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EXHIBIT 4.1
LETTER OF INTENT
NEUROCRINE BIOSCIENCES, INC.
February 27, 1998
Northwest NeuroLogic, Inc.
2611 S.W. 3rd Avenue, Suite 200
Portland, OR 97201
Attn: President
Ladies and Gentlemen:
This letter will confirm the agreement of Neurocrine Biosciences, Inc.,
a Delaware corporation ("NBI"), and Northwest NeuroLogic, Inc., an Oregon
corporation ("NNL"), as follows:
1. The Acquisition.
a. Based upon recent discussions and negotiations, NNL and
NBI believe it is in the best interests of each company and their
respective stockholders that NBI acquire all of the business,
assets and obligations, as a going concern, of NNL (the
"Acquisition").
b. The Acquisition will take the form of a statutory merger
of a newly formed and wholly owned subsidiary of NBI with NNL
(the "Merger"), pursuant to which NNL shall become a wholly-owned
subsidiary of NBI.
2. Consideration.
a. As of the date hereof, NNL had issued and outstanding (i)
[ * ] shares of NNL Common Stock ("NNL Shares") and (ii)
allocated and unallocated options to purchase an aggregate of
[ * ] shares of NNL Common Stock ("NNL Options"), held by the
entities and in the amounts listed on Exhibit A attached hereto.
Except for
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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the foregoing, there are no outstanding securities, options,
warrants, rights to agreements or other commitments pursuant to
which NNL is or may become obligated to issue any shares of its
capital stock. None of the stock owned by any security holder of
NNL is subject to repurchase by NNL. NNL shall effect between the
date hereof and the Closing (as defined below) a recapitalization
as set forth on Exhibit B hereto or in such other form as shall
be acceptable to NBI. Between the date hereof and the date of the
definitive agreement (the "Acquisition Agreement"), both dates
inclusive, NNL shall not issue new shares of its Common Stock or
other securities, including stock options or warrants (except
shares of Common Stock issued upon the exercise of presently
outstanding stock options) without the prior written consent of
NBI.
b. As consideration for the acquisition, on the closing date
(the "Closing"), NBI will issue shares (with regard to the NNL
Shares) and options (with regard to the NNL Options) exercisable
for shares of its Common Stock with an aggregate fair market
value of $4,200,000, together with the contingent issuance of
warrants as described below (collectively the "NBI Securities"),
in exchange for the NNL Shares and NNL Options, subject to the
escrow provisions set forth in Section 2(e) below. The fair
market value of the NBI Common Stock to be issued in the Merger
will be equal to the average of the closing prices of NBI's
Common Stock for the 15 trading days preceding the date of public
disclosure of this letter agreement.
c. Upon completion of the following milestones (the
"Milestones"), NBI shall issue to the former holders of NNL
Shares and NNL Options, according to the schedule set forth in
Exhibit B attached hereto, warrants (the "Warrants") (provided,
however, with respect to any former holders of NNL Shares or NNL
Options who became an employee or consultant of NBI at or after
the Closing, such person must still be then employed by or
providing services to NBI to be issued any portion of such
Warrants) to purchase the number of shares of NBI Common Stock
set forth below at a per share exercise price equal to the
average of the closing prices of NBI's Common Stock for the 15
trading days preceding the date which such Milestone is
completed:
i. [ * ] shares (as adjusted for stock splits, stock
dividends, recapitalizations, and the like) for each drug
candidate resulting from the [ * ] or [ * ] programs of
NNL which [ * ] within [ * ] of the date of the Closing;
provided that the decision to enter into or to continue
clinical trials with regard to any such compound shall be
made by NBI in its sole discretion and NBI shall have no
liability for such decision.
ii. [ * ] shares (as adjusted for stock splits, stock
dividends, recapitalizations, and the like) if within
[ * ] of the date of the Closing,
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the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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NBI enters into a binding corporate partnership agreement
or a binding or non-binding letter of intent [ * ],
provided that the decision whether to enter into such
agreement shall be at NBI's sole discretion and NBI shall
have no liability for its failure to so elect.
The Warrants shall have a term of ten (10) years from the date of
Closing, provided that the Warrants shall terminate if not exercised prior to
the closing of an acquisition of NBI, and, provided that the requisite consent
of the other holders of registrable securities can be obtained, shall be
included in NBI's existing piggyback registration rights. NBI agrees to use its
reasonable efforts to obtain such consent.
d. NBI will fund research in Dr. Roger Cone's laboratory at
the Oregon Health Sciences University (the "University") at the
rate of [ * ] per year for the [ * ] period following the
Closing, with such funding to be used in accordance with a
Research Plan to be agreed upon by NBI and Dr. Cone, provided
that the University shall grant to NBI rights reasonably
acceptable to NBI with regard to the intellectual property
resulting from such research.
e. [ * ] of the NBI Securities issued in the Acquisition
(other than the Warrants, which shall be issued as set forth
above) will be delivered at Closing. [ * ] of the NBI Securities
(other than the Warrants) will be placed in escrow following the
Closing to be held for the purpose of satisfying damages, losses,
expenses or other similar charges which result from any breach of
the representations, warranties or covenants of NNL. Of the
shares or options placed in such escrow (the "Escrow
Securities"), [ * ] of such Escrow Securities shall be composed
of shares or options which will be vested, pursuant to Section 4
hereof, on the effective date of the Acquisition. To the extent
NBI has not asserted claims against such escrowed NBI Securities
by the first anniversary of the Closing, such NBI Securities
shall be released from escrow. In the event specific contingent
liabilities are identified by NBI in its due diligence
investigation, the portion of the NBI Securities held in escrow
may be increased to cover the contingency and the portion of the
NBI Securities delivered at Closing may be correspondingly
decreased.
3. Conditions to Closing. It shall be an express condition to NBI's
obligations under the Agreement with regard to the Acquisition that: (i)
NBI shall complete its due diligence investigation of NNL to the
satisfaction of NBI in its sole discretion, (ii) NNL shall amend or
otherwise clarify to the satisfaction of NBI in its sole discretion the
rights of [ * ], which NBI acknowledges has occurred to its
satisfaction, and [ * ] with regard to [ * ] under the existing
agreements with [ * ] and [ * ], and (iii) the equity ownership of
the total number of
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the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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outstanding NNL Shares and NNL Options immediately prior to the Closing
will be as set forth in Exhibit B.
4. Stock Vesting.
(a) Roger Cone, Susan Amara and all current employees and consultants of
NNL will vest [ * ] of their NBI Securities on the effective date of the
Acquisition. The remainder of the NBI Securities shall be subject to forfeiture
or repurchase by NBI as set forth below, with such forfeiture risk or repurchase
right lapsing as to an additional [ * ] of each such person's NBI Securities on
each anniversary date of the Closing; provided that such NBI Securities shall be
subject to a three (3) month lock-up provision from the date of the Closing.
(b) For purposes of this Letter:
"Cause" shall mean the discharge of the employee or consultant
resulting from a determination by the Board of Directors of NBI that the
employee or consultant:
i. has been convicted of any felony or a misdemeanor
involving dishonesty, fraud, theft or embezzlement, or has
committed any other crime or offense involving money or
property of the Company;
ii. has failed or refused in any material respect, to
follow reasonable policies or directives established by the Board of Directors;
iii. has inadequately performed the duties and
responsibilities of his or her position; or
iv. has failed or refused to attend to duties or
obligations of his or her position.
"New NBI Options" shall mean options to purchase Common Stock of
NBI which shall after the Closing replace outstanding NNL Options.
"New NBI Shares" shall mean issued and outstanding shares of NBI
Common Stock owned by former holders of NNL Shares, which New NBI Shares were
issued at the Closing in exchange for outstanding NNL Shares.
(c) Neither Roger Cone nor Susan Amara owns, and will not at the Closing
own, any NNL Options, and consequently neither Roger Cone nor Susan Amara will
own any New NBI Options. With respect to New NBI Shares and exercised Warrants
owned by Roger Cone and Susan Amara after the Closing, such New NBI Shares and
exercised Warrants not vested pursuant to Section 4(a) hereof shall be subject
to repurchase by NBI (at the original purchase price paid by such person for the
underlying (x) NNL shares in the case of New NBI Securities or (y) NBI shares in
the case of
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the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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exercised Warrants) in the event of (i) the holder's voluntary termination of
employment with or services to NBI, or (ii) the involuntary termination of the
holder's employment with or services to NBI for Cause. With respect to
unexercised Warrants owned by Roger Cone and Susan Amara after the Closing, such
unexercised Warrants not vested pursuant to Section 4(a) hereof shall be subject
to forfeiture in the event of (i) the holder's voluntary termination of
employment with or services to NBI, or (ii) the involuntary termination of the
holder's employment with or services to NBI for Cause. In the event of the
holder's termination by reason of death or permanent disability, the holder's
unvested NBI Securities shall continue to vest on the same schedule.
(d) With respect to each other current employee and consultant of NNL,
all of such person's New NBI Shares or shares of NBI issued upon exercise of New
NBI Options or Warrants not vested pursuant to Section 4(a) hereof shall be
subject to repurchase by NBI (x) at the original purchase price paid by such
person for the underlying NNL shares in the case of New NBI Shares or (y) at the
original purchase price paid by such person for the NBI shares in the case of
exercised New NBI Options or Warrants in the event of (i) the holder's voluntary
termination of employment with or services to NBI, or (ii) the involuntary
termination of the holder's employment with or services to NBI for Cause (but
not in the event that he or she is required by NBI before [ * ].
In addition, for each such person, all of such person's unexercised New NBI
Options or Warrants, to the extent not vested pursuant to Section 4(a) hereof,
shall be subject to forfeiture in the event of (i) the holder's voluntary
termination of employment with or services to NBI, or (ii) the involuntary
termination of the holder's employment with or services to NBI for Cause (but
not in the event that he or she is required by NBI before [ * ]. In the event
of the holder's termination by reason of death of permanent disability, the
holder's unvested NBI Securities shall continue to vest on the same schedule.
(e) The NBI Securities issued to all shareholders other than
employees and consultants of NNL shall vest on the effective date of the
Acquisition, provided that [ * ] of the NBI Securities issued to such other
shareholders shall be subject to a [ * ] lockup provision from the date of the
Closing. All NNL Options not exercised as of the Closing will be exchanged for
stock options to purchase NBI Common Stock on the same terms as the NNL Options,
except that such options will be exercisable for shares of NBI Common Stock and
the number of shares and exercise price will be adjusted based on the exchange
ratio determined in accordance with Section 2(b) above and will vest as set
forth above. All future transfers of NBI Securities shall be made in accordance
with NBI's Insider Trading Policy, attached hereto as Exhibit C. Roger Cone and
Susan Amara shall execute noncompetition agreements promising not to compete
with NNL or NBI for a period of two years following the Closing.
5. Tax Free Reorganization. It is intended that the Acquisition be a tax-free
reorganization under Section 368 the Code. Certain affiliates and major
stockholders of NNL will agree to make
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the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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representations to NBI to the effect that they have no present intention of
disposing of the NBI Common Stock to be issued in the Merger.
6. Voting Agreements. Roger Cone, Susan Amara, Paul Woloshin, Stephen Kurtz and
all other officers and members of the Board of Directors of NNL shall execute
voting agreements and irrevocable proxies promising to vote in favor of the
Acquisition and against any action which may impede the consummation of the
Acquisition.
7. Conduct of NNL Business. From and after the date hereof until the termination
of this Letter Agreement, NNL will conduct its business only in the normal and
ordinary course consistent with past practices, and without the prior written
consent of NBI, NNL will not (except as specifically provided herein):
a. issue or sell, or contract to issue or sell, any shares of capital
stock of NNL (except upon the exercise of presently outstanding options) or any
securities convertible into or exchangeable for shares of capital stock of NNL;
b. purchase or redeem any shares of capital stock of NNL;
c. declare or pay any dividends or agree to make any other distributions
with respect to any shares of capital stock of NNL;
d. amend the Articles of Incorporation or Bylaws of NNL;
e. recapitalize, merge, liquidate or otherwise effect any change in its
capitalization or outstanding securities; or adopt or amend any employee
benefit, bonus, or severance plan, agreement or policy; or increase the
compensation of or pay any bonus to its employees, officers, directors, or
consultants;
f. amend any material agreement or license to which NNL is a party,
enter into any license or other agreement granting rights to intellectual
property of NNL, or enter into any other material agreement, except for such
other material agreements entered into in the ordinary course of business
consistent with past practices;
g. purchase or dispose of any assets other than in the ordinary course
of business consistent with past practices;
h. hire any additional employees or consultants, or enter into material
capital commitments or material long term obligations;
i. propose or enter into an agreement with any person (other than NBI)
providing for the possible acquisition of any entity or any material portion of
the assets or capital stock of another entity; or
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j. enter into any corporate partner, strategic alliance, joint venture,
research and development, or similar agreement.
8. Acquisition Agreement. The terms and provisions governing the Acquisition
shall be contained in an agreement which shall be subject, in all respects, to
the approval of all parties thereto and their counsel. Such terms and provisions
shall include, in addition to those set forth herein:
a. Usual and customary representations and warranties made by parties to
a major acquisition transaction;
b. Usual and customary pre-closing covenants made by parties to a major
acquisition transaction regarding restrictions on the operations of the target
company;
c. Usual closing conditions, including but not limited to: (i) approval
of the transaction by the NNL shareholders holding at least [ * ] of the
outstanding NNL Shares, and (ii) timely approvals or consents from governmental
authorities and other parties who may have interests affected by the Acquisition
or whose consent may be necessary or advisable in connection with the
Acquisition.
d. Each of the parties hereto agrees to negotiate such Agreement in good
faith without undue delay and to use all reasonable efforts to finalize and
execute such Agreement prior to the date set forth in Section 15 hereof.
9. NNL Personnel.
a. NNL will retain its name and physical location in Portland, Oregon
[ * ].
b. NBI will provide funding for NNL to maintain the current employee
level [ * ] full-time employees ("FTEs")) through [ * ] and will increase this
funding for NNL to increase the number of employees by at least [ * ] (based
upon the current expense level associated with such FTEs plus an annual increase
not to exceed [ * ] percent) between [ * ] and [ * ], provided that such number
of FTEs may be increased or decreased by the mutual agreement of NBI and the
management of NNL. Upon mutual agreement by NBI and the management of NNL, NBI
may provide additional funding to increase the number of employees by [ * ] FTEs
between [ * ] and [ * ].
c. NNL will enter into employment agreements (the "Employment
Agreements") with Paul Woloshin and Stephen Kurtz, with base salary no less than
their current NNL salaries and benefits comparable to the benefits NBI provides
its employees at the same level as such individuals will be after the Closing,
having a term of [ * ] and providing for severance payments of base salary
continuing for the longer of (i) the term of the Employment Agreement or (ii)
[ * ] from
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the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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the date of termination, if such Employment Agreement is terminated or not
renewed (including by constructive termination as a result of the significant
reduction in the responsibilities of the employee by NBI). In event of
termination without cause of the employment, or in the event of death or
permanent disability, of Paul Woloshin or Stephen Kurtz during the term of the
Employment Agreement, such person's NBI Securities shall immediately vest [ * ].
d. All NNL employees who continue as NNL employees after the Closing
shall be entitled to benefits comparable to the benefits NBI provides its
employees at the same level as such individuals will be after the Closing.
e. Dr. Roger Cone and Dr. Susan Amara will be appointed to NBI's
Scientific Advisory Board.
10. Access and Review. NBI, together with its legal counsel, accountants, and
other advisors shall be permitted access to NNL's properties (including
intellectual property), books, records (including agreements with third parties)
and personnel to allow NBI to make a full and complete due diligence
investigation of NNL and its business prior to the Closing. All information
gained from such investigation by NBI will be kept confidential pursuant to the
terms of Section 11 below.
11. Confidentiality. Subject to Section 13 hereof, the parties agree that
neither they nor their agents shall disclose to any person who is not a direct
participant in the negotiations or due diligence regarding the proposed
transaction either the fact that the discussions are taking place nor any of the
terms or conditions of the proposed transactions. In addition, each party will
maintain in strict confidence all confidential information ("Confidential
Information") obtained from any other party or its agents during the course of
the due diligence and negotiation. Confidential Information means nonpublic
information concerning the disclosing party's business, business plans, products
or technology, whether disclosed before or after the date of this Letter
Agreement, which is clearly marked "confidential or "proprietary" and orally
disclosed information which is communicated with indicia of confidentiality and
promptly thereafter confirmed in writing to be confidential. Confidential
Information shall not include any information in writing which is or becomes
publicly known or available not through improper action of the receiving party,
is already known by the receiving party prior to disclosure, is independently
developed by the receiving party without using Confidential Information of the
other party, or is obtained by the receiving party from a third party without
breach of a confidentiality obligation. In the event that the transaction is not
consummated, or any time upon the request of any party, all material furnished
by such party or its agents to any other party or its agents, and all copies or
extracts thereof in notes and analyses prepared therefrom, shall be returned to
the disclosing party or destroyed and certified as destroyed.
12. Negotiation with Others. From and after the date hereof until the earlier to
occur of the termination of this Letter Agreement or the signing of the
Acquisition Agreement, NNL shall not (nor will it permit any of its officers,
directors, agents, representatives or affiliates to), directly or indirectly
take any of the following actions with any party other than NBI and its
designees: (i) solicit, encourage, initiate or, participate in any negotiations
or discussions with respect to, an offer
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the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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or proposal to acquire all or substantially all of its business and properties
or capital stock whether by merger, purchase of assets, tender offer or
otherwise, (ii) disclose any information not customarily disclosed to any person
concerning its business and properties, books or records, or (iii) assist or
cooperate with any person to make any proposal to purchase all or any part of
NNL's or any subsidiary's capital stock or assets. In the event that NNL shall
receive any offer or proposal, directly or indirectly, of the type referred to
in clauses (i) or (iii) above, or any request for disclosure or access to
information pursuant to clauses (i) or (ii) above, it shall immediately inform
NBI as to any such offer or proposal and the terms thereof.
13. Publicity. The parties agree that, due to the disclosure obligations of NBI
as a public company, NBI and NNL shall jointly issue a press release announcing
the execution of this Letter Agreement and the terms thereof. NBI shall draft
such press release and shall give NNL the opportunity to review the proposed
disclosure and provide comments on it, which NBI shall consider in good faith
subject to its disclosure obligations as a reporting company, provided that the
final decision with regard to the press release shall be made by NBI. NNL shall
not make any disclosure, by means of the issuance of any reports, statements or
releases, or otherwise, pertaining to this Letter Agreement, the implementation
thereof, or the transactions contemplated thereby.
14. Expenses. Whether or not the Acquisition is consummated, all expenses
incurred in connection with this matter shall be the obligation of the party
incurring such expenses, provided that the holders of the NNL Shares and NNL
Options shall pay the legal fees and expenses of legal counsel to NNL in
connection with the Acquisition to the extent that such legal fees and expenses
exceed normal and customary expenses for transactions of a similar size and
nature.
15. Termination. In the event the parties hereto fail to enter into definitive
agreements on or before [ * ] calendar days after execution of this Letter
Agreement, then this Letter Agreement, unless extended by mutual agreement of
the parties, shall terminate.
16. Governing Law. This Letter Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts made
and to be performed wholly therein.
17. Binding Effect; Integration.
a. This Letter Agreement constitutes a binding agreement between the
parties hereto; provided, however, that the obligations of the parties to
proceed with the Acquisition are subject in all respects to: (i) NBI's
satisfactory completion of due diligence investigations, (ii) the negotiation,
preparation and execution of a definitive agreement incorporating the terms set
forth herein and such other terms as are customary in transactions of this type
or as may be agreed to by the parties and approved by the boards of directors of
the parties, and (iii) the satisfaction of the conditions of closing contained
herein and in such definitive agreement.
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the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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b._____ To the extent set forth in paragraph (a) of this Section 17, this
Letter Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns; but shall not be assignable
without the written consent of the other party hereto.
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This Letter Agreement may be executed in counterparts, and each
counterpart shall be deemed an original, but all such counterparts together
shall constitute one agreement.
Very truly yours,
NEUROCRINE BIOSCIENCES, INC.
By:__________________________
Title:_______________________
The foregoing is accepted and approved as of the date first above
written.
NORTHWEST NEUROLOGIC, INC.
By:__________________________
Title:_______________________
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EXHIBIT A
FOUNDERS' AGREEMENT
Schedule I: NNL Equity Ownership Prior to Recapitalization
Owner Shares Options (1) Percentage
----- ------ --------- ----------
Roger Cone [ * ] [ * ]
Richard Sessions [ * ] [ * ]
OHSU [ * ] [ * ]
Susan Amara [ * ] [ * ]
ORTDF [ * ] [ * ]
Paul Woloshin, CEO [ * ] [ * ]
Steve Kurtz, CSO [ * ] [ * ]
Dwight Sangrey [ * ] [ * ]
NNL Employees and Consultants [ * ] [ * ]
Unallocated Pool [ * ] [ * ]
------- ------- ------
[ * ] [ * ] 100.0
[ * ]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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EXHIBIT B
Schedule II: NNL Equity Ownership After Recapitalization
Class A Class A Common
Owner Common Shares Options Percentage
----- ------------- ------- ----------
Roger Cone [ * ] [ * ]
Richard Sessions [ * ] [ * ]
OHSU [ * ] [ * ]
Susan Amara [ * ] [ * ] [ * ]
ORTDF [ * ] [ * ]
Paul Woloshin, CEO [ * ] [ * ]
Steve Kurtz, CSO [ * ] [ * ]
Dwight Sangrey [ * ] [ * ]
NNL Employees and
Consultants [ * ] [ * ]
Unallocated Pool [ * ] [ * ]
-------- ------- ------
[ * ] [ * ] 100.0
[ * ]
The parties also agree that Warrants distributed by NBI as milestone payments
will be distributed as follows.
Warrants issued for completion of corporate agreements between NBI [ * ] pro
rata according to the equity ownership of NNL as set forth in Schedule II.
Warrants issued for compounds entering [ * ] within [ * ]: pro rata according to
the equity ownership of NNL at the Closing of the acquisition (Schedule II),
with Founders warrants going [ * ] to either Dr. Amara for compounds acting as
[ * ], or [ * ] going to Dr. Cone for compounds acting as [ * ]; in either case,
the remaining [ * ] of Founder's warrants will go to Richard Sessions.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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The parties entering into this agreement have done so voluntarily, of their own
free will, and after due consideration. In the event that the acquisition of
Northwest NeuroLogic by Neurocrine Biosciences, Inc. does not take place, this
agreement is null and void ab initio.
NAME SIGNATURE DATE
Roger D. Cone ______________________________ __________________
Susan G. Amara ______________________________ __________________
Richard Sessions ______________________________ __________________