SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-18311
NEUROGEN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-2845714
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 Northeast Industrial Road
Branford, Connecticut 06405
(Address of principal executive offices) (Zip Code)
(203) 488-8201
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of August 14, 2002 the registrant had 17,809,374 shares of Common Stock
outstanding.
NEUROGEN CORPORATION
INDEX
Part I - Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at June 30, 2002 and
December 31, 2001
Consolidated Statements of Operations for the three-month and
six-month periods ended June 30, 2002 and 2001
Consolidated Statements of Cash Flows for the six-month periods
ended June 30, 2002 and 2001
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Part II - Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature
Exhibit Index
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
NEUROGEN CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
(UNAUDITED)
JUNE 30, 2002 DECEMBER 31, 2001
-------------- -----------------
Assets
Current assets:
Cash and cash equivalents $ 28,846 $ 51,062
Restricted cash 1,009 1,500
Marketable securities 60,796 54,237
Receivables from corporate partners 3,285 1,554
Other current assets 1,235 3,027
------------- ---------------
Total current assets 95,171 111,380
Property, plant & equipment:
Land, building and improvements 31,176 30,489
Equipment and furniture 17,257 16,162
Construction in progress 142 462
--------------- ----------------
48,575 47,113
Less accumulated depreciation & amortization 14,413 13,062
--------------- ----------------
Net property, plant and equipment 34,162 34,051
Other assets, net 656 525
--------------- ----------------
Total assets $ 129,989 $ 145,956
=============== ================
See accompanying notes to consolidated financial statements.
NEUROGEN CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(UNAUDITED)
JUNE 30, 2002 DECEMBER 31, 2001
----------------- -----------------
Liabilities & Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 4,746 $ 3,595
Unearned revenue from corporate partners, current portion 2,000 6,699
Current portion of loans payable 1,372 1,365
----------------- ------------------
Total current liabilities 8,118 11,659
Unearned revenue from corporate partners, net of
current portion 6,885 7,885
Loans payable, net of current portion 20,341 21,029
----------------- ------------------
Total liabilities 35,344 40,573
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, par value $.025 per share
Authorized 2,000 shares; none issued - -
Common stock, par value $.025 per share
Authorized 30,000 shares; issued and outstanding
17,859 shares at June 30, 2002 and 17,733 shares
at December 31, 2001 446 443
Additional paid-in capital 176,568 174,709
Accumulated deficit (79,108) (67,685)
Deferred compensation (3,678) (2,750)
Accumulated other comprehensive income 417 666
----------------- ------------------
Total stockholders' equity 94,645 105,383
----------------- ------------------
Total liabilities and stockholders' equity $ 129,989 $ 145,956
================= ==================
See accompanying notes to consolidated financial statements.
NEUROGEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(UNAUDITED)
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 2002 JUNE 30, 2001 JUNE 30, 2002 JUNE 30, 2001
---------------- --------------- -------------- -------------
Operating revenues:
License fees $ 7,061 $ 2,495 $ 8,449 $ 3,745
Research and development 1,209 720 2,459 1,440
---------------- --------------- ------------- -------------
Total operating revenues 8,270 3,215 10,908 5,185
Operating expenses:
Research and development:
Stock compensation 38 18 (18) 902
Other research and development 9,836 8,659 19,272 17,286
---------------- --------------- ------------- -------------
Total research and development 9,874 8,677 19,254 18,188
General and administrative:
Stock compensation 151 27 290 72
Other general and administrative 1,660 1,442 3,706 3,289
---------------- --------------- ------------- -------------
Total general and administrative 1,811 1,469 3,996 3,361
---------------- --------------- ------------- -------------
Total operating expenses 11,685 10,146 23,250 21,549
---------------- --------------- ------------- -------------
Operating loss (3,415) (6,931) (12,342) (16,364)
Other income (expense):
Investment income 811 1,242 1,547 2,751
Interest expense (274) - (554) -
---------------- --------------- ------------- -------------
Total other income, net 537 1,242 993 2,751
---------------- --------------- ------------- -------------
Net loss before provision for income taxes (2,878) (5,689) (11,349) (13,613)
Provision for income taxes - - (73) -
---------------- --------------- ------------- -------------
Net loss $ (2,878) $ (5,689) $ (11,422) $ (13,613)
================ =============== ============= =============
Basic and diluted loss per share $ (0.16) $ (0.33) $ (0.65) $ (0.78)
================ =============== ============= =============
Shares used in calculation of loss per share:
Basic and diluted 17,607 17,416 17,600 17,406
================ =============== ============= =============
See accompanying notes to consolidated financial statements.
NEUROGEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2002 JUNE 30, 2001
----------------- ---------------
Cash flows from operating activities:
Net loss $ (11,422) $ (13,613)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization expense 1,590 1,307
Stock compensation expense 272 974
Other non-cash expense 846 463
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable and accrued expenses 1,151 (897)
Decrease in unearned revenue from corporate partners (5,699) (1,745)
(Increase) decrease in receivables from corporate partners (1,732) 1,418
Decrease in other assets, net 1,598 733
Income tax benefits from exercise of stock options 345 -
----------------- ---------------
Net cash used in operating activities (13,051) (11,360)
Cash flows from investing activities:
Purchases of plant and equipment (1,824) (5,081)
Purchases of marketable securities (42,562) (42,526)
Maturities and sales of marketable securities 35,309 34,087
Proceeds from sales of assets 102 25
----------------- ---------------
Net cash used in investing activities (8,975) (13,495)
Cash flows from financing activities:
Principal payments under loans payable (681) -
Change in restricted cash 491 -
Exercise of employee stock options - 564
----------------- ---------------
Net cash (used in) provided by financing activities (190) 564
----------------- ---------------
Net decrease in cash and cash equivalents (22,216) (24,291)
Cash and cash equivalents at beginning of period 51,062 48,086
----------------- ---------------
Cash and cash equivalents at end of period $ 28,846 $ 23,795
================= ===============
See accompanying notes to consolidated financial statements.
Neurogen Corporation
Notes to Consolidated Financial Statements
June 30, 2002
(Unaudited)
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited consolidated financial statements have been
prepared from the books and records of Neurogen Corporation
("Neurogen" or the "Company") in accordance with generally accepted
accounting principles for interim financial information pursuant to
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted
accounting principles in the United States of America for complete
consolidated financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. These interim
consolidated financial statements should be read in conjunction with
the audited consolidated financial statements for the year ended
December 31, 2001 included in the Company's Annual Report on Form
10-K. Interim results are not necessarily indicative of the results
that may be expected for the full fiscal year.
Comprehensive loss for the six-month periods ending June 30, 2002
and 2001 were $11,671,000 and $13,454,000, respectively. The
differences between net loss and comprehensive net loss is due to
changes in the unrealized gain(loss) on marketable securities.
(2) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
parent company and a subsidiary, Neurogen Properties LLC, after
elimination of intercompany transactions.
(3) REVENUE RECOGNITION
The Company has entered into collaborative research agreements
which provide for the partial funding of specified projects in
exchange for the grant of certain rights related to discoveries.
Revenue under these arrangements typically includes upfront
non-refundable fees, ongoing payments for specified levels of staffing
for research and milestone payments upon the occurrence of certain
events. Since the adoption of the Securities and Exchange Commission's
Staff Accounting Bulletin No. 101, the upfront fees are generally
recognized as revenue ratably over the period of performance under the
research agreement. The research funding is recognized as revenue as
the related research effort is performed. Revenue derived from the
achievement of milestones is recognized when the milestone event
occurs.
Neurogen has also entered into one technology transfer agreement
under which revenue is recognized when a contractual arrangement
exists, fees are fixed and determinable, delivery of the technology
has occurred and collectibility is reasonably assured. When customer
acceptance is required, revenue is deferred until acceptance occurs.
Where there are on-going services or obligations after delivery,
revenue is recognized over the related term of the service on a
percentage of completion basis, unless such obligation is maintenance,
which is recognized on a straight line basis. Generally, the agreement
includes multiple elements and total contract fees are allocated to
the different elements based on evidence of fair value.
Revenue resulting from up-front non-refundable fees under
collaborative research agreements and all fees under the technology
transfer agreement is recorded as License Fees revenue for purposes of
the financial statements. Research funding for the Company's staffing
on projects and milestone payments under collaborative agreements are
recorded as Research and Development revenues. Deferred revenue arises
from the payments received for research and development to be
conducted in future periods or for licenses of Neurogen's rights or
technology where Neurogen has continuing involvement.
(4) STOCK-BASED AWARDS
In May 2002, an aggregate of 100,000 shares of restricted stock
were granted to certain newly hired officers and one existing officer.
Of the total shares granted, 50% vest after four years and 50% after
five years from date of grant provided the officer remains an employee
of the Company. In January 2002, 15,000 options to purchase common
stock at the exercise price of $14.30 were granted to a director of
the Company for consulting services to be performed. In the second
quarter, the Company recorded deferred compensation totaling
$1,380,000, which is being amortized ratably over the service period
required for awards to vest. For the six months ending June 30, 2002,
the Company recorded $44,000 in non-cash compensation expense related
to 2002 awards.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Since its inception in September 1987, Neurogen has been engaged
in the discovery and development of drugs. The Company has not derived
any revenue from product sales and expects to incur significant losses
in most years prior to deriving any such product revenues. Revenues to
date have come from five collaborative research agreements, one
license agreement and one technology transfer agreement.
RESULTS OF OPERATIONS
Results of operations may vary from period to period depending on
numerous factors, including the timing of income earned under existing
or future strategic alliances, technology transfer agreements, joint
ventures or financings, if any, the progress of the Company's research
and development and technology transfer projects, technological
advances and determinations as to the commercial potential of proposed
products. Neurogen expects research and development costs to increase
significantly over the next several years as its drug development
programs progress. In addition, general and administrative expenses
necessary to support the expanded research and development activities
are generally expected to increase for the foreseeable future.
THREE MONTHS ENDED JUNE 30, 2002 AND 2001
The Company's operating revenues increased to $8.3 million for
the three months ended June 30, 2002 as compared to $3.2 million for
the same period in 2001. This increase is primarily due to the
recognition of $4.2 million in revenue deferred until the June 2002
completion of a technology transfer agreement with Pfizer Inc
("Pfizer"), described below, and the $2.0 million recognition of
revenues under such agreement for the achievement of a milestone
event. License fee revenue in 2002 also includes the recognition of
$0.5 million of a total up-front payment of $10.0 million received as
part of our collaboration with Aventis Pharmaceuticals Inc.
("Aventis") in December 2001 (the "Aventis Agreement"), which is
described below. Research and development revenue recognized in 2002
relates to research funding earned from the Aventis Agreement, whereas
the revenue for 2001 represents the recognition of discovery research
funding under a collaboration with Pfizer which concluded on December
31, 2001.
Research and development expenses increased 14 percent to $9.8
million for the three-month period ended June 30, 2002 as compared to
$8.7 million for the same period in 2001 excluding non-cash stock
compensation charges. The increase is primarily due to further
development of potential drug candidates, including the funding of
clinical trials for the Company's candidate for the treatment of
certain inflammatory disorders, the Company's continued utilization of
its AIDD (Accelerated Intelligent Drug Design) Program for the
discovery of new drug candidates and an increase in research and
development personnel. Research and development expenses represented
86 percent of total expenses in each of the three month periods ended
June 30, 2002 and 2001, excluding non-cash stock compensation charges.
General and administrative expenses, excluding non-cash stock
compensation charges, increased 15 percent to $1.7 million for the
three-month period ended June 30, 2002 compared to $1.4 million for
the same period in 2001. The increase is a result of additional
business operations and technical services required to facilitate
Neurogen's continued drug discovery and drug development activity, as
well as to expand the Company's intellectual property estate.
Other income decreased from $1.2 million in the three-month
period ended June 30, 2001 to $0.5 million in the same period of 2002.
This difference is primarily due to an increase in interest expense
associated with a $17.5 million first mortgage debt financing the
Company entered into in December 2001 and to lower overall returns on
invested funds.
The Company recognized a net loss of $2.9 million for the three
months ended June 30, 2002 as compared with a net loss of $5.7 million
for the same period in 2001. The decrease in net loss is primarily due
to the increase in revenues partly offset by the increase in operating
expenses and decrease in other income described above.
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
The Company's operating revenues increased to $10.9 million for
the six months ended June 30, 2002 from $5.2 million for the same
period in 2001. This increase is primarily due to the recognition of
$4.2 million in revenue deferred until the June 2002 completion of a
technology transfer agreement with Pfizer, described below, and the
$2.0 million recognition of revenues under such agreement for the
achievement of a milestone event. License fee revenue in 2002 also
includes the recognition of $1.0 million of a total up-front payment
of $10.0 million received as part of the Aventis Agreement, which is
described below. Research and development revenue recognized in 2002
relates to research funding earned from the Aventis Agreement, whereas
the revenue for 2001 represents the recognition of discovery research
funding under a collaboration with Pfizer which concluded on December
31, 2001.
Research and development expenses, excluding non-cash stock
compensation charges, increased 11 percent to $19.3 million for the
six-month period ended June 30, 2002 as compared to $17.3 million for
the same period in 2001. The increase is primarily due to further
development of potential drug candidates, including the funding of
clinical trials for the Company's candidate for the treatment of
certain inflammatory disorders, the Company's continued utilization of
its AIDD Program for the discovery of new drug candidates and an
increase in research and development personnel. Research and
development expenses represented 84 percent of total operating
expenses (excluding non-cash stock compensation charges)in each of the
six-month periods ended June 30, 2002 and 2001.
General and administrative expenses, excluding non-cash stock
compensation charges, increased 13 percent to $3.7 million for the
six-month period ended June 30, 2002 compared to $3.3 million for the
same period in 2001. The increase is a result of additional business
operations and technical services required to facilitate Neurogen's
continued drug discovery and drug development activity, as well as to
expand the Company's intellectual property estate.
Total stock compensation expenses decreased from $1.0 million for
the six-month period ended June 30, 2001 to $0.3 million for the same
period in 2002. The 2002 compensation expense is composed of
continuing non-cash charges to income related to grants of certain
stock awards in 1997, 2001 and 2002 to certain officers of the
Company, while the 2001 expense included a one-time non-cash charge of
$0.8 million for the modification of certain stock options held by a
retiring executive officer.
Other income decreased from $2.8 million in the six-month period
ended June 30, 2001 to $1.0 million in the same period of 2002. This
difference is primarily due to an increase in interest expense
associated with a $17.5 million first morgage debt financing the
Company entered into in December 2001 and to lower overall returns on
invested funds.
The Company recognized a net loss of $11.4 million for the six
months ended June 30, 2002 as compared with a net loss of $13.6
million for the same period in 2001. The decrease in net loss is
primarily due to the increase in revenues partly offset by the
increase in operating expenses and decrease in other income descibed
above.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2002 and December 31, 2001, cash, cash equivalents
(including restricted cash) and marketable securities were in the
aggregate $90.7 million and $106.8 million , respectively. A total
amount of $27.2 million of the marketable securities at June 30, 2002
have maturities greater than one year. However, the Company can and
may liquidate such investments prior to maturity to meet its
strategies and/or investment objectives. The Company's aggregate level
of cash, cash equivalents and marketable securities decreased during
the first half of 2002. These levels have fluctuated significantly in
the past and are expected to do so in the future as a result of the
factors described below.
Neurogen's cash requirements to date have been met by the
proceeds of its equity financing activities, amounts received pursuant
to collaborative research, licensing or technology transfer
arrangements, certain debt arrangements and interest earned on
invested funds. The Company's equity financing activities have
included underwritten public offerings of common stock, private
placement offerings of common stock and private sales of common stock
in connection with collaborative research and licensing agreements.
Total funding received from these financing activities was
approximately $146.6 million. The Company's expenditures have been
primarily to fund research and development and general and
administrative expenses and to construct and equip its research and
development facilities.
The debt agreements entered into by the Company to date include a
first mortgage loan financing in December 2001, and a construction
loan entered into in October 1999. Total proceeds received under these
agreements was $22.5 million. As of June 30, 2002, Neurogen is not
engaged in any significant lease or capital expenditure commitments.
The Company plans to use its cash, cash equivalents and
marketable securities for its research and development activities,
working capital and general corporate purposes. Neurogen anticipates
that its current cash balance, as supplemented by research funding
pursuant to its collaborative research, licensing and technology
transfer agreements, will be sufficient to fund its current and
planned operations through at least 2004. However, Neurogen's funding
requirements may change and will depend upon numerous factors,
including but not limited to, the progress of the Company's research
and development programs, the timing and results of preclinical
testing and clinical studies, the timing of regulatory approvals,
technological advances, determinations as to the commercial potential
of its proposed products, the status of competitive products and the
ability of the Company to establish and maintain collaborative
arrangements with others for the purpose of funding certain research
and development programs, conducting clinical studies, obtaining
regulatory approvals and, if such approvals are obtained,
manufacturing and marketing products. Many of these factors could
significantly increase the Company's expenses and use of cash. The
Company anticipates that it may augment its cash balance through
financing transactions, including the issuance of debt or equity
securities and further corporate alliances. No assurances can be given
that adequate levels of additional funding can be obtained on
favorable terms, if at all.
As of December 31, 2001, the Company had approximately $83.6
million and $6.1 million of net operating loss and research and
development credit carryfowards, respectively, available for federal
income tax purposes which expire in the years 2004 through 2021. The
Company also had approximately $73.3 million and $3.5 million of
Connecticut state tax net operating loss and research and development
credit carryfowards, respectively, which expire in the years 2002
through 2021. The Company applied to exchange year 2000 Connecticut
research and development credits for cash proceeds under new
Connecticut tax law provisions and received a payment from the State
of Connecticut of $2.2 million in April 2002 for this exchange.
Because of "change in ownership" provisions of the Tax Reform Act of
1986, the Company's utilization of its net operating loss and research
and development credit carryforwards may be subject to an annual
limitation in future periods.
COLLABORATIVE RESEARCH AGREEMENTS
Aventis
-------
In December 2001, Neurogen entered into a collaboration and
license agreement with Aventis pursuant to which Aventis made an
initial payment of $10 million and agreed, among other things, to fund
a specified level of resources for at least three years for Neurogen's
program for the discovery and research of CRF1 receptor-based drugs
for a broad range of applications, including the therapeutic treatment
of depression and anxiety disorders. Aventis has the option to extend
the discovery and research effort for up to an additional two years.
As of June 30, 2002, Aventis has provided $1.5 million of research
funding to the Company. Neurogen is also eligible to receive milestone
payments if certain compound discovery, product development or
regulatory objectives are achieved subject to the collaboration. In
return, Aventis received the exclusive worldwide rights to develop,
manufacture and market collaboration drugs that act through the CRF1
receptor, for all therapeutic indications for which the drugs may be
used. Aventis will pay Neurogen royalties based upon net sales levels,
if any, for collaboration products. Also under the agreement, Aventis
is responsible for funding the cost of development, including clinical
trials, manufacturing and marketing of collaboration products, if any.
Pfizer
------
In June 1999, Neurogen and Pfizer entered into a technology
transfer agreement (the "Pfizer Technology Transfer Agreement"). Under
the terms of this agreement, Pfizer agreed to pay Neurogen a total of
up to $27.0 million over a three year period for the licensing and
transfer to Pfizer of certain of Neurogen's AIDD technologies for the
discovery of new drugs, along with the installation of an AIDD system.
Additional payments are also possible upon Pfizer's successful
utilization of this technology. Pfizer received a non-exclusive
license to certain AIDD intellectual property and the right to employ
this technology in its own drug development programs. As of June 30,
2002, Pfizer had provided $25.0 million in license fees pursuant to
the Pfizer Technology Transfer Agreement, which culminated in June
2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk. The Company's investment portfolio includes
investment grade debt instruments. These securities are subject to
interest rate risk, and could decline in value if interest rates
fluctuate. Due to the short duration and conservative nature of these
instruments, the Company does not believe that it has a material
exposure to interest rate risk. Additionally, funds available from
investment activities are dependent upon available investment rates.
These funds may be higher or lower than anticipated due to interest
rate volatility.
Capital market risk. The Company currently has no product
revenues and is dependent on funds raised through other sources. One
source of funding is through further equity offerings. The ability of
the Company to raise funds in this manner is dependent upon capital
market forces affecting the stock price of the Company.
Part II - Other Information
Item 1. Legal Proceedings
Not applicable for the second quarter ended June 30, 2002.
Item 2. Changes in Securities and Use of Proceeds
Not applicable for the second quarter ended June 30, 2002.
Item 3. Defaults upon Senior Securities
Not applicable for the second quarter ended June 30, 2002.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable for the second quarter ended June 30, 2002.
Item 5. Other Information
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 accompany this report.
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index.
(b) None.
SAFE HARBOR STATEMENT
Statements which are not historical facts, including statements about the
Company's confidence and strategies, the status of various product development
programs, the sufficiency of cash to fund planned operations and the Company's
expectations concerning its development compounds, drug discovery technologies
and opportunities in the pharmaceutical marketplace are "forward looking
statements" within the meaning of the Private Securities Litigations Reform Act
of 1995 that involve risks and uncertainties and are not guarantees of future
performance. These risks include, but are not limited to, difficulties or delays
in development, testing, regulatory approval, production and marketing of any of
the Company's drug candidates, the failure to attract or retain scientific
management personnel, any unexpected adverse side effects or inadequate
therapeutic efficacy of the Company's drug candidates which could slow or
prevent product development efforts, competition within the Company's
anticipated product markets, the Company's dependence on corporate partners with
respect to research and development funding, regulatory filings and
manufacturing and marketing expertise, the uncertainty of product development in
the pharmaceutical industry, inability to obtain sufficient funds through future
collaborative arrangements, equity or debt financings or other sources to
continue the operation of the Company's business, risk that patents and
confidentiality agreements will not adequately protect the Company's
intellectual property or trade secrets, dependence upon third parties for the
manufacture of potential products, inexperience in manufacturing and lack of
internal manufacturing capabilities, dependence on third parties to market
potential products, lack of sales and marketing capabilities, potential
unavailability or inadequacy of medical insurance or other third-party
reimbursement for the cost of purchases of the Company's products, and other
risks detailed in the Company's Securities and Exchange Commission filings,
including its Annual Report on Form 10-K for the year ended December 31, 2001,
each of which could adversely affect the Company's business and the accuracy of
the forward-looking statements contained herein.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEUROGEN CORPORATION
By:/s/ STEPHEN R. DAVIS
------------------------
Stephen R. Davis
Executive Vice President
and Chief Business Officer
Date: August 14, 2002
EXHIBIT INDEX
Exhibit
- -------
Number
- ------
10.1 - Employment Agreement between the Company and Edmund P. Harrigan, dated
as of May 13, 2002.
10.2 - Form of Proprietary Information and Inventions Agreement.
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, effective as of May 13, 2002, is made by and
between Neurogen Corporation, a Delaware corporation (the "Company"), with
offices at 35 Northeast Industrial Road, Branford, Connecticut 06405, and Edmund
P. Harrigan, M.D. (the "Employee").
WHEREAS, the Company and the Employee desire to enter into an employment
relationship; and
WHEREAS, the Company and the Employee desire to enter into this Agreement
to address, on the terms and conditions hereinafter set forth, certain matters
relating to such employment.
NOW, THEREFORE, the Company and the Employee agree as follows:
1. DEFINITIONS
(a) Cause
For purposes of this Agreement "cause" means:
(i) the Employee is convicted of a felony or entry of a plea of nolo
contendere (or similar plea) in a criminal proceeding for commission of a felony
or serious misdemeanor;
(ii) any willful act or omission by the Employee which constitutes gross
misconduct or gross negligence and which results in demonstrable material harm
to the Company;
(iii) the Employee's willful and continuous failure to perform his duties
with the Company after reasonable notice of such failure;
(iv) the Employee's participation in any act of dishonesty intended to
result in his material personal enrichment at the expense of the Company; or
(v) the Employee's failure to substantially comply with the terms set forth
in the Proprietary Information and Inventions Agreement between the Employee and
the Company.
No act, or failure to act, by the Employee shall be considered "willful"
unless committed in bad faith and without a reasonable belief that the act or
omission was in the Company's best interest.
(b) Good Reason
For purposes of this Agreement "good reason" means and shall be deemed to
exist if, without the prior written consent of the Employee,
(i) the Company permanently relocates the primary place of performance of
the duties specified in Section 3 of this Agreement to a location more than
fifty (50) miles from its current offices located in Branford, Connecticut;
(ii) the Employee suffers a material reduction in Employee's duties,
responsibilities or effective authority as a result of any action or inaction on
the part of the Company typically associated with his title and position as set
forth and described in Section 3 of this Agreement;
(iii) the Employee's rate of Base Salary (as hereinafter defined) is
materially decreased by the Company (other than in connection with an across the
board salary reduction agreed to by the Employee);
(iv) the Company fails to obtain the full assumption of this Agreement by a
successor entity in accordance with Section 12(b) of this Agreement; or
(v) the Board of Directors of the Company (the "Board") or the Company's
stockholders, either or both, as may be required to authorize the same, shall
approve any liquidation or dissolution of the Company, or the sale of all or
substantially all of the assets of the Company.
2. TERM
The term of Employee's employment under this Agreement shall, unless
earlier terminated under Section 7 herein or extended as hereinafter provided,
be for a period commencing as of May 13, 2002 (the "Commencement Date") and
terminating on May 12, 2004, subject to the terms and conditions contained in
this Agreement (the "Employment Period"). The Employment Period shall
automatically be extended, commencing on May 13, 2004 and thereafter on the
relevant alternate anniversary of the Commencement Date, for successive two (2)
year periods unless, not later than ninety (90) days prior to May 13, 2004 or
any such anniversary, either party to this Agreement shall give written notice
to the other that such party does not wish to extend or further extend the
Employment Period beyond its then already automatically extended term, if any.
3. DUTIES AND SERVICES
During the Employment Period, the Employee shall be employed as Executive
Vice President and Chief Development Officer of the Company. In such position,
the Employee shall have the duties, responsibilities and authority normally
associated with, or otherwise appropriate to, the offices and positions of an
Executive Vice President and Chief Development Officer of a corporation. In the
performance of his duties and responsibilities as Executive Vice President and
Chief Development Officer, the Employee shall report only to the President
and/or the Chief Executive Officer of the Company. During the Employment Period,
the Employee shall devote substantially all of his business time, during normal
business hours, to the business and affairs of the Company and the Employee
shall use his best efforts to perform faithfully and efficiently the duties and
responsibilities contemplated by this Agreement; provided, however, the Employee
may manage his personal, financial and legal affairs and engage in any
activities of a volunteer, civic or business nature, as long as such activities
do not materially interfere with Employee's responsibilities as Executive Vice
President and Chief Development Officer.
4. COMPENSATION AND OTHER BENEFITS
(a) Salary
As compensation for the Employee's services under this Agreement, beginning
the Commencement Date and until the termination of the Employment Period, the
Employee shall be paid by the Company a base salary of $300,000.00 per annum,
payable in equal semi-monthly installments in accordance with the Company's
normal payroll practices, which base salary may be increased but not decreased
during the Employment Period by the Board in its sole discretion (the "Base
Salary"). Such increased Base Salary shall then constitute the "Base Salary" for
purposes of this Agreement.
(b) Annual Bonus
In addition to the Base Salary, the Employee is eligible to receive,
subject to certain objective and/or subjective performance goals approved by the
President and Chief Executive Officer, such annual bonuses during the Employment
Period as the Board may approve.
(c) Benefits
During the Employment Period, the Employee shall be eligible to participate
in all employee pension and incentive benefit plans and programs maintained from
time to time by the Company for the benefit of senior executives. During the
Employment Period, the Employee, Employee's spouse, if any, and their eligible
dependents, if any, shall be eligible to participate in and be covered under all
the employee and dependent health and welfare benefit plans or programs
maintained from time to time by the Company. However, the Company shall have no
obligations under this Section 4(c) unless and until the Employee has met any
generally applicable eligibility requirements for participation in such plans
and programs.
(d) Loan
As of the Commencement Date, the Company will loan to the Employee,
interest free, $250,000 (the "Loan"). On each anniversary of the Commencement
Date the Company will forgive $50,000 of the outstanding principal balance of
the Loan, provided the Employee remains an employee of the Company on such
anniversary date. Should the Employee's employment relationship with the Company
terminate for any reason, any remaining principal balance of the loan shall be
due and payable within thirty (30) days of such termination. While the Employee
remains an employee of the Company, the Company will "gross up" and pay on
behalf of the employee the actual federal and state income taxes owed by the
Employee as a consequence of any interest which, due to the interest-free nature
of the Loan, is required to be imputed in calculating the Employee's taxes. The
Employee will be responsible for paying any taxes owed as a consequence of any
principal amounts forgiven.
(e) Equity
As of the Commencement Date, the Company will grant to the Employee:
(i) Forty thousand (40,000) shares of Neurogen Corporation restricted
common stock, par value $.025 per share, (the "Restricted Stock"). The
Restricted Stock shall vest and become unrestricted and freely tradable, subject
to any governmental law, rule, regulation or order which would be applicable to
the Employee generally (e.g. the Employee's knowledge of material non-public
information regarding the Company) in two equal installments, twenty thousand
(20,000) shares on May 13, 2006 and twenty thousand (20,000) shares on May 13,
2007. If for any reason the Employee's employment with the Company is terminated
prior to either of the dates indicated in the preceding sentence, any unvested
shares of Restricted Stock shall be forfeited to the Company for zero (0)
consideration.
(ii) An employee stock option (the "Stock Option") to acquire one hundred
and twenty-five thousand (125,000) shares of Neurogen Corporation common stock
at the then-current NASDAQ market price as of the date of grant. The Stock
Option shall vest in five equal annual installments commencing on the first
anniversary of the date of grant.
5. NON-COMPETITION
(a) During the Employment Period and for one year after the date of any
such termination of employment, the Employee agrees that, without the prior
express written consent of the Company, he shall not, directly or indirectly,
for his own benefit or as an employee, owner, shareholder, partner, consultant,
(or in any other representative capacity) for any other person, firm,
partnership, corporation or other entity (other than the Company), (i) with
respect to the United States of America or Canada, engage in the discovery,
research and/or development of therapeutic, diagnostic or prophylactic products
which work through the same biological mechanisms as products which at the time
of such termination are under active clinical or pre-clinical development or
have been pre-clinically or clinically developed by the Company and which the
Company has not abandoned ("Related Programs") or (ii) solicit or hire (or
direct another to solicit or hire) the services of any employee of the Company
or attempt to induce any such employee or any consultant to the Company to leave
the employ of the Company (except when such acts are performed in good faith by
the Employee on behalf of the Company). Notwithstanding the above, this
provision shall not prevent or prohibit Employee from being employed during such
one year period by another entity in a managerial role where Employee has
overall responsibility for managing a research and development portfolio which
includes one or more Related Programs, provided that Employee does not violate
the terms of Section 6 hereof and does not during such one year term actively
advise or direct the discovery, research or development efforts of such other
entity in the Related Program(s). During the Employment Period, the Employee
shall not own more than 2% of the outstanding common stock of any corporation.
The provisions of this Section 5 shall not be deemed to reduce in any way any
other fiduciary, contractual or other legal obligation the Employee may have to
the Company, including without limitation any obligation which may arise by
virtue of any corporation law, securities law, patent or intellectual property
law or right, the common law, other agreements with the Company or otherwise.
For purposes of Section 5 of this Agreement, the term "solicit" shall mean
any communication of any kind whatsoever, regardless of by whom initiated,
inviting, encouraging, or requesting any person or entity to take or refrain
from taking any action.
(b) The Employee agrees to comply with the terms of set forth in the
Proprietary Information and Inventions Agreement.
(c) If at any time within twenty-four (24) months after the date on which
the Employee exercises a Company stock option or stock appreciation right, or on
which Company restricted stock vests, or on which income is realized by the
Employee in connection with any other Company equity-based award (each of which
events is a "Realization Event"), the Employee breaches any provision of Section
5(a) or 5(b) of the Agreement in more than a minor, deminimus or trivial manner
that causes or is likely it cause, more than deminimus financial or reputational
harm to the Company (and, if such breach is susceptible to cure, the Employee
does not cure such breach and harm within ten (10) days after the Employee's
receipt of written notice of such breach of the Company which specifies in
reasonable detail the facts and circumstances claimed to be the basis for such
breach), then (i) the Employee shall forfeit all of Employee's unexercised
(including unvested) Neurogen Corporation stock options and restricted stock and
(ii) any gain realized within the twenty-four (24) months prior to such breach
from the exercise of any Company stock options or the vesting of any Company
restricted stock or other equity-based awards by the Employee from the
Realization Event shall be paid by the Employee to the Company upon written
notice from the Company within ninety (90) days of such notice (such payments
may be made in increments over such period). Such gain shall be determined after
reduction for any taxes paid (or, if such gain is determined before such taxes
are paid, owing, provided that such taxes are actually paid in a timely manner)
by the Employee which are attributable to such gain as of the date of the
Realization Event, and without regard to any subsequent change in the Fair
Market Value (as defined below) of a share of Company common stock; provided
that any federal or state income tax benefit actually realized by the Employee
as a result of making payments to the Company under this Section 5(c) (relating
to any of the next ten (10) tax year periods) shall also be paid to the Company
within fifteen (15) days of such realization. Such gain shall be paid by the
Employee delivering to the Company shares of Company Common Stock with a Fair
Market Value on the date of delivery equal to the amount of such gain. The
Company shall have the right to offset such gain against any amounts otherwise
owed to the Employee by the Company (whether as wages, vacation pay, or pursuant
to any benefit plan or other compensatory arrangement). For purposes of this
Section 5(c), the "Fair Market Value" of a share of Company Common Stock on any
date shall be (i) the closing sale price per share of Company Common Stock
during normal trading hours on the national securities exchange on which the
Company Common Stock is principally traded for such date or the last preceding
date on which there was a sale of such Company Common Stock on such exchange or
(ii) if the shares of Company Common Stock are then traded on the NASDAQ Stock
Market or any other over-the-counter market, the average of the closing bid and
asked prices for the shares of Company Common Stock during normal trading hours
in such over-the-counter market for such date or the last preceding date on
which there was a sale of such Company Common Stock in such market, or (iii) if
the shares of Company Common Stock are not then listed on a national securities
exchange or traded in an over-the-counter market, such value as the Compensation
Committee, in its sole discretion, shall reasonably determine. In the event that
the Company seeks to enforce the provisions of this Section 5(c), and such
enforcement is contested by the Employee, and it is finally determined that the
Employee is not subject to the provisions of this Section 5(c), then the Company
shall (i) reimburse the Employee for reasonable attorneys' fees incurred by the
Employee in connection with such contest; and (ii) pay to the Employee an
additional amount equal to one (1) times the amount in clause (i); provided that
such payment under this clause (ii) shall not exceed $250,000.
(d) Any termination of the Employee's employment or of this Agreement shall
have no effect on the continuing operation of this Section 5.
(e) The Employee acknowledges and agrees that the Company will have no
adequate remedy at law, and could be irreparably harmed, if the Employee
breaches or threatens to breach any of the provisions of this Section 5. The
Employee agrees that the Company shall be entitled to equitable and/or
injunctive relief to prevent any breach or threatened breach of this Section 5,
and to specific performance of each of the terms hereof in addition to any other
legal or equitable remedies that the Company may have. The Employee further
agrees that Employee shall not, in any equity proceeding relating to the
enforcement of the terms of this Section 5, raise the defense that the Company
has an adequate remedy at law.
(f) The terms and provisions of this Section 5 are intended to be separate
and divisible provisions and if, for any reason, any one or more of them is held
to be invalid or unenforceable, neither the validity nor the enforceability of
any other provision of this Agreement shall thereby be affected. The parties
hereto acknowledge that the potential restrictions on the Employee's future
employment imposed by this Section 5 are reasonable in both duration and
geographic scope and in all other respects. If for any reason any court of
competent jurisdiction shall find any provisions of this Section 5 unreasonable
in duration or geographic scope or otherwise, the Employee and the Company agree
that the restrictions and prohibitions contained herein shall be effective to
the fullest extent allowed under applicable law in such jurisdiction.
(g) The parties acknowledge that this Agreement would not have been entered
into and the benefits described in Section 4 of this Agreement would not have
been promised in the absence of the Employee's promises under this Section 5.
6. CONFIDENTIAL INFORMATION
The Employee agrees to substantially comply with the terms set forth in the
Proprietary Information and Inventions Agreement between the Employee and the
Company, a copy of which is attached hereto as Exhibit A and incorporated by
reference herein.
7. TERMINATION
(a) Termination by the Company for Cause
The Company may terminate the Employee's employment hereunder for cause. If
the Company terminates the Employee's employment hereunder for cause, the
Employment Period shall end and the Employee shall only be entitled to any Base
Salary accrued or annual bonus awarded and earned but not yet paid as of the
date of termination of the Employee's employment with the Company.
If the Employee's employment is to be terminated for cause, the Company
shall give written notice of such termination to the Employee. Such notice shall
specify the particular act or acts, or failure to act, which is or are the basis
for the decision to so terminate the Employee's employment for cause.
(b) Termination Without Cause or Termination For Good Reason
The Company may terminate the Employee's employment hereunder without cause
and the Employee may terminate Employee's employment hereunder for good reason.
If the Company terminates the Employee's employment hereunder without cause, or
if the Employee terminates Employee's employment hereunder for good reason, the
Employment Period shall end and the Employee shall only be entitled to (i) any
Base Salary accrued or annual bonus awarded and earned but not yet paid as of
the actual date of termination of the Employee's employment with the Company;
(ii) a lump sum payment in an amount equal to the Employee's annual Base Salary
as provided in Section 4(a) above; (iii) continuation of the health and welfare
benefits of the Employee, as set forth in Section 4(c) above, or the economic
equivalent thereof, at the same cost and level in effect on the date of
termination of the Employee's employment with the Company for one (1) year after
such date of termination; and (iv) the right to exercise immediately any stock
options and to freely trade any restricted stock granted to the Employee which,
but for such termination, would have become exercisable or tradable, as the case
may be, within one year of the date of such termination without cause or for
good reason.
If the Employee's employment is to be terminated without cause, the Company
shall give the Employee thirty (30) days prior written notice of its intent to
so terminate the Employee's employment. If the Employee intends to terminate
Employee's employment for good reason, the Employee agrees to give the Company
at least thirty (30) days prior written notice.
(c) Termination Due to Death or Disability
The Company may terminate the Employee's employment hereunder due to the
Employee's inability to render, for a period of three consecutive months or an
aggregate of any on hundred twenty (120) days within any six (6) month period,
services hereunder by reason of permanent disability, as determined by the
written medical opinion of an independent medical physician selected in good
faith by the Company ("Disability"). In the event of the Employee's death or a
termination of the Employee's employment by the Company due to Disability, the
Employment Period shall end and the Employee, Employee's estate or Empoyee's
legal representative, as the case may be, shall only be entitled to (i) (a) any
Base Salary accrued or annual bonus awarded and earned but not yet paid as of
the actual date of termination of the Employee's employment with the Company,
and (b) any other compensation and benefits as may be provided in accordance
with the terms and provisions of any applicable plans and programs of the
Company; and (ii) in the case of Disability, (a) continuation of payment of the
Employee's Base Salary, as set forth in Section 4(a) above, until the Employee
commences to receive payments under the Company's long-term disability plan, (b)
continuation of the health and welfare benefits of the Employee, as set forth in
Section 4(c) above, or the economic equivalent thereof, at the same cost and
level in effect on the date of termination for one (1) year after the date of
termination and (c) the right to exercise immediately that proportion of the
stock options (rounded up to the nearest whole number of shares) granted to the
Employee which would become exercisable on or before the May 13 immediately
following the date of termination of the Employee's employment with the Company
due to Disability which is equal to the number of days worked by the Employee
from, but excluding, the May 13 immediately preceding such termination date to,
and including, such termination date divided by 365 days.
(d) Voluntary Termination
The Employee may affect a Voluntary Termination of Employee's employment
with the Company hereunder. A "Voluntary Termination" shall mean a termination
of employment by the Employee on Employee's own initiative other than a
termination due to death or Disability or a termination for good reason. A
Voluntary Termination shall not be, and shall not be deemed to be, a breach of
this Agreement and shall result in the end of the Employment Period and only
entitle the Employee to all of the rights and benefits which the Employee would
be entitled in the event of a termination of the Employee's employment by the
Company for cause.
(e) Termination by the Company at End of Employment Period
Notwithstanding any provision of this Agreement to the contrary, if (a) the
Employment Period (i) is not terminated early under Sections 7(a), 7(b), 7(c) or
7(d) above and (ii) the Company provides written notice to the Employee,
pursuant to Section 2 above, that it does not wish to extend or further extend
the Employment Period, and (b) the Employee's employment with the Company is
subsequently terminated at the end of the Employment Period, the Employee shall
be entitled to (x) continuation of payment of the Employee's Base Salary, as
provided in Section 4(a) above, as of the date of termination of the Employee's
employment with the Company for a period equal to (1) one year less the number
of days notice given by the Company to the Employee that it does not wish to
extend or further extend the Employment Period (such notice period shall be
deemed to commence as of the date of such written notice by the Company); (y)
continuation of the health and welfare benefits of the Employee, as set forth in
4(c) above, or the economic equivalent thereof, at the same cost and level in
effect on the date of termination of the Employee's employment with the Company
for one (1) year after such termination; and (z) the right to exercise
immediately any stock options and to trade freely any restricted stock granted
to the Employee which, but for such termination, would have become exercisable
or freely tradable, as the case may be, on or before the May 13 immediately
following the date on which the one (1) year period referred to the preceding
subclause (x) ends; provided, however, that the severance payment by the Company
to the Employee under subclause (x) of this Section 7(e) shall be offset on a
dollar for dollar basis by any cash, or the fair market value of any non-cash,
remuneration, benefit or other entitlement earned, received or receivable by the
Employee in connection with the employment of such Employee in any capacity,
other than dividends, interest income or other passive investment income earned
as a result of an interest in a business or entity of which the Employee owns
less than 2% of the beneficial ownership. If the Employee shall be entitled to
any such severance payment from the Company after the termination of the
Employment Period, the Employee shall have the obligation to notify the Company
of any employment, consultation or other activity which may involve any
remuneration, benefits or other entitlements as described above, and as to which
the Company may be entitled to an offset.
8. SURVIVAL
The rights and obligations of the parties hereunder shall survive the
termination of the Employee's employment hereunder and the termination of this
Agreement to the extent necessary to the intended preservation of such rights
and obligations.
9. WHOLE AGREEMENT AND MODIFICATION
This Agreement sets forth the entire agreement and understanding of the
parties with respect to the subject matter contained herein, and supersedes all
prior and existing agreements, whether written or oral, between them concerning
the subject matter contained herein. This Agreement may be modified only by a
written agreement executed by each party to this Agreement.
10. NOTICES
Any notice or other communication required or permitted to be given under
this Agreement shall be in writing and shall be mailed by certified mail, return
receipt requested, or delivered against receipt to the party to whom it is to be
given at the address of such party set forth above or to such other address as
the party shall have furnished in writing in accordance with this provision.
Notice to the estate of the Employee shall be sufficient if addressed to the
Employee in accordance with this provision. Any notice or other communication
given by certified mail shall be deemed given three (3) days after posting.
However, a notice changing a party's address shall be deemed given at the time
of the receipt of the notice.
11. WAIVER
Any waiver by either party of a breach of any provision of this Agreement
shall not operate as or be construed to be a waiver of any other breach of such
provision or of any breach of any other provision of this Agreement. The failure
of a party to insist upon strict adherence to any term of this Agreement on one
or more occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term
of this Agreement. Any waiver must be in writing, signed by the party giving
such waiver.
12. SUCCESSORS
(a) Effect on Employee
This Agreement is personal to the Employee and, without the prior express
written consent of the Company, shall not be assignable by the Employee, except
that the Employee's rights to receive any compensation or benefits under this
Agreement may be transferred or disposed of pursuant to testamentary
disposition, intestate succession or pursuant to a domestic relations order of a
court of competent jurisdiction. This Agreement shall inure to the benefit of
and be enforceable by the Employee's heirs, beneficiaries and/or legal
representatives.
(b) Effect on Company
This Agreement shall inure to the benefit of and be binding on the Company
and its successors and assigns. The Company shall reasonably require any
successor to all or substantially all of the business and/or assets of the
Company, whether direct or indirect, by purchase, merger, consolidation,
acquisition of stock, or otherwise, by an agreement in form and substance
reasonably satisfactory to the Employee, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent as the Company
would be required to perform if no such succession had taken place.
13. NO THIRD PARTY BENEFICIARIES
This Agreement does not create, and shall not be construed as creating, any
rights enforceable by any person not a party to this Agreement except as
provided in Section 12 of this Agreement.
14. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
15. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of Connecticut, without giving effect to the principles of
conflict of laws thereof.
16. SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement.
17. NO VIOLATION OF OUTSTANDING AGREEMENT(S)
Employee hereby warrants that the execution of this Agreement and the
performance of his duties hereunder do not and will not violate any agreement
with any other person or entity.
IN WITNESS WHEREOF, the parties have duly executed this Agreement which
shall be effective as of the effective date noted above.
NEUROGEN CORPORATION
By: /s/ STEPHEN R. DAVIS
---------------------------
/s/ EDMUND P. HARRIGAN
-------------------------------
Edmund P. Harrigan, M.D.
EXHIBIT 10.2
NEUROGEN CORPORATION
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
This Agreement shall be effective as of the date executed as indicated below
(the "Effective Date")
I recognize that Neurogen Corporation, a Delaware corporation, together
with its subsidiaries, (hereinafter collectively called the "Company") is
engaged in a continuous program of research and development as part of its
business, present and future, including the generation of new inventions,
(patentable or not) and other trade secret information, which I understand
constitutes one of the most valuable assets of the Company and must be treated
as such and:
I further understand and agree that:
A. As part of my employment by the Company I am (or may be) expected to
make new contributions and inventions that may constitute important
trade secrets:
B. The Company possesses and will continue to possess information that
has been created, discovered, developed, or otherwise become known to
the Company (including information created, discovered, developed, or
made known by me during the period of or arising out of my employment
by the Company) or in which property rights have been assigned or
otherwise conveyed to the Company, which information has commercial
value in the business in which the Company is engaged or relates to
the Company's actual or demonstrably anticipated business or research
and development activities. All such information is hereinafter
referred to as "Proprietary Information." By way of illustration, but
not limitation, Proprietary Information includes trade secrets (which
may further include any of the following); and also includes computer
programs and modeling strategies; marketing plans; strategies;
unpublished financial statements; forecasts; employee, customer,
collaborator and supplier lists and information; improvements;
inventions; formulas; chemical structures and structure activity
relationships, chemical or biological processes; techniques; assays;
know-how; data; organisms; plasmids; expression vectors and the like.
Proprietary Information does not include information that:
(i) is in or becomes a part of the public domain (other than through
unauthorized disclosure by me);
(ii) is disclosed by the Company to third parties free of any
obligation of confidentiality;
(iii)is learned outside the scope of my employment from an outside
source that is not under any obligation of confidentiality with
respect to such information to the Company or any of its business
partners.
C. My employment creates a relationship of confidence and trust between
me and the Company with respect to all Proprietary Information or any
other information that is:
(1) applicable to the business of the Company; or
(2) applicable to the business of any business partner of the
Company, which information may be made known to me by the Company
or by any business partner of the Company, or learned by me in
the course of my employment; or
(3) applicable to the valuation of the Company's Common Stock, which
information could affect the stock's price, sales, or purchases.
D. As used in this Agreement, the period of my employment includes any
time during which I may be retained by the Company as a consultant.
In consideration of my employment and the compensation to be received by me
from the Company from time to time, I hereby agree as follows:
1. All Proprietary Information shall be the sole property of the Company
and its assigns, and the Company and its assigns shall be the sole
owners of all patents and other rights in connection with such
Proprietary Information. At all times, both during my employment by
the Company and after its termination, I will keep in confidence and
trust all Proprietary Information and I will not use or disclose any
Proprietary Information or anything relating to such information
without the prior written consent of the Company, except as may be
necessary in the ordinary course of performing my duties as an
employee of the Company.
2. I agree that at no time will I reveal to any third party Proprietary
Information or other information not available to the general public
that could cause a third party or other parties relying on this
information to purchase or sell the Company stock.
3. I agree that at no time will I purchase or sell Company stock based on
Proprietary Information or on any other information not known to the
general public.
4. I agree that during the period of my employment by the Company I will
not, without the prior written consent of the Company, engage in any
employment or activity, either as an individual proprietor, partner,
stockholder, officer, employee, director, consultant, or in any other
capacity whatsoever (except as the holder of not more than 1% of the
total outstanding stock of a publicly held company), for any profit or
non-profit institution which competes with the Company or involves
either the business in which the Company is engaged or its actual or
demonstrably anticipated research and development.
5. I shall not at any time, during or for two (2) years after the term of
my employment by the Company, recruit or otherwise solicit or induce
any employee(s) of the Company to terminate their employment with, or
otherwise cease their relationship(s) with, the Company.
6. During the term of my employment with the Company, I will keep and
maintain adequate and current written records of all Proprietary
Information (in the form of notes, sketches, drawings, on paper and in
computer files as may be specified by the Company), which records in
any form shall be available to and remain the sole property of the
Company at all times. I agree that I will not, at any time, remove
from the Company's premises such records and related documents,
prepared by me or any other employee of the Company, without the
Company's prior written consent.
7. In the event of the termination of my employment by me or by the
Company for any reason whatsoever, I will promptly deliver to the
Company all notes, documents, reports and data of any nature
pertaining to my work with the Company. I understand that all such
documents and information are the exclusive property of the Company,
and I will not, without the prior written consent of the Company, take
with me upon the termination of my employment any documents or data,
or any reproduction thereof, containing or pertaining to any
Proprietary Information.
8. Except as otherwise provided in paragraph 13(b) of this Agreement, I
will promptly and fully disclose to the Company, or any persons
designated by it, all improvements, inventions, formulas, chemical
structures and structure activity relationships, processes,
techniques, assays, computer programs and modeling strategies,
original works of authorship, know-how, data, organisms, plasmids,
expression vectors and the like, whether or not patentable, made or
conceived or reduced to practice or learned by me, either alone or
jointly with others, during the period of my employment, knowledge of
which:
(a) is related to or useful in the business of the Company,
including, but not limited to drug discovery, research,
development and commercialization and other pharmaceutical and
biomedical activities generally or any other of its actual or
demonstrably anticipated business, research and development
activities; or
(b) result from tasks assigned to me by the Company; or
(c) result from use of Proprietary Information, equipment, supplies
or facilities of the Company or property contained on premises
owned, leased, or contracted for by the Company.
All such improvements, inventions, formulas, chemical structures and
structure activity relationships, processes, techniques, assays,
computer programs and modeling strategies, know-how, data, organisms,
plasmids, expression vectors and the like are hereinafter referred to
as "Inventions". All such original works of authorship are hereinafter
referred to as "Works."
9. (a) Subject to paragraph 9(c) below, I agree that all Inventions shall
be the sole property of the Company and its assigns, and that the
Company and its assigns shall be the sole owners of all patents and
other rights in connection with such Inventions. I hereby assign to
the Company, its successors and assigns, any rights I may have or
acquire in any country in such Inventions. I further agree that all
such Works which are protectable by copyright are "works made for
hire," as that term is defined in the United States Copyright Act and
assign all rights in such Works to the Company.
(b) I further agree as to all such Inventions to assist the Company in
every proper way, without any additional charge (but at the Company's
expense) to obtain and from time to time enforce patents, copyrights
and other forms of legal protection for such Inventions in any and all
countries. To that end I will execute all documents for use in
applying for and obtaining patents, copyrights and other forms of
legal protection for such Inventions, and I will take any steps
reasonably deemed necessary by the Company to enforce such rights and
protections, as the Company may desire, together with any assignments
of them to the Company or persons designated by it. My obligation to
assist the Company in obtaining and enforcing patents, copyrights and
other legal protections for such Inventions in any and all countries
shall continue after the termination of my employment, but, at my
written request, the Company shall compensate me at a reasonable rate
after my termination for time (other than the time required to execute
documents for use in applying for and obtaining patents, copyrights
and other forms of legal protection) that I spend at the Company's
request on such assistance. If the Company is unable because of my
mental or physical incapacity or for any other reason to secure my
signature to apply for or to pursue any application of any United
States or foreign patents or copyright registrations covering
Inventions or original works of authorship assigned to the Company,
then I hereby irrevocably designate and appoint the Company and its
duly authorized officers and agents as my agent and attorney in fact,
to act for and in my behalf and stead to execute and file any such
applications and to do all other lawfully permitted acts in the United
States or any other country to further the prosecution and issuance of
letters patent or copyright registrations thereon with the same legal
force and effect as if executed by me.
(c) I understand that paragraph 9(a) does not apply to Inventions or
Works for which no equipment, supplies, facility or trade secret
information of the Company was used, that were developed entirely on
my own time and without using any of the Company's equipment, supplies
or facilities or any property contained on premises owned, leased, or
contracted for by the Company and that do not relate to any work
performed by me for the Company or otherwise to the business of the
Company, including, but not limited to drug discovery, research
development and commercialization and other pharmaceutical and
biomedical research generally, or to the Company's actual or
demonstrably anticipated business, research or development activities.
(d) I further agree that, if I claim to have conceived any
Invention(s) within a six (6) month period following termination of my
employment by the Company, the burden of proving conception after such
termination shall be on me, and not on the Company.
10. As a matter of record I have identified on Exhibit A attached to this
Agreement all inventions or improvements relevant to the business of
the Company or its actual or demonstrably anticipated research and
development that were made or conceived or first reduced to practice
by me alone or jointly with others prior to my employment by the
Company, for which patent applications have not yet been filed as of
the Execution Date. The inventions and improvements I have designated
on Exhibit A shall be removed from the operation of this Agreement. I
represent and warrant that such list is complete. If there are no
inventions or improvements designated to be removed from the operation
of the Agreement on Exhibit A, I represent and warrant that there are
no such inventions and improvements at the time of signing this
Agreement. In consideration of my becoming employed by the Company, I
hereby assign to the Company any rights I may have or acquire in any
inventions or improvements not so designated in Exhibit A that are
relevant to the business of the Company, including but not limited to
drug discovery and other pharmaceutical and biomedical research
generally or any other of its actual or demonstrably anticipated
business research and development activities, that were made or
conceived or first reduced to practice by me alone or jointly with
others prior to my employment by the Company.
11. I understand that the Company has received, and in the future will
receive, confidential or proprietary information from third parties
("Third Party Information"). I further understand that the Company is
under a duty to maintain the confidentiality of such information and
to use it only for certain limited purposes. During the term of my
employment and thereafter, I will hold Third Party Information in the
strictest confidence and will not disclose or use Third Party
Information except as permitted by the agreement between the Company
and such third party, unless expressly authorized in writing to act
otherwise by an officer of the Company.
12. I represent that the performance of my duties under this Agreement and
as an employee of the Company does not and will not breach any
agreement to keep in confidence Proprietary Information acquired by me
in confidence or in trust prior to my employment by the Company. I
have not entered into, and I agree I will not enter into, any
agreement, either written or oral, in conflict with this Agreement. I
represent that I have provided the Company with a copy of any
restrictive covenants, covenants not to compete, confidentiality
agreements, non-disclosure agreements, assignment of invention
agreements or any other contractual obligations between me and any
other entity engaged in pharmaceutical or biomedical research.
13. (a) I understand that, as part of the consideration of the offer of
employment extended to me by the Company, of my employment, or of my
continued employment by the Company, I will not bring with me to the
Company or use in the performance of my responsibilities at the
Company any materials or documents of a former employer that are not
generally available to the public, unless I obtain and submit to the
Company written authorization from the former employer for the
possession and use of such materials in the course of my employment by
the Company, and the Company agrees to such bringing and use. The only
materials or documents of a former employer that are not generally
available to the public that I will bring to the Company or use in my
employment are identified on Exhibit A attached to this Agreement. I
represent that, prior to the effective date of my employment with the
Company, I have obtained and submitted to the Company written
authorization for the possession and use of each of such items, if
any, listed on Exhibit A.
(b) I also understand that, in my employment with the Company and in
the performance of my duties under this Agreement, including
paragraphs 8, 10 and 13(a), I am not to breach any obligation of
confidentiality that I have to former employers or other third
parties. I agree that I shall continue to fulfill all such obligations
during my employment with the Company.
14. This Agreement shall be effective as of the Effective Date as so
designated above, unless my first day of my employment by the Company
precedes such date, in which case my first date of employment shall be
considered the Effective Date.
15. This Agreement shall be binding upon me, my heirs, executors, assigns,
and administrators, and shall inure to the benefit of the Company, its
successors, and assigns.
16. I agree that in the event of a breach or threatened breach of the
provisions of this Agreement, monetary damages would be inadequate to
compensate the Company and, in addition to any other remedies or
rights it may have, the Company shall be entitled to obtain an
injunction or other equitable relief to enforce the terms of this
Employee Agreement and shall be entitled to recover from me all costs
(including reasonable attorneys' fees) incurred by the Company in
establishing that breach and in otherwise enforcing any of the
covenants or provisions of this Agreement. I further agree that no
bond or other security shall be required in obtaining such injunction
or other equitable relief and consent to the issuance of such
injunction or other equitable relief and to the ordering of specific
performance.
17. This Agreement will be governed by the laws of the State of
Connecticut, where not superceded by federal law, and the parties
expressly consent to the exclusive and personal jurisdiction of the
state and federal courts located in the State of Connecticut for any
claims relating to this Agreement or otherwise arising from my
employment with the Company. If any provision in this Agreement is
determined to be in violation of any law, rule or regulation or
otherwise unenforceable, and cannot be modified to be enforceable,
such determination shall not affect the validity of any other
provision of this Agreement, but such other provisions shall remain in
full force and effect. Each provision, paragraph and subparagraph of
this Agreement is severable from every other provision, paragraph and
subparagraph and constitutes a separate and distinct covenant. If the
scope or enforceability of this Agreement is in any way disputed at
any time, a court shall modify and enforce the Agreement to the extent
it believes to be reasonable under the circumstances.
18. Except as may be expressly provided in a separate signed written
agreement between the Company and me, my employment is "at will" and
the Company or I may terminate my employment at any time with or
without cause. There are no representations or promises that my
employment will continue for a set period of time, nor are there any
representations or promises that my employment will be terminated only
under particular circumstances. I understand that the nature of this
relationship may only be changed by an express written agreement
signed by a duly authorized officer of the Company and me.
19. This Agreement constitutes the entire agreement and understanding
between the Company and me concerning the subject matters contained
herein and, from the Effective Date, supersedes any and all prior
understandings and agreements between the parties concerning these
subject matters; provided, that any such prior agreement(s) shall
concurrently continue in full force and effect with respect to any
Proprietary Information or other confidential information disclosed
prior to the Effective Date. This Agreement may not be modified,
terminated, waived altered or amended except in a writing signed by me
and a duly authorized officer of the Company. This Agreement is
intended to supplement and not replace or reduce any rights the
Company may have under the Connecticut Uniform Trade Secrets Act or
other applicable intellectual property laws.
Dated: __________________________ By: __________________________
WITNESSED, ACCEPTED AND AGREED TO:
NEUROGEN CORPORATION
By: ___________________________
Title: _________________________
EXHIBIT A
Neurogen Corporation
35 Northeast Industrial Road
Branford, Connecticut 06405
1. The following is a complete list of all Inventions relevant to the
subject matter of the Proprietary Information and Inventions Agreement regarding
my employment by Neurogen (the "Company") that have been made or conceived or
first reduced to practice by me alone or jointly with others prior to my
employment by the Company, for which patent applications have not yet been filed
as of the Execution Date. I desire to remove these inventions and improvements
listed, if any, from the operation of the Company's Proprietary Information and
Inventions Agreement.
_______ No inventions or improvements.
_______ See below:
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______ Additional sheets attached.
Dated:_______________________ By:_________________________________________
2. I propose to bring to my employment the following materials and
documents of a former employer that are not generally available to the public,
which materials and documents may be used in employment.
______ No materials and documents.
______ See below:
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______ Additional sheets attached.
My signature below confirms that my continued use and possession of these
materials and documents, if any, are authorized by my former employer.
Dated :_____________________ By: _______________________________________
