Proxy

DEF 14A 1 proxy2001a.htm Proxy

SCHEDULE 14A
                                 (Rule 14a-101)
                     INFORMATION REQUIRED IN PROXY STATEMENT
                            SCHEDULE 14A INFORMATION

           Proxy Statement Pursuant to Section 14(a) of the Securities
                              Exchange Act of 1934

Filed by the Registrant [x] Filed by a party other than the Registrant [ ] Check
the appropriate box:

[   ]   Preliminary proxy statement       [   ]   Confidential, for Use of the
[ x ]   Definitive proxy statement                Commission Only (as permitted
[   ]   Definitive additional materials           by Rule 14a-6(e) (2) )
[   ]   Soliciting material pursuant to
        Rule 14a-11(c) or Rule 14a-12

                              NEUROGEN CORPORATION
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                (Name of Registrant as Specified in its Charter)

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      (Name of Person(s) Filing Proxy Statement, if other than registrant)

Payment of filing fee. (Check the appropriate box):

[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1)      Title of each class of securities to which transaction applies:  N/A
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(2)      Aggregate number of securities to which transactions applies:  N/A
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(3)      Per unit price or other underlying value of transaction computed
         pursuant to Exchange Act Rule 0-11:  N/A
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(4)      Proposed maximum aggregate value of transaction:  N/A
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(5)      Total fee paid:  N/A

[ ]      Fee paid previously with preliminary materials.

[ ]      Check box if any part of the  fee is offset  as  provided  by  Exchange
         Act Rule  0-11(a)(2)  and identify the filing for which the  offsetting
         fee was paid  previously.  Identify the previous filing by registration
         statement number, or the form  or schedule  and the date of its filing.

(1)      Amount previously paid:
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(2)      Form, schedule or Registration Statement No.:
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(3)      Filing party:
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(4)      Date filed:
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NEUROGEN CORPORATION

June 25, 2001

To the Stockholders of Neurogen Corporation:

On behalf of the Board of Directors, I cordially invite you to attend the
2001 Annual Meeting of Stockholders of Neurogen Corporation. The Annual Meeting
will be held on Monday, July 16, 2001, at 10:00 a.m., local time, at Neurogen
Corporation at 35 Northeast Industrial Road, Branford, Connecticut.

A description of business to be conducted at the Annual Meeting is set
forth in the attached Notice of Annual Meeting and Proxy Statement. Also
enclosed is a copy of our 2000 Annual Report to Stockholders.

It is important that your views be represented whether or not you are able
to be present at the Annual Meeting. Please mark, sign, date and return the
enclosed proxy card promptly in the accompanying postage-paid envelope. By
returning the proxy, you can help the Company avoid the expense of duplicate
proxy solicitations and possibly having to reschedule the Annual Meeting if a
quorum of outstanding shares is not present or represented by proxy. If you
attend the Annual Meeting and wish to change your proxy vote, you may do so
simply by voting in person at the Annual Meeting.

Sincerely,

/s/ Harry H. Penner, Jr.
-------------------------------------
Harry H. Penner, Jr.
President and Chief Executive Officer

NEUROGEN CORPORATION

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held on July 16, 2001

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Neurogen
Corporation will be held on Monday, July 16, 2001 , at 10:00 a.m., local time,
at Neurogen Corporation at 35 Northeast Industrial Road, Branford, Connecticut,
for the following purposes:

1. To elect twelve directors to the Board of Directors, each to hold
office until the next Annual Meeting of Stockholders of the Company
and until such director's respective successor shall have been duly
elected and qualified.

2. To adopt the Neurogen Corporation 2001 Stock Option Plan.

3. To ratify the appointment by the Board of Directors of
PricewaterhouseCoopers LLP as the independent auditors for the Company
for the fiscal year ending December 31, 2001.

4. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.

This Notice is accompanied by a form of proxy, a Proxy Statement and the
Company's 2000 Annual Report to Stockholders. The foregoing items of business
are more fully described in the Proxy Statement.

In accordance with the Company's By-laws, the close of business on June 18,
2001 has been fixed as the Record Date for the determination of the stockholders
entitled to notice of and to vote at the Annual Meeting and any adjournment
thereof.

By order of the Board of Directors,

/s/ Stephen R. Davis
-------------------------------------
Stephen R. Davis
Secretary

Branford, Connecticut
June 25, 2001

IMPORTANT

To ensure your representation at the meeting, you are urged to mark, sign,
date and return the enclosed proxy as promptly as possible in the postage-paid
envelope enclosed for that purpose. If you attend the meeting, you may vote in
person even if you returned a proxy.

NEUROGEN CORPORATION
PROXY STATEMENT

General
The enclosed proxy is solicited on behalf of the Board of Directors of
Neurogen Corporation (the "Company" or "Neurogen") for use at the Annual Meeting
of Stockholders to be held on July 16, 2001, at 10:00 a.m., local time, or at
any adjournment thereof (the "Annual Meeting"). The Annual Meeting will be held
at Neurogen Corporation at 35 Northeast Industrial Road, Branford, Connecticut.
The purposes of the Annual Meeting are set forth in the attached Notice of
Annual Meeting of Stockholders.

This Proxy Statement, the Notice of Annual Meeting of Stockholders, the
form of proxy and Neurogen's Annual Report to Stockholders are being mailed to
stockholders on or about July 2, 2001.

Record Date and Share Ownership
Stockholders of record on the Company's books at the close of business on
June 18, 2001 (the "Record Date") are entitled to vote at the Annual Meeting. At
the Record Date, 17,433,517 shares of the Company's Common Stock, par value
$.025 per share (the "Common Stock"), were issued and outstanding. For
information concerning stock ownership by certain stockholders, see "Principal
Stockholders".

Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company a written
notice of revocation prior to the voting of the proxy or a duly executed proxy
bearing a later date or by attending the Annual Meeting and voting in person.

Voting and Solicitation
Each stockholder is entitled to one vote for each share of the Common Stock
held of record in his or her name on the Record Date on each matter submitted to
a vote at the Annual Meeting. Cumulative voting is not permitted with respect to
any proposal to be acted upon at the Annual Meeting.

If properly executed and received by the Company before the Annual Meeting,
any proxy representing shares of Common Stock entitled to be voted at the Annual
Meeting and specifying how it is to be voted will be voted accordingly. Any such
proxy, however, which fails to specify how it is to be voted on a proposal for
which a specification may be made will be voted on such proposal in accordance
with the recommendation of the Board of Directors. Abstentions are counted in
tabulations of the votes cast on proposals presented to stockholders, but broker
non-votes are not counted for purposes of determining whether a proposal has
been approved.

The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock entitled to vote at the Annual Meeting,
excluding any shares owned by the Company, is necessary to constitute a quorum.
Abstentions and broker non-votes are counted for purposes of determining the
presence or absence of a quorum for the transaction of business.

The cost of soliciting proxies will be borne by the Company. In addition,
the Company expects to reimburse brokerage firms and other persons representing
beneficial owners of Common Stock for their expenses in forwarding solicitation
material to such beneficial owners. Proxies may be solicited by certain of the
Company's directors, officers and regular employees, without additional
compensation, in person or by mail, telephone, facsimile or telegram.

Pursuant to Delaware law, the Board of Directors has appointed an inspector
to act at the Annual Meeting. The inspector shall carry out the duties imposed
pursuant to Section 231 of the Delaware General Corporation Law, including the
counting of votes.

PROPOSAL NO. 1:
ELECTION OF DIRECTORS

Twelve directors are to be elected to the Board of Directors at the Annual
Meeting. Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the twelve nominees of the Board of Directors named below,
all of whom are presently directors of the Company and have served continuously
since the month and year indicated opposite each such director's name in the
following table, each to hold office for a term expiring at the next Annual
Meeting of Stockholders of the Company and until such director's successor shall
have been duly elected and qualified. In the event that any nominee of the
Company is unable or declines to serve as a director at the time of the Annual
Meeting, the proxies will be voted for any nominee who shall be designated by
the present Board of Directors to fill the vacancy. It is not expected that any
nominee will be unable or will decline to serve as a director. In the event that
additional persons are nominated for election as directors, the proxy holders
intend to vote all proxies received by them in such a manner as will assure the
election of as many of the nominees listed below as possible, with any required
selection among such nominees to be determined by the proxy holders. The twelve
persons receiving the highest vote totals shall be elected as directors of the
Company.

The Company's Board of Directors recommends a vote FOR the nominees listed below:

Name of Nominees Age Principal Occupation Director Since

Felix J. Baker, PhD 32 Portfolio Manager, Tisch Family Interests; May 1999
Managing member of Baker-Tisch Investments LLC;
Managing member of Baker Bros. Investments LLC

Julian C. Baker 34 Portfolio Manager, Tisch Family Interests; May 1999
Managing member of Baker-Tisch Investments LLC;
Managing member of Baker Bros. Investments LLC

Barry M. Bloom, Ph.D. 72 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 70 Chairman of the Board, Neurogen Corporation; February 1989
Chairman, The Carlyle Group

Jeffrey J. Collinson 59 President, Collinson Howe Venture Partners, Inc. May 1989

Mark Novitch, M.D. 68 Former Vice Chairman of the Board, The Upjohn December 1993
Company; Adjunct Professor of Health Care
Sciences, George Washington University
Medical Center

Harry H. Penner, Jr.(1) 55 President, Chief Executive Officer and Vice
Chairman of the Board, Neurogen Corporation December 1993

Robert H. Roth, Ph.D. 61 Professor of Psychiatry and Pharmacology, Yale December 1988
University

John Simon 58 Managing Director, Allen & Company Incorporated May 1989

John F. Tallman, Ph.D.(2) 54 Chairman and CEO, Wellspring Therapeutics, Inc.; July 1988
Former Executive Vice President, Secretary and
Scientific Director, Neurogen Corporation

Suzanne H. Woolsey, Ph.D. 59 Chief Communications Officer, National Academy of January 1998
Sciences/National Research Council
----------------

(1) In August 2000, the Company announced that Harry H. Penner, Jr., plans to
step down as President and CEO. The Company is currently conducting a
search for a new CEO. Mr. Penner has indicated that he plans to stay on
until the search is completed.

(2) John F. Tallman, Ph.D., retired from his position as Executive Vice
President, Secretary and Scientific Director of the Company, effective
January 15, 2001, but will continue as a member of the Board of Directors.

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.

Harry H. Penner, Jr., has been President, Chief Executive Officer and a
director of Neurogen since December 1993 and was appointed Vice Chairman of the
Board of Directors in May 1999. Mr. Penner was employed by Novo Nordisk A/S from
1981 to 1993, most recently serving as an Executive Vice President of Novo
Nordisk A/S and as President of Novo Nordisk of North America Inc. Mr. Penner
holds an L.L.M. in International Law from New York University, a J.D. from
Fordham University and a B.A. from the University of Virginia. Mr. Penner also
serves on the Board of Directors of Avant Immunotherapeutics, Inc., Genaissance
Pharmaceuticals, Inc., Packard BioScience Company and PRA International, Inc.
Mr. Penner is Co-Chairman of CURE, Connecticut's Bioscience Cluster, a member of
the Connecticut Board of Governors of Higher Education and chaired the Board of
Directors of the Connecticut Technology Council (CTC) from 1996 - 1998.

Frank C. Carlucci has served as a director and Chairman of the Board of
Neurogen since February 1989. Mr. Carlucci is principally employed as Chairman
of The Carlyle Group, a private merchant bank. 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, Nortel
Networks (Chairman), The Quaker Oats Company, Sun Resorts, Pharmacia Corporation
and Texas Biotech Inc.

Julian C. Baker has served as a director of Neurogen since May 1999.
Together with his brother Felix J. Baker, Ph.D., he has managed healthcare
investments for the Tisch Family since 1994. The Baker brothers also manage
other investment funds focused on the life sciences industry. Prior to his
partnership with the Tisch family, Mr. Baker was employed by the merchant
banking affiliates of Credit Suisse First Boston. Mr. Baker is also a director
of Cellegy Pharmaceuticals and various private companies. He holds a A.B. magna
cum laude from Harvard University.

Felix J. Baker, Ph.D., 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. The Baker brothers also manage other investment
funds focused on the life sciences industry. Dr. Baker is also a director of
Cellegy Pharmaceuticals and various private companies. He hold a B.S. with
honors and a Ph.D. in Immunology from Stanford University.

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 is
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 is presently Chief Executive Officer and President of the International
Longevity Center-USA. 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.

Jeffrey J. Collinson has served as a director of Neurogen since May 1989.
Mr. Collinson has served as President of Collinson Howe Venture Partners Inc., a
venture capital firm, since 1990 and was President of Schroder Venture Managers,
Inc., a venture capital firm, from 1983 to 1990. Mr. Collinson is also President
of Collinson Howe and Lenox, LLC and director of American Renal Associates, LLC,
Incyte Genomics Inc., Molecular Staging, Inc. and SemperCare, Inc.

Mark Novitch, M.D., has served as a director of Neurogen since December
1993. Dr. Novitch was appointed Professor of Health Care Sciences at The George
Washington University in 1994 and since 1997 has served as Adjunct Professor. 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.

Robert H. Roth, Ph.D., has served as a director of Neurogen since December
1988 and as a member of the Company's Science committees since July 1988. Dr.
Roth has been a Professor of Psychiatry and Pharmacology at Yale University
since 1974. Dr. Roth has a Ph.D. in Pharmacology from Yale University and has
published over 450 papers in the field of Neuropharmacology.

John Simon has served as a director of Neurogen since May 1989. Mr. Simon
is a Managing Director of the investment banking firm of Allen & Company
Incorporated. Mr. Simon is a director of Women First Healthcare, Inc., Advanced
Technical Products, Inc., and Costar Group, Inc. (formerly known as Realty
Information Group).

John F. Tallman, Ph.D., has been a director of Neurogen since July 1988. He
also served as Executive Vice President, Secretary and Scientific Director of
the Company until 2001. Prior to joining Neurogen, Dr. Tallman was an Associate
Professor of Psychiatry and Pharmacology at Yale University. Dr. Tallman had
previously served in research director positions at the National Institute of
Mental Health in Bethesda, Maryland. Dr. Tallman received his Ph.D. in Biology
from Georgetown University. Dr. Tallman is currently Chairman and CEO of
Wellspring Therapeutics, Inc., a development stage company with a focus on stem
cell therapeutics, and is a Director of Helicon Therapeutics, Inc., a learning
and memory company.

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, and as a founding
partner of the Upstreet Partners, LLC. 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.

Board Meetings and Committees
The Board of Directors of the Company held six meetings during the fiscal
year ended December 31, 2000. The Board of Directors has an Audit Committee, a
Compensation Committee and a Finance Committee. During the fiscal year ended
December 31, 2000, the Company did not have a nominating committee or a
committee performing the functions of a nominating committee.

The Audit Committee, which consists of Messrs. Carlucci, Novitch and Simon,
recommends appointment of the Company's independent auditors and is primarily
responsible for approving the services performed by the Company's independent
auditors and for reviewing and evaluating the Company's accounting principles
and its system of internal accounting controls. In the last fiscal year, the
Audit Committee held one full meeting and three meetings, in which Frank C.
Carlucci acted on behalf of the Audit Committee in discussions held with
management and the independent auditors.

The Compensation Committee, which consists of Messrs. Carlucci, Collinson,
Simon and Julian Baker, reviews and takes action on behalf of the Board
concerning the Company's executive and employee compensation and stock option
policies, reviews benefit programs, supervises the administration and operation
of the Company's stock option plans and determines titles and salaries and other
compensation for the executive officers of the Company. The Compensation
Committee held three meetings during the last fiscal year.

Director Compensation
Mr. Carlucci receives a fee of $12,500 per fiscal quarter for his services
as Chairman of the Board. Dr. Roth receives a fee of $1,500 per month for his
services as a director. Dr. Bloom receives 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.

Under the Neurogen Corporation 2000 Non-Employee Directors Stock Option
Program (the "2000 Program"), effective April 2000, each new non-employee
director will receive 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, on the anniversary of such director's election, reelection,
appointment or reappointment to the Board, an option to acquire 5,000 shares of
Common Stock, subject to certain adjustments, at the fair market value on such
grant date. The current non-employee directors were granted, or will be granted,
such options on dates ranging from May 26, 2000 to May 10, 2001.

The 2000 Program has superseded the Company's previous directors' stock
option plan, the Neurogen Corporation 1993 Non-Employee Directors Stock Option
Program (the "1993 Program"). Under the 1993 Program, each non-employee director
received an option to acquire 20,000 shares of Common Stock at its then-current
fair market value upon such director's first election to the Board of Directors
(or in the case of existing directors, upon the adoption of the plan). Each of
the current non-employee directors received such a grant. Under the 1993
Program, each non-employee director also received annually, on the anniversary
of such director's initial grant, an option to acquire 5,000 shares of Common
Stock. The exercise price on these annual grants is equal to the fair market
value of the Common Stock on such anniversary.

Certain other new Board committees were established on September 25, 2000.
Each director serving on these committees receives a maximum amount of $12,000
on an annual basis. Upon establishment of these Committees, each director also
received a maximum grant of 3,000 options to acquire Common Stock of the Company
at the fair market value on the date of grant. The aggregate amount issued to
directors serving on these committees in 2000 was $96,000 in cash compensation
and 24,000 in stock options issued by the Company outside of the 1993 and 2000
Programs.

Compensation Committee Interlocks and Insider Participation
Messrs. Carlucci, Collinson, Simon and Julian Baker, all non-employee
directors, constitute the Company's Compensation Committee. No executive officer
of the Company serves as a member of the Board of Directors or Compensation
Committee of any entity that has one or more executive officers serving as a
member of the Company's Board of Directors or Compensation Committee.

PROPOSAL NO. 2:
ADOPTION OF THE NEUROGEN CORPORATION
2001 STOCK OPTION PLAN

In June of 2001, the Executive Committee of the Board recommended to the
Board the adoption of the Neurogen Corporation 2001 Stock Option Plan (the
"Plan"), subject to approval by the Company's shareholders. The Board
subsequently ratified the Executive Committee's recommendation and determined to
submit the Plan to the Company's shareholders. The Company's shareholders are
now requested to approve the adoption of the Plan.

A general description of the basic features of the Plan is set forth below.
Such description is qualified in its entirety by reference to the full text of
the Plan, which is set forth as Appendix A to this Proxy Statement.

PURPOSE

The purpose of the Plan is to attract and retain the best available
personnel, to provide additional incentive to employees and consultants and to
promote the success of the business of the Company and its subsidiaries.

NUMBER OF SHARES

The maximum number of shares of Company common stock, par value $0.025 per
share ("Common Stock"), as to which awards may be granted under the Plan may not
exceed two million (2,000,000) shares; provided, however, that no more than
fifty percent (50%) of that total may be issued in the form of restricted
shares. In the case of any individual participant in the Plan, the maximum
amount payable in respect of stock options in any calendar year may not exceed
five hundred thousand (500,000) shares of Common Stock, and the maximum amount
payable in respect of restricted shares in any calendar year may not exceed two
hundred fifty thousand (250,000) shares of Common Stock. The limits on the
numbers of shares described in this paragraph and the number of shares subject
to any award under the Plan are subject to proportional adjustment as determined
by the Board, to reflect certain stock changes, such as stock dividends and
stock splits (see "Changes in Capital Structure" below).

If any awards under the Plan expire or terminate unexercised, the shares of
Common Stock allocable to the unexercised or terminated portion of such award
shall again be available for award under the Plan.

ADMINISTRATION

The administration, interpretation and operation of the Plan will be vested
in the Compensation Committee of the Board (the "Committee"). No member of the
Committee, nor any other director who is not a salaried employee or officer of
the Company will be eligible to receive an award under the Plan. The Committee
may designate persons other than members of the Committee to carry out the
day-to-day administration of the Plan. The Committee may also (i) delegate to
the Company's President and Chief Executive Officer and to a Vice President of
the Company (as designated by the Committee), acting together, the authority to
grant stock options or restricted shares to those eligible employees and
consultants who are not subject to Section 16 of the Exchange Act or (ii) adopt
a resolution to automatically provide to an employee or consultant, upon the
initial employment of such person or performance of services by such person, a
grant of stock options or restricted shares; provided, however, that such
delegation or adoption will not be effective if it would disqualify the Plan, or
any other plan of the Company (or of any subsidiary) intended to be so
qualified, from (i) the exemption provided by SEC Rule 16b-3, (ii) the benefits
provided under Section 422 of the Code, or any successor provisions thereto or
(iii) entitlement to deductions under Code Section 162(m), or any successor
provision thereto.

ELIGIBILITY

Employees and consultants, or those who will become employees or
consultants, of the Company and/or its subsidiaries are eligible to receive
awards under the Plan. No determination has been made as to future awards which
may be granted under the Plan, although it is anticipated that recipients of
awards will include the current executive officers of the Company.

AWARDS UNDER THE PLAN

Introduction. Awards under the Plan may consist of stock options or
restricted shares, each of which is described below. All awards will be
evidenced by an award agreement between the Company and the individual grantee.
In the discretion of the Committee, an eligible employee may receive awards from
one or both of the categories described below, and more than one award may be
granted to an eligible employee.

Stock Options. A stock option is an award that entitles an optionee to
purchase shares of Common Stock at a price fixed at the time the option is
granted. In the case of any individual participant in the Plan, the maximum
amount payable in respect of stock options in any calendar year may not exceed
five hundred thousand (500,000) shares of Common Stock. Stock options granted
under the Plan may be in the form of incentive stock options (which qualify for
special tax treatment) or non-qualified stock options, and may be granted alone
or in addition to other awards under the Plan.

The exercise price and other terms and conditions of stock options will be
determined by the Committee at the time of grant; provided, however, that in the
case of incentive stock options the exercise price per share may not be less
than 100% of the fair market value of a share of Common Stock on the date of the
grant. Unless otherwise determined by the Committee (in its sole discretion) at
or prior to the time of grant of a stock option, or unless otherwise provided in
the award agreement or in the optionee's employment, severance or consulting
agreement in respect of any such stock option, the term of each stock option
shall be ten years; provided, however, that the term of any incentive stock
option granted under the Plan may not exceed ten years. An option under the Plan
does not provide an optionee any rights as a shareholder and such rights will
accrue only as to shares actually purchased through the exercise of an option.

Unless otherwise determined by the Committee (in its sole discretion) at
any time and from time to time in respect of any stock option, or unless
otherwise provided in the award agreement or in the optionee's employment,
severance or consulting agreement in respect of any such stock option, a stock
option shall become exercisable as to its aggregate number of underlying shares
of Common Stock, as determined on the date of grant, as follows:

o 20% on the first anniversary of the date of grant, provided the optionee is
then employed by or providing consulting services for the Company and/or a
subsidiary;

o 40% on the second anniversary of the date of grant, provided the optionee
is then employed by or providing consulting services for the Company and/or
a subsidiary;

o 60% on the third anniversary of the date of grant, provided the optionee is
then employed by or providing consulting services for the Company and/or a
subsidiary;

o 80% on the fourth anniversary of the date of grant, provided the optionee
is then employed by or providing consulting services for the Company and/or
a subsidiary; and

o 100% on the fifth anniversary of the date of grant, provided the optionee
is then employed by or providing consulting services for the Company and/or
a subsidiary.

Notwithstanding the foregoing, a stock option shall become 100% exercisable
as to its aggregate number of underlying shares of Common Stock upon the death
of the optionee, or upon the optionee's disability or retirement (as defined in
the Plan).

A stock option may be exercised, in whole or in part, by giving written
notice of exercise to the Secretary of the Company (or to the Secretary's
designee) specifying the number of shares to be purchased. Such notice shall be
accompanied by payment in full of the exercise price in cash, or by certified or
personal check, bank draft, money order or wire transfer to the Company, or, if
permitted by the Committee (in its sole discretion) and by applicable law, by
delivery of, alone or in conjunction with a partial cash or instrument payment,
(a) a fully-secured promissory note or notes, (b) shares of Common Stock already
owned by the optionee for at least six (6) months or (c) any other form of
payment acceptable to the Committee.

Restricted Share Awards. Restricted share awards are grants of Common Stock
made to a participant subject to conditions established by the Committee in the
relevant award agreement on the date of grant. In the case of any individual
participant in the Plan, the maximum amount payable in respect of restricted
shares in any calendar year may not exceed two hundred fifty thousand (250,000)
shares of Common Stock. The restricted shares only become unrestricted in
accordance with the conditions and vesting schedule, if any, provided in the
relevant award agreement. A participant may not sell or otherwise dispose of
restricted shares until the conditions imposed by the Committee with respect to
such shares have been satisfied. Restricted share awards under the Plan may be
granted alone or in addition to any other awards under the Plan. Restricted
shares which vest will be reissued as unrestricted shares of Common Stock.

Each participant in the Plan who receives a grant of restricted shares will
have the right to receive all dividends and vote or execute proxies for such
shares. Any stock dividends granted with respect to such restricted shares will
be treated as additional restricted shares.

Changes in Capital Structure. Stock options and restricted shares granted
under the Plan and under any award agreements, the maximum number of shares of
Common Stock subject to all stock options and grants of restricted shares, and
the maximum number of shares subject to stock options or represented by grants
of restricted shares that a participant can receive in any calendar year under
the Plan, shall be subject to adjustment or substitution, as determined by the
Committee in its sole discretion, as to the number, price or kind of a share of
stock or other consideration subject to stock options or grants of restricted
shares or as otherwise determined by the Committee to be equitable (i) in the
event of changes in the outstanding stock or in the capital structure of the
Company by reason of stock or extraordinary cash dividends, stock splits,
reverse stock splits, recapitalizations, reorganizations, mergers,
consolidations, combinations, exchanges, or other relevant changes in
capitalization occurring after the date of grant of any stock option or
restricted share or (ii) in the event of any change in applicable laws, or any
change in circumstances, which results in or would result in any substantial
dilution or enlargement of the rights granted to or available for participants,
or which otherwise warrants equitable adjustment because it interferes with the
intended operation of the Plan. In either case described in (i) or (ii) above,
such adjustment shall substantially preserve the value, rights and benefits of
any affected stock options or restricted shares. The Company shall give each
participant notice of an adjustment to be made pursuant to a Change in Capital
Structure and, upon notice, such adjustment shall be conclusive and binding for
all purposes.

CHANGE OF CONTROL

If a Change of Control (as defined in the Plan) occurs and outstanding
stock options under the Plan are converted, assumed, replaced or continued by
the Company, a successor or an acquirer, then, in the case and only in the case
of a Participant whose employment or consulting relationship with the Company
and its subsidiaries is terminated by the Company and its subsidiaries (or any
successor(s) thereto) without Cause (as defined in the Plan) prior to the second
anniversary of such Change of Control (i) any outstanding stock options then
held by such participant which are unexercisable or otherwise unvested shall
automatically be deemed to be exercisable or otherwise vested, as the case may
be, as of the date immediately prior to the date of such termination of
employment or cessation of services and (ii) all restrictions, terms and
conditions applicable to all restricted shares then outstanding and held by such
participant shall lapse and deemed to be satisfied as of the date immediately
prior to the date of such termination of employment or cessation of services.

If a Change of Control occurs and the stock options outstanding under the
Plan are not converted, assumed, replaced or continued by the Company, a
successor or an acquirer, then (i) all outstanding stock options shall
automatically be deemed to be exercisable or otherwise vested immediately prior
to the consummation of the Change of Control and all participants shall be
permitted to exercise their stock options immediately prior to or concurrent
with the consummation of the Change in Control and (ii) all restrictions, terms
and conditions applicable to outstanding restricted shares shall lapse and be
deemed to be satisfied immediately prior to the consummation of the Change in
Control.

Upon entering into an agreement to effect a Change of Control, referred to
in Section 9.3(b) of the Plan, the Committee may, subject to the consummation of
the Change of Control, cause all outstanding stock options to terminate upon the
consummation of the Change in Control. If the Committee acts pursuant to the
preceding sentence, each affected participant shall have the right to exercise
his or her outstanding stock options during a period of time determined by the
Committee in its sole discretion. Notwithstanding the above, in the event of a
Change in Control, then the Committee may (in its discretion) cancel any or all
outstanding stock options and cause the holders thereof to be paid, in cash or
stock (including any stock of a successor or acquirer) or any combination
thereof, the value of such stock options, including any unvested portion
thereof, based upon the excess of the value, as determined by the Committee in
good faith, of a share of Common Stock over the exercise price.

AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN

Unless earlier terminated by the Board, the Plan shall terminate on June
29, 2011. The Board may amend, suspend or terminate the Plan (or any portion
thereof) at any time. However, no amendment shall (a) materially adversely
affect the rights of any participant under any outstanding award, without the
consent of that participant, or (b) increase the maximum number of shares
available for awards under the Plan, or the maximum allowable grants of shares
subject to stock options or of restricted shares to any single participant in
any calendar year, without majority shareholder approval.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN

The following is a brief and general summary of some United States federal
income tax consequences applicable to the Plan. The summary does not reflect any
provisions of the income tax laws of any state, local or foreign taxing
jurisdiction. Because the tax consequences of events and transactions under the
Plan depend upon various factors, including an individual's own tax status, each
optionee who receives an award under the Plan should consult a tax advisor.

Incentive Stock Options. Stock options granted under the Plan may be
incentive stock options (within the meaning of Section 422 of the Code) or
non-qualified stock options. Upon the grant of an incentive stock option, the
optionee will not recognize any income. Generally, no income is recognized by
the optionee upon the exercise of an incentive stock option. The optionee must
increase his or her alternative minimum taxable income for the taxable year in
which he or she exercised the incentive stock option by the amount that would
have been ordinary income had the option not been an incentive stock option.

Upon the subsequent disposition of shares acquired upon the exercise of an
incentive stock option, the federal income tax consequences will depend upon
when the disposition occurs and the type of disposition. If the shares are
disposed of by the optionee after the later to occur of (i) the end of the
two-year period beginning the day after the day the incentive stock option is
awarded to the optionee, or (ii) the end of the one-year period beginning on the
day after the day the shares are issued to the optionee (the later of (i) or
(ii) being the "ISO Holding Period"), any gain or loss realized upon such
disposition will be long-term capital gain or loss, and the Company (or a
subsidiary) will not be entitled to any income tax deduction in respect of the
option or its exercise. For purposes of determining the amount of such gain or
loss, the optionee's tax basis in the shares will be the option price.

Generally, if the shares are disposed of by the optionee in a taxable
disposition within the ISO Holding Period, the excess, if any, of the amount
realized (up to the fair market value of the shares on the exercise date) over
the option price will be compensation taxable to the optionee as ordinary
income, and the Company generally will be entitled to a deduction (subject to
the provisions of Section 162(m) of the Code discussed below under the caption
"Limits on Deductions") equal to the amount of ordinary income realized by the
optionee. Any amount realized upon such a disposition by the optionee in excess
of the fair market value of the shares on the exercise date will be capital
gain.

If an optionee has not remained an employee of the Company during the
period beginning with the grant of an incentive stock option and ending on the
day three months (one year if the optionee becomes disabled) before the date the
option is exercised (other than in the case of the optionee's death), the
exercise of such option will be treated as the exercise of a non-qualified stock
option with the tax consequences described below.

Non-Qualified Stock Options. In general, upon the grant of a non-qualified
stock option, an optionee will not recognize any income. At the time a
nonqualified option is exercised, the optionee will recognize compensation
taxable as ordinary income, and the Company generally will be entitled to a
deduction (subject to the provisions of Section 162(m) of the Code discussed
below under the caption "Limits on Deductions"), in an amount equal to the
difference between the fair market value on the exercise date of the shares
acquired pursuant to such exercise and the option price. Upon a subsequent
disposition of the shares, the optionee will recognize long- or short-term
capital gain or loss, depending upon the holding period of the shares. For
purposes of determining the amount of such gain or loss, the optionee's tax
basis in the shares will be the fair market value of such shares on the exercise
date.

Effect of Share-for-Share Exercise. If an optionee elects to tender shares
of Common Stock in partial or full payment of the option price for shares to be
acquired through the exercise of an option, generally the optionee will not
recognize any gain or loss on such tendered shares. However, if the shares
tendered in connection with any share-for-share exercise were previously
acquired upon the exercise of an incentive stock option, and such
share-for-share exercise occurs during the ISO Holding Period for such shares,
then there will be a taxable disposition of the tendered shares with the tax
consequences described above for the taxable dispositions during the ISO Holding
Period of the shares acquired upon the exercise of an incentive stock option.

If the optionee tenders shares upon the exercise of a nonqualified option,
the optionee will recognize compensation taxable as ordinary income and the
Company generally will be entitled to a deduction (subject to the provisions of
Section 162(m) of the Code discussed below under the caption "Limits on
Deductions") in an amount equal only to the fair market value of the number of
shares received by the optionee upon exercise which is in excess of the number
of tendered shares, less any cash paid by the optionee.

Restricted Shares. A participant will not recognize any income upon the
award of restricted shares unless the participant makes an election under
Section 83(b) of the Code in respect of such grant, as described below. Unless a
participant has made an election under Section 83(b) of the Code in respect of
any restricted shares, any dividends received by the participant with respect to
restricted shares prior to the date the participant recognizes income with
respect to such award (as described below) must be treated by the participant as
compensation taxable as ordinary income, and the Company will generally be
entitled to a deduction, in an amount equal to the amount of ordinary income
recognized by the participant. After the terms and conditions applicable to the
restricted shares are satisfied, or if the participant has made an election
under Section 83(b) of the Code in respect of the restricted shares, any
dividends received by the participant in respect of such award will be treated
as a dividend taxable as ordinary income, and the Company will not be entitled
to a deduction in respect of any such dividend payment.

Unless the participant has made an election under Section 83(b) of the Code
(as described below), at the time the terms and conditions applicable to the
restricted shares are satisfied, a participant will recognize compensation
taxable as ordinary income, and the Company generally will be entitled to a
deduction, in an amount equal to the then fair market value of the shares of
Common Stock for which the terms and conditions applicable to the restricted
share award have been satisfied. The participant's tax basis for any such shares
of Common Stock would be the fair market value on the date such terms and
conditions are satisfied.

A participant may irrevocably elect under Section 83(b) of the Code to
recognize compensation taxable as ordinary income, and the Company will be
entitled to a corresponding deduction, in an amount equal to the fair market
value of such restricted shares (determined without regard to any restrictions
thereon) on the date of grant. Such an election must be made by the participant
not later than 30 days after the date of grant. If such an election is made, no
income would be recognized by the participant (and the Company will not be
entitled to a corresponding deduction) at the time the applicable terms and
conditions are satisfied. The participant's tax basis for the restricted shares
received and for any shares of Common Stock subsequently held in respect thereof
would be the fair market value of the restricted shares (determined without
regard to any restrictions thereon) on the date of grant. If a participant makes
such an election and subsequently all or part of the award is forfeited, the
participant will not be entitled to a deduction as a result of such forfeiture.

The holding period for capital gain or loss purposes in respect of the
Common Stock underlying an award of restricted shares shall commence when the
terms and conditions applicable to the restricted shares are satisfied, unless
the participant makes a timely election under Section 83(b) of the Code. In such
case, the holding period will commence immediately after the grant of such
restricted shares.

Limits on Deductions. Under Section 162(m) of the Code, the amount of
compensation paid to the chief executive officer and the four other most highly
paid executive officers of the Company in the year for which a deduction is
claimed by the Company (including its subsidiaries) is limited to $1,000,000 per
person in any year, except that qualified performance-based compensation will be
excluded for purposes of calculating the amount of compensation subject to this
$1,000,000 limitation. The ability of the Company to claim a deduction for
compensation paid to any other executive officer or employee of the Company
(including its subsidiaries) is not affected by this provision.

The Company has structured the Plan so that the Company may claim a
deduction in connection with (i) the exercise of non-qualified stock options and
(ii) the disposition during the ISO Holding Period by an optionee of shares
acquired upon the exercise of incentive stock options, provided that, in each
case, the requirements imposed on qualified performance-based compensation under
Section 162(m) of the Code and the regulations thereunder are satisfied with
respect to such awards. Because restricted share awards under the Plan are not
deemed to be qualified performance-based compensation under Section 162(m) of
the Code, amounts for which the Company may claim a deduction upon the lapse of
any restrictions on such restricted share awards will be subject to the
limitations on deductibility under Section 162(m).

Additional Information. The recognition by an employee of compensation
income with respect to a grant or an award under the Plan will be subject to
withholding for federal income and employment tax purposes. If an employee, to
the extent permitted by the terms of a grant or award under the Plan, uses
shares of Common Stock to satisfy the federal income and employment tax
withholding obligation, or any similar withholding obligation for state and
local tax obligations, the employee will recognize a capital gain or loss,
short-term or long-term, depending on the tax basis and holding period for such
shares of Common Stock.

If the provisions of the Plan relating to a Change of Control become
applicable, certain compensation payments or other benefits received by
"disqualified individuals" (as defined in Section 280G(c) of the Code) under the
Plan or otherwise may cause or result in "excess parachute payments" (as defined
in Section 280G(b)(1) of the Code). Pursuant to Section 280G of the Code, any
amount that constitutes an excess parachute payment is not deductible by the
Company (or by any subsidiary). In addition, Section 4999 of the Code generally
imposes a 20% excise tax on the amount of any such excess parachute payment
received by such a disqualified individual, and any such excess parachute
payments will not be deductible by the Company (or by any subsidiary).

* * * * * *

At June 18, 2001, the total number of outstanding shares of Common Stock
was 17,433,517 shares. The closing price of the Common Stock on the NASDAQ Stock
Market on June 18, 2001 was $19.05 per share.

EFFECTIVE DATE

The Plan is effective on June 29, 2001, the date of its adoption by the
Board of Directors subject to shareholder approval. The Plan will terminate on
June 29, 2011, except with respect to awards then outstanding. After such date
no further awards will be granted under the Plan unless the Plan is extended by
the Board.

APPROVAL OF THE NEUROGEN CORPORATION 2001 STOCK OPTION PLAN

To become effective, the Neurogen Corporation 2001 Stock Option Plan must
be approved by the affirmative vote of a majority of the votes cast at the
Annual Meeting on this proposal by the holders of the shares of Common Stock
entitled to vote thereat.

The Board of Directors recommends that the stockholders vote FOR approval
of this proposal. If not otherwise specified, proxies will be voted FOR
approval.

PROPOSAL NO. 3:
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS

The Board of Directors has selected PricewaterhouseCoopers LLP, independent
certified public accountants, as auditors to audit the financial statements of
the Company for the year ending December 31, 2001 and recommends that the
stockholders ratify such selection. PricewaterhouseCoopers LLP audited the
Company's annual financial statements for the fiscal years ended December 31,
2000, 1999, and 1998.

Stockholder ratification of the selection of PricewaterhouseCoopers LLP as
the Company's independent auditor is not required by the Company's by-laws or
otherwise. However, the Board is submitting the selection of
PricewaterhouseCoopers LLP to the stockholders for ratification as a matter of
good corporate practice. If the stockholders fail to ratify the selection, the
Board will reconsider whether or not to retain the firm. Even if the selection
is ratified, the Board, or the Audit Committee acting on behalf of the Board, in
its discretion may direct the appointment of a different firm of independent
auditors at any time if the Board, or the Audit Committee, determines that such
a change would be in the best interests of the Company and its stockholders.

Representatives of PricewaterhouseCoopers LLP are expected to be present at
the Annual Meeting with the opportunity to make a statement if they desire to do
so, and are expected to be available to respond to appropriate questions.

The Board of Directors recommends a vote FOR approval of this proposal. If
not otherwise specified, proxies will be voted FOR approval.

PRINCIPAL STOCKHOLDERS

The following table sets forth, as of March 1, 2001, 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)

Four Partners .................................. 2,977,300 17.1%
867 Madison Ave.
New York, NY 10021
Pfizer Inc...................................... 2,846,000 16.4%
235 East 42nd Street
New York, NY 10017
Oppenheimer Funds............................... 1,485,000 8.5%
Two World Trade Center, 34th Floor
New York, NY 10048
Janus Capital Corporation....................... 1,442,325 8.3%
100 Fillmore Street
Denver, CO 80206

Harry H. Penner, Jr. (3)........................ 498,673 2.8%
John F. Tallman, Ph.D. (4)...................... 319,240 1.8%
Alan J. Hutchison, Ph.D. (5).................... 163,190 *
Stephen R. Davis (6)............................ 95,102 *
Kenneth R. Shaw, Ph.D. (7)...................... 77,750 *
James V. Cassella, Ph.D. (8).................... 115,517 *
Frank C. Carlucci (9)(10)....................... 199,278 1.1%
Felix J. Baker, Ph.D. (11)(12).................. 197,566 1.1%
Julian C. Baker (11)(12)........................ 209,074 1.2%
Barry M. Bloom, Ph.D. (13)...................... 30,114 *
Robert N. Butler, M.D. (14)..................... 22,946 *
Jeffrey J. Collinson (15)....................... 49,197 *
Mark Novitch, M.D. (16)......................... 53,114 *
Robert H. Roth, Ph.D. (17)...................... 66,656 *
John Simon (18)(19)............................. 80,494 *
Suzanne H. Woolsey, Ph.D. (20).................. 28,239 *
All directors and officers
as a group (16 persons) (21)................. 2,032,950 11.7%

----------------------------
* Less than one percent (1%).

(1) Share ownership in each case includes shares issuable upon exercise of
outstanding common stock options exercisable within 60 days of March 1,
2001.

(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, 2001.

(3) Includes 451,500 shares of Common Stock that Harry H. Penner, Jr. has the
right to acquire under stock options exercisable within 60 days of March 1,
2001.

(4) Includes 211,936 shares of Common Stock that John F. Tallman, Ph.D. has the
right to acquire under stock options exercisable within 60 days of March 1,
2001. Does not include 2,000 shares of Common Stock owned by Kathleen
Person, Dr. Tallman's spouse. Kathleen Person and Dr. Tallman disclaim
beneficial ownership of each other's shares.

(5) Includes 162,000 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, 2001.

(6) Includes 92,375 shares of Common Stock that Stephen R. Davis has the right
to acquire under stock options exercisable within 60 days of March 1, 2001.

(7) Includes 77,750 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,
2001.

(8) Includes 114,312 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, 2001.

(9) Includes 40,000 shares of Common Stock owned by Mr. Carlucci's wife.

(10) Includes 48,698 shares of Common Stock subject to stock options exercisable
within 60 days of March 1, 2001.

(11) Includes 19,674 shares of Common Stock subject to stock options exercisable
within 60 days of March 1, 2001.

(12) Includes 173,200 shares of Common Stock owned by entities with respect to
which Felix J. Baker, Ph.D. and Julian C. Baker have or share the power to
vote and/or dispose of securities owned by such entities.

(13) Includes 29,114 shares of Common Stock subject to stock options exercisable
within 60 days of March 1, 2001.

(14) Includes 22,946 shares of Common Stock subject to stock options exercisable
within 60 days of March 1, 2001.

(15) Includes 3,880 shares of Common Stock held by a corporation which Mr.
Collinson controls. Does not include 13,500 shares of Common Stock held by
Schroder's Incorporated, for which Mr. Collinson shares investment and
voting power, but has disclaimed beneficial ownership. Also includes 22,685
shares of Common Stock exercisable within 60 days of March 1, 2001.

(16) Includes 49,114 shares of Common Stock subject to stock options exercisable
within 60 days of March 1, 2001.

(17) Includes 33,656 shares of Common Stock subject to stock options exercisable
within 60 days of March 1, 2001.

(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 46,990 shares of Common Stock subject to stock options exercisable
within 60 days of March 1, 2001.

(20) Includes 28,239 shares of Common Stock subject to stock options exercisable
within 60 days of March 1, 2001.

(21) Includes 1,430,663 shares of Common Stock subject to stock options
exercisable within 60 days of March 1, 2001.

EXECUTIVE OFFICERS

In addition to Mr. Penner and Dr. Tallman (See "Election of Directors"),
the other executive officers of the Company who are elected by and serve at the
discretion of the Board of Directors, are as follows:

Name Age Position Officer Since

Alan J. Hutchison, Ph.D.........47 Senior Vice President-Drug Discovery June 1994

Stephen R. Davis................40 Senior Vice President and July 1994
Chief Business Officer

Kenneth R. Shaw, Ph.D...........44 Senior Vice President - Chemistry April 1999
and Pre-Clinical Development

James V. Cassella, Ph.D.........46 Vice President - Clinical Research April 1999
and Development

Alan J. Hutchison, Ph.D., has been Senior Vice President-Drug Discovery
since 1997. Dr. Hutchison joined Neurogen in 1989 as Director of Chemistry and
became a Vice President of the Company in 1992. 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.

Stephen R. Davis, has been Senior Vice President and Chief Business Officer
of Neurogen 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.

Kenneth R. Shaw, Ph.D., joined Neurogen in 1989 and has been Senior Vice
President of Chemistry and Pre-Clinical Development since April 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 V. Cassella, Ph.D., joined Neurogen in 1989 and has been Vice
President of Clinical Research and Development since 1995. Prior to joining
Neurogen, Dr. Cassella was an Assistant Professor of Neuroscience at Oberlin
College. Dr. Cassella received his Ph.D. in Psychology from Dartmouth College in
1983 and subsequently held a Postdoctoral Fellowship in the Department of
Psychiatry at Yale University's School of Medicine.

Officer Compensation

For the three years ended December 31, 2000, 1999, and 1998, the Company
paid the amounts shown in the following table with respect to each of the
executive officers of the Company.

Summary Compensation Table

Long-Term
Compensation
----------------------------
Annual Compensation Awards Payouts
----------------------------------------- ---------- --------------
Other Securities
Annual Underlying LTIP All Other
Name and Principal Year Salary Bonus Compensation Options(a) Payouts Compensation
Position ($) ($) ($) (#) ($) ($)
------------------------------ --------------------------------------------------- ----------------------------------------------

Harry H. Penner, Jr. 2000 417,476 0 36,729(b) 0 1,417,500(p) 15,128(c)
President, Chief Executive Officer 1999 397,083 0 37,748(d) 0 0 13,735(c)
and Vice Chairman of the Board 1998 358,417 116,000 41,939(e) 75,000(o) 0 15,072(c)

John F. Tallman 2000 257,000 0 27,546(f) 0 1,063,125(p) 11,483(c)
Executive Vice-President, 1999 259,583 0 28,312(g) 0 0 11,559(c)
Scientific Director 1998 226,917 60,000 31,455(h) 45,000(o) 0 12,192(c)
and Secretary

Alan J. Hutchison 2000 258,538 67,575 24,868(i) 40,000 885,938(p) 10,830(c)
Senior Vice President-Drug 1999 246,417 32,025 26,063(j) 22,500 0 10,543(c)
Discovery 1998 216,792 54,000 28,926(k) 37,500(o) 0 10,818(c)

Stephen R. Davis 2000 242,810 63,480 16,481(l) 35,000 744,188(p) 10,646(c)
Senior Vice President and 1999 217,917 24,188 16,327(m) 17,000 0 10,100(c)
Chief Business Officer 1998 181,025 40,000 18,148(n) 31,500(o) 0 10,141(c)

Kenneth R. Shaw 2000 216,275 56,775 16,481(l) 35,000 708,750(p) 420(c)
Senior Vice President - Chemistry 1999 205,000 23,063 16,327(m) 16,000 0 567(c)
and Pre-Clinical Development 1998 158,250 40,000 18,148(n) 30,000(o) 0 714(c)

James V. Cassella 2000 190,000 42,750 16,481(l) 30,000 442,969(p) 10,830(c)
Vice President - Clinical Research 1999 170,000 19,125 16,327(m) 13,500 0 10,524(c)
and Development 1998 158,250 35,000 18,148(n) 18,750(o) 0 10,314(c)
------------------------

(a) 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.
(b) Includes $28,571 of forgiveness of loan, forgiveness of interest of $4,442
on loan and income tax reimbursements of $3,716.
(c) Includes premiums for life insurance, and matching contribution received
from participation in the Company's 401(k) plan.
(d) Includes $28,571 of forgiveness of loan, forgiveness of interest of $4,997
on loan and income tax reimbursements of $4,180.
(e) Includes $28,571 of forgiveness of loan, forgiveness of interest of $7,279
on loan and income tax reimbursements of $6,089.
(f) Includes $21,429 of forgiveness of loan, forgiveness of interest of $3,331
on loan and income tax reimbursements of $2,786.
(g) Includes $21,429 of forgiveness of loan, forgiveness of interest of $3,748
on loan and income tax reimbursements of $3,135.
(h) Includes $21,429 of forgiveness of loan, forgiveness of interest of $5,459
and income tax reimbursements of $4,567.
(i) Includes $21,429 of forgiveness of loan, forgiveness of interest of $1,873
and income tax reimbursements of $1,567.
(j) Includes $21,429 of forgiveness of loan, forgiveness of interest of $2,523
on loan and income tax reimbursements of $2,111.
(k) Includes $21,429 of forgiveness of loan, forgiveness of interest of $4,082
and income tax reimbursements of $3,415.
(l) Includes $10,714 of forgiveness of loan, forgiveness of interest of $3,140
and income tax reimbursements of $2,627.
(m) Includes $10,714 of forgiveness of loan, forgiveness of interest of $3,056
on loan and income tax reimbursements of $2,257.
(n) Includes $10,714 of forgiveness of loan, forgiveness of interest of $4,048
and income tax reimbursement of $3,386.
(o) One half of this grant was in the form of stock options and one half was in
the form of restricted stock subject to forfeiture if the common stock did
not meet certain performance criteria within 4 years of issuance.
(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.

For the year ended December 31, 2000, the following tables summarize
incentive compensation paid to executive officers.

Option Grants in Last Fiscal Year

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%($) 10%($)
------ ------

Harry H. Penner, Jr. 0 0% - - - -
John F. Tallman 0 0% - - - -
Alan J. Hutchison 40,000 5% 35.125 12/31/05 388,176 857,767
Stephen R. Davis 35,000 5% 35.125 12/31/05 339,654 750,546
Kenneth R. Shaw 35,000 5% 35.125 12/31/05 339,654 750,546
James V. Cassella 30,000 4% 35.125 12/31/05 291,132 643,325

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

Harry H. Penner, Jr. 113,000 3,293,626 451,500/70,500 9,910,688/1,356,563
John F. Tallman 39,022 805,856 211,936/47,250 3,876,218/ 918,281
Alan J. Hutchison 25,000 385,000 162,000/94,250 2,841,125/1,039,031
Stephen R. Davis 36,000 672,625 92,375/70,625 1,509,641/ 671,891
Kenneth R. Shaw 28,100 349,850 77,750/69,500 1,106,375/ 651,313
James V. Cassella 8,600 106,450 114,312/59,813 2,190,155/ 566,829
----------------

(a) Difference between option price and fair market value of the shares at time
of exercise or at year-end, respectively.

Terms and Conditions of Certain Employment and Severance Agreements

The compensation package for Harry H. Penner, Jr., as President and Chief
Executive Officer, included a salary paid pursuant to a two year renewable
employment agreement between Mr. Penner and the Company which originated in
October 1993. The agreement was most recently extended for an additional
two-year term as of December 1, 1999. Under such agreement, Mr. Penner's base
salary of $394,000 per annum in 1999 was increased to $415,670 effective
December 1, 1999. Such increase was, and any future increases will be, at the
discretion of the Board of Directors. The employment agreement restricts Mr.
Penner 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 compensation package during 1998 and 1999 for John F. Tallman, as
Executive Vice President and Scientific Director of Neurogen, included a salary
paid pursuant to an employment agreement between Dr. Tallman and the Company
which was effective from June 1994 to December 1999. In December 1999, Neurogen
announced that Dr. Tallman planned to move to an advisory role. Effective
January 15, 2001, Dr. Tallman retired from his position as Executive Vice
President, Secretary and Scientific Director. Dr. Tallman continues to serve as
a member of the Board of Directors.

The compensation package for Alan J. Hutchison, as Senior 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, 1999. Under such agreement, Dr.
Hutchison's base salary of $257,420 per annum in 2000 was increased to $272,865
effective December 1, 2000. 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 compensation package for Stephen R. Davis, 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, 1999. Under such agreement, Mr. Davis' base
salary of $241,275 per annum in 2000 was increased to $256,335 effective
December 1, 2000. 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 compensation package for Kenneth R. Shaw, Senior Vice President
-Chemistry and Pre-Clinical Development, includes a salary paid pursuant to a
two-year renewable employment agreement between Dr. Shaw and the Company
effective December 1, 1999. Under such agreement, Dr. Shaw's base salary of
$216,275 per annum in 2000 was increased to $229,250 effective December 1, 2000.
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.

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 five or ten year
term 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, 2000. The Compensation Committee
considered the following developments in awarding incentive compensation based
on the Company's performance in 2000: advancement into Phase II human clinical
trials of NGD 91-3, the Company's lead anti-anxiety drug candidate; further
development in Phase I human clinical trials of NGD 97-1, the Company's lead
Alzheimer's disease drug candidate; the accomplishment of significant milestones
in implementing an AIDD technology system for Pfizer pursuant to a $27 million
three-year technology transfer agreement; the completion of a $41 million
private placement; the discovery of drug leads in a new area where no leads have
been previously discovered despite more than a decade of effort in the
pharmaceutical industry; 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.

At the end of 2000, the Compensation Committee reviewed the Company's
fiscal 2000 performance and the performance of the Company's executive officers.
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. The Committee used compensation guidelines
provided by a compensation consulting firm to assist it in relating Company
performance to compensation levels. To remain competitive with the Company's
peers, the Committee also reviewed the compensation levels of officers at
comparable companies and raised the 2001 base salaries of the Company's
executive officers.

In August 2000, the Company announced that Harry H. Penner, Jr, plans to
step down as President and CEO. The Company is currently conducting a search for
a new CEO. Mr. Penner has indicated he plans to stay on until the search is
completed. In recognition that Mr. Penner will be leaving the Company, no stock
option or cash award was made to Mr. Penner for fiscal 2000.

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, or the Securities Exchange Act of
1934, whether made before or after the date hereof and irrespective of any
general incorporation language in any such filing.

AUDIT COMMITTEE REPORT

The Audit Committee consists of three non-employee directors, Frank
Carlucci, Mark Novitch and John Simon. Each Audit Committee member qualifies as
an independent director as defined by the National Association of Securities
Dealers Listing Standards. The Audit Committee has received written disclosures
and a letter from PricewaterhouseCoopers LLP, the Company's independent
accountants, required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, which relates to the
accountants' independence from the Company and its related entities, and has
discussed with PricewaterhouseCoopers LLP their independence from the Company.

In accordance with its written charter (attached hereto as Appendix "A"),
the Audit Committee assists the Board of Directors in fulfilling its
responsibility for oversight of the quality and integrity of the accounting,
auditing and financial reporting practices of the Company. In this context,
management and the Company's independent accountants review with the full Audit
Committee the Company's annual financial results and with Frank Carlucci,
Chairman of the Audit Committee and Chairman of the Board, the Company's
quarterly financial results prior to publication. The Audit Committee has
reviewed and discussed the audited financial statements for the year ended
December 31, 2000 with management and the Company's independent accountants, and
has discussed matters required by Statement of Auditing Standards No. 61,
Communication with Audit Committees, with the independent accountants. Based on
the review and discussions referred to herein, the Audit Committee recommended
that the Board of Directors and management include the Company's audited
financial statements in its annual report on Form 10-K.

By the Audit Committee: Frank Carlucci, Mark Novitch and John Simon

FEES BILLED FOR SERVICES RENDERED BY PRINCIPAL ACCOUNTANT

For the fiscal year ended December 31, 2000, PricewaterhouseCoopers LLP,
the Company's independent auditor and principal accountant, billed the
approximate fees set forth below.

Audit Fees...............................................................$87,000
Financial Information Systems Design and Implementation Fees.............$ -
All Other Fees...........................................................$70,000

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, 1995 and ending December 31, 2000 (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 Stock Market Index (U.S. and Foreign) and the Amex Biotechnology
Index. 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.

     (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,  or the Securities Exchange Act of
1934,  whether  made  before or after the date  hereof and  irrespective  of any
general incorporation language in any such filing.


                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Pfizer Inc ("Pfizer"),  a beneficial owner of more than five percent of the
Common Stock, paid $8.6 million in research  funding,  $0.3 million in milestone
payments,  $16.5 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  technology  transfers
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 2001. 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 1995, the Company made unsecured, non-interest bearing loans to Harry H.
Penner, Jr., its President and Chief Executive Officer,  and to John F. Tallman,
its Executive Vice President and Scientific Director, in the amounts of $200,000
and $150,000, respectively. In 1994, the Company made an unsecured, non-interest
bearing loan to Alan J. Hutchison, its Senior Vice President-Drug  Discovery, of
$150,000.  In 1997, the Company made  unsecured,  non-interest  bearing loans to
Stephen R. Davis,  its Senior Vice  President  and Chief  Business  Officer,  to
Kenneth R. Shaw, Senior Vice President - Chemistry and Pre-Clinical Development,
and to James V. Cassella, Vice President - Clinical Development of $75,000 each.
The largest aggregate amount of indebtedness outstanding at any time during 2000
with respect to each of Mr. Penner, Dr. Tallman,  Dr. Hutchison,  Mr. Davis, Dr.
Shaw and Dr. Cassella was  approximately  $74,000,  $55,000,  $43,000,  $51,000,
$51,000  and  $51,000,   respectively.   Information  regarding  forgiveness  of
indebtedness  and forgiveness of interest on indebtedness is contained under the
caption "Executive Officers-Summary Compensation Table."

              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,  that have been  received by the
Company,  the Company believes that all filing  requirements for 2000 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:  John F.
Tallman, Ph.D.,  inadvertently failed to file his Form 4-Statement of Changes in
Beneficial  Ownership for the month of May. The related transaction was reported
in his Form 5-Annual Statement of Beneficial Ownership of Securities for 2000.

                                  OTHER MATTERS

     The Board of  Directors  of the  Company  knows of no other  matters  to be
submitted to the Annual Meeting. If, however, any other business should properly
come before the Annual Meeting, the persons named in the accompanying proxy will
vote proxies as in their discretion they may deem  appropriate,  unless they are
directed by proxy to do otherwise.

            STOCKHOLDERS' PROPOSALS TO BE PRESENTED AT THE COMPANY'S
                       NEXT ANNUAL MEETING OF STOCKHOLDERS

     Stockholder  proposals  intended to be presented at the 2002 Annual Meeting
of Stockholders of the Company must be received by the Company, at its principal
executive  offices not later than December 20, 2001,  for inclusion in the Proxy
Statement and Proxy relating to the 2002 Annual Meeting of Stockholders.

     In addition,  the proxy  solicited  by the Board of Directors  for the 2002
Annual Meeting of Stockholders  will confer  discretionary  authority to vote on
any stockholder proposal presented at that meeting,  unless we are provided with
notice of such proposal no later than March 31, 2002.


     THE COMPANY WILL MAIL WITHOUT CHARGE TO EACH  STOCKHOLDER  ENTITLED TO VOTE
AT THE ANNUAL  MEETING,  UPON WRITTEN  REQUEST,  A COPY OF THE COMPANY'S  ANNUAL
REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES AND A LIST OF
EXHIBITS, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. WRITTEN REQUESTS
SHOULD BE SENT TO:  CORPORATE  SECRETARY,  NEUROGEN  CORPORATION,  35  NORTHEAST
INDUSTRIAL ROAD, BRANFORD, CONNECTICUT 06405.


                                                                Stephen R. Davis
                                                                       Secretary


June 25, 2001


                                                                      APPENDIX A


                              Neurogen Corporation

                             2001 Stock Option Plan


                                    * * * * *

     1. Purpose.  The purpose of the Neurogen Corporation 2001 Stock Option Plan
(the "Plan") is to attract and retain the best available  personnel,  to provide
additional  incentive to employees and consultants and to promote the success of
the business of Neurogen  Corporation  (the "Company") and its  Subsidiaries (as
defined below).

     2. Certain Definitions. For purposes of the Plan, the following terms shall
have the meanings set forth below:

          2.1  "Award  Agreement"  shall  mean  the  agreement   executed  by  a
               Participant  pursuant to the  provisions of Sections 3.2 and 12.4
               of the Plan in connection  with the granting of a Stock Option or
               of Restricted Shares.

          2.2  "Board"  shall mean the Board of  Directors  of the  Company,  as
               constituted from time to time.

          2.3  "Cause"  shall mean,  for  purposes  of this Plan,  either of the
               following:  (a) if a  Participant  is a party to an employment or
               consulting agreement with the Company or with any Subsidiary, the
               meaning as defined in such  agreement;  or (b) if the Participant
               is not party to such an agreement,  (i) commission of a felony or
               misdemeanor;  (ii)  failure  to  abide  by any  material  Company
               policy;   (iii)  [gross]  negligence  or  willful  misconduct  in
               connection with job duties; or (iv) continuing refusal to perform
               job  duties  after  written   notice  of  such  failure  [and  an
               opportunity  to cure such  non-performance].  In the event that a
               Participant  is party to an employment  or  consulting  agreement
               with the Company or with any  Subsidiary,  and such employment or
               consulting  agreement permits the Participant to terminate his or
               her employment  for "good reason" (as defined in such  agreement)
               or under any constructive  termination  provision  permitting the
               employee to terminate his or her employment and receive severance
               benefits,   then  if  the  Participant   terminates  his  or  her
               employment  or consulting  relationship  with the Company or with
               any Subsidiary  for "good reason" or under any such  constructive
               termination  provision,  he or she  shall be  deemed to have been
               terminated  by the Company or its  Subsidiary  without  Cause for
               purposes  of  this  Plan.  [Any  determination  of  Cause  by the
               Compensation Committee or its designee shall be conclusive, final
               and binding on the Participant, and on all persons claiming under
               or through such Participant, for purposes of this Plan.]

          2.4  "Change of Control"  shall,  for purposes of this Plan, be deemed
               to have occurred (i) when any person or persons acting in concert
               (within  the  meaning  of Section  13(d)(3)  or  14(d)(2)  of the
               Exchange  Act),  excluding  Company  benefit  plans,  becomes the
               beneficial  owner of securities  of the Company  having more than
               fifty  percent  (50%)  of  the  voting  power  of  the  Company's
               then-outstanding  securities;  (ii) upon the  consummation of any
               merger  or  other   business   combination   of  the  Company  (a
               "Transaction"),  other than a Transaction  immediately  following
               which those persons who were  shareholders of the Company and any
               trustee  or  fiduciary  of  any  Company  employee  benefit  plan
               immediately  prior to the Transaction own more than fifty percent
               (50%)  of  the  voting  power,  directly  or  indirectly,  of the
               surviving  corporation  in any  such  merger  or  other  business
               combination; (iii) when, within any twelve (12) month period, the
               persons who were  directors  immediately  before the beginning of
               such  period  (the  "Incumbent  Directors")  shall cease (for any
               reason other than death) to constitute at least a majority of the
               Board or the board of  directors  of a successor  to the Company.
               For this  purpose,  any  director  who was not a director  at the
               beginning  of such  period  shall be  deemed  to be an  Incumbent
               Director if such  director was elected to the Board by, or on the
               recommendation of or with the approval of, at least two-thirds of
               the directors who then qualified as Incumbent  Directors (so long
               as such  director was not nominated by a person who has expressed
               an intent to effect a Change of  Control  or engage in a proxy or
               other  control  contest);   or  (iv)  when  a  plan  of  complete
               liquidation of the Company shall have been adopted or the holders
               of voting  securities  of the  Company  shall  have  approved  an
               agreement  for the sale or  disposition  by the  Company  (in one
               transaction  or  through  a  series  of  transactions)  of all or
               substantially all of the Company's assets.

          2.5  "Code" shall mean the Internal Revenue Code of 1986, as in effect
               and as  amended  from  time to  time,  or any  successor  statute
               thereto, together with any rules, regulations and interpretations
               promulgated thereunder or with respect thereto.

          2.6  "Committee"  shall mean the  committee  established  from time to
               time in the sole  discretion of the Board to administer the Plan,
               as described in Section 3 of the Plan, and  consisting  solely of
               two or more directors who are non-employee directors for purposes
               of SEC Rule 16b-3, and who are outside  directors for purposes of
               Section  162(m)  of the  Code  and  the  regulations  promulgated
               thereunder.

          2.7  "Common Stock" shall mean the common stock,  par value $0.025 per
               share,  of the Company or any  security of the Company  issued by
               the Company in substitution or exchange therefor.

          2.8  "Company"   shall   mean   Neurogen   Corporation,   a   Delaware
               corporation,   or   any   successor   corporation   to   Neurogen
               Corporation.

          2.9  "Disability"   shall   mean   disability   as   defined   in  the
               Participant's  then-effective employment or consulting agreement.
               If the participant is not then a party to an effective employment
               or   consulting   agreement   with  the  Company   which  defines
               disability,  "Disability"  shall mean disability as determined by
               the Committee in accordance with standards and procedures similar
               to those under the Company's  long-term  disability plan, if any.
               Subject to the first  sentence of this  Section  2.8, at any time
               that the Company does not maintain a long-term  disability  plan,
               "Disability"  shall mean any physical or mental  disability which
               is determined  to be total and permanent by a physician  selected
               in good faith by the Company.

          2.10 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
               in effect  and as  amended  from time to time,  or any  successor
               statute  thereto,   together  with  any  rules,  regulations  and
               interpretations promulgated thereunder or with respect thereto.

          2.11 "Fair Market  Value" shall mean,  on or with respect to any given
               date(s),  the closing price for the Common Stock,  as reported on
               the NASDAQ  Stock Market for such date(s) or, if the Common Stock
               was not traded on such date(s), on the immediately  preceding day
               (or days) on which the Common  Stock was  traded.  If at any time
               the Common  Stock is not traded on the NASDAQ Stock  Market,  the
               Fair Market Value of a share of Common Stock shall be  determined
               in good faith by the Committee.

          2.12 "Incentive  Stock Option" means any Stock Option granted pursuant
               to the  provisions  of  Section 6 of the Plan  (and the  relevant
               Award  Agreement)  that is  intended  to be (and is  specifically
               designated as) an "incentive  stock option" within the meaning of
               Section 422 of the Code.

          2.13 "Non-Qualified  Stock  Option"  means  any Stock  Option  granted
               pursuant  the  provisions  of  Section  6 of the  Plan  (and  the
               relevant  Award  Agreement)  that  is not  (and  is  specifically
               designated as not being) an Incentive Stock Option.

          2.14 "Participant" shall mean any individual who is selected from time
               to time under  Section 5  to receive a Stock Option or a grant of
               Restricted Shares under the Plan.

          2.15 "Plan"  shall mean the  Neurogen  Corporation  2001 Stock  Option
               Plan,  as set forth  herein and as in effect and as amended  from
               time to time (together with any rules and regulations promulgated
               by the Committee with respect thereto).

          2.16 "Restricted  Shares" shall mean the  restricted  shares of Common
               Stock granted pursuant to the provisions of Section 7 of the Plan
               and the relevant Award Agreement.

          2.17 "Retirement"   shall  mean  the   voluntary   retirement  by  the
               Participant  from  active  employment  with the  Company  and its
               Subsidiaries on or after the attainment of age sixty-five (65).

          2.18 "SEC" shall mean the Securities and Exchange  Commission,  or any
               successor governmental agency.

          2.19 "SEC Rule 16b-3" shall mean Rule 16b-3, as promulgated by the SEC
               under Section 16(b) of the Exchange Act, or any successor rule or
               regulation  thereto, as such Rule is amended or applied from time
               to time.

          2.20 "Stock  Option"  shall  mean an award  granted  to a  Participant
               pursuant to the provisions of Section 6 of the Plan.

          2.21 "Subsidiary(ies)"  shall  mean any  corporation  (other  than the
               Company), partnership or limited liability company in an unbroken
               chain of entities,  including and beginning with the Company,  if
               each of such entities, other than the last entity in the unbroken
               chain,  owns,  directly or  indirectly,  more than fifty  percent
               (50%) of the voting stock, partnership or membership interests in
               one of the other entities in such chain.

3.   Administration.

          3.1  General. The Plan shall be administered by the Committee.

          3.2  Plan  Administration  and Plan Rules. The Committee is authorized
               to construe and interpret the Plan and to  promulgate,  amend and
               rescind rules and regulations  relating to the implementation and
               administration  of the Plan.  Subject to the terms and conditions
               of  the  Plan,  the  Committee  shall  make  all   determinations
               necessary or advisable for the  implementation and administration
               of the Plan  including,  without  limitation,  (a)  selecting the
               Plan's Participants, (b) granting Stock Options and making grants
               of  Restricted  Shares in such amounts and form as the  Committee
               shall  determine,  (c)  imposing  such  restrictions,  terms  and
               conditions  upon such Stock Options and upon grants of Restricted
               Shares  as  the  Committee  shall  deem   appropriate,   and  (d)
               correcting any technical defect(s) or technical  omission(s),  or
               reconciling any technical inconsistency(ies), in the Plan and any
               Award Agreement.  The Committee may designate  persons other than
               members of the Committee to carry out the day-to-day  ministerial
               administration  of the Plan under such conditions and limitations
               as it may  prescribe.  The  Committee  may  (i)  delegate  to the
               Company's  President  and Chief  Executive  Officer and to a Vice
               President of the Company (as designated by the Committee), acting
               together,  the  authority  to grant Stock  Options or  Restricted
               Shares to those eligible  employees and  consultants  who are not
               subject  to  Section  16 of the  Exchange  Act or  (ii)  adopt  a
               resolution to automatically provide to an employee or consultant,
               upon the  initial  employment  of such person or  performance  of
               services by such person,  a grant of Stock  Options or Restricted
               Shares: provided,  however, that such delegation or adoption will
               not be effective if it would  disqualify  the Plan,  or any other
               plan of the  Company  (or of any  Subsidiary)  intended  to be so
               qualified,  from (i) the  exemption  provided  by SEC Rule 16b-3,
               (ii) the benefits  provided under Section 422 of the Code, or any
               successor  provisions  thereto or (iii) entitlement to deductions
               under Code Section 162(m),  or any successor  provision  thereto.
               The Committee's determinations under the Plan need not be uniform
               and may be made selectively  among  Participants,  whether or not
               such  Participants  are similarly  situated.  Any  determination,
               decision  or  action  of the  Committee  in  connection  with the
               construction,  interpretation,  administration, or implementation
               of the Plan  shall be  final,  conclusive  and  binding  upon all
               Participants  and any  person(s)  claiming  under or through  any
               Participants.  The  Company  shall  effect the  granting of Stock
               Options and Restricted  Shares under the Plan, in accordance with
               the determinations made by the Committee, by execution of written
               agreements  and/or other  instruments in such form as is approved
               by the Committee.

          3.3  Liability  Limitation.  Neither the Board nor the Committee,  nor
               any  member of  either,  shall be liable  for any act,  omission,
               interpretation,  construction or determination made in good faith
               in connection  with the Plan (or with any Award  Agreement),  and
               the members of the Board and the  Committee  shall be entitled to
               indemnification  and  reimbursement  by the Company in respect of
               any  claim,   loss,   damage  or  expense   (including,   without
               limitation,  attorneys'  fees) arising or resulting  therefrom to
               the fullest extent permitted by law, by the Company's Certificate
               of  Incorporation,  as amended,  and/or under any  directors' and
               officers'  liability  insurance  coverage  which may be in effect
               from time to time.

4.   Term of Plan/Common Stock Subject to Plan.

          4.1  Term.  The Plan shall  terminate  on June 29,  2011,  except with
               respect to Stock  Options  and grants of  Restricted  Shares then
               outstanding.   After  such  date  no  further  Stock  Options  or
               Restricted Shares shall be granted under the Plan.

          4.2  Common  Stock.  The maximum  number of shares of Common  Stock in
               respect  of which  Stock  Options  and  Restricted  Shares may be
               granted  under the Plan,  subject to  adjustment  as  provided in
               Section 9.2 of the Plan, shall not exceed two million (2,000,000)
               shares  of Common  Stock;  provided,  however,  that no more than
               fifty  percent  (50%) of that  total may be issued in the form of
               Restricted  Shares pursuant to the provisions of Section 7 of the
               Plan.  Common  Stock  which may be  issued  under the Plan may be
               either authorized and unissued shares or issued shares which have
               been  reacquired  by the  Company  and which  are  being  held as
               treasury  shares.  No fractional  shares of Common Stock shall be
               issued under the Plan. If any Stock Options expire unexercised or
               if  any  Stock  Options  or  grants  of  Restricted   Shares  are
               forfeited,  surrendered,  canceled, terminated or settled in cash
               in lieu of Common  Stock,  the shares of Common  Stock which were
               theretofore  subject  (or  potentially  subject)  to  such  Stock
               Options or to such  grants of  Restricted  Shares  shall again be
               available  for grants of Stock  Options or of  Restricted  Shares
               under  the Plan to the  extent  of such  expiration,  forfeiture,
               surrender, cancellation, termination or settlement.

5.   Eligibility.   Individuals   eligible  for  Stock  Options  and  grants  of
     Restricted  Shares under the Plan shall be  determined  by the Committee in
     its sole discretion and shall be limited to employees of and consultants to
     the Company and its Subsidiaries, and persons who may become such employees
     or consultants.

6.   Stock Options.

          6.1  Terms and Conditions.  Stock Options granted under the Plan shall
               be in respect of Common Stock and may be in the form of Incentive
               Stock Options or Non-Qualified  Stock Options (sometimes referred
               to collectively  herein as "Stock  Options").  Such Stock Options
               shall be  subject to the terms and  conditions  set forth in this
               Section  6 and  to  any  additional  terms  and  conditions,  not
               inconsistent  with the express terms and  provisions of the Plan,
               as the Committee shall set forth in the relevant Award Agreement.

          6.2  Grant.  Stock  Options may be granted under the Plan in such form
               as  the  Committee  may  from  time  to  time  approve.   Special
               provisions  shall apply to Incentive Stock Options granted to any
               employee who owns (within the meaning of Section 422(b)(6) of the
               Code) more than ten percent  (10%) of the total  combined  voting
               power  of all  classes  of  stock of the  Company  or its  parent
               corporation or any Subsidiary of the Company,  within the meaning
               of Section 424(e) and (f) of the Code (a "10% Shareholder").

          6.3  Exercise  Price.  The  exercise  price per share of Common  Stock
               subject to a Stock Option shall be determined  by the  Committee,
               including, without limitation, a determination based on a formula
               determined by the Committee at the time of grant and indicated in
               the Participant's Award Agreement;  provided,  however,  that the
               exercise  price of an  Incentive  Stock  Option shall not be less
               than one hundred  percent  (100%) of the Fair Market Value of the
               Common  Stock on the date of the  grant of such  Incentive  Stock
               Option;  provided,  further,  however,  that in the case of a 10%
               Shareholder,  the  exercise  price of an  Incentive  Stock Option
               shall not be less than one hundred ten percent (110%) of the Fair
               Market Value of the Common Stock on the date of grant.

          6.4  Term.  In respect  of any Stock  Option  granted  under the Plan,
               unless  otherwise  (a)  determined  by the Committee (in its sole
               discretion) at or prior to the time of grant of a Stock Option or
               (b)  provided  in the  Award  Agreement  or in the  Participant's
               employment,  severance or consulting  agreement in respect of any
               such Stock  Option,  the term of each Stock  Option  shall be ten
               (10) years;  provided,  however,  that the term of any  Incentive
               Stock Option shall not exceed ten (10) years (five (5) years,  in
               the  case  of a  10%  Shareholder)  after  the  date  immediately
               preceding  the  date on  which  the  Incentive  Stock  Option  is
               granted.

          6.5  Method of Exercise. A Stock Option may be exercised,  in whole or
               in part, by giving written notice of exercise to the Secretary of
               the  Company  (or to the  Secretary's  designee)  specifying  the
               number  of  shares  to  be   purchased.   Such  notice  shall  be
               accompanied  by payment in full of the exercise price in cash, or
               by certified or personal check,  bank draft,  money order or wire
               transfer to the Company or, if permitted by the Committee (in its
               sole  discretion) and by applicable law, by delivery of, alone or
               in conjunction with a partial cash or instrument  payment,  (a) a
               fully-secured  promissory  note or  notes,  (b)  shares of Common
               Stock  already  owned by the  Participant  for at  least  six (6)
               months  or (c)  any  other  form  of  payment  acceptable  to the
               Committee.  Payment  instruments shall be received by the Company
               subject to collection.  The proceeds received by the Company upon
               exercise  of any  Stock  Option  may be used by the  Company  for
               general corporate purposes. Any portion of a Stock Option that is
               exercised may not be exercised again.

          6.6  Maximum  Grant.  During any calendar  year,  no  Participant  may
               receive Stock Options to purchase more than five hundred thousand
               (500,000) shares of Common Stock under the Plan.

          6.7  Exercisability.  In respect of any Stock Option granted under the
               Plan,  unless  otherwise (a)  determined by the Committee (in its
               sole  discretion) at any time and from time to time in respect of
               any such Stock Option or (b)  provided in the Award  Agreement or
               in  the   Participant's   employment,   severance  or  consulting
               agreement in respect of any such Stock Option,  such Stock Option
               shall become  exercisable as to the aggregate number of shares of
               Common Stock  underlying such Stock Option,  as determined on the
               date of grant, as follows:

               o    twenty percent (20%) on the first anniversary of the date of
                    grant of the Stock Option,  provided the Participant is then
                    employed by or providing consulting services for the Company
                    and/or one of its Subsidiaries;

               o    forty percent (40%) on the second anniversary of the date of
                    grant of the Stock Option,  provided the Participant is then
                    employed by or providing consulting services for the Company
                    and/or one of its Subsidiaries;

               o    sixty percent (60%) on the third  anniversary of the date of
                    grant of the Stock Option,  provided the Participant is then
                    employed by or providing consulting services for the Company
                    and/or one of its Subsidiaries;

               o    eighty  percent (80%) on the fourth  anniversary of the date
                    of grant of the Stock Option,  provided the  Participant  is
                    then  employed by or providing  consulting  services for the
                    Company and/or one of its Subsidiaries; and

               o    one hundred  percent (100%) on the fifth  anniversary of the
                    date of grant of the Stock Option,  provided the Participant
                    is then employed by or providing consulting services for the
                    Company and/or one of its Subsidiaries.

                    Notwithstanding  anything to the contrary  contained in this
               Section 6.7 such Stock Option  shall  become one hundred  percent
               (100%) exercisable as to the aggregate number of shares of Common
               Stock underlying such Stock Option upon the death,  Disability or
               Retirement of the Participant.

7.   Restricted Shares.

          7.1  Terms  and  Conditions.  Awards  of  Restricted  Shares  shall be
               subject to the terms and  conditions  set forth in this Section 7
               and any additional terms and conditions,  not  inconsistent  with
               the express  terms and  provisions  of the Plan, as the Committee
               shall set forth in the relevant Award  Agreement.  Subject to the
               terms of the Plan,  the Committee  shall  determine the number of
               Restricted  Shares  to  be  granted  to  a  Participant  and  the
               Committee may provide or impose different terms and conditions on
               any particular  Restricted  Share grant made to any  Participant.
               With respect to each Participant receiving an award of Restricted
               Shares,   there   shall  be  issued  a  stock   certificate   (or
               certificates)  in respect of such Restricted  Shares.  Such stock
               certificate(s)   shall  be   registered   in  the  name  of  such
               Participant,  shall be accompanied by a stock power duly executed
               by  such  Participant,  and  shall  bear,  among  other  required
               legends, the following legend:

               "THE  TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK
               REPRESENTED  HEREBY  ARE  SUBJECT  TO THE  TERMS  AND  CONDITIONS
               (INCLUDING,  WITHOUT LIMITATION,  FORFEITURE EVENTS) CONTAINED IN
               THE  NEUROGEN  CORPORATION  2001 STOCK  OPTION  PLAN AND AN AWARD
               AGREEMENT  ENTERED INTO BETWEEN THE  REGISTERED  OWNER HEREOF AND
               NEUROGEN CORPORATION. COPIES OF SUCH PLAN AND AWARD AGREEMENT ARE
               ON FILE IN THE OFFICE OF THE  SECRETARY OF NEUROGEN  CORPORATION,
               BRANFORD,   CT.   NEUROGEN   CORPORATION   WILL  FURNISH  TO  THE
               RECORDHOLDER OF THE CERTIFICATE,  WITHOUT CHARGE AND UPON WRITTEN
               REQUEST AT ITS PRINCIPAL  PLACE OF BUSINESS,  A COPY OF SUCH PLAN
               AND AWARD AGREEMENT.  NEUROGEN  CORPORATION RESERVES THE RIGHT TO
               REFUSE TO RECORD THE TRANSFER OF THIS CERTIFICATE  UNTIL ALL SUCH
               RESTRICTIONS ARE SATISFIED,  ALL SUCH TERMS ARE COMPLIED WITH AND
               ALL SUCH CONDITIONS ARE SATISFIED."

               Such stock certificate  evidencing such shares shall, in the sole
               discretion  of the  Committee,  be  deposited  with  and  held in
               custody by the Company until the restrictions  thereon shall have
               lapsed  and all of the terms and  conditions  applicable  to such
               grant shall have been satisfied.

          7.2  Restricted Share Grants. A grant of Restricted Shares is an award
               of shares of Common Stock  granted to a  Participant,  subject to
               such restrictions, terms and conditions, if any, as the Committee
               deems   appropriate,    including,    without   limitation,   (a)
               restrictions on the sale, assignment,  transfer, hypothecation or
               other  disposition of such shares,  (b) the requirement  that the
               Participant  deposit  such  shares  with the  Company  while such
               shares are subject to such restrictions,  and (c) the requirement
               that such shares be forfeited  upon  termination of employment or
               service  for  any  reason  or  for  specified  reasons  within  a
               specified  period of time  (including,  without  limitation,  the
               failure to achieve designated performance goals).

          7.3  Restriction Period. In accordance with the provisions of Sections
               7.1 and 7.2 of the Plan and unless  otherwise  determined  by the
               Committee in its sole  discretion  (subject to the  provisions of
               Section  10.2 of the  Plan) at any  time  and from  time to time,
               Restricted  Shares shall only become  unrestricted  and vested in
               the Participant in accordance with such vesting  schedule and any
               other applicable  restrictions,  terms and conditions relating to
               such Restricted Shares, if any, as the Committee may establish in
               the relevant Award Agreement (the "Restriction  Period").  During
               the Restriction  Period,  such stock shall be and remain unvested
               and  a  Participant  may  not  sell,  assign,  transfer,  pledge,
               encumber or otherwise  dispose of or hypothecate such stock. Upon
               satisfaction  of the vesting  schedule  and any other  applicable
               restrictions,  terms and  conditions,  the  Participant  shall be
               entitled to receive the Restricted  Shares or a portion  thereof,
               as the case may be, as provided in Section 7.4 of the Plan.

          7.4  Payment of Restricted Share Grants. After the satisfaction and/or
               lapse of the  restrictions,  terms and conditions  established by
               the Committee in respect of a grant of Restricted  Shares,  a new
               certificate,  without  the legend set forth in Section 7.1 of the
               Plan,  for the  number of shares  of  Common  Stock  which are no
               longer subject to such restrictions,  terms and conditions shall,
               as  soon  as   practicable   thereafter,   be  delivered  to  the
               Participant.

          7.5  Shareholder Rights. A Participant shall have, with respect to the
               shares of Common Stock  underlying a grant of Restricted  Shares,
               all of the rights of a shareholder  of such stock (except as such
               rights  are  limited  or  restricted  under  the  Plan  or in the
               relevant Award Agreement). Any stock dividends paid in respect of
               unvested   Restricted  Shares  shall  be  treated  as  additional
               Restricted  Shares and shall be subject to the same  restrictions
               and  other  terms  and  conditions  that  apply  to the  unvested
               Restricted  Shares in respect of which such stock  dividends  are
               issued.

          7.6  Maximum  Grant.  During any calendar  year,  no  Participant  may
               receive  grants  of  Restricted  Shares  awarding  more  than two
               hundred fifty thousand (250,000) shares of Common Stock under the
               Plan.

8.   Non-transferability.  Unless  otherwise  provided in a Participant's  Award
     Agreement,  no Stock Option or unvested Restricted Shares under the Plan or
     any Award Agreement, and no rights or interests herein or therein, shall or
     may be assigned,  transferred,  sold,  exchanged,  encumbered,  pledged, or
     otherwise   hypothecated   or   disposed  of  by  a   Participant   or  any
     beneficiary(ies) of any Participant,  except by testamentary disposition by
     a  Participant  or pursuant to the laws of  intestate  succession.  No such
     interest  shall be  subject  to  execution,  attachment  or  similar  legal
     process,  including,  without  limitation,  seizure  for the  payment  of a
     Participant's  debts,  judgments,  alimony,  or separate  maintenance.  Any
     attempt to sell, exchange,  transfer, assign, pledge, encumber or otherwise
     dispose of or hypothecate  in any way any such awards,  rights or interests
     or the levy of any execution,  attachment or similar legal process thereon,
     contrary  to the  terms of this  Plan,  shall be null and void and  without
     legal force or effect.  Unless otherwise provided in a Participant's  Award
     Agreement, Stock Options are exercisable only by the Participant during the
     lifetime of the Participant.

9.   Changes in Capitalization and Other Matters.

          9.1  No Corporate Action  Restriction.  The existence of the Plan, any
               Award  Agreement  and/or the Stock Options or  Restricted  Shares
               granted  hereunder  or  thereunder  shall  not  limit,  affect or
               restrict  in any way the  right or power of the  Board to make or
               authorize (a) any adjustment, recapitalization, reorganization or
               other  change  in  the  Company's  or  any  Subsidiary's  capital
               structure  or its  business,  (b) any  merger,  consolidation  or
               change in the ownership of the Company or any Subsidiary, (c) any
               issue  of  bonds,   debentures,   capital,   preferred  or  prior
               preference  stocks  ahead of or  affecting  the  Company's or any
               Subsidiary's  capital  stock  or  the  rights  thereof,  (d)  any
               dissolution or liquidation of the Company or any Subsidiary,  (e)
               any sale or transfer of all or any part of the  Company's  or any
               Subsidiary's  assets or business,  or (f) any other corporate act
               or proceeding by the Company or any  Subsidiary.  No Participant,
               beneficiary  or any other person shall have any claim against any
               member  of  the  Board,   the  Committee,   the  Company  or  any
               Subsidiary, or any employees, officers, shareholders or agents of
               the Company or any Subsidiary, as a result of any such action.

          9.2  Changes in Capital Structure. Stock Options and Restricted Shares
               granted under the Plan and under any Award Agreements  evidencing
               such Stock Options or Restricted  Shares,  the maximum  number of
               shares of Common Stock subject to all Stock Options and grants of
               Restricted  Shares stated in Section 4.2, and the maximum  number
               of shares  subject to Stock Options or  represented  by grants of
               Restricted  Shares that a Participant can receive in any calendar
               year pursuant to the provisions of Section 6.6 or Section 7.6, as
               applicable,  shall be subject to adjustment or  substitution,  as
               determined  by the  Committee in its sole  discretion,  as to the
               number,  price or kind of a share of stock or other consideration
               subject to such Stock Options or grants of  Restricted  Shares or
               as otherwise  determined  by the Committee to be equitable (i) in
               the event of changes in the  outstanding  stock or in the capital
               structure of the Company by reason of stock or extraordinary cash
               dividends, stock splits, reverse stock splits, recapitalizations,
               reorganizations,    mergers,    consolidations,     combinations,
               exchanges, or other relevant changes in capitalization  occurring
               after the date of grant of any such  Stock  Option or  Restricted
               Shares or (ii) in the event of any change in  applicable  laws or
               any change in  circumstances  which results in or would result in
               any substantial dilution or enlargement of the rights granted to,
               or  available  for,  Participants,  or which  otherwise  warrants
               equitable  adjustment  because it  interferes  with the  intended
               operation of the Plan, in either case where such adjustment shall
               substantially  preserve  the value,  rights and  benefits  of any
               affected  Stock Options or Restricted  Shares.  The Company shall
               give each Participant notice of an adjustment hereunder and, upon
               notice,  such adjustment  shall be conclusive and binding for all
               purposes.

          9.3  Change of Control.

               (a)  If a Change of Control occurs and outstanding  Stock Options
                    under the Plan are converted, assumed, replaced or continued
                    by the Company,  a successor or an  acquirer,  then,  in the
                    case and only in the case of a Participant  whose employment
                    or  consulting   relationship   with  the  Company  and  its
                    Subsidiaries   is   terminated   by  the   Company  and  its
                    Subsidiaries (or any successors thereto) without Cause prior
                    to the second anniversary of such Change of Control

                    (i)  any  outstanding   Stock  Options  then  held  by  such
                         Participant   which  are   unexercisable  or  otherwise
                         unvested   shall   automatically   be   deemed   to  be
                         exercisable or otherwise vested, as the case may be, as
                         of the  date  immediately  prior  to the  date  of such
                         termination of employment or cessation of services and

                    (ii) all  restrictions,  terms and conditions  applicable to
                         all Restricted Shares then outstanding and held by such
                         Participant  shall lapse and be deemed to be  satisfied
                         as of the  date  immediately  prior to the date of such
                         termination of employment or cessation of services.

               (b)  If  a  Change  of  Control  occurs  and  the  Stock  Options
                    outstanding  under  the  Plan  are not  converted,  assumed,
                    replaced or  continued  by the  Company,  a successor  or an
                    acquirer, then

                    (i)  all outstanding  Stock Options shall  automatically  be
                         deemed   to  be   exercisable   or   otherwise   vested
                         immediately  prior to the consummation of the Change of
                         Control  and all  Participants  shall be  permitted  to
                         exercise  their Stock Options  immediately  prior to or
                         concurrent  with  the  consummation  of the  Change  of
                         Control; and

                    (ii) all  restrictions,  terms and conditions  applicable to
                         outstanding Restricted Shares shall lapse and be deemed
                         to be satisfied  immediately  prior to the consummation
                         of the Change of Control.

               (c)  To the extent that the implementation of the terms of (a) or
                    (b) above  causes an  Incentive  Stock  Option to exceed the
                    dollar  limitation  set forth in Section 422(d) of the Code,
                    or any successor provision thereto, the excess Stock Options
                    shall be deemed to be Non-Qualified Stock Options.

               (d)  Upon  entering  into an  agreement  to  effect a  Change  of
                    Control,  referred to in Section 9.3(b),  the Committee may,
                    subject to the consummation of the Change of Control,  cause
                    all   outstanding   Stock  Options  to  terminate  upon  the
                    consummation of the Change of Control. If the Committee acts
                    pursuant   to  the   preceding   sentence,   each   affected
                    Participant  shall  have the  right to  exercise  his or her
                    outstanding Stock Options during a period of time determined
                    by the Committee in its sole discretion. Notwithstanding the
                    above,  in the  event  of a  Change  of  Control,  then  the
                    Committee  may,  in  its  discretion,   cancel  any  or  all
                    outstanding  Stock Options and cause the holders  thereof to
                    be  paid,  in  cash  or  stock  (including  any  stock  of a
                    successor or  acquirer),  or any  combination  thereof,  the
                    value of such Stock Options,  including any unvested portion
                    thereof,  based upon the excess of the value,  as determined
                    by the  Committee in good faith,  of a share of Common Stock
                    over the exercise price.

10.  Amendment, Suspension and Termination.

          10.1 In General.  The Board may suspend or terminate  the Plan (or any
               portion  thereof)  at any time and may amend the Plan at any time
               and from  time to time in such  respects  as the  Board  may deem
               advisable  or in  the  best  interests  of  the  Company  or  any
               Subsidiary;  provided, however, that without majority shareholder
               approval no such  amendment may (i) increase the number of shares
               of  Common  Stock  available  for  Stock  Options  or  grants  of
               Restricted Shares under Section 4.2, or (ii) increase the maximum
               annual grant under Section 6.6 or Section 7.6, as applicable.  In
               addition,  no such  amendment,  suspension or  termination  shall
               materially  and  adversely  affect the rights of any  Participant
               under any  outstanding  Stock  Options  or  grants of  Restricted
               Shares, without the consent of such Participant.

          10.2 Award Agreement  Modifications.  The Committee may, in its
               sole  discretion,  amend or  modify  at any time and from time to
               time the  restrictions,  terms and conditions of any  outstanding
               Stock Option or grant of  Restricted  Shares in any manner to the
               extent that the Committee  under the Plan or any Award  Agreement
               could have  initially  established  the  restrictions,  terms and
               conditions of such Stock Option or grant of Restricted Shares. No
               such amendment or  modification  shall,  however,  materially and
               adversely  affect  the rights of any  Participant  under any such
               Stock Option or grant of Restricted Shares without the consent of
               such  Participant.  Nothwithstanding  anything to the contrary in
               this Section  10.2,  no Stock  Option may be repriced,  replaced,
               regranted through  cancellation,  or modified without shareholder
               approval  (except in connection with Section 9.2 herein, a change
               in the capital structure of the Company),  if the effect would be
               to reduce the exercise price for the shares underlying such Stock
               Option.

11.  Termination of Employment or Services.

          11.1 In  General.  Except as is  otherwise  provided (a) in the
               relevant  Award  Agreement as determined by the Committee (in its
               sole  discretion)  or  (b) in  the  Participant's  then-effective
               employment,  severance  or  consulting  agreement,  if  any,  the
               following terms and conditions  shall apply as appropriate and as
               not inconsistent with the terms and conditions, if any, contained
               in such Award  Agreement  and/or such  employment  or  consulting
               agreement.

          11.2 Stock  Options.   Except  as  otherwise  provided  in  the
               relevant Award Agreement and subject to any  determination of the
               Committee  pursuant to the provisions of Section 6.7 of the Plan,
               if a Participant's employment with or performance of services for
               the Company and its Subsidiaries  terminates for any reason, then
               (i) any  then-unexercisable  Stock  Options shall be forfeited by
               the  Participant  and  canceled  by the  Company,  and (ii)  such
               Participant's  rights,  if any, to exercise any  then-exercisable
               Stock Options,  if any, shall  terminate six (6) months after the
               later  of the date of such  termination  or the last day on which
               services  were  performed  (but not beyond the stated term of any
               such Stock Option as  determined  under  Section 6.4 of the Plan;
               provided,  however,  that if such  termination  or  cessation  of
               service is due to death,  Disability or Retirement,  the exercise
               period for any exercisable  Stock Option shall in no case be less
               than one (1) year after the date of such termination or cessation
               of service  (but not  beyond  the  stated  term of any such Stock
               Option  as   determined   under   Section   6.4  of  the   Plan).
               Notwithstanding the above, the Committee, in its sole discretion,
               may determine that any such  Participant's  Stock Options may, to
               the extent  exercisable  immediately  prior to any termination of
               employment or cessation of services,  remain  exercisable  for an
               additional  period of time  after  any  period  set  forth  above
               expires  (subject to any other applicable terms and provisions of
               the Plan and the relevant  Award  Agreement),  but not beyond the
               stated term of any such Stock Option.

          11.3 Restricted  Shares.  Subject to the  provisions of Section
               9.3 herein, if a Participant's  employment with or performance of
               services for the Company and its Subsidiaries  terminates for any
               reason (other than due to death,  Disability or Retirement) prior
               to the satisfaction  and/or lapse of the restrictions,  terms and
               conditions  applicable  to a grant  of  Restricted  Shares,  such
               Restricted   Shares  shall   immediately   be  canceled  and  the
               Participant (or such Participant's estate, designated beneficiary
               or  other  legal  representative,  as  the  case  may  be  and as
               determined  by  the  Committee)   shall  forfeit  any  rights  or
               interests  in and with  respect  to any such  Restricted  Shares.
               Notwithstanding  anything to the contrary in this  Section  11.3,
               the Committee, in its sole discretion,  may determine that all or
               a portion of any such  Participant's  Restricted Shares shall not
               be so canceled and forfeited. If the Participant's  employment or
               performance of services  terminates  due to death,  Disability or
               Retirement,  the  Participant  (and  such  Participant's  estate,
               designated beneficiary or other legal representative, as the case
               may be and as  determined  by the  Committee)  shall  become  one
               hundred   percent   (100%)  vested  in  any  such   Participant's
               Restricted Shares as of the date of any such termination.

          11.4 Leaves of Absence/Transfers.  The Committee shall have the
               power  to   promulgate   rules  and   regulations   and  to  make
               determinations  under  the  Plan,  as it  deems  appropriate,  in
               respect  of  any  leave  of  absence  from  the  Company  or  any
               Subsidiary  granted  to  a  Participant.   Without  limiting  the
               generality of the foregoing,  the Committee may determine whether
               any such leave of absence shall be treated as if the  Participant
               has been terminated by the Company or any such  Subsidiary.  If a
               Participant  transfers  within  the  Company,  or to or from  any
               Subsidiary,  such  Participant  shall  not be deemed to have been
               terminated as a result of such transfers.

12.  Miscellaneous.

          12.1 Tax  Withholding.  The  Company  shall  have the  right to
               deduct from any payment or settlement under the Plan,  including,
               without  limitation,  the  exercise  of any  Stock  Option or the
               vesting of any  Restricted  Shares,  any federal,  state,  local,
               foreign or other  taxes of any kind which the  Committee,  in its
               sole  discretion,  deems  necessary to be withheld to comply with
               the Code and/or any other applicable law, rule or regulation.  In
               addition,  the  Company  shall have the right to require  payment
               from a Participant to cover any  applicable  withholding or other
               employment  taxes due upon any  payment or  settlement  under the
               Plan.

          12.2 No Right to Employment.  Neither the adoption of the Plan,
               the granting of any Stock Option or  Restricted  Shares,  nor the
               execution of any Award Agreement,  shall confer upon any employee
               or  consultant  of the  Company  or any  Subsidiary  any right to
               continued employment or consulting  relationship with the Company
               or any Subsidiary,  as the case may be, nor shall it interfere in
               any way with the right,  if any, of the Company or any Subsidiary
               to terminate the  employment or  consulting  relationship  of any
               employee or consultant  at any time for any reason,  even if such
               termination adversely affects such Participant's Stock Options or
               grants of Restricted Shares.

          12.3 Listing, Registration and Other Legal Compliance. No Stock
               Options, Restricted Shares or shares of the Common Stock shall be
               required  to be  issued  or  granted  under the Plan or any Award
               Agreement unless legal counsel for the Company shall be satisfied
               that  such  issuance  or  grant  will be in  compliance  with all
               applicable   securities   laws  and  regulations  and  any  other
               applicable laws or regulations.  The Committee may require,  as a
               condition  of  any  payment  or  share  issuance,   that  certain
               agreements, undertakings,  representations,  certificates, and/or
               information, as the Committee may deem necessary or advisable, be
               executed or provided to the Company to assure compliance with all
               such applicable laws or regulations.  Certificates  for shares of
               Common  Stock  delivered  under  the Plan  may  bear  appropriate
               legends and may be subject to such stock-transfer orders and such
               other  restrictions as the Committee may deem advisable under the
               rules,  regulations,  or other requirements of the Securities and
               Exchange  Commission,  any stock  exchange  upon which the Common
               Stock is listed, and any applicable  securities law. In addition,
               if, at any time  specified  herein (or in any Award  Agreement or
               otherwise) for (a) the granting of any Stock Option or Restricted
               Shares or the making of any  determination,  (b) the  issuance or
               other distribution of Common Stock, or (c) the payment of amounts
               to or through a  Participant  with respect to any Stock Option or
               grant of Restricted  Shares,  any law, rule,  regulation or other
               requirement of any governmental authority or agency shall require
               either the Company,  any  Subsidiary or any  Participant  (or any
               estate,  designated  beneficiary  or other  legal  representative
               thereof)  to  take  any  action  in  connection   with  any  such
               determination,  any such shares to be issued or distributed,  any
               such  payment,  or the making of any such  determination,  as the
               case may be,  shall be  deferred  until such  required  action is
               taken.

          12.4 Award  Agreements.  Each  Participant  receiving  a  Stock
               Option or grant of  Restricted  Shares under the Plan shall enter
               into an Award  Agreement  with the Company in a form specified by
               the  Committee.   Each  such  Participant   shall  agree  to  the
               restrictions, terms and conditions of the award set forth therein
               and in the Plan.

          12.5 Designation  of  Beneficiary.  Each  Participant to whom a
               Stock Option or Restricted  Share has been granted under the Plan
               may  designate a  beneficiary  or  beneficiaries  to exercise any
               Stock  Option or to receive any payment  which under the terms of
               the Plan and the relevant Award Agreement may become  exercisable
               or payable on or after the Participant's  death. At any time, and
               from  time to  time,  any  such  designation  may be  changed  or
               cancelled  by the  Participant  without  the  consent of any such
               beneficiary. Any such designation, change or cancellation must be
               on a form  provided for that purpose by the  Committee  and shall
               not  be  effective  until  received  by  the  Committee.   If  no
               beneficiary has been designated by a deceased Participant,  or if
               the designated  beneficiaries  have  predeceased the Participant,
               the  beneficiary  shall  be  the  Participant's  estate.  If  the
               Participant  designates more than one  beneficiary,  any payments
               under  the  Plan to such  beneficiaries  shall  be made in  equal
               shares unless the Participant has expressly designated otherwise,
               in which case the payments shall be made in the shares designated
               by the Participant.

          12.6 Governing  Law.  The Plan and all actions taken thereunder
               shall be governed by and construed in accordance with the laws of
               the State of Delaware,  without  reference to the  principles  of
               conflict of laws thereof.  Any titles and headings herein are for
               reference  purposes  only,  and shall in no way limit,  define or
               otherwise affect the meaning,  construction or  interpretation of
               any provisions of the Plan.

          12.7 Effective Date. The Plan shall be effective as of the date
               of its approval by the Board, subject to the approval of the Plan
               by the Company's  shareholders in accordance with Sections 162(m)
               and 422 of the Code and the regulations  promulgated  thereunder.
               If such  approval  is not  obtained,  this  Plan  and any  awards
               granted under the Plan shall be null and void and of no force and
               effect.

                                                                      APPENDIX B

                              NEUROGEN CORPORATION

                             AUDIT COMMITTEE CHARTER



Organization

     There shall be a committee of the Neurogen  Corporation  board of directors
to be known as the Audit  Committee.  The Audit  Committee  shall be composed of
three or more  directors,  each of whom is  independent of the management of the
corporation and is free of any relationship that, in the opinion of the board of
directors, would interfere with his or her exercise of independent judgment as a
committee member. All members of the committee shall have a working  familiarity
with  basic  finance  and  accounting  practices  and at least one member of the
committee shall have accounting or financial management expertise.

Statement of Policy

o    The Audit Committee shall provide assistance to the corporate  directors in
     fulfilling   their   responsibility   to   the   shareholders,    potential
     shareholders,  and investment  community relating to corporate  accounting,
     reporting  practices of the  corporation,  and the quality and integrity of
     the  financial  reports  of  the  corporation.  In  doing  so,  it  is  the
     responsibility of the Audit Committee to:

o    Serve as an  independent  and  objective  party to  monitor  the  Company's
     financial reporting process and internal control system.

o    Maintain  free  and open  means of  communication  between  directors,  the
     independent auditors and the financial management of the corporation.

o    Review  and  appraise  the  audit  efforts  of  the  Company's  independent
     auditors.

Responsibilities

     In carrying  out its  responsibilities,  the Audit  Committee  believes its
policies  and  procedures  should  remain  flexible,  in order to best  react to
changing  conditions  and to ensure to the directors and  shareholders  that the
corporate  accounting and reporting practices of Neurogen are in accordance with
all requirements and are of the highest quality.

     In carrying out these responsibilities, the audit committee will:

o    Review and  approve  the  independent  auditors to be selected to audit the
     financial   statements  of  the  Company  and   subsidiaries.   Review  the
     performance of the independent  auditors and approve any proposed discharge
     of the independent auditors when circumstances warrant.

o    Meet  with  the  independent  auditors  and  financial  management  of  the
     corporation  to review the scope of the proposed audit for the current year
     and the audit  procedures  to be utilized,  and at the  conclusion  thereof
     review  such  audit,  including  any  comments  or  recommendations  of the
     independent auditors.

o    Review  with  the  independent   auditors,   the  company's  financial  and
     accounting personnel,  the adequacy and effectiveness of the accounting and
     financial controls of the corporation,  and elicit any  recommendations for
     the  improvement of such internal  control  procedures or particular  areas
     where new or more detailed controls or procedures are desirable. Particular
     emphasis  should be given to the  adequacy  of such  internal  controls  to
     expose  any  payments,  transactions  or  procedures  that  might be deemed
     illegal or otherwise improper.  Further, the committee  periodically should
     review  company  compliance  policies and  procedures  to  determine  their
     adequacy in protecting the interests of the Company.

o    Review  the  financial   statements  contained  in  the  annual  report  to
     shareholders with management and the independent auditors to determine that
     the  independent  auditors are satisfied with the disclosure and content of
     the financial  statements to be presented to the  shareholders.  Particular
     emphasis  should be given to any changes in accounting  principles  and any
     matters which require a substantial degree of judgment or interpretation of
     accounting principles and which are likely to have a material impact on the
     disclosure and content of the financial statements taken as a whole.

o    Consider  the  independent   auditors'  judgments  about  the  quality  and
     appropriateness  of the Company's  accounting  principles as applied in its
     financial reporting.

o    Provide  sufficient  opportunity for the independent  auditors to meet with
     the members of the Audit Committee  without members of management  present.
     Among the  items to be  discussed  in these  meetings  are the  independent
     auditors'  evaluation  of  the  corporation's  financial,  accounting,  and
     auditing  personnel,  and the  cooperation  that the  independent  auditors
     received during the course of the audit.

o    Review  accounting and financial  human  resources and succession  planning
     within the company.

o    Submit  the  minutes of the Audit  Committee  to, or  discuss  the  matters
     discussed at each committee meeting with, the board of directors.

o    Investigate  any matter  brought to its  attention  within the scope of its
     duties,  with the power to retain  outside  counsel for this purpose if, in
     its judgment, that is appropriate.

o    Review and assess the  adequacy of this  charter on an annual basis or more
     frequently, as conditions dictate.

o    Perform  any other  activities  consistent  with this  Charter,  Neurogen's
     bylaws and governing law, as the Audit  Committee or the board of directors
     deems necessary or appropriate.