SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A3
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
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)
Securities registered pursuant to Section 12(b) of
the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.025 per share (the "Common Stock")
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities 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
filing requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The approximate aggregate market value of the Common Stock held by
non-affiliates of the registrant was $183,571,000 as of March 1, 2002, based
upon the closing price of the Common Stock as reported on The Nasdaq National
Market on such date. This number is provided only for purposes of this report
and does not represent an admission by either the registrant or any person as to
the status of such person.
As of March 1, 2002, the registrant had 17,733,476 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
PART I
ITEM 1. BUSINESS
Overview
Neurogen Corporation (NASDAQ: NRGN) is a leading small molecule drug
discovery and development company targeting new drug candidates to improve the
lives of patients suffering from neurological, inflammatory, pain and metabolic
disorders. Neurogen has generated a portfolio of compelling new drug programs
through its fully integrated drug discovery platform, successfully solving
complex issues in the discovery of small molecule drugs for valuable targets.
Neurogen's strategy is to advance a mix of proprietary drugs independently and,
when advantageous, collaborate with world-class pharmaceutical companies during
the drug research and development process to obtain additional resources and to
access complementary expertise. Neurogen's Accelerated Intelligent Drug
Discovery (AIDD) process and its expertise in cellular functional assays enhance
the Company's ability to rapidly and cost effectively identify active compounds
during the drug discovery process.
Neurogen has diversified its drug discovery and development efforts across
a broad number of disease-related targets and has discovered multiple drug
candidates for each target. Throughout the pharmaceutical industry the majority
of all drug candidates fail to overcome all of the obstacles on the way to
commercialization. Because of this high attrition rate, we believe that the true
value of a drug discovery company's pipeline is most accurately measured by the
company's ability to rapidly discover multiple generations of improved
candidates within each of several programs, rather than by the promise of any
single compound in any one program. We believe that this ability to rapidly and
systematically produce multiple generations of incrementally improved drug
candidates in multiple programs is our most valuable asset. Although we are much
smaller than major pharmaceutical companies, we have discovered ten small
molecule drug candidates that we and our pharmaceutical company partners have
taken into human clinical trials. Two of these candidates from our programs for
the treatment of Alzheimer's disease and insomnia are currently being tested in
human trials by our partner in these programs, Pfizer Inc. We are also testing a
third candidate from our program for the treatment of inflammatory disorders in
human trials. We own all commercial rights to this program.
Neurogen is constantly working to gain and maintain a competitive advantage
in the process of discovering and developing new drug candidates. As a result,
we have generated a high-quality collection, or library, of over 1.3 million
potential drug compounds and have created powerful new drug discovery and
refinement technologies. The prime example of these new technologies is our
Accelerated Intelligent Drug Discovery AIDD(TM) system. Intellectual properties
comprising proprietary technical elements of AIDD have not been patented by
Neurogen, but rather are protected as Neurogen trade secrets. Our AIDD system is
an engine for the discovery of new drug leads and the optimization of these
leads to create drug candidates for clinical development. We believe that this
system also enables us to generate chemical matter with which to rapidly assess
the functional utility of new gene-based targets. Our AIDD system is a key
factor contributing to our belief that our small molecule drug discovery and
development platform is among the most advanced and efficient in the industry.
Since our initial development of the technology in 1994, AIDD has contributed to
each of our drug discovery programs. AIDD now contributes to all of our ongoing
drug discovery programs, and also contributed to the discovery of all three of
our compounds that are currently in clinical trials.
Background on the Drug Discovery Industry
The Traditional Drug Discovery Process
Most drugs work by binding to a particular target in the body, thereby
altering communication between cells or otherwise regulating cellular activity.
Therefore, the traditional path to discovering small molecule drugs typically
begins with the identification of a biological target that is believed to
regulate cellular communication or activities which could be modulated to treat
a given disorder. A test, or assay, is then developed in order to discover
compounds with biological activity at this target. Such an assay facilitates the
screening of the target against a library of many compounds that have been
synthesized in the laboratory. Compounds that bind to the target protein and
alter its activity are referred to as "hits." Medicinal chemists then optimize
these hits until they have sufficient potency to become lead candidates and then
improve their "drug-like" properties, such as gastrointestinal absorption,
stability, freedom from unwanted activities, etc., with the goal of producing a
successful drug development candidate.
Chemists typically try to streamline the process by copying chemical
structures from known active compounds. Even taking this approach, however, the
number of possible compounds that could be made is too vast to actually test
against even a single target using any available technology. Generally, the
search is further narrowed only by educated guessing. As a result of the
uncertainty of this approach, traditional methods can take many years or may
fail entirely.
If it were possible to predict in advance which compounds would result in a
hit, and which chemical changes would help optimize hits into drug candidates,
the drug discovery process would be vastly simplified. Unfortunately, the
traditional drug discovery process has had to rely on a trial and error approach
that has proven extremely expensive, inefficient and unreliable. Optimization of
hits to achieve the delicate balance of properties necessary for a successful
drug is still a daunting task. Most hits are never optimized into successful
drugs despite years of effort.
Drug Discovery in the Post-Genomics Era
Private and public groups have announced the full sequencing of the human
genome. The sequencing and deciphering of the human genome provides a useful
piece in the drug discovery puzzle. Genes and, more significantly, the proteins
they code for can be regulators of biological activity and thus represent
potential drug targets. Today all marketed drugs interact at fewer than 500
distinct biological targets. It has been estimated that once we more fully
understand the role and interactions of the 30,000 or more genes comprising the
human genome, the number of valid drug targets will increase to several
thousand.
Today, the pharmaceutical and biotechnology industries are facing an
explosion of newly identified potential targets. However, virtually all of these
potential targets have a very low level of validation and it is believed that
most potential targets will not prove useful. Once identified, a target must be
validated as useful. There are many levels of validation. Early indications of
validity may be little more than educated guesses, derived from similarity to
known targets and the identity of which tissues express a particular gene. Full
validity for a new target is not established until drugs that interact at that
target are tested in large numbers of humans.
The explosion of potential targets coupled with the decreasing level of
validity of those targets presents two significant challenges to pharmaceutical
and biotechnology companies over the next several years. One problem in the
post-genomics world is how to quickly determine which genes might be useful
targets for which diseases. An even more difficult task is to efficiently
exploit the availability of new potential targets by rapidly discovering new
lead compounds and optimizing such leads into drug candidates. Finding superior
methods and technologies to determine if newly isolated genes represent good
targets and devising workable strategies to identify the most promising
compounds for screening and optimization are essential steps in accelerating and
increasing the probability of success of the drug discovery process. We believe
that the greatest value created from genomics efforts will not be in the new
targets they provide, but in the discovery of new drugs, especially small
molecule drugs, which work through these new targets.
The Neurogen Competitive Advantage
At Neurogen, we have developed a drug discovery and development platform
designed to rapidly discover drug candidates for valuable potential targets
where others have failed and to capitalize on the wealth of new potential drug
targets. We believe our proprietary platform enables us to rapidly and
efficiently discover compounds that hit new potential drug targets, evaluate the
utility of those targets and optimize useful leads into new drug candidates.
We focus our efforts on the discovery and development of small molecule
drugs. Small molecule drugs are usually more stable and easily absorbed than
large molecule drugs, and so in most cases may be administered as a pill, a
patch, or an ointment. In addition, small molecule drugs are generally much
easier and less expensive to manufacture, distribute, and store. Protein-based
large molecule drugs typically require refrigeration, while most small molecule
drugs do not. Small molecule drugs can also be safely shipped and stored at
regular temperatures. Small molecule drugs that can be taken orally currently
make up about three quarters of the sales of the top 100 prescription drugs.
Additionally, where there is a choice, patients generally would rather take a
pill than an injection.
Components of Neurogen's Discovery and Development Platform
o Accelerated Intelligent Drug Discovery (AIDD(TM))system
AIDD is an integrated system of hardware, software, and processes
that allows scientists to improve on the trial and error approach
traditionally associated with drug discovery and development. This
system incorporates automated robotics guided by state-of-the-art
computerization, including neural network-based artificial
intelligence, to aid our scientists as we design, model, synthesize
and screen new chemical compounds. Rather than any one particular
element, we believe that it is our assembly of these drug discovery
technologies into an integrated system that distinguishes our approach
and enables AIDD to give us a distinct competitive advantage.
Specifically, AIDD enables our scientists to streamline and accelerate
the drug discovery process through the effective and efficient
iterative application of the screening, computational modeling and
synthesis phases of discovery research.
Our AIDD-based discovery system works in a closed drug discovery
loop of repeated cycles of automated synthesis, testing, and analysis.
During each cycle, which can take as little as two weeks, a
computerized, or virtual, model of the interaction between the
compounds being screened and the target being screened is created.
With each repetition of the cycle, the virtual model is improved and
refined. The neural network system then uses the upgraded model to aid
our scientists in making better predictions about which compounds
should be synthesized and/or screened in the next cycle.
AIDD extends compound modeling, prediction, and design
capabilities beyond that achievable by human perception alone. At the
same time, AIDD is designed to carry out this drug discovery cycle
with the exceptionally efficient use of discovery resources.
o Focused Compound Library and Virtual Library(TM).
Our AIDD-based system works in tandem with our focused compound
library. Instead of randomly generating a compound library as many
other drug discovery companies have done, we have chosen to bias or
"enrich" our compound library in favor of selected families of
compounds. Because the number of small organic compounds that can be
synthesized is virtually infinite, we believe that to be successful in
the drug discovery process, it is not the biggest or most diverse
library that counts, but rather the richest and most intelligently
designed.
AIDD aids our scientists by relating functional molecules not
just by their core structures, but also by their overall posture in
chemical space. By focusing on the overall orientation of active
compounds, rather than solely on their core structures, AIDD helps our
scientists as they seek to identify functionally related groups of
compounds that we call "Islands(TM)." Starting with computer models of
key characteristics both of compounds that work well and of those that
work poorly, AIDD allows us to rapidly evaluate a large number of
promising chemical variants using our automated techniques. This
process allows us to expand identified Islands and to discover new
ones. We add compounds newly synthesized in the process to our
enriched compound library and subsequently test them against multiple
targets via high throughput screening. The results of each of these
cycles of synthesis, analysis and testing are exploited to refine the
AIDD models so as to aid us in the design of better compounds and the
discovery of new Islands of high activity potential.
AIDD's ability to design new compounds and to discover new
Islands is accomplished not only by the testing of real compounds
already in our enriched library, but by testing computer-designed
molecules in a huge "virtual" library. These compounds exist only as
computer-based compound models, screened against computer-based target
models. The results of this Virtual Screening(TM) of our Virtual
Library(TM), which includes several hundred billion virtual compounds,
are also integrated into each succeeding reiteration of the AIDD-based
discovery process. Promising virtual compounds are synthesized, added
to the enriched compound library, and tested against actual targets
via high throughput screening. In this process we seek to generate new
Islands of high activity potential structures and refine the chemical
leads that we have identified until we reach compounds that we believe
are promising enough to move to the next phases of drug research and
development. In addition, by determining which compounds in which
Islands react with newly identified targets with a lower level of
validity, we believe we can efficiently discover a great deal about
the ultimate utility of such targets.
o Biological Expertise
We have expanded Neurogen's expertise in receptor biology beyond
gamma-aminobutyric acid GABA receptors, the Company's original focus.
Today we believe that we have one of the leading receptor biology
teams in the industry. We utilize this expertise in the design and
construction of screening assays to capitalize on novel biological
targets in our drug discovery efforts. Neurogen does not engage in
so-called "me too" drug discovery, by attempting to change the
chemical structure of an existing drug just enough to create a new
patentable product that may offer little or no improvement over
existing therapies working through the same biological target. Rather,
we focus on discovering novel drugs, and all of the candidates we have
taken into the clinic work by distinctly new target mechanisms
designed to provide significant therapeutic advantages. We believe
that our scientific expertise coupled with our AIDD-based discovery
system and our enriched library will allow us to continue to
efficiently capitalize on valuable drug targets where others have
failed to discover successful drug candidates and to capitalize on the
large number of new potential targets that have resulted from the
sequencing of the human genome.
Neurogen's Business Strategy
Neurogen's vision is to become a continuously profitable company
excelling at the creation of small molecule drugs using a seamless,
integrated discovery, development and medical paradigm to provide maximal
value for the patient and for the shareholder. The following are the key
elements of the business strategy we are employing to achieve the Neurogen
vision:
o Create a risk-balanced drug portfolio. To increase the probability of
successful drug discovery and development efforts, we are pursuing
multiple promising targets with multiple drug candidates for multiple
disorders. Neurogen believes that the robustness of a drug portfolio
should be based on the diversity of the programs in the pipeline,
rather than betting on a single potential blockbuster drug. We are
concentrating our efforts on key therapeutic areas (neuroscience, pain
and inflammation) within which clinical indications may be developed
for a variety of disorders, balancing risk against potential value. We
believe that our ability to produce multiple generations of candidates
in multiple programs using AIDD distinguishes Neurogen as a leading
drug discovery and development company.
O Build our development capability. Neurogen possesses a powerful drug
discovery capability which we are seamlessly linking to pharmaceutical
development and clinical initiatives so that we continuously optimize
drug properties. We believe this integrated medical feedback loop will
speed development of compounds in the clinic, and we are deploying
additional resources to support the early clinical trials of our lead
drug candidates.
o Selectively partner our drug programs. Neurogen's partnering strategy
seeks to retain ownership and control of programs as far downstream as
possible, balancing risk for the Company while maximizing return for
shareholders. We are building capabilities internally to take programs
further in clinical development. These capabilities enable us to
pursue a flexible business model, using partnered programs when we
feel it will be competitively and economically advantageous to do so.
When we partner our programs we seek to collaborate with
pharmaceutical leaders with demonstrated strengths and resources which
complement our own.
Neurogen Drug Programs
Neurogen designs and develops drugs that we believe will offer therapeutic
advantages or reduced side effects over drugs currently available to treat a
particular disease. Most of our programs address novel targets for which
significant scientific evidence exists to suggest that the target mechanism
plays a meaningful role in the disease or disorder we seek to treat. On a select
basis, we have also established discovery programs for targets that have been
newly identified as potential mediators in a disease where less is known about
the role of the target mechanism, but where we feel the risk/reward profile is
particularly compelling. In both cases, we believe that by designing drugs
specifically targeting a receptor, such compounds offer the potential for
equivalent or improved efficacy with fewer side effects than drugs currently on
the market, or may cause markets to grow in areas where few effective
therapeutics currently exist. In addition, drugs active against new targets
offer the possibility of adding to or synergistically improving existing
therapy.
The following table summarizes our most advanced programs in our current
drug pipeline:
Disorder Target Mechanism Program Status Commercial Rights
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Cognition Disorders GABA -Phase II (NGD 97-1) Pfizer Marketing/
(e.g. Alzheimer's Disease) -Preclinical development Neurogen Royalty
(NGD 97-2)
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Anxiety and Depression GABA -Completed Phase IIa Pfizer Marketing/
(NGD 91-3). Compound did Neurogen Royalty
not reach statistical
significance for efficacy
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Autoimmune and pulmonary C5a Phase I Neurogen
disease (NGD 2000-1)
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Insomnia GABA Phase I Pfizer Marketing/
(NGD 96-3) Neurogen Royalty
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Depression and Stress CRF1 Preclinical development Aventis Marketing/
(NGD 98-2) Neurogen Royalty
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Pain VR1 Candidate optimization Neurogen
- ------------------------------ -------------------------- --------------------------- --------------------------
- ------------------------------ -------------------------- --------------------------- --------------------------
Obesity MCH Research Neurogen
- ------------------------------ -------------------------- --------------------------- --------------------------
In the section below, we describe our most significant active drug
development programs in detail.
Cognition Disorders (GABA):
Memory loss is one of the most devastating symptoms of neurodegenerative
diseases such as Alzheimer's disease and Parkinson's disease. Research sponsored
by the National Institute for Mental Health indicates that as many as 5 million
people in the United States suffer from dementia, a condition characterized by
the impairment of learning and recall. Another prominent study indicates that
approximately 10% of people over age 65 suffer from some form of dementia.
Industry analysts estimate the current annual market for drugs to treat
cognitive disorders to be in excess of $1.0 billion worldwide.
We have discovered a number of compounds that exhibit memory enhancing
effects in animal models by modulating GABA activity at receptor subtypes we
believe are involved in the storage and retrieval of memory. Some drugs impair
memory by increasing GABA activity in memory centers of the brain. These drugs
are often used in out-patient surgery to cause the patient to forget the
surgical procedure. Our approach in this program is to modulate the GABA system
in the opposite direction from these drugs which impair memory. Our drug
candidates selectively decrease GABA activity in the memory centers of the
brain, an approach which has the potential to thereby enhance memory. Animal
studies, to date, suggest that compounds with this activity are efficacious in
enhancing memory.
Currently, Pfizer, our collaborative partner in this program, is evaluating
the most advanced of these compounds, NGD 97-1, in Phase II human clinical
studies, which began in the first quarter of 2001.
Inflammation and Autoimmune Disorders (C5a):
Complement component C5a promotes inflammation, attracts white blood cells,
and may trigger the immune system to start attacking the body's own tissues, an
inappropriate reaction central to autoimmune and inflammatory diseases. Industry
estimates value sales of drugs to treat inflammation, autoimmune and pulmonary
disorders at $23 billion worldwide.
Neurogen scientists believe that inhibiting the activation of the C5a
receptor may work to treat inflammation in rheumatoid arthritis, asthma, and
other autoimmune diseases by blocking inflammatory responses . A small molecule
drug inhibiting the C5a receptor could also be effective in treating other
inflammatory diseases with the ease of oral delivery and without many of the
side effects associated with currently available treatments. We have identified
several compounds that potently block the activation of C5a receptors.
Neurogen's leading compound in this program, NGD 2000-1 is currently in Phase I
clinical trials. To date, we have retained all rights to our C5a antagonist
program.
Insomnia (GABA):
Recent studies indicate that as many as 20 million people in the United
States experience chronic insomnia and an additional 20 to 30 million Americans
experience intermittent sleep disorders. Industry analysts estimate that the
annual market for drugs to treat insomnia is more than $1.5 billion worldwide
and over $500 million in the United States. We are developing drugs to treat
sleep disorders, primarily insomnia. While currently marketed drugs to treat
sleep disorders, known as hypnotics, are effective, they may cause numerous side
effects, including "hangovers," rebound insomnia, short-term memory loss and
addiction.
The link between the GABA system and sleep is illustrated by the
benzodiazapine class of drugs such as Valium(R), which cause sleepiness, and by
drugs marketed to treat insomnia such as Ambien(R) and Sonata(R), which work
through the same GABA receptors as the benzodiazapines. We have identified drug
candidates to treat insomnia that have a different GABA receptor binding profile
than currently marketed drugs. Animal studies, to date, suggest that these
compounds are efficacious in inducing sleep with fewer side effects than
existing therapies. Drugs to treat insomnia should not only induce sleep but
they should have pharmacokinetic properties which cause the drug to work quickly
and then be out of the system before morning. Pfizer, our partner in this
program, is currently evaluating our lead compound, NGD 96-3, in Phase I
clinical studies.
Depression and Stress (CRF1):
Depression is one of the most prevalent mental illnesses in the United
States, affecting approximately 17 million people or 9% of the adult population
annually according to the National Institute of Mental Health. While recent
pharmaceutical research has led to improved drugs, such as Prozac(R), for the
treatment of depression, these medications have limitations in their use,
primarily because of their slow onset of therapeutic action (often greater than
10 days from the commencement of dosing), lack of efficacy in some patients, and
side effects such as sexual dysfunction. Industry analysts estimate the current
annual market for antidepressants to be approximately $17 billion worldwide.
Stress is a condition commonly associated with depression. A number of
neuropeptide receptors that appear to be involved in stress responses, including
receptors for CRF1, exhibit altered characteristics in depressed patients.
We believe that an orally available drug candidate that blocks the CRF1
receptor may be efficacious in relieving depression, anxiety and/or stress
related disorders without significant side effects. A number of companies are
seeking to develop CRF1 drug candidates. To date, many companies have
experienced difficulties in identifying CRF1 blockers which have drug properties
appropriate for commercialization. We believe this is due to the fact that the
scope of known chemical structures which block CRF1 is relatively narrow.
We have discovered a number of compounds that block the CRF1 receptor
subtype and have demonstrated efficacy in animal models of depression and
stress. Importantly, the chemical structure of these compounds is significantly
outside of the scope of known CRF1 blockers. We believe these novel chemical
templates hold the potential of avoiding the development issues of known CRF1
structures. In December of 2001, we entered into a collaborative agreement with
Aventis Pharmacuticals (described below) to research and develop compounds to
modulate CRF1 receptors. Neurogen and Aventis are evaluating the most advanced
of these compounds in preclinical tests in preparation for clinical trials.
Pain (VR-1):
Neurogen has established a program to explore the utility of compounds that
modulate the type 1 Vanilloid Receptor (VR-1) so as to develop drugs for the
treatment of chronic pain. Studies in genetically altered mice lacking the VR-1
receptor provide strong evidence for a role of VR-1 in the sensation of noxious
heat as well as thermal hyperalgesia(heightened sensitivity to pain) in models
of inflammatory pain. Neurogen researchers believe that a drug which blocks the
VR-1 receptor could benefit patients suffering from various types of
inflammatory pain states and specific types of nociceptive, or localized, pain.
Through our AIDD program, we have discovered and optimized VR-1 antagonist drug
leads suitable for the further exploration of the utility of this target. To
date, we have retained all commercial rights to our VR-1 program.
Obesity (MCH):
Neurogen has established a program to explore the utility of and develop
drugs that modulate the effects of Melanin Concentrating Hormone (MCH) for the
treatment of obesity. MCH-deficient mice have reduced body weight and leanness
due to reduced feeding and increased metabolic rate, suggesting a role for MCH
in the central regulation of food intake and energy expenditure. Neurogen
researchers believe that a drug that blocks the activity of MCH could decrease
appetite and body weight. We have discovered and optimized MCH antagonist drug
leads suitable for further exploration of the utility of this target. To date,
we have retained all commercial rights to our MCH program.
Neurogen Collaborations
Neurogen's strategy is to advance a mix of proprietary drugs independently
and, when advantageous, collaborate with world-class pharmaceutical companies
during the drug development process to obtain additional resources and to access
complementary expertise. The Company's collaboration agreements offer funding
for drug discovery and development programs as well as clinical, manufacturing,
marketing, and sales expertise. At the same time, Neurogen has retained certain
rights to future royalties or profit-sharing for successful drugs resulting from
collaborative programs. These strategic alliances balance the Company's exposure
to research and development risks inherent in the industry while retaining a
share in the success of future products.
A summary of the material terms of our existing collaborative agreements
follows:
Pfizer Inc.
o The 1992 Pfizer Agreement - covers our GABA-based anxiety,
depression and cognitive disorders program
- Pfizer purchased 1.0 million shares of our common stock for $13.8
million.
- We received funding from 1992 through 2001 for collaborative
research and development under these programs.
- Subject to certain diligence obligations, Pfizer has the right to
determine when to advance compounds in the clinical process.
- We will receive milestone payments if specified development and
regulatory objectives are achieved.
- Pfizer received the exclusive worldwide license to manufacture,
use and sell GABA-based anxiolytics, anti-depressants and
cognition enhancers developed in this collaboration.
- Pfizer is required to pay us royalties based on net sales levels,
if any, for such products.
- In December 2001, our collaborative research program came to its
scheduled conclusion. Pfizer is currently developing candidates
and evaluating other candidates from the program to determine
whether further development is desirable.
o The 1994 Pfizer Agreement - covers our GABA-based sleep disorder
program
- Pfizer purchased approximately 1.1 million shares of our common
stock for approximately $9.9 million.
- We received funding from 1994 through 2001 for research and
development under this program.
- Pfizer has the right to determine when to advance compounds in the
clinical process.
- We will receive milestone payments if specified development and
regulatory objectives are achieved.
- Pfizer received the exclusive worldwide license to manufacture,
use and sell GABA-based sleep disorder products developed in the
collaboration.
- Pfizer is required to pay us royalties based on net sales levels,
if any, for such products.
- In December 2001, our collaborative research program came to its
scheduled conclusion. Pfizer is currently developing candidates
and evaluating other candidates from the program to determine
whether further development is desirable.
o The 1999 Pfizer Technology Transfer Agreement - license for a portion
of our AIDD technology
- Pfizer received a non-exclusive,perpetual license to a portion of
our AIDD technology.
- We have received as of December 31, 2001 $24 million and may
receive up to an additional $3 million for transfer of this
technology.
- We may receive additional payments based upon Pfizer's success in
using the technology.
o The 2001 Aventis CRF1 Collaboration Agreement
- Aventis paid $10 million for the licensing of Neurogen's CRF1
technology.
- Neurogen will receive committed research payments and be
reimbursed for research expenses for three years from the effective
date.
- Neurogen will receive milestone payments if specified development
and regulatory objectives are achieved.
- Aventis received the exclusive worldwide license to manufacture,
use and sell CRF1 receptor modulatory products developed in the
collaboration.
- Aventis is required to pay us royalties based on net sales levels,
if any, for such products.
Neurogen incurred research and development costs (net of stock
compensation) of $34,494,000, $28,048,000, and $23,965,000 for the years ending
December 31, 2001, 2000 and 1999, respectively. During those same time periods,
the Company recognized research and development funding, which was provided
under its collaboration agreements, of $3,056,000, $9,205,000 and $9,709,000,
respectively. Thus, during those time periods, overall research and development
funding as a percentage of total research and development costs (for both
partnered and unpartnered programs)was 9%, 33% and 40%, respectively.
Patents and Proprietary Technology
Our success depends, in part, on our ability to obtain and enforce patents,
maintain trade secrets and operate without infringing the intellectual property
rights of third parties. We file patent applications both in the United States
and in foreign countries, as we deem appropriate, for protection of both our
products and our processes. To date, we are the sole assignee of 171 issued
United States patents and numerous foreign patents:
o 66 of our issued United States patents and several pending patent
applications concern the compounds in our GABA-based program to
discover drugs to treat anxiety, sleep disorders and dementia;
o 71 of our issued United States patents and several pending patent
applications concern compounds that modulate activity at receptor
subtypes for the neurotransmitter dopamine, which is thought to play a
role in schizophrenia;
o 23 of our issued United States patents and several pending patent
applications are in our drug discovery program to treat depression
through the CRF1 receptor; and
o Five of our issued United States patents and several pending patent
applications concern NPY receptor-targeted drug discovery candidates
to treat obesity.
We are not currently engaged in any research based on any technology
transfer that we believe would obligate us to pay royalties to any third party.
The patent position of biotechnology and pharmaceutical firms is highly
uncertain and involves many complex legal and technical issues. There is
considerable uncertainty regarding the breadth of claims allowed in such cases
and the degree of protection afforded under such patents. As a result, we cannot
assure you that our patent applications will be successful or that our current
or future patents will afford us protection against our competitors. It is
possible that our patents will be successfully challenged or that patents issued
to others may preclude us from commercializing our products. Litigation to
establish the validity of patents, to defend against infringement claims or to
assert infringement claims against others can be lengthy and expensive, even if
a favorable result is obtained. Moreover, much of our expertise and technology
cannot be patented.
We also rely heavily on trade secrets and confidentiality agreements with
collaborators, advisors, employees, consultants, vendors and other service
providers. We cannot assure you that these agreements will not be breached or
that our trade secrets will not otherwise become known or be independently
discovered by competitors. Our business would be adversely affected if our
competitors were able to learn our secrets or if we were unable to protect our
intellectual property.
Competition
The biopharmaceutical industry is highly competitive and subject to rapid
and substantial technological change. Developments by others may render our
products under development or technologies noncompetitive or obsolete, or we may
be unable to keep pace with technological developments or other market factors.
Technological competition in the industry from pharmaceutical and biotechnology
companies, universities, governmental entities and others diversifying into the
field is intense and is expected to increase. Many of these entities have
significantly greater research and development capabilities than we do, as well
as substantially more marketing, manufacturing, financial and managerial
resources. These entities represent significant competition for us. In addition,
acquisitions of, or investments in, competing development-stage pharmaceutical
or biotechnology companies by large corporations could increase such
competitors' financial, marketing, manufacturing and other resources.
Competitors have developed or are in the process of developing technologies
that are, or in the future may be, the basis for competitive products. Our
competitors may develop products that are safer, more effective or less costly
than any products we may develop or may be able to complete their development
more quickly. If a competitor were to develop and successfully commercialize a
drug similar to one we were working on before us, it would put us at a
significant competitive disadvantage.
Manufacturing
Neurogen is currently relying, in part, on third-party manufacturers to
produce large quantities of development candidate compounds for pre-clinical
development and dosage forms of these candidates to support clinical trials.
Pfizer manufactures or will be responsible for manufacturing, drugs for
clinical trials which are subject to the 1992 Pfizer Agreement and the 1994
Pfizer Agreement and has the right to manufacture future products under these
collaborations, if any, for commercialization.
Aventis Pharmaceuticals will be responsible for manufacturing, or having
manufactured, drugs for clinical trials which are subject to the 2001 Aventis
Agreement, and has the right to manufacture future products under the
collaboration, if any, for commercialization.
With respect to compounds not currently subject to collaborations, we
currently utilize third-party manufacturers for preclinical development and
clinical trials.
Sales and Marketing
Neurogen's strategy is to market our products either directly or through
co-promotion arrangements or other licensing arrangements with large
pharmaceutical or biotechnology companies. We do not expect to establish a
direct sales capability for at least the next several years, though we may
pursue such a capability in the future. Pfizer has the right to market worldwide
future products, if any, resulting from the Pfizer Agreements. Aventis has the
right to market worldwide future products, if any, resulting from the 2001
Aventis CRF1 Collaboration Agreement.
Government Regulation
The production and marketing of our products and our research and
development activities are subject to regulation for safety, efficacy and
quality by numerous governmental authorities in the United States and other
countries. In the United States, drugs are subject to rigorous federal
regulation and, to a lesser extent, state regulation. The Federal Food, Drug and
Cosmetic Act, as amended, and the regulations promulgated thereunder, and other
federal and state statutes and regulations govern, among other things, the
testing, manufacture, safety, efficacy, labeling, storage, record keeping,
approval, advertising and promotion of our products. Product development and
approval within this regulatory framework will take a number of years and
involve the expenditure of substantial resources.
The steps required before a pharmaceutical agent may be marketed in the
United States include:
1. Pre-clinical laboratory tests, in vivo pre-clinical studies and
formulation studies,
2. The submission to the FDA of an Investigational New Drug
Application (IND) for human clinical testing which must become
effective before human clinical trials can commence,
3. Adequate and well-controlled human clinical trials to establish the
safety and efficacy of the drug,
4. The submission of a New Drug Application or Product License
Application to the FDA, and
5. FDA approval of the New Drug Application or Product License
Application prior to any commercial sale or shipment of the drug.
In addition to obtaining FDA approval for each product, each domestic drug
manufacturing establishment must be registered with, and approved by, the FDA.
Domestic manufacturing establishments are subject to biennial inspections by the
FDA and must comply with the FDA's Good Manufacturing Practices for both drugs
and devices. To supply products for use in the United States, foreign
manufacturing establishments must comply with Good Manufacturing Practices and
are subject to periodic inspection by the FDA or by regulatory authorities in
such countries under reciprocal agreements with the FDA.
Pre-clinical testing includes laboratory evaluation of product chemistry
and formulation, as well as animal studies to assess the potential safety and
efficacy of the product. Pre-clinical safety tests must be conducted by
laboratories that comply with FDA regulations regarding Good Laboratory
Practices. The results of the pre-clinical testing are submitted to the FDA as
part of an IND and are reviewed by the FDA prior to the commencement of human
clinical trials. Unless the FDA objects to an IND, the IND will become effective
30 days following its receipt by the FDA.
Clinical trials involve the administration of the new drug to healthy
volunteers or to patients under the supervision of a qualified principal
investigator. Clinical trials must be conducted in accordance with Good Clinical
Practices under protocols that detail the objectives of the study, the
parameters to be used to monitor safety and the efficacy criteria to be
evaluated. Each protocol must be submitted to the FDA as part of the IND.
Further, each clinical study must be conducted under the auspices of an
independent Institutional Review Board at the institution where the study will
be conducted. The Institutional Review Board will consider, among other things,
ethical factors, the safety of human subjects and the possible liability of the
institution. Compounds must be formulated according to Good Manufacturing
Practices.
Clinical trials are typically conducted in three sequential phases, but the
phases may overlap. In Phase I, the initial introduction of the drug into
healthy human subjects, the drug is tested for safety (adverse side effects),
absorption, dosage tolerance, metabolism, bio-distribution, excretion and
pharmacodynamics (clinical pharmacology). Phase II typically involves studies in
a limited patient population
1. to determine the efficacy of the drug for specific, targeted
indications,
2. to determine dosage tolerance and optimal dosage, and
3. to identify possible adverse side effects and safety risks.
When a compound is found to be effective and to have an acceptable safety
profile in Phase II evaluations, Phase III trials are undertaken to further
evaluate clinical efficacy and to test for safety within an expanded patient
population at geographically dispersed clinical study sites. We or the FDA may
suspend clinical trials at any time if it is believed that the individuals
participating in such trials are being exposed to unacceptable health risks.
The results of the pharmaceutical development, pre-clinical studies and
clinical studies are submitted to the FDA in the form of a New Drug Application
for approval of the marketing and commercial shipment of the drug. The testing
and approval process is likely to require substantial time and effort. The
approval process is affected by a number of factors, including the severity of
the disease, the availability of alternative treatments and the risks and
benefits demonstrated in clinical trials. Consequently, there can be no
assurance that any approval will be granted on a timely basis, if at all. The
FDA may deny a New Drug Application if applicable regulatory criteria are not
satisfied, require additional testing or information or require post-marketing
testing and surveillance to monitor the safety of a company's products if it
does not believe the New Drug Application contains adequate evidence of the
safety and efficacy of the drug. Notwithstanding the submission of such data,
the FDA may ultimately decide that a New Drug Application does not satisfy its
regulatory criteria for approval. Moreover, if regulatory approval of a drug is
granted, such approval may entail limitations on the indicated uses for which it
may be marketed. Finally, product approvals may be withdrawn if compliance with
regulatory standards is not maintained or if problems occur following initial
marketing.
Among the conditions for New Drug Application approval is the requirement
that any prospective manufacturer's quality control and manufacturing procedures
conform to Good Manufacturing Practices. 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. Manufacturing establishments, both foreign and domestic, also are
subject to inspections by or under the authority of the FDA and by other
federal, state or local agencies.
Whether or not FDA approval has been obtained, approval of a product by
regulatory authorities in foreign countries must be obtained prior to the
commencement of commercial sales of the product in such countries. The
requirements governing the conduct of clinical trials and product approvals vary
widely from country to country, and the time required for approval may be longer
or shorter than that required for FDA approval. Although there are some
procedures for unified filings for certain European countries, in general, each
country at this time has its own procedures and requirements.
In addition to regulations enforced by the FDA, we are also subject to
regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other present and potential future federal, state or local
regulations. Our research and development involves the controlled use of
hazardous materials, chemicals, and various low-level radioactive compounds.
Although we believe that our safety procedures for handling and disposing of
such materials comply with the standards prescribed by state and federal
regulations, the risk of accidental contamination or injury from these materials
cannot be completely eliminated. In the event of any accident, we could be held
liable for any damages that result and any such liability could exceed our
resources.
Employees
As of December 31, 2001, we had 200 full-time employees, of which 150
persons were scientists and, of these scientists, 64 had Ph.D. degrees. None of
our employees are covered by collective bargaining agreements, and we consider
relations with our employees to be good. Each of our current scientific
personnel has entered into confidentiality and non-competition agreements with
us.
Research and Development Expenses
We incurred research and development expenses of $34,494,000, $28,048,000,
and $23,965,000 in 2001, 2000, and 1999, which exclude non-cash stock
compensation charges of $901,000, $4,637,000 and $77,000, respectively.
ITEM 2. PROPERTIES
We conduct our operations in laboratory and administrative facilities on a
single site located in Branford, Connecticut. The total facilities under our
ownership comprise approximately 148,000 square feet, of which 106,000 square
feet is in use by our personnel. Approximately 27,000 square feet has not yet
been adapted for our research effort.
In 1995, we leased approximately 24,000 square feet of a 39,000 square foot
building under a ten-year agreement, which gave us an option to purchase the
entire facility effective after the fifth year of the original term of the
lease. In January 2001, we elected to purchase the entire facility for $2.4
million. The additional space acquired of approximately 15,000 square feet
continues to be leased through us to the third-party tenants who occupied the
facilities at the time of purchase.
ITEM 3. LEGAL PROCEEDINGS
We know of no material litigation or proceeding pending or threatened to
which we are, or may become, a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
CAUTIONARY STATEMENT FOR PURPOSES OF THE
"SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995.
Except for historical matters, the matters discussed in this Form 10-K are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 or any rules, regulations or releases of the
Securities and Exchange Commission with respect thereto. Forward-looking
statements in this Form 10K include, but are not limited to, statements in Item
1 under the caption "Business--Neurogen Drug Programs" with respect to the
Company's various product development programs and statements in Item 7 under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations" with respect to the sufficiency of the Company's cash
balance to fund planned operations. In addition, the Company may from time to
time make forward-looking statements in the future.
Neurogen wishes to caution readers, and others to whom forward-looking
statements are addressed, that any such forward-looking statements are not
guarantees of future performance and that actual results may differ materially
from estimates in the forward looking statements. In addition to the important
factors described elsewhere in this Form 10-K and the Company's other filings
with the Securities and Exchange Commission, the following important factors,
among others, could affect Neurogen's actual future results and could cause such
results to differ materially from estimates expressed in any forward-looking
statements made by, or on behalf of, Neurogen:
o Difficulties or delays in discovery, research, development, testing,
regulatory approval, production and marketing of any of the Company's
drug candidates, including without limitation any unanticipated pre-
clinical or clinical delays, delays in regulatory approvals, the
failure to develop follow-on candidates in a given program, the
failure to attract or retain scientific and management personnel,
adverse side effects or inadequate therapeutic efficacy or inadequate
drug properties which could slow or prevent product development
efforts at any stage of product development by delaying or preventing
clinical trials, delaying or preventing regulatory approval for
commercialization or adversely affecting acceptance by the market.
o Vigorous competition within the Company's anticipated product
markets, including without limitation competition from
fully-integrated pharmaceutical companies, specialty biotechnology
companies and platform technology companies, many or all of which may
have substantially greater capabilities, experience and resources than
the Company.
o Risk that competitors will succeed in developing technologies
(including drug discovery techniques) and products that are more
effective than those of the Company or that are commercialized prior
to similar technologies or products of the Company.
o Neurogen's dependence on its corporate partners with respect to
research and development funding, pre-clinical evaluation of drug
candidates, human clinical trials of drug candidates, regulatory
filings and manufacturing and marketing expertise with respect to most
of its most advanced compounds.
o Risk that Neurogen's interests will not coincide with those of its
collaborators with respect to the timing or conduct of clinical
development of compounds, the future production of developed products
or strategies with respect to development and commercialization of
such products.
o Risk that actual research and development costs and associated
general and administrative costs may exceed budgeted amounts for a
variety of reasons, including the uncertainty of product development
in the pharmaceutical industry.
o Risk that drug targets pursued by the company may prove to be invalid
after substantial investments by the Company.
o Inability to obtain sufficient funds through future collaborative
arrangements, technology transfers, equity or debt financings or other
sources to continue the operation of the Company's business which may
require the Company to reduce substantially or eliminate expenditures
for product development or to relinquish rights to certain of its
technologies or potential products.
o Risk that the Company's patents and trade secrets and confidentiality
agreements with collaborators, employees, consultants or vendors will
be invalidated or not adequately protect the Company's intellectual
property.
o Uncertainty of the scope and enforceability of patents in the
pharmaceutical and biotechnology industries which purport to enable
competitors to restrict others from pursuing certain drug targets.
o Risk that the Company may be prohibited or otherwise restricted from
working on certain targets relevant to the Company's business.
o The Company's dependence upon third parties for the manufacture of its
potential products and the Company's inexperience in manufacturing if
the Company establishes internal manufacturing capabilities, each of
which could adversely affect the Company's future profit margins, if
any, and its ability to develop and manufacture products on a timely
and competitive basis.
o Neurogen's dependence on third parties to market potential products
and Neurogen's lack of sales and marketing capabilities, each of which
could adversely affect the success of any sales and marketing efforts
for the Company's products.
o Unavailability or inadequacy of medical insurance or other third-party
reimbursement for the cost of purchases of the Company's products.
o Inability of the Company to attract and retain qualified management,
employees and consultants.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of Neurogen is traded on The NASDAQ Stock Market under the
symbol NRGN. As of March 1, 2002, there were approximately 237 holders of record
of the Company's common stock. No dividends have been paid on the common stock
to date, and the Company currently intends to retain any earnings for further
development of the Company's business.
The following table sets forth the high and low closing bid prices for the
common stock as reported by NASDAQ.
HIGH LOW
---- ---
FISCAL 2001:
First Quarter.................................................. $36.9375 $19.4688
Second Quarter................................................. 23.5938 18.3750
Third Quarter.................................................. 23.4375 13.5469
Fourth Quarter................................................. 22.5938 15.6094
FISCAL 2000:
First Quarter.................................................. $47.3750 $15.6250
Second Quarter................................................. 30.8750 21.1250
Third Quarter.................................................. 38.7500 26.5625
Fourth Quarter................................................. 38.4375 25.9375
ITEM 6. SELECTED FINANCIAL DATA
For the Year Ended December 31
(in thousands, except per share data)
-----------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- --------- ---------
Total operating revenues....................... $ 11,514 $ 20,413 $ 10,209 $ 11,081 $ 17,979
Total operating expenses....................... $ 42,577 $ 40,858 $ 28,465 $ 24,834 $ 23,276
Net loss....................................... $(25,362) $(15,471) $(14,618) $ (9,458) $ (257)
Net loss per share-basic and diluted........... $ (1.45) $ (0.94) $ (1.00) $ (.66) $ (.02)
Total assets................................... $145,956 $142,588 $ 92,134 $101,810 $111,869
Long-term debt................................. $ 21,029 $ 1,912 $ 1,912 $ - $ 74
Stockholders' equity........................... $105,383 $126,120 $ 84,710 $ 98,567 $106,918
Weighted average number of shares outstanding-
basic and diluted.............................. 17,441 16,490 14,576 14,419 14,348
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
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.
The preparation of Neurogen's financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Management makes estimates in the areas of
marketable securities and investments, license and research arrangements,
collaboration costs, income taxes, accruals and stock compensation. Actual
results could differ from those estimates.
The Company believes the following critical accounting policies affect
management's more significant judgments and estimates used in the preparation of
Neurogen's financial statements:
Revenue Recognition
Each of our collaborative research, licensing and technology transfer
agreements are significant to us. The terms of such arrangements may cause our
operating results to vary considerably from period to period.
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 potential discoveries. Revenue under these
arrangements typically includes upfront non-refundable fees, ongoing payments
for specified levels of staffing for research and milestone payments upon
occurrence of certain events. The upfront fees are 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 technology transfer agreements 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 service is maintenance, which is
recognized on a straight line basis. For a contract with multiple elements,
total contract fees are allocated to the different elements based on evidence of
fair value.
Stock-Based Compensation
The Company primarily grants qualified stock options for a fixed number of
shares to employees with an exercise price equal to the fair market value of the
shares at the date of grant. The Company has also issued restricted stock to key
executives which vest over specified service periods. The Company accounts for
grants of stock options and restricted stock in accordance with APB Opinion No.
25, "Accounting for Stock Issued to Employees," and, accordingly, recognizes no
compensation expense for such grants when the grants have an exercise price
equal to the fair market value at the date of grant.
Marketable Securities
The Company invests in U.S. government and corporate debt securities. The
fair value of these securities are subject to volatility and change. The Company
considers its investment portfolio to be available-for-sale securities as
defined in SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Marketable securities at December 31, 2001 and 2000 consisted of
debt securities with maturities of three months to four years. Securities are
available-for-sale and are carried at fair value with the unrealized
gains/losses reported as other comprehensive income. Realized gains and losses
have been determined by the specific identification method and are included in
investment income.
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 believes its research
and development costs may increase significantly over the next several years as
its drug development programs progress. In addition, general and administrative
expenses would be expected to increase substantially to support any expanded
research and development activities.
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
The Company's fiscal 2001 operating revenues decreased 44 percent to $11.5
million from 2000 operating revenues of $20.4 million, which was an increase
from 1999 operating revenues of $10.2 million. The decrease in 2001 was
primarily due to a decrease in research and development revenues resulting from
a scheduled reduction in the Company's staffing on collaborative programs with
Pfizer (the GABA and NPY programs described below) and the related reduction in
discovery research funding, which comprised $2.9 million of operating revenues
in 2001 as compared to $8.8 million in 2000. The recognition of license fees
revenue pursuant to the Pfizer Technology Transfer Agreement (described below)
also decreased from $11.2 million in 2000 to $8.5 million in 2001. The increase
in 2000 operating revenues was primarily due to the recognition of $11.2 million
in license fees revenue under the Pfizer Technology Transfer Agreement, as
compared to $0.5 million under such agreement in 1999, offset by a slight
decrease in research funding on the GABA and NPY programs from $9.4 million in
1999 to $8.8 million in 2000.
Research and development expenses, excluding non-cash stock compensation
charges, increased 23 percent to $34.5 million in 2001 as compared to 2000, and
also increased 17 percent to $28.0 million in 2000 as compared to 1999. The
increase in 2001 was primarily due to further external development costs related
to potential drug candidates of $5.5 million compared to $1.4 million in 2000.
The increase in 2000, as well as the remainder of the increase in 2001,was due
to the Company's continued expansion of its AIDD (TM)(Accelerated Intelligent
Drug Discovery) program for the discovery of new drug candidates. Research and
development expenses represented 84 percent, 83 percent and 85 percent of total
operating expenses (excluding non-cash stock compensation charges) for the years
ended December 31, 2001, 2000 and 1999, respectively.
The Company expenses all research and development costs as incurred. While
the Company maintains a system to record the level of staffing time spent on its
research and development projects, it does not maintain a historical cost
accounting system with sufficient accuracy to reliably estimate its research and
development costs on a specific project-by-project basis. Because a significant
portion of the Company's research and development expenses, such as laboratory
supplies, travel, information systems and services and facilities costs, benefit
multiple projects and are not individually tracked to a specific project and the
Company's staff timekeeping system does not account for differences in
compensation costs between lower level technicians and more senior scientists,
the Company is unable to reliably estimate its research and development costs on
a specific project-by-project basis.
General and administrative expenses, excluding non-cash stock compensation
charges, increased 15 percent to $6.6 million in 2001 from $5.7 million in 2000
and 31 percent in 2000 from $4.4 million in 1999. These increases are attributed
to additional administrative and technical services and personnel to support the
protection of Neurogen's growing intellectual property estate and to support
Neurogen's expanding research pipeline.
Stock compensation expense, which is primarily composed of non-cash charges
to income related to the grant of restricted stock and the modification of
certain stock options, was $1.5 million in 2001, $7.1 million in 2000 and $0.1
million in 1999. In 2000 the Company recorded $6.5 million in stock compensation
expense for the vesting of restricted stock to certain employees.
Other income, consisting primarily of interest income from invested cash
and marketable securities, was $4.5 million in 2001, $5.5 million in 2000 and
$3.6 million in 1999. The differences in annual income are due primarily to
varying levels of invested funds and available interest rates.
For the year ended December 31, 2001, the Company recorded a Connecticut
income tax benefit of $1.2 million in the Statement of Operations. This benefit
is the result of recent Connecticut legislation, which allows certain companies
to obtain cash refunds from the State of Connecticut at an exchange rate of 65%
of their research and development credits in exchange for foregoing the
carryfoward of these credits into future tax years.
The Company recognized a net loss of $25.4 million for the year ended
December 31, 2001, $15.5 million for the year ended December 31, 2000, and $14.6
million for the year ended December 31, 1999. The increase in the 2001 net loss
is primarily due to the decrease in revenues and the increase in research and
development and general and administrative expenses described above. The
increase in the 2000 net loss from 1999 was to a non-recurring, non-cash $6.5
million charge recognized in the first quarter of 2000 upon the vesting of
137,625 shares of restricted stock granted to certain employees in 1998 and
increases in research and development and general and administrative expenses,
as explained above (net of a $0.5 million cumulative effect of change in
accounting principle, as discussed below). These increases in expenses are
partially offset by the recognition of $10.7 million in revenue under the Pfizer
Technology Transfer Agreement (described below).
In December 1999, the staff of the Securities and Exchange Commission
issued its Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in
Financial Statements. SAB No. 101, as amended by SAB No. 101A and 101B, provides
guidance on the measurement and timing of revenue recognition in financial
statements of public companies. SAB No. 101 permits application of its guidance
to be treated as a change in accounting principle in accordance with APB Opinion
No. 20, Accounting Changes.
The Company adopted the guidance of SAB No. 101 in the fourth quarter of
2000, retroactive to January 1, 2000, and reflected a cumulative effect of
change in accounting principle on prior years of $0.5 million, related to timing
of revenue recognition on certain non-refundable up-front payments previously
recognized on a technology transfer agreement.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2001 and 2000, cash, cash equivalents and marketable
securities were in the aggregate $105.3 and $108.8 million, respectively. The
Company's cash and other short-term investment levels decreased ratably
throughout 2001 due primarily to the increase in research and development
expenses, purchases of property, plant and equipment and the decrease in
discovery research funding and license fees from Pfizer as described above. This
decrease was offset by $17.5 million in proceeds from a commercial term mortgage
loan financing completed in December 2001 and a $10.0 million license fee
received under a collaboration and license agreement entered into with Aventis
Pharmaceuticals Inc. ("Aventis"). A total amount of $42.4 million of the
marketable securities at December 31, 2001 have maturities greater than one
year; however, the Company can and may liquidate such investments prior to
maturity to meet its strategic and/or investment objectives. The levels of cash,
cash equivalents and marketable securities 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 Company is in the early stage of product development. It has not
derived any product revenues from product sales and does not expect to derive
any product revenues for at least the next several years, if at all. Prior to
deriving any such product revenues, the Company expects to incur significant
losses and negative cash flows which in the aggregate could exceed the Company's
existing cash resources. To provide cash to fund its operations until such time
as it achieves sustainable revenues, the Company relies extensively on its
ability to develop drug discovery programs of sufficient value to either partner
the programs with pharmaceutical companies or raise capital through equity
financings.
To the extent that drug candidates progress in the Company's currently
unpartnered programs, such as its program for the treatment of inflammatory
disorders or earlier stage programs, such progress could lead to the opportunity
to partner on terms which provide capital, revenues and cash flows to the
Company or the opportunity to raise capital through equity offerings. If
unpartnered programs do not progress or do not progress on schedule, such
opportunities would be delayed and may not materialize at all.
To the extent that drug candidates progress in the Company's partnered
programs, such as the Company's insomnia program partnered with Pfizer or its
depression and anxiety program partnered with Aventis, such progress could
result in milestone payments and additional research and development funding to
the Company under the respective collaboration agreements. Such progress could
also provide the opportunity to raise capital through equity offerings. If
partnered programs do not progress or do not progress on schedule, such
opportunities would be delayed and may not materialize at all.
Lack of progress, scheduling delays or failures in any of the Company's
major programs could significantly reduce the Company's levels of revenues, cash
flows and cash available to fund its business. It could also significantly
increase the Company's cost of capital and limit its ability to raise equity
capital. All of the Company's compounds in development, whether in human
clinical trials or not, will require significant additional research,
development and testing before they can be commercialized. Furthermore, the
scope, magnitude and timing of future research and development expenses, as well
as anticipated project completion dates, are a series of steps, ranging from
pre-clinical testing to clinical studies in humans. Each step in the process is
typically
While the Company cannot accurately predict the time required or the cost
involved in commercializing any one of its candidates, new drug development
typically takes many years and tens or hundreds of millions of dollars. In
addition, developing new drugs is an extremely uncertain process where most
candidates fail and uncertain developments such as clinical or regulatory
delays, side effects, undesirable drug properties or ineffectiveness of a drug
candidate would slow or prevent the development of a product. If we or our
partners are unable to commercialize one or more of our drug products, we will
never achieve product revenues and may eventually be unable to continue our
operations. This result would cause our shareholders to lose all or a
substantial portion of their investment.
The debt agreements entered into by the Company to date include the
commercial term mortgage loan financing in December 2001 with Webster Bank,
mentioned above, and a construction loan entered into in October 1999 with
Connecticut Innovations Inc. Total proceeds received under these agreements as
of December 31, 2001, are $22.5 million. Of these amounts received, as of
December 31, 2001, $22.4 million remained outstanding. An approximate aggregate
amount of $1.4 million is due and payable in each of the next five years.
Thereafter, approximately $15.4 million is payable in regular installments until
the scheduled maturity dates. As of December 31, 2001, 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
carryforwards, 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 carryforwards, respectively, which expire in the
years 2002 through 2021. The Company has applied to exchange year 2000
Connecticut research and development credits for cash proceeds under new
Connecticut tax law provisions (as mentioned above). 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
In December 2001, Neurogen entered into a collaboration and license
agreement with Aventis (the "Aventis Agreement") 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 an additional two years. 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, with no limitations as
to the 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.
In June 1999, Neurogen and Pfizer entered into a technology transfer
agreement (the "Pfizer Technology Transfer Agreement"). Under the terms of this
agreement, Pfizer has 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 has received a
non-exclusive license for certain AIDD intellectual property and the right to
employ this technology in its own drug development programs. As of December 31,
2001, Pfizer had provided $23.5 million in license fees pursuant to the Pfizer
Technology Transfer Agreement.
In 1992, Neurogen entered into a collaborative research agreement with
Pfizer (the "1992 Pfizer Agreement") pursuant to which Pfizer made a $13.8
million equity investment in the Company and agreed, among other things, to fund
a specified level of resources for up to five years (later extended as described
below) for Neurogen's research programs for the discovery of GABA-based drugs
for the treatment of anxiety and cognitive disorders. In 1994, Neurogen and
Pfizer entered into a second collaborative research agreement (the "1994 Pfizer
Agreement") pursuant to which Pfizer made a $9.9 million equity investment in
the Company and agreed, among other things, to fund a specified level of
resources for up to four years (later extended as described below) for
Neurogen's research program for the development of GABA-based drugs for the
treatment of sleep disorders. As of December 31, 2001, Pfizer had provided $43.2
million and $14.1 million of research funding to the Company and $0.5 million
and $0.3 million for the achievement of certain clinical development and
regulatory milestones pursuant to the 1992 and 1994 Pfizer Agreements and the
extensions of such agreements, respectively. Neurogen is eligible to receive
additional milestone payments of up to $12.0 million and $3.0 million under the
1992 and 1994 Pfizer Agreements, respectively, if certain development and
regulatory objectives are achieved regarding its products subject to the
collaboration. In return, under the two agreements, Pfizer received the
exclusive rights to manufacture and market collaboration drugs that act through
the GABA system for the treatment of anxiety, cognition enhancement, depression
or insomnia. Pfizer will pay Neurogen royalties based upon net sales levels, if
any, for such products. Under the agreements, Pfizer is responsible for funding
the cost of all clinical development and the manufacturing and marketing, if
any, of drugs developed from the collaborations.
On three occasions, Neurogen and Pfizer extended Neurogen's research
efforts under the 1992 and 1994 Pfizer Agreements. Pursuant to the extension
agreements, which terminated in December 2001, Neurogen received $2.9 million in
2001 (which amount is included in the above-described cumulative totals received
for the 1992 and 1994 Pfizer Agreements) for research and development funding of
the Company's GABA-based anxiolytic, cognitive enhancer and sleep disorders
projects. With the scheduled conclusions of the research funding under the
Pfizer Agreements mentioned above, employee resources have been shifted to
ongoing projects which are currently unpartnered and for which Neurogen owns all
commercial rights.
Recently Issued Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS
No. 144 supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," in that it excludes
goodwill from its impairment scope and allows for different approaches in cash
flow estimation. However, SFAS No. 144 retains the fundamental provisions of
SFAS No. 121 for recognition and measurement of the impairment of (a) long-lived
assets to be held and used and (b) long-lived assets to be disposed of other
than by sale. Neurogen has not adopted the provisions of SFAS No. 144 as of
December 31, 2001. However, the Company believes that the implementation of this
standard will not have a material effect on its results of operations and
financial position, since the impairment assessment under SFAS No. 144 is
largely unchanged from SFAS No. 121 and management is not currently aware of any
significant long-lived assets impaired or planned for disposal.
ITEM 7A. 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.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets at December 31, 2001 and 2000
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999
Notes to Consolidated Financial Statements
Report of Independent Accountants
NEUROGEN CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31
-------------------
2001 2000
--------- ---------
(In thousands)
Assets
Current Assets:
Cash and cash equivalents........................................... $51,062 $48,086
Restricted cash..................................................... 1,500 -
Marketable securities............................................... 54,237 60,670
Receivables from corporate partners................................. 1,554 1,517
Other current assets, net........................................... 3,027 1,364
--------- ---------
Total current assets................................................. 111,380 111,637
Property, plant & equipment:
Land, building and improvements..................................... 30,489 17,949
Equipment and furniture............................................. 16,162 14,213
Construction in progress............................................ 462 6,471
Leasehold improvements.............................................. - 4,026
--------- ---------
47,113 42,659
Less accumulated depreciation and amortization........................ 13,062 12,079
--------- ---------
Net property, plant and equipment..................................... 34,051 30,580
Other assets, net..................................................... 525 371
--------- ---------
Total assets.......................................................... $145,956 $142,588
========= =========
See accompanying notes to consolidated financial statements
NEUROGEN CORPORATION
CONSOLIDATED BALANCE SHEETS--(Continued)
December 31
-------------------
2001 2000
--------- ---------
(In thousands, except
per share data)
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses............................... $ 3,595 $ 5,014
Unearned revenue from corporate partners, current portion........... 6,699 9,542
Current portion of loans payable.................................... 1,365 -
--------- ---------
Total current liabilities............................................. 11,659 14,556
Unearned revenue from corporate partners, net of current portion...... 7,885 -
Loans payable, net of current portion................................. 21,029 1,912
--------- ---------
Total liabilities..................................................... 40,573 16,468
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 17,733 shares in 2001 and 17,386 shares in
2000............................................................... 443 434
Additional paid-in capital.......................................... 174,709 169,440
Accumulated deficit................................................. (67,685) (42,323)
Deferred compensation............................................... (2,750) (1,706)
Accumulated other comprehensive income.............................. 666 275
--------- ---------
Total stockholders' equity............................................ 105,383 126,120
--------- ---------
Total liabilities and stockholders' equity............................ $145,956 $142,588
========= =========
See accompanying notes to consolidated financial statements
NEUROGEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31
---------------------------------
2001 2000 1999
----------- ---------- ----------
(In thousands, except per share data)
Operating revenues:
License fees............................................ $ 8,458 $11,208 $ 500
Research and development................................ 3,056 9,205 9,709
----------- --------- ---------
Total operating revenues................................ 11,514 20,413 10,209
Operating expenses:
Research and development:
Stock compensation.................................... 901 4,637 77
Other research and development........................ 34,494 28,048 23,965
----------- --------- ---------
Total research and development......................... 35,395 32,685 24,042
General and administrative:
Stock compensation ................................... 601 2,456 51
Other general and administrative...................... 6,581 5,717 4,372
---------- ---------- ---------
Total general and administrative....................... 7,182 8,173 4,423
---------- ---------- ---------
Total operating expenses................................ 42,577 40,858 28,465
---------- ---------- ---------
Operating loss.......................................... (31,063) (20,445) (18,256)
Other income (expense):
Investment income....................................... 4,604 5,474 3,639
Interest expense........................................ (114) - (1)
---------- ---------- ---------
Total other income, net................................. 4,490 5,474 3,638
Net loss before income taxes............................ (26,573) (14,971) (14,618)
Income tax benefit...................................... 1,211 - -
---------- ---------- ---------
Net loss before cumulative effect of change in
accounting principle ................................... (25,362) (14,971) (14,618)
---------- ---------- ---------
Cumulative effect on prior years of the application of
SAB No.101, "Revenue Recognition in Financial Statements" - (500) -
---------- ---------- ---------
Net loss ............................................... $(25,362) $(15,471) $(14,618)
========== ========== =========
Basic and diluted loss per share:
Before cumulative effect of change in accounting
principle ............................................ $ (1.45) $ (0.91) $ (1.00)
Change in accounting principle ....................... - (0.03) -
---------- ---------- ---------
Basic and diluted loss per share ....................... $ (1.45) $ (0.94) $ (1.00)
========== ========== =========
Shares used in calculation of loss per share:
Basic and diluted....................................... 17,441 16,490 14,576
========== ========== =========
See accompanying notes to consolidated financial statements
NEUROGEN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2001, 2000 and 1999
(in thousands)
--------------------------------------------------------------------------
Accumulated
Additional Other
Common Stock Paid-in Accumulated Deferred Comprehensive
Shares Amount Capital Deficit Compensation Income Total
------- ------ ---------- ----------- ------------ ------------- --------
Balance at December 31, 1998.................... 14,656 $366 $113,901 $(12,234) $(3,540) $74 $98,567
Forfeiture of restricted stock.................. (7) - (131) - 131 - -
Deferred compensation .......................... - - (204) - 333 - 129
Exercise of stock options....................... 126 3 600 - - - 603
Stock issued in 401(k) match.................... 25 1 353 - - - 354
Comprehensive income:
Net loss...................................... - - - (14,618) - - (14,618)
Unrealized loss on marketable securities...... - - - - - (325) (325)
------- ------ ---------- ----------- ------------ ------------- --------
Balance at December 31, 1999.................... 14,800 370 114,519 (26,852) (3,076) (251) 84,710
Stock issued in private placements, net of
offering expenses............................. 1,638 41 38,657 - - - 38,698
Deferred compensation .......................... - - 5,523 - 1,370 - 6,893
Issuance of stock options....................... - - 200 - - - 200
Exercise of stock options ...................... 899 22 10,010 - - - 10,032
Stock issued in 401(k) match ................... 13 - 436 - - - 436
Exercise of warrants............................ 36 1 95 - - - 96
Comprehensive income:
Net loss...................................... - - - (15,471) - - (15,471)
Unrealized gain on marketable securities ..... - - - - - 526 526
------- ------ ---------- ---------- ------------ ------------- ---------
Balance at December 31, 2000.................... 17,386 434 169,440 (42,323) (1,706) 275 126,120
Issuance of restricted stock.................... 150 4 2,905 - (2,909) - 0
Deferred compensation........................... - - (1,392) - 1,865 - 473
Modification to and issuance of stock options... - - 1,029 - - - 1,029
Exercise of stock options....................... 171 4 1,439 - - - 1,443
Income tax benefits from stock option exercises. - - 765 - - - 765
Stock issued in 401(k) match ................... 26 1 523 - - - 524
Comprehensive income:
Net loss...................................... - - - (25,362) - - (25,362)
Unrealized gain on marketable securities...... - - - - - 391 391
------- ------ ---------- ---------- ------------ ------------- ---------
Balance at December 31, 2001.................... 17,733 $443 $174,709 $(67,685) $(2,750) $666 $105,383
======= ====== ========== ========== ============ ============= =========
See accompanying notes to consolidated financial statements
NEUROGEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended December 31
--------------------------------
2001 2000 1999
---------- ---------- ----------
(In thousands)
Cash flows from operating activities:
Net loss........................................................ $(25,362) $(15,471) $(14,618)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization expense........................... 2,735 2,762 2,608
Stock compensation expense ..................................... 1,502 7,093 129
Noncash compensation and other expense.......................... 898 517 459
Loss on disposal of assets...................................... 21 141 33
Changes in operating assets and liabilities:
(Decrease) increase in accounts payable and accrued expenses... (1,418) 2,309 (155)
Increase in unearned revenue from corporate partners........... 5,042 6,782 2,500
(Increase) decrease in receivables from corporate partners..... (36) (1,231) 369
(Increase) decrease in other assets, net....................... (1,999) (664) 331
Income tax benefits from exercise of stock options.............. 765 - -
---------- ---------- ----------
Net cash (used in)provided by operating activities.............. (17,852) 2,238 (8,344)
---------- ---------- ----------
Cash flows from investing activities:
Purchases of plant and equipment................................ (6,257) (7,899) (3,753)
Purchases of marketable securities.............................. (74,623) (56,230) (35,629)
Maturities and sales of marketable securities................... 81,253 29,580 50,806
Proceeds from sales of assets................................... 30 31 -
---------- ---------- ----------
Net cash provided by (used in)investing activities.............. 403 (34,518) 11,424
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of debt.................................. 20,588 - 1,912
Change in restricted cash....................................... (1,500) - -
Principal payments under loans payable.......................... (106) - (73)
Exercise of warrants and employee stock options................. 1,443 10,080 603
Proceeds from private placement of common stock ................ - 38,698 -
---------- ---------- ----------
Net cash provided by financing activities....................... 20,425 48,778 2,442
---------- ---------- ----------
Net increase in cash and cash equivalents....................... 2,976 16,498 5,522
Cash and cash equivalents at beginning of year.................. 48,086 31,588 26,066
---------- ---------- ----------
Cash and cash equivalents at end of year........................ $51,062 $48,086 $31,588
========== ========== ==========
See accompanying notes to consolidated financial statements
NEUROGEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS--Neurogen Corporation ("Neurogen" or the "Company") is a company
engaged in the discovery and development of new drugs for a broad range of
pharmaceutical uses. Neurogen is focused on discovering new small molecule drugs
(i.e. drugs which can be taken as a pill) for large market disorders where
existing therapies achieve limited therapeutic effects or produce unsatisfactory
side effects. The Company has not derived any revenue from product sales to
date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Management makes estimates in the areas of
investments, license and research arrangements, collaboration costs, income
taxes, accruals and stock compensation. Actual results could differ from those
estimates.
CASH EQUIVALENTS AND MARKETABLE SECURITIES--The Company considers cash
equivalents to be only those investments which are highly liquid, readily
convertible to cash and which mature within three months from date of purchase.
The carrying values of cash equivalents at December 31, 2001 and 2000 were
approximately $50,774,000 and $47,121,000, respectively.
The Company considers its investment portfolio to be available-for-sale
securities as defined in SFAS No. 115. Marketable securities at December 31,
2001 and 2000 consist of debt securities with maturities of three months to four
years. Securities are available for sale and are carried at fair value with the
unrealized gains/losses reported as other comprehensive income. Realized gains
and losses have been determined by the specific identification method and are
included in investment income. The Company recognized gross realized gains of
$103,000, $84,000 and $15,000 in 2001, 2000 and 1999, respectively. Gross
realized losses were $6,000, $69,000, and $108,000 in 2001, 2000 and 1999,
respectively.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at
cost. Depreciation is provided using the straight-line method over the estimated
useful lives of the assets, which are as follows:
Equipment and furniture............3 to 7 years
Leasehold improvements.............Shorter of life of
lease or 10 years
Building, building improvements,
building renovations and land
improvements.......................7 to 40 years
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 SAB No. 101, the upfront fees are 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. Each of the Company's collaborative research agreements specifies a
level of funding for each annual full-time equivalent ("FTE") scientist working
on a given project. An FTE is the equivalent of one person working a certain
number of research hours per year. The Company recognizes its research revenue
under such collaborative research agreements based on the number of FTEs that
worked on the project, subject to a maximum number of FTEs, multiplied by the
level of funding per FTE defined in the agreement.
Revenue derived from the achievement of milestones is recognized when the
milestone event occurs and such event represents the achievement of a specific,
substantive goal and measures a substantive stage of development towards a
long-term goal, such as the filing of a New Drug Application with the Food and
Drug Administration.
Neurogen has entered into one technology transfer agreement, spanning a
three year period, which is accounted for as a multiple element arrangement
where the contract fee is allocated to the different elements based on evidence
of fair value. The Company identified three specific elements within the
contract, each of which has a separate earnings process. These elements are: (1)
the construction, delivery, installation and maintenance of a specified number
of AIDD (Accelerated Intelligent Drug Discovery) systems (some specifically
contracted for and some to be delivered, at the option of the recipient, at no
additional cost); (2) AIDD technology development and improvement services to be
incurred in the second and third years of the contract and (3) the delivery of
specified AIDD improvements during the third year of the agreement.
Each element is considered to be separate as: (1) the AIDD systems could be
sold by Neurogen unaccompanied by any of the other elements; (2) similar
development and improvement services have been provided by the Company in the
past to several other collaborative partners and (3) the separately stated fee
for the delivery of the specified improvements is payable upon an acceptance
scheduled at the termination of the agreement. None of the above elements
requires delivery of subsequent elements in order to be functional.
Based upon contract provisions, each AIDD system must be accepted by the
recipient, and after delivery, Neurogen has an obligation to provide specified
maintenance on the system for eight months. Therefore, the contract fee
associated with each system is recognized as revenue ratably over the period
beginning at the date of acceptance through the end of the maintenance period.
If the customer elects to not have an optional system delivered, the contract
fee allocated to such system will be recognized upon contract termination. The
contract fee associated with the AIDD technology development and improvement
services is recognized as revenue on a percentage -of -completion basis over the
term of service. The contract fee for the delivery of specified AIDD
improvements will be recognized upon acceptance by the recipient.
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.
In December 1999, the staff of the Securities and Exchange Commission
issued SAB No. 101, Revenue Recognition in Financial Statements. SAB No. 101, as
amended by SAB No. 101A and 101B, provides guidance on the measurement and
timing of revenue recognition in financial statements of public companies. SAB
No. 101 permits application of its guidance to be treated as a change in
accounting principle in accordance with APB Opinion No. 20, Accounting Changes.
The Company adopted the guidance of SAB No. 101 in the fourth quarter of 2000,
retroactive to January 1, 2000 and reflected a cumulative effect of the change
in accounting principle on prior years of $500,000, related to timing of revenue
recognition on certain non-refundable up-front payments previously recognized on
a technology transfer agreement.
RESEARCH AND DEVELOPMENT--All research and development costs are expensed
as incurred.
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.
SEGMENT INFORMATION--Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information (SFAS No.
131), requires that an enterprise report financial and descriptive information
about each of its reportable operating segments. The management approach
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of the Company's
reportable segments. The Company operates in one segment: drug discovery and
pharmaceutical development.
STOCK-BASED COMPENSATION--The Company primarily grants qualified stock
options for a fixed number of shares to employees with an exercise price equal
to the fair market value of the shares at the date of grant. The Company has
also issued restricted stock to key executives which vest over specified service
periods. The Company accounts for grants of stock options and restricted stock
in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and, accordingly, recognizes no compensation expense for such grants
when the grants have an exercise price equal to the fair market value at date of
grant. The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation".
RECENT PRONOUNCEMENTS--In July 2001, the Financial Accounting Standards
Board issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill
and Other Intangible Assets." SFAS No. 141 requires that the purchase method of
accounting be used for all business combinations initiated or completed after
June 30, 2001. SFAS No. 141 also specifies criteria that intangible assets
acquired in a purchase business combination must meet to be recognized and
reported apart from goodwill. SFAS No. 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead be
tested for impairment at least annually. SFAS No. 142 also requires that
intangible assets with definite useful lives be amortized over their respective
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which is superceded by SFAS
No. 144 as discussed below. The Company has not been a party to any business
combinations to date and no intangible assets exist as of December 31, 2001.
Therefore, the adoptions of SFAS No. 141 and SFAS No. 142 did not have any
impact on the Company's 2001 financial statements.
In August 2001, the Financial Accounting Standards Board issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS
No. 144 supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," in that it excludes
goodwill from its impairment scope and allows for different approaches in cash
flow estimation. However, SFAS No. 144 retains the fundamental provisions of
SFAS No. 121 for recognition and measurement of the impairment of (a) long-lived
assets to be held and used and (b) long-lived assets to be disposed of other
than by sale. Neurogen has not adopted the provisions of SFAS No. 144 as of
December 31, 2001. However, the Company believes that the implementation of this
standard will not have a material effect on its results of operations and
financial position, since the impairment assessment under SFAS No. 144 is
largely unchanged from SFAS No. 121 and management is not currently aware of any
significant long-lived assets impaired or planned for disposal.
INCOME TAXES--The liability method is used to account for income taxes.
Deferred tax assets and liabilities are determined based on differences between
financial reporting and income tax bases of assets and liabilities as well as
net operating loss carryforwards and are measured using the enacted tax rates
and laws that are expected to be in effect when the differences reverse.
Deferred tax assets may be reduced by a valuation allowance to reflect the
uncertainty associated with their ultimate realization.
EARNINGS (LOSS) PER SHARE--Basic EPS is calculated by dividing income or
loss attributable to common stockholders by the weighted average common shares
outstanding. Diluted EPS is calculated by adjusting weighted average common
shares outstanding by assuming conversion of all potentially dilutive shares. In
periods where a net loss is recorded, no effect is given to potentially dilutive
securities, since the effect would be antidilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying value of long-term debt
approximates its fair value based upon currently available debt instruments
having similar interest rates and maturities. The carrying amounts of the
Company's other financial instruments approximate their fair value.
RECLASSIFICATIONS--Certain reclassifications have been made to the 1999 and
2000 financial statements in order to conform to the 2001 presentation.
2. CORPORATE PARTNER AGREEMENTS
AVENTIS
- -------
In December 2001, Neurogen entered into a collaboration and license
agreement with Aventis (the "Aventis Agreement") 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 and prevention of anxiety and
depression disorders. Aventis has the option to extend the discovery and
research effort for an additional two years. Neurogen is also eligible to
receive milestone payments if certain compound discovery or 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, with no
limitations as to the 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. For the year ended December 31, 2001, the
Company recognized $291,000 in revenue under the Aventis Agreement.
PFIZER
- ------
In June of 1999, Neurogen and Pfizer entered into a technology transfer
agreement (the "Pfizer Technology Transfer Agreement"). Under the terms of this
agreement, Pfizer has agreed to pay Neurogen up to a total of $27,000,000 over a
three year period for the licensing and transfer to Pfizer of certain of
Neurogen's AIDD (Accelerated Intelligent Drug Discovery) technologies for the
discovery of new drugs, along with the installation of an AIDD(TM) system.
Additional payments are also possible upon Pfizer's successful utilization of
this technology. Pfizer has 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 December 31, 2001, the company had received
$23,500,000 in license fees pursuant to the Pfizer AIDD agreement of which
$8,343,000 and $11,208,000 has been recognized as revenue in 2001 and 2000,
respectively. Remaining revenues associated with amounts received under the
Pfizer Technology Transfer Agreement will be recognized in future periods and
may fluctuate significantly depending on the timing and completion of the
Company's transfer of technology and systems pursuant to the agreement.
In 1995, Neurogen and Pfizer entered into a collaborative agreement (the
"1995 Pfizer Agreement") pursuant to which Pfizer made an equity investment of
$16,500,000 in the Company, paid a license fee of $3,500,000 and agreed, among
other things, to fund a specified level of resources for Neurogen's research
program for the discovery of drugs which work through the neuropeptide Y (NPY)
mechanism for the treatment of obesity and other disorders. In October 2000,
Neurogen and Pfizer concluded the research phase of their NPY-based
collaboration according to schedule and the annual research funding received
from Pfizer came to its scheduled conclusion on October 31, 2000. Pursuant to
the 1995 Pfizer Agreement, Neurogen received total research funding of
$13,740,000, of which approximately $2,340,000 and $3,120,000 was received in
2000 and 1999, respectively, and $2,600,000 and $3,120,000 was recognized in
revenue in 2000 and 1999, respectively. Should Pfizer in the future elect to
continue the development of any drug candidates subject to collaboration,
Neurogen could also receive development and regulatory milestone payments and
would be entitled to royalty, profit sharing and manufacturing rights.
In 1992, Neurogen entered into a collaborative research agreement with
Pfizer (the "1992 Pfizer Agreement") pursuant to which Pfizer made an equity
investment of $13,750,000 in the Company and agreed, among other things, to fund
a specified level of resources for up to five years (later extended as described
below) for Neurogen's research programs for the discovery of GABA-based drugs
for the treatment of anxiety and cognitive disorders. In 1994, Neurogen and
Pfizer entered into a second collaborative research agreement (the "1994 Pfizer
Agreement") pursuant to which Pfizer made an additional equity investment of
$9,864,000 in the Company and agreed, among other things, to fund a specified
level of resources for up to four years (later extended as described below) for
Neurogen's research program for the development of GABA-based drugs for the
treatment of sleep disorders. As of December 31, 2001, Pfizer had provided total
research funding of $43,165,000 and $14,108,000 to the Company and payments of
$500,000 and $250,000 for the achievement of certain clinical development and
regulatory milestones pursuant to the 1992 and 1994 Pfizer Agreements and the
extensions of such agreements, respectively, all of which has been recognized as
revenue. Neurogen is eligible to receive additional milestone payments of up to
$12,000,000 and $3,000,000 under the 1992 and 1994 Pfizer Agreements,
respectively, if certain development and regulatory objectives are achieved
regarding its products subject to the collaboration. In return, under the two
agreements, Pfizer received the exclusive rights to manufacture and market
collaboration drugs that act through the GABA system for the treatment of
anxiety, cognition enhancement, depression or insomnia. Pfizer will pay Neurogen
royalties based upon net sales levels, if any, for such products. Under the
agreements, Pfizer is responsible for funding the cost of all clinical
development and the manufacturing and marketing, if any, of drugs developed from
the collaborations.
On three occasions, Neurogen and Pfizer extended Neurogen's research
efforts under the 1992 and 1994 Pfizer Agreements. Pursuant to the extension
agreements, which terminated in December 2001, Neurogen has received and
recognized in revenue $2,880,000, $6,240,000 and $6,240,000 in each of 2001,
2000 and 1999, respectively (which amount is included in the above-described
cumulative totals received for the 1992 and 1994 Pfizer Agreements) for research
and development funding of the Company's GABA-based anxiolytic, cognitive
enhancer and sleep disorders projects.
COLLABORATION COSTS
- -------------------
While the Company does not currently maintain a historical cost accounting
system to accurately track costs on an individual basis, it does maintain a
system to record the level of staffing time spent on its research and
development projects. Based primarily on the amount of staffing time spent on
collaboration projects obtained from this system, the Company estimates the
approximate aggregate amounts of research and development costs incurred in
connection with all of the Company's research collaborations were $4,200,000,
$9,250,000 and $8,640,000 in 2001, 2000 and 1999, respectively. These
collaborations generated approximately $3,056,000, $9,205,000 and $9,709,000 of
research and development revenues in the aggregate in 2001, 2000 and 1999,
respectively.
3. MARKETABLE SECURITIES
The following tables summarize the company's marketable securities (in
thousands).
December 31, 2001
Gross Gross
Amortized Unrealized Unrealized Fair Value
Cost Gains Loss
----------- ---------- ---------- -----------
U.S. Government
notes................ $22,322 $466 $ (9) $22,779
Corporate notes
and bonds............ 31,249 218 (9) 31,458
----------- ---------- ---------- -----------
Total $53,571 $684 $(18) $54,237
=========== ========== ========== ===========
December 31, 2000
Gross Gross
Amortized Unrealized Unrealized Fair Value
Cost Gains Loss
---------- ---------- ---------- -----------
U.S. Government
notes................ $23,586 $126 $(42) $23,670
Corporate notes
and bonds............ 36,809 203 (12) 37,000
----------- ---------- ---------- -----------
Total $60,395 $329 $(54) $60,670
=========== ========== ========== ===========
The following table summarizes investment maturities at December 31, 2001
(in thousands).
Amortized Cost Fair Value
-------------- -----------
Less than one year.............. $11,769 $11,820
Due in 1 to 4 years............. 41,802 42,417
-------------- ----------
$53,571 $54,237
============== ===========
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31 are summarized as
follows (in thousands):
2001 2000
------ ------
Accounts payable...........$2,211 $3,750
Accrued compensation....... 1,384 1,213
Other...................... - 51
------ ------
$3,595 $5,014
====== ======
5. LOANS PAYABLE
On December 21, 2001, Neurogen entered into a commercial term mortgage loan
agreement secured by the Company's facilities at 15 and 35 Northeast Industrial
Road, Branford, CT, whereby the lender provided total gross proceeds of
$17,500,000. The Company expects to use these proceeds for general corporate
purposes. The loan is repayable in monthly principal installments of
approximately $97,000 over 10 years plus interest at a floating rate tied to the
one month LIBOR rate . A final balloon payment of all remaining principal is due
and payable on the maturity date of December 21, 2011.
Neurogen is required to maintain $1,000,000 of the mortgage proceeds in a
cash collateral account as security for the loan until the outstanding principal
balance reaches $16,500,000. Another $500,000 of the proceeds are being held in
another cash collateral account until Neurogen completes specified, committed
site work at the secured property. These two conditions are expected to be met
within the next year. This $1,500,000 of total proceeds is classified as
restricted cash in current assets.
In October of 1999, Neurogen entered into a financing arrangement with
Connecticut Innovations, Inc. (CII) secured by the property at 45 Northeast
Industrial Road, whereby CII agreed to loan up to $5,000,000 to Neurogen for the
purchase and development of a new building to create additional laboratory
space. CII advanced Neurogen $1,912,280 for the purchase of the building in
October 1999. The remainder of the loan was advanced when renovation was
substantially completed in July 2001. The loan is repayable in monthly
installments of approximately $46,500 over 15 years, bearing interest at an
annual rate of 7.5%. Total interest payments capitalized during the building
construction approximated $111,000 in 2001, $155,000 in 2000 and $28,000 in
1999.
Scheduled maturities of total loans payable at December 31, 2001 are:
(In thousands)
- --------------------------
2002 $1,365
2003 1,380
2004 1,396
2005 1,414
2006 1,433
Thereafter 15,406
-------
$22,394
=======
In 1995, the Company entered into a ten year operating lease agreement to
lease 24,000 square feet of space at 15 Northeast Industrial Road. The Company
had an option to purchase the building after the fifth year of the lease which
it exercised on January 11, 2001 for $2,437,500, thereby terminating the lease.
Unamortized leasehold improvement costs were capitalized into the cost basis of
the building at time of purchase. Prior to the purchase, rent expense
approximated $4,000, $140,000 and $140,000 in 2001, 2000 and 1999, respectively.
6. COMMON STOCK
On June 30, 2000, the Company entered into a private placement agreement
with certain institutional investors, pursuant to which the Company issued
1,638,000 shares of its common stock for net proceeds of $38,698,000.
7. STOCK OPTIONS, WARRANTS AND RESTRICTED STOCK
The Company has various stock incentive plans, under which it has awarded
incentive and non-qualified stock options and restricted stock. Stock options
are primarily granted at fair market value at the date of grant, vest over one
to five years and expire up to ten years after grant. Under all plans, there
were 6,179,952 shares of common stock reserved for future issuance (of which
4,600,568 are for options outstanding and 1,579,384 are for options available
for future grant) as of December 31, 2001.
Options
- -------
The following table presents the combined activity of its stock option
plans for the years ended December 31, as follows:
2001 2000 1999
---------------------------- -------------------------- ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------------ -------- ------------ -------- ------------ --------
Outstanding at January 1............ 3,702,588 $19.49 3,940,844 $14.91 3,680,880 $14.55
Granted............................. 1,199,290 16.85 755,540 33.22 491,712 15.75
Exercised........................... (181,376) 8.02 (901,377) 11.18 (147,492) 6.44
Canceled............................ (119,934) 24.54 (92,419) 17.09 (84,256) 18.69
------------ -------- ------------ -------- ------------ --------
Outstanding at December 31...... 4,600,568 $19.13 3,702,588 $19.50 3,940,844 $14.91
============ ======== ============ ======== ============ ========
Options exercisable at December 31.. 2,538,702 $17.90 2,086,033 $15.98 2,419,722 $13.60
With respect to certain options for 31,250 shares granted on December 31,
1997, if the recipient remains employed with the Company for a period of seven
years from the date of grant, the exercise price for any of such options which
have not been exercised at the end of the ten year term of such option, shall
become zero and the options will be exercised and the shares will be conveyed to
the respective optionees. The exercise price for any of such options exercised
prior to the end of such ten-year term shall be $13.50 per share, the market
price of the common stock on the date of grant. These options are subject to
variable plan accounting and the deferred compensation is being amortized over
the seven year service period required for these options to vest. The
unamortized balance related to this grant at December 31, 2001 was $234,000. The
Company recognized stock compensation expense of $57,000, $356,000 and $128,000
for 2001, 2000 and 1999, respectively, relating to these options.
The Company recorded $23,000 and $34,000 as compensation expense for grants
made prior to shareholder approval of the respective option plan and $52,000 and
$200,000 as expense for option grants made to consultants in 2001 and 2000,
respectively. In addition, $977,000 was recorded as expense in 2001 for
modification to stock options made upon termination of employment of two former
officers. The modifications included acceleration of vesting for one officer and
extension of expiration after termination of employment for the other officer.
The following table presents weighted average price and life information
about significant option groups outstanding at December 31, 2001:
Weighted Weighted
Average Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Yrs.) Price Exercisable Price
- ------------------- ----------- ----------- -------- ----------- --------
Less than $9.99.... 595,226 4.2 $5.03 455,226 $6.57
$10.00-$19.99...... 2,612,831 6.7 17.01 1,300,486 16.34
$20.00-$29.99...... 782,882 5.4 24.58 605,275 24.86
$30.00-$39.99...... 609,629 7.0 34.96 177,715 34.60
----------- -----------
4,600,568 2,538,702
=========== ===========
Restricted Stock
- ----------------
In 1998, 137,625 shares of restricted stock were granted to certain
employees. The grant stipulated that if the stock price closed at or above
$45.00 per share within four years from the date of such grant the restriction
would be removed and the stock would fully vest to the employee with no
restriction. If the Company's stock price did not reach $45.00 the shares would
be forfeited. On February 18, 2000, Neurogen stock closed the trading day at
47.25, thereby removing the restriction and vesting the stock immediately. A
charge to income of $6,503,000 was recorded in the first quarter of 2000.
In September 2001, 150,000 shares of restricted stock were granted to
certain officers. Of the total shares granted, 10,000 shares vested immediately,
70,000 shares vest in four years and 70,000 shares vest in five years. In
connection with this grant, the Company recorded deferred compensation totaling
$2,909,000. The portion of the compensation associated with the shares that
vested immediately was recognized as expense while the remaining deferred
compensation is being amortized ratably over the five year service period. A
total of $392,000 was recorded as compensation expense in 2001.
Warrants
- --------
In 2000, 36,266 warrants to purchase common stock were exercised at $2.55
per share. Such warrants were issued in 1991 to a prior lessor of furniture and
equipment. At December 31, 2001 and 2000, there were no outstanding warrants.
As of December 31, 2001 compensation expense has not been recognized for
the stock option plans, except as noted above. Had compensation cost for the
Company's stock option plans been determined based on the fair value at the
grant date for awards in 2001, 2000 and 1999 consistent with the provisions of
SFAS No. 123, the Company's net loss and loss per share would have been adjusted
to the pro forma amounts indicated below (in thousands, except per share data):
2001 2000 1999
--------- --------- ---------
Net loss as reported......................... $(25,362) $(15,471) $(14,618)
Net loss pro forma........................... (36,595) (21,730) (20,384)
Diluted loss per share as reported........... (1.45) (.94) (1.00)
Diluted loss per share-pro forma............. (2.10) (1.32) (1.40)
The estimated fair value at the date of grant for options granted in 2001,
2000 and 1999 was $12.81, $21.87 and $9.09, respectively, using the
Black-Scholes model with the following weighted average assumptions:
2001 2000 1999
------- ------- -------
Expected life............... 5 5 5
Interest rate............... 4.4% 5.2% 6.2%
Volatility.................. 80% 77% 68%
Expected dividend yield..... 0% 0% 0%
As additional options are expected to be granted in future years and as the
options vest over several years, the above pro forma results are not necessarily
indicative of future pro forma results.
8. INCOME TAXES
The difference between the Company's "expected" tax provision (benefit), as
computed by applying the U.S. federal corporate tax rate of 34% to income (loss)
before provision for income taxes, and actual tax is reconciled below (in
thousands):
2001 2000 1999
--------- --------- ---------
Expected tax benefit at 34%................................... $(9,035) $(5,260) $(4,919)
State tax benefit net of federal benefit...................... (3,013) (766) (762)
R & D credit.................................................. (2,408) (1,613) (1,421)
Expiring loss carry forward................................... - - 346
State tax rate change ........................................ - - 240
Other......................................................... 130 15 2
Change in valuation allowance................................. 13,115 7,624 6,514
--------- --------- ---------
Tax benefit................................................... $(1,211) $ - $ -
========= ========= =========
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
2001 and 2000 are presented below (in thousands):
2001 2000
--------- ---------
DEFERRED TAX ASSETS:
Federal tax operating loss carryforwards....... $28,418 $21,285
State tax operating loss carryforwards......... 3,629 2,531
Research & development credit carryforwards.... 8,419 5,102
Alternative minimum tax credit carryforwards... 362 362
Deferred revenue............................... 5,388 3,615
Deferred compensation.......................... 700 -
Other ......................................... 402 459
--------- ---------
Gross deferred asset........................... 47,318 33,354
Valuation allowance............................ (46,335) (32,468)
--------- ---------
Net deferred asset............................. 983 886
DEFERRED TAX LIABILITY:
Depreciation................................... (983) (886)
--------- ---------
Net asset/liability............................ $ - $ -
========= =========
The valuation allowance increased by $13,867,000 during 2001. Of this
change, $752,000 is attributable to certain stock option transactions and is
charged directly to equity. The remaining amount of $13,115,000 is attributable
to the current year tax provision and is due primarily to the increase in net
operating loss and research and development tax credit carry forwards. The
Company has provided a valuation allowance for the full amount of the net
deferred tax asset, since management has not determined that these future
benefits will more likely than not be realized as of December 31, 2001.
Any subsequently recognized tax benefits relating to the valuation
allowance for deferred tax assets as of December 31, 2001 and 2000 would be
allocated as follows (in thousands):
2001 2000
------- -------
Income tax provision........ $35,005 $21,123
Additional paid-in-capital.. 11,330 11,345
------- -------
$46,335 $32,468
======= =======
As of December 31, 2001, the Company had approximately $83,583,000 and
$6,081,000 of net operating loss and research and development credit
carryforwards, respectively, available for federal income tax purposes, which
expire in the years 2004 through 2021. The Company also had approximately
$73,308,000 and $3,544,000 of Connecticut state tax net operating loss and
research and development credit carryforwards, respectively, which expire in the
years 2002 through 2021. 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.
For the year ended December 31, 2001, the Company recorded a Connecticut
income tax benefit of $1,976,000. This benefit is the result of recent
Connecticut legislation, which allows certain companies to obtain cash refunds
from the State of Connecticut at an exchange rate of 65% of their research and
development credits, in exchange for foregoing the carryfoward of these credits
into future tax years. In the third quarter of 2001, the Company filed a claim
to exchange their 2000 research and development credits for cash and as a result
recorded a benefit. Of this benefit, $1,211,000 was recorded in the Statement of
Operations and the $765,000 benefit earned from research and development
qualifying expenditures resulting from stock option exercises was recorded to
additional paid-in capital.
9. COMMITMENTS AND CONTINGENCIES
The Company has granted Pfizer certain registration rights with respect to
2,846,000 shares of Common stock and limited preemptive rights with respect to
future public offerings pursuant to stock purchase agreements entered into in
connection with the Pfizer Agreements. The Company has granted certain
registration rights to American Home Products with respect to 37,442 shares of
Common stock purchased in connection with entering into a licensing agreement in
1996.
10. BENEFIT PLANS AND RELATED PARTIES
The Company maintains a 401(k) Plan under which all of the Company's
employees are eligible to participate. Each year the Company may, but is not
required to, make a discretionary matching contribution to the Plan. The Company
currently matches 100% of employee contributions of up to 6% of an employee's
salary. One third of the match is made in cash and two thirds of the match is
made in Company stock. Contributions to the 401(k) plan totaled approximately
$772,000 in 2001, $600,000 in 2000 and $531,000 in 1999.
The Company has made loans to certain officers and employees subject to
various compensation agreements. Certain loans will be forgiven and recognized
as compensation expense ratably over defined service periods for each employee
ranging from three to seven years. The amount of loans outstanding at December
31, 2001 and 2000 was $481,000 and $361,000, of which $110,000 and $142,000 was
short-term, respectively.
As of December 31, 2001, Pfizer held 2,846,000 shares of common stock in
the Company, which represented 16% of total outstanding shares. As discussed in
Note 2 to these consolidated financial statements, Pfizer has been a partner
with Neurogen in several collaborative research agreements since 1992 and one
technology transfer agreement since 1999.
11. SUPPLEMENTAL CASH FLOW INFORMATION
The Company made interest payments of approximately $204,000 in 2001,
$155,000 in 2000 and $30,000 in 1999. The Company made no income tax payments in
2001, 2000 and 1999.
12. QUARTERLY FINANCIAL DATA(UNAUDITED)
(in thousands except per share data)
First Second Third Fourth
2001* Quarter Quarter Quarter Quarter
- ----- ------- ------- ------- -------
Total revenue.................. $1,970 $3,215 $3,106 $3,223
Total expenses................. 11,403 10,146 10,754 10,274
Other income, net.............. 1,509 1,242 1,040 699
Income tax benefit............. - - 1,211 -
Net loss....................... (7,924) (5,689) (5,397) (6,352)
Basic and diluted earnings
per share.................... (0.46) (0.33) (0.31) (0.36)
2000
- -----
Total revenue.................. $2,591 $4,620 $7,731 $5,471
Total expenses................. 14,438 8,241 8,349 9,830
Other income, net.............. 928 1,079 1,796 1,671
Cumulative effect of change
in accounting principle....... (500) - - -
Net income (loss)..............(11,419) (2,542) 1,178 (2,688)
Basic earnings per share....... (0.75) (0.16) 0.07 (0.15)
Diluted earnings per share..... (0.75) (0.16) 0.06 (0.15)
* The 2001 third quarter financial data, as reported in the Company's Quarterly
Report on Form 10-Q for the period ended September 30, 2001, has been adjusted
to reflect a state income tax benefit of approximately $1,211,000, as described
in Note 8.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Neurogen Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Neurogen
Corporation and its subsidiary at December 31, 2001 and December 31, 2000, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America. 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 of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for revenue recognition in 2000.
PRICEWATERHOUSECOOPERS LLP
Hartford, Connecticut
February 15, 2002
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name of Directors Age Principal Occupation Director Since
- ----------------- --- -------------------- --------------
Felix J. Baker, Ph.D. 33 Managing Partner, Baker Brothers Investments May 1999
Julian C. Baker 36 Managing Partner, Baker Brothers Investments May 1999
Barry M. Bloom, Ph.D. 73 Former Executive Vice President, Pfizer Inc. December 1993
Robert N. Butler, M.D. 74 CEO and President, International Longevity July 1989
Center; Professor of Geriatrics, Mount Sinai
School of Medicine
Frank C. Carlucci 71 Chairman of the Board, Neurogen Corporation; February 1989
Chairman, The Carlyle Group
Stephen R. Davis 41 Executive Vice President and Chief Business September 2001
Officer, Neurogen Corporation
William H. Koster, Ph.D. 57 President and Chief Executive Officer, September 2001
Neurogen Corporation
Mark Novitch, M.D. 70 Former Vice Chairman of the Board, The Upjohn December 1993
Company; Former Professor of Health Care
Sciences, George Washington University
Medical Center
Craig Saxton, M.D. 60 Former Executive Vice President, Pfizer January 2002
Global Research and Development and Vice
President, Pfizer Inc.
John Simon 59 Managing Director, Allen & Company Incorporated May 1989
Suzanne H. Woolsey, Ph.D. 60 Chief Communications Officer, National Academy of January 1998
Sciences/National Research Council
There is no family relationship between any director, executive officer or
person nominated or chosen by the Company to become a director or executive
officer of the Company other than Julian and Felix Baker, who are brothers.
Felix J. Baker has served as a director of Neurogen since May 1999.
Together with his brother Julian C. Baker, he has managed healthcare investments
for the Tisch Family since 1994. Over the past few years, the Baker brothers
also manage other investment funds focused on the life sciences industry. Dr.
Baker is also a director of Cellegy Pharmaceuticals, Inc. and various private
companies. He holds a B.S. with honors and a Ph.D. in Immunology from Stanford
University.
Julian C. Baker has served as a director of Neurogen since May 1999. Mr.
Baker and his brother Felix Baker co-founded a biotechnology investing
partnership with Tisch Family, which the Bakers have managed since 1994. Over
the past few years, the Bakers have also partnered with major university and
other endowments to create multiple additional funds. Collectively, these funds
are known as Baker/Tisch Investments, which has grown into one of the largest
private sources of capital focused on publicly traded life sciences companies.
Julian Baker is currently a managing partner of Baker/Tisch Investments. Mr.
Baker was employed from 1988 to 1993 by the private equity investment arms of
The First Boston Corporation and CSFB, and was a founding employee of The
Clipper Group, which managed $1.6 billion for First Boston and Credit Suisse.
Mr. Baker holds an A.B. magna cum laude from Harvard University. He is also a
director of Cellegy Pharmaceuticals, Inc. and Incyte Genomics, Inc.
Barry M. Bloom, Ph.D., has served as a director of Neurogen since December
1993. Dr. Bloom retired in 1993 from Pfizer where he had been Executive Vice
President, Research and Development and a member of the board of directors. Dr.
Bloom is a director of Vertex Pharmaceuticals, Inc., Incyte Genomics, Inc., and
Cubist Pharmaceuticals, Inc.
Robert N. Butler, M.D., has served as a director of Neurogen since July
1989. Dr. Butler has served as the Brookdale Professor and Chairman of the
Department of Geriatrics and Adult Development at Mount Sinai Medical Center
since 1982. From 1976 until 1982, Dr. Butler was the founding director of the
National Institute of Aging of the National Institutes of Health. Dr. Butler won
the 1976 Pulitzer Prize for his book, "Why Survive? Being Old in America". He
has served as the editor-in-chief of Geriatrics, a journal for primary care
physicians, and serves on the editorial board of several other professional
publications. Dr. Butler has been Chief Executive Officer and President of the
International Longevity Center-USA since 1990. He is also a member of the
Institute of Medicine of the National Academy of Sciences and a founding Fellow
of the American Geriatrics Society. He has served as a consultant to the United
States Special Committee on Aging, the National Institute of Mental Health, the
Commonwealth Fund, the Brookdale Foundation and numerous other foundations and
corporations.
Frank C. Carlucci has served as a director and Chairman of the Board of
Neurogen since February 1989. Mr. Carlucci has been principally employed as
Chairman of The Carlyle Group, a private merchant bank, since 1993. Mr. Carlucci
served as Secretary of Defense of the United States from November 1987 through
January 1989. Prior to his appointment as Secretary of Defense, Mr. Carlucci was
assistant to the President of the United States for National Security Affairs.
Mr. Carlucci had been Chairman and Chief Executive Officer of Sears World Trade
Inc. from 1984 to 1986, after having served as President and Chief Operating
Officer since 1983. Mr. Carlucci is also a director of Ashland, Inc., Kaman
Corporation, Sun Resorts, Pharmacia, Texas Biotech Inc. and United Defense L.P.
Stephen R. Davis has been Executive Vice President of Neurogen since
September 2001 and Chief Business Officer since January 2000. Mr. Davis joined
Neurogen in 1994 as Vice President of Finance and Chief Financial Officer. From
1990 through June 1994, Mr. Davis was employed by Milbank, Tweed, Hadley &
McCloy as a corporate and securities attorney. Previously, Mr. Davis practiced
as a Certified Public Accountant with Arthur Andersen & Co. Mr. Davis received
his B.S. in Accounting from Southern Nazarene University and a J.D. degree from
Vanderbilt University.
William H. Koster, Ph.D., joined Neurogen as President and CEO in September
2001. Prior to Neurogen, Dr. Koster worked for approximately 30 years in drug
discovery and development with Bristol-Myers Squibb Company (BMS) and E.R.
Squibb & Sons, Inc., which merged with Bristol-Myers in 1989. In his most recent
position, Dr. Koster was Bristol-Myers' Senior Vice President for Science and
Technology Strategy and Acquisition, heading up the company's external science
and technology strategy, scientific intelligence, intellectual property and
science policy functions. In addition, he was responsible for leading the R&D
acquisition and integration team involved in the agreement to purchase and merge
the RD functions of DuPont Pharmaceutical Company into BMS. He was based at
Bristol-Myers' headquarters in Princeton, N.J. Dr. Koster serves as a member of
the Keystone Symposia Scientific Advisory Board, The National Council for
Harvard Medicine, and the Board of the Robert Wood Johnson Health Care
Corporation. Dr. Koster holds an undergraduate degree in chemistry from Colby
College and a Ph.D. in organic chemistry from Tufts University.
Mark Novitch, M.D., has served as a director of Neurogen since December
1993. Dr. Novitch was Professor of Health Care Sciences at The George Washington
University from 1994 to 1997 and Adjunct Professor from 1997 to 2001. He worked
in senior executive positions at The Upjohn Company from 1985 until his
retirement as Vice Chairman of the Board in 1993. Dr. Novitch served at the
United States Food and Drug Administration as Deputy Commissioner and as Acting
Commissioner from 1983-1984. Dr. Novitch is a director of Alteon, Inc.
(Chairman), Calypte Biomedical, Inc., Guidant Corporation and KOS
Pharmaceuticals, Inc.
Craig Saxton, M.D. has served as a director of Neurogen since January 2002.
From 1993 until his retirement in 2001, Dr. Saxton was Vice President of Pfizer
Inc. and Executive Vice President, Pfizer Global Research and Development at
Pfizer's Research and Development headquarters in Groton, CT. He held a variety
of executive and research posts at Pfizer over a 25-year span. Dr. Saxton earned
his B.S. in Anatomy in 1962 and his M.D. in 1965 from Leeds University in the
U.K. After internship and residency in Medicine, he was a Research Fellow in
Cardiovascular Research at the University of Leeds, and subsequently undertook
research in Applied Physiology at the Royal Air Force Institute of Aviation
Medicine and Physiology in Farnborough, U.K. Dr. Saxton is on the Board of
Directors of the African Medical and Research Foundation in New York, and a
member of the American Academy of Pharmaceutical Physicians and the Connecticut
Academy of Science and Engineering. Dr. Saxton was appointed to Tularik's Board
of Directors in September 2001.
John Simon has served as a director of Neurogen since May 1989. Mr. Simon
has been a Managing Director of the investment banking firm of Allen & Company
Incorporated since 1982. Mr. Simon is a director of Advanced Technical Products,
Inc. and CoStar Group, Inc.
Suzanne H. Woolsey, Ph.D., has served as a director of Neurogen since
January 1998. From 1993 to 2000, Dr. Woolsey was Chief Operating Officer of the
National Academy of Sciences/National Research Council ("NAS/NRC"), an
independent, federally chartered policy institution. Since May 2000 Dr. Woolsey
has served as Chief Communications Officer at the NAS/NRC. She was a founding
partner of the Upstreet Partners, LLC (2000-2001). Prior to serving as Chief
Operating Officer, Dr. Woolsey served as the Executive Director of the
Commission on Behavioral and Social Sciences and Education at the National
Academy of Sciences/National Research Council. Dr. Woolsey also serves on the
Board of Trustees for open-end mutual funds distributed by Van Kampen Funds,
Inc. From 1980 to 1989, Dr. Woolsey served as a Consulting Partner at Coopers
and Lybrand, an accounting firm, where she developed and directed the firm's
consulting practice with healthcare institutions, research organizations, major
research universities and corporate general counsels. Dr. Woolsey holds a Ph.D.
in clinical and social psychology from Harvard University.
EXECUTIVE OFFICERS
In addition to Dr. Koster and Mr. Davis, the other executive officers of
the Company who are appointed by and serve at the discretion of the Board of
Directors, are as follows:
Name Age Position Officer Since
---- --- -------- -------------
Edmund P. Harrigan, M.D. ...................49 Executive Vice President and Chief May 2002
Development Officer
Alan J. Hutchison, Ph.D. ...................49 Executive Vice President-Drug Discovery June 1994
Kenneth R. Shaw, Ph.D. .....................46 Senior Vice President - Chemistry April 1999
and Pharmaceutical Research and
Development
James E. Krause, Ph.D.......................50 Senior Vice President-Biology May 2002
Edmund P. Harrigan, M.D., joined Neurogen in May 2002 as Executive Vice
President and Chief Development Officer. Prior to joining Neurogen, Dr. Harrigan
most recently served as Senior Vice President, Medical Operations for Sepracor,
Inc. and previously had been Vice President, Clinical Development with Pfizer
Global Research and Development. Dr. Harrigan received his B.A. degree in
Chemistry from St. Anselm College and studied at the Brain Research Institute at
the University of California. He earned his doctorate in medicine from the
University of Massachusetts.
Alan J. Hutchison, Ph.D., has been Executive Vice President-Drug Discovery
since April 2002. Dr. Hutchison joined Neurogen in 1989 as Director of Chemistry
and became Vice President of the Company in 1992 and a Senior Vice President in
1997. From 1981 through 1989, Dr. Hutchison was employed by Ciba Giegy, most
recently as a Distinguished Research Fellow. Dr. Hutchison received his B.S. in
Chemistry from Stevens Institute of Technology and received his Ph.D. from
Harvard University.
Kenneth R. Shaw, Ph.D., joined Neurogen in 1989 and has been Senior Vice
President of Chemistry and Pharmaceutical Research and Development since 1999.
Dr. Shaw began his industrial career in 1983 at Ciba-Geigy as a Senior Scientist
and also spent 2 years as Scientific Director at Franklin Diagnostics. Dr. Shaw
received a B.S. in Chemistry from the University of Rochester in 1979, and a
Ph.D. in Organic Chemistry from Columbia University in 1983.
James E. Krause, Ph.D., has been Senior Vice President - Biology since July
2001. Dr. Krause joined Neurogen in 1997 as a Vice President and Director. From
1984 to 1997, Dr. Krause was Professor of Neurobiology at Washington University
School of Medicine in St. Louis, and was Director of the Medical Scientist
Training Program. Dr. Krause received his Ph.D. in Biochemistry from the
University of Wisconsin in 1980.
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on its review of the forms required by Section 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), that have been
received by the Company, the Company believes that all filing requirements for
2001 applicable to its officers, directors and beneficial owners of greater than
ten percent of its Common Stock have been complied with, except for the
following: William H. Koster, Ph.D., filed his Form 3-Initial Statement of
Beneficial Ownership of Securities late due to the tragic events of September
11, 2001.
ITEM 11. EXECUTIVE COMPENSATION
Director Compensation
Mr. Carlucci receives a fee of $12,500 per fiscal quarter for his services
as Chairman of the Board. Robert H. Roth received a fee of $1,500 per month for
his services as a director prior to his resignation. Dr. Bloom and Dr. Saxton
receive a fee of $5,000 per fiscal quarter for consulting services provided to
the Company. Directors of the Company receive out-of-pocket travel expenses in
connection with their attendance at Board meetings and other activities on
behalf of the Company.
Under the Neurogen Corporation 2000 Non-Employee Directors Stock Option
Program (the "2000 Program"), effective April 2000, each new non-employee
director receives an option to acquire 5,000 shares of Common Stock (an "Initial
Grant"), subject to certain adjustments, at the fair market value on the date
the director is first elected or appointed to the Board of Directors. Also under
the 2000 Program, each current non-employee director receives annually an option
to acquire 5,000 shares of Common Stock, subject to certain adjustments, at the
fair market value on the anniversary of such director's election, reelection,
appointment or reappointment to the Board.
Officer Compensation
For the three years ended December 31, 2001, 2000, and 1999, the Company
paid the amounts shown in the following table with respect to each of the
named officers of the Company.
Summary Compensation Table
Long-Term Compensation
----------------------------------------
Annual Compensation Awards Payouts
-------------------------------------- ------------------------- ---------
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and Principal Year Salary Bonus Compensation Awards(a) Options(b) Payouts Compensation(c)
Position ($) ($) ($) ($) (#) ($) ($)
- ----------------------- ---- -------- -------- ----------- ------------ ---------- --------- ---------
William H. Koster 2001 124,359(q) - - 1,939,000 400,000 602
President and 2000 - - - - - - -
Chief Executive Officer 1999 - - - - - - -
Harry H. Penner, Jr. 2001 285,107(q) - 57,145(d) - - - 655,556
Former President, Chief Executive 2000 417,476 - 36,729(e) - - 1,417,500(p) 15,128
Officer and Vice Chairman of the Board 1999 397,083 - 37,748(f) - - - 13,735
Alan J. Hutchison 2001 274,152 60,849 22,415(g) - 35,000 - 10,830
Executive Vice President-Drug 2000 258,538 67,575 24,868(h) - 40,000 885,938(p) 10,830
Discovery 1999 246,417 32,025 26,063(i) - 22,500 - 10,543
Stephen R. Davis 2001 257,544 58,957 14,321(j) 969,500 - - 10,695
Executive Vice President and 2000 242,810 63,480 16,481(k) - 35,000 744,188(p) 10,646
Chief Business Officer 1999 217,917 24,188 16,327(l) - 17,000 - 10,100
Kenneth R. Shaw 2001 230,331 51,123 14,321(j) - 25,000 - 630
Senior Vice President - Chemistry 2000 216,275 56,775 16,481(k) - 35,000 708,750(p) 420
and Pharmaceutical Research 1999 205,000 23,063 16,327(l) - 16,000 - 567
and Development
James V. Cassella 2001 209,000 37,620 14,321(j) - 25,000 - 10,830
Vice President - Clinical Research 2000 190.000 42,750 16,481(k) - 30,000 442,969(p) 10,830
and Development 1999 170,000 19,125 16,327(l) - 13,500 - 10,524
James E. Krause 2001 216,050 48,179 5,752(m) - 25,000 - 10,830
Senior Vice President - Biology 2000 169,775 39,825 6,471(n) - 30,000 354,375(p) 10,830
1999 156,000 14,675 6,607(o) - 10,000 - 10,524
- ------------------
(a) An aggregate total of 150,000 shares of restricted stock were granted to
certain executive officers in 2001, of which all remain held by the
respective grantees at the end of 2001. The total value of these shares at
December 31, 2001 was $2,622,000. Of the total shares awarded, 10,000
vested at the date of grant in September 2001, 70,000 vest after four years
from the date of grant and the remaining 70,000 vest after five years.
Neurogen does not plan to pay dividends on this restricted stock.
(b) References to SARs in the Summary Compensation Table and all other tables
in this Proxy Statement have been omitted, since the Company has never
issued SARs, although under the Neurogen Corporation 1993 Omnibus Incentive
Plan it has the ability to do so.
(c) Represents premiums paid for group term life insurance for each of the
executive officers, except that for Messrs. Penner, Hutchison, Davis,
Cassella and Krause, the amounts also include matching contributions
received under the Company's 401(k) plan of $10,200, $10,200 and $9,600 for
each such officer in 2001, 2000 and 1999, respectively. For 2001, includes
$641,660 of compensation related to Mr. Penner's resignation and
corresponding termination in September 2001, pursuant to his severance
agreement and termination provisions in his employment agreement.
(d) Represents forgiveness of loan.
(e) Includes $28,571 of forgiveness of loan, forgiveness of interest of $4,442
on loan and income tax reimbursements of $3,716.
(f) Includes $28,571 of forgiveness of loan, forgiveness of interest of $4,997
on loan and income tax reimbursements of $4,180.
(g) Includes $21,429 of forgiveness of loan, forgiveness of interest of $547
and income tax reimbursements of $439.
(h) Includes $21,429 of forgiveness of loan, forgiveness of interest of $1,872
and income tax reimbursements of $1,567.
(i) Includes $21,429 of forgiveness of loan, forgiveness of interest of $2,523
on loan and income tax reimbursements of $2,111.
(j) Includes $10,714 of forgiveness of loan, forgiveness of interest of $2,000
and income tax reimbursements of $1,607.
(k) Includes $10,714 of forgiveness of loan, forgiveness of interest of $3,140
and income tax reimbursements of $2,627.
(l) Includes $10,714 of forgiveness of loan, forgiveness of interest of $3,056
on loan and income tax reimbursements of $2,257.
(m) Includes $5,000 of forgiveness of loan, forgiveness of interest of $417 and
income tax reimbursement of $335.
(n) Includes $5,000 of forgiveness of loan, forgiveness of interest of $801 and
income tax reimbursement of $670.
(o) Includes $5,000 of forgiveness of loan, forgiveness of interest of $891 and
income tax reimbursement of $716.
(p) Reflects the value of performance based restricted stock based upon the
February 18, 2000 closing price of $47.25 per share. On this date Neurogen
Common Stock met pre-specified performance criteria which triggered the
removal of the restrictions on trading.
(q) The salaries reported for Dr. Koster and Mr. Penner are for the four month
period from September 2001 to December 2001, and the eight month period
from January 2001 to August 2001, respectively.
For the year ended December 31, 2001, the following tables summarize
incentive compensation paid to the named officers.
Option Grants in Last Fiscal Year
Individual Grants (a)
- ------------------------------------------------------------------------------------------
Number of
Securities % of Total Potential Realizable Value
Underlying Options Granted Exercise or at Assumed Annual Rates of
Options to Employees in Base Price Expiration Stock Price Appreciation
Name Granted Fiscal Year ($/Share) Date for Option Term
- ----------------- ----------- --------------- ----------- ------------ --------------------------
5%($) 10%($)
----- ------
William H. Koster 400,000 37.98% 19.39 9/4/11 4,877,707 12,361,067
Harry H. Penner, Jr. - - - - - -
Alan J. Hutchison 3,000 0.28% 17.48 12/31/07 17,839 40,471
3,000 0.28% 17.48 12/31/08 21,354 49,763
3,000 0.28% 17.48 12/31/09 25,044 59,985
3,000 0.28% 17.48 12/31/10 28,919 71,229
3,000 0.28% 17.48 12/31/11 32,987 83,597
5,000 0.47% 19.39 12/31/07 32,972 74,803
5,000 0.47% 19.39 12/31/08 39,468 91,978
5,000 0.47% 19.39 12/31/09 46,289 110,871
5,000 0.47% 19.39 12/31/10 53,451 131,653
Stephen R. Davis - - - - - -
Kenneth R. Shaw 1,000 0.09% 17.48 12/31/07 5,946 13,490
1,000 0.09% 17.48 12/31/08 7,118 16,588
1,000 0.09% 17.48 12/31/09 8,348 19,995
1,000 0.09% 17.48 12/31/10 9,640 23,743
1,000 0.09% 17.48 12/31/11 10,996 27,866
5,000 0.47% 19.39 12/31/07 32,972 74,803
5,000 0.47% 19.39 12/31/08 39,468 91,978
5,000 0.47% 19.39 12/31/09 46,289 110,871
5,000 0.47% 19.39 12/31/10 53,451 131,653
James V. Cassella 1,000 0.09% 17.48 12/31/07 5,946 13,490
1,000 0.09% 17.48 12/31/08 7,118 16,588
1,000 0.09% 17.48 12/31/09 8,348 19,995
1,000 0.09% 17.48 12/31/10 9,640 23,743
1,000 0.09% 17.48 12/31/11 10,996 27,866
5,000 0.47% 19.39 12/31/07 32,972 74,803
5,000 0.47% 19.39 12/31/08 39,468 91,978
5,000 0.47% 19.39 12/31/09 46,289 110,871
5,000 0.47% 19.39 12/31/10 53,451 131,653
James E. Krause 1,000 0.09% 17.48 12/31/07 5,946 13,490
1,000 0.09% 17.48 12/31/08 7,118 16,588
1,000 0.09% 17.48 12/31/09 8,348 19,995
1,000 0.09% 17.48 12/31/10 9,640 23,743
1,000 0.09% 17.48 12/31/11 10,996 27,866
5,000 0.47% 19.39 12/31/07 32,972 74,803
5,000 0.47% 19.39 12/31/08 39,468 91,978
5,000 0.47% 19.39 12/31/09 46,289 110,871
5,000 0.47% 19.39 12/31/10 53,451 131,653
- --------------------------
(a) Options vest ratably each year on the anniversary of the date of grant,
over a four to five year period depending on the individual award agreements.
The options granted to Doctors Hutchison, Shaw, Cassella and Krause expire five
years after each vesting date, where as the options granted to Dr. Koster expire
ten years from the date of grant. All the above options are subject to earlier
expiration in connection with termination of employment.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Number of Securities Underlying Value of Unexercised
Shares Unexercised Options at In-the-Money Options at Fiscal
Acquired on Value Fiscal Year-End(#) Year-End($)(a)
Name Exercise(#) Realized($)(a) Exercisable/Unexercisable Exercisable/Unexercisable
- --------------------- ----------- -------------- ------------------------- -------------------------
William H. Koster - - -/400,000 -/-
Harry H. Penner, Jr. 100,000 1,325,000 422,000/- 1,583,922/-
Alan J. Hutchison - - 200,312/90,938 554,902/50,918
Stephen R. Davis - - 119,312/43,688 233,086/28,289
Kenneth R. Shaw - - 104,250/68,000 87,563/27,797
James V. Cassella 6,000 86,700 131,531/61,594 459,801/26,566
James E. Krause - - 51,127/64,375 20,867/12,891
- ------------------
(a) Options vest ratably each year on the anniversary of the date of grant,
over a four to five year period depending on the individual award agreements.
The options granted to Doctors Hutchison, Shaw, Cassella and Krause expire five
years after each vesting date, where as the options granted to Dr. Koster expire
ten years from the date of grant. All the above options are subject to earlier
expiration in connection with termination of employment.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Number of Securities Underlying Value of Unexercised
Shares Unexercised Options at In-the-Money Options at Fiscal
Acquired on Value Fiscal Year-End(#) Year-End($)(a)
Name Exercise(#) Realized($)(a) Exercisable/Unexercisable Exercisable/Unexercisable
- --------------------- ----------- -------------- ------------------------- -------------------------
William H. Koster - - -/400,000 -/-
Harry H. Penner, Jr. 100,000 1,325,000 422,000/- 1,583,922/-
Alan J. Hutchison - - 200,312/90,938 554,902/50,918
Stephen R. Davis - - 119,312/43,688 233,086/28,289
Kenneth R. Shaw - - 104,250/68,000 87,563/27,797
James V. Cassella 6,000 86,700 131,531/61,594 459,801/26,566
James E. Krause - - 51,127/64,375 20,867/12,891
- ------------------
(a) Difference between option price and fair market value of the shares at
year-end.
Terms and Conditions of Certain Employment and Severance Agreements
The compensation package for William H. Koster, as President and Chief
Executive Officer, includes a salary paid pursuant to a three year renewable
employment agreement between Dr. Koster and the Company effective September 4,
2001. Under such agreement, Dr. Koster is paid a base salary of $400,000 per
annum, which may be increased periodically at the discretion of the Board of
Directors. The employment agreement restricts Dr. Koster from competing with the
Company for the term of the agreement and for a two year period after
termination of his employment. The employment agreement also provides for
additional payments to be made to Dr. Koster upon his termination of employment
for the following reasons:
o Termination without cause or for good reason such as a material reduction
of duties or a reduction of salary. Dr. Koster would receive a lump sum
payment equal to his salary and average bonus through the end of the
contract period. Stock options and restricted stock (subject to a floor of
25%) that would otherwise have vested in the two year period following
termination would also vest.
o Death or disability. Dr. Koster or his beneficiaries would receive a
pro-rata portion of his average annual bonus and stock options, and
restricted stock (subject to a floor of 25%) that would otherwise have
vested in the two year period following death or disability would also
vest.
o Non-renewal of employment agreement. Dr. Koster would receive a lump sum
payment equal to one year's salary and his annual average bonus. Stock
options and restricted stock that would otherwise have vested in the one
year period following non-renewal would also vest.
o Change of control. If following a change of control Dr. Koster is
terminated withoot cause or for good reason, he would receive a lump sum
payment equal to three times his annual salary and average bonus. All of
Dr. Koster's stock options would vest and restricted stock (subject to a
floor of 50%) that would otherwise have vested in the two year period
following termination would vest. Dr. Koster would also be eligible to
receive a tax "gross-up" payment of up to $5 million.
The compensation package during 1999 to 2001 for Harry H. Penner, Jr., as
President and Chief Executive Officer, included a salary paid pursuant to an
employment agreement between Mr. Penner and the Company which was effective from
October 1993 to September 2001. In August 2000, the Company announced that Mr.
Penner planned to step down from his position as President and Chief Executive
Officer and would remain at Neurogen until a new Chief Executive Officer was in
place. Effective September 2001, upon the hiring of Mr. Koster, Mr. Penner
retired. Under the termination clause of Mr. Penner's employment agreement, he
received a lump sum payment of $416,000 from the Company, representing one
year's salary at time of termination. Mr. Penner also received a gross bonus of
$207,000 on the date of termination under a separate severance agreement.
The compensation package for Alan J. Hutchison, as Executive Vice
President- Drug Discovery of Neurogen, includes a salary paid pursuant to a
two-year renewable employment agreement between Dr. Hutchison and the Company
effective December 1, 1997. The agreement was most recently extended for an
additional two-year term as of December 1, 2001. Under such agreement, Dr.
Hutchison's base salary of $272,865 per annum in 2001 was increased to $286,508
effective December 31, 2001. Such increase was, and any future increases will
be, at the discretion of the Board of Directors. The employment agreement
restricts Dr. Hutchison from competing with the Company for the term of the
agreement and, under certain conditions, for a period of one year after
termination of his employment with the Company. The employment agreement also
provides for additional payments to be made to Dr. Hutchison upon his
termination of employment for the following reasons:
o Termination without cause or termination for good reason such as a material
reduction of duties or a reduction of salary. Dr. Hutchison would receive a
lump sum payment in an amount equal to one year's salary. Dr. Hutchison's
stock options that would otherwise have vested for up to one year following
termination would also vest.
o Death or disability. Dr. Hutchison would continue to receive his salary
until he becomes eligible to receive payments under the Company's long-term
disability plan. A pro-rata portion of Dr. Hutchison's stock options that
would otherwise have vested up to one year following termination would also
vest.
o Non-renewal of employment agreement. Dr. Hutchison will continue to receive
his salary for up to one year. Dr. Hutchison's stock options that otherwise
would have vested for up to one year following non-renewal would also vest.
The compensation package for Stephen R. Davis, Executive Vice President and
Chief Business Officer of Neurogen, includes a salary paid pursuant to a
two-year renewable employment agreement between Mr. Davis and the Company
effective December 1, 1997. The agreement was most recently extended for an
additional two-year term as of December 1, 2001. Under such agreement, Mr.
Davis' base salary of $256,335 per annum in 2001 was increased to $269,152
effective December 31, 2001. Such increase was, and any future increases will
be, at the discretion of the Board of Directors. The employment agreement
restricts Mr. Davis from competing with the Company for the term of the
agreement and, under certain conditions, for a period of one year after
termination of his employment with the Company. The employment agreement also
provides for additional payments to be made to Mr. Davis upon his termination of
employment for the following reasons:
o Termination without cause or termination for good reason such as a material
reduction of duties or a reduction of salary. Mr. Davis would receive a
lump sum payment in an amount equal to one year's salary. Mr. Davis's stock
options that would otherwise have vested for up to one year following
termination would also vest.
o Death or disability. Mr. Davis would continue to receive his salary until
he becomes eligible to receive payments under the Company's long-term
disability plan. A pro-rata portion of Mr. Davis's stock options that would
otherwise have vested up to one year following termination would also vest.
o Non-renewal of employment agreement. Mr. Davis will continue to receive his
salary for up to one year. Mr. Davis's stock options that otherwise would
have vested for up to one year following non-renewal would also vest.
The compensation package for Kenneth R. Shaw, Senior Vice President -
Chemistry and Pharmaceutical Research and Development, includes a salary paid
pursuant to a two-year renewable employment agreement between Dr. Shaw and the
Company effective December 1, 1999. The agreement was most recently extended for
an additional two-year term as of December 1, 2001. Under such agreement, Dr.
Shaw's base salary of $229,250 per annum in 2001 was increased to $240,713
effective December 31, 2001. Such increase was, and any future increases will
be, at the discretion of the Board of Directors. The employment agreement
restricts Mr. Shaw from competing with the Company for the term of the agreement
and, under certain conditions, for a period of one year after termination of his
employment with the Company. The employment agreement also provides for
additional payments to be made to Dr. Shaw upon his termination of employment
for the following reasons:
o Termination without cause or termination for good reason such as a material
reduction of duties or a reduction of salary. Dr. Shaw would receive a lump
sum payment in an amount equal to one year's salary. Dr. Shaw's stock
options that would otherwise have vested for up to one year following
termination would also vest.
o Death or disability. Dr. Shaw would continue to receive his salary until he
becomes eligible to receive payments under the Company's long-term
disability plan. A pro-rata portion of Dr. Shaw's stock options that would
otherwise have vested up to one year following termination would also vest.
o Non-renewal of employment agreement. Dr. Shaw will continue to receive his
salary for up to one year. Dr. Shaw's stock options that otherwise would
have vested for up to one year following non-renewal would also vest.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS(1):
The Compensation Committee consists entirely of outside directors. The
Compensation Committee is responsible for establishing and administering the
policies which govern both the annual compensation and stock ownership programs
of the Company. On an annual basis, the Compensation Committee evaluates the
performance of management and determines the compensation of the Company's
executive officers. The Compensation Committee's policies and programs are
designed to further the Company's goal of increasing shareholder value by
motivating and retaining executive officers. These policies include the
following objectives:
o Providing base salaries that take into consideration executive compensation
paid by other similar biotechnology companies. Peer companies generally are
at a comparable stage of development, are pursuing R&D programs of
comparable nature and complexity, have similar potential risks and rewards
and have similar market capitalization, size and financial condition. This
objective also takes into account the competitive demand for quality
personnel in the pharmaceutical and biotechnology experience and
capabilities.
o Providing periodic bonus awards for the accomplishment of significant
goals.
o Providing equity participation, such as stock option grants or restricted
stock, for the purpose of aligning executive officers' longer term
interests with those of the shareholders. The size and nature of equity
based compensation grants are based upon the Company's performance in
meeting its goals.
Traditional measures of corporate performance, such as earnings per share
or sales growth, do not readily apply to most biotechnology companies which are
heavily focused on research and development activities designed to produce
future earnings. In determining the compensation of the Company's executives,
the Compensation Committee looks to other criteria to measure the Company's
progress. These criteria include the Company's progress in:
o advancing drug candidates through clinical trials,
o discovering and developing multiple clinical candidates in the Company's
portfolio of drug programs,
o developing new drug targets and discovering potential drug leads for these
targets,
o developing valuable drug discovery technologies,
o establishing and executing strategic collaborations with other parties and
o securing capital sufficient to advance and expand the Company's drug
development and technology programs.
The Compensation Committee believes that outstanding performance in these
areas will contribute to the long-term success of the Company and the growth of
shareholder value. The Compensation Committee specifically considers the
achievement of milestones related to expansion of the Company's portfolio of
drug development programs, the development of multiple drug candidates within
individual programs and the progress of individual candidates within each such
program. In addition, the Compensation Committee considers the extent to which
the Company's shares have changed in value. However, the Compensation Committee
recognizes that, in the short-term, the market price of the Company's shares may
be affected by industry events and market conditions which are transient in
nature and beyond the control of management. This is especially true in the
biotechnology industry, which is characterized by long product lead times, the
iterative trial and error nature of drug development, highly volatile stock
prices and fluctuating availability of capital. Accordingly, the Compensation
Committee attempts to retain and appropriately motivate the Company's executives
by balancing the consideration of shorter term strategic goals with longer term
objectives essential to creating maximum shareholder value. In many instances
the qualitative factors by which the Compensation Committee judges corporate
performance necessarily involve a subjective assessment of management's
performance. Moreover, the Compensation Committee does not base its
considerations on any single performance factor nor does it specifically assign
relative weights to factors, but rather considers a mix of factors and evaluates
Company and individual performance against that mix.
Compensation paid by the Company to its executive officers is designed to
be competitive with compensation packages paid to the management of comparable
companies in the biotechnology industry. Toward that end, the Compensation
Committee reviews both independent survey data as well as data gathered
internally. From time to time, the Committee obtains the counsel of expert
compensation consultants. Total compensation for the Company's executive
officers includes a base salary component and may also include other forms of
incentives. Incentive compensation may consist of cash bonuses based on
satisfying corporate goals as well as on meeting individual performance
objectives. In addition, executive officers are eligible for grants of stock
options and restricted stock as an element of their total annual compensation
package. This component is intended to motivate and retain executive officers to
improve long-term stock performance. Stock option and restricted stock awards
are granted at the discretion of the Compensation Committee. Generally, stock
options vest in equal amounts over four or five years, have a term of five or
ten years and are exercisable during the term of the option at the fair market
value of the underlying Common Stock on the date of grant. As with cash bonuses,
the number of options to be granted to each executive officer is based on the
degree of attainment of predetermined Company and individual objectives, with
emphasis on those which have long-term strategic value. The Company generally
grants stock options to all employees and uses stock options as a bonus vehicle.
The Compensation Committee administers the Incentive Plan.
The Company achieved significant milestones and met most of its goals
during the fiscal year ended December 31, 2001. The Compensation Committee
considered the following developments in awarding incentive compensation based
on the Company's performance in 2001: advancement into Phase II human clinical
trials of NGD 97-1, the Company's lead Alzheimer's disease drug candidate;
uncertain results from Phase II human clinical trials of NGD 91-3, the Company's
lead anti-anxiety drug candidate; the advancement into Phase I human clinical
trials of NGD 2000-1, the Company's lead drug candidate for the treatment of
inflammatory disorders; the consummation of a new strategic collaboration with
Aventis Pharmaceuticals to develop drugs from Neurogen's CRF1 discovery program;
the closing of a $17.5 million debt financing on the Company's facilities; the
development of two new clinical candidates; the accomplishment of significant
milestones in implementing an AIDD technology system for Pfizer pursuant to a
$27 million three-year technology transfer agreement; the discovery of drug
leads in new areas; the advancement of drug leads and potential candidates in
many of the Company's programs; and the further advancement of the Company's
proprietary AIDD drug discovery platform.
In September 2001 Dr. Koster joined Neurogen as President and CEO. In
determining the starting compensation package for Dr. Koster, the Board of
Directors Search Committee considered Dr. Koster's extensive experience in drug
discovery and development and the compensation paid to CEO's at comparable
biotech companies. The committee also considered the recommendations of the
national executive search firm retained by the Company for this search.
At year-end, the Compensation Committee reviewed the Company's fiscal 2001
performance and the performance of the Company's executive officers together
with the incentive compensation levels of officers at comparable companies.
Based upon this review and in recognition of the Company's achievement of
significant milestones, the Committee awarded cash incentive bonuses and stock
option grants to executive officers. To remain competitive with the Company's
peers, the Committee also reviewed the base salary levels of officers at
comparable companies and raised the 2002 base salaries of the Company's
executive officers.
By the Compensation Committee: Jeffrey J. Collinson, Julian C. Baker, Frank
C. Carlucci and John Simon
- ---------------------
(1) This Section is not "soliciting material," is not deemed "filed" with
the SEC and is not to be incorporated by reference in any filing of the Company
under the Securities Act of 1933, as amended (the "Securities Act"), or the
Exchange Act, whether made before or after the date hereof and irrespective of
any general incorporation language in any such filing.
PERFORMANCE GRAPH(1)
The following graph compares the yearly percentage in the Company's
cumulative total stockholder return on its Common Stock during a period
commencing on December 31, 1996 and ending December 31, 2001 (as measured by
dividing (i) the sum of (A) the cumulative amount of dividends for the
measurement period, assuming dividend reinvestment, and (B) the difference
between the Company's share price at the end and the beginning of the period; by
(ii) the share price at the beginning of the period) with the cumulative return
of the NASDAQ National Market Composite Index and the Amex Biotechnology Index.
The NASDAQ Composite Index has also been included for comparison purposes to an
index utilized in prior years. This index will not be included going forward as
Neurogen's Common Stock is traded on the NASDAQ National Market exchange. It
should be noted that Neurogen has not paid dividends on Common Stock, and no
dividends are included in the representation of the Company's performance. The
stock price performance on the graph below is not necessarily indicative of
future price performance.
NASDAQ
National Market NASDAQ AMEX
Neurogen Composite Composite Biotechnology
12/31/96 $100.0 $100.0 $100.0 $100.0
12/31/97 $70.1 $122.4 $121.6 $112.6
12/31/98 $90.9 $171.6 $169.8 $128.3
12/31/99 $85.7 $319.0 $315.2 $271.3
12/31/00 $182.5 $193.7 $191.4 $439.6
12/31/01 $90.8 $152.6 $151.1 $402.3
- ---------------------
(1) This Section is not "soliciting material," is not deemed "filed" with
the SEC and is not to be incorporated by reference in any filing of the Company
under the Securities Act of 1933, as amended (the "Securities Act"), or the
Exchange Act, whether made before or after the date hereof and irrespective of
any general incorporation language in any such filing.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 1, 2002, certain information
with respect to the beneficial ownership of Common Stock by each person known by
Neurogen to own beneficially more than five percent of its outstanding Common
Stock, by each director and officer of Neurogen and by all directors and
officers as a group:
Amount and Approximate
Name and Address Nature of Beneficial Percent
of Beneficial Owner Ownership(1) Owned(2)
- ------------------- ------------ --------
Andrew H. Tisch (22)(23)......................... 1,035,925 5.8%
Daniel R. Tisch (22)(23)......................... 1,035,925 5.8%
James S. Tisch (22)(23).......................... 1,035,925 5.8%
Thomas J. Tisch (22)(24).......................... 1,335,925 7.5%
Preston R. Tisch (22)(25)........................ 24,100 *
Pfizer Inc........................................ 2,846,000 16.0%
235 East 42nd Street
New York, NY 10017
Wellington Management Company, LLP................ 1,817,400 10.2%
75 State Street
Boston, MA 02109
Oppenheimer Funds................................. 1,775,000 10.0%
498 Seventh Ave.
New York, NY 10018
Janus Capital Corporation......................... 983,320 5.5%
100 Fillmore Street
Denver, CO 80206
William H. Koster, Ph.D. (3)...................... 100,000 *
Alan J. Hutchison, Ph.D. (5)...................... 201,818 1.1%
Stephen R. Davis (6).............................. 172,298 1.0%
Kenneth R. Shaw, Ph.D. (7)........................ 104,250 *
James V. Cassella, Ph.D. (8)...................... 133,061 *
James E. Krause, Ph.D. (4)........................ 52,503 *
Frank C. Carlucci (9)(10)......................... 207,472 1.2%
Felix J. Baker, Ph.D. (11)(22).................... 646,006 3.6%
Julian C. Baker (12)(22).......................... 657,514 3.7%
Barry M. Bloom, Ph.D. (13)........................ 39,558 *
Robert N. Butler, M.D. (14)....................... 31,348 *
Jeffrey J. Collinson (15)......................... 58,707 *
Mark Novitch, M.D. (16)........................... 62,002 *
Robert H. Roth, Ph.D. (17)........................ 75,058 *
Craig Saxton, M.D. (26)........................... 2,500 *
John Simon (18)(19)............................... 88,477 *
Suzanne H. Woolsey, Ph.D. (20).................... 36,641 *
All directors and officers
as a group (17 persons) (21)................... 2,080,813 11.1%
- ---------------
* Less than one percent (1%).
(1) Share ownership in each case includes shares issuable upon exercisable of
outstanding common stock options exercisable within 60 days of March 1,
2002.
(2) Percentage of the outstanding shares of Common Stock, treating as
outstanding for each beneficial owner all shares of Common Stock which such
beneficial owner has indicated are issuable under stock options exercisable
within 60 days of March 1, 2002.
(3) Includes 100,000 shares of restricted stock of which 10,000 shares are
vested.
(4) Includes 51,127 shares of Common Stock that James E. Krause, Ph.D. has the
right to acquire under stock options exercisable within 60 days of March 1,
2002.
(5) Includes 200,312 shares of Common Stock that Alan J. Hutchison, Ph.D. has
the right to acquire under stock options exercisable within 60 days of
March 1, 2002.
(6) Includes 119,312 shares of Common Stock that Stephen R. Davis has the right
to acquire under stock options exercisable within 60 days of March 1, 2002
and 50,000 shares of unvested restricted stock.
(7) Includes 104,250 shares of Common Stock that Kenneth R. Shaw, Ph.D. has the
right to acquire under stock options exercisable within 60 days of March 1,
2002.
(8) Includes 131,531 shares of Common Stock that James V. Cassella, Ph.D. has
the right to acquire under stock options exercisable within 60 days of
March 1, 2002.
(9) Includes 40,000 shares of Common Stock owned by Mr. Carlucci's wife.
(10) Includes 56,892 shares of Common Stock subject to stock options exercisable
within 60 days of March 1, 2002.
(11) Includes 25,025 shares as to which he has sole voting power and sole
dispositive power, 32,541 shares of Common Stock that Felix Baker has the
right to acquire under stock options exercisable within 60 days of March 1,
2002, and 588,400 shares as to which he has shared voting power and shared
dispositive power.
(12) Includes 36,533 shares as to which he has sole voting power and sole
dispositive power, 32,541 shares of Common Stock that Julian Baker has the
right to acquire under stock options exercisable within 60 days of March 1,
2002, and 588,400 shares as to which he has shared voting power and shared
dispositive power.
(13) Includes 28,558 shares of Common Stock subject to stock options exercisable
within 60 days of March 1, 2002.
(14) Includes 31,348 shares of Common Stock subject to stock options exercisable
within 60 days of March 1, 2002.
(15) Includes 4,602 shares of Common Stock held by a corporation which Mr.
Collinson controls. Also includes 31,473 shares of Common Stock exercisable
within 60 days of March 1, 2002.
(16) Includes 58,002 shares of Common Stock subject to stock options exercisable
within 60 days of March 1, 2002.
(17) Includes 42,058 shares of Common Stock subject to stock options exercisable
within 60 days of March 1, 2002.
(18) Does not include shares of Common Stock held by Allen & Company
Incorporated and by persons and entities which may be deemed to be
affiliated with Allen & Company Incorporated, of which shares Mr. Simon
disclaims beneficial ownership.
(19) Includes 54,973 shares of Common Stock subject to stock options exercisable
within 60 days of March 1, 2002.
(20) Includes 36,641 shares of Common Stock subject to stock options
exercisable within 60 days of March 1, 2002.
(21) Includes 1,014,139 shares of Common Stock subject to stock options
exercisable within 60 days of March 1, 2002.
(22) The address of each person is 667 Madison Ave., New York, N.Y. 10021,
except for Daniel R. Tisch whose address is 500 Park Ave., New York, N.Y.
10022.
(23) Includes 547,125 shares as to which he has sole voting power and sole
dispositive power and 488,800 shares as to which he has shared voting power
and shared dispositive power.
(24) Includes 847,125 shares as to which he has sole voting power and sole
dispositive power and 488,800 shares as to which he has shared voting power
and shared dispositive power.
(25) He has sole voting power and sole dispositive power with respect to all
shares.
(26) Includes 2,500 shares of Common Stock subject to stock options exercisable
within 60 days of March 1, 2002.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pfizer Inc. ("Pfizer"), a beneficial owner of more than five percent of the
Common Stock, paid $2.9 million in research funding and $4.0 million in payments
related to a technology transfer agreement, and made certain reimbursements to
the Company in the last fiscal year pursuant to the terms of various
collaborative agreements and a technology transfer between Pfizer and the
Company. These amounts constituted payments in excess of five percent of
Neurogen's consolidated gross revenues for the last fiscal year. Neurogen
expects to receive amounts in excess of five percent of its consolidated gross
revenues from Pfizer in fiscal year 2002. In connection with the collaborations
with Pfizer, the Company has granted Pfizer registration rights with respect to
shares of the Company's Common Stock purchased in connection with the
collaborations as well as the right to maintain its level of investment in the
Company in future public offerings of Common Stock.
In September 2001, the Company made a recourse loan to William H. Koster,
President and Chief Executive Officer, in the amount of $86,382 for the payment
of taxes related to the vesting of certain shares of restricted stock granted to
Dr. Koster upon his hiring date. The loan is payable in full plus interest at an
annual rate of 4.76% upon the occurrence of the earlier of five years from the
date of issuance or the termination of Dr. Koster's employment and is secured by
the restricted shares.
In May 2002, the Company made an unsecured, non-interest bearing loan to
Edmund P. Harrigan, its Executive Vice President and Chief Development Officer,
in the amount of $250,000. The principal and imputed interest on the loan will
be forgiven by the Company in five equal annual installments contingent upon Dr.
Harrigan's continued employment.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
Reference is made to the Index to Financial Statements under Item 8 in
Part II hereof, where these documents are listed.
(2) Financial Statement Schedule
Note: Schedules are omitted as not applicable or not required or on the
basis that the information is included in the financial statements or notes
thereto.
(3) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------
3.1 - Restated Certificate of Incorporation, filed June 17, 1994
(incorporated by reference to Exhibit 4.1 to Registration Statement
No. 33-81268 on form S-8).
3.2 - By-Laws, as amended (incorporated by reference to Exhibit 3.6 to the
Company's Form 10-K for the fiscal year ended December 31, 1993).
10.1 - Neurogen Corporation Stock Option Plan, as amended (incorporated by
reference to Exhibit 10.1 to the Company's Form 10-K for the fiscal
year ended December 31, 1991).
10.2 - Form of Stock Option Agreement currently used in connection with the
grant of options under Neurogen Corporation Stock Option Plan
(incorporated by reference to Exhibit 10.2 to the Company's Form 10-K
for the fiscal year ended December 31, 1992).
10.3 - Neurogen Corporation 1993 Omnibus Incentive Plan, as amended
(incorporated by reference to Exhibit 10.3 to the Company's Form 10-K
for the fiscal year ended December 31, 1993).
10.4 - Form of Stock Option Agreement currently used in connection with the
grant of options under Neurogen Corporation 1993 Omnibus Incentive
Plan (incorporated by reference to Exhibit 10.4 to the Company's Form
10-K for the fiscal year ended December 31, 1993).
10.5 - Neurogen Corporation 1993 Non-Employee Directors Stock Option Program
(incorporated by reference to Exhibit 10.5 to the Company's Form 10-K
for the fiscal year ended December 31, 1993).
10.6 - Form of Stock Option Agreement currently used in connection with the
grant of options under Neurogen Corporation 1993 Non-Employee
Directors Stock Option Program (incorporated by reference to Exhibit
10.6 to the Company's Form 10-K for the fiscal year ended December 31,
1993).
10.7 - Employment Contract between the Company and Harry H. Penner, Jr.,
dated as of October 12, 1993 (incorporated by reference to Exhibit
10.7 to the Company's Form 10-K for the fiscal year ended December 31,
1993).
10.8 - Employment Contract between the Company and John F. Tallman, dated as
of December 1, 1993 (incorporated by reference to Exhibit 10.25 to the
Company's Form 10-Q for the quarterly period ended September 30,
1994).
10.9 - Form of Proprietary Information and Inventions Agreement(incorporated
by reference to Exhibit 10.31 to Registration Statement No. 33-29709
on Form S-1).
10.10 - Collaborative Research Agreement and License and Royalty Agreement
between the Company and Pfizer Inc, dated as of January 1, 1992
(CONFIDENTIAL TREATMENT REQUESTED) (incorporated by reference to
Exhibit 10.35 to the Company's Form 10-K for the fiscal year ended
December 31, 1991).
10.11 - Letter Agreement between the Company and Barry M. Bloom, dated January
12, 1994 (incorporated by reference to Exhibit 10.25 to the Company's
Form 10-K for the fiscal year ended December 31, 1993).
10.12 - Letter Agreement between the Company and Robert H. Roth, dated April
14, 1994 (incorporated by reference to Exhibit 10.26 to the Company's
Form 10-K for the fiscal year ended December 31, 1994).
10.13 - Collaborative Research Agreement and License and Royalty Agreement
between the Company and Pfizer Inc, dated as of July 1, 1994
(CONFIDENTIAL TREATMENT REQUESTED) (incorporated by reference of
Exhibit 10.1 to the Company's Form 10-Q for the quarterly period ended
June 30, 1994).
10.14 - Stock Purchase Agreement between the Company and Pfizer dated as of
July 1, 1994 (incorporated by reference to Exhibit 10.2 to the
Company's Form 10-Q for the quarterly period ended June 30, 1994).
10.15 - Collaboration and License Agreement and Screening Agreement between
the Company and Schering-Plough Corporation (CONFIDENTIAL TREATMENT
REQUESTED) (incorporated by reference to Exhibit 10.1 to the Company's
Form 8-K dated July 28, 1995).
10.16 - Lease Agreement between the Company and Commercial Building Associates
dated as of August 30, 1995 (incorporated by reference to Exhibit
10.27 to the Company's Form 10-Q for the quarterly period ended
September 30, 1995).
10.17 - Collaborative Research Agreement between the Company and Pfizer dated
as of November 1, 1995 (CONFIDENTIAL TREATMENT REQUESTED)
(incorporated by reference to Exhibit 10.1 of the Company's Form 8-K
dated November 1, 1995).
10.18 - Development and Commercialization Agreement between the Company and
Pfizer dated as of November 1, 1995 (CONFIDENTIAL TREATMENT REQUESTED)
(incorporated by reference to Exhibit 10.2 of the Company's Form 8-K
dated November 1, 1995).
10.19 - Stock Purchase Agreement between the Company and Pfizer dated as of
November 1, 1995 (incorporated by reference to Exhibit 10.3 of
the Company's Form 8-K dated November 1, 1995).
10.20 - Stock Purchase Agreement dated as of November 25, 1996 between
American Home Products Corporation, acting through its Wyeth-Ayerst
Laboratories Division, and Neurogen Corporation (CONFIDENTIAL
TREATMENT REQUESTED) (incorporated by reference to Exhibit 10.1 of
the Company's Form 8-K dated March 31, 1997).
10.21 - Technology agreement between the Company and Pfizer Inc, dated as of
June 15, 1999 (CONFIDENTIAL TREATMENT REQUEST) (Incorporated by
reference to Exhibit 10.27 to the Company's Form 10-Q for the
quarterly period ended June 30, 1999).
10.22 - Employment Contract between the Company and Alan J. Hutchison, dated
as of December 1, 1997 (incorporated by reference to Exhibit 10.28
to the Company's Form 10-K for the fiscal year ended December 31,
1999).
10.23 - Employment Contract between the Company and Stephen R. Davis, dated
as of December 1, 1997 (incorporated by reference to Exhibit 10.29
to the Company's Form 10-K for the fiscal year ended December 31,
1999).
10.24 - Employment Contract between the Company and Kenneth R. Shaw, dated
as of December 1, 1999 (incorporated by reference to Exhibit 10.30
to the Company's Form 10-K for the fiscal year ended December 31,
1999).
10.25 - Neurogen Corporation 2000 Non-Employee Directors Stock Option Program
(incorporated by reference to Exhibit 10.31 to the Company's Form
10-Q for the quarterly period ended June 30, 2000).
10.26 - Form of the Non-Qualified Stock Option Agreement currently used in
connection with the grant of options under the Neurogen Corporation
2000 Non-Employee Directors Stock Option Program (incorporated by
reference to Exhibit 10.32 to the Company's Form 10-Q for the
quarterly period ended June 30,2000).
10.27 - Registration Rights Agreement dated as of June 26, 2000 between the
Company and the Purchasers listed on Exhibit A thereto (incorporated
by reference to Exhibit 10.33 to the Company's Form 10-Q for the
quarterly period ended June 30, 2000).
10.28 - Severance Agreement between the Company and John F. Tallman, dated as
of January 15, 2001 (incorporated by reference to Exhibit 10.28 to the
Company's Form 10-Q for the quarterly period ended March 31, 2001).
10.29 - Amended and Restated Neurogen Corporation 2001 Stock Option Plan, as
amended and restated effective September 4, 2001 (incorporated by
reference to Exhibit 10.29 to the Company's Form 10-Q for the
quarterly period ended September 30, 2001).
10.30 - Form of Incentive Stock Option Agreement currently used in connection
with the grant of options under the Amended and Restated Neurogen
Corporation 2001 Stoc k Option Plan (incorporated by reference to
Exhibit 10.30 to the Company's Form 10-Q for the quarterly period
ended September 30, 2001).
10.31 - Form of the Non-Qualified Stock Option Agreement currently used in
connection with the grant of options under the Amended and Restated
Neurogen Corporation 2001 Stock Option Plan (incorporated by reference
to Exhibit 10.31 to the Company's Form 10-Q for the quarterly period
ended September 30, 2001).
10.32 - Form of Neurogen Special Committee Stock Option Plan (incorporated by
reference to Exhibit 10.32 to the Company's Form 10-Q for the
quarterly period ended September 30, 2001).
10.33 - Employment Agreement between the Company and William H. Koster, dated
as of September 4, 2001 (incorporated by reference to Exhibit 10.33 to
the Company's Form 10-Q for the quarterly period ended September 30,
2001).
10.34 - Severance Agreement between the Company and Harry H. Penner, Jr.,
dated as of September 7, 2001 (incorporated by reference to Exhibit
10.34 to the Company's Form 10-Q for the quarterly period ended
September 30, 2001).
10.35 - Collaboration and License Agreement dated as of December 11, 2001
between the Company and Aventis Pharmaceuticals Inc. (CONFIDENTIAL
TREATMENT REQUESTED) (incorporated by reference to Form 10-K/A2
for the period ended December 31, 2001).
10.36 - Modification Agreement dated as of December 1, 2000 between Neurogen
Properties LLC and Connecticut Innovations, Incorporated.
10.37 - Construction Loan Agreement dated as of October 22, 1999 between
Neurogen Properties LLC and Connecticut Innovations, Incorporated.
10.38 - Commercial Term Note dated as of December 21, 2001 held by the
Company and payable to Webster Bank.
10.39 - Commercial Loan Agreement dated as of December 21, 2001 between
Webster Bank and the Company.
21.1 - Subsidiary of the registrant(incorporated by reference to Exhibit 21.1
to the Company's Form 10-K for the fiscal year ended December 31,
1999).
23.1 - Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1 - Powers of Attorney of Frank C. Carlucci, Robert H. Roth, John Simon,
John F. Tallman, Robert N. Butler, Jeffrey J. Collinson , Suzanne
H. Woolsey, Mark Novitch, Barry M. Bloom, Julian C. Baker, Felix J.
Baker and Craig Saxton.
(b) Reports on Form 8-K
The Company filed two current reports on Form 8-K on December 21, 2001
to submit for filing News Releases of the Company dated December 20,
2001 announcing an exclusive worldwide collaboration agreement between
Neurogen and Aventis Pharma to develop new drugs for the treatment of
several disorders based on specified Company compounds, and the
preliminary results from a Phase IIA clinical study of the Company's
lead drug candidate for the treatment of anxiety disorders, where the
subjects tested showed a trend toward efficacy that did not achieve
statistical significance.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NEUROGEN CORPORATION
/S/ WILLIAM H. KOSTER
By:______________________________
William H. Koster
President and Chief Executive Officer
Date: January 9, 2003
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:
SIGNATURE TITLE DATE
----------- ------- ------
*
___________________________ Chairman of the Board January 9, 2003
Frank C. Carlucci and Director
/S/ WILLIAM H. KOSTER
___________________________ President, Chief Executive January 9, 2003
William H. Koster Officer and Director
(Principal Executive
Officer)
/S/ STEPHEN R. DAVIS
___________________________ Executive Vice President and January 9, 2003
Stephen R. Davis Chief Business Officer
(Principal Financial
and Accounting Officer)
*
_________________________ Director January 9, 2003
Robert H. Roth, Ph.D.
*
__________________________ Director January 9, 2003
Jeffrey J. Collinson
*
_________________________ Director January 9, 2003
John Simon
*
_________________________ Director January 9, 2003
Robert N. Butler, M.D.
*
________________________ Director January 9, 2003
Suzanne H. Woolsey
*
________________________ Director January 9, 2003
Barry M. Bloom
*
________________________ Director January 9, 2003
Mark Novitch
*
________________________ Director January 9, 2003
Julian C. Baker
*
________________________ Director January 9, 2003
Felix J. Baker
*
________________________ Director January 9, 2003
Craig Saxton
/S/ WILLIAM H. KOSTER AND STEPHEN R. DAVIS
*By:_____________________________________________________
William H. Koster and Stephen R. Davis, Attorneys-in-Fact
EXHIBIT 10.36
MODIFICATION AGREEMENT
THIS MODIFICATION AGREEMENT (this "Agreement"), is made and entered into as
of December 1, 2000, by and between NEUROGEN PROPERTIES LLC, a Connecticut
limited liability company having an address at 35 Northeast Industrial Road,
Branford, Connecticut 06405 (hereinafter referred to as "Maker," "Borrower," or
"Mortgagor," as applicable), and CONNECTICUT INNOVATIONS, INCORPORATED, a
Connecticut corporation having its principal place of business at 999 West
Street, Rocky Hill, Connecticut (hereinafter referred to as "Payee," "Lender,"
or "Mortgagee," as applicable).
W I T N E S S E T H :
WHEREAS, Borrower and Lender have executed a certain Construction Loan
Agreement dated as of October 22, 1999 (the "Loan Agreement");
WHEREAS, Maker is indebted to Payee in the stated principal amount
$5,000,000.00, or so much thereof as may been advanced by Payee to Maker in
accordance with the Loan Agreement, as evidenced by that certain Promissory Note
dated October 22, 1999 executed by Maker and delivered to Payee (the "Note");
WHEREAS, the Note is secured by, inter alia, that certain Open-End
Construction Mortgage Deed and Security Agreement dated as of October 22, 1999,
and recorded among the Branford, Connecticut land records (the "Land Records")
in Volume 687, Page 112 (the "Mortgage") and that certain Assignment of Leases
and Rents dated October 22, 1999, and recorded in the Land Records in Volume
687, Page 153 (the "Assignment of Rents") (the Note, the Loan Agreement, the
Mortgage, and the Assignment of Rents and all documents executed and delivered
in connection therewith are herein referred to collectively as the "Loan
Documents"; all property encumbered by the Loan Documents as security for the
indebtedness evidenced by the Loan Documents being herein referred to as the
"Property"); and
WHEREAS, Borrower and Lender desire to amend the terms of the Loan
Documents as set forth herein.
NOW, THEREFORE, for good and valuable consideration hereby acknowledged,
Borrower and Lender hereby covenant and agree as follows:
1. Modification to Loan Agreement. Paragraph 1.1.1, Paragraph 2.1.3 and
Paragraph 5.4 of the Loan Agreement are each hereby amended by deleting the
date "December 31, 2000" as set forth therein and substituting therefor
"April 30, 2001."
2. Modification to the Note. Paragraph 3 of the Note is hereby deleted and
restated in its entirety with the following:
The Conversion Date shall be the earlier of: (a) the date of substantial
completion of construction of the Project (as defined in the Loan
Agreement) and the full advancement of all sums due to Maker pursuant to
the Loan Agreement; or (b) April 30, 2001."
3. Modification to the Mortgage. The fifth full paragraph on page 4 of the
Mortgage is deleted and restated in its entirety as follows:
"WHEREAS, the Mortgagor agrees to complete the improvements to said
buildings to the satisfaction of the Mortgagee in accordance with the terms
of the Loan Agreement within a reasonable time after the date hereof but in
no event later than April 30, 2001;"
4. References in Loan Documents. Each reference to the Note, the Loan
Agreement, the Mortgage, the Assignment of Rents or any or all of the Loan
Documents in this Agreement or in each and all of the Loan Documents shall
be deemed and construed to refer to the Note, the Loan Agreement, the
Mortgage, the Assignment of Rents and any or all of the Loan Documents, as
modified by this Agreement, and the Loan Documents are hereby modified
accordingly. The Note and this Agreement shall be construed together as a
single instrument; the Loan Agreement and this Agreement shall be construed
together as a single instrument, the Mortgage and this Agreement shall be
construed together as a single instrument., and the Assignment of Rents and
this Agreement shall be construed together as a single instrument.
5. Continued Force and Effect. All of the terms and conditions of the Note,
the Loan Agreement, the Mortgage, the Assignment of Rents and the other
Loan Documents and the collateral security provided thereby, including
those terms and conditions modified by this Agreement, are hereby ratified
and confirmed in all respects and shall remain in full force and effect.
This Agreement is not intended to, and shall not be construed to, effect a
novation, and, except as expressly provided herein, none of the Loan
Documents has been modified, amended, canceled, terminated, released,
satisfied, superseded or otherwise invalidated. In the event of any
conflict between the terms of this Agreement and the terms of any of the
Loan Documents, the terms of this Agreement shall control. Borrower
acknowledges and agrees that the Loan Documents, as modified hereby, are
enforceable against Borrower and against the Property described therein in
accordance with their respective terms.
6. Miscellaneous.
(a) Borrower, upon request from Lender, agrees to execute such other and
further documents as may be reasonably necessary or appropriate to
consummate the transactions contemplated by the Loan Documents or this
Agreement or to perfect the liens and security interests intended to
secure the payment of the Loan evidenced by the Note.
(b) This Agreement may be executed in any number of identical
counterparts, each of which shall be deemed to be an original, and all
of which shall collectively constitute a single agreement, fully
binding upon and enforceable against the parties hereto.
(c) This Agreement shall be binding upon Borrower, and the respective
heirs, executors, administrators, legal representatives, successors
and assigns of Borrower, and shall be binding upon and inure to the
benefit of the Lender, its successors and assigns, including a
subsequent holder of the Note or Mortgage.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed and delivered as of the date and year first above written.
NEUROGEN PROPERTIES LLC
By: Neurogen Corporation,
Its Sole Member
/s/ Marion L. Klesser By: /s/ Steve Davis
- ----------------------------------- -----------------------------
Print Name: Marion L. Klesser Name: Steve Davis
Title: SVP & CBO
/s/ Leon E. Losapio
- ----------------------------------------------------
Print Name: Leon E. Losapio
STATE OF CONNECTICUT )
) ss. Branford December 1, 2000
COUNTY OF NEW HAVEN )
On this 1st day of December, 2000, personally appeared Steve Davis, SVP &
CBO of Neurogen Corporation, a Delaware corporation, the sole member of Neurogen
Properties LLC, a Connecticut limited liability company, signer and sealer of
the foregoing instrument and acknowledged the same to be his/her free act and
deed, and the free act and deed of said corporation and said limited liability
company, before me.
/s/ Marion L. Klesser
--------------------------------------
Commissioner of the Superior Court
Notary Public
My Commission Expires: 10/31/04
[SEAL]
CONNECTICUT INNOVATIONS,
INCORPORATED
/s/ Richard R. Barredo By: /s/ Victor R. Budnick
- ----------------------------------- ---------------------------
Print Name: Richard R. Barredo Name: Victor R. Budnick
Title: President
/s/ Marshall S. Ruben
- -------------------------------------
Print Name: Marshall S. Ruben
STATE OF CONNECTICUT )
) ss. December 4, 2000
COUNTY OF HARTFORD )
On this 4th day of December, 2000, personally appeared Victor R. Budnick,
President & Executive Director of Connecticut Innovations, Incorporated, a
Connecticut corporation, signer and sealer of the foregoing instrument, and
acknowledged the same to be his/her free act and deed as such President &
Executive Director and the free act and deed of said corporation, before me.
/s/ Heidi J. Bieber
--------------------------------------
Commissioner of the Superior Court
Notary Public
My Commission Expires: 12/31/02
[SEAL]
EXHIBIT 10.37
CONSTRUCTION LOAN AGREEMENT
THIS CONSTRUCTION LOAN AGREEMENT (this "Agreement") is made as of this 22nd
day of October, 1999, by and between NEUROGEN PROPERTIES LLC ("Borrower"), a
Connecticut limited liability company with its principal place of business at 35
Northeast Industrial Road, Branford, Connecticut 06405 and CONNECTICUT
INNOVATIONS, INCORPORATED ("Lender"), a Connecticut corporation with an office
at 999 West Street, Rocky Hill, Connecticut 06067.
SECTION 1. CREDIT FACILITY
Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents (as herein defined), Lender agrees to make a loan (the "Loan") of up
to $5,000,000 available upon Borrower's request therefor as follows:
1.1 Loan.
1.1.1Loan. Lender agrees, for so long as no Event of Default exists, to
make loan disbursements to Borrower at the Loan closing and from time
to time through December 31, 2000 as requested by Borrower in the
manner set forth in Section 2.1 hereof, up to a maximum aggregate
principal amount of $5,000,000. At the closing, Lender will advance an
initial amount not to exceed $2,000,000 to be used for the acquisition
of the Property, including closing costs. After closing of the Loan,
Lender will advance funds for the design and construction of the
improvements to be made to the Building of up to an aggregate amount
which, together with the initial advance, shall not exceed $5,000,000,
as needed and as approved by Lender on the terms and conditions set
forth herein and in the Loan Documents. The Loan shall be evidenced by
a Promissory Note of even date herewith in the form of Exhibit A
attached hereto and made a part hereof (the "Note"). All advances
hereunder shall be Obligations which shall be repayable in accordance
with the terms of the Note and shall be secured by the Loan Documents.
Capitalized terms used herein and not defined shall have the meaning
therefor set forth in Appendix A hereto.
1.1.2Use of Proceeds. The Loan proceeds shall be used to fund the
acquisition, design, construction and related costs associated with
the reconstruction of approximately 10,000 square feet of space
located in the building located at 45 Northeast Industrial Road, in
the Town of Branford and State of Connecticut (the "Project").
SECTION 2. LOAN ADMINISTRATION
2.1 Manner of Borrowing Loan. Subject to Lender's full and complete
satisfaction that Borrower has fully complied with all conditions
precedent referenced herein, borrowings under the credit facility
established pursuant to Section 1.1 hereof shall be as follows:
2.1.1Loan Requests. Advances will be made by Lender within five (5)
business days after receipt of a request for a disbursement under
the Loan, provided Borrower has satisfied all conditions for
disbursement herein set forth. As an accommodation to Borrower,
Lender may permit telephonic requests for disbursements and
electronic transmittal of instructions, authorizations,
agreements or reports to Lender by Borrower's authorized
representatives. Unless Borrower specifically directs Lender in
writing not to accept or act upon telephonic or electronic
communications from Borrower, then, absent gross negligence or
willful misconduct by Lender, Lender shall have no liability to
Borrower for any loss or damage suffered by Borrower as a result
of Lender's honoring of any requests, execution of any
instructions, authorizations or agreements or reliance on any
reports communicated to it telephonically or electronically and
purporting to have been sent to Lender by Borrower and Lender
shall have no duty to verify the origin of any such communication
or the authority of the person sending it.
2.1.2Disbursement. Borrower hereby irrevocably authorizes Lender to
disburse the proceeds of each Loan disbursement as follows: the
proceeds of each Loan disbursement requested under subsection
2.1.1 shall be disbursed by Lender in lawful money of the United
States of America in immediately available funds, in the case of
the initial borrowing, in accordance with the terms of the
written disbursement letter from Borrower or Loan closing
statement, and in the case of each subsequent borrowing, by wire
transfer to Borrower's operating account.
2.1.3Timing of Disbursements. Disbursements shall not be made more
frequently than once per each calendar month. In addition, Lender
shall have no obligation to make disbursements hereunder at any
time after December 31, 2000.
2.1.4Requests for Disbursements. All disbursements of the Loan will
be made in accordance with the terms and conditions of this
Agreement and the Loan Documents and will be subject to the
following general conditions:
(a) The amount of each disbursement shall equal the cost of
construction work in place, plus the amount of other
non-construction costs, expenses and fees actually paid or
payable by the Borrower for approved costs as of the date of
the request for a disbursement, less amounts previously
disbursed under the Loan, as approved by Lender and Lender's
Consultant, whose reasonable, fair market rate fees shall be
paid by Borrower.
(b) Requests for disbursements shall be submitted by Borrower on
forms satisfactory to the Lender and Lender's Consultant and
shall generally consist of the following:
(i) a letter from the Borrower requesting the amount of the
particular disbursement and directing the Lender to
disburse such amount in accordance with the terms of
the Loan Documents;
(ii) certifications from the design architect and the
Lender's Consultant concerning such matters relating to
the Project as Lender may reasonably require;
(iii)certifications from the structural, mechanical and
electrical engineers concerning such matters relating
to the Project as Lender may reasonably require;
(iv) copies of invoices and other documents to support the
amount of non-construction cost items contained in the
request for disbursement.
(c) No disbursements shall be made for materials not yet
installed or incorporated into the Project; except that, on
a case-by-case basis, Lender may agree, in its discretion,
to disburse for such materials if (i) they are stored on the
Project or in a bonded warehouse, (ii) they are covered by
adequate insurance, (iii) they are adequately protected
against theft and damage, and (iv) Lender's Consultant
confirms the foregoing and recommends such disbursements.
(d) The final disbursement of the Loan shall not be made unless
and until Lender shall have received in addition to all
items referenced above:
(i) a certified statement of the Project architect
indicating that the Project has been completed in
accordance with the Plans and Specifications, as
approved by Lender (subject to change orders which, in
the aggregate, do not exceed $100,000.00);
(ii) full and complete lien subordinations from all persons
or entities supplying labor and/or material in
connection with the Project;
(iii) Lender's Consultant shall have approved such advance;
(iv) the Town of Branford, Connecticut, shall have issued a
final certificate of occupancy for the Project; and
(v) a cost certification shall be provided prior to final
disbursement of the Loan; said cost certification shall
be in form and substance acceptable to Lender.
2.1.5Application of Advances. Any advances which have been requested
hereunder may be paid by Lender to Borrower or, at Lender's option at
such time as any Event of Default exists hereunder or any state of
facts exists which, with notice or the passage of time or both, would
constitute an Event of Default if not cured or corrected, to the
contractors, materialmen, laborers and subcontractors engaged in the
construction work for the Project or to any other person intended to
be paid out of such advance. From the Loan proceeds Lender may, at its
option at such time as any Event of Default exists hereunder or any
state of fact exists which, with notice or the passage of time, or
both, would constitute an Event of Default if not cured or corrected,
pay assessments and taxes (whether delinquent or not), liens or claims
of liens against the Project or any part thereof, judgments entered or
levied against Borrower, fees with respect to the Loan, title
insurance premiums, and any other items necessary to place and
maintain the present lien position of all security for the Loan.
2.1.6Reserves of Loan Proceeds. Anything contained herein to the contrary
notwithstanding, Lender may at its option establish reserves from the
undisbursed portion of the Loan in such amounts which in Lender's sole
opinion are necessary to complete the Project and sufficient to pay or
satisfy, in whole or in part, (i) any lien or claim prejudicial to the
liens or security interests of Lender, and (ii) any expenditure or
allocation of funds shown on the Project Costs Budget. The aggregate
amount of any such reserves shall be deducted from the proceeds of the
Loan otherwise available for advance in accordance with this
Agreement, and any such reserved funds, when advanced by Lender, shall
be deemed to be proceeds of the Loan advanced under this Agreement,
whether or not advanced to Borrower.
SECTION 3. TERM AND TERMINATION
3.1 Term of Agreement. Subject to Lender's right to cease making advances
to Borrower upon the occurrence and during the continuance of any
Event of Default, this Agreement shall be in effect for a period of
time equal to the outstanding term of any Obligations, unless
terminated as provided in Section 3.2 hereof.
3.2 Termination.
3.2.1Termination by Lender. Lender may terminate this Agreement
without notice or demand after the occurrence and during the
continuance of an Event of Default.
3.2.2Effect of Termination. All of the Obligations shall be
immediately due and payable upon the termination date stated in
any notice of termination of this Agreement. All undertakings,
agreements, covenants, warranties and representations of Borrower
contained in the Loan Documents shall survive any such
termination and Lender shall retain its Liens in the Property and
all of its rights and remedies under the Loan Documents
notwithstanding such termination, until Borrower has paid the
Obligations to Lender, in full, in immediately available funds,
together with the applicable termination charge, if any.
SECTION 4. REPRESENTATIONS AND WARRANTIES
4.1 General Representations and Warranties. To induce Lender to enter into
this Agreement and to make advances hereunder, Borrower warrants,
represents and covenants to Lender that:
4.1.1Organization and Qualification. Borrower is a limited liability
company, duly organized, validly existing and in good standing
under the laws of the State of Connecticut. Borrower is duly
qualified and is authorized to do business and is in good
standing in each state or jurisdiction where the character of its
assets or the nature of its activities make such qualification
necessary.
4.1.2Power and Authority. Borrower is duly authorized and empowered
to enter into, execute, deliver and perform this Agreement and
each of the other Loan Documents to which it is a party. The
execution, delivery and performance of this Agreement and each of
the other Loan Documents have been duly authorized by all
necessary action and do not and will not (i) contravene
Borrower's organizational documentation; (ii) violate, or cause
Borrower to be in default under, any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree,
determination or award in effect having applicability to
Borrower; (iii) result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other
agreement, lease or instrument to which Borrower is a party or by
which it or its Properties may be bound or affected; or (iv)
result in, or require, the creation or imposition of any Lien
upon or with respect to any property now owned or hereafter
acquired by Borrower.
4.1.3Title to Properties; Priority of Liens. Borrower has good,
indefeasible and marketable title to and fee simple ownership of
all of the Property and all personal property located thereon,
free and clear of all Liens other than those contemplated by the
Loan Documents. Borrower has paid or discharged all lawful claims
which, if unpaid, might become a Lien against the Property other
than those contemplated by the Loan Documents.
4.1.4Financial Statements; Fiscal Year. Upon request by Lender,
Borrower and Guarantor, from time to time, shall furnish to
Lender such interim financial statements and other information as
Lender may require. Lender shall have the right, at all
reasonable times, upon reasonable advance notice, to inspect and
copy Borrower's books and records, and the books and records of
any manager retained by or on behalf of Borrower, with respect to
the Property. Borrower shall take all action necessary to make
such books and records available for such inspection and copying.
The fiscal year of Borrower ends on December 31 of each year.
4.1.5Material Adverse Change. There shall be no material adverse
change in the condition or operations, financial or otherwise of
Borrower, from that which existed on the date of the latest
financial statements submitted to Lender for the Borrower.
Without limiting the foregoing, there shall have been no material
misrepresentation or material omission in any of the information
provided to Lender by or on behalf of the Borrower with respect
to the Borrower's financial condition or the transaction
contemplated by this Agreement.
4.1.6Taxes. Borrower's federal tax identification number is
06-1557709. Borrower has filed all federal, state and local tax
returns and other reports it is required by law to file (or the
original due dates of filing for any of such returns have been
extended by extensions duly filed by Borrower and due to such
extensions such returns or reports are not yet due) and has paid,
or made provision for the payment of, all taxes, assessments,
fees, levies and other governmental charges upon it, its income
and Properties as and when such taxes, assessments, fees, levies
and charges that are due and payable, unless and to the extent
any thereof are being actively contested in good faith and by
appropriate proceedings and Borrower maintains reasonable
reserves on its books therefore. The provision for taxes on the
books of Borrower are adequate for all years not closed by
applicable statutes, and for its current fiscal year.
4.1.7Governmental Consents. Borrower has, and is in good standing
with respect to, all governmental consents, approvals, licenses,
authorizations, permits, certificates, inspections and franchises
necessary to continue to conduct its business as heretofore or
proposed to be conducted by it and to own or lease and operate
the Property.
4.1.8Litigation. There are no actions, suits, proceedings or
investigations pending, or to the knowledge of Borrower,
threatened, against or affecting Borrower, or the business,
operations, properties, prospects, profits or condition of
Borrower which are reasonably likely to have a material adverse
effect on Borrower, its financial condition or operations.
Borrower is not in default in any material respect with respect
to any order, writ, injunction, judgment, decree or rule of any
court, governmental authority or arbitration board or tribunal.
4.1.9No Defaults. No event has occurred and no condition exists which
would, upon or after the execution and delivery of this Agreement
or Borrower's performance hereunder, constitute a Default or an
Event of Default. Borrower is not in default, and no event has
occurred and no condition exists which constitutes, or which with
the passage of time or the giving of notice or both would
constitute, a default in the payment of any Indebtedness to any
Person for money borrowed, which default has or is reasonably
likely to have a material adverse effect on Borrower, its
financial condition or its operations.
4.2 Continuous Nature of Representations and Warranties. Each
representation and warranty contained in this Agreement and the other
Loan Documents shall be continuous in nature and shall remain
accurate, complete and not misleading at all times during the term of
this Agreement, except for changes (a) in the ordinary course of
business in the nature of Borrower's business or operations that would
render such representation and warranty either inaccurate, incomplete
or misleading, (b) as to which Lender has consented or (c) which are
expressly permitted by this Agreement or the other Loan Documents.
4.3 Survival of Representations and Warranties. All representations and
warranties of Borrower contained in this Agreement or any of the other
Loan Documents shall survive the execution, delivery and acceptance
thereof by Lender and the parties thereto and the closing of the
transactions described therein or related thereto.
SECTION 5. COVENANTS AND CONTINUING AGREEMENTS.
5.1 Affirmative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender,
Borrower covenants that, unless otherwise consented to by Lender in
writing, it shall:
5.1.1Notices. Promptly notify Lender in writing after Borrower becomes
aware or, with the exercise of reasonable diligence Borrower
should have been aware, of the occurrence of any event or the
existence of any fact which renders any representation or
warranty in this Agreement or any of the other Loan Documents
inaccurate, incomplete or misleading in any material respect.
5.1.2Financial Statements. Borrower shall deliver to Lender within
ninety (90) days of the close of each fiscal year its audited
financial statement along with copies of all federal, state and
local tax returns and all supporting schedules.
5.1.3Litigation. Borrower shall provide Lender with immediate written
notice of any actions, suits, proceedings or investigations
initiated against Borrower where the amount in controversy is in
excess of One Hundred Thousand Dollars ($100,000.00) and the
claim is not covered by insurance.
5.2 Negative Covenants. During the term of this Agreement, and thereafter
for so long as there are any Obligations to Lender, Borrower covenants
that, unless Lender has first consented thereto in writing, it will
not:
5.2.1Limitation on Liens. Create or suffer to exist, any Lien upon the
Property and all revenue generated from the Property, except:
(i) Liens at any time granted in favor of Lender;
(ii) Liens for taxes not yet due, or being contested in good
faith, but only if in Lender's reasonable judgment such Lien
does not adversely affect Lender's rights or the priority of
Lender's Lien in the Property;
(iii)Liens arising in the ordinary course of Borrower's business
by operation of law or regulation, but only if payment in
respect of any such Lien is not at the time required and
such Liens do not, in the aggregate, materially detract from
the value of the Property;
(iv) Liens permitted under Sections 4.02 and 4.03 of the
Mortgage; and
(v) Such other Liens as Lender may hereafter approve in writing.
5.3 Access to Project; Books and Records. Borrower will provide access to
all of its books and records relating to the Property as well as
access to the Property and all construction at any time during
business hours to Lender and its designees upon reasonable advance
notice. Borrower shall keep the books and accounts of all operations
relating to the Property and the use of the proceeds of the Loans at
its principal office in accordance with generally accepted accounting
principles. Borrower shall promptly respond to any inquiry from Lender
or any of its agents or employees for information with respect to the
Property or the use of the proceeds of the Loans, which information is
subject to verification by Lender; provided, however, that Lender
shall at all times be entitled to rely upon any statements or
representations made by Borrower or any representative thereof.
5.4 Consummation of Project. Borrower agrees that the construction of the
Project shall be pursued with diligence in accordance with the
construction schedule approved by Lender, without substantial
cessation of construction for any period in excess of ten (10)
consecutive days, unless a delay is approved in writing by Lender,
which approval shall not be unreasonably withheld, conditioned or
delayed; construction of the Project shall be fully completed not
later than December 31, 2000 or such earlier date as may be required
to comply with any permits or approvals for the development,
construction, use or occupancy of the Project (the "Completion Date").
All of said work shall be prosecuted with diligence and fully
completed substantially in accordance with the Plans and
Specifications, good building practice, all applicable laws,
ordinances, rules, regulations and requirements of governmental
authority, all applicable agreements and restrictions and the terms
and conditions hereof.
5.5 Change Orders and Alterations. Borrower will maintain the Construction
and Supply Contracts (defined below) to which Borrower is a party, or
substitutes therefor, in full force and effect throughout the term
hereof. Copies of all changes made in the Plans and Specifications or
any of the Construction and Supply Contracts for the Project (by
change order, or otherwise) shall be promptly sent to Lender and no
change shall be made without Lender's prior written consent, which
consent shall not be unreasonably withheld, conditioned or delayed,
other than change orders which in the aggregate do not exceed
$100,000. Copies of all change orders shall be submitted to Lender
with each monthly request for disbursement, if not otherwise furnished
to Lender.
5.6 Insurance; Bonds.
(a) The Borrower will obtain and maintain insurance with respect to
the Project as required by the Loan Documents. Borrower also will
maintain with respect to its other properties business insurance
with financially sound and reputable insurers against such
casualties and contingencies as shall be in accordance with the
general practices and businesses engaged in similar activities in
similar geographic areas and in amounts, containing such terms,
in such forms and for such periods as may be reasonable and
prudent.
(b) The Borrower will require the general contractor on the Project
to obtain and maintain at all times during the construction of
the Project the insurance required by the Construction and Supply
Contracts and such other insurance as may be reasonably required
by the Lender (including, without limitation, commercial general
liability insurance, comprehensive automobile liability
insurance, all risk contractors equipment floater insurance,
worker's compensation insurance and employer liability
insurance), all such insurance to be assignable to Lender upon an
Event of Default hereunder or under the Mortgage and in such
amounts and form, and to include such coverage and endorsements,
and to be issued by such insurers all as shall be approved by the
Lender, and to contain the written agreement of the insurer to
give Lender thirty (30) days prior written notice of
cancellation, nonrenewal, modification or expiration (10 days'
notice for non-payment of premium). The Borrower will provide or
will cause the general contractor to provide the Lender with
certificates evidencing such insurance upon the request of the
Lender.
(c) The Borrower will require the general contractor to obtain and
maintain at all times during the construction of the Project a
payment and performance bond (the "Bond"), which Bond shall be
issued by a bonding company satisfactory to Lender and shall be
assigned to Lender. The Borrower will provide or will cause the
general contractor to provide the Lender with certificates
evidencing such Bond and assignment.
SECTION 6. CONDITIONS PRECEDENT TO FUTURE ADVANCES
Notwithstanding any other provision of this Agreement or any of the other
Loan Documents, and without affecting in any manner the rights of Lender under
the other sections of this Agreement, Lender shall not be required to make any
further advance of the Loan under this Agreement other than the initial advance
for the acquisition of the Property unless and until each of the following
conditions has been satisfied.
6.1 Construction and Supply Contracts. Lender shall receive copies of (i)
a guaranteed maximum price general construction contract in form and
substance reasonably satisfactory to Lender for all of the
construction on the Property, and (ii) any and all agreements then in
effect between Borrower and the general contractor, architects,
engineers, construction manager, contractors and suppliers of
construction materials, fixtures, equipment or other items to be used
in connection with the completion of the Project, or any part thereof
(the foregoing guaranteed maximum price general construction contract
and all other agreements being herein collectively referred to as the
"Construction and Supply Contracts," the aforesaid persons being
herein collectively referred to as the "Contractors").
6.2 Continuation Agreements. Each of the Contractors shall enter into
agreements with Lender whereby such parties agree to provide services
to Lender pursuant to the contracts subject to the Collateral
Assignment of even date herewith, after an Event of Default under any
of the Loan Documents.
6.3 Subordination Agreements. Agreements from the Contractors satisfactory
to Lender whereunder the parties executing such agreements expressly
and fully subordinate to the lien of Lender's Mortgage any and all
lien rights (including rights of removal) which they have or may have
against the Project or any part thereof.
6.4 Plans and Specifications. Lender shall have received, and shall have
approved (which approval shall not be unreasonably withheld,
conditioned or delayed), or the Borrower shall have caused the same to
be modified as reasonably required by Lender, the final plans and
specifications of the Project, together with certificates from the
architects and engineers preparing or contributing to such plans and
specifications verifying the identify of such plans and specifications
and their conformity to applicable laws, codes and regulations
(collectively, the "Plans and Specifications").
6.5 Governmental Permits, Approvals and Licenses; Utilities. Lender shall
have received, and shall have approved (which approval shall not be
unreasonably withheld, conditioned or delayed), or the Borrower shall
have caused the same to be modified as required by Lender, copies of
all licenses, permits and approvals (including, without limitation, a
building permit) from appropriate governmental or regulatory body
claiming jurisdiction, which are or shall be required for the
construction and development of the Project or any parts thereof,
together with evidence satisfactory to Lender, of the availability of
all utility services required for the construction, development, use,
operation or occupancy of each of the Project or any part thereof.
6.6 Project Costs Budget, Cash Flow Analysis and Construction Schedule.
Upon reasonable request of Lender, (i) a detailed cost breakdown (as
amended in accordance with this Agreement from time to time, herein
called the "Project Costs Budget"), in form and substance satisfactory
to Lender, specifying all costs of construction, fixturing, equipping
and developing the Project ("Project Costs") required to complete the
development of the Project (including all soft costs) and the sources
of all funds to pay such costs and expenses; (ii) a detailed
construction schedule in form and substance satisfactory to Lender,
showing a trade-by-trade breakdown of the estimated periods of
commencement and completion of the construction of the Project; and
(iii) a detailed cash flow analysis showing the periodic sources and
applications of funds to various cost categories of the Project during
the construction phase of the Loan.
6.7 Evidence of Bond. Lender shall have received and shall have approved a
copy of the Bond posted by the general contractor as provided in
Section 5.6(c). Lender shall also have received a fully executed
assignment of the Bond to Lender in a form satisfactory to Lender.
6.8 Compliance with Laws and Restrictions. Borrower shall furnish to
Lender evidence that all applicable zoning, environmental, building,
subdivision and other ordinances, laws, rules, regulations,
restrictive covenants, easements, rights-of-way and any other matters
affecting the Project permit the use for which the Project is intended
and will not be violated by development of the Project.
6.9 No Litigation. No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before
any court, governmental agency or legislative body to enjoin, restrain
or prohibit, or to obtain damages in respect of, or which is related
to or arises out of this Agreement or the consummation of the
transactions contemplated hereby.
SECTION 7. EVENTS OF DEFAULT: RIGHTS AND REMEDIES ON DEFAULT
7.1 Events of Default. The occurrence of one or more of the following
events, which has not been cured prior to expiration of any grace
periods provided for in the Mortgage, along with all Events of Default
described in the Mortgage shall constitute an "Event of Default"
hereunder:
7.1.1Breach of Covenants. Borrower shall fail or neglect to perform,
keep or observe any covenant contained in this Agreement within
thirty (30 ) days after notification from Lender or such longer
period of time as may be reasonably requested, provided that
Borrower is utilizing consistent, best efforts to cure such
default.
7.1.2Uninsured Losses. Any material loss, theft, damage or
destruction of any of the Collateral not fully covered (subject
to such deductibles as Lender shall have permitted) by insurance,
unless Borrower evidences to Lender's reasonable satisfaction
sufficient funds to cover repair of such uninsured damage.
7.1.3Business Disruption, Condemnation. There shall occur a cessation
of a substantial part of the business of Borrower for a period
which significantly affects Borrower's capacity to continue any
material part of its business, on a profitable basis; or Borrower
shall suffer the loss or revocation of any license or permit now
held or hereafter acquired by Borrower which is necessary to the
continued or lawful operation of its business; or Borrower shall
be enjoined, restrained or in any way prevented by court,
governmental or administrative order from conducting all or any
material part of its business affairs; or any material lease or
agreement pursuant to which Borrower leases space at the Property
shall be canceled or terminated prior to the expiration of its
stated term as a result of a default thereunder by Borrower; or
any part of the Property shall be taken through condemnation or
the value of the Property shall be impaired through condemnation,
which taking or impairment prevents Borrower from conducting all
or any material part of its business affairs.
Notwithstanding anything contained herein, any inconsistency in the
provisions outlined in this Section 7 and the Mortgage shall be
resolved in favor of the provisions outlined in the Mortgage.
7.2 Acceleration of the Obligations. Upon the occurrence and during the
continuance of an Event of Default hereunder, all or any portion of
the Obligations shall, at the option of Lender and without
presentment, demand, protest or further notice by Lender, be declared
at once and shall thereupon become due and payable and Borrower shall
forthwith pay to Lender, the full amount of such Obligations.
7.3 Remedies Cumulative, No Waiver. All covenants, conditions, provisions,
warranties, guaranties, indemnities, and other undertakings of
Borrower contained in this Agreement, the Mortgage and the other Loan
Documents, or in any document referred to herein or contained in any
agreement supplementary hereto or in any schedule, heretofore,
concurrently, or hereafter entered into, shall be deemed cumulative to
and not in derogation or substitution of any of the terms, covenants,
conditions, or agreements of Borrower herein contained. The failure or
delay of Lender to require strict performance by Borrower of any
provision of this Agreement or to exercise or enforce any rights,
Liens, powers, or remedies hereunder or under any of the aforesaid
agreements or other documents shall not operate as a waiver of such
performance, Liens, rights, powers and remedies, but all such
requirements, Liens, rights, powers, and remedies shall continue in
full force and effect until all Loans and all other Obligations owing
or to become owing from Borrower to Lender shall have been fully
satisfied. None of the undertakings, agreements, warranties, covenants
and representations of Borrower contained in this Agreement, the
Mortgage or any of the other Loan Documents and no Event of Default by
Borrower under this Agreement, the Mortgage or any other Loan
Documents shall be deemed to have been suspended or waived by Lender,
unless such suspension or waiver is by an instrument in writing
specifying such suspension or waiver and is signed by a duly
authorized representative of Lender and directed to Borrower.
SECTION 8. MISCELLANEOUS
8.1 Indemnity. Borrower hereby agrees that, absent gross negligence or
willful misconduct by Lender, to indemnify Lender and hold Lender
harmless from and against any liability, loss, damage, suit, action or
proceeding ever suffered or incurred by Lender (including reasonable
attorneys fees and legal expenses) as the result of any claim from any
Person for any brokers, finders or similar fee arising out of the
execution, delivery or performance of this Agreement (excluding that
of Sun Consulting). Notwithstanding any contrary provision in this
Agreement, the obligation of Borrower under this Section 8.1 shall
survive the payment in full of the Obligations and the termination of
this Agreement.
8.2 Modification of Agreement; Sale of Interest. This Agreement may not be
modified, altered or amended, except by an agreement in writing signed
by Borrower and Lender. Borrower may not sell, assign or transfer, by
operation of law or otherwise, any interest in this Agreement, any of
the other Loan Documents, or any of the Obligations, or any portion
thereof, including, without limitation, Borrower's rights, title,
interests, remedies, powers, and duties hereunder or thereunder.
8.3 Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining
provisions of this Agreement.
8.4 Successors and Assigns. This Agreement, the Other Agreements and the
Security Documents shall be binding upon and inure to the benefit of
the successors and assigns of Borrower and Lender.
8.5 Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which counterparts taken together
shall constitute but one and the same instrument.
8.6 Notice. Except as otherwise provided herein, all notices, requests and
demands to or upon a party hereto, to be effective, shall be in
writing and shall be sent by certified or registered mail, return
receipt requested, by personal delivery against receipt, by overnight
courier or by facsimile and, unless otherwise expressly provided
herein, shall be deemed to have been validly served, given or
delivered immediately when delivered against receipt, one Business Day
after deposit in the mail, postage prepaid, or with an overnight
courier or. in the case of facsimile notice, when confirmed, addressed
as follows:
If to Lender: Connecticut Innovations, Inc.
999 West Street
Rocky Hill, Connecticut 06067
Attention: Carolyn Kahn, Phd
Facsimile No. (860) 563-4877
With a copy to: Marshall S. Ruben, Esq.
Ruben, Johnson & Morgan, P.C.
CityPlace II
185 Asylum Street
Hartford, CT 06103
Facsimile No. (860) 275-6884
If to Borrower: Neurogen Properties, LLC
35 Northeast Industrial Road
Branford, Connecticut 06405
Attention: General Counsel
Facsimile No. (203) 481-8683
With a copy to: Rosemary Ayers, Esq.
Day, Berry & Howard
CityPlace
185 Asylum Street
Hartford, Connecticut 06103
Facsimile No. (860) 275-0343
or to such other address as each party may designate for itself by
notice given in accordance with this Section 8.6.
8.7 Time of Essence. Time is of the essence of this Agreement, the Other
Agreements and the Security Documents with respect only to advances
and payments under the Note.
8.8 Entire Agreement. This Agreement, the Commitment Letter and the other
Loan Documents, together with all other instruments, agreements and
certificates executed by the parties in connection therewith or with
reference thereto, embody the entire understanding and agreement
between the parties hereto and thereto with respect to the subject
matter hereof and thereof and supersede all prior agreements,
understandings and inducements, whether express or implied, oral or
written.
8.9 Interpretation. No provision of this Agreement or any of the other
Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or
judicial authority by reason of such party having or being deemed to
have structured or dictated such provision.
8.10 Confidentiality. Lender agrees, on behalf of itself and each of its
affiliates, directors, officers, employees and representatives, to use
reasonable precautions to keep confidential any non-public information
supplied to it by the Borrower or Guarantor or disclosed during
Lender's inspections; provided that nothing herein shall limit the
disclosure of any such information (a) after such information shall
have become public other than through a violation of this Section
8.10, (b) to the extent required by statute, rule, regulation or
judicial process, (c) to any assignee or participant (or prospective
assignee or participant) so long as such assignee or participant (or
prospective assignee or participant) agrees to be bound by the
provisions hereof.
8.11 GOVERNING LAW: CONSENT TO FORUM. THIS AGREEMENT HAS BEEN NEGOTIATED,
EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN
HARTFORD, CONNECTICUT. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CONNECTICUT;
BORROWER HEREBY CONSENTS AND AGREES THAT, AT LENDER'S OPTION, THE
SUPERIOR COURT OF CONNECTICUT (JUDICIAL DISTRICT OF HARTFORD AT
HARTFORD) OR, AT LENDER'S OPTION, THE UNITED STATES DISTRICT COURT FOR
THE DISTRICT OF CONNECTICUT, SHALL HAVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER
PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR
RELATED TO THIS AGREEMENT. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY
SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH BORROWER
MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL
OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. NOTHING IN
THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF
LENDER TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW, OR TO
PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER OBTAINED
IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO
ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
8.12 WAIVERS BY BORROWER. BORROWER WAIVES (i) THE RIGHT TO TRIAL BY JURY
(WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN
DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL; (ii) PRESENTMENT, DEMAND
AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NONPAYMENT,
MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY
OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS,
INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY LENDER
ON WHICH BORROWER MAY IN ANY WAY BE LIABLE; (iii) NOTICE PRIOR TO
TAKING POSSESSION OR CONTROL OF THE COLLATERAL PRIOR TO ALLOWING
LENDER TO EXERCISE ANY OF LENDER'S REMEDIES; (iv) THE BENEFIT OF ALL
EXEMPTION LAWS; AND (v) NOTICE OF ACCEPTANCE HEREOF. BORROWER
ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO
LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING UPON
THE FOREGOING WAIVERS IN ITS FURTUER DEALINGS WITH BORROWER. BORROWER
WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS
WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY VOLUNTARILY WAIVED ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT
OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
8.13 NC Equipment. By acceptance of this Construction Loan Agreement,
Lender (a) acknowledges that Neurogen Corporation intends to occupy
the Project and may now or hereafter locate within the Project
machinery, appliances, equipment, apparatus, furnishings, trade
fixtures and other personal property owned by Neurogen Corporation
and/or one or more subsidiaries other than Mortgagor (collectively,
"NC's Equipment"), (b) acknowledges that any security interest or lien
granted by Borrower under this Agreement does not cover any right,
title or interest in NC's Equipment, and (c) hereby waives any claim,
lien or security interest in or against any of NC's Equipment, whether
now or hereafter located on the Property. Lender agrees to provide an
estoppel certificate and waiver of lien confirming that it has no
interest in any of NC's Equipment upon the request of Borrower.
Notwithstanding the foregoing, Neurogen Corporation acknowledges and
agrees that it will, in a timely manner and its sole expense, repair
any and all damage caused to the Property as a result of the removal
of NC's Equipment from the Property.
IN WITNESS WHEREOF, this Agreement has been duly executed in Branford,
Connecticut, on the day and year specified at the beginning of this Agreement.
NEUROGEN PROPERTIES LLC
By: Neurogen Corporation
Its Sole Member
By: /s/ Stephen R. Davis
--------------------------------
Stephen R. Davis
Its Vice President-Finance
CONNECTICUT INNOVATIONS, INC.
By: /s/ Victor Budnick
--------------------------------
Victor Budnick
Its President & Executive
Director
APPENDIX A
GENERAL DEFINITIONS
When used in the Loan Agreement dated as of October 22, 1999, by and
between Neurogen Properties LLC and Connecticut Innovations, Inc., the following
terms shall have the following meanings (terms defined in the singular to have
the same meaning when used in the plural and vice versa):
Agreement - the Loan Agreement referred to in the first sentence of this
Appendix A, all Exhibits thereto and this Appendix A.
Business Day - shall mean any day on which commercial banks are open for
business in Hartford, Connecticut.
Code - the Uniform Commercial Code as adopted and in force in the State of
Connecticut, as from time to time in effect.
Collateral - all of the Property and interests in Property described in
Section 5 of the Agreement and the Mortgage, and all other property and
interests in property that now or hereafter secure the payment and performance
of any of the Obligations.
Default - an event or condition the occurrence of which would, with the
lapse of time or the giving of notice, or both, become an Event of Default.
Environmental Laws - all federal, state and local laws, rules, regulations,
ordinances, programs, permits, guidances, orders and consent decrees relating to
health, safety and environmental matters.
Event of Default - as defined in Section 7.1 of the Agreement.
Lender's Consultant means those third-party consultants hired by Lender as
it deems necessary, the reasonable costs of which shall be paid by Borrower, to
provide the services for the benefit of the Lender, including the following:
(i) Review and approve preliminary and final plans and specifications for
Project;
(ii) Review and approve preliminary and final construction cost breakdown
and construction schedule for the Project;
(iii)Conduct monthly compliance inspections with respect to the progress
of construction of the Project and approve each element of a request
for disbursement relating to construction costs; and
(iv) Perform such other services as may, from time to time, be reasonably
required by the Lender.
Lien - any interest in property securing an obligation owed to, or a claim
by, a Person other than the owner of the property, whether such interest is
based on common law, statute or contract. The term "Lien" shall also include
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting property which individually or in the aggregate have a material
adverse effect upon the value of such property or Borrower's use and enjoyment
thereof. For the purpose of the Agreement, Borrower shall be deemed to be the
owner of any property which it has acquired or holds subject to a conditional
sale agreement or other arrangement pursuant to which title to the property has
been retained by or vested in some other Person for security purposes.
Loan Documents - the Agreement, the Other Agreements and the Security
Documents.
Loans - all loans and advances of any kind made by Lender pursuant to the
Agreement.
Obligations - all Loans and all other advances, debts, liabilities,
obligations, covenants and duties, together with all interest, fees and other
charges thereon, owing, arising, due or payable from Borrower to Lender of any
kind or nature, present or future, whether or not evidenced by any note,
guaranty or other instrument, arising under this Agreement or any of the other
Loan Documents, whether direct or indirect (including those acquired by
assignment), absolute or contingent, primary or secondary, due or to become due,
now existing or hereafter arising and however acquired.
Other Agreements - any and all agreements, instruments and documents (other
than the Agreement and the Security Documents), heretofore, now or hereafter
executed by Borrower, any subsidiary of Borrower or any other third party and
delivered to Lender in respect of the transactions contemplated by the
Agreement.
Person - an individual, partnership, corporation, limited liability
company, joint stock company, land trust, business trust, or unincorporated
organization, or a government or agency or political subdivision thereof.
Property - all real property, together with improvements thereon, located
at 45 Northeast Industrial Road, Branford, Connecticut.
Security Documents - all instruments and agreements (other than the
Agreement) now or at any time hereafter securing the whole or any part of the
Obligations.
Other Terms. All other terms contained in the Agreement shall have, when
the context so indicates, the meanings provided for by the Code to the extent
the same are used or defined therein.
Certain Matters of Construction. The terms "herein," "hereof," and
"hereunder" and other words of similar import refer to the Agreement as a whole
and not to any particular section, paragraph or subdivision. Any pronoun used
shall be deemed to cover all genders. The section titles, table of contents and
list of exhibits appear as a matter of convenience only and shall not affect the
interpretation of the Agreement. All references to statutes and related
regulations shall include any amendments of same and any successor statutes and
regulations. All references to any of the Loan Documents shall include any and
all modifications thereto and any and all extensions or renewals thereof.
EXHIBIT A
PROMISSORY NOTE
October 22, 1999
$5,000,000.00
Hartford, Connecticut
FOR VALUE RECEIVED, NEUROGEN PROPERTIES LLC, a Connecticut limited
liability company having an address at 35 Northeast Industrial Road, Branford,
Connecticut 06405 ("Maker"), hereby promises to pay to the order of CONNECTICUT
INNOVATIONS, INCORPORATED ("Payee") at the offices of the Payee at 999 West
Street, Rocky Hill, Connecticut 06067 or such other address as the Payee shall
designate in a written notice to Maker, the amount of FIVE MILLION AND
NO/DOLLARS ($5,000,000.00) or so much thereof as may be advanced by the Payee to
the Maker in accordance with that certain Construction Loan Agreement of even
date herewith by and between Payee and Maker (the "Loan Agreement"), with
interest thereon payable in arrears at fixed rate of interest of seven and
one-half per cent (7.5%) per annum (the "Interest Rate"), together with: (i) all
amounts which may become due under the Mortgage (as hereinafter defined), the
Loan Agreement, or under any other document evidencing, securing or otherwise
executed in connection with the indebtedness evidenced by this Promissory Note
(this "Note") (the "Loan Documents"); (ii) any costs and expenses, including
attorney's and appraiser's fees, incurred in the collection of this Note, or in
the foreclosure of the Mortgage, or in protecting or sustaining the lien of the
Mortgage, or in any litigation or controversy arising from or connected with the
Loan Documents; and (iii) all taxes or duties assessed upon said sum against the
holder hereof, upon the debt evidenced hereby or by the Mortgage and upon the
Mortgaged Property (as herein defined).
Payments of interest only, payable in arrears and at the Interest Rate on
all sums outstanding, shall be due and payable on the first day of each calendar
month commencing on December 1, 1999 through and including the Conversion Date
(as such term is defined below). Commencing with the first day of the calendar
month commencing immediately after the Conversion Date, principal and interest
due hereunder shall be payable in a series of one hundred eighty (180) equal
monthly payments continuing to be due on the first day of every calendar month
thereafter until the balance of the Loan is fully paid, each such payment to be
applied first to interest and the balance to principal, in an amount calculated
to fully amortize the Loan to a zero balance when the one hundred eightieth
(180th) such equal payment is made.
The Conversion Date shall be the earlier of: (a) the date of substantial
completion of construction of the Project (as defined in the Loan Agreement) and
the full advancement of all sums due to Maker pursuant to the Loan Agreement; or
(b) December 31, 2000.
The balance of principal and all interest thereon and other sums due
hereunder shall be paid in full on that date when the one hundred eightieth
(180th) amortizing payment is due hereunder (the "Maturity Date"). All amounts
owing under this Note shall be payable in legal tender of the United States of
America.
Interest shall be calculated on the daily unpaid principal balance of the
indebtedness evidenced by this Note based on a 360-day year, provided that
interest shall be due for the actual number of days elapsed during each period
for which interest is being charged.
If any of the following events shall occur:
1. if Maker shall fail to pay any installment of principal or interest
within ten (10) days after the due date thereof; or
2. if any Event of Default shall occur under the Loan Agreement, the
Mortgage or any other Loan Document;
then, and in every such event (an "Event of Default"), the holder of this Note
may, by notice to Maker, declare this Note and all accrued but unpaid interest
thereon to be forthwith due and payable, whereupon this Note and all such
interest and all such amounts shall become and be immediately due and payable.
No remedy herein conferred upon the Payee or the holder of this Note is intended
to be exclusive of any other remedy and each and every remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute or any other provision
of law.
If any amount payable under this Note is not paid within ten (10) days
after its due date Maker shall pay to the holder on demand an amount equal to
five percent (5%) of such unpaid amount which the Maker acknowledges to be a
reasonable late charge to compensate the holder for the administrative costs of
dealing with such late payment and for its loss of use of such funds.
Upon the occurrence of an Event of Default or after the Maturity Date,
whether by stated maturity or acceleration, the interest rate of this Note shall
increase, at holder's option, to a default rate equal to the otherwise
applicable interest rate hereunder plus four percent (4%) per annum (the
"Default Rate"), payable in accordance with the terms hereof.
Nothing contained in this Note or the instruments securing this Note shall
be deemed to establish or require the payment of a rate of interest in excess of
the amount legally enforceable. In the event that the rate of interest so
required to be paid exceeds the maximum rate legally enforceable, the rate of
interest so required to be paid shall be automatically reduced to the maximum
rate legally enforceable, and any excess paid over such maximum enforceable rate
shall be automatically credited on account of the principal hereof without
premium or penalty.
This Note and the indebtedness evidenced hereby (the "Loan") is secured by
an Open-End Construction Mortgage Deed and Security Agreement (the "Mortgage")
from Maker, as mortgagor, to Payee, as mortgagee, and certain other collateral
security documentation. The Mortgage constitutes a lien on certain real and
personal property, more particularly described therein, located in Branford,
Connecticut (the "Mortgaged Property").
Maker shall have the right to prepay the indebtedness evidenced by this
Note, in whole or in part, at any time during the term of the Loan without any
prepayment penalty. Any prepayments permitted hereunder shall be applied to
interest and other charges accrued under this Note to the day prepayment shall
have been received by Payee and then to principal, in the inverse order of the
installments of principal payable under this Note.
Notices to Maker shall be deemed given when delivered in accordance with
the notice provisions of the Loan Agreement and/or the Mortgage. Every maker,
endorser and guarantor of this Note or the obligation represented hereby waives
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note, assents to any extension or postponement of the time of payment or
any other indulgence, to any substitution, exchange or release of collateral and
to the addition or release of any other party or person primarily or secondarily
liable.
Maker acknowledges that Payee may (a) fund the Loan through an affiliate,
(b) sell or transfer interests in the Loan and the Loan Documents to one or more
participants or special purpose entities, (c) pledge Payee's interests in the
Loan and the Loan Documents as security for one or more loans obtained by Payee,
and/or (d) sell or transfer Payee's interests in the Loan and the Loan Documents
in connection with a securitization transaction, in each case at no cost to
Maker, and that all documentation, financial statements, appraisals, reports and
other data, or copies thereof, related to any loan application or commitment,
Maker, any guarantor of the Loan, the Mortgaged Property, and/or the Loan, may
be exhibited to and reviewed by any party that is reviewing the Loan for the
purposes of purchasing, valuing, rating or servicing the Loan. Upon any transfer
or proposed transfer contemplated above and by the Loan Documents, at Payee's
request, Maker shall provide an estoppel certificate to the reviewing party or
parties in such form, substance and detail as Payee or the reviewing party or
parties may reasonably require.
MAKER AND EACH ENDORSER, GUARANTOR AND SURETY OF THIS NOTE, IF ANY, AND
EACH OTHER PERSON LIABLE OR WHO SHALL BECOME LIABLE FOR ALL OR ANY PART OF THE
INDEBTEDNESS EVIDENCED BY THIS NOTE, HEREBY ACKNOWLEDGE THAT THE TRANSACTION OF
WHICH THIS NOTE IS A PART IS A COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED
UNDER CONNECTICUT GENERAL STATUTES SECTIONS 52-278a TO 52-278n, INCLUSIVE, OR BY
OTHER APPLICABLE LAW, HEREBY WAIVE THEIR RIGHT TO NOTICE AND HEARING WITH
RESPECT TO ANY PREJUDGMENT REMEDY WHICH PAYEE OR ITS SUCCESSORS OR ASSIGNS MAY
DESIRE TO USE, AND TO A JURY TRIAL IN CONNECTION WITH ANY ENFORCEMENT OF THE
INDEBTEDNESS EVIDENCED BY THIS NOTE.
The Payee or any subsequent holder of this Note from time to time shall
have the right to declare due and payable all sums outstanding under this Note
after one hundred eighty (180) days prior written notice to Maker in the event
that Neurogen Corporation, an affiliate of Maker and a guarantor of the
indebtedness evidenced by this Note, achieves four (4) consecutive calendar
quarters where Neurogen Corporation revenues from the sale of drugs (royalties,
profit sharing, direct sales, etc.) exceed Neurogen Corporation's operating
expenses.
This Note, without regard to the place of execution, delivery or payment,
shall be construed and enforced according to and governed by the laws of the
State of Connecticut.
IN WITNESS WHEREOF, the undersigned has executed this Promissory Note as of
the 22nd day of October, 1999.
NEUROGEN PROPERTIES LLC
BY: NEUROGEN CORPORATION
Its Sole Member
By: /s/ Steve Davis
--------------------------------
Name: Stephen R. Davis
Its Vice President-Finance
EXHIBIT 10.38
COMMERCIAL TERM NOTE
$17,500,000.00 December 21, 2001
FOR VALUE RECEIVED, the undersigned, Neurogen Corporation, a Delaware
corporation (hereinafter sometimes referred to individually and/or collectively
as "Maker" or "Borrower") promises to pay to the order of WEBSTER BANK
(hereinafter sometimes referred to as "Holder" or "Bank"), a federally chartered
savings bank, organized and existing under the laws of the United States of
America, its successors and assigns, at its office at 145 Bank Street,
Waterbury, Connecticut, or at such other place as the Holder hereof may
designate in writing, the principal sum of Seventeen Million Five Hundred
Thousand ($17,500,000.00) DOLLARS, together with interest thereon as set forth
below The Maker shall also pay all taxes levied or assessed upon said sum
against said payee or the Holder of this Note.
The Maker shall use the proceeds of each and every advance made hereunder
for commercial purposes, provided that no part of such proceeds will be used, in
whole or in part, for the purpose of (i) acquiring any consumer or household
goods or (ii) purchasing or carrying any "margin security" as such term is
defined in Regulation U of the Board of Governors of the Federal Reserve System
or (iii) acquiring substantially all of the stock or assets of any other firm,
corporation or entity.
In addition to the forgoing, this Note has been executed subject to the
following terms and conditions:
(1) Repayment.
(a) Repayment Schedule. The unpaid principal amount of this Note shall be
repayable as follows: One Hundred Nineteen (119) monthly payments of
principal due and payable on the last day of each and every Interest
Period (as hereinafter defined), in the amount of $97,222.22, with a
final payment of all remaining principal due and payable on December
21, 2011 (the "Maturity Date"). If not sooner paid, the entire
principal balance hereof and all interest hereon shall be due and
payable on the Maturity Date. All amounts owing under this Note and
interest thereon shall be payable in legal tender of the United States
of America. Without waiving its right of setoff, the Bank is
authorized, but not required, to charge any payment due hereunder to
the Borrower's primary disbursement account at the Bank.
(b) Evidence of Debt. The Bank will enter an appropriate notation on its
books and records evidencing the interest rate applicable to the
outstanding balance hereof, each repayment on account of the principal
thereof, and the amount of interest paid. The Borrower agrees that, in
the absence of manifest error, the books and records of the Bank shall
constitute prima facie evidence of the amount owing to the Bank
pursuant to this Note.
(2) Interest Rates, Payment of Interest. So long as no Event of Default exists,
the outstanding principal balance hereunder shall bear interest at a rate
per annum equal to the LIBOR Rate (as hereinafter defined) plus 250 basis
points for an Interest Period of one (1) month. Interest shall be payable
on the last day of each Interest Period. All computations of interest due
under this Note shall be made on the basis of a 365-day year and the actual
days elapsed.
(3) Additional Charges.
(a) Additional Payments. If the Bank shall deem applicable to this Note,
any requirement of any law of the United States of America, any
regulation, order, interpretation, ruling, official directive or
guideline (whether or not having the force of law) of the Board of
Governors of the Federal Reserve System, the Comptroller of the
Currency, the Federal Deposit Insurance Corporation or any other board
or governmental or administrative agency of the United States of
America which shall impose, increase, modify or make applicable
thereto or cause to be included in, any reserve, special deposit,
calculation used in the computation of regulatory capital standards,
assessment or other requirement which imposes on the Bank any cost
that is attributable to the maintenance hereof, then, and in each such
event, the Bank shall notify the Borrower thereof and the Borrower
shall pay the Bank, within 30 days of receipt of such notice, such
amount as will compensate the Bank for any such cost, which
determination may be based upon the Bank's reasonable allocation of
the aggregate of such costs resulting from such events. In the event
any such cost is a continuing cost, a fee payable to the Bank may be
imposed upon the Borrower periodically for so long as any such cost is
deemed applicable to the Bank, in an amount determined by the Bank to
be necessary to compensate the Bank for any such cost. The
determination by any Bank of the existence and amount of any such cost
shall, in the absence of manifest error, be conclusive.
(b) Indemnity. The Borrower agrees to indemnify the Bank and to hold the
Bank harmless from any loss or expense (including, without limitation,
any lost profit) that it may sustain or incur as a consequence of any
prepayment (whether optional or mandatory) of principal or interest
prior to the expiration of an Interest Period, including, but not
limited to, any loss or profit or any interest payable by the Bank to
lenders of funds obtained by it in order to make or maintain the Loan
hereunder based on the LIBOR Rate.
(c) Late Charge. The Borrower shall pay a "late charge" equal to five (5%)
percent of any installment of principal or interest, or of any other
amount due to the Bank which is not paid within ten (10) days of the
due date thereof to defray the extra expense involved in handling such
delinquent payment. The minimum late charge shall be $50.00.
(d) Default Rate. If payment is not made within ten days after the due
date thereof or after acceleration hereunder, Borrower further
promises to pay to Bank interest on the unpaid balance at the variable
rate equal to the rate listed in the Wall Street Journal as the prime
rate (the "Prime Rate") plus four (4) percentage points per annum from
such date until such payment default is cured or payment in full in
the case of acceleration (whether before or after judgment has been
rendered with respect hereto) which amounts shall each become an
additional part of the unpaid balance.
(e) Expenses. Borrower further promises to pay to the Bank, as incurred,
and as an additional part of the unpaid principal balance, all
reasonable costs, expenses and reasonable attorneys' fees incurred (i)
in the preparation (limited to $10,000.00 in the case of preparation,
calculated from the date of acceptance of the commitment letter for
the loan evidenced hereby), protection, modification, collection,
defense or enforcement of all or part of this Note or any guaranty
hereof, or (ii) in the foreclosure or enforcement of any mortgage or
security interest which may now or hereafter secure either the debt
hereunder or any guaranty thereof, or (iii) with respect to any action
taken to protect, defend, modify or sustain the lien of any such
mortgage or security agreement, or (iv) with respect to any litigation
or controversy arising from or connected with this Note or any
mortgage or security agreement or collateral which may now or
hereafter secure this Note, or (v) with respect to any act to protect,
defend, modify, enforce or release any of its rights or remedies with
regard to, or otherwise effect collection of, any collateral which may
now or in the future secure this Note or with regard to or against
Borrower or any endorser, guarantor or surety of this Note.
(4) Basis For Determining Interest Rate Inadequate or Unfair. In the event that
the Bank shall have determined that by reason of circumstances affecting
the interbank Eurodollar market, adequate and reasonable means do not exist
for determining the LIBOR Rate or Eurodollar deposits in the relevant
amount and for the relevant maturity are not available to the Bank in the
interbank Eurodollar market, with respect to any Interest Period, the Bank
shall give the Borrower notice of such determination within one (1)
Business Day. If such notice is given, then the interest rate for that
Interest Period shall be at the Prime Rate.
(5) Definitions.
(a) "Business Day" shall mean any day on which commercial banks are open
for domestic and international business including dealings in Dollar
deposits in London, England and New York, New York and Hartford,
Connecticut.
(b) "Interest Period" with respect to any LIBOR Advance shall mean a one
(1) month period commencing on the date hereof and continuing with
successive one (1) month periods until the Loan is repaid in full,
provided that:
(i) any Interest Period which would otherwise end on a day which is
not a Business Day shall end on the next preceding Business Day,
and in such case the next succeeding Interest Period shall
commence on the calendar day next succeeding such Business Day;
and
(ii) any Interest Period which would end after the Maturity Date shall
end on the Maturity Date.
(c) "LIBOR Advance" shall mean the principal balance of the Loan hereunder
at the commencement of an Interest Period.
(d) "LIBOR Rate" shall mean the rate quoted in the money rates section of
The Wall Street Journal or The London Financial Times two (2) Business
Days prior to an Interest Period for the offering in the inter-bank
Eurodollar market of dollar deposits for a period equal to the
Interest Period and in an amount equal to the requested LIBOR Advance.
Such LIBOR Rate shall be increased by the maximum marginal reserve
percentage as prescribed by the Board of Governors of the Federal
Reserve System for determining the reserve requirement for Webster
Bank for Eurodollar deposits having a maturity equal to the Interest
Period.
(6) Prepayment
(a) The Borrower has the right to prepay the indebtedness hereunder, in
whole, or in part, at the last day of any Interest Period, upon thirty
(30) days written notice to the Bank without payment of any fee,
charge or premium of any kind except as follows: If such a prepayment
is the result of a Change in Control (as defined in the Loan Agreement
(as hereinafter defined)) or occurs after Borrower has entered into an
agreement to effect a Change in Control, Borrower shall pay Bank a
prepayment consideration equal to one and one-half (1.5%) percent of
the outstanding principal balance of the Loan.
(b) All such prepayments shall be applied first to fees and expenses then
due hereunder, then to interest on the unpaid principal balance
accrued to the date of prepayment and last to the principal balance
then due thereunder in the inverse order of principal installments due
and shall not excuse the payment of any regularly scheduled
installment.
(c) In the event that any prepayment shall occur on a date other than the
last Business Day of the then current Interest Period with respect
thereto, the Borrower shall indemnify the Bank therefor in accordance
with paragraph 3(b) hereof.
(7) Incorporation of Loan Agreement. This Note is governed by and is subject to
all of the terms of a Commercial Loan Agreement dated of even date herewith
(the "Loan Agreement") each between the Borrower and Webster Bank which is
incorporated herein by reference and sets forth additional obligations of
the Borrower and rights, including acceleration rights, of Webster Bank. As
used in this Note the term "Loan Documents" includes the Loan Agreement and
all Related Agreements (as defined in the Loan Agreement) and any other
document or instrument securing or guaranteeing the obligations set forth
in this Note.
(8) Events of Default. Each of the following shall constitute an "Event of
Default" hereunder:
(a) Failure by Borrower to pay (i) any periodic installment of interest or
principal, or both, within ten (10) days after the due date thereof,
or (ii) the outstanding balance on this Note, together with interest
accrued on such principal balance, at maturity of this Note, or (iii)
any other sums to be paid by Borrower under this Note or any of the
other Loan Documents, which is not cured within ten (10) days after
notice thereof from Bank to Borrower; or
(b) Failure for thirty (30) days of Borrower to duly keep, perform or
observe any other covenant, agreement, condition or provision of this
Note; or
(c) The occurrence of an Event of Default under any of the other Loan
Documents.
(9) Acceleration. Upon the occurrence of any Event of Default hereunder, all
advances outstanding hereunder, together with accrued interest thereon and
charges incurred with respect thereto, shall become immediately due and
payable, at the option of the Bank and any obligation of the Bank to
advance hereunder shall terminate, all without demand, presentment, protest
or notice of any kind, all of which are hereby waived by the Borrower.
(10) Set-off. Upon the occurrence and during the continuance of an Event of
Default hereunder, the Bank is hereby authorized at any time from time to
time, without notice to the Borrower (any such notice being expressly
waived by the Borrower) to set-off and apply any and all deposits (general
or special, time or demand, provisional or final), credits, collateral and
property at any time held by, in transit to or in the safekeeping, custody
or control of, the Bank or any entity under the control of Webster
Financial Corporation (and shall include any other obligation at any time
owing by the Bank or any entity under the control of Webster Financial
Corporation to or for the credit or the account of the Borrower) against
any and all of the obligations of the Borrower now or hereafter existing
hereunder, irrespective of whether or not the Bank shall have made any
demand hereunder and although such obligations may be contingent and
unmatured.
(11) Rights of Bank. In addition to any rights the Bank may have hereunder or
under any other instrument, document or agreement which may now or
hereafter evidence, govern or secure this Note, the Bank shall have all the
rights of a creditor under the laws of the State of Connecticut and the
case law interpreting the same. Nothing contained herein shall be construed
as limiting or restricting any rights the Bank may have, whether statutory
or otherwise, including, without limitation, all rights of set-off as may
exist under law.
Bank may at any time pledge all or any portion of its rights under the
Loan Documents including any portion of this Note to any of the twelve (12)
Federal Reserve Banks organized under Section 4 of the Federal Reserve Act,
12 U.S.C. Section 341. No such pledge or enforcement thereof shall release
Bank from its obligations under any of the Loan Documents.
Bank shall have the unrestricted right at any time or from time to
time, and without Borrower's consent, to assign all or any portion of its
rights and obligations hereunder to one or more banks or other financial
institutions (each, an "Assignee"), and Borrower agrees that it shall
execute, or cause to be executed, such documents, including without
limitation, amendments to this Note and to any other documents, instruments
and agreements executed in connection herewith as Bank shall deem necessary
to effect the foregoing. In addition, at the request of Bank and any such
Assignee, Borrower shall issue one or more new promissory notes, as
applicable, to any such Assignee and, if Bank has retained any of its
rights and obligations hereunder following such assignment, to Bank, which
new promissory notes shall be issued in replacement of, but not in
discharge of, the liability evidenced by the promissory note held by Bank
prior to such assignment and shall reflect the amount of the respective
commitments and loans held by such Assignee and Bank after giving effect to
such assignment. Upon the execution and delivery of appropriate assignment
documentation, amendments and any other documentation required by Bank in
connection with such assignment, and the payment by Assignee of the
purchase price agreed to by Bank, and such Assignee, such Assignee shall be
a party to this Agreement and shall have all of the rights and obligations
of Bank hereunder (and under any and all other, documents, instruments and
agreements executed in connection herewith) to the extent that such rights
and obligations have been assigned by Bank pursuant to the assignment
documentation between Bank and such Assignee, and Bank shall be released
from its obligations hereunder and thereunder to a corresponding extent.
Bank shall have the unrestricted right at any time and from time to
time, and without the consent of or notice of Borrower, to grant to one or
more banks or other financial institutions (each, a "Participant")
participating interests in Bank's obligation to lend hereunder and/or any
or all of the loans held by Bank hereunder. In the event of any such grant
by Bank of a participating interest to a Participant, whether or not upon
notice to Borrower, Bank shall remain responsible for the performance of
its obligations hereunder and Borrower shall continue to deal solely and
directly with Bank in connection with Bank's rights and obligations
hereunder.
Bank may furnish any information concerning Borrower in its possession
from time to time to prospective Assignees and Participants, provided that
Bank shall require any such prospective Assignee or Participant to agree in
writing to maintain the confidentiality of such information.
(12) Use of Proceeds. The Borrower shall use the proceeds of the loan for
general commercial purposes, provided that no part of such proceeds will be
used, in whole or in part, for the purpose of (i) acquiring all or a
portion of the assets or stock of any person, firm or corporation or (ii)
purchasing or carrying any "margin security" as such term is defined in
Regulation U of the Board of Governors of the Federal Reserve System.
(13) Prejudgment Remedy Waiver.
BORROWER AND EACH ENDORSER, GUARANTOR AND/OR SURETY OF THIS NOTE, IF ANY,
HEREBY WAIVES ALL RIGHTS TO NOTICE AND PRIOR COURT HEARING OR COURT ORDER TO
WHICH IT/HE MIGHT OTHERWISE HAVE THE RIGHT UNDER CHAPTER 903a OF THE CONNECTICUT
GENERAL STATUTES, AS AMENDED, OR AS OTHERWISE ALLOWED OR PROVIDED BY ANY STATE
OR FEDERAL LAW WITH RESPECT TO ANY AND ALL PREJUDGMENT REMEDIES THE BANK MAY
DESIRE TO EMPLOY TO ENFORCE ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS.
MORE SPECIFICALLY, BORROWER AND EACH ENDORSER, GUARANTOR AND/OR SURETY OF THIS
NOTE, IF ANY, EACH ACKNOWLEDGES THAT THE BANK'S ATTORNEY MAY, PURSUANT TO
CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, AS AMENDED, ISSUE A WRIT FOR A
PREJUDGMENT REMEDY WHICH MAY RESULT IN THE ATTACHMENT, LEVY, REPLEVIN,
GARNISHMENT OR OTHER PREJUDGMENT RELIEF AGAINST BORROWER'S, ENDORSER'S,
GUARANTOR'S AND/OR SURETY'S PROPERTY, AS APPLICABLE, WITHOUT PRIOR NOTICE OR A
PRIOR HEARING AND WITHOUT FIRST SECURING A COURT ORDER.
(14) WAIVER OF TRIAL BY JURY.
BORROWER AND EACH ENDORSER, GUARANTOR AND SURETY OF THIS NOTE, IF ANY, EACH
HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVES ANY RIGHT BORROWER,
ENDORSER, GUARANTOR AND/OR SURETY, IF ANY, HAS TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING OF ANY KIND OR NATURE, IN ANY COURT IN WHICH AN ACTION MAY BE
COMMENCED, ARISING OUT OF OR IN CONNECTION WITH THIS NOTE OR THE LOAN DOCUMENTS,
OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN OR AMONG BORROWER,
ENDORSER, GUARANTOR AND/OR SURETY, IF ANY, AND THE BANK OF ANY KIND OR NATURE.
(15) Waivers. The Borrower hereby waives presentment for payment, protest and
notice of dishonor, and hereby agrees to any extension or delay in the time
for payment or enforcement, to renewal of this Note and to any substitution
or release of any collateral, all without notice and without any affect on
its liabilities. Any delay on the part of the holder hereof in exercising
any right hereunder or under any mortgage or security agreement which may
secure this Note shall not operate as a waiver. The rights and remedies of
the holder hereof shall be cumulative and not in the alternative, and shall
include all rights and remedies granted herein, in any document referred to
herein, and under all applicable laws. The provisions of this Note shall
bind the heirs, executors, administrators, assigns and successors of
Borrower and shall inure to the benefit of Bank, its successors and
assigns.
(16) Acknowledgement of Copy. Borrower acknowledges receipt of a copy of this
Note.
(17) Connecticut Law. This Note and the rights and obligations of the parties
hereunder shall be construed and interpreted in accordance with the law of
Connecticut.
(18) Severability. If any provision of this Note is deemed void, invalid or
unenforceable under applicable law, such provision is and will be deemed to
be totally ineffective to that extent, but the remaining provisions shall
be deemed unaffected and shall remain in full force and effect.
(19) Survival. The obligations of the Borrower under paragraphs 3(a) and 3(b)
shall survive the payment of this Note.
(20) Security. This Note is secured by a mortgage of even date herewith on two
parcels of real estate, one known as 35 Northeast Industrial Road and the
other as 15 Northeast Industrial Road, and a Cash Collateral Account
Agreement of even date herewith.
IN WITNESS WHEREOF, Neurogen Corporation has hereunto set its hand and seal
this 21st day of December, 2001.
Witnessed by: Neurogen Corporation
/s/ Rosemary G. Ayers
- ---------------------------
/s/ Barry Feigenbaum
- ---------------------------
By: /s/ Stephen R. Davis
--------------------------
Name: Stephen R. Davis
Title: Executive Vice President
and Chief Business Officer
Duly Authorized
STATE OF CONNECTICUT )
) ss. Hartford December 21, 2001
COUNTY OF HARTFORD )
Personally appeared Stephen R. Davis, Executive Vice President and Chief
Business Officer of Neurogen Corporation, a Delaware corporation, signer and
sealer of the foregoing instrument, and acknowledged the same to be his free act
and deed as such Executive Vice President and Chief Business Officer and the
free act and deed of said corporation, before me.
/s/ Rosemary G. Ayers
----------------------------------
Commissioner of the Superior Court
/Notary Public
EXHIBIT 10.39
COMMERCIAL LOAN AGREEMENT
THIS COMMERCIAL LOAN AGREEMENT (the "Agreement") dated December 21, 2001
(the "Closing Date"), between WEBSTER BANK (herein called "Bank") a federally
chartered savings bank having an office at 145 Bank Street, Waterbury,
Connecticut and NEUROGEN CORPORATION (herein called "Borrower"), a Delaware
corporation having its chief executive office and principal place of business at
35 Northeast Industrial Road, Branford, Connecticut 06405.
WITNESSETH:
Section 1. The Loans
1.1 The Loan. The Borrower is about to become indebted to the Bank for a Term
Loan of Seventeen Million Five Hundred Thousand Dollars ($17,500.000), (the
"Loan"). The Loan will be evidenced by a promissory note, under which the
Borrower undertakes repayment of the Loan (the "Note").
1.2 Interest, Default Interest. The Note shall accrue interest at the rate or
rates set forth therein, including, if applicable, increases to the stated
interest rate imposed as a result of the occurrence of an Event of Default
therein or herein ("Default Interest Rate"). The Note shall continue to
accrue interest, including interest at the Default Interest Rate if
applicable, both before and after judgment has been rendered on the Note.
1.3 Computation of Interest. All computations of interest on the Note shall be
made on the basis of a 365-day year and actual days elapsed.
1.4 Repayment of Loan. The Borrower shall repay the aggregate unpaid principal
amount of the Loan in accordance with the terms set forth in the Note.
1.5 Collateral. The Loan and any other obligation to the Bank hereunder and
pursuant to the Related Agreements (as hereinafter defined) shall be
secured by (i) a first mortgage on Borrower's fee interest in 15 and 35
Northeast Industrial Road, Branford, Connecticut (the "Real Property") and
(ii) a cash collateral account at the Bank as described in Section 3.6
below in the amount of $1,000,000 (the "Cash Collateral Account").
1.6 Closing Fee. The Borrower shall pay to the Bank on the Closing Date a
closing fee in the amount of $46,250.00.
1.7 Rate Swap Agreement. After the Closing Date and during the term of the Loan
the Borrower shall have the option to hedge all or a portion of the Loan's
variable interest cost by entering into an interest rate swap agreement
with the Bank (a "Swap Agreement"). provided, however, the Borrower may
enter into a Swap Agreement with the Bank in the Bank's discretion. If
Borrower enters into a Swap Agreement with the Bank after the recording of
the Mortgage Deed, Borrower shall, at its own cost and expense, enter into
a mortgage modification agreement with the Bank and provide Bank with an
endorsement to the existing title insurance policy which is in a form
acceptable to Bank.
Section 2. Warranties
The Borrower hereby represents and warrants to the Bank (which
representations and warranties will survive the delivery of the Note and the
making of the Loan) that:
2.1 Organization, Charter, Compliance with Laws, Financial and other
Information.
(a) Borrower is duly organized and validly existing under the laws of the
State of Delaware and is qualified and in good standing in all states
in which the character of its assets or the nature of its activities
makes such qualification required by law, including, but not limited
to, Connecticut; and
(b) The execution, delivery and performance of this Agreement are within
Borrower's powers, have been duly authorized, are not in contravention
of any law or any terms of Borrower's certificate of incorporation,
charter, by-laws or other governing or operating documents or any
agreement or undertaking to which Borrower is a party; and
(c) Borrower owns no stock or other interest in any other corporation or
entity, except as specifically disclosed to the Bank on Schedule 2.1
hereto; and
(d) All of Borrower's issued and outstanding stock is duly authorized,
validly issued, fully paid and non-assessable;
(e) The financial statements presented by Borrower to Bank are true,
complete and correct in all material respects and fairly present the
financial condition of Borrower as of the date of such statements and
the results of its operations for the period then ended. There has
been no material adverse change to Borrower's financial condition
since the date of such financial statements; and
(f) Subject to any limitations stated therein or in connection therewith,
all information furnished or to be furnished by the Borrower pursuant
to the terms hereof is, or will be at the time the same is furnished,
accurate and complete in all material respects necessary in order to
make the information furnished, in the light of the circumstances
under which such information is furnished, not misleading; and
(g) Except as specifically disclosed to the Bank on Schedule 2.1 hereto,
the Borrower is in compliance in all material respects with all laws,
ordinances, rules or regulations, applicable to it, of all federal,
state or municipal governmental authorities, instrumentalities or
agencies including, without limitation, the Employee Retirement Income
Security Act of 1974, as amended, ("ERISA") the United States
Occupational Safety and Health Act of 1970, as amended, ("OSHA"); and
(h) Except as specifically disclosed to the Bank on Schedule 2.1 hereto,
no proceedings by or before any private, public or governmental body,
agency or authority and no litigation is pending, or, so far as is
known to the Borrower or any of its officers, threatened against it or
any Subsidiary.
2.2. Subsidiaries, Affiliates. The Borrower has no Subsidiaries or Affiliates
(as hereinafter defined) other than those shown on Schedule 2.2 attached
hereto, which describes in detail the relationship with each such entity.
Except as disclosed on Schedule 2.2(a), there are no fixed, contingent or
other obligations on the part of the Borrower to issue any additional
shares of its capital stock.
2.3 Claims, Actions, Place of Business.
(a) No claims, including, without limitation, taxes, assessments and
insurance premiums, having an individual value of at least $10,000,
are due and unpaid other than those disclosed in the Borrower's
financial statements or on Schedule 2.3 attached hereto; and
(b) Borrower's chief place of business is the address shown above and
Borrower shall give Lender at least thirty (30) days prior written
notice of any change; and
(c) Other than pursuant to this Agreement and as otherwise set forth on
Schedule 2.3(c), Borrower and its Subsidiaries have no other
indebtedness for borrowed money; and
(d) Neither the Borrower nor any of its Subsidiaries are in default in any
material respect in the performance, observance or fulfillment of any
of the obligations, covenants or conditions contained in any material
agreement; and
(e) Borrower and its Subsidiaries hold all necessary licenses, consents
(governmental or otherwise), patents and trademarks as are necessary
to enable Borrower and its Subsidiaries to conduct their businesses as
presently conducted and as presently contemplated.
2.4 Validity. This Agreement, the Note and all Related Agreements, upon the
execution and delivery thereof, will be legal, valid, binding and
enforceable obligations of the Borrower in accordance with the terms of
each.
Section 3. Conditions Precedent
The advance of the Loan shall be subject to the following conditions
precedent:
3.1 Approval of Bank Counsel. All legal matters incident to the transactions
hereby contemplated shall be satisfactory to counsel for the Bank; and
3.2 Proof of Action. The Bank shall have received certified copies of all
action taken by the Borrower to authorize the execution and delivery of
this Agreement, the Related Agreements and the Note and borrowing
hereunder, and such other papers as the Bank or its counsel shall
reasonably request; and
3.3 Related Agreements and Documents. The Borrower shall have delivered to the
Bank the various agreements and documents described under the heading
"Related Agreements" in Schedule A hereto (hereinafter referred to as the
"Related Agreements"); and
3.4 No Event of Default. No Event of Default has occurred, and no event has
occurred or is continuing which, pursuant to the provisions of Section 7
with the lapse of time and/or the giving of a notice as specified therein,
would constitute an Event of Default; and
3.5 No Material Adverse Change. There has been no material adverse change in
the financial condition of the Borrower since the date of the latest
financial statement delivered to the Bank; and
3.6 Cash Collateral Account. The Cash Collateral Account shall contain
$1,000,000.00, which will be held in the Cash Collateral Account as
security for the Loan until the outstanding principal amount of the Loan is
less than or equal to $16,500,000.00, at which time it shall be released to
Borrower. The Borrower shall execute all documents necessary for the Bank
to establish and perfect its interest in the Cash Collateral Account.
Section 4. Affirmative Covenants
The Borrower covenants and agrees that from the date hereof until payment
in full of the Loan and the Note and the termination of this Agreement, unless
the Bank otherwise consents in writing, the Borrower shall:
4.1 Financial Statements. Deliver to the Bank
(a) Within forty-five (45) days after the close of each of the first three
quarters of each fiscal year of the Borrower, each on a consolidated
and consolidating basis, a balance sheet of the Borrower as of the
close of such period and statements of income and retained earnings
for that portion of the fiscal year-to-date then ended, prepared in
conformity with generally accepted accounting principles, applied on a
basis consistent with that of the preceding period or containing
disclosure of the effect on financial position or results of
operations of any change in the application of generally accepted
accounting principles during the period, and certified by the
president or the chief financial officer of the Borrower as accurate,
true and complete along with a certificate of compliance executed by
the president or the chief financial officer of the Borrower
indicating that the Borrower is in compliance with all Affirmative and
Negative Covenants herein. Said certificate of compliance shall
include the calculations demonstrating compliance with all financial
covenants. Notwithstanding the foregoing, it is hereby agreed that
financial statements prepared in conformity with Securities Exchange
Commission requirements pursuant to Form 10Q and delivered to the Bank
within the time period noted above shall satisfy all requirements of
this Section 4.1(a) other than the certificate of compliance required
herein; and
(b) Within one hundred twenty (120) days after the close of each fiscal
year of the Borrower, audited financial statements including a balance
sheet of the Borrower as of the close of such fiscal year and
statements of income and retained earnings and source and application
of funds for the year then ended, prepared in conformity with
generally accepted accounting principles, applied on a basis
consistent with that of the preceding year or containing disclosure of
the effect on financial position or results of operations of any
change in the application of accounting principles during the year,
accompanied by a report thereon, containing an unqualified opinion of
a firm of independent certified public accountants selected by the
Borrower and reasonably acceptable to the Bank. Notwithstanding the
foregoing, it is hereby agreed that financial statements prepared in
conformity with Securities Exchange Commission requirements pursuant
to Form 10K and delivered to the Bank within the time period noted
above shall satisfy all requirements of this Section 4.1(b); and
(c) Within 15 days after the filing thereof, a copy of the federal and
state income tax return of the Borrower, together with all schedules
thereto duly completed and executed as filed with the United States
Internal Revenue Service or state revenue service, as applicable; and
(d) Within 30 days prior to the expiration of any hazard, liability and/or
workers' compensation insurance policy, a certificate of insurance
evidencing the existence and continuing coverage of each such
insurance policy and each in amounts reasonably satisfactory to the
Bank; and
(e) Promptly upon becoming aware of any default, or any occurrence but for
the giving of notice or the passage of time would constitute an Event
of Default, a written notice thereof to Bank; and
(f) Promptly upon the Bank's written request, such other information about
the financial condition and operations of the Borrower, as the Bank
may, from time to time, reasonably request.
4.2 General Affirmative Covenants. Borrower shall:
(a) Promptly advise the Bank of the commencement of litigation, including
arbitration proceedings and any proceedings before any governmental
agency, which might have an adverse effect upon the condition
(financial, operating or otherwise) of the Borrower, or where the
amount involved is $100,000 or more in an individual situation or
$100,000 in the aggregate of all such matters; and
(b) Continue to conduct its business as presently conducted; and
(c) Maintain its existence and pay all taxes before the same become
delinquent, provided, however, that Borrower shall not be required to
pay or discharge any such tax, assessment, claim or charge that is
being contested in good faith and by proper proceedings and as to
which appropriate reserves are being maintained; and
(d) Notify the Bank of any event causing material loss or unusual
depreciation in any material asset and the amount of same; and
(e) Comply in all material respects with all valid and applicable
statutes, rules and regulations including, without limitation, ERISA,
OSHA and all laws relating to the environment, parking and zoning
matters; and
(f) Give prompt written notice to Bank (but in any event within 15 days)
of:
(i) any material dispute that may arise between the Borrower and any
governmental regulatory body or law enforcement; and
(ii) any labor controversy resulting or likely to result in a strike
or work stoppage against the Borrower; and
(iii)any proposal by any governmental authority to acquire any asset
or all or any portion of the business of the Borrower; and
(iv) any proposed or actual change of the Borrower's name, trade
names, identities or corporate structure; and
(v) any change in Borrower's place of business or the location of
assets from its present place of business and/or locations; and
(vi) any other matter which has resulted or is reasonably likely to
result in a material adverse change in the Borrower's financial
condition or operations; and
(g) Keep its properties insured against fire and other hazards (so called
"All Risk" coverage) in amounts and with companies reasonably
satisfactory to the Bank to the same extent and covering such risks as
is customary in the same or a similar business, in an amount
reasonably satisfactory to the Bank. In any event, the Borrower shall
maintain insurance on the Real Property in an amount at least equal to
the outstanding principal amount of the Note. The Bank acknowledges
that the coverage currently maintained by Borrower is satisfactory.
Such All Risk property insurance coverage shall provide for a minimum
of thirty (30) days' written cancellation notice to the Bank (10 days'
notice for nonpayment of premium); and
(h) Maintain public liability coverage against claims for personal
injuries, death or property damage in an amount deemed reasonable by
the Bank, which policy shall name the Bank as an additional insured;
and
(i) Maintain all worker's compensation, employment or similar insurance as
may be required by applicable law; and
(j) Deliver copies of all said insurance policies to the Bank and in the
event of any loss or damage to the Collateral, Borrower shall give
prompt written notice to the Bank and to its insurers of such loss or
damage and shall promptly file its proofs of loss with said insurers;
and
(k) Permit the Bank to enter the Borrower's premises and inspect its book
and records upon reasonable notice during normal business hours;
(l) Maintain all of its primary operating accounts at the Bank, provided
that a reasonably satisfactory level of service and value is
maintained; and
(m) Obtain by July 1, 2002, a General Permit from the Department of
Environmental Protection for the discharge of stormwater.
Section 5. Negative Covenants
The Borrower covenants and agrees that, until payment is made in full of
the Loan and the Note and the performance of all of its other obligations
hereunder, unless the Bank otherwise consents in writing:
5.1 Restrictions. Borrower shall not:
(a) Incur or permit to exist any liens (other than any lien for taxes not
yet due and payable) on any of the Real Property for more than thirty
(30) days after Borrower has been given notice of the filing thereof
or Borrower otherwise becomes aware of the imposition thereof, except
in favor of Bank;
(b) Suffer to exist any judgment for the payment of money in excess of
$100,000 (in a single case or in the aggregate), against it or any of
its assets (excluding judgments for which the Borrower's insurance
company has accepted liability), which judgment shall continue
unsatisfied and in effect for a period of thirty (30) consecutive days
without being vacated, discharged, satisfied or stayed or bonded
pending appeal;
(c) With respect to ERISA, engage in any "prohibited transaction", incur
any "accumulated funding deficiency", terminate any pension plan so as
to create any lien on any asset of Borrower, or otherwise not be in
full compliance the effect of which reasonably could be expected to be
materially adverse to the Borrower, its financial condition, its
operations or its ability to perform hereunder;
(d) Change its name or its principal place of business from that set forth
above without at least fifteen (15) days' prior written notice to the
Bank or change the nature of its business from that conducted on the
date hereof;
(e) Make or consent to a material change in the Borrower's method of
accounting which would be inconsistent with generally accepted
accounting principles or in its tax elections under the Internal
Revenue Code, as applicable, provided however, the Bank shall not
unreasonably withhold, delay or condition its consent to the making or
change of any tax election;
(f) Make any payment on any indebtedness subordinated to the Bank in
violation of any subordination agreement or other agreement relating
thereto;
(g) Make any investments other than as set forth in the Borrower's then
current investment policy. provided, however, that such investments
must be of a quality at least equal to fixed income instruments having
a maturity of no greater than seven (7) years that are of investment
grade quality as rated by Standard and Poor's and Moody's Investors
Services.
(h) Incur or suffer a Change in Control. As used in this Agreement, the
term "Change in Control" shall mean:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"))(a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of more than 50% of the
combined voting power of the outstanding securities of Borrower
(the "Outstanding Voting Securities"); provided, however, that
for the purposes of this subparagraph (i), the following
acquisitions shall not constitute a Change in Control: (A) any
acquisition by Borrower; (B) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by
Borrower; or (C) any acquisition by any corporation pursuant to a
transaction which complies with clauses (A) or (B), immediately
above; or
(ii) Individuals who, as of the date of this Agreement, constitute the
Borrower's current Board of Directors (the "Incumbent Board")
cease for any reason to constitute at least a majority of the
Borrower's Board of Directors; provided, however, that any
individual becoming a director subsequent to the date of this
Agreement whose election, or nomination for election by the
Borrower's shareholders was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of
the Incumbent Board; or
(iii)Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of
Borrower's assets (a "Business Combination"), in each case,
unless, following such Business Combination, (A) all or
substantial all of the individuals and entities who were the
beneficial owners of the Outstanding Voting Securities
immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 75% or the combined voting
power of the then outstanding voting securities of the
corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such
transaction owns Borrower, or all or substantially all of the
assets of Borrower, either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership of the Outstanding Voting Securities immediately prior
to such Business Combination ; (B) no Person (excluding any
corporation resulting from such Business Combination or any
employee benefit plan (or related trust) of Borrower or such
corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, more than 50% of the
combined voting power of the then outstanding voting securities
of such corporation except to the extent that such ownership
existed prior to the Business Combination; and (C) at least a
majority of the members of the board of directors of the
corporation resulting from such Business Combination were members
of the Incumbent Board at the time of the execution of the
initial agreement providing for such Business Combination.;
(i) Fail to maintain its corporate existence or fail to be in
good standing as a foreign corporation in Connecticut.
5.2 Liquidity. Permit, the total of its cash and the value of its marketable
securities (value determined by price of such marketable security as set on
a recognized financial market) to fall below : (i) Twenty-five Million
($25,000,000.00) Dollars.
5.3 Loan to Value Ratio. Permit the ratio of (i) the outstanding principal
amount of the Loan less the Cash Collateral Account to (ii) the appraised
value of the Borrower's interest in the Real Property (as will be
periodically determined by the Bank in its sole but reasonable discretion)
to exceed .72. The Bank may order a new appraisal of the Borrower's
interest in the Real Property at any time, provided however, that, except
after an Event of Default, Borrower shall not be required to reimburse the
Bank for the cost of such appraisals more frequently than once in any
consecutive 12 month period. After an Event of Default, at Borrower's
expense, the Bank may order a new appraisal at anytime in its sole
discretion.
5.4 Transactions with Subsidiaries and Affiliates. Enter into, or be a party
to, any transaction with any Subsidiary or Affiliate (including, without
limitation, transactions involving the purchase, sale or exchange of
property, the rendering of services or the sale of stock) except (a) in the
ordinary course of business pursuant to the reasonable requirements of the
Borrower and upon fair and reasonable terms no less favorable to the
Borrower than Borrower would obtain in a comparable arm's-length
transaction with a person other than a Subsidiary or an Affiliate, (b) with
respect to issuance of additional shares of capital stock of Borrower in
consideration for the fair market value of said stock ,or (c) collaborative
research agreements, manufacturing agreements and distribution rights
agreements with Pfizer, Inc. negotiated at arms length and entered into in
the ordinary course of business.. Notwithstanding the foregoing, Borrower
shall be permitted to make reasonable payments to or on behalf of Neurogen
Properties LLC in such amounts as may be reasonably necessary for the
payment of debt service, taxes, renovations and maintenance of 45 Northeast
Industrial Road, Branford, Connecticut.
Section 6. Mandatory Prepayments
In addition to any other provision of the Loan Documents providing for
mandatory prepayments of principal or acceleration of maturity of the Loan, the
Borrower shall make mandatory prepayments of principal as set forth in this
Section 6. For every Ten Million Dollars ($10,000,000.00) of Restricted
Investments that the Borrower makes during the term of this Agreement on a
cumulative basis (each such increment a "Mandatory Prepayment Event"), the
Borrower shall pay to the Bank as a prepayment One Million One Hundred Sixty-six
Thousand Six Hundred Sixty-six Dollars and Sixty-four Cents ($1,166,666.64) on
the same date as the Mandatory Prepayment Event. All such prepayments shall, at
the option of the Borrower either (a) be applied first to fees and expenses then
due under the Loan Documents, then to interest on the unpaid principal balance
accrued to the date of prepayment and last to the principal balance then due
thereunder in the inverse order of principal installments due and shall not
excuse the payment of any regularly scheduled installment, or (b) be held in a
cash collateral account acceptable to Webster Bank in its sole and absolute
discretion provided such cash collateral account may be invested in any of the
instruments set forth on Schedule 6.1, with any income remaining in said acount.
The Borrower shall certify to the Bank in a statement delivered with the
certificates of compliance required under Section 4.1 above the amount of
Restricted Investments the Borrower has made during the term of the Loan. For
the purposes of this Section 6, the term "Restricted Investments" shall mean the
following: loans or advances made by Borrower to anyone , cash dividends or any
cash distribution with respect to any equity interest held in the Borrower, any
redemption or repurchase by Borrower for cash of any of the Borrower's issued
and outstanding capital stock, and the acquisition for cash of the stock (or
other ownership interests in the case of a company which is not a corporation)
or assets of any company other than a subsidiary of Borrower.
Section 7. Defaults, Remedies
7.1 Defaults. The Loan shall, at the sole option of Bank be immediately due and
payable, without notice or demand, upon the occurrence of any of the
following, (hereinafter, "Events of Default"):
(a) An Event of Default under the Note, the Mortgage, any Related
Agreement or any other loan, guaranty or other liability owing by the
Borrower to the Bank, now existing or hereinafter incurred, whether
direct or contingent; or
(b) Failure of Borrower to perform any covenant, act, duty or obligation,
as required by this Agreement or the occurrence of any act restricted
by this Agreement, any Related Agreement, or any other agreement
between Borrower and Bank beyond any express grace or cure period
provided herein or therein, or, if no express grace or cure period is
provided herein (other than with respect to violations of other
subsections of this Section 7 for which no grace period is permitted),
such failure is not cured within thirty (30) days after written notice
thereof from Bank to Borrower; or
(c) If any representation and/or warranty made by the Borrower is untrue
as of the date made; or
(d) If the Borrower shall dissolve or liquidate, or be dissolved or
liquidated, or die or cease to legally exist or suffer a Change in
Control; or
(e) The occurrence of any default in the payment of principal or interest
on any obligation for borrowed money having an outstanding principal
balance of at least $100,000 beyond any grace period provided with
respect thereto, the effect of which default is to cause or permit the
holder of such obligation to accelerate such obligation so that it is
or may become due and payable immediately or prior to its date of
maturity;
(f) When a plan of complete liquidation of the Borrower shall have been
adopted or the requisite number of holders of voting securities of the
Borrower needed to approve an agreement for the sale or disposition by
the Borrower (in one transaction or through a series of transactions)
of all or substantially all of the Borrower's assets have approved
such agreement.
(g) Default of any material agreement of Borrower beyond any express grace
or cure period provided therein which has or will have a material
adverse effect on the Borrower, its financial condition or any of its
operations or on its ability to perform its obligations with respect
to the Loan Documents.
7.2 Remedies. Upon the occurrence of any Event of Default, the Bank may declare
the then outstanding principal balance and all interest accrued on the Note
and all applicable penalties and surcharges indebtedness or liability of
Borrower to the Bank to be forthwith due and payable, whereupon the same
shall become forthwith due and payable, and any right of the Borrower to
request the Bank to make advances under any Loan or Note shall
automatically terminate, all of the foregoing without presentment or demand
for payment, notice of non payment, protest or any other notice or demand
of any kind, all of which are expressly waived by the Borrower. Further,
upon the occurrence of an Event of Default the Bank may exercise any and
all remedies available to it hereunder, under any Related Agreement, under
law or at equity, without notice or demand of any kind except as expressly
set forth therein. The exercise of any remedy shall not preclude the
exercise of any other remedy, all of which may be exercised at any time.
Section 8. Miscellaneous
8.1 Waivers.
(a) Borrower hereby waives presentment, demand, notice, protest, notice of
acceptance of this Agreement, notice of loans made, credit extended,
collateral received or delivered or other action taken in reliance
hereon and all other demands and notices of any description.
(b) With respect to this Agreement, the Related Agreements, the Loan and
Real Property, Borrower assents to any extension or postponement of
the time of payment or any other indulgence, to any substitution,
exchange or release of the collateral securing the Note or the Loan,
to the addition or release of any party or person primarily or
secondarily liable, to the acceptance of partial payments thereon and
the settlement, compromising or adjusting of any thereof, all in such
manner and at such time or times as the Bank may deem advisable.
(c) The Bank shall not be deemed to have waived any of its rights upon or
under the Loan or the Note unless such waiver shall be in writing and
signed by the Bank. No delay or omission on the part of the Bank in
exercising any right shall operate as a waiver of such right or any
other right. A waiver on any one occasion shall not be construed as a
bar to or waiver of any right on any future occasion. The Bank may
revoke any permission or waiver previously granted to Borrower, such
revocation shall be effective whether given orally or in writing.
(d) All rights and remedies of the Bank with respect to this Agreement,
the Note, the Loan, any collateral securing the Note or the Loan,
whether evidenced hereby or by any other agreement instrument or
document, shall be cumulative and may be exercised singularly or
concurrently.
(e) THE BORROWER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN
ANY PROCEEDING HEREAFTER INSTITUTED BY OR AGAINST THE BORROWER IN
RESPECT OF THIS AGREEMENT, THE NOTE OR ANY RELATED AGREEMENT.
(f) THE BORROWER HEREBY ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS
AGREEMENT IS A PART IS A COMMERCIAL TRANSACTION, AND HEREBY WAIVES ITS
RIGHT TO NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT
GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR FEDERAL LAW
WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH BANK OR ITS SUCCESSORS OR
ASSIGNS MAY DESIRE TO USE.
(g) Borrower hereby gives Bank a lien and right of setoff for all
Borrower's loans upon and against all the deposits, credits,
collateral and property of Borrower, now or hereafter in the
possession, custody, safekeeping or control of Bank or any affiliate
of Webster Bank or in transit to any of them. Bank may, at any time,
during the existence of an Event of Default apply or set-off the same,
or any part thereof, to any obligation of Borrower to Bank, even
though unmatured.
8.2 Notices. All notices, requests or demands to or upon a party to this
Agreement shall be made in the manner provided in Section 5.04 of the
Mortgage.
8.3 Expenses. The Borrower will pay all expenses arising out of the preparation
(subject to limit of $10,000, calculated from the date of acceptance of the
commitment letter for the Loan), administration, amendment, protection,
collection and/or other enforcement of this Agreement, the Related
Agreements, the Real Property or security interest granted hereunder or
thereunder and the Note (including, without limitation, reasonable
counsels' fees).
8.4 Compliance. The determination of the Borrower's compliance with all
covenants contained in this Agreement or the Note shall be based on the
application of generally accepted accounting principles employed by the
Borrower as of the date of this Agreement unless otherwise subsequently and
specifically agreed to in writing by the Bank.
8.5 Stamp Tax. The Borrower will pay any stamp or other tax which becomes
payable in respect of the Note, this Agreement or the Related Agreements.
8.6 Definition. As used herein (a) the term "Subsidiary" shall mean any
corporation, a majority of whose outstanding stock having ordinary voting
powers for the election of directors, shall at any time be owned or
controlled by the Borrower or one or more of its subsidiaries; and (b) the
term "Affiliate" shall mean any person, or corporation which directly or
indirectly controls, or is controlled by, or is under common control with
the Borrower. For purposes of Section 8.6(b) hereof, control shall be
deemed to exist if any person, entity or corporation, or combination
thereof shall have possession, directly or indirectly, of the power to
direct the management or policies of the Borrower or of any person, entity,
or corporation who would otherwise be deemed an Affiliate hereunder and
shall include any holder or group of holders possessing 10% or more of any
stock or other interest in the Borrower or any Affiliate and in any person,
entity or corporation, whether such holding is direct or indirect.
8.7 Schedules and Exhibits. Schedule A, Schedule 2.1, Schedule 2.2, Schedule
2.2(a), Schedule 2.3, Schedule 2.3(c), and any other Schedule and Exhibit
which is attached hereto is and shall constitute a part of this Agreement.
8.8 Connecticut Law. This Agreement, the Note, the Related Agreements and any
other agreement or documents relating thereto and the rights and
obligations of the parties hereunder and thereunder shall be construed and
interpreted in accordance with the law of Connecticut. The Borrower agrees
that the execution of this Agreement and the Related Agreements and the
rights and obligations of the parties hereunder and thereunder shall be
deemed to have a Connecticut situs and the Borrower shall be subject to the
personal jurisdiction of the courts of the State of Connecticut with
respect to any action the Bank, its successors or assigns, may commence
hereunder. Accordingly, the Borrower hereby specifically and irrevocably
consents to the jurisdiction of the courts of the State of Connecticut with
respect to all matters concerning this Agreement, the Related Agreements,
the Note or the enforcement of any of the foregoing.
8.9 Survival of Representations. All covenants and agreements herein contained
or made in writing in connection with this Agreement and the security
interests and rights herein contained shall survive the execution and
delivery of the Note, shall continue in full force and effect until all
amounts payable on account of the Note, the Loan, the Related Agreements
and this Agreement shall have been paid in full and this Agreement has been
terminated.
8.10 Severability. If any provision of this Agreement is invalid or
unenforceable under applicable law, such provision is and will be totally
ineffective to that extent, but the remaining provisions of this Agreement
shall be unaffected.
8.11 Modifications. Any modification, consent or waiver of any provision of this
Agreement shall be at the sole discretion of the party granting the same.
No modification or amendment hereof or consent to the breach of any term
hereof shall be effective unless same shall be in writing and signed by the
party against whom enforcement is sought.
8.12 Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the Borrower, the Bank and their respective
successors and assigns.
8.13 Termination of this Agreement. This Agreement shall terminate upon the full
and final payment of all Loans and Notes and the satisfaction of all
obligations of the Borrower to the Bank hereunder, under any Note or under
any Related Agreement or other instrument, agreement or document by or
between the Borrower and the Bank.
Section 9. Outstanding zoning and title matters, Holdback Account
9.1 Zoning, Title Deficiencies. Borrower acknowledges that as of the date of
this Agreement, it is not in compliance with all zoning/building code
requirements applicable to the Real Property and that the current state of
title is unacceptable to Bank as it relates to common walkways, roadways,
utilities etc. shared by Borrower and Neurogen Properties, LLC.
9.2 Holdback Account, As a condition to the grant of the Loan contemplated
herein, Borrower agrees that Five Hundred Thousand Dollars ($500,000) of
the money advanced under this Loan shall be held back by the Bank in a
holdback account ("Holdback Account"). This Holdback Account constitutes
part of the full principal advanced under the Loan on the date hereof. The
Holdback Account shall be maintained by the Bank as a savings account in
its own name for the benefit of Borrower under the terms hereof. All
interest earned in the Holdback Account shall remain in said account until
the Holdover Account is released to the Borrower. The Holdback Account
shall be released to the Borrower only if Borrower is in full compliance,
by June 30, 2002, with all zoning/ building code requirements of the Town
of Branford, said compliance being established by (a) certificate of zoning
compliance issued by the Town of Branford, or (b) a legal opinion of
Borrower's counsel in a form acceptable to Bank and Bank's counsel in their
sole discretion. If Borrower is not in compliance by June 30, 2002, time
being of the essence, such failure constitutes an Event of Default in
Bank's sole discretion as set forth in subsection 9.5 below, and in
addition, Bank shall at its option either apply the Holdback Account to the
outstanding principal amount of the Loan or retain the money as reserve
funds to be used in the event that Bank decides to take the necessary
action to bring the Real Property into compliance. Borrower and Bank
acknowledge that nothing contained in this subsection 9.2 shall obligate
Bank to undertake any such action to bring the Real Property into
compliance.
9.3 Reciprocal Easement Agreement. Borrower agrees that by April 15, 2002, it
shall deliver to Bank a reciprocal easement agreement by and between
Borrower and Neurogen Properties, LLC (or its successor or assign) in
recordable form, reasonably acceptable to Bank and Bank's counsel, for the
use, maintenance and access to walkways, roads, utilities, etc. across
property of Borrower and Neurogen Properties, LLC. Borrower shall also take
any action necessary to obtain a subordination agreement from any mortgagee
then holding a mortgage on 45 Northeast Industrial Road which subordinates
said mortgage(s) to the reciprocal easement agreement, provided that Bank
also subordinates its mortgage to the reciprocal easement agreement.
9.4 Building Permit. On or before April 2, 2002, Borrower shall also obtain any
building permits needed for Borrower to comply with all the Special
Exceptions granted with respect to the Real Property by the Branford
Planning and Zoning Commission on January 4, 2001 and April 4, 2001.
9.5 Default. In the event that Borrower does not comply with the requirements
set forth in subsections 9.2, 9.3 and 9.4 by the time allotted in each
respective section, time being of the essence, Bank may, in its sole
discretion, in addition to retaining the Holdback Account as set forth in
subsection 9.2, either: (a) declare an Event of Default and impose the
default rate or (b) increase the interest rate by up to 100 basis points
greater than the interest rate otherwise provided for in the Note.
IN WITNESS WHEREOF, the parties hereto have caused this Commercial Loan
Agreement to be duly executed as of the day and year first above written.
Signed, Sealed and Delivered
in the Presence of the under-
signed as witnesses to all BANK:
signatories: WEBSTER BANK
/s/ Tina Del Grecco By /s/ Matthew O. Riley
- -------------------------- ---------------------------------
Name: Matthew O. Riley
Its: Senior Vice President
/s/ Barry Feigenbaum Duly Authorized
- --------------------------
BORROWER:
Neurogen Corporation
/s/ Rosemary G. Ayers By /s/ Stephen R. Davis
- -------------------------- ----------------------------------
Name: Stephen R. Davis
Its: Executive Vice President
and Chief Business Officer
/s/ Barry Feigenbaum Duly Authorized
- --------------------------
STATE OF CONNECTICUT )
) ss.Hartford December 21, 2001
COUNTY OF HARTFORD )
Personally appeared Webster Bank, by Matthew O. Riley its Senior Vice
President hereunto duly authorized, Signer and Sealer of the foregoing
instrument, and acknowledged the same to be his free act and deed, and the free
act and deed of said corporation, before me.
/s/ Barry Feigenbaum
----------------------------------
Commissioner of the Superior Court
STATE OF CONNECTICUT )
) ss.Hartford December 21, 2001
COUNTY OF HARTFORD )
Personally appeared Neurogen Corporation, by Stephen R. Davis, its
Executive Vice President and Chief Business Officer, hereunto duly authorized,
Signer and Sealer of the foregoing instrument, and acknowledged the same to be
his free act and deed, and the free act and deed of said corporation, before me.
/s/ Rosemary G. Ayers
----------------------------------
Commissioner of the Superior Court
Notary Public
SCHEDULE A
Annexed to and made a part of the Commercial Loan Agreement of even date
between Webster Bank and Neurogen Corporation.
Each of the following constitute "Related Agreements" as of the date hereof. The
term Related Agreements shall also include all instruments, documents,
agreements, notes and mortgages now or hereafter executed which relate to the
Note and the Loan presently outstanding or incurred after the date hereof:
1. Commercial Term Note
2. Mortgage Deed and Security Agreement
3. Assignment of Leases and Rentals
4. Environmental Indemnification Agreement
5. Jury Trial Waiver
6. Pre-judgment Remedy Waiver
7. UCC-1 Financing Statement
a. Town Clerk, Town of Branford, CT
b. Secretary of State, Delaware
8. Subordination, Non-Disturbance and Attornment Agreement
9. Cash Collateral Account Agreement
10. UCC-1 Financing Statement re: Cash Collateral Account
11. Environmental Affidavit
12. Closing Certificate
EXHIBIT 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-43441, 33-43541, 33-81266, 33-46324, 33-73576
and 33-73586) of the Neurogen Stock Option Plan, the 1993 Omnibus Incentive
Plan, the 1993 Non-Employee Directors Plan of Neurogen Corporation, the Neurogen
Corporation 2000 Non-Employee Directors Plan, the Amended and Restated Neurogen
Corporation 2001 Stock Option Plan and the Neurogen Special Committee Stock
Option Plan of our report dated February 15, 2002 relating to the consolidated
financial statements of Neurogen Corporation, which appears in this Form 10-K/A3.
PRICEWATERHOUSECOOPERS LLP
Hartford, Connecticut
January 8, 2003
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint William H. Koster and Stephen R. Davis, each his
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 execute
for him and on his behalf an Annual Report pursuant to Section 13 of the
Securities and Exchange Act of 1934, as amended, on Form 10-K relating to the
fiscal year ended December 31, 2001, of Neurogen Corporation (the "Company"),
and any and all amendments to the foregoing Annual Report on Form 10-K, which
amendments may make such changes in the Annual Report on Form 10-K as such
attorney-in-fact deems appropriate, and any other documents and instruments
incidental thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission
and the National Association of Securities Dealers, Inc., 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 in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 29th day of March, 2002.
/s/ FRANK C. CARLUCCI
----------------------------
Frank C. Carlucci
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint William H. Koster and Stephen R. Davis, each his
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 execute
for him and on his behalf an Annual Report pursuant to Section 13 of the
Securities and Exchange Act of 1934, as amended, on Form 10-K relating to the
fiscal year ended December 31, 2001, of Neurogen Corporation (the "Company"),
and any and all amendments to the foregoing Annual Report on Form 10-K, which
amendments may make such changes in the Annual Report on Form 10-K as such
attorney-in-fact deems appropriate, and any other documents and instruments
incidental thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission
and the National Association of Securities Dealers, Inc., 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 in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 29th day of March, 2002.
/s/ ROBERT H. ROTH, PH.D.
----------------------------
Robert H. Roth, Ph.D.
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint William H. Koster and Stephen R. Davis, each his
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 execute
for him and on his behalf an Annual Report pursuant to Section 13 of the
Securities and Exchange Act of 1934, as amended, on Form 10-K relating to the
fiscal year ended December 31, 2001, of Neurogen Corporation (the "Company"),
and any and all amendments to the foregoing Annual Report on Form 10-K, which
amendments may make such changes in the Annual Report on Form 10-K as such
attorney-in-fact deems appropriate, and any other documents and instruments
incidental thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission
and the National Association of Securities Dealers, Inc., 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 in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 29th day of March, 2002.
/s/ JEFFREY J. COLLINSON
----------------------------
Jeffrey J. Collinson
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint William H. Koster and Stephen R. Davis, each his
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 execute
for him and on his behalf an Annual Report pursuant to Section 13 of the
Securities and Exchange Act of 1934, as amended, on Form 10-K relating to the
fiscal year ended December 31, 2001, of Neurogen Corporation (the "Company"),
and any and all amendments to the foregoing Annual Report on Form 10-K, which
amendments may make such changes in the Annual Report on Form 10-K as such
attorney-in-fact deems appropriate, and any other documents and instruments
incidental thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission
and the National Association of Securities Dealers, Inc., 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 in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 29th day of March, 2002.
/s/ JOHN SIMON
----------------------------
John Simon
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint William H. Koster and Stephen R. Davis, each his
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 execute
for him and on his behalf an Annual Report pursuant to Section 13 of the
Securities and Exchange Act of 1934, as amended, on Form 10-K relating to the
fiscal year ended December 31, 2001, of Neurogen Corporation (the "Company"),
and any and all amendments to the foregoing Annual Report on Form 10-K, which
amendments may make such changes in the Annual Report on Form 10-K as such
attorney-in-fact deems appropriate, and any other documents and instruments
incidental thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission
and the National Association of Securities Dealers, Inc., 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 in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 29th day of March, 2002.
/s/ ROBERT N. BUTLER, M.D.
----------------------------
Robert N. Butler, M.D.
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint William H. Koster and Stephen R. Davis, each his
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 execute
for him and on his behalf an Annual Report pursuant to Section 13 of the
Securities and Exchange Act of 1934, as amended, on Form 10-K relating to the
fiscal year ended December 31, 2001, of Neurogen Corporation (the "Company"),
and any and all amendments to the foregoing Annual Report on Form 10-K, which
amendments may make such changes in the Annual Report on Form 10-K as such
attorney-in-fact deems appropriate, and any other documents and instruments
incidental thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission
and the National Association of Securities Dealers, Inc., 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 in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 29th day of March, 2002.
/s/ BARRY M. BLOOM
----------------------------
Barry M. Bloom
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint William H. Koster and Stephen R. Davis, each his
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 execute
for him and on his behalf an Annual Report pursuant to Section 13 of the
Securities and Exchange Act of 1934, as amended, on Form 10-K relating to the
fiscal year ended December 31, 2001, of Neurogen Corporation (the "Company"),
and any and all amendments to the foregoing Annual Report on Form 10-K, which
amendments may make such changes in the Annual Report on Form 10-K as such
attorney-in-fact deems appropriate, and any other documents and instruments
incidental thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission
and the National Association of Securities Dealers, Inc., 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 in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 29th day of March, 2002.
/s/ MARK NOVITCH
----------------------------
Mark Novitch
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint William H. Koster and Stephen R. Davis, each his
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 execute
for him and on his behalf an Annual Report pursuant to Section 13 of the
Securities and Exchange Act of 1934, as amended, on Form 10-K relating to the
fiscal year ended December 31, 2001, of Neurogen Corporation (the "Company"),
and any and all amendments to the foregoing Annual Report on Form 10-K, which
amendments may make such changes in the Annual Report on Form 10-K as such
attorney-in-fact deems appropriate, and any other documents and instruments
incidental thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission
and the National Association of Securities Dealers, Inc., 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 in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 29th day of March, 2002.
/s/ SUZANNE H. WOOLSEY
----------------------------
Suzanne H. Woolsey
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint William H. Koster and Stephen R. Davis, each his
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 execute
for him and on his behalf an Annual Report pursuant to Section 13 of the
Securities and Exchange Act of 1934, as amended, on Form 10-K relating to the
fiscal year ended December 31, 2001, of Neurogen Corporation (the "Company"),
and any and all amendments to the foregoing Annual Report on Form 10-K, which
amendments may make such changes in the Annual Report on Form 10-K as such
attorney-in-fact deems appropriate, and any other documents and instruments
incidental thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission
and the National Association of Securities Dealers, Inc., 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 in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 29th day of March, 2002.
/s/ JULIAN C. BAKER
----------------------------
Julian C. Baker
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint William H. Koster and Stephen R. Davis, each his
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 execute
for him and on his behalf an Annual Report pursuant to Section 13 of the
Securities and Exchange Act of 1934, as amended, on Form 10-K relating to the
fiscal year ended December 31, 2001, of Neurogen Corporation (the "Company"),
and any and all amendments to the foregoing Annual Report on Form 10-K, which
amendments may make such changes in the Annual Report on Form 10-K as such
attorney-in-fact deems appropriate, and any other documents and instruments
incidental thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission
and the National Association of Securities Dealers, Inc., 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 in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 29th day of March, 2002.
/s/ FELIX J. BAKER
----------------------------
Felix J. Baker
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL YE PERSONS BY THESE PRESENTS, that the undersigned does hereby
make, constitute and appoint William H. Koster and Stephen R. Davis, each his
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 execute
for him and on his behalf an Annual Report pursuant to Section 13 of the
Securities and Exchange Act of 1934, as amended, on Form 10-K relating to the
fiscal year ended December 31, 2001, of Neurogen Corporation (the "Company"),
and any and all amendments to the foregoing Annual Report on Form 10-K, which
amendments may make such changes in the Annual Report on Form 10-K as such
attorney-in-fact deems appropriate, and any other documents and instruments
incidental thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission
and the National Association of Securities Dealers, Inc., 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 in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 29th day of March, 2002.
/s/ CRAIG SAXTON
----------------------------
Craig Saxton
