters
or any rights whatsoever as a shareholder of the Company. No dividends or
interest shall be payable or accrued in respect of this Warrant or the interest
represented hereby or the shares purchasable hereunder until, and only to the
extent that, this Warrant shall have been exercised.
3
<PAGE>
5. COMPLIANCE WITH SECURITIES ACT; TRANSFERABILITY OF WARRANT;
DISPOSITION OF SHARES OF STOCK.
5.1 COMPLIANCE WITH SECURITIES ACT. The Holder of this Warrant, by
acceptance hereof, agrees that this Warrant and the Warrant Shares to be issued
upon exercise hereof are being acquired for investment and that it will not
offer, sell, or otherwise dispose of this Warrant or any Warrant Shares except
under circumstances which will not result in a violation of the Securities Act
of 1933, as amended (the "Act") or any applicable state securities laws. The
Holder of this Warrant, by acceptance hereof, represents to the Company that
such Holder is an "accredited investor" within the meaning of the Act. The
Holder agrees that the Company is under no obligation to register the Warrants
and the Warrant Shares, and Holder acknowledges that the Company does not intend
to cause such a registration. This Warrant and all Warrant Shares shall be
stamped or imprinted with a legend in substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. THEY MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED, OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
5.2 ACCESS TO INFORMATION; PRE EXISTING RELATIONSHIP. Holder has had
the opportunity to ask questions of, and to receive answers from, appropriate
executive officers of the Company with respect to the terms and conditions of
the transactions contemplated hereby and with respect to the business, affairs,
financial condition and results of operations of the Company. Holder has had
access to such financial and other information as is necessary in order for
Holder to make a fully informed decision as to investment in the Company, and
has had the opportunity to obtain any additional information necessary to verify
any of such information to which Holder has had access. Holder further
represents and warrants that he has either (i) a pre-existing relationship with
the Company or one or more of its officers or directors consisting of personal
or business contacts of a nature and duration which enable him to be aware of
the character, business acumen and general business and financial circumstances
of the Company or the officer or director with whom such relationship exists or
(ii) such business or financial
4
<PAGE>
expertise as to be able to protect his own interests in connection with the
purchase of the Shares.
5.3 WARRANT TRANSFERABLE. Subject to compliance with Section 5.4
below and the applicable federal and state securities laws under which this
Warrant was purchased, this Warrant and all rights hereunder are transferable,
in whole or in part, without charge to the Holder (except for transfer taxes),
upon surrender of this Warrant properly endorsed; provided, however, that the
Holder shall notify the Company in writing in advance of any proposed transfer
and shall not transfer this Warrant or any rights hereunder to any person or
entity which is then engaged in a business that in the reasonable judgment of
the Company is in direct competition with the Company.
5.4 DISPOSITION OF WARRANT SHARES AND COMMON STOCK. With respect to
any offer, sale, or other disposition of the Warrant or any Warrant Shares, the
Holder hereof and each subsequent Holder of this Warrant agrees to give written
notice to the Company prior thereto, describing briefly the manner thereof,
together with a written opinion of such Holder's counsel, if requested by the
Company, to the effect that such offer, sale or other disposition may be
effected without registration or qualification (under the Act as then in effect
or any federal or state law then in effect) of such Warrant or Warrant Shares,
as the case may be, and indicating whether or not under the Act certificates for
such Warrant or Warrant Shares to be sold or otherwise disposed of require any
restrictive legend as to applicable restrictions on transferability in order to
insure compliance with the Act. Promptly upon receiving such written notice and
opinion, the Company, as promptly as practicable, shall notify such Holder that
such Holder may sell or otherwise dispose of such Warrant or Warrant Shares, all
in accordance with the terms of the notice delivered to the Company. If a
determination has been made pursuant to this Section 5.4 that the opinion of the
counsel for the Holder is not reasonably satisfactory to the Company, the
Company shall so notify the Holder promptly after such determination has been
made. Notwithstanding the foregoing, such Warrant or Warrant Shares may be
offered, sold or otherwise disposed of in accordance with Rule 144 under the
Act, provided that the Company shall have been furnished with such information
as the Company may request to provide reasonable assurance that the provisions
of Rule 144 have been satisfied. Each certificate representing the Warrant or
Warrant Shares thus transferred (except a transfer pursuant to Rule 144) shall
bear a legend as to the applicable restrictions on transferability in order to
ensure compliance with the Act, unless in the aforesaid opinion of counsel for
the Holder, such legend is not required in order to ensure compliance with the
Act. The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions.
5
<PAGE>
6. MODIFICATION AND WAIVER. This Warrant and any provision hereof
may be changed, waived, discharged, or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
7. NOTICES. Any notice, request, or other document required or
permitted to be given or delivered to the Holder hereof or the Company shall be
delivered or shall be sent by certified mail, postage prepaid, to each such
Holder at its address as shown on the books of the Company or to the Company at
the address indicated therefor in the first paragraph of this Warrant or such
other address as either may from time to time provide to the other.
8. OTHER NOTICES. If at any time:
(1) the Company shall declare any cash dividend upon its Common Stock;
(2) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to the
holders of its Common Stock;
(3) the Company shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class or other rights;
(4) there shall be any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the Company
with, or sale of all or substantially all of its assets to, another corporation;
or
(5) there shall be a voluntary or involuntary dissolution,
liquidation, or winding-up of the Company;
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the Holder of this Warrant at the address of
such Holder as shown on the books of the Company, (a) at least 10 days' prior
written notice of the date on which the books of the Company shall close or a
record shall be taken for such dividend, distribution, or subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, at least 10
days' prior written notice of the date when the same shall take place; provided,
however, that the Holder shall make a best efforts attempt to respond to such
notice as early as possible
6
<PAGE>
after the receipt thereof. Any notice given in accordance with the foregoing
clause (a) shall also specify, in the case of any such dividend, distribution,
or subscription rights, the date on which the holders of Common Stock shall be
entitled thereto. Any notice given in accordance with the foregoing clause (b)
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, winding-up or conversion, as the case may be.
9. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of California.
10. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
11. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional
share, pay the Holder entitled to such fraction a sum in cash equal to such
fraction (calculated to the nearest 1/100th of a share) multiplied by the then
effective Exercise Price on the date the Form of Subscription is received by the
Company.
12. NO IMPAIRMENT. The Company will not, by charter amendment or by
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the Holder against impairment. Upon the request of the Holder, the Company will
at any time during the period this Warrant is outstanding acknowledge in
writing, in form satisfactory to Holder, the continued validity of this Warrant
and the Company's obligations hereunder.
13. SUCCESSORS AND ASSIGNS. This Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the successors of the
Company and the
7
<PAGE>
Holder. The provisions of this Warrant are intended to be for the benefit of all
Holders from time to time of this Warrant, and shall be enforceable by any such
Holder.
8
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officer, thereunto duly authorized as of this day of April,
---
1998.
NEUROBIOLOGICAL TECHNOLOGIES, INC.,
a Delaware corporation
By:
----------------------------------------
Name: Paul E. Freiman
Title: Chief Executive Officer and President
9
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: Neurobiological Technologies, Inc.
The undersigned, the holder of the attached Common Stock Warrant, hereby
irrevocably elects to exercise the purchase right represented by such
Warrant for, and to purchase thereunder, (1) shares of
---------------------
Common Stock of Neurobiological Technologies, Inc. (the "Company") and
herewith makes payment of $ therefor, and requests certificates
--------
for such shares be issued in the name of, and delivered to,
------------
whose address is .
----------------------------- ------------------------
The undersigned represents that it is acquiring such Common Stock for its
own account for investment and not with a view to or for sale in connection with
any distribution thereof.
DATED: ,
------------- -----
--------------------------------------------------
(Signature must conform in all respects to name of
Holder as specified on the face of the Warrant)
Name:
-------------------------------------------
Title:
------------------------------------------
(1) Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the Warrant
is being exercised), in either case without making any adjustment for any stock
or other securities or property or cash which, pursuant to the adjustment
provisions of the Warrant, may be deliverable upon exercise.
10
<PAGE>
SECOND AMENDMENT TO LEASE
This Second Amendment to Lease ("Amendment") is made and entered into
as of May 15, 1998 by and between MARINA WESTSHORE PARTNERS, LLC, a California
limited liability company ("Landlord") and NEUROBIOLOGICAL TECHNOLOGIES, INC., a
Delaware corporation ("Tenant").
R E C I T A L S
A. Landlord's predecessor in interest and Tenant entered into that
certain lease captioned "Marina Bay Business Park Office Lease" dated August 22,
1994, which lease has been amended by that certain Addendum to Office Lease of
even date and by that certain First Amendment of Lease dated November 17, 1994
(collectively referred to as, the "Lease").
B. Landlord and Tenant desire to modify the Lease as set forth in
this Amendment, which modifications shall be deemed effective as of the date of
this Amendment first indicated above.
NOW, THEREFORE, for mutual consideration, the receipt and adequacy of
which is hereby acknowledged, Landlord and Tenant hereby amend the Lease as
follows:
1. Definitions. All capitalized terms used herein and not otherwise
-----------
defined in this Amendment shall have the meanings attributed to them in the
Lease.
2. Rentable Area of the Premises. The Rentable Area of the Premises
-----------------------------
is hereby decreased from 12,500 square feet of space to 6,912 square feet of
space, as
<PAGE>
indicated on the Floor Plan attached hereto as Exhibit A. Exhibit A to the Lease
---------
and Exhibit A to the First Amendment are hereby replaced in their entirety with
Exhibit A hereto.
- ---------
3. Expiration of Term. The Term of the Lease shall expire on April
------------------
30, 1999, subject to extension as set forth in Paragraph 8 below.
4. Rent. The Fixed Monthly Rent payable to Landlord for the
----
remainder of the Term shall be $2,450.00 and Tenant's Share of Operating
Expenses and Real Estate Taxes shall decrease from 9.75% to 5.39%.
5. Subletting. Notwithstanding the provisions of Section 15 of the
----------
Lease, Tenant may not sublet the Premises, which shall include the subletting of
laboratories located in the Premises, without Landlord's prior written approval.
6. Security Deposit. Provided Tenant is not in default under the
----------------
Lease, Tenant's Security Deposit in the amount of $11,000.00 shall be applied
towards Fixed Monthly Rent commencing as of the date of this Amendment until the
total amount of the Security Deposit has been depleted. Tenant shall have no
obligation to restore the Security Deposit as provided in Section 22 of the
Lease except in the event Tenant defaults under the Lease.
7. Tenant Reimbursement. Landlord shall reimburse Tenant in an
--------------------
amount not to exceed $6,500.00 for legal fees and expenses reasonably incurred
by Tenant in connection with the negotiation and execution of this Amendment and
Tenant's previous negotiations with Genteric Corporation. Such reimbursement
shall be made within thirty
2
<PAGE>
(30) days following Tenant's written demand which demand shall be accompanied by
reasonable evidence of Tenant's incurred costs.
8. Option to Extend. Provided the Lease is in full force and effect
----------------
and Tenant is not in default thereunder or hereunder, Tenant shall have the
right to extend the new Term of the Lease for an additional one (1) year period
upon prior written notice to Landlord given no later than March 1, 1999. It is
understood and agreed that Tenant's submittal of Tenant's Extension Notice shall
bind Tenant to a one (1) year extension of the Lease. The Extended Term shall
be on the same terms and conditions of the Lease, as amended by this Amendment,
including the payment of Fixed Monthly Rent and Tenant's Share of Operating
Expenses and Real Estate Taxes. Section 25 of the Lease is hereby deleted in
its entirety.
9. Expansion Options. The Addendum to Office Lease regarding Tenant's
-----------------
option to expand into the Adjacent Space and Section 26 of the Lease regarding
Tenant's Expansion Option are hereby deleted in their entirety.
10. Parking. Section 27 of the Lease is hereby amended to decrease the
-------
number of Tenant's non-exclusive parking spaces from 38 space to 20 spaces in
the parking areas designated by Landlord.
11. Access. Tenant acknowledges that the Fire Department for the City
------
of Richmond may require an emergency access exit through the hallways of the
Premises for the benefit of QRS Corporation ("QRS"), the tenant occupying space
adjacent to Tenant ("QRS Space"). Tenant agrees to cooperate with the Fire
Department and QRS to ensure
3
<PAGE>
such emergency access exit through the hallways of the Premises in the event
such emergency access is required. Tenant agrees to cooperate with QRS in order
to develop safety and security procedures and systems for emergency access
through the doors separating the Premises and the QRS Space. Landlord agrees
that Landlord's lease with QRS for the QRS Space shall provide for such
reciprocal emergency access through the hallways of the QRS Space for the
benefit of Tenant and shall further provide that QRS shall cooperate with Tenant
to develop safety and security procedures for emergency access through the doors
separating the Premises and the QRS Space.
12. Restroom Facilities. Tenant hereby agrees that QRS, its employees,
-------------------
guests and invitees have a non-exclusive right to use the existing restroom
facilities located in the Premises during regular business hours, 8:00 a.m. to
5:00 p.m. Monday through Friday, excluding regular holidays, until such time as
new restroom facilities are constructed by QRS for QRS, its employees, guests
and invitees.
13. Miscellaneous Provisions.
------------------------
(a) Counterparts. This Amendment may be executed in several
------------
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
(b) Effect of Amendment; Ratification. Except to the extent the
---------------------------------
Lease is modified by this Amendment, the terms and provisions of the Lease shall
remain unmodified and in full force and effect. In the event of a conflict
between the terms of the Lease and the terms of this Amendment, the terms of
this Amendment shall prevail.
4
<PAGE>
(c) Governing Law. The Lease, this Amendment and any enforcement
-------------
of the agreements and modifications set forth therein or herein shall be
governed by and construed in accordance with the laws of the State of
California.
(d) Sole Agreement. The Lease, as amended hereby, and that
--------------
certain Letter dated May 6, 1998 from Landlord to Tenant concerning Landlord's
indemnification obligations to Tenant regarding Genteric Corporation, shall
constitute the sole agreement between Landlord and Tenant respecting the
Premises and the leasing of the Premises to Tenant. No other agreements or
understandings shall be effective.
IN WITNESS WHEREOF the parties have executed this Amendment as of the
day and year first above written.
NEUROBIOLOGICAL TECHNOLOGIES, INC.,
a Delaware corporation
By: /s/ Calvert Yee
_______________________________________
Name: Calvert Yee
_____________________________________
Its: Vice President, Operations and Admin
______________________________________
MARINA WESTSHORE PARTNERS, LLC,
a California limited liability company
By: /s/ RICHARD R. POE
_______________________________________
Richard R. Poe
Its Manager
5
<PAGE>
THE SYMBOL "*" IS USED THROUGHOUT THIS EXHIBIT TO INDICATE THAT A PORTION OF THE
EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
LICENSE AND COOPERATION AGREEMENT
This License and Cooperation Agreement (the "Agreement") is made and is
effective as of this date of April 16, 1998 ("Effective Date"), between
Merz + Co. GmbH & Co., a company organized under the laws of Germany, with
its principal place of business at Eckenheimer Landstrase 100-104, 60318
Frankfurt a. M., Germany ("Merz"),
and
Neurobiological Technologies Inc., a company organized under the laws of
the State of Delaware, U.S.A., with its principal place of business at 1387
Marina Way South, Richmond, CA 94804, U.S.A., ("NTI"),
and
Children's Medical Center Corporation, a non-profit organization organized
under the laws of the State of Massachusetts with its principal place of
business at 300 Longwood Avenue, Boston, Massachusetts, U.S.A., ("CMCC"),
in reference to the following facts:
A. Merz holds certain patent rights for the use of Memantine to treat cerebral
ischemia and dementia relating to Alzheimer's disease (as further defined
in Exhibit B of this Agreement), and is further developing Memantine for
the treatment of dementia and other diseases.
B. NTI is the licensee of certain patent rights in Memantine for the treatment
of neuropathic pain and AIDS related dementia and of other patent rights
pertaining to Memantine licensed by CMCC on an exclusive basis in the field
of use as defined in the Exclusive License Agreement entered into on
September 11, 1995 between CMCC and NTI (hereinafter referred to as the
"Exclusive License Agreement").
C. CMCC is the owner of certain patent rights to be further specified in
Exhibit A, including patent rights in Memantine for the treatment of
neuropathic pain and AIDS related dementia.
<PAGE>
D. In view of the cooperation between the parties under this Agreement, which
will succeed the Exclusive License Agreement, CMCC and NTI will terminate
their Exclusive License Agreement on the Effective Date of the Agreement,
without any further obligations under that Exclusive License Agreement.
CMCC and NTI will grant mutual releases with respect to any obligations
under the Exclusive License Agreement. The termination of the Exclusive
License Agreement shall be a condition precedent to Merz' obligation to
execute and perform this Agreement.
E. CMCC desires to have the CMCC Patents, as hereinafter defined, utilized in
the public interest and is willing to grant a license thereunder on the
terms and conditions herein.
F. NTI and Merz desire to combine their efforts to most efficiently market and
license the Products in the Territory (as hereinafter defined) in
accordance with the terms and conditions of this Agreement.
G. The parties believe that the cooperation among the parties as provided
under this Agreement is in their best interest and is the most efficient
and effective way to commercialize the CMCC Indications and the Merz
Indication as hereinafter defined.
Now, therefore, in consideration of the promises and the mutual
covenants contained herein, the parties agree as follows:
Article 1 - Definitions
- -----------------------
1.1 "CMCC Indications" shall mean the use of the Product within the scope of
the CMCC Patents.
1.2 "CMCC Patents" shall mean all of the following intellectual property
rights:
(i) The United States and foreign patents and/or patent applications
listed in Exhibit A hereto, including any patents or patent applications,
divisionals and continuations thereof;
(ii) The United States and foreign patents issued from the
applications listed in Exhibit A hereto and from divisionals and continuations
of those applications;
(iii) Claims of United States and foreign continuation-in-part
applications, and resulting patents, which relate to subject matter specifically
described in the United States and foreign patent applications described in
Exhibit A hereto;
(iv) Claims of all after filed foreign patent applications, and of the
resulting patents, which relate to subject matter specifically described in the
United States patent
2
<PAGE>
and/or patent applications described in subparagraphs (i), (ii) or (iii) of this
Article 1.2; and
(v) Any reissues, divisionals, amendments or extensions of the United
States or foreign patents described in subparagraphs (i), (ii), (iii) or (iv) of
this Article 1.2.
It is further understood that certain patents listed in Exhibit A hereto related
to nitrosylating compositions, including nitrosomemantine, are not included in
the CMCC Patents.
1.3 "Confidential Information" shall mean and include any and all data and
information not in the public domain, including know-how and trade secrets
relating to, or contained or embodied in the products, technology, services,
business, finances, or affairs of any party. Confidential Information may be
communicated orally, visually, in writing or in any other recorded or tangible
form. Subject to the provisions set forth in Article 12.1 with respect to CMCC,
all data and information hereunder will be considered to be Confidential
Information (i) if the disclosing party has marked them as such, (ii) if the
disclosing party has, orally or in writing, advised the receiving party of their
confidential nature, or (iii) if, due to their character or nature, a reasonable
person in a like position and under like circumstances would treat them as
confidential.
1.4 "Compound" shall mean any raw material necessary for the manufacturing of
the Products.
1.5 "First Commercial Sale" shall mean the date on which Merz first sells
bulk Memantine, Products, or finished Products to a Marketing Partner or to any
other Person for any of the Indications governed by this Agreement in a
particular jurisdiction or receives Royalty Income from any Marketing Partner
with respect to the sale of the Products in a particular jurisdiction.
1.6 "Indication" shall mean the use of the Product for potential diagnosis and
treatment of diseases and conditions in human beings, except for ophthalmologic
diseases.
1.7 "Intellectual Property Rights" shall mean and include all patents,
copyrights, trademarks, trade names, or any other proprietary rights which the
parties may own, adopt, use or register and which relate to, are embodied in, or
are associated with any of the Products and/or any applications or registrations
therefor.
1.8 "Marketing Partner(s)" shall mean any other Person with whom Merz enters
into an agreement for the development, manufacture, marketing and/or
distribution of the Products for any of the CMCC Indications and/or the Merz
Indication.
3
<PAGE>
1.9 "Merz Indication" shall mean the use of the Product for potential treatment
of dementia relating to Alzheimer's disease.
1.10 "Merz Patents" shall mean the patent rights listed in Exhibit B hereto.
1.11 "Person" shall mean and include any individual, corporation, trust,
estate, partnership, joint venture, company, association, governmental bureau or
agency, or other entity regardless of its type or nature.
1.12 "Product(s)" shall mean (i) Memantine for the Indications neuropathic
pain, AIDS related dementia and any other Indications developed or patented by
CMCC and/or NTI, or licensed to CMCC and/or NTI, (ii) any other adamantan
derivative developed and/or patented by CMCC and/or NTI and/or licensed to CMCC
and/or NTI for the Indication neuropathic pain, AIDS related dementia and/or
other neurological/neuropsychiatric Indications, (iii) any combination product
which includes Memantine developed or patented by CMCC and/or NTI and/or
licensed to CMCC and/or NTI, and (iv) Memantine for the Indication of dementia
relating to Alzheimer's disease, as developed by the parties heretofore and in
the future.
1.13 "Representative" shall mean all partners, shareholders, officers,
directors and employees of a party to this Agreement.
1.14 "Royalty Income" shall mean any royalty income derived from any license,
development and/or marketing agreement for Products between Merz and any
Marketing Partner as contemplated in this Agreement; provided, however, that
"Royalty Income" shall not include any revenues from the supply and sale of
Compound to any such Marketing Partner as set forth in Article 9 hereof, and
shall not include any down-payments, lump-sum payments and/or milestone payments
as specified in Article 8.5 hereof.
1.15 "Territory" shall mean the worldwide territory, unless otherwise expressly
specified in this Agreement.
1.16 "Trademark" shall mean the designs, logos, marks, names and service marks
used for the Product.
Article 2 - Representation and Warranties
- -----------------------------------------
Each party represents and warrants:
2.1 That it possesses full power and authority to enter into this Agreement and
to perform the obligations hereunder;
4
<PAGE>
2.2 That its Representative whose signature is affixed hereto has been fully
authorized to sign this Agreement;
2.3 That upon its Effective Date, the provisions of this Agreement shall
constitute its legal, valid and binding obligations enforceable in accordance
with these terms;
2.4 That it has no agreement with any other Person nor any other conflict that
would preclude it from fully complying with its obligations under this Agreement
and/or any applicable law or regulations, and that all required consents of any
and all third parties, if any, to enter into this Agreement and perform the
obligations hereunder, have been obtained prior to the execution of the
Agreement; provided, however, that the parties hereby acknowledge that no party
has obtained any approval by or from the United States Food and Drug
Administration for the sale, distribution and/or use of the Products in the
Territory prior to the execution of this Agreement. Each party shall, at its
sole expense, defend and hold one or both of the other parties and its
Representatives harmless from any liabilities or actions brought against one or
both of the other parties, if and to the extent such liabilities or actions are
based on a claim that (i) the first party breached an agreement with any other
Person for the marketing and licensing of the Product, or (ii) the first party
misappropriated any trade secret or improperly disclosed any Confidential
Information of any other Person; and
2.5 Without limiting the generality of the foregoing, CMCC hereby specifically
represents and warrants that as of the Effective Date, to the best knowledge of
the CMCC Technology Transfer Office, it alone owns the CMCC Patents, and that
the CMCC Patents (i) have been duly registered as described in Exhibit A hereof,
and (ii) have not been abandoned. CMCC further warrants and represents that the
CMCC Technology Transfer Office has no knowledge of any pending or threatened
claims of infringement and has not received any notice of any claim of
infringement from any third party regarding the use of Memantine or any
adamantan derivatives.
Article 3 - Purpose and Scope of Cooperation
- --------------------------------------------
3.1 The purpose of the cooperation among the parties is [the performance of
clinical trials, securing of regulatory approval, and] the development and
commercialization of Products within the Territory, including but not limited to
the marketing and licensing of the parties' respective Intellectual Property
Rights for the manufacture, distribution, sale and use of the Products
throughout the Territory in accordance with the terms and conditions of this
Agreement. In furtherance of this purpose, Merz shall be responsible for
identifying one or more suitable Marketing Partners for the Products in the
Territory in accordance with Article 3.2.
5
<PAGE>
3.2 The Parties hereby agree that one (1) suitable Marketing Partner for the
Merz Indication and the CMCC Indications should be identified. The parties
hereby expressly acknowledge that in view of the anticipated market share and
the amount of the currently available pre-clinical and clinical data, the search
for a suitable Marketing Partner will initially focus on a Marketing Partner for
the development and marketing of Memantine for the Merz Indication; provided,
however, that all reasonable efforts shall be made to find one (1) Marketing
Partner for all Indications covered by this Agreement, in accordance with
Article 10 hereof. If, despite Merz' reasonable commercial efforts, it is not
possible to find one (1) Marketing Partner for the development of all such
Indications, commercially reasonable efforts shall be employed to cooperate with
such Marketing Partner to identify one or more additional Marketing Partners for
the development of Memantine for the other Indications, in accordance with
Article 10 hereof.
3.3 The parties acknowledge that it is in their best interest to expeditiously
pursue the marketing and licensing opportunities for the Products in the
Territory as set forth in this Agreement. Merz and NTI will therefore commit
sufficient personnel, efforts and resources to this cooperation project to
achieve the objectives of this Agreement, as reasonably determined by Merz.
3.4 Subject to Articles 7.3 and 10.1 and notwithstanding Article 3.1 hereof,
nothing in this Agreement shall be construed to impose on any one of the parties
the obligation to (i) perform joint development work with respect to the
Products or any derivatives of the Products; (ii) assist any of the other
parties in obtaining financing and funding for its research and development
work; or (iii) engage in any sales activities for the Products in the Territory
other than the activities expressly set forth in this Agreement.
3.5 The relationship of the parties established by this Agreement is one of
independent contractors, and nothing in this Agreement shall be construed as
giving any one of the parties the power to direct or control the daily
activities of any other party, to constitute the parties as principal and agent,
employer and employee, or partners. Neither one of the parties shall have any
right, power or authority to act on behalf of, or bind, any of the other
parties, and neither one of the parties shall represent to any third party that
it has such right, power or authority, except as contemplated herein.
Article 4 - License Grant
- -------------------------
4.1 Subject to the provisions of this Article 4.1 and Articles 4.4 and 4.5
hereof, CMCC hereby grants to and Merz hereby accepts from CMCC the exclusive
and fully transferable and/or sublicenseable license to CMCC Patents, as listed
in Exhibit A hereto, to develop, make, have made, use and market the Products in
the Territory in accordance with the terms and conditions described in this
Agreement. Subject to Article 10 hereof, Merz shall have the right, at its sole
option, to further research and develop, or to conduct
6
<PAGE>
or have conducted further clinical studies, regarding Memantine for the CMCC
Indications. Merz shall use its commercially reasonable efforts to require any
Marketing Partner who manufactures Products as they pertain to the CMCC
Indications for the sale in the United States of America to substantially
manufacture such Products in the United States of America. Notwithstanding the
exclusive license granted to Merz under this Article 4.1, Merz hereby
acknowledges that CMCC has granted a license to Allergan to utilize certain of
the CMCC Patents solely in connection with Indications for ophthalmologic
diseases. The license granted hereunder shall not be construed to confer upon
Merz by implication, estoppel, or otherwise any rights as to any technology not
governed by CMCC Patents.
4.2 NTI hereby grants an exclusive and fully transferable or sublicenseable
license to Merz, and Merz hereby accepts such license, to use all of NTI's
Confidential Information related to and/or required for the commercial
exploitation of the Products in the Territory; provided, however, that such
license shall not include any Confidential Information relating to the general
business information and financial information of NTI.
4.3 Subject to the obligations set forth in Article 10.1 hereof, Merz shall
have the right to engage NTI's services to further research and develop and to
conduct further clinical studies on Memantine for the CMCC Indications on terms
to be mutually agreed upon.
4.4 Notwithstanding anything herein to the contrary, CMCC shall retain a
royalty-free, non-exclusive, irrevocable license to practice, and to sublicense
other non-profit organizations to practice, the CMCC Patents it owns for non-
commercial research purposes only. Merz shall not assert any claim of
infringement of the Merz Patents against CMCC or any such non-profit
organization, sublicensed by CMCC pursuant to this Article 4.4, provided that
the CMCC Patents are utilized for non-commercial research purposes only.
4.5 Notwithstanding the provisions of Article 4.1 hereof, the license granted
hereunder to Merz shall be subject to the rights of the United States
government, if any, under Public Laws 96-517, 97-226, and 98-620, codified at 35
U.S.C. sec. 200-212 and regulations promulgated thereunder.
Article 5 - Merz' Responsibilities and Obligations
- --------------------------------------------------
5.1 Merz shall have the exclusive right and the obligation to use commercially
reasonable efforts to promote and market the Products for the Merz Indication as
well as the CMCC Indications in the Territory and to identify one or more
Marketing Partners for the development of these Indications in accordance with
Articles 3.2 and 10.3 hereof.
5.2 The parties hereby expressly acknowledge that Merz has entered into
marketing arrangements, license agreements and/or has business plans for the
marketing, licensing
7
<PAGE>
and commercial exploitation of the Products for the Merz Indication in [*] and
that the rights conferred upon Merz' licensees under those marketing and/or
license agreements shall remain unaffected by this Agreement. Notwithstanding
the inclusion of the foregoing countries in the Territory and subject to Exhibit
C, Merz shall have no obligation whatsoever hereunder to NTI and/or CMCC,
including the sharing of Royalty Income, down-payments, lump-sum payments and/or
milestone payments, with respect to any such marketing, licensing or the
commercial exploitation of Products for the Merz Indication, in any of the
foregoing countries.
5.3 Merz shall have the right to refer to this cooperation in connection with
its negotiation of development, licensing and marketing agreements with
Marketing Partners for Products for the Merz Indication and/or the CMCC
Indications as provided for in this Agreement.
5.4 Merz hereby acknowledges that CMCC has licensed certain of the CMCC Patents
to Allergan for use solely in the ophthalmologic field of use. It is the intent
of CMCC that each of Merz and Allergan focus its commercial development efforts
within its respective field of use. Merz has requested that CMCC provide Merz
with the name, address, and description of the field of use of Allergan and the
name and telephone number of the principal contact of Allergan within thirty
(30) days of the Effective Date. Merz and CMCC agree that the provisions of
Exhibit E hereto shall govern the interaction and communication between Merz and
Allergan. To ensure that both Merz and Allergan are aware of these reciprocal
provisions, CMCC shall make a copy of this Article 5.4 and Exhibit E available
to Allergan, and CMCC shall provide copies of the corresponding provisions of
its agreement with Allergan available to Merz, within twenty (20) days after the
Effective Date.
Article 6 - CMCC's Responsibilities and Obligations
- ---------------------------------------------------
6.1 CMCC hereby authorizes NTI to provide Merz with any CMCC Confidential
Information pertaining to and relevant for the commercial exploitation of the
patent rights in Memantine for the CMCC Indications as previously provided by
CMCC to NTI.
6.2 CMCC shall not, through its Technology Transfer Office or Public Affairs
Office, or in any other official communication, without the prior written
consent of Merz, (i) provide any information to any other Person regarding the
capabilities, performance or use of the Products for any of the CMCC
Indications; or (ii) make any representations to any other Person that Merz
and/or the Marketing Partner has endorsed, warranted or guaranteed the Products
for any of the CMCC Indications.
8
<PAGE>
Article 7 - NTI's Responsibilities and Obligations
- --------------------------------------------------
7.1 Subject to the provisions of this Agreement, NTI shall use commercially
reasonable efforts, consistent with its financial and technical resources, to
actively support Merz in the marketing of the Products in the Territory to
Marketing Partners and licensees, including but not limited to (i) evaluating
marketing and licensing opportunities; (ii) initiating contacts with potential
Marketing Partners, and (iii) upon Merz' request, assisting in the negotiation
of marketing and licensing agreements.
7.2 NTI shall provide to Merz within thirty (30) days of the Effective Date a
data package with all Confidential Information pertaining to and relevant for
the commercial exploitation of the CMCC Patents in Memantine and/or any other
adamantan derivatives for the CMCC Indications developed by NTI, including any
Confidential Information heretofore or hereafter provided by CMCC to NTI
pertaining to the CMCC Indications. NTI shall further provide Merz with
periodic updates relating to any further research and development and/or
improvement regarding the Products pursuant to Article 10 hereof. NTI hereby
agrees that Merz shall have the right of access to, review and use of any and
all Confidential Information of NTI relevant in the context of any required
regulatory product approval (e.g., NDAs) provided, however, that NTI shall not
be required to disclose any of its financial data to Merz.
7.3 NTI shall, upon Merz' request, provide Merz with reasonable assistance in
connection with any applications for any required regulatory approvals for the
Products in any country within the Territory.
Article 8 - License Fees and Profit Sharing
- -------------------------------------------
8.1 In consideration for the rights licensed by CMCC to Merz under Article 4.1
of this Agreement Merz shall pay to CMCC US $[*] (US Dollars [*]) as a one-time
lump-sum license fee. The payment shall be due within five (5) business days of
the signing of this Agreement by the last party and shall be made via wire
transfer to the bank account of CMCC with
[*](ABA # [*]), Account No. [*], Account Name: [*]; Contact: [*] (Tel. No. [*]).
8.2 Merz shall also pay US $2,100,000 (US Dollars Two Million One Hundred
Thousand) to NTI for the license granted to Merz relating to NTI's Confidential
Information pursuant to Article 4.2 and the waiver of its licensee rights under
the Exclusive License Agreement, provided, however, that any such payment shall
be conditioned upon NTI delivering to Merz a board resolution approving this
Agreement. The payment shall be due within five (5) business days of the
execution of this Agreement by the last party and shall be made via wire
transfer to the bank account of NTI with [*] (ABA # [*]), Account No. [*].
9
<PAGE>
8.3 Merz acknowledges and agrees that the payments payable to CMCC and NTI
under Article 8.1 and 8.2 respectively are in addition to any share of Royalty
Income payable to CMCC and NTI by Merz hereunder.
8.4 In consideration for the rights conveyed and the obligations undertaken
hereunder by each one of the parties, each party shall be entitled to a
percentage share in the Royalty Income derived from the marketing and licensing
of Products for the Indications governed by this Agreement as set forth in
Exhibit C attached hereto. Payment of the percentage share of Royalty Income,
if any, due to CMCC and NTI shall be paid by Merz to CMCC and NTI respectively
within thirty (30) days of the end of each calendar quarter by wire transfer to
the bank accounts of CMCC and NTI respectively.
8.5 Merz shall pay to CMCC an amount equal to [*]% and to NTI an amount equal
to [*]%, the aggregate of which shall not exceed [*] ([*])%, of all down-
payments, lump-sum payments and milestone payments, other than Royalty Income,
received by Merz pursuant to any licensing, development and marketing agreement
entered into with any Marketing Partner for Products pursuant to this Agreement.
The amounts payable by Merz to CMCC and NTI under this Article 8.5 shall be paid
within thirty (30) days after the end of the calendar quarter in which such
payments were received by Merz.
8.6 All amounts payable to CMCC and NTI shall be paid in United States Dollars
(US$) and shall be paid to the accounts specified in Article 8.1 and 8.2
respectively. For purposes of determining the amounts payable with respect to
any Royalty Income or any other amount payable by Merz to NTI and CMCC under
Article 8.5, which Merz has not received in United States Dollars, the currency
conversion shall be made by using the average of the exchange rate between the
United States Dollars and the currency in which Royalty Income or other income
under Article 8.5 was received by Merz prevailing at Deutsche Bank during the
last calendar quarter prior to the due date of the payment.
8.7 In the event that any amount payable to CMCC and/or NTI hereunder is not
paid on the due date as provided herein, such overdue amount shall bear interest
at the rate of [*] ([*])% per year or the maximum amount permitted by law,
whichever is less, until such time such overdue amount has been paid.
8.8 Merz shall furnish CMCC and NTI with a report on a quarterly basis,
including the information listed in Exhibit D hereof. Each report shall be
submitted to CMCC and NTI along with the amounts payable, if any, to CMCC and
NTI respectively under Article 8.4. Merz shall keep full, true and accurate
books of account in accordance with generally accepted accounting principles to
enable CMCC and NTI to ascertain the payments made by Merz to NTI and CMCC under
this Agreement. Said books of account shall be kept at Merz' principal place of
business for a period of at least five (5) years following the end of the
calendar year to which they pertain. CMCC and NTI shall have the right, at
their
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own expense, to audit such books of account to the extent they pertain to
payments made pursuant to this Agreement and to the extent necessary to verify
the reports provided by Merz to CMCC and NTI hereunder.
Article 9 - Supply of Compound, Bulk Memantine and Finished Products
- --------------------------------------------------------------------
9.1 In the event that Merz supplies and sells the Compound, directly or
indirectly, to one or more Marketing Partners for use in the manufacturing of
any of the Products for any or all Indications governed by this Agreement, the
parties hereby expressly acknowledge and agree that any and all revenues derived
by Merz from the sale of such Compound shall be solely for the benefit of Merz,
and Merz shall not be obligated to share any such revenues with any of the other
parties to this Agreement; provided, however, that, subject to the provisions of
Article 5.2 hereof, if the price for the Compound specified in Merz' supply
agreement with such Marketing Partner exceeds [*] existing at the time of the
execution of this Agreement, Merz shall pay to CMCC and NTI their respective
share of the excess revenue as defined hereafter in accordance with the
allocation of Royalty Income as set forth in Article 8.4 and Exhibit C of this
Agreement. For purposes of this Article "excess revenues" shall mean the
difference between [*]. Merz shall (i) furnish CMCC and NTI with a certificate
executed by an independent certified public accountant as to the [*] and (ii)
provide NTI and CMCC with reports of such sales of the Compound in accordance
with the provisions of Exhibit D hereof.
9.2 Subject to Article 5.2 hereof, in the event that Merz directly or
indirectly supplies and sells bulk Memantine products or finished Products to
one or more Marketing Partners or any other third party for any or all
Indications governed by this Agreement, the parties shall in good faith
negotiate an allocation among Merz, NTI and CMCC of a percentage share of the
sales price for such bulk Memantine products or finished Memantine products;
provided, however, that the allocation of revenue set forth in Article 9.1 above
regarding the sale and supply of Compound to Marketing Partners shall be taken
into consideration. Merz shall provide NTI and CMCC with reports of all such
sales of bulk Memantine products and/or finished Products in accordance with the
provisions of Exhibit D hereof. If the parties fail to reach an agreement on
the appropriate allocation of such revenues within a period of sixty (60) days
after the date on which such negotiations commenced, any party shall be entitled
to institute arbitration proceedings in accordance with Article 18 hereof solely
for the purpose of determining the respective percentage share of the sales
price of each of the parties.
Article 10 - Further Development and Research
- ---------------------------------------------
10.1 NTI shall, at its own risk and expense, initiate Phase IIb clinical
studies for neuropathic pain. The Phase IIb clinical studies for neuropathic
pain shall be initiated by [*]. NTI shall use commercially reasonable efforts
to complete such studies for
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neuropathic pain within approximately [*] after the commencement of the studies;
provided, however, that any improvement of any Product developed as a result of
such Phase IIb clinical studies for neuropathic pain pursuant to this Article
10.1 shall also be governed by the rights and obligations set forth in this
Agreement. In addition, NTI shall at is own risk and expense, initiate and
conduct the clinical studies for AIDS related dementia in accordance with the
requirements of the AIDS Clinical Trial Group ("ACTG"); provided, however, that
any improvement of any Product developed as a result of such clinical studies
for AIDS related dementia pursuant to this Article 10.1 shall also be governed
by the rights and obligations set forth in this Agreement. NTI shall inform Merz
and CMCC on a regular basis about all such research and development work,
including, but not limited to, Phase IIb clinical studies and ACTG studies, and
Merz reserves the right to supervise any such further research and development
as Merz reasonably deems necessary. Any submission that NTI proposes to make to
the Food and Drug Administration with respect to all such research and
development work, including, but not limited to, Phase IIb clinical studies
and/or the ACTG studies shall be subject to the prior review, comment and
approval by Merz. Merz hereby grants to NTI a limited, non-exclusive license to
use the Merz Patents, and a limited, non-exclusive sublicense to use the CMCC
Patents and any related CMCC Confidential Information licensed to Merz
hereunder, if any for the sole and exclusive purpose of conducting such Phase
IIb clinical studies and ACTG studies.
10.2 If NTI fails to initiate and conduct either the Phase IIb clinical studies
for neuropathic pain and/or AIDS related dementia in accordance with the ACTG
studies therefor, CMCC and Merz shall each have the right to terminate this
Agreement with respect to NTI with immediate effect in accordance with Articles
17.2 and 17.6 hereof. Upon termination in accordance with this Article 10.2,
NTI shall have no further rights under this Agreement; provided, however that
Merz' obligation to negotiate in good faith an allocation to NTI of a percentage
share of any revenue derived by Merz from the commercialization and marketing of
any Products or any derivatives thereof for any new Indication under, and
limited to the circumstances set forth in Article 10.11 hereof, shall survive
the termination of the Agreement. The relationship between Merz and CMCC shall
remain unaffected by such termination, and the terms of this Agreement, to the
extent they apply to CMCC and Merz, shall continue to govern the relationship
between Merz and CMCC. Merz shall be entitled to retain NTI's percentage share
of the Royalty Income and any share of income under Article 8.5.
10.3 In the event that (i) NTI does not initiate or conduct Phase IIb clinical
studies for neuropathic pain and AIDS related dementia as set forth in Article
10.1 above; or (ii) NTI completes the Phase IIb clinical studies for neuropathic
pain and AIDS related dementia in accordance with the ACTG studies therefor, and
the results of such studies warrant further research and development work,
including but not limited to Phase III clinical studies for the Indication
neuropathic pain, as determined by Merz, Merz shall use its
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commercially reasonable efforts to cause a Marketing Partner to conduct further
research and development of Memantine for the CMCC Indications. If the first
Marketing Partner, who is willing to develop the Merz Indication, is not willing
to conduct such further research and development of Memantine for the CMCC
Indications, Merz shall use its commercially reasonable efforts to identify a
second Marketing Partner for the further research and development of the CMCC
Indications within [*] after concluding an agreement with the first Marketing
Partner, and reach an agreement with such Marketing Partner as soon as
practicable thereafter.
10.4 If Merz is unable to reach an agreement with any Marketing Partner within
[*] ([*]) months for the CMCC Indications as set forth in Article 10.3 hereof,
CMCC shall have the right to seek a Marketing Partner for the CMCC Indications
within [*] ([*]) months. Merz will then use commercially reasonable efforts to
enter into a sublicense with the Marketing Partner identified by CMCC.
10.5 If neither Merz nor CMCC is able to identify a Marketing Partner for the
CMCC Indications as set forth in Articles 10.3 and 10.4 hereof, the Agreement
may be terminated in accordance with Article 17 hereof by mutual agreement of
CMCC and Merz. If this Agreement is terminated by mutual agreement of Merz and
CMCC, Merz shall have no further rights in the CMCC Patents, and neither Merz
nor NTI shall have any further obligations with respect to the CMCC Patents
and/or the CMCC Indications. CMCC shall be free to conduct further research and
development with respect to the CMCC Patents and the CMCC Indications. Upon
termination of the Agreement in accordance with this Article 10.5, Merz shall
have no further payment obligations of any Royalty Income, down-payments,
milestone payments or lump sum payments to CMCC and/or NTI as set forth in
Article 8 hereof, provided, however, that (i) nothing in this Article or in this
Agreement shall be construed as to release any of the parties to this Agreement
from any obligation, including payment obligations, that matured prior to the
effective date of such termination, and (ii) Merz' obligation to negotiate in
good faith an allocation to NTI of a percentage share of any revenue derived by
Merz from the commercialization and marketing of any Products or any derivatives
thereof for any new Indication under, and limited to the circumstances set forth
in Article 10.11 hereof, shall survive the termination of the Agreement. If
Merz and CMCC jointly decide not to terminate the Agreement, the revenue sharing
of all Royalty Income shall be in accordance with Exhibit C, Number 2.
10.6 If further research and development, including clinical studies, with
respect to the CMCC Indications present negative results, such as an intolerance
of the Products or an inefficiency of the Products for the CMCC Indications,
which Merz reasonably determines makes it unlikely that any regulatory agency
will grant the approvals required for the marketing, distribution and use of the
Products for the CMCC Indications, CMCC or Merz shall have the right to
terminate this Agreement upon six (6) months' written
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notice in accordance with Article 17.6 hereof; provided, however, that Merz'
obligation to negotiate in good faith an allocation to NTI of a percentage share
of any revenue derived by Merz from the commercialization and marketing of any
Products or any derivatives thereof for any new Indication under, and limited to
the circumstances set forth in Article 10.11 hereof, shall survive the
termination of the Agreement.
10.7 Subject to Article 10.1 hereof, NTI shall, upon Merz' request, conduct
further research and development with respect to the Products for the CMCC
Indications if such further research and development is requested by a Marketing
Partner for the development and marketing of such Indications at the sole cost
and expense of such Marketing Partner.
10.8 Merz shall provide to NTI any data currently in possession of Merz and/or
hereinafter developed by Merz on any side effects or other risks to human health
and/or safety pertaining to Memantine for use by NTI solely in connection with
the research and development activities pursuant to this Agreement. In
connection with the research and development work hereunder, NTI shall be
authorized to make reference to Merz' IND data. Merz shall provide reasonable
technical assistance to NTI, as Merz, in its sole discretion, determines to be
necessary for further research and development of the CMCC Indications conducted
by NTI in accordance with this Article 10.
10.9 CMCC may, but is not obligated to, conduct further research and
development with respect to the Products as they pertain to the CMCC
Indications, improving the effectiveness of such Products; provided, however,
that any improvement of such Products, to the extent they are within the scope
of the CMCC Patents, shall also be governed by the rights and obligations set
forth in this Agreement. CMCC shall disclose to Merz and/or its Marketing
Partner any information that is known to CMCC Technology Transfer Office on any
side effects or other risks to human health and/or safety pertaining to
Memantine, which is revealed or developed as a result of such further research
and development by CMCC, for use by Merz and/or its Marketing Partner in
connection with any and all applications for Food and Drug Administration or any
other regulatory approval for the Products. CMCC shall provide Merz with
written notice of any such research and development conducted by CMCC with
respect to Memantine which is known to the CMCC Technology Transfer Office.
CMCC shall also be free to research and develop any other Indications or
derivatives of the Products for new Indications which shall not be governed by
this Agreement. The parties agree that CMCC shall own all rights, title and
interest in and to, or shall be the authorized licensee of the work product
resulting from such further research and development with respect to such new
Indications and/or any other derivatives of the Products for new Indications and
shall be entitled to claim, register, file, prosecute and maintain any
applicable Intellectual Property Rights without any restrictions and, subject to
Merz' right of first negotiation set forth in Article 10.10 below, neither Merz
nor NTI shall have any rights therein or
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thereto. Nothing in this Article shall be construed to impose any obligation on
CMCC to conduct such further research.
10.10 In the event that CMCC wishes to license its patent rights in Memantine
for any such new Indication and/or any other derivative of the Products for new
Indications, if any, except as provided in Article 1.2 as it relates to
nitrosylating compositions, including nitrosomemantine, Merz shall have a right
of first negotiation with respect to such patent rights. CMCC shall notify Merz
promptly in writing of its intent to license its patent rights. Merz shall have
an exclusive right to negotiate a license for such patent rights for a period of
[*] ([*]) calendar days from the receipt of CMCC's notice hereunder. If (i)
Merz fails to exercise its right of first negotiation hereunder within this [*]
([*]) days' period, or (ii) the parties cannot agree, despite good faith
efforts, on the terms and conditions of such license during the [*] ([*]) days'
period, CMCC shall be free to license its patent rights in Memantine for any
such new Indication and/or any other derivative of the Products for new
Indications to a third party.
10.11 Merz may conduct further research and development with respect to the
Merz indications. Merz shall also be free to research and develop any other
Indications or derivatives of the Products for new Indications which shall not
be governed by this Agreement. The parties agree that Merz shall own all
rights, title and interests in and to, or shall be the authorized licensee of
the work product resulting from such further research and development with
respect to Merz Indications and/or any other derivatives of the Products for new
Indications and shall be entitled to claim, register, file, prosecute and
maintain any applicable Intellectual Property Rights without any restrictions,
and neither CMCC nor NTI shall have any rights therein or thereto; provided,
however, that NTI and Merz shall negotiate in good faith an allocation to NTI of
a percentage share of any revenue derived by Merz from the commercialization and
marketing of any Products or any derivatives thereof for any new Indication
developed and marketed by Merz if (i) Merz used NTI Confidential Information
provided to Merz by NTI pursuant to this Agreement for the development of the
new Indication, and (ii) such NTI Confidential Information was not in the
possession of or known to Merz prior to the disclosure by NTI to Merz, and (iii)
NTI Confidential Information was an essential and fundamental element for the
development of the new Indication, and (iv) it is established by NTI based on
NTI's business records that the conditions set forth under (i) and (iii) above
are satisfied.
10.12 In furtherance of Merz' rights hereunder, during the term of this
Agreement, neither CMCC nor NTI shall enter into any other agreement with any
third party regarding the licensing, development, manufacturing, distribution
and/or marketing of the Products in the Territory.
10.13 Nothing in this Agreement will limit the right of any of the parties to
further research and develop with respect to any products other than the
Products, provided that
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such development activity does not violate any other provision of this
Agreement. Nothing in this Agreement shall confer any rights to such
independently developed products upon any other party hereto.
Article 11 - Trademarks
- -----------------------
11.1 Merz shall have the right to choose, at its sole discretion, the
Trademarks under which the Products shall be marketed in the Territory,
including without limitation, any Trademark proposed or required by any
Marketing Partner hereunder, and Merz shall be the sole owner of such Trademark,
unless Merz and its Marketing Partner agree to market the Products under a
Trademark owned by the Marketing Partner. CMCC and NTI hereby acknowledge and
agree that they shall have no rights whatsoever in or to such Trademarks.
11.2 This Agreement shall, however, not confer any right to any party to use
any trademarks of any other party, unless such use is authorized by such party
in writing and/or by separate license agreement.
Article 12 - Confidentiality
- ----------------------------
12.1 Each party acknowledges that in the course of the performance of this
Agreement, it may disclose to one or both of the other parties (the "Receiving
Party') certain of the first party's Confidential Information. The Receiving
Party shall refrain from using or copying any and all of the disclosing party's
Confidential Information for any purposes or activities whatsoever, other than
those specifically authorized in this Agreement. Except as provided in Article
12.3 below, the Receiving Party shall not disclose any Confidential Information
of the disclosing party to any third party, except to those of the Receiving
Party's employees, agents, or representatives with a need to know, each of whom
shall have executed a reasonable nondisclosure agreement effectively prohibiting
the unauthorized use or disclosure of any of the disclosing party's Confidential
Information, the terms and conditions of which are no less restrictive than
those contained in this Agreement. The Receiving Party shall implement
effective security procedures in order to avoid disclosure or misappropriation
of the disclosing party's Confidential Information. The Receiving Party shall
immediately notify the disclosing party of any unauthorized disclosure or use of
any Confidential Information that comes to the Receiving Party's attention and
shall take all action that the disclosing party reasonably requests to prevent
any further unauthorized use or disclosure thereof. For purposes of this
Article 12 the term "Receiving Party" as it pertains to CMCC shall mean the
Technology Transfer Office of CMCC. CMCC hereby specifically acknowledges and
agrees that (i) except as specifically provided in the Agreement, Merz has no
obligation whatsoever to furnish or disclose any Merz Confidential Information
to CMCC; (ii) any Merz Confidential Information to be disclosed to CMCC
hereunder shall be disclosed
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solely to the Technology Transfer Office of CMCC, (iii) all information provided
by Merz to CMCC under the Agreement, including all reports furnished under
Article 8.8 hereof and all copies of proposed agreements with Marketing Partners
furnished under Article 16.3 hereof, constitute Merz Confidential Information;
and (iv) CMCC's Technology Transfer Office will not furnish or disclose any such
Merz Confidential Information to any other CMCC employee, agent or
representative (or any other third party) without the prior written consent of
Merz. If Merz discloses any information to any other employee, agent or
representative of CMCC, such information shall not be regarded as Confidential
Information.
12.2 Each party acknowledges the sensitivity of the business negotiations and
the contemplated cooperation and agrees not to use or disclose any Confidential
Information, except as reasonably required for the performance of this
Agreement; provided, however, that CMCC and NTI hereby acknowledge that the
disclosure by Merz of Confidential Information to one or more of the Marketing
Partners may be required for Merz' performance of its obligations hereunder.
Furthermore, each party acknowledges that the terms and conditions of this
Agreement shall be subject to this Article 12 and shall not be disclosed, except
if the performance of this Agreement so requires and subject to Article 5.3
above. Notwithstanding this Article 12.2, NTI shall have the right to disclose
certain information relating to this Agreement to third parties; provided,
however, that (i) the prior written consent of Merz and CMCC is obtained, which
shall not be unreasonably withheld, and (ii) NTI requires the party to whom such
Confidential Information is disclosed by NTI with the consent of Merz and NTI
not to disclose or misappropriate such Confidential Information.
12.3 The provisions of this Article 12 will not apply, or will cease to apply,
to data and information supplied by the disclosing party that (i) was in the
Receiving Party's possession prior to receipt from the other party as reflected
by files existing at the time of disclosure; (ii) has come into the public
domain other than through a breach of confidentiality by the Receiving Party;
(iii) was developed independently by employees of the Receiving Party or by
persons who have not had access to the disclosing party's Confidential
Information; (iv) was or is lawfully obtained, directly or indirectly, by the
Receiving Party from a third party under no obligation of confidentiality; or
(v) is required to be disclosed pursuant to any statutory or regulatory
provision, including without any limitation any and all applicable securities
laws, court order, or regulatory approval requirement; provided, however, that,
with the exception of any regulatory product approval proceedings, the Receiving
Party shall be obliged to provide to the disclosing party as much advance notice
as reasonably practicable of such statutory or regulatory provision, or court
order requiring such disclosure, so that the disclosing party has a reasonable
opportunity to obtain a protective order, or to take such other protective
measures as necessary, with respect to such data or information. The Receiving
Party
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shall have the burden of establishing the applicability of any of the exceptions
set forth in this Article 12.3.
Article 13 - Patent Prosecution
- -------------------------------
13.1 Merz shall during the term of this Agreement apply for, seek prompt
issuance of, and maintain Merz Patents as set forth in Exhibit B. The other
parties shall, upon reasonable request by Merz, cooperate with Merz in the
filing, registration, prosecution and maintenance of the patent rights.
13.2 CMCC shall take reasonable actions to maintain all of the CMCC Patents
during the term of this Agreement. Merz shall reimburse CMCC for all fees and
costs relating to the filing, prosecution and maintenance of the CMCC Patents,
as specified in Exhibit A hereto, incurred after the date of this Agreement,
unless any of those CMCC Patents have also been licensed to another Person for
an Indication not covered by this Agreement, in which case, Merz shall reimburse
CMCC for one-half of the costs relating to the filing, prosecution and
maintenance of such CMCC Patents. CMCC shall provide to Merz an itemized
invoice of all such fees and costs, and Merz shall pay to CMCC all amounts due
under such invoice within thirty (30) business days after receipt of such
invoice.
13.3 If CMCC elects to apply for and seek registration of any CMCC Patents in
any particular jurisdiction, where that CMCC Patent is not registered as of the
Effective Date, CMCC shall notify Merz in writing of such intention immediately.
Merz shall then have the option to reimburse CMCC for all fees and costs
relating to the filing, prosecution and maintenance of that CMCC Patent in that
jurisdiction, unless any of those patent rights are also licensed to a licensee
which is not party to this Agreement for an Indication not covered by this
Agreement, in which case, Merz' obligation, if it elects to exercise its option
under this Article 13.3, shall be to reimburse CMCC for one-half of the costs
relating to the filing, prosecution and maintenance of such CMCC Patent. CMCC
shall be required to provide to Merz an itemized invoice of all such fees and
Merz shall pay to CMCC all amounts due under said invoice within thirty (30)
business days of the receipt of such invoice. If Merz elects not to reimburse
CMCC for the fees and costs for the filing, prosecution and maintenance of any
CMCC Patent in a particular jurisdiction, CMCC shall be free to license the
patent right in question to another party with respect to such jurisdiction and
Merz shall have no further rights with respect to that CMCC Patent in that
jurisdiction. Upon request by Merz, and at Merz' sole cost and expense, CMCC
shall apply for and seek prompt registration of any CMCC Patent in any
particular jurisdiction.
13.4 Merz will cause its Marketing Partner to mark any Products sold in the
United States with all applicable United States patent numbers, and any Products
sold in any
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other country shall be marked by the respective Marketing Partner in accordance
with the patent laws and practices of that country.
Article 14 - Infringement
- -------------------------
14.1 Subject to Article 13.3 hereof, NTI and Merz shall render to CMCC all
reasonable assistance as may be required to preserve the validity and
enforceability of the CMCC Patents in the Territory. NTI and Merz shall
promptly notify CMCC in writing (i) of any and all infringements, imitations,
illegal use, misuse, or misappropriation, by any third party of the CMCC Patents
which come to their attention, and (ii) of any claims or objections that Merz
and/or NTI's use of the CMCC Patents hereunder may or will infringe the
copyrights, patents, designs, trademarks or other proprietary rights of any
other third party. CMCC as the owner or authorized licensee of the CMCC
Patents, shall be responsible for taking any action or initiating any
proceedings which CMCC, in its sole discretion, determines to be necessary or
appropriate to prevent any infringement of the CMCC Patents, and NTI and Merz
shall provide CMCC with such assistance as may be reasonably requested in
connection with any such action or proceeding.
14.2 If CMCC fails to or decides not to take any action or to initiate
proceedings necessary to prevent the infringement of the CMCC Patents within
sixty (60) days after written notice of such infringement, Merz shall have the
right to take such action or to initiate such proceedings to enforce and/or
defend the CMCC Patents. In the event that Merz undertakes the enforcement
and/or the defense of the CMCC Patents by litigation, Merz may withhold the one-
half of the payments otherwise due to CMCC under Article 8 hereof and apply the
same toward reimbursement of Merz' expenses, including reasonable attorney's
fees, in connection therewith. Subject to these set-off rights of Merz to
recover costs and expenses of the infringement litigation, any damages recovered
by Merz in such litigation will be allocated among the parties in accordance
with the percentage share of the Royalty Income as set forth in Exhibit C
hereto.
14.3 NTI and CMCC shall render to Merz all reasonable assistance as may be
required to preserve the validity and enforceability of Merz' rights, title and
interests in and to the Merz Patents or other Intellectual Property Rights in
its Products. NTI and CMCC agree that they shall promptly notify Merz in
writing (i) of any and all infringements, imitations, illegal use, misuse, or
misappropriation, by any third party of the Merz Patents or other Intellectual
Property Rights which come to its attention, and (ii) of any claims or
objections that any use of the Merz Patents or other Intellectual Property
Rights, if any, may or will infringe the copyrights, patents, designs,
trademarks or other proprietary rights of any other third party. Merz as the
owner or authorized licensee of the Merz Patents or other Intellectual Property
Rights, shall be responsible for taking any action or initiating any proceedings
which Merz, in its sole discretion, determines to be necessary or appropriate to
prevent any infringement the Merz Patents and/or other Intellectual
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Property Rights, and NTI and CMCC shall provide Merz with such assistance as may
be reasonably requested by Merz in connection with any such action or
proceeding.
Article 15 - Indemnification
- ----------------------------
15.1 Merz hereby warrants and represents that, to the best of its knowledge,
Merz owns the Merz Patents, and that the patents are in full force and effect.
Merz further warrants and represents that, to the best of Merz' knowledge the
Merz Patents as listed in Exhibit B do not conflict with or infringe any third
party's intellectual property rights, and Merz has no knowledge of any pending
or threatened claims of infringement and has not received any notice of any
claim of infringement by any third party with respect to the Merz Patents.
15.2 If a third Person asserts a claim or institutes legal proceedings against
Merz in connection with any claim arising under the laws of any country within
the Territory that the use, manufacturing, sale or distribution by Merz or the
Marketing Partner of the Products for the CMCC Indications in accordance with
this Agreement constitutes an infringement of any intellectual property rights
of any other Person that claim Memantine or any adamantan derivative for the
CMCC Indications, [*].
15.3 Merz will [*]. The foregoing indemnification obligation is contingent
upon CMCC's and/or NTI's compliance with the following: (a) CMCC and/or NTI
promptly notifies Merz in writing of such claim, suit or proceeding, or threat
thereof; and (b) CMCC and/or NTI gives Merz information, assistance, and sole
authority to investigate, defend, settle and/or discharge any such claim, suit
or proceeding.
15.4 OTHER THAN THE WARRANTIES SET FORTH IN THIS AGREEMENT, THE PARTIES MAKE NO
WARRANTIES, 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, TRADE SECRET, TANGIBLE RESEARCH
PROPERTY, INFORMATION OR DATA LICENSED OR OTHERWISE PROVIDED TO THE OTHER
PARTIES HEREUNDER AND ALL SUCH IMPLIED WARRANTIES ARE HEREBY DISCLAIMED AND
EXCLUDED.
Article 16 - Liability
- ----------------------
16.1 NTI [*] as the case may be. NTI shall maintain at all times product
liability insurance coverage of at least US $[*]. Merz and CMCC shall be named
as additional insured in such product liability insurance. [*]
16.2 Merz [*] as the case may be.
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16.3 [*]
16.4 Merz shall cause each Marketing Partner, at the Marketing Partner's sole
cost and expense, to procure and maintain commercial general liability
insurance, commencing at the time any Product is being commercially distributed
or sold by that Marketing Partner or any of its affiliates, in amounts not less
than $[*] per incident and $[*] annual aggregate. Merz shall cause that
Marketing Partner to name the Indemnitees as additional insureds. Such
commercial general liability insurance shall provide (i) product liability
coverage and (ii) contractual liability coverage for the indemnification of the
Indemnitees. If the Marketing Partner elects to self-insure all or part of the
limits described above (including deductibles or retentions which are in excess
of $[*] annual aggregate), such self insurance program must be acceptable to
CMCC and the Risk Management Foundation of the Harvard Medical Institutions,
Inc. The minimum amount of insurance coverage required under this Article 16.4
shall not be construed to create a limit of the Marketing Partner's liability
with respect to the Indemnitees' indemnification under this Article.
16.5 Merz shall cause each such Marketing Partner hereunder to maintain such
commercial general liability insurance as provided under Article 16.4 hereof
during the period that any Product is commercially distributed or sold (other
than for the purpose of obtaining regulatory approvals) by that Marketing
Partner and for a reasonable period thereafter, which shall not be less than
fifteen (15) years.
16.6 Merz shall cause each such Marketing Partner to provide CMCC and NTI with
written evidence of such insurance as required under Article 16.4 hereof upon
request of CMCC and/or NTI. Merz shall cause each such Marketing Partner to
provide Merz with written notice at least thirty (30) days prior to the
cancellation, non-renewal or material change in such insurance, and Merz shall
so notify CMCC and NTI immediately. If the Marketing Partner or Merz does not
obtain replacement insurance providing comparable coverage within ninety (90)
days' period, CMCC shall have the right to terminate this Agreement effective at
the end of such ninety (90) days' period without notice of any additional
waiting periods and thereafter CMCC shall have no further rights or obligations
hereunder, except obligations that have accrued prior to the date of such one
ninety (90) days' period.
16.7 If Merz manufactures and sells the Compound, the bulk products or the
finished products as provided for in Article 9 of this Agreement to one or more
Marketing Partners for use in the manufacture of the CMCC Indications, Merz will
(i) procure and maintain commercial general liability in accordance
with Article 16.4 hereof; and
21
<PAGE>
(ii) [*] as provided in this Agreement.
16.8 The provisions set forth in this Article 16 shall survive termination of
this Agreement.
16.9 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, NO PARTY WILL
BE LIABLE TO EITHER OF THE OTHER PARTIES FOR ANY CONSEQUENTIAL, INCIDENTAL,
SPECIAL, OR INDIRECT DAMAGES, WHETHER BASED ON CONTRACT OR TORT, AND WHETHER OR
NOT THE PARTY WAS AWARE THAT SUCH DAMAGES MAY BE CAUSED. THIS LIMITATION OF
LIABILITY SHALL NOT APPLY TO ANY DAMAGES INTENTIONALLY CAUSED BY ANY PARTY
HERETO.
Article 17 - Term and Termination
- ---------------------------------
17.1 The Agreement shall commence on the Effective Date and shall remain in
effect in each country where the Products are licensed to and marketed by a
Marketing Partner under this Agreement until the later of ten (10) years from
the First Commercial Sale of a Product in that country or the last to expire
patent covering the Products in that country, or until terminated in accordance
with this Article 17 as set forth below.
17.2 In the event that any party hereto commits any material breach of any of
its obligations under this Agreement, any of the other parties may provide such
breaching party with a written notice demanding the cure of such breach within
thirty (30) days, or if the breach cannot reasonably be cured within thirty (30)
days, require the breaching party to initiate reasonable efforts to cure such
breach as soon as reasonably practicable thereafter. Subject to Articles 17.4
and 17.5 hereof, any of the non-breaching parties may terminate this Agreement
should the breaching party fail to cure the material breach or initiate
reasonable efforts to cure such breach within such thirty (30) days period.
Termination for a material breach under this Article 17.2 shall be in addition
and not in lieu of any other remedies, including but not limited to the right to
recover damages, the terminating party may have against the breaching party.
17.3 Subject to Articles 17.4 and 17.5 hereof, any one of the parties may
terminate this Agreement with immediate effect, upon the dissolution, insolvency
or bankruptcy of any other party and/or the appointment of a trustee or receiver
in bankruptcy for such other party.
17.4 Except when this Agreement is terminated as to one party only, upon
termination of this Agreement for any reason, all rights and obligations under
this Agreement will immediately cease except as otherwise specifically provided
or required under this Agreement; provided, however, that termination of this
Agreement for whatever reason shall not have the effect of releasing any of the
parties from any obligation that matured
22
<PAGE>
prior to the effective date of such termination. Each party will promptly cease
all use of, and will, at another party's discretion, either destroy or return to
that other party all Confidential Information of such other party.
17.5 In the event that (i) NTI terminates the Agreement, or (ii) either CMCC or
Merz terminates the Agreement due to NTI's bankruptcy, dissolution or
insolvency, or due to a material breach of this Agreement by NTI, the
relationship between CMCC and Merz shall remain unaffected by such termination,
and the terms of this Agreement, to the extent they apply to the relationship
between Merz and CMCC, shall continue to govern such relationship, unless CMCC
and/or Merz also elect to terminate their relationship pursuant to this Article
17.
17.6 Notwithstanding any provision to the contrary, Articles 12, 13, 14, 15, 16
and this Article 17 will survive termination of this Agreement.
Article 18 - Choice of Law and Dispute Resolution
- -------------------------------------------------
18.1 This Agreement, and any disputes arising out of or in connection with
this Agreement shall be governed by and construed in accordance with the laws of
the State of New York, excluding its rules governing conflicts of laws.
18.2 Subject to Article 18.7 below, any disputes, claims and controversies
arising out of or in connection with the Agreement, including any questions
regarding its existence, validity, performance, interpretation, construction,
breach or termination, shall be referred to and finally resolved by binding
arbitration under the commercial arbitration rules of the American Arbitration
Association ("AAA") in effect as of the Effective Date of this Agreement;
provided, however, that no arbitration with respect to any claim, dispute or
controversy arising out of or in connection with or relating to this Agreement
or the breach or alleged breach thereof shall take place until the following
procedure has been satisfied.
18.3 A senior officer from each party will meet at a mutually agreed upon
location and time within twenty (20) business days after receipt of notice from
either party to review any dispute with respect to the interpretation of any
provision of this Agreement or with respect to the performance by either party
under this Agreement. They will discuss the problems and/or negotiate in an
effort to resolve the disagreement or negotiate an acceptable interpretation or
revision of the applicable portion of this Agreement mutually agreeable to both
parties, without the necessity of formal procedures relating thereto. During
the course of such negotiation, the parties will reasonably cooperate and
provide information so that each of the parties may be fully informed with
respect to the issues in dispute. The institution of arbitration to resolve the
disagreement may occur only after
23
<PAGE>
the earlier of: (i) the senior officers mutually agree that resolution of the
disagreement through continued negotiation is not likely to occur, or (ii)
thirty (30) business days after such initial meeting between such senior
officers.
18.4 All arbitration proceedings, shall be conducted in English and a
transcribed record shall be prepared in English. The arbitration proceedings
shall take place in the City of New York. The arbitration shall be conducted by
three arbitrators. If the dispute lies between CMCC and Merz, CMCC and Merz
shall choose one (1) arbitrator each within ten (10) business days of receipt of
notice of the intent to arbitrate. If the dispute lies between NTI and Merz,
NTI and Merz shall choose one (1) arbitrator each within ten (10) business days
of receipt of notice of the intent to arbitrate. The third arbitrator shall be
appointed by mutual agreement of the first two arbitrators. If no arbitrator is
appointed by CMCC or Merz within the times herein provided or any extension of
time which is mutually agreed upon, the AAA shall make such appointment within
five (5) business days of such failure. If the issues in dispute involve
scientific matters, any arbitrator chosen hereunder shall have educational
training and/or experience sufficient to demonstrate a reasonable level of
relevant scientific knowledge.
18.5 Such arbitration shall be concluded, including the receipt by the parties
of a final decision, no later than sixty (60) calendar days after the date of
appointment, and such arbitration shall be binding on all parties and shall
constitute the final resolution of such dispute. No party shall commence any
action against another to resolve such dispute in any court except to confirm
and enforce such an arbitrator's award.
18.6 The arbitrators shall (i) interpret and construe this Agreement in
accordance with, and shall be bound by, the laws of the State of New York,
excluding its conflict of laws provisions; and (ii) establish and enforce
appropriate rules to ensure that the proceedings, including the decision, be
kept confidential and that all Confidential Information of the parties be kept
confidential and be used for no purpose other than the arbitration. The
decision and award rendered by the arbitrator may include costs of arbitration,
reasonable attorneys' fees and reasonable costs for expert and other witnesses.
Any judgment on such award may be entered in any court of competent
jurisdiction. The arbitrators shall state in writing the basis for their
decision and award and describe with particularity the provisions of the
Agreement and the legal basis on which such decision and award is founded.
18.7 Notwithstanding anything herein to the contrary, the parties reserve all
rights with respect to seeking a temporary restraining order, preliminary
injunctive relief or other injunctive relief for the unauthorized disclosure or
use of Confidential Information or the misappropriation or infringement of
Intellectual Property Rights, or other pre-judgment or equitable relief, and any
party may apply to any court of competent jurisdiction for such relief without
breach of this Agreement. Each party acknowledges and agrees that, due to
24
<PAGE>
the unique nature of this cooperation, the Intellectual Property Rights of the
parties and the Confidential Information exchanged between the parties, each
party will suffer irreparable injury and harm from any breach of the
confidentiality obligations under this Agreement and/or any misappropriation or
infringement of such party's Intellectual Property Rights. Therefore, upon any
such breach, misappropriation or infringement, and prior to the arbitrator's
final decision under Article 18.6 hereof, the non-breaching party shall be
entitled to appropriate equitable relief in courts or arbitration, in addition
to whatever remedies it might have at law or under this Agreement.
Article 19 - General Provisions
- -------------------------------
19.1 Except as otherwise provided for in this Agreement, including the
sublicensing by Merz of rights and obligations to one or more Marketing Partners
hereunder, no party shall have the right or power to assign, delegate, or
transfer this Agreement, directly or indirectly, by operation of law or
otherwise, without the prior written consent of the other party. Any such
attempted assignment shall be null and void. The parties hereby acknowledge
that the obligations under this Agreement are specific in nature to the parties
and shall not be delegated to any third party other than wholly owned
subsidiaries of the parties. Notwithstanding this Article 19.1, no prior
written consent of CMCC and/or NTI shall be required for Merz to assign,
delegate, or transfer this Agreement, directly or indirectly, by operation of
law or otherwise, to any wholly owned subsidiaries, other affiliates of Merz or
any successors in interest to the whole or part of Merz' business.
Notwithstanding this Article 19.1, no prior written consent of CMCC and/or Merz
shall be required for NTI to assign and transfer its rights under this Agreement
to any other Person; provided, however, that NTI shall inform CMCC and Merz
promptly of its intent to assign and/or transfer its rights under the Agreement.
In the event that NTI proposes to assign its rights under the Agreement, by
acquisition or otherwise, to a direct competitor of Merz, NTI's right to assign
its rights under this Agreement shall be conditioned upon (i) NTI's written
agreement not to disclose any of the Merz Confidential Information to that
competitor; (ii) NTI's return to Merz of all copies of all Merz Confidential
Information prior to closing of the acquisition or any other act assigning and
transferring NTI's rights hereunder; and (iii) NTI confirming, in a written
certificate signed by an officer of NTI, that all such Merz Confidential
Information has been returned to Merz. NTI shall also be free to delegate,
transfer and/or subcontract its obligations with respect to any research and
development obligations set forth in Article 10 hereof to any other Person;
provided, however, that (i) Merz' prior written consent to such delegation,
transfer and/or subcontracting shall be required, and (ii) none of Merz'
Confidential Information shall be disclosed to such other Person without Merz'
prior written consent.
25
<PAGE>
19.2 Any notices, reports, or other communications between the parties
pursuant to this Agreement will be in writing and will be sent by hand delivery,
facsimile, international air courier, or first-class mail, postage prepaid to
the address for notice written below.
26
<PAGE>
Notice to Merz: Notice to NTI:
-------------- -------------
Merz + Co. GmbH & Co. Neurobiological Technologies Inc.
Attention: Friedhelm Klingenburg Attention: Paul E. Freiman
Eckenheimer Landstrase 100-104 1387 Marina Way South
60318 Frankfurt a.M. Richmond, CA 94804
Germany USA
Facsimile: (49) 69-1503-400 Facsimile: (1) 510-215-8100
Notice to CMCC:
- --------------
Children's Medical Center Corporation
Attention: Donald P. Lombardi
300 Longwood Avenue
Boston, Massachusetts
U.S.A.
Facsimile: (1) 617-232-7485
19.3 In the event that any provision of this Agreement shall be held to be
unenforceable, illegal or invalid, such provision shall in good faith be re-
negotiated to be enforceable and shall reflect as closely as possible the intent
of the original provision of this Agreement. Such invalidity, illegality or
unenforceability shall not affect the enforceability of the remainder of the
Agreement.
19.4 Nonperformance by any party shall be excused to the extent that
performance is rendered impossible by war, rebellion, civil unrest, strike,
lockout, labor troubles, fire, flood, earthquake, adverse weather conditions,
governmental acts or orders or restrictions, failure of supplies, or any other
reason when failure to perform is beyond the control and not caused by the
negligence of the non-performing party.
19.5 The parties shall, at all times and at their own expense, strictly comply
with all applicable laws, rules, regulations and governmental orders of all
countries within the Territory, including Germany and the United States, now or
hereafter in effect, relating to their performance of this Agreement. The
parties specifically acknowledge that the Products and Confidential Information
supplied under this Agreement may be subject to U.S. Export Administration
Regulations, and, as such, may not be exported, re-exported, transferred or
diverted in violation of the U.S. Export Administration Regulations. The
transfer of certain technical data and commodities may require a license from
the cognizant agency of the United States Government and/or written assurances
by Merz
27
<PAGE>
that Merz shall not export such data or commodities to certain foreign countries
without prior approval of such agency.
19.6 Subject to Article 5.3 above, Merz shall not use the name of CMCC or the
name of any of their respective corporate affiliates or employees, not any
adaptation thereof, in any advertising, promotional or sales literature without
prior written consent obtained from CMCC in each case, except that Merz may
state that it is licensed by CMCC under one or more of the patents and/or
applications comprising the CMCC Patents governed by this Agreement, and Merz
may comply with disclosure requirements of all applicable laws, including, but
not limited to, United States and state security laws.
19.7 This Agreement, including any Exhibits, which are incorporated herein by
reference, is the entire agreement of the parties and supersedes any prior
agreements between them, including, but not limited to, the Exclusive License
Agreement between CMCC and NTI. No modification of or amendment to this
Agreement, nor any waiver of any rights under this Agreement, shall be effective
unless in writing and signed by an authorized representative of each party.
28
<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to execute this Agreement:
MERZ + CO GMBH & CO.
Date: April 17, 1998 Date: April 16, 1998
------------------- -------------------------------
By: Jochen Huckmann /s/ By: Friedhelm Klingenburg /s/
---------------------- ---------------------------------
Name: Dr. Jochen Huckmann Name: Friedhelm Klingenburg
Title: President Title: Executive Director Corporate Development
CHILDREN'S MEDICAL CENTER CORPORATION
Date: April 16, 1998
--------------------------------------
By: William New /s/
----------------------------------------
Name: William New
--------------------------------------
Title: VP, Research Administration
-------------------------------------
NEUROBIOLOGICAL TECHNOLOGIES INC.
Date: April 16, 1998
--------------------------------------
By: Paul E. Freiman /s/
----------------------------------------
Name: Paul E. Freiman
--------------------------------------
Title: President and CEO
-------------------------------------
29
<PAGE>
EXHIBIT A
CMCC PATENTS
[*]
30
<PAGE>
EXHIBIT B
MERZ PATENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DESIGNATED STATE DATE OF APPLICATION PATENT NO. ISSUED
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
[*] [*] [*] [*]
- --------------------------------------------------------------------------------
[*] [*] [*] [*]
- --------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
EXHIBIT C
ROYALTY INCOME SPLITTING
1. IF A MARKETING PARTNER DEVELOPS AND MARKETS MEMANTINE FOR THE (I) MERZ
INDICATION, AND (II) CMCC INDICATIONS IN THE TERRITORY IN WHICH CMCC HAS
OBTAINED PATENT PROTECTION, THE PARTIES WILL BE ENTITLED TO THE FOLLOWING
PERCENTAGE SHARES OF THE ROYALTY INCOME:
<TABLE>
<CAPTION>
INDICATION MERZ NTI CCMC
<S> <C> <C> <C>
Merz Indication* [*]% [*]%,** [*]%,**
CMCC Indications*, [*]% [*]%,** [*]%,**
***
</TABLE>
* Fee split is limited to the licensing of Products in the Territory.
** In territories where CMCC has not obtained any patent protection for the
CMCC Indications, NTI and CMCC will be entitled jointly to [*]% of the
Royalty Income derived from the licensing of Merz' rights to the
development and marketing of Memantine for the Merz Indication in such
territory. NTI shall be entitled to [*]% of such Royalty Income and CMCC
shall be entitled to [*]% of such Royalty Income.
*** In territories where Merz (i) has entered into marketing arrangements,
license agreements and/or has business plans for the marketing, licensing
and commercial exploitation of the Products for the Merz Indication as set
forth in Article 5.2 above, and (ii) also enters into an agreement with a
Marketing Partner for the marketing, licensing and/or commercial
exploitation of the CMCC Indications, Merz shall be entitled to [*]% of the
resulting Royalty Income pertaining to the CMCC Indications. In such event,
NTI shall be entitled to [*]% and CMCC shall be entitled to [*]% of the
Royalty Income for the CMCC Indication. As set forth in Article 5.2 of this
Agreement, Merz shall have no obligation whatsoever to NTI and/or CMCC,
including the sharing of Royalty Income, down-payments, lump-sum payments
and/or milestone payments, with respect to any such marketing, licensing or
commercial exploitation of Products for the Merz Indication in any of the
countries listed in Article 5.2.
32
<PAGE>
2. IF NO MARKETING PARTNER IS WILLING TO DEVELOP THE CMCC INDICATIONS, THE
PARTIES WILL BE ENTITLED TO THE FOLLOWING PERCENTAGE SHARES OF THE ROYALTY
INCOME:
<TABLE>
<CAPTION>
INDICATION MERZ NTI CMCC
<S> <C> <C> <C>
Merz Indication* [*]% [*]%** [*]%**
***
</TABLE>
* Fee split is limited to the licensing of Products in the Territory.
** In territories where CMCC has not obtained any patent protection for the
CMCC Indications, NTI and CMCC will be entitled jointly to [*]% of the
Royalty Income derived from the licensing of Merz' rights to the
development and marketing of Memantine for the Merz Indication in such
territory. NTI shall be entitled to [*]% of such Royalty Income and CMCC
shall be entitled to [*]% of such Royalty Income.
*** In territories where Merz has entered into marketing arrangements, license
agreements and/or has business plans for the marketing, licensing and
commercial exploitation of the Products for the Merz Indication as set
forth in Article 5.2 above, Merz shall have no obligation whatsoever to NTI
and/or CMCC, including the sharing of Royalty Income, down-payments, lump-
sum payments and/or milestone payments which are attributable or allocable
to one or more countries listed in Article 5.2 and Exhibit F hereto, with
respect to any such marketing, licensing or commercial exploitation of
Products for the Merz Indication in any of the countries listed in Article
5.2 and Exhibit F hereto.
33
<PAGE>
EXHIBIT D
REPORTS
THE QUARTERLY REPORTS TO BE PROVIDED BY MERZ TO CMCC AND NTI IN ACCORDANCE WITH
ARTICLE 8.8 SHALL CONTAIN THE FOLLOWING INFORMATION:
1. Names and addresses of Marketing Partners;
2. Copies of any new marketing, development and licensing agreements
entered into by Merz with Marketing Partner(s) during the calendar
quarter; Merz shall, however, be authorized to delete any Confidential
Information from such agreement;
3. Royalty Income due under license, development and marketing agreement
with Marketing Partner;
4. Down-payments, lump-sum payments, milestone-payments due under license,
development and marketing agreement with Marketing Partner;
5. Royalty Income received by Merz from Marketing Partners under license,
development and marketing agreement with Marketing Partner;
6. Down-payments, lump-sum payments, milestone-payments received by Merz
from Marketing Partners under license, development and marketing
agreement with Marketing Partner; and
7. Amount and price of Compound, bulk Memantine products and/or finished
Products, if any, sold to Marketing Partner.
34
<PAGE>
EXHIBIT E
INTERACTION AND COMMUNICATION BETWEEN MERZ AND ALLERGAN
1. Merz agrees to establish a Scientific Management Committee (hereinafter
referred to as "SMC") to allow Merz and Allergan to communicate with one another
and/or receive information from one another concerning the commercial
development of the CMCC Patents. The SMC shall consist of four members, two
appointed by Merz and two appointed by Allergan. The Chairperson of the SMC
shall be appointed alternatively from the representatives of Merz or Allergan
respectively and shall hold that position for one year. Merz shall appoint the
first Chairperson. CMCC and the Massachusetts Eye and Ear Infirmary shall each
have the right to select a representative to participate in the SMC as an
observer. The SMC will meet as soon as reasonably possible following the
execution of this Agreement. The SMC shall meet, thereafter, at six (6) month
intervals, or as otherwise agreed between Merz and Allergan to communicate
progress on research activities and to review and recommend possible research
projects for joint sponsorship and funding. Minutes of these meetings shall be
taken and distributed to Merz, CMCC, and Allergan as a formal record of the
proceedings and actions, if any.
2. All data and information generated by Merz' research and development
activities with respect to the CMCC Patents shall remain the exclusive property
of Merz and all data and information generated by Allergan's research and
development activities with respect to the CMCC Patents shall remain the
exclusive property of Allergan. Neither Merz nor Allergan shall have the right
to use the other's data and information for any purpose without the prior
written permission from the other. To the extent that Merz and Allergan agree
to cosponsor and co-fund certain research activities during their development of
the CMCC Patents, both parties shall jointly own the resulting data and
information and shall both have the right to use the data and information as
they see fit. Notwithstanding the above, Merz and Allergan shall communicate to
one another how they intend to use such joint data and information through the
SMC, and the SMC shall coordinate the use, and the timing of the use, of such
joint data and information by both Merz and Allergan, to ensure that neither one
is unfairly disadvantaged by such use.
3. Merz and CMCC acknowledge that Merz and Allergan may develop, market and
sell the same dosage form and strength of the same Products for different
Indications. It is CMCC's intent that both, Merz and Allergan, focus on their
licensed Field of Use. However, if significant sales of either Merz or Allergan
can be shown to have been made for Indications within the other party's Field of
Use, a rebate to compensate the other party will be provided by the party
receiving the profits from said sales in the other party's Field of Use. Such a
rebate, if any, shall be determined based upon the sales made by Merz or
Allergan respectively and the percent of prescriptions attributed to Indications
and/or the appropriate prescribers within the respective Field of Use as
measured by
35
<PAGE>
NDTI, PDDA, or other agreed upon prescription audit. Such rebate shall be equal
to the profit the other party would have received if it had made the sale in its
Field of Use but shall not exceed the profit actually realized by the party
making the sale. For purposes of this Exhibit E, the term "Field of Use" shall
mean the treatment and diagnosis of diseases and conditions in humans governed
by the CMCC Patents licensed to Merz hereunder or licensed to Allergan under the
license agreement between CMCC and Allergan.
4. CMCC will grant or cause Allergan to grant a right of first refusal to Merz
to obtain an exclusive royalty-bearing license outside Allergan's Field of Use
to make, have made, use, and sell any pharmaceutical composition covered under
the CMCC Patents that is discovered by Allergan during the term of this
Agreement.
5. Merz agrees that Merz will grant a right of first refusal to Allergan to
obtain an exclusive royalty-bearing license within Allergan's Field of Use to
make, have made, use, and sell any pharmaceutical composition covered under the
CMCC Patents that is discovered by Merz during the term of this Agreement.
6. The provisions of this Exhibit E may be changed only with the mutual
consent of Licensee, Allergan, and CMCC. CMCC shall not unreasonably withhold
or delay consent to any change agreed to by Merz and Allergan.
36
<PAGE>
EXHIBIT F
LIST OF OTHER COUNTRIES RELATING TO ARTICLE 5.2
COUNTRY CONTRACT
[*] [*]
16 April 1998
37
<PAGE>
THE SYMBOL "*" IS USED THROUGHOUT THIS EXHIBIT TO INDICATE THAT A PORTION OF THE
EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
AGREEMENT
THIS AGREEMENT (the "Agreement") is entered into as of April 16, 1998
(the "Effective Date") by and between Children's Medical Center Corporation
("CMCC") and Neurobiological Technologies, Inc. ("NTI").
WHEREAS, CMCC, NTI and Merz + Co. GmbH & Co. ("Merz") are concurrently
entering into a License and Cooperation Agreement of even date herewith (the
"License and Cooperation Agreement"); and
WHEREAS, under the License and Cooperation Agreement, CMCC and NTI
will share certain payments to be made by Merz to CMCC and NTI as a result of
sales of Compound and Products in the Territory (as those terms are defined in
the License and Cooperation Agreement); and
WHEREAS, CMCC and NTI now wish to set forth their agreements with
respect to how such payments will be shared between them; and
WHEREAS, CMCC and NTI further wish to memorialize their mutual
agreement to terminate the Exclusive License Agreement between CMCC and NTI
dated September 11, 1995, as amended (the "License Agreement"); and
WHEREAS, NTI has agreed to issue CMCC two warrants to purchase Common
Stock of NTI at the election of the Board of Trustees of CMCC.
NOW, THEREFORE, in consideration for mutual promises and covenants
contained herein, the sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
1. Unless otherwise expressly provided for herein, the defined terms
in this Agreement shall have the same meaning ascribed to them in the License
and Cooperation Agreement.
2. With respect to the sharing of Royalty Income between CMCC and NTI
under Section 8.4 and Exhibit C of the License and Cooperation Agreement, CMCC
and NTI agree as follows:
(a) [*] percent ([*]%) of the Royalty Income from sales of
Products in
<PAGE>
the Territory for CMCC Indications shall be retained by Merz. CMCC shall receive
[*] percent ([*]%) of the Royalty Income from sales of Products in the Territory
for CMCC Indications (which [*] percent ([*]%) is equal to [*] percent ([*]%) of
the remaining [*] percent ([*]%) of the Royalty Income from sales of Products in
the Territory for CMCC Indications), and NTI shall receive [*] percent ([*]%) of
the Royalty Income from sales of Products in the Territory for CMCC Indications.
(b) In those countries listed in Section 5.2 of the License and
Cooperation Agreement, [*] percent ([*]%) of the Royalty Income from sales of
Products in those countries for CMCC Indications shall be retained by Merz.
CMCC shall receive [*] percent ([*]%) of the Royalty Income from sales of
Products in those countries for CMCC Indications (which [*] percent ([*]%) is
equal to [*] percent ([*]%) of the remaining [*] percent ([*]%) of the Royalty
Income from sales of Products in those countries for CMCC Indications), and NTI
shall receive [*] percent ([*]%) of the Royalty Income from sales of Products in
those countries for CMCC Indications.
(c) [*] percent ([*]%) of the Royalty Income from sales of
Products in the Territory for Merz Indications shall be retained by Merz. CMCC
shall receive [*] percent ([*]%) of the Royalty Income from sales of Products in
the Territory for Merz Indications (which [*] percent ([*]%) is equal to [*]
percent ([*]%) of the remaining [*] percent ([*]%) of the Royalty Income from
sales of Products in the Territory for Merz Indications), and NTI shall receive
[*] percent ([*]%) of the Royalty Income from sales of Products in the Territory
for Merz Indications.
(d) Notwithstanding Section 2(c) above, in those countries where
CMCC has not obtained any patent protection for CMCC Indications, [*] percent
([*]%) of the Royalty Income from sales of Products in those countries for Merz
Indications shall be retained by Merz. CMCC shall receive [*] percent ([*]%) of
the Royalty Income from sales of Products in those countries for Merz
Indications (which [*] percent ([*]%) is equal to [*] percent ([*]%) of the
remaining [*] percent ([*]%) of the Royalty Income from sales of Products in
those countries for Merz Indications), and NTI shall receive [*] percent ([*]%)
of the Royalty Income from sales of Products in those countries for Merz
Indications.
(e) If no Marketing Partner develops CMCC Indications, [*]
percent ([*]%) of the Royalty Income from sales of Products in the Territory for
Merz Indications shall be retained by Merz. CMCC shall receive [*] percent
([*]%) of the Royalty Income from sales of Products in the Territory for Merz
Indications (which [*] percent ([*]%) is equal to [*] percent ([*]%) of the
remaining [*] percent ([*]%) of the Royalty Income from sales of Products in the
Territory for Merz Indications), and NTI shall receive [*] percent ([*]%) of the
Royalty Income from sales of Products in the Territory for Merz Indications.
2
<PAGE>
(f) Notwithstanding Section 2(e) above, if no Marketing Partner
develops CMCC Indications, in those countries where CMCC has not obtained any
patent protection for CMCC Indications, [*] percent ([*]%) of the Royalty Income
from sales of Products in those countries for Merz Indications shall be retained
by Merz. CMCC shall receive [*] percent ([*]%) of the Royalty Income from sales
of Products in those countries for Merz Indications (which [*] percent ([*]%) is
equal to [*] percent ([*]%) of the remaining [*] percent ([*]%) of the Royalty
Income from sales of Products in those countries for Merz Indications), and NTI
shall receive [*] percent ([*]%) of the Royalty Income from sales of Products in
those countries for Merz Indications.
3. With respect to the sharing between CMCC and NTI of all down-
payments, lump-sum payments and milestone payments, other than Royalty Income,
under Section 8.5 of the License and Cooperation Agreement, CMCC and NTI agree
as follows: [*] percent ([*]%) of each such payment shall be retained by Merz.
CMCC shall receive [*] percent [*] of each such payment (which [*] percent
([*]%) is equal to [*] percent ([*]%) of the remaining [*] percent ([*]%) of
each such payment), and NTI shall receive [*] percent ([*]%) of each such
payment.
4. With respect to the sharing between CMCC and NTI of any and all
payments that are to be made by Merz to CMCC and NTI pursuant to Article 9 of
the License and Cooperation Agreement, including payments to be made as a result
of: (a) sales of Compound by Merz or its affiliates to Marketing Partner(s), (b)
sales of finished Products by Merz or its affiliates to Marketing Partner(s), or
(c) sales of finished Products by Merz or its affiliates directly to third
parties other than Marketing Partner(s), CMCC and NTI agree that CMCC shall
receive [*] percent ([*]%) of the total of any such amounts paid by Merz to CMCC
and NTI pursuant to Article 9 of the License and Cooperation Agreement.
5. CMCC and NTI agree that immediately upon the execution and
delivery of this Agreement, the License Agreement shall be terminated, be void
and of no force and effect. CMCC and NTI further agree upon such termination
NTI shall have no obligations remaining to CMCC under the License Agreement.
6. For value received, NTI agrees to issue and deliver to CMCC Common
Stock Purchase Warrants in substantially the forms attached hereto as Exhibits
A-1 and A-2 (the "Warrants") upon receipt from CMCC of written notice that the
Board of Trustees of CMCC has elected to receive the Warrants; provided,
however, that NTI shall have no obligation to issue or deliver the Warrants if
such notice is not received by July 16, 1998; and provided, further, that CMCC's
election not to receive the Warrants shall in no way entitle CMCC to any
additional consideration hereunder.
3
<PAGE>
7. Neither party is, nor will be deemed to be, an agent or legal
representative of the other party for any purpose. Neither party will be
entitled to enter into any contracts, incur any debts or make any commitments in
the name of or on behalf of the other party, and neither party will be entitled
to pledge the credit of the other party in any way or hold itself out as having
authority to do so.
8. This Agreement will inure to the benefit of and be binding upon
the successors and assigns of CMCC and NTI respectively.
9. This Agreement shall be governed and construed in accordance
with the laws of the State of California, as applied to contracts executed and
performed entirely within the State of California, without regard to conflicts
of laws rules. This Section 8 shall survive the termination or expiration of
this Agreement.
10. All notices and other communications hereunder will be in writing
and will be deemed given if delivered personally or by facsimile transmission
(receipt verified), telexed, or sent by express courier service, to the parties
at the addresses provided below (or at such other address for a party as will
be specified by like notice; provided, that notices of a change or address will
be effective only upon receipt thereof).
11. No amendment, modification or supplement of any provision of this
Agreement will be valid or effective unless made in writing and signed by a duly
authorized officer of each party.
12. No provision of this Agreement unless such provision otherwise
provides will be waived by any act, omission or knowledge of a party or its
agents or employees except by an instrument in writing expressly waiving such
provision and signed by a duly authorized officer of the waiving party.
13. Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
14. Except for the License and Cooperation Agreement, this Agreement
constitutes and contains the complete, final and exclusive understanding and
agreement of the parties and cancels and supersedes any and all prior
negotiations, correspondence, understandings and agreements, whether oral or
written, between the parties respecting the subject matter hereof.
15. Each of the parties represents and warrants that it has full
right and authority to enter into this Agreement and to perform its obligations
hereunder.
4
<PAGE>
16. This Agreement may be executed in one or more counterparts with
the same force and effect as if the parties had signed a single instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first written above.
<TABLE>
<CAPTION>
<S> <C>
Neurobiological Technologies, Inc. Children's Medical Center Corp.
Paul E. Freiman /s/ William New /s/
------------------------------------------ -----------------------------------------
By: By:
Paul E. Freiman William New
------------------------------------------ -----------------------------------------
Name: Name:
President & CEO
------------------------------------------ ------------------------------------------
Title: Title:
1387 Marina Way VP Research Administration
------------------------------------------- ------------------------------------------
Richmond, CA 94804 Children's Medical Center Corp.
------------------------------------------- ------------------------------------------
Address: Address:
(510) 215-8100 300 Longwood Avenue, Boston, MA 02115
------------------------------------------- ------------------------------------------
Facsimile Number: Facsimile Number:
617 232-7485
</TABLE>
5
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8) pertaining to the 1993 Stock Plan (Nos. 33-75390, 33-87420 and 333-
44097) and the Employee Stock Purchase Plan (Nos. 33-75392 and 333-18519), and
in the related Prospectuses, of Neurobiological Technologies, Inc. of our report
dated August 12, 1998, with respect to the financial statements of
Neurobiological Technologies, Inc. included in this annual report (Form 10-KSB)
for the year ended June 30, 1998.
San Francisco, California
September 28, 1998
Page 36
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND INCOME STATEMENTS DATED 6/30/98 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1997 JUN-30-1996
<PERIOD-START> JUL-01-1997 JUL-01-1996 JUL-01-1995
<PERIOD-END> JUN-30-1998 JUN-30-1997 JUN-30-1996
<CASH> 2,020,886 1,278,402 4,602,815
<SECURITIES> 0 0 0
<RECEIVABLES> 0 0 0
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 2,079,902 4,009,749 9,582,390
<PP&E> 300,041 382,305 356,660
<DEPRECIATION> 246,594 184,950 127,393
<TOTAL-ASSETS> 2,133,349 4,207,104 11,392,363
<CURRENT-LIABILITIES> 497,578 996,556 893,152
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 29,980,898 29,382,471 29,302,546
<OTHER-SE> (28,345,127) (26,171,923) (18,803,335)
<TOTAL-LIABILITY-AND-EQUITY> 2,133,349 4,207,104 11,392,363
<SALES> 0 0 0
<TOTAL-REVENUES> 2,100,000 0 0
<CGS> 0 0 0
<TOTAL-COSTS> 0 0 0
<OTHER-EXPENSES> 4,372,539 7,775,895 5,717,685
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> (99,335) (407,307) (506,242)
<INCOME-PRETAX> (2,173,204) (7,368,588) (5,211,443)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (2,173,204) (7,368,588) (5,211,443)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (2,173,204) (7,368,588) (5,211,443)
<EPS-PRIMARY> (0.32) (1.13) (1.05)
<EPS-DILUTED> (0.32) (1.13) (1.05)
</TABLE>
