-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P6iD9Q5fLjkz5F2+IXzp2H4aXO2tGb38OaHc49pUUzqsgwDCqQeT8G22z0WtincK BakpSI9iU862vmI0TEd7nA== 0000897101-01-500279.txt : 20010514 0000897101-01-500279.hdr.sgml : 20010514 ACCESSION NUMBER: 0000897101-01-500279 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CNS INC /DE/ CENTRAL INDEX KEY: 0000814258 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 411580270 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16612 FILM NUMBER: 1629982 BUSINESS ADDRESS: STREET 1: PO BOX 39802 CITY: MINNEAPOLIS STATE: MN ZIP: 55439 BUSINESS PHONE: 6128206696 MAIL ADDRESS: STREET 1: PO BOX 39802 STREET 2: PO BOX 39802 CITY: MINNEAPOLIS STATE: MN ZIP: 55439 10-Q 1 cns011368_10q.txt CNS, INC. FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the Period Ended March 31, 2001. [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the Transition Period from to ------------------ ----------------- COMMISSION FILE NUMBER: 0 - 16612 CNS, INC. (Exact name of registrant as specified in its charter) DELAWARE 41-1580270 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P.O. BOX 39802 MINNEAPOLIS, MN 55439 (Address of principal executive offices including zip code) (952) 229-1500 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES _X_ NO ___ At April 30, 2001, the Company had outstanding 14,126,669 shares of common stock, $.01 par value per share. 1 PART I - FINANCIAL INFORMATION Item 1. Financial Statements CNS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)
March 31, December 31, 2001 2000 ----------- ----------- ASSETS (unaudited) Current assets: Cash and cash equivalents $ 701 $ 2,079 Marketable securities 19,019 29,244 Accounts receivable, net 13,764 12,582 Inventories 6,519 4,752 Prepaid expenses and other current assets 2,896 3,257 -------- -------- Total current assets 42,899 51,914 Property and equipment, net 3,262 3,201 Product rights, net 1,300 1,229 -------- -------- $ 47,461 $ 56,344 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses 13,864 19,407 -------- -------- Total current liabilities 13,864 19,407 Stockholders' equity: Preferred stock - authorized 8,484 shares; none issued or outstanding 0 0 Common stock - $.01 par value; authorized 50,000 shares; issued and outstanding, 19,295 shares 193 193 Additional paid-in capital 61,050 61,182 Treasury shares - at cost; 4,907 at March 31, 2001 and 4,838 at December 31, 2000 (23,110) (23,279) Retained deficit (4,836) (1,259) Accumulated other comprehensive income 300 100 -------- -------- Total stockholders' equity 33,597 36,937 -------- -------- $ 47,461 $ 56,344 ======== ========
The accompanying notes are an integral part of the condensed consolidated financial statements. 2 CNS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except per share amounts) Three Months Ended March 31, ----------------------- 2001 2000 -------- -------- Net sales $ 27,112 $ 14,634 Cost of goods sold 8,706 4,846 -------- -------- Gross profit 18,406 9,788 -------- -------- Operating expenses: Marketing and selling 20,201 14,312 General and administrative 1,517 1,173 Product development 627 488 -------- -------- Total operating expenses 22,345 15,973 -------- -------- Operating loss (3,939) (6,185) Interest income 362 498 -------- -------- Loss before income taxes (3,577) (5,687) Income tax (provision) benefit 0 0 -------- -------- Net loss $ (3,577) $ (5,687) ======== ======== Basic net loss per share $ (.25) $ (.39) ======== ======== Diluted net loss per share $ (.25) $ (.39) ======== ======== Weighted average number of common shares outstanding 14,123 14,400 ======== ======== Weighted average number of common and assumed conversion shares outstanding 14,123 14,400 ======== ======== The accompanying notes are an integral part of the condensed consolidated financial statements. 3 CNS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
Three Months Ended March 31, ----------------------- 2001 2000 -------- -------- Operating activities: Net loss $ (3,577) $ (5,687) Adjustments to reconcile net loss to net cash from operating activities: Depreciation and amortization 271 251 Changes in operating assets and liabilities: Accounts receivable (1,182) 4,579 Inventories (1,767) 918 Prepaid expenses and other current assets 362 1,770 Accounts payable and accrued expenses (5,544) (6,672) -------- -------- Net cash from operating activities (11,437) (4,841) -------- -------- Investing activities: Net change in marketable securities 10,425 4,330 Payments for purchases of property and equipment (255) (47) Payments for product rights (148) (17) -------- -------- Net cash from investing activities 10,022 4,266 -------- -------- Financing activities: Proceeds from issuance of common stock under stock plans 88 0 Purchase of treasury shares (51) (249) -------- -------- Net cash from financing activities 37 (249) -------- -------- Net change in cash and cash equivalents (1,378) (824) Cash and cash equivalents: Beginning of period 2,079 860 -------- -------- End of period $ 701 $ 36 ======== ========
The accompanying notes are an integral part of the condensed consolidated financial statements. 4 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The accompanying condensed consolidated financial statements as of March 31, 2001 and 2000 are unaudited but, in the opinion of management, include all adjustments (consisting only of normal, recurring accruals) necessary for a fair presentation of results for the interim periods presented. Note 1 - Accounting Principles The accounting principles followed in the preparation of the financial information contained herein are the same as those described in the Annual Report on Form 10-K for the year ended December 31, 2000, and reference is hereby made to that report for detailed information on accounting policies. Note 2 - Comprehensive Income (Loss) A reconciliation of total comprehensive income (loss) is as follows (in thousands): Three Months Ended March 31, --------------------- 2001 2000 ------- ------- Net loss ($3,577) ($5,687) Change in unrealized gain on marketable securities, net of income tax 200 0 ------- ------- Total comprehensive loss ($3,377) ($5,687) ------- ------- Note 3 - Earnings Per Share A reconciliation of weighted average common and assumed conversion shares outstanding is as follows (in thousands): Three Months Ended March 31, --------------------- 2001 2000 ------- ------- Average common shares outstanding 14,123 14,400 Assumed conversion of stock options 0 0 ------ ------ Average common and assumed Conversion shares 14,123 14,400 ------ ------ Note 4 - Recent Accounting Pronouncements In 2000, the Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 00-14, "Accounting for Certain Sales Incentives". This EITF requires companies to present in their statements of operations, certain sales incentives as sales allowances, resulting in a reduction of net sales. The Company currently records sales incentives covered by this EITF as operating expenses. The Company will be required to adopt this EITF beginning with the quarter ending March 31, 2002. If the Company would have applied the presentation set forth in this issue in the quarter ending March 31, 2001 and 2000, net sales would have been reduced by $308,000 and $298,000, respectively. Operating expenses would have also been 5 reduced by the same amounts in the corresponding years. This issue does not impact operating income (loss) for any of these periods. In 2001, the Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 00-25, "Vendor Income Statement Characterization of Consideration to a Purchaser of the Vendor's Products or Services". This EITF requires companies to present in their statements of operations, certain consideration paid to a purchaser of the company's products as sales allowances, resulting in a reduction of net sales. The Company currently records costs covered by this EITF as operating expenses. The Company will be required to adopt this EITF beginning with the quarter ending March 31, 2002. The Company is in the process of evaluating this EITF and its potential impact. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The Company's revenues are derived primarily from the manufacture and sale of the Breathe Right(R) nasal strip, which is a nonprescription, disposable device designed to improve nasal breathing and temporarily relieve nasal congestion, and to reduce or eliminate snoring and breathing difficulties due to a deviated nasal septum. The Company began marketing FiberChoice(R) chewable tablets, an innovative bulk fiber supplement in the second quarter of 2000. Results of Operations Net sales increased 85.3% to $27.1 million for the first quarter of 2001 compared to $14.6 million for the same quarter of 2000. Domestic sales increased 55.2% to $22.3 million from $14.4 million in the first quarter of 2000. Increased sales reflect increased Breathe Right nasal strip sales and sales of FiberChoice chewable tablets, first shipped to customers in the second quarter of 2000. Breathe Right strip sales continued to grow due to the Company's new mentholated and kids strips and the growth of the core Breathe Right nasal strip business. International sales were $4.8 million for the first quarter of 2001 compared to $296,000 for the same quarter of 2000. The higher level of international sales for 2001 resulted from new international distributors in Japan, Europe and Australia and the Company's international marketing efforts. Gross profit was $18.4 million for the first quarter of 2001 compared to $9.8 million for the same quarter of 2000. Gross profit as a percentage of net sales increased to 67.9% for the first quarter of 2001 compared to 66.9% for the same quarter of 2000. The higher gross profit percentage resulted primarily from improved margins on Breathe Right nasal strips partially offset by the lower gross profit percentage on FiberChoice tablets. Marketing and selling expenses were $20.2 million for the first quarter of 2001 compared to $14.3 million for the same quarter of 2000. The increase resulted primarily from planned advertising and sales support for the launch of FiberChoice chewable tablets and relaunch of Breathe Right nasal strips in international markets. The majority of our advertising for the Breathe Right brand is during the cough/cold season, which is the Company's first and fourth calendar quarters. Marketing and selling expenses also include marketing development funds ("MDF") provided to retail customers. In order to obtain the greatest benefit from those expenses, the Company works with retail customers to concentrate those expenditures in the cough/cold season. For that reason, the Company expensed an additional $1 million for MDF in the first quarter of this year. This additional first quarter expense is not expected to impact total MDF expenses planned for 2001. General and administrative expenses were $1.5 million for the first quarter of 2001 compared to $1.2 million for the same quarter of 2000. This increase resulted primarily from the expenses associated with increasing the Company's infrastructure to support the growing business and business development expenses associated with the identification of future product opportunities. 7 Product development expenses were $627,000 for the first quarter of 2001 compared to $488,000 for the same quarter of 2000. The increase represents expenses for the investigation of potential new products and improvements to existing products. No new product launches are expected in 2001. Operating loss for the first quarter of 2001 was $3.9 million compared to $6.2 million for the same quarter of 2000. Investment income was $362,000 for the first quarter of 2001 compared to $498,000 for the same quarter of 2000. The decrease was primarily the result of a decrease in investable funds. There was no income tax benefit for the first quarter of 2001 due to tax loss carryforwards. Seasonality The Company believes that a portion of Breathe Right nasal strip use is for the temporary relief of nasal congestion and congestion-related snoring. Sales of nasal congestion remedies are higher during the fall and winter seasons because of increased use during the cold and allergy seasons. Liquidity and Capital Resources At March 31, 2001, the Company had cash, cash equivalents and marketable securities of $19.7 million and working capital of $29.0 million. The Company used cash in operations of $11.4 million for the first quarter of 2001 compared with $4.8 million for the same quarter of 2000. The use of cash in 2001 was due to the net loss plus an increase in operating assets and payment of operating liabilities. The Company had net sales of $10.4 million of marketable securities in the first quarter of 2001. The Company believes that its existing funds and funds generated from operations will be sufficient to support its planned operations for the foreseeable future. Recent Accounting Pronouncements See Note 4 to Condensed Consolidated Financial Statements. Forward-Looking Statements Certain statements contained in this Quarterly Report on Form 10-Q and other written and oral statements made from time to time by the Company do not relate strictly to historical or current facts but provide current expectations or forecasts of future events. As such, they are considered "forward-looking statements" under the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties that could cause actual results to differ materially from those presently anticipated or projected. Such forward-looking statements can be identified by the use of terminology such as "may," "will," "expect," "plan," "intend," "anticipate," "estimate," 8 or "continue" or similar words or expressions. It is not possible to foresee or identify all factors affecting the Company's forward-looking statements and investors therefore should not consider any list of factors to be an exhaustive statement of all risks, uncertainties or potentially inaccurate assumptions. Factors that could cause actual results to differ from the results discussed in the forward-looking statements include, but are not limited to, the following factors: (i) the Company's revenue and profitability is reliant on sales of Breathe Right nasal strips; (ii) the Company's success and future growth will depend significantly on its ability to effectively market Breathe Right nasal strips and upon its ability to develop and achieve markets for additional products; (iii) the Company's competitive position will, to some extent, be dependent on the enforceability and comprehensiveness of the patents on its Breathe Right nasal strip technology which have been, and in the future could be, the subject of litigation and may be narrowed as a result of the outcome of the reexamination of one such patent by the United States Patent and Trademark Office; (iv) the Company has faced and, in the future could face, challenges in successfully developing and introducing new products; (v) the Company operates in competitive markets where recent and potential entrants into the nasal dilator segment pose competitive challenges; (vi) the Company is dependent upon contract manufacturers for the production of substantially all of its products; (vii) the Company currently purchases most of its major components for its nasal strip products from different contract manufacturers that obtain the raw materials from a single supplier that has the right to discontinue the production and sale of the materials at any time; and (viii) the risk factors included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Item 3. Quantitative and Qualitative Disclosures about Market Risk The Company's market risk exposure is primarily interest rate risk related to its cash and cash equivalents and investments in marketable securities. The Company's risk to interest rate fluctuations has not materially changed since December 31, 2000. See Item 7A of the Company's Annual Report on Form 10-K for the year ended December 31, 2000. 9 PART II - OTHER INFORMATION Item 1. Legal Proceedings Not Applicable Item 2. Changes in Securities Not Applicable Item 3. Defaults Upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security Holders Not Applicable Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: See "Exhibit Index" on the page following the Signature Page. (b) Reports on Form 8-K None 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CNS, Inc. ----------------------------------- Registrant Date: May 9, 2001 By: /s/ Marti Morfitt ----------------------- ------------------------------- Marti Morfitt President & Chief Operating Officer Date: May 9, 2001 By: /s/ David J. Byrd ----------------------- ------------------------------- David J. Byrd Vice President of Finance, Chief Financial Officer and Treasurer 11 CNS, INC. EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - ----------- ----------- 3.1 Company's Certificate of Incorporation as amended to date (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995 (the "1995 Form 10-K")). 3.2 Company's Amended and Restated By-Laws (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999 (the "1999 Form 10-K")). 10.1* CNS, Inc. 1987 Employee Incentive Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-18, Commission File No. 33-14052C). 10.2* CNS, Inc. 1989 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-8, Commission File No. 33-29454). 10.3* CNS, Inc. 1990 Stock Plan (incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended December 31, 1990). 10.4* CNS, Inc. 1994 Amended Stock Plan (incorporated by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). 10.5* CNS, Inc. 2000 Stock Option Plan (incorporated by reference to Exhibit A of the Definitive Proxy Statement for the Company's Annual Meeting of Stockholders that was held on May 3, 2000). 10.6** License Agreement dated January 30, 1992 between the Company and Creative Integration and Design, Inc. (incorporated by reference to Exhibit 10.11 to the Company's Registration Statement on Form S-2, File No. 33-46120). 10.7** License Agreement dated November 10, 1997 between the Company and Onesta Nutrition, Inc. (incorporated by reference to Exhibit 10.9 to the Company's 1999 Form 10-K). 10.8** License Agreement dated March 12, 1999 between the Company and WinEase LLC (incorporated by reference to Exhibit 10.10 of the 1999 Form 10-K). 10.9** License Agreement dated June 21, 1999 between the Company and Peter Cronk and Kristen Cronk (incorporated by reference to Exhibit 10.11 of the 1999 Form 10-K). 10.10** License Agreement dated March 1, 2000 between the Company and Proctor and Gamble (incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 (the "2000 Form 10-K")). 10.11 Amendment to Trademark License Agreement effective as of March 20, 2001 by and between the Company and the Procter & Gamble Company. 10.12** Second Amendment to Trademark License Agreement effective as of April 27, 2001 by and between the Company and the Procter & Gamble Company. 10.13** Distributor Agreement between the Company and Eisai Co., Ltd. dated August 1, 2000 (incorporated by reference to Exhibit 10.11 to the 2000 Form 10-K). 10.14** Repackaging Agreement between the Company and Herusu, Co., Ltd. dated August 1, 2000 (incorporated by reference to Exhibit 10.12 to the 2000 Form 10-K). 10.15* Employment Agreement between the Company and Daniel E. Cohen dated February 12, 1999 (incorporated by referenced to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (the "1998 Form 10-K")). 10.16* Employment Agreement between the Company and Marti Morfitt dated February 12, 1999 (incorporated by referenced to Exhibit 10.10 to the 1998 Form 10-K). 10.17* Employment Agreement between the Company and Kirk P. Hodgdon dated February 12, 1999 (incorporated by referenced to Exhibit 10.11 to the 1998 Form 10-K). 10.18* Employment Agreement between the Company and David J. Byrd dated February 12, 1999 (incorporated by referenced to Exhibit 10.12 to the 1998 Form 10-K). 10.19* Employment Agreement between the Company and John J. Keppeler dated February 12, 1999 (incorporated by referenced to Exhibit 10.13 to the 1998 Form 10-K). 10.20* Employment Agreement between the Company and Teri P. Osgood dated February 12, 1999 (incorporated by referenced to Exhibit 10.14 to the 1998 Form 10-K). 10.21* Employment Agreement between the Company and Carol J. Watzke dated February 12, 1999 (incorporated by referenced to Exhibit 10.15 to the 1998 Form 10-K). 10.22* Employment Agreement between the Company and M. W. Anderson dated February 12, 1999 (incorporated by referenced to Exhibit 10.17 to the 1998 Form 10-K). 10.23* Employment Agreement between the Company and Larry R. Muma dated January 2, 2001 (incorporated by reference to Exhibit 10.21 to the 2000 Form 10-K). * Indicates Compensatory Agreement ** Certain portions of this Exhibit have been deleted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 24b-2. Spaces corresponding to the deleted portions are represented by brackets with asterisks. EX-10 2 cns011368_ex10-11.txt EXHIBIT 10.11 AMEND TO TRADEMARK LICENSE AGRMT EXHIBIT 10.11 AMENDMENT TO TRADEMARK LICENSE AGREEMENT THIS AMENDMENT ("Amendment") to the TRADEMARK LICENSE AGREEMENT of March 1, 2000 (the "License Agreement") is made effective this __ day of March, 2001, by and between the Procter & Gamble Company, an Ohio corporation with a place of business at One P&G Plaza, Cincinnati, Ohio 45202 and its affiliates and subsidiaries (collectively, "P&G") and CNS Inc., a Delaware corporation with its new place of business at 7615 Smetana Lane, Eden Prairie, MN 55344, ("CNS"). All capitalized terms used herein but not specifically defined shall have the meanings set forth in the License Agreement. WHEREAS P&G has previously granted a non-transferable and exclusive license to CNS to use the VICKS(R) trademark and triangle design trademark (collectively, the "Licensed Marks") on the Product listed on Schedule 2 of the License Agreement (the "Product"), in the countries listed on Schedule 3 (the "Area") and subject to the restrictions outlined in Schedule 4; and WHEREAS the parties agreed that the License Agreement and/or any of these Schedules may be amended at any time upon agreement by the parties in writing; and WHEREAS the parties desire to expand the Licensed Marks to include the trademarks Vick(R)and Wick(R); and WHEREAS the parties desire to amend the Area of the License Agreement by amending Schedule 3; NOW THEREFORE, the parties agree to amend the License Agreement as follows: THE FIRST AND SECOND "WHEREAS" CLAUSES ARE HEREBY AMENDED TO READ AS FOLLOWS: WHEREAS, P&G has the right to use and to license to others to use various VICKS, VICK and WICK trademarks and triangle design trademark which are well-known and famous marks owned and used by P&G in association with its advertising and marketing of cough and cold products; and WHEREAS, CNS recognizes the benefits to be derived from utilizing the VICKS, VICK and WICK trademarks and triangle design trademark and desires to utilize said trademarks upon and in connection with the manufacture, sale and distribution of Breathe Right nasal strips; SCHEDULE 1 IS HEREBY AMENDED TO INCLUDE THE VICK AND WICK TRADEMARKS; AN AMENDED SCHEDULE 1 IS ATTACHED. 1 SCHEDULE 3 IS HEREBY AMENDED TO INCLUDE SEVERAL NEW COUNTRIES IN SEVERAL NEW REGIONS. THE NEW COUNTRIES ARE LISTED BY REGION IN THE AMENDED SCHEDULE 3. AN AMENDED SCHEDULE 3 IS ATTACHED. Except as set forth herein, all terms of the License Agreement remain unchanged by this Amendment. IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment. For THE PROCTER & GAMBLE COMPANY For CNS, INCORPORATED By: /s/ T.C. Blinn By: /s/ Kirk P. Hodgdon ---------------------------------- --------------------------------- Name: T.C. Blinn Name: Kirk P. Hodgdon Title: V.P. Global Personal Healthcare Title: V.P. Business Development Date: March 20, 2001 Date: March 15, 2001 2 AMENDED SCHEDULE 1 Vicks(R) Vicks triangle design mark Vick(R) Wick(R) 3 AMENDED SCHEDULE 3 REGIONS: COUNTRIES: North America United States Canada Puerto Rico Latin America Argentina Belize Bolivia Brazil Chile Columbia Costa Rica Ecuador French Guiana Guatemala Guyana Honduras Mexico Nicaragua Panama Paraguay Peru Suriname Uruguay Venezuela Asia/Middle East/Africa Australia Israel New Zealand South Africa 4 EX-10 3 cns011368_ex10-12.txt EXH 10.12 SECOND AMEND TO TRADEMARK LICENSE AGRMT CERTAIN INFORMATION HAS BEEN DELETED FROM THIS EXHIBIT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER RULE 24b-2. EXHIBIT 10.12 SECOND AMENDMENT TO TRADEMARK LICENSE AGREEMENT THIS SECOND AMENDMENT ("Second Amendment") to the TRADEMARK LICENSE AGREEMENT of March 1, 2000 (the "License Agreement"), which was first amended on March 20, 2001, is made effective this day of April, 2001, by and between The Procter & Gamble Company, an Ohio corporation with a place of business at One P&G Plaza, Cincinnati, Ohio 45202 and its affiliates and subsidiaries (collectively, "P&G") and CNS Inc., a Delaware corporation with its new place of business at 7615 Smetana Lane, Eden Prairie, MN 55344, ("CNS"). All capitalized terms used herein but not specifically defined shall have the meanings set forth in the License Agreement. WHEREAS P&G has previously granted a non-transferable and exclusive license to CNS to use the VICKS(R) trademark and triangle design trademark (collectively, the "Licensed Marks") on the Product listed on Schedule 2 of the License Agreement (the "Product"), in the countries listed on Schedule 3 (the "Area") and subject to the restrictions outlined in Schedule 4; and WHEREAS the parties agreed that the License Agreement and/or any of these Schedules may be amended at any time upon agreement by the parties in writing, and WHEREAS on March 20, 2001 the parties amended Schedule 1 of the License Agreement to include the trademarks Vick(R) and Wick(R) and concurrently amended Schedule 3 to include several new countries in several new regions; and WHEREAS the parties now desire to amend the Area of the License Agreement by amending Schedule 3 to include four additional countries for inclusion in the Area for a initial test period of time; NOW THEREFORE, the parties agree to amend the License Agreement as follows: Schedule 3 is hereby amended to include the Following new countries in the Europe region: France, Portugal, Spain and the United Kingdom. The new countries are listed by region in the amended Schedule 3. An Amended Schedule 3 is attached. Schedule 5 is hereby amended to reflect that CNS' Royalty as % of CNS' Net Sales of Products which include the Licensed Marks shall be [* * *] for each country listed on Amended Schedule 3. An Amended Schedule 5 is attached. 1 Related to this expansion of the License Agreement to the Europe region ("Expansion"), the parties hereby agree to the following specific terms and conditions for such Expansion; CNS shall have the rights and obligations, including the royalty obligations, set forth in the License Agreement in the countries of the Europe region designated on Schedule 3 for a term to expire May 1, 2002 ("Expansion Period"). During this Expansion Period, P&G and CNS shall mutually agree on evaluation criteria to be utilized by P&G to analyze and evaluate the success of the Expansion and the effect of such Expansion on P&G's Vicks VapoRub business. P&G shall conduct this analysis and evaluation at its own cost and expense. P&G, in its sole discretion, shall determine whether to continue this Expansion effort beyond the Expansion Period. If P&G does not notify CNS of its desire to continue with the Expansion of the Trademark License before May 1, 2002, then such Expansion shall automatically terminate on May 1, 2002 and this Second Amendment shall be null and void. Upon said termination, CNS shall cease using the Licensed Marks on its products in a countries in the Europe region listed an Amended Schedule 3, and except for royalties accrued as of the date of termination, CNS shall have no further obligation to make payments. Notwithstanding the above, for a period of one-hundred twenty (120) days, CNS shall retain rights to use the Licensed Marks (and the corresponding royalty obligations) on Products distributed or in inventory prior to termination. If P&G notifies CNS of its desire to continue with the Expansion of the Trademark License, then P&G and CNS shall in good faith negotiate a new amendment to the License Agreement to set forth the parties' agreement for continuation of the Expansion and any agreement for further expansion of the License Agreement. P&G agrees that in the event the Expansion is continued beyond May 1, 2002, the Initial Expansion Period will not count as a year for the purposes of determining Minimum Royalty obligation set forth in Section 7(b) and Schedule 6 of the License Agreement. Except as set forth herein all terms of the License Agreement remain unchanged by this Second Amendment. IN WITNESS WHEREOF, the parties hereto have duly executed this Second Amendment. 2 For THE PROCTER & GAMBLE COMPANY For CNS, INCORPORATED By: /s/ T.C. Blinn By: /s/ Kirk P. Hodgdon ---------------------------------- --------------------------------- Name: T.C. Blinn Name: Kirk P. Hodgdon Title: V.P. Global Personal Healthcare Title: V.P. Business Development Date: April 27, 2001 Date: April 25, 2001 3 AMENDED SCHEDULE 3 (PURSUANT TO APRIL _____, 2001 SECOND AMENDMENT TO LICENSE AGREEMENT) REGIONS: COUNTRIES: North America United States Canada Puerto Rico Latin America Argentina Belize Bolivia Brazil Chile Columbia Costa Rica Ecuador French Guiana Guatemala Guyana Honduras Mexico Nicaragua Panama Paraguay Peru Suriname Uruguay Venezuela Asia/Middle East/Africa Australia Israel New Zealand South Africa Europe France Portugal Spain United Kingdom 4 AMENDED SCHEDULE 5 (PURSUANT TO APRIL _____, 2001 SECOND AMENDMENT TO LICENSE AGREEMENT) ROYALTY AS % OF CNS' NET SALES OF PRODUCTS COUNTRY WHICH INCLUDE THE LICENSED MARKS - ------- -------------------------------- Every country listed on Amended Schedule 3 [* * *] 5 -----END PRIVACY-ENHANCED MESSAGE-----