-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LTnMAE4/D9em0XlwvMctoHlmGyxFHP4/hPW9s848yj05esyhAU1LJXjVWV8LCqSN tMi9V/+LgH9jHRoxIvSJ4A== 0000912057-97-019834.txt : 19970610 0000912057-97-019834.hdr.sgml : 19970610 ACCESSION NUMBER: 0000912057-97-019834 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961215 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970609 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COCENSYS INC CENTRAL INDEX KEY: 0000895034 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 330538836 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-20954 FILM NUMBER: 97620911 BUSINESS ADDRESS: STREET 1: 213 TECHNOLOGY DR CITY: IRVINE STATE: CA ZIP: 92718 BUSINESS PHONE: 7147536100 MAIL ADDRESS: STREET 2: 213 TECHNOLOGY DRIVE CITY: IRVINE STATE: CA ZIP: 92718 8-K/A 1 8-K/A SECURITIES EXCHANGE AND COMMISSION Washington, D. C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 DECEMBER 15, 1996 Date of Report (DATE OF EARLIEST EVENT REPORTED) COCENSYS, INC. (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation) 0-20954 33-0538836 (Commission File Number) (IRS Employer Identification No.) 213 TECHNOLOGY DRIVE IRVINE, CALIFORNIA 92718 (Address of principal executive offices and zip code) (714) 753-6100 (Registrant's telephone number, including area code) Item 5. OTHER EVENTS. On January 1, 1997, CoCensys, Inc. (the "Company") entered into a promotion agreement with Parke-Davis, a division of the Warner-Lambert Company, to market and sell therapeutic drugs for the treatment of certain nervous system (CNS) disorders. Pursuant to the Promotion Agreement, the Company's sales force will co-promote Parke-Davis' CNS drug, Cognex-Registered Trademark-, to U.S. neurologists for the treatment of Alzheimer's disease. On December 15, 1996, CoCensys, Inc. (the "Company") entered into a license agreement with Massachusetts General Hospital ("MGH") pursuant to which the Company licensed from MGH certain patent rights relating to the treatment of migraine. Item 7. EXHIBITS. 1. Promotion Agreement Between Parke-Davis, a Division of the Warner-Lambert Company, and CoCensys, Inc., dated January 1, 1997.* 2. License Agreement between Massachusetts General Hospital and CoCensys, Inc., dated December 15, 1996. * * Confidential treatment requested 2. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. COCENSYS, INC. Dated: June 9, 1997 By: /s/ Peter E. Jansen --------------------------- Peter E. Jansen Vice President and Chief Financial Officer 3. INDEX TO EXHIBITS ----------------- Sequentially Numbered Page ------------- 1. Promotion Agreement Between Parke-Davis, a Division of 5 the Warner-Lambert Company, and CoCensys, Inc. effective January 1, 1997.* 2. License Agreement between Massachusetts General Hospital 48 and CoCensys, Inc., dated December 15, 1996.* * Confidential treatment requested. EX-1 2 EXHIBIT 1 1997 PROMOTION AGREEMENT BETWEEN PARKE-DAVIS, A DIVISION OF WARNER-LAMBERT COMPANY AND COCENSYS, INC. TABLE OF CONTENTS PAGE ARTICLE 1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 "AFFILIATE" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 "COCENSYS SALES FORCE". . . . . . . . . . . . . . . . . . . . . . . . . 2 "COGNEX". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 "COGNEX DISEASE MANAGEMENT PRESENTATION". . . . . . . . . . . . . . . . 2 "FDA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 "IMS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 "OTHER DISEASE MANAGEMENT PRESENTATION" . . . . . . . . . . . . . . . . 3 "PREPAYMENT". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 "PRODUCT RELATED CALL". . . . . . . . . . . . . . . . . . . . . . . . . 3 "PROMOTIONAL MATERIALS" . . . . . . . . . . . . . . . . . . . . . . . . 3 "PROPRIETARY INFORMATION" . . . . . . . . . . . . . . . . . . . . . . . 3 "SALES QUARTER" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 "SAMPLE". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 "TARGETED DOCTORS". . . . . . . . . . . . . . . . . . . . . . . . . . . 4 "TERRITORY" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 "TMOT" or "TOTAL MONTH OF THERAPY". . . . . . . . . . . . . . . . . . . 4 ARTICLE 2 GRANT OF PROMOTION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.1 Rights Granted to CoCensys . . . . . . . . . . . . . . . . . . . . 4 2.2 Rights Retained by PD. . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE 3 MARKETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.1 Marketing Cooperation. . . . . . . . . . . . . . . . . . . . . . . 5 3.2 Dispute Resolution.. . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE 4 PROMOTION OF COGNEX TO THE TARGETED DOCTORS. . . . . . . . . . . . . . . . . 6 4.1 CoCensys Sales Force. . . . . . . . . . . . . . . . . . . . . . . 6 4.2 Training of CoCensys Sales Force.. . . . . . . . . . . . . . . . . 7 4.3 Conduct of the CoCensys Sales Force. . . . . . . . . . . . . . . . 8 4.4 Other Marketing Activities; Additional Targeted Doctors. . . . . . 8 4.5 Exclusivity of CoCensys Sales Force. . . . . . . . . . . . . . . . 9 4.6 Records and Reports Regarding Promotion Activities.. . . . . . . . 10 4.7 Forwarding of COGNEX Orders. . . . . . . . . . . . . . . . . . . . 10 4.8 Covenant Not to Promote Competitive Alzheimer's Disease Product. . 10 ARTICLE 5 PD RIGHTS AND OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 11 i. TABLE OF CONTENTS (CONTINUED) PAGE 5.1 Targeted Doctors . . . . . . . . . . . . . . . . . . . . . . . . . 11 5.2 Supply and Distribution of COGNEX. . . . . . . . . . . . . . . . . 11 5.3 Regulatory Compliance. . . . . . . . . . . . . . . . . . . . . . . 12 5.4 Promotional Materials. . . . . . . . . . . . . . . . . . . . . . . 12 5.5 New Developments Relating to COGNEX. . . . . . . . . . . . . . . . 13 5.6 Precision Marketing Data.. . . . . . . . . . . . . . . . . . . . . 14 5.7 Sales and Inventory Data.. . . . . . . . . . . . . . . . . . . . . 14 5.8 Pricing of COGNEX. . . . . . . . . . . . . . . . . . . . . . . . . 14 ARTICLE 6 JOINT OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 6.1 Assistance and Notifications to Other Party. . . . . . . . . . . . 15 6.2 Requests for Information from Targeted Doctors.. . . . . . . . . . 16 6.3 Market Surveys.. . . . . . . . . . . . . . . . . . . . . . . . . . 16 6.4 Withdrawal of COGNEX.. . . . . . . . . . . . . . . . . . . . . . . 16 6.5 Non-Solicitation of Employees. . . . . . . . . . . . . . . . . . . 17 ARTICLE 7 COMPENSATION AND PREPAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . 17 7.1 Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 7.2 Payment and Accounting.. . . . . . . . . . . . . . . . . . . . . . 17 7.3 Audit Rights.. . . . . . . . . . . . . . . . . . . . . . . . . . . 17 7.4 IMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE 8 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 8.1 Term.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE 9 TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 9.1 Termination for Breach.. . . . . . . . . . . . . . . . . . . . . . 21 9.2 Termination Without Cause. . . . . . . . . . . . . . . . . . . . . 21 9.3 Termination Upon Cessation of Sale of COGNEX.. . . . . . . . . . . 21 9.4 Payment of Amounts Due.. . . . . . . . . . . . . . . . . . . . . . 22 ARTICLE 10 WARRANTIES, REPRESENTATIONS AND COVENANTS. . . . . . . . . . . . . . . . . . 22 10.1 Warranties and Representations of Each Party.. . . . . . . . . . . 22 10.2 Warranties and Representations of PD.. . . . . . . . . . . . . . . 22 ii. TABLE OF CONTENTS (CONTINUED) PAGE 10.3 Covenants of Each Party. . . . . . . . . . . . . . . . . . . . . . 23 10.4 Disclaimer of Warranties.. . . . . . . . . . . . . . . . . . . . . 23 ARTICLE 11 INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS . . . . . . . . . . . . . . . . 23 11.1 Notice.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 11.2 Conduct of Infringement Actions. . . . . . . . . . . . . . . . . . 24 ARTICLE 12 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 12.1 Indemnification by PD. . . . . . . . . . . . . . . . . . . . . . . 25 12.2 Indemnification by CoCensys. . . . . . . . . . . . . . . . . . . . 25 12.3 Indemnification Procedure. . . . . . . . . . . . . . . . . . . . . 26 ARTICLE 13 CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 13.1 Nondisclosure and Nonuse Obligations.. . . . . . . . . . . . . . . 28 13.2 Exceptions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 13.3 Authorized Disclosure. . . . . . . . . . . . . . . . . . . . . . . 29 13.4 Obligations at End of Term.. . . . . . . . . . . . . . . . . . . . 30 13.5 Retention of Proprietary Information.. . . . . . . . . . . . . . . 30 ARTICLE 14 PUBLICITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 14.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE 15 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 15.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 15.2 Captions and Section References. . . . . . . . . . . . . . . . . . 32 15.3 Severability.. . . . . . . . . . . . . . . . . . . . . . . . . . . 32 15.4 Entire Agreement.. . . . . . . . . . . . . . . . . . . . . . . . . 33 15.5 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 15.6 Counterparts.. . . . . . . . . . . . . . . . . . . . . . . . . . . 33 15.7 Waiver.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 15.8 Force Majeure. . . . . . . . . . . . . . . . . . . . . . . . . . . 34 15.9 Benefits and Binding Nature of Agreement.. . . . . . . . . . . . . 34 15.10 Assignment; Change in Control.. . . . . . . . . . . . . . . . 34 15.11 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . 35 iii. TABLE OF CONTENTS (CONTINUED) PAGE 15.12 Not Strictly Construed Against Either Party.. . . . . . . . . 35 15.13 Governing Law.. . . . . . . . . . . . . . . . . . . . . . . . 36 iv. 1997 PROMOTION AGREEMENT THIS 1997 PROMOTION AGREEMENT ("Agreement"), is effective this 1st day of January, 1997 (the "Effective Date"), by and between PARKE-DAVIS, a division of Warner-Lambert Company, with offices at 201 Tabor Road, Morris Plains, New Jersey 07950 ("PD"), and COCENSYS, INC., with offices at 213 Technology Drive, Irvine, California 92718 ("CoCensys"), with respect to the following: WHEREAS, PD has the right, under its approved New Drug Application, to market COGNEX-Registered Trademark- (tacrine hydrochloride) in the United States; and WHEREAS, PD and CoCensys contemplate that it is to their mutual advantage to utilize CoCensys's marketing and sales organization in promoting COGNEX to neurologists and certain other doctors on the terms set forth herein. NOW, THEREFORE, in consideration of the foregoing premises and of the mutual covenants and obligations hereinafter set forth, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS The following capitalized terms shall have the meanings indicated for purposes of this Agreement: "AFFILIATE" shall mean any corporation, association or other entity which directly or indirectly controls, is controlled by or is under common control with the party in question. Solely for purposes of this definition, the term "control" shall mean direct or indirect beneficial ownership of more than 50% of the voting or income interest in such corporation or other business entity. "COCENSYS SALES FORCE" shall mean those members of CoCensys' sales force who make COGNEX Disease Management Presentations to Targeted Doctors. "COGNEX" shall mean that prescription pharmaceutical product indicated in the Territory for the treatment of Alzheimer's disease owned by PD and promoted under the trademark COGNEX-Registered Trademark-, the active ingredient of which is tacrine hydrochloride. "COGNEX DISEASE MANAGEMENT PRESENTATION" shall mean a discussion, designed to last an average of 15 to 20 minutes, which is held at the commencement of a meeting between a CoCensys salesperson and a Targeted Doctor and which places COGNEX within the context of a disease management system, such as, by way of example, PD's proprietary Alzheimer's Family Care Program. "FDA" shall mean the United States Food and Drug Administration. "IMS" shall mean IMS America, Ltd. or any successor organization. 2. "OTHER DISEASE MANAGEMENT PRESENTATION" shall mean a discussion, designed to last an average of 15 to 20 minutes, held between a CoCensys salesperson and a physician and which places a prescription pharmaceutical product other than COGNEX within the context of a management system for the disease for which such product is indicated. "PREPAYMENT" shall have the meaning set forth in Section 7.5(a). "PRODUCT RELATED CALL" shall mean a traditional secondary sales call for a pharmaceutical product which is not made in the context of a disease management presentation. "PROMOTIONAL MATERIALS" shall have the meaning set forth in SECTION 5.4. "PROPRIETARY INFORMATION" shall mean any proprietary or confidential information communicated by one party hereto to the other, which is so identified as proprietary or confidential by the disclosing party, or which the receiving party knows or has reason to know is proprietary or confidential including, but not limited to, financial, marketing, business, technical or scientific information or data. "SALES QUARTER" shall mean each three (3) month period commencing on January 1, April 1, July 1 or October 1 during the Term, PROVIDED, HOWEVER, the first Sales Quarter hereunder shall commence on January 1, 1997, and the final Sales Quarter hereunder shall terminate on the final day of the Term. 3. "SAMPLE" shall mean units of COGNEX distributed by the CoCensys Sales Force, pursuant to the provisions of the Prescription Drug Marketing Act, for complimentary distribution to patients by practitioners licensed to prescribe COGNEX, whether packaged as individual samples or as trade packages. "TARGETED DOCTORS" shall mean the neurologists and other doctors listed on EXHIBIT A hereto, as such exhibit may be amended from time to time as more fully described in Section 4.4. "TERM" shall have the meaning set forth in SECTION 8.1. "TERRITORY" shall mean the United States of America, the District of Columbia and Puerto Rico, but not any other United States territories or possessions. "TMOT" or "TOTAL MONTH OF THERAPY" shall equal 120 capsules of COGNEX, whether generated from new prescriptions or from refills. ARTICLE 2 GRANT OF PROMOTION RIGHTS 2.1 RIGHTS GRANTED TO COCENSYS. PD hereby grants to CoCensys, during the Term, the non-exclusive right and license to market, advertise and promote COGNEX to the extent specifically directed at the Targeted Doctors in accordance with this Agreement, * Confidential treatment requested. 4. including the right to reference and encourage enrollment in PD's Alzheimer's Family Care Program in connection with COGNEX Disease Management Presentations to the Targeted Doctors. During the Term, PD will not grant the right to any third party to market, advertise or promote COGNEX specifically to the Targeted Doctors without the prior written consent of CoCensys, which consent may not be unreasonably withheld. 2.2 RIGHTS RETAINED BY PD. Except as otherwise expressly provided in this Agreement, PD shall retain all rights in and to COGNEX including, but not limited to, the New Drug Application for COGNEX, the Drug Master File for COGNEX, and all manufacturing, distribution, patent, copyright and trademark rights relating to COGNEX. CoCensys acknowledges that Alzheimer's Family Care Program is a proprietary program of PD, containing trademarks, trade secrets and other intellectual property of PD utilized in the marketing of COGNEX and is potentially applicable to the marketing of other products. ARTICLE 3 MARKETING 3.1 MARKETING COOPERATION. PD and CoCensys will meet from time to time as they mutually deem necessary to discuss CoCensys's marketing of COGNEX. Such meetings may be held in person or telephonically. Each party will bear its own costs for attendance at such meetings. 5. 3.2 DISPUTE RESOLUTION. In the event of a disagreement between the parties as to any matters within the scope of this Agreement, the parties will, diligently and in good faith, seek to resolve the matter in dispute. If the parties are unable to resolve the dispute, despite their good faith efforts, within 15 days, they shall, within 5 days thereafter, refer such dispute to the President of CoCensys and the President of PD, North America, for resolution. In the event the parties are unable to resolve their dispute as provided in this SECTION 3.2, each party shall be free to pursue any action at law or in equity; PROVIDED, HOWEVER, that the President of PD, North America, shall have ultimate authority to resolve all matters relating to the actual marketing, advertisement and promotion of COGNEX. ARTICLE 4 PROMOTION OF COGNEX TO THE TARGETED DOCTORS 4.1 COCENSYS SALES FORCE. During the Term, subject to review by PD, CoCensys shall establish and deploy the CoCensys Sales Force for the delivery of COGNEX Disease Management Presentations to the Targeted Doctors. The CoCensys Sales Force will present approximately [ * ] COGNEX Disease Management Presentations per [ * ] of each Sales Quarter and at least [ * ] COGNEX Disease Management Presentations per [ * ] CoCensys' obligations hereunder are subject to PD making available to CoCensys at least one appropriate tool to place COGNEX in the context of a disease management system. The parties agree that PD's Alzheimer's Family Care Program is such a tool and that PD has the authority to approve any replacement or additional tools. * Confidential treatment requested. 6. 4.2 TRAINING OF COCENSYS SALES FORCE. (a) TRAINING. PD will invite the CoCensys Sales Force to attend all training sessions provided by PD for the purpose of upgrading information relating to COGNEX, including, but not limited to, information relating to new developments as set forth in SECTION 5.5. It is understood that such training sessions will be provided on an as-needed basis by PD, at PD's discretion. PD may require some or all of the CoCensys Sales Force to attend certain training sessions ("Mandatory Training Sessions"). Alternatively, PD may give CoCensys the option as to whether some or all of the CoCensys Sales Force should attend certain other training sessions ("Optional Training Sessions"). (b) TRAINING COSTS. All costs incurred under SECTION 4.2(a) (including, but not limited to, training costs, transportation and room and board) for Mandatory Training Sessions will be borne [ * ]. All costs incurred under SECTION 4.2(a) (including, but not limited to, training costs, transportation and room and board) for Optional Training Sessions will be borne [ * ] by PD and [ * ] by CoCensys. (c) SALES TRAINING MATERIALS. Notwithstanding SECTION 4.2(b), PD will supply members of the CoCensys Sales Force, at no cost to CoCensys, with copies of all sales training material relating to COGNEX generally made available to PD's sales representatives in PD's "Weekly Mailings". * Confidential treatment requested. 7. 4.3 CONDUCT OF THE COCENSYS SALES FORCE. In accordance with the terms and conditions of this Agreement, and subject to the Federal Food, Drug, and Cosmetic Act, all regulations promulgated pursuant thereto and any and all applicable state laws and regulations, CoCensys shall use commercially diligent efforts to direct its CoCensys Sales Force to market, advertise and promote COGNEX to the Targeted Doctors to so persuade such Targeted Doctors to prescribe and use COGNEX, through the giving of one or more COGNEX Disease Management Presentations, as well as, where deemed appropriate by the parties, Samples of COGNEX. All such presentations and materials to be utilized by CoCensys to so market, advertise or promote COGNEX shall be subject to the prior review and approval of PD and, if applicable, the FDA. CoCensys shall cause the CoCensys Sales Force, and all other employees, agents and representatives of CoCensys, to comply with all applicable laws, regulations and guidelines in connection with the marketing, advertising and promotion of COGNEX, including the Prescription Drug Marketing Act, the Federal Anti-Kickback Statute and AMA Guidelines. No employee, agent or representative of CoCensys shall make any representation, statement, warranty or guaranty with respect to COGNEX that is not consistent with the applicable, current package insert of prescribing information or other documentation accompanying or describing COGNEX, including PD's standard limited warranty and disclaimers, if any. 4.4 OTHER MARKETING ACTIVITIES; ADDITIONAL TARGETED DOCTORS. During the Term hereof, CoCensys will not make any sales calls or presentations regarding COGNEX to anyone who is not a Targeted Doctor, except as may be approved and coordinated by both parties. In connection therewith, CoCensys may, from time to time, meet with neurologists 8. and other doctors who are not, as of the date of such meeting, Targeted Doctors, for purposes of determining such doctors' interest in prescribing COGNEX. On the basis of such meetings, CoCensys may propose in writing to PD that additional neurologists and/or other doctors be added to EXHIBIT A as "Targeted Doctors". Such proposal shall include the name and specialty of the doctor(s) and the reasons for why CoCensys believes such doctor(s) should be Targeted Doctor(s). Within fifteen (15) days of receipt of such proposal, PD shall notify CoCensys in writing of whether it approves any or all of the proposed additions to EXHIBIT A. Such approval may be withheld in PD's sole discretion and may, for example, be conditioned on revisions to CoCensys' compensation structure hereunder and/or deletion of an equal number of doctors from EXHIBIT A. Upon CoCensys's receipt of any such approval, EXHIBIT A will be deemed amended to include each approved additional doctor, each of whom shall be deemed to be a Targeted Doctor as of the date of the PD approval. 4.5 EXCLUSIVITY OF COCENSYS SALES FORCE. Except as may be agreed to by both parties, during the Term, CoCensys shall not utilize the CoCensys Sales Force to market, advertise, promote or otherwise sell any product to the Targeted Doctors other than to conduct the COGNEX Disease Management Presentations. CoCensys may, however, utilize the CoCensys Sales Force to deliver to the Targeted Doctors a single Product Related Call 9. for a pharmaceutical product other than COGNEX, PROVIDED, HOWEVER, that under no circumstances shall any member of the CoCensys Sales Force (or any other employee of CoCensys or employee of any Affiliate of CoCensys) market, advertise, promote or otherwise sell any pharmaceutical product with an approved indication for epilepsy (an "Epilepsy Drug") during the Term. 4.6 RECORDS AND REPORTS REGARDING PROMOTION ACTIVITIES. CoCensys will keep complete and accurate records of the Disease Management Presentations made by the CoCensys Sales Force (including names of doctors, dates of presentations and general responses to such presentations) and the other activities carried out pursuant to this Agreement. CoCensys will make such records available to PD during CoCensys' regular business hours and will provide PD a quarterly report summarizing such matters. CoCensys will maintain such records for 3 years following the period to which they relate. 4.7 FORWARDING OF COGNEX ORDERS. Any orders for COGNEX received by CoCensys will be promptly forwarded to PD. 4.8 COVENANT NOT TO PROMOTE COMPETITIVE ALZHEIMER'S DISEASE PRODUCT. During the Term and until [ * ], CoCensys shall not market, promote or advertise any pharmaceutical product, other than COGNEX, with an approved indication for Alzheimer's disease, nor shall CoCensys assist any other party in doing the same. * Confidential treatment requested. 10. ARTICLE 5 PD RIGHTS AND OBLIGATIONS 5.1 TARGETED DOCTORS. Attached hereto as EXHIBIT A is a list of each of the Targeted Doctors. Such exhibit may be updated by the procedures described in Section 4.4. 5.2 SUPPLY AND DISTRIBUTION OF COGNEX. PD shall use commercially diligent efforts to perform, or cause to be performed, all manufacturing, labeling, packaging, warehousing, distribution, order entry, customer services and all other activities to supply and distribute COGNEX in order to fill all orders generated by the activities of CoCensys hereunder. PD shall use commercially diligent efforts to maintain inventory of COGNEX to satisfy reasonably anticipated demand. In the event that supply of COGNEX falls short of actual requirements because of PD's failure to use commercially diligent efforts to maintain inventory of COGNEX in accordance with reasonably anticipated demand, then CoCensys will be credited compensation pursuant to SECTION 7.1 for the number of TMOTs that the parties reasonably forecast the Targeted Doctors would have prescribed had supply been sufficient to meet reasonably anticipated demands. Such compensation will be CoCensys' sole remedy for PD's failure to supply sufficient quantities of COGNEX. PD shall accept all orders for COGNEX that are in conformity with the pricing determined by PD pursuant to SECTION 5.8 hereof, subject to PD's standard sales conditions. 5.3 REGULATORY COMPLIANCE. Unless otherwise required by law, PD will retain exclusive authority and responsibility for complying with all regulatory requirements and 11. maintain all government agency contacts relating to COGNEX, including, but not limited to, maintaining and updating the New Drug Application for COGNEX; the development and submission of regulatory filings regarding new indications (if any, and at its sole discretion); the reporting of any adverse drug reactions to the FDA; the filing of Promotional Materials with the FDA; and the payment of Medicaid and other governmental rebates which in PD's sole judgment are due and owing. Nothing herein shall obligate PD to seek FDA approval for additional indications for COGNEX. 5.4 PROMOTIONAL MATERIALS. (a) PD MATERIALS. PD shall, at its sole cost and expense, produce, provide and ship to CoCensys sufficient quantities of such promotional, sales, marketing and educational materials for COGNEX as are generally made available to PD's sales representatives (the "Promotional Materials") to allow CoCensys to fulfill its obligations hereunder, including materials related to the Alzheimer's Family Care Program and any other efficacy assessment tools. Such Promotional Materials shall include, by way of example, detailing aids; leave items; journal advertising; educational programs; formulary binders; appropriate reprints and reprint carriers; product monographs; patient support kits; materials to support the handling of physician requests; convention exhibit materials; direct mail and market research surveys and analysis. CoCensys shall not distribute any promotional, sales, marketing or educational materials relating to COGNEX except for the Promotional Materials. 12. (b) RIGHTS TO PROMOTIONAL MATERIALS. PD shall own all right, title and interest in and to any Promotional Materials provided to CoCensys pursuant to this SECTION 5.4 including applicable copyrights and trademarks. PD hereby grants to CoCensys the right, during the Term, to use all Promotional Materials and all sales, marketing, educational and training materials produced by PD and supplied to CoCensys with respect to COGNEX. 5.5 NEW DEVELOPMENTS RELATING TO COGNEX. PD will promptly inform CoCensys of the following information relating to COGNEX: (i) new approved indications; (ii) new approved dosages or administration regimens; (iii) material new studies by the scientific community that PD becomes aware of which relate to COGNEX or a competitive product in its therapeutic class; and, (iv) any changes in regulations affecting COGNEX or PD's obligations with respect to this Agreement. CoCensys will promptly inform PD of information relating to changes in regulations affecting CoCensys' obligations with respect to this Agreement. Based on such information, and subject to any federal, state or local laws and/or regulations, PD shall use commercially diligent efforts to maintain the training materials supplied to CoCensys pursuant to this Agreement current with such new developments or information. 5.6 PRECISION MARKETING DATA. PD will provide CoCensys, on an on-going basis, with all Precision Marketing Data and market research data that is similar to that provided by PD to its own sales force and is relevant to CoCensys' performance under this Agreement. As used herein, "Precision Marketing Data" means PD's internally generated customized micro-marketing data regarding prescriptions by individual physicians. * Confidential treatment requested. 13. 5.7 SALES AND INVENTORY DATA. PD will provide CoCensys with a report of sales of COGNEX through prescriptions written by the Targeted Doctors, in PD's standard accounting format, for each month of the Term as it becomes available to PD employees in the normal course of business. If requested by CoCensys, PD shall also provide CoCensys with a report of inventories and back orders of COGNEX. 5.8 PRICING OF COGNEX. PD will provide CoCensys with the published average wholesale price (i.e. Redbook AWP) per unit of COGNEX for each separate package as set forth in COGNEX's current applicable package insert. CoCensys will be notified by PD of any change in such prices per unit at a time and in a manner consistent with notification of such price changes to PD's own sales representatives. CoCensys may recommend price changes for COGNEX, and comment on pricing decisions, based upon its experience in promoting COGNEX pursuant to this Agreement. PD agrees to comment on any requests by CoCensys for pricing changes or special pricing arrangements within 10 working days after receipt of such request. After execution of this Agreement, PD shall designate one person to be responsible for handling pricing requests pursuant to this SECTION 5.8. Upon the execution of this Agreement, PD will provide CoCensys with a summary of any discounted pricing for COGNEX, and during the Term, PD will promptly notify CoCensys of any new discounted pricing for COGNEX agreed to by PD. Notwithstanding the foregoing, however, the terms of sale and pricing of COGNEX, including, but not limited to, the timing of pricing changes and any discounting, shall be at PD's sole discretion. 14. ARTICLE 6 JOINT OBLIGATIONS 6.1 ASSISTANCE AND NOTIFICATIONS TO OTHER PARTY. Each party agrees to provide to the other all reasonable assistance and take all actions reasonably requested by the other party that are necessary to enable the other party to comply with its obligations hereunder and with any law or regulation applicable to COGNEX, including, but not limited to, PD's meeting its reporting and other obligations under SECTION 5.3. Such assistance and actions shall include, among other things: (i) CoCensys promptly reporting to PD adverse drug reactions of which it becomes aware, so as to permit PD to meet its FDA reporting and other obligations in a timely fashion; (ii) each party carrying out any FDA-mandated notifications relating to COGNEX; (iii) each party immediately notifying the other of any inquiry or other contact by the FDA or any other governmental agency or authority with such party or its Affiliates relating to COGNEX, except that PD will notify CoCensys only of such inquiries or contacts which may materially affect CoCensys's performance of its obligations relating to COGNEX under this Agreement or which may adversely affect PD's ability to manufacture and supply COGNEX; and (iv) PD promptly notifying CoCensys of any adverse drug reactions to COGNEX or any regulatory action with respect to COGNEX. 6.2 REQUESTS FOR INFORMATION FROM TARGETED DOCTORS. The parties acknowledge that each may receive requests for medical or technical information, or reports of adverse drug reactions, concerning COGNEX from Targeted Doctors and others. The parties agree 15. that it shall be the obligation of PD to so respond and/or report, as appropriate, and CoCensys shall ensure that its employees and agents comply with PD's adverse event reporting procedures and policies. 6.3 MARKET SURVEYS. Each party hereto may, at its discretion and expense, undertake such market surveys, research or analyses relating to COGNEX as it deems fit, and such surveys, research or analyses shall remain the property of the party undertaking same. Each party shall make such surveys, research and analyses specifically relating to COGNEX available to the other party at no cost to that other party. 6.4 WITHDRAWAL OF COGNEX. Each party agrees to notify the other immediately of any pending or threatened event which may lead to withdrawal of COGNEX from the market, including, without limitation; (i) actual or threatened regulatory action by the FDA or other governmental entity, including, but not limited to, the loss by PD of any right necessary to market COGNEX; or (ii) safety concerns relating to COGNEX. The final decision as to whether to so withdraw COGNEX shall be within PD's sole discretion, although CoCensys may make recommendations regarding any such proposed action. In the event of such withdrawal of COGNEX, the rights of the parties shall be governed by SECTION 9.3 hereof. 6.5 NON-SOLICITATION OF EMPLOYEES. During the Term, neither party will solicit for the purpose of hiring the sales and marketing employees of the other party. 16. ARTICLE 7 COMPENSATION AND PREPAYMENTS 7.1 PAYMENT. In consideration for the efforts of the CoCensys Sales Force hereunder, PD will pay CoCensys [ * ] for each TMOT written by a Targeted Doctor during each Sales Quarter during the Term; PROVIDED, HOWEVER, that if CoCensys performs all of its material obligations under this Agreement, in no event will PD pay CoCensys less than $560,000 per each Sales Quarter during the Term (which amount will be pro-rated based on the actual number of calendar days in the event of early termination of this Agreement at any time other than on the final day of a Sales Quarter). 7.2 PAYMENT AND ACCOUNTING. PD shall pay CoCensys the amount due under SECTION 7.1 within 30 days of PD's receipt of sufficient IMS data to calculate such amount and shall provide CoCensys with a written accounting showing PD's computation of the compensation due for the applicable period. 7.3 AUDIT RIGHTS. In accordance with its standard accounting practices, PD shall keep full and accurate books and records with respect to the amounts payable hereunder, for no less than 3 years after the end of the Sales Quarter in respect of which payment is to be made hereunder. PD shall permit CoCensys to have such books and records examined by independent certified public accountants retained by CoCensys and acceptable to PD, during regular business hours and upon reasonable advance notice, but not later than 3 years * Confidential treatment requested. 17. following the rendering of any such reports, accounting and payments and no more often than 1 time per year. Such independent accountants shall keep confidential any information obtained during such examination and shall report only the amounts which the independent accountant believes to be due and payable hereunder. Any such information so reviewed and any such information reported shall be considered the Proprietary Information of PD. In the absence of material discrepancies (in excess of [ * ] of the total amount due to CoCensys in respect of the audited Sales Quarters) in any request for payment resulting from such audit, the accounting expense shall be paid by CoCensys. If material discrepancies do result, PD shall bear the accounting expense. 7.4 IMS. In the event IMS is unable or unwilling, on terms acceptable to PD, to provide data to PD which will enable PD to make the calculations required pursuant to SECTIONS 7.1 and 7.2, PD will notify CoCensys of such fact and PD will, after consultation with CoCensys, select a new third party supplier of such data. In the event CoCensys feels that the data provided by IMS (or a third party supplier of data pursuant to the preceding sentence) is not accurately capturing TMOT sales to the Targeted Doctors, CoCensys may make a written request to PD that PD use a new third party supplier of such data. PD will consider CoCensys' request in good faith and, if it agrees with CoCensys' request, will, after consultation with CoCensys, select a new third party supplier of such data; PROVIDED, HOWEVER, that the parties will share any costs incurred by PD in connection with engaging a new third party supplier of such data requested by CoCensys. The parties acknowledge that the IMS data used to compile the list of Targeted Doctors attached as EXHIBIT A, and the data * Confidential treatment requested. 18. which will be used to make the calculations required pursuant to SECTIONS 7.1 and 7.2, are not 100% accurate, yet such data will continue to be used unless replaced pursuant to this Section. 7.5 FINANCING OF COCENSYS SALES FORCE. (a) PREPAYMENTS. In order to enable CoCensys to comply with its obligations to market, advertise and promote COGNEX hereunder, including, but not limited to, the training of the CoCensys Sales Force, PD shall, beginning with the Sales Quarter commencing January 1, 1997, prepay to CoCensys $560,000 per Sales Quarter (each such quarterly payment, a "Prepayment"). Each such Prepayment shall be paid quarterly, in advance of the Sales Quarter to which such amount pertains. Notwithstanding the foregoing, if pursuant to Section 9.1, 9.2 or 9.3, the termination of this Agreement is scheduled to occur on any day other than the final day of a Sales Quarter, and if such fact is known prior to the first day of such Sales Quarter, the amount of the Prepayment in respect of such Sales Quarter will be reduced and prorated based on the actual number of calendar days in such Sales Quarter prior to such scheduled day of termination. (b) PAYMENT OF PREPAYMENTS. All Prepayments shall be made by PD to CoCensys by wire transfer to an account designated in writing by notice pursuant to SECTION 15.1 hereof by CoCensys, or other mutually agreeable method. Any and all sums prepaid under SECTION 7.5(a) shall be credited pursuant to SECTION 7.6. * Confidential treatment requested. 19. 7.6 CREDITING OF PREPAYMENTS. For each Sales Quarter during the Term, 100% of the Prepayment for such Sales Quarter shall be credited against amounts payable to CoCensys under SECTIONS 7.1 and 7.2 in respect of such Sales Quarter, prior to any payment to CoCensys pursuant to such Sections. In the event that the amounts payable to CoCensys under such Sections are less than the Prepayment in respect of a given Sales Quarter, due to an early termination of this Agreement by PD for material breach by CoCensys under Section 9.1 or an early termination by either party under Section 9.2 or Section 9.3(a), CoCensys shall pay PD the difference between the amount of the Prepayment and amounts payable to CoCensys' under SECTIONS 7.1 and 7.2 in respect of such Sales Quarter. Such payment, if any, will be made by CoCensys to PD by wire transfer to an account designated in writing by notice pursuant to SECTION 15.1 hereof by PD, or other mutually agreeable method, within 10 days following CoCensys' receipt of the written accounting referred to in SECTION 7.2. ARTICLE 8 TERM 8.1 TERM. The term of this Agreement (the "Term") shall be the period commencing on the Effective Date and terminating December 31, 1997, unless terminated earlier pursuant to the provisions of ARTICLE 9 hereof. 20. ARTICLE 9 TERMINATION 9.1 TERMINATION FOR BREACH. Either party may terminate this Agreement for material breach or failure to perform any material duties or obligations under this Agreement by the other party, where such breach shall remain uncured, or such failure to perform shall continue, for at least 30 days after the aggrieved party shall have given written notice of the breach or failure to perform to the other party. If after the 30 day period for cure and/or performance such breach remains uncured or such failure to perform continues, then the aggrieved party may, in accordance with SECTION 15.1, provide written notice to the other party of termination of this Agreement ("Notice of Termination"). Such termination shall be effective 7 days from receipt of said Notice of Termination. 9.2 TERMINATION WITHOUT CAUSE. PD or CoCensys may deliver written notice to the other party that it desires to terminate this Agreement as of July 1, 1997 or thereafter, for any or no reason, such termination to be effective the later of (i) July 1, 1997 and (ii) 3 months after the date of such notice. 9.3 TERMINATION UPON CESSATION OF SALE OF COGNEX. (a) WITHDRAWAL BY FDA. This Agreement may be terminated at any time without notice by either party, if, pursuant to SECTION 6.4 hereof, COGNEX is withdrawn from the market in the Territory. 21. (b) WITHDRAWAL BY PD. This Agreement may be terminated at any time without notice by PD and without liability to CoCensys if PD decides for business, ethical or regulatory reasons to cease the sale or promotion of COGNEX in the Territory. 9.4 PAYMENT OF AMOUNTS DUE. Except in the case of termination by PD pursuant to SECTION 9.1, any sums due to CoCensys by reason of its performance through the effective date of termination will be paid by PD within 90 days of such termination. Neither party shall have any further rights to compensation from the other party in connection with COGNEX after the effective date of termination. ARTICLE 10 WARRANTIES, REPRESENTATIONS AND COVENANTS 10.1 WARRANTIES AND REPRESENTATIONS OF EACH PARTY. Each party warrants and represents that it possesses all right, title, interest and authority necessary to enter into this Agreement, perform its obligations hereunder and to grant the rights embodied herein. 10.2 WARRANTIES AND REPRESENTATIONS OF PD. PD warrants and represents that (i) all Promotional Materials supplied hereunder are in compliance with all applicable laws and regulations and (ii) the COGNEX to be distributed by PD during the Term of this Agreement will, at the time of shipment by or on behalf of PD, not be misbranded or adulterated under the terms of the Federal Food, Drug and Cosmetic Act and all applicable regulations promulgated thereunder. 22. 10.3 COVENANTS OF EACH PARTY. Each party covenants to the other that it will comply with all applicable laws and regulations, including, but not limited to, the Prescription Drug Marketing Act and the Federal Anti-Kickback Statute in carrying out its obligations pursuant to this Agreement. In addition, each party covenants to the other that it will conduct its activities hereunder in accordance with all appropriate American Medical Association guidelines. 10.4 DISCLAIMER OF WARRANTIES. EXCEPT AS EXPRESSLY PROVIDED HEREIN, PD DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WITH REGARD TO THE PRODUCT, INCLUDING THE WARRANTY OF MERCHANTABILITY AND THE WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE. ARTICLE 11 INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS 11.1 NOTICE. If either party learns of a claim or assertion that the manufacture, use or sale of COGNEX infringes or otherwise violates the intellectual or industrial property rights of any third party in the Territory, or that any third party violates the intellectual or industrial property rights of PD in COGNEX in the Territory, then the party becoming so informed shall promptly, but in all events within 10 business days thereof, notify the other party to this Agreement of the claim or assertion. 23. 11.2 CONDUCT OF INFRINGEMENT ACTIONS. At its sole discretion, subject to this ARTICLE 11, PD shall conduct all infringement actions relating to COGNEX at its own expense and shall be entitled to deduct from any recovery it receives (whether by judgment or settlement) the costs and attorneys fees (including a reasonable apportionment for the cost of in-house attorneys and other PD employees who are directly related to the infringement action) incurred in connection therewith and the punitive portion of any such recovery. CoCensys shall be paid a portion of any remaining sums from such recovery which relate to sales in the Territory during the period beginning on the later of (i) the Effective Date or (ii) the date that such infringement is held to have begun and ending on the earlier of (x) the termination or expiration of the Term and (y) the date that such infringement is held to have stopped (the "Promotional Period Recovery"). CoCensys will be entitled to the following: (Promotional Period Recovery / average net amount received by PD for each TMOT actually written during the period in question) X (the number of TMOTs written by the Targeted Doctors during the period in question / the number of TMOTs written in the Territory during the period in question) X [ * ]. * Confidential treatment requested. 24. ARTICLE 12 INDEMNIFICATION 12.1 INDEMNIFICATION BY PD. PD shall defend, indemnify and hold harmless CoCensys from all liability, loss, costs, judgments, amounts paid in settlement, fines or penalties incurred as a direct result of any failure of COGNEX or the Promotional Materials to comply with any applicable law or regulation or any intellectual property infringement, product liability or other claim arising in connection with the use or promotion of COGNEX, including, but not limited to, reasonable attorneys' fees and all costs associated with the recall of COGNEX, which it may suffer or sustain as a direct result of any such claim, charge, suit or other action except to the extent CoCensys's negligence or intentional malfeasance in connection with its use, marketing, advertising or promotion of COGNEX shall have given rise to such claim, charge, suit or other action. 12.2 INDEMNIFICATION BY COCENSYS. CoCensys shall defend, indemnify and hold PD harmless from all liability, loss, costs, judgments, amounts paid in settlement, fines or penalties incurred as a direct result of any CoCensys negligence or intentional malfeasance in connection with its use, marketing, advertising or promotion of COGNEX, including, but not limited to, reasonable attorneys fees, which PD may suffer or sustain as a direct result of any such claim, charge, suit or other action. 25. 12.3 Indemnification Procedure. The obligations of PD and CoCensys under this ARTICLE 12 shall be subject to the following terms and conditions: (i) The party claiming a right to indemnification shall, within 10 business days after receipt of any claim, charge, suit or other action (or within 10 business days after learning of a situation that is reasonably likely to lead to a claim, charge, suit or other action), give, in accordance with SECTION 15.1, written notice to the indemnifying party, of any such claim, charge, suit or other action received from a third party (or a description of the situation that is reasonably likely to lead to the same) which is governed by the indemnity obligations of this Agreement; (ii) The indemnifying party shall conduct, at its own expense, the defense of any and all such claims, charges, suits or other actions by a third party; (iii) Neither party shall settle or admit liability with respect to any such claims, charges, suits or other actions which could result in liability to the other party without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed; 26. (iv) If the indemnifying party does not take the steps necessary against any such claims, charges, suits or other actions by a third party, the party claiming indemnification may defend against or settle such claims, charges, suits or other actions provided that party may not settle such claims, charges, suits or other actions without prior written consent of the indemnifying party which consent shall not be unreasonably withheld or delayed; however, the defense and/or settlement under this ARTICLE 12 shall not act as a waiver of rights to indemnification under this Agreement, or any other rights or remedies of a party claiming indemnification and shall not excuse the indemnifying party from its obligations hereunder and all reasonable costs and expenses incurred by the party claiming indemnification shall be subject to indemnity by the indemnifying party; and, (v) Each party will offer reasonable assistance to the other party in defending or settling the claim, charge, suit or other action. 27. ARTICLE 13 CONFIDENTIALITY 13.1 NONDISCLOSURE AND NONUSE OBLIGATIONS. During the term of this Agreement, and for a period of 5 years after expiration or termination hereof, each party will maintain all Proprietary Information in trust and confidence and will not disclose any Proprietary Information to any third party or use any Proprietary Information for any unauthorized purpose. Each party may use such Proprietary Information only to the extent required to accomplish the purposes of this Agreement. No Proprietary Information shall be disclosed to any employee, agent, Affiliate or consultant who does not have a need for such information. To the extent that disclosure is authorized by this Agreement, such disclosure will be made subject to a written agreement to hold in confidence and not make use of such Proprietary Information for any purpose other than those permitted by this Agreement. Each party will promptly notify the other upon discovery of any unauthorized use or disclosure of the Proprietary Information. 13.2 EXCEPTIONS. Proprietary Information shall not include any information which: (i) is now, or hereafter becomes, through no act or failure to act on the part of the receiving party, generally known or available; (ii) is known by the receiving party at the time of receiving such information, as evidenced by its written records; 28. (iii) is hereafter furnished to the receiving party by a third party, as a matter of right and without restriction on disclosure; (iv) is independently developed by the receiving party without any breach of this ARTICLE 13; or (v) is the subject of a written permission to disclose provided by the disclosing party. 13.3 AUTHORIZED DISCLOSURE. Notwithstanding any other provision of this Agreement, each party may disclose Proprietary Information if such disclosure is required (i) by an order of a court or other governmental body of the United States or any political subdivision thereof; (ii) by law or regulation; or (iii) to file or prosecute patent applications or prosecute or defend litigation or otherwise establish rights or enforce obligations under this Agreement, but only to the extent that any such disclosure is necessary. With respect to any order of a court or other governmental body, the disclosing party shall first have given notice to the other party hereto, shall have made a reasonable effort to obtain a protective order requiring that the Proprietary Information so disclosed be used only for the purposes for which the order was issued and shall cooperate with the other party to minimize the scope and content of such disclosure. Notwithstanding any other provision of this Agreement, each party may disclose the terms of this Agreement to lenders, investment bankers and other financial institutions of its choice solely for purposes of financing the business operations of such party either (i) upon the written consent of the other party or (ii) 29. if the disclosing party obtains a signed confidentiality agreement with such financial institution with respect to such information, upon terms substantially similar to those contained in this ARTICLE 13. 13.4 OBLIGATIONS AT END OF TERM. Each party agrees, at the request of the other party, at the end of the Term to either (i) return to the other party all originals and copies of the other party's Proprietary Information; or, (ii) at the other party's option, destroy all originals and copies of the other party's Proprietary Information and to certify in writing such destruction to the other party. 13.5 RETENTION OF PROPRIETARY INFORMATION. Each party may maintain 1 copy of any document containing Proprietary Information in its legal department, or with its counsel, solely for archival purposes. ARTICLE 14 PUBLICITY 14.1 All publicity, press releases and other announcements relating to this Agreement or the transaction contemplated hereby shall be reviewed in advance by, and subject to the approval of, both parties; PROVIDED, HOWEVER, that either party may, without the consent of the other, (i) publicize the existence and general subject matter of this Agreement without the other party's approval and (ii) disclose the terms of this Agreement insofar as required to comply with applicable securities laws. Any party that determines applicable 30. securities laws require it to file this Agreement shall first provide the other party a copy of the redacted version it intends to file and shall provide the other party the opportunity to comment thereon. Notwithstanding the foregoing, the filing party will make the final decisions regarding the version hereof to file. ARTICLE 15 MISCELLANEOUS 15.1 NOTICES. All notices required or permitted hereunder shall be given in writing and sent by facsimile transmission, or mailed postage prepaid, certified or registered mail, return receipt requested, or sent by a nationally recognized express courier service, or hand-delivered at the following address: Parke-Davis 201 Tabor Road Morris Plains, NJ 07950 Attn: President, Parke-Davis, United States and Mexico Fax: (201) 540-4009 with a copy to: Parke-Davis 201 Tabor Road Morris Plains, NJ 07950 Attn: Assistant General Counsel, Pharmaceuticals, North America Fax: (201) 540-3117 31. CoCensys, Inc. 213 Technology Drive Irvine, California 92718 Attn: Office of the President Fax: (714) 753-6161 All notices shall be deemed made upon receipt by the addressee as evidenced by the applicable written receipt or, in the case of a facsimile, as evidenced by the confirmation of transmission. 15.2 CAPTIONS AND SECTION REFERENCES. The titles, headings or captions in this Agreement do not define, limit, extend, explain or describe the scope or extent of this Agreement or any of its terms or conditions and therefore shall not be considered in the interpretations, construction or application of this Agreement. 15.3 SEVERABILITY. Whenever possible, each clause, subclause, provision or condition of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any clause, subclause, provision or condition of this Agreement should be prohibited or invalid under applicable law, such clause, subclause, provision or condition shall be considered separate and severable from this Agreement to the extent of such prohibition or invalidity without invalidating the remaining clauses, subclauses, provisions and conditions of this Agreement, so long as the remaining Agreement reflects the economic intentions of the parties as evidenced by this Agreement as a whole. 32. 15.4 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement between the parties hereto pertaining to the subject matter hereof and supersedes all negotiations, preliminary agreements, memoranda or letters of proposal or intent, discussions and understandings of the parties hereto in connection with the subject matter hereof. All discussions between the parties have been merged into this Agreement and neither party shall be bound by any definition, condition, understanding, representation, warranty, covenant or provision other than as expressly stated in or contemplated by this Agreement or as subsequently shall be set forth in writing and executed by a duly authorized representative of the party to be bound thereby. 15.5 AMENDMENT. No amendment, change or modification of any of the terms, provisions or conditions of this Agreement shall be effective unless made in writing and signed on behalf of the parties hereto by their duly authorized representatives. 15.6 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original document, but all such separate counterparts shall constitute only one and the same Agreement. 15.7 WAIVER. No waiver of any term, provision or condition of this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such or other term, provision or condition of this Agreement. 33. 15.8 FORCE MAJEURE. Neither party shall be liable hereunder to the other party nor shall be in breach for failure to perform its obligations caused by circumstances beyond the control of either party, including, but not limited to, acts of nature; fires; earthquakes; floods; riots; wars; civil disturbances; sabotage; accidents; labor disputes; shortages or government actions. In the case of any such event, the affected party shall promptly notify the other party, and shall keep the other party informed of the efforts to resume performance. After 30 days of such inability to perform, the parties agree to meet and in good faith discuss how to proceed. In the event that the affected party is prevented from performing its obligations pursuant to this SECTION 15.8 for a period of 1 month, the other party shall have the right to terminate this Agreement, subject to the provisions of SECTION 9.4. 15.9 BENEFITS AND BINDING NATURE OF AGREEMENT. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns permitted under this Agreement. 15.10 ASSIGNMENT; CHANGE IN CONTROL. This Agreement may not be assigned by either party without the consent of the other party except to any Affiliate or successor by merger or sale of substantially all of its business units to which this Agreement relates. In the event of a Change of Control of either party which results in the control of such party (the "Acquired Party") by a Pharmaceutical Company, the Acquired Party shall notify the other party (the "Non-Acquired Party") of such Change in Control and the Non-Acquired Party may, in its sole discretion, [ * ]. For 15 days following receipt of such notice, * Confidential treatment requested. 34. [ * ]. For purposes of this SECTION 15.10, "Change in Control" shall mean (1) a merger or consolidation in which a party hereto is not the surviving corporation; (2) a reverse merger in which a party hereto is the surviving corporation but the shares of such party's voting stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (3) if, after giving effect to any agreements among stockholders of a party hereto, any person holds and may vote in excess of 50% of such party's voting stock. "Pharmaceutical Company" means any person, as such term is defined in SECTION 13(d) of the United States Securities Exchange Act of 1934, as amended, which is engaged in the pharmaceutical business in terms of researching, developing, marketing, selling or distributing pharmaceutical products for use in humans. 15.11 SURVIVAL . The provisions of SECTIONS 4.6, 4.8, 5.4(b), 9.4 and 11.2 and ARTICLES 7, 10, 12 and 13 shall survive, and remain in effect, after termination or expiration of this Agreement. 15.12 NOT STRICTLY CONSTRUED AGAINST EITHER PARTY. This Agreement has been prepared jointly and shall not be strictly construed against either party. 15.13 GOVERNING LAW. This Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware other than those provisions governing conflicts of law. * Confidential treatment requested. 35. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on the day and year first above written. WARNER-LAMBERT COMPANY COCENSYS, INC. By: /s/ Maurice Renshaw By: /s/ Rick A. Henson ------------------------- ------------------------------------ Title: President, Title: President, Parke-Davis North America CoCensys Pharma -------------------------- Sales and Marketing --------------------------------- 36. EXHIBIT A [ * ] 37. EX-2 3 EXHIBIT 2 LICENSE AGREEMENT THIS AGREEMENT, effective as of December 15, 1996 ("EFFECTIVE DATE") between THE GENERAL HOSPITAL CORPORATION, a not-for-profit corporation doing business as Massachusetts General Hospital, having a place of business at Fruit Street, Boston, Massachusetts 02114 ("GENERAL") and CoCensys, Inc., a corporation having offices at 213 Technology Drive, Irvine, California 92618 ("COMPANY"). WHEREAS, under research programs funded by the GENERAL and the U.S. Government, the GENERAL through research conducted by Dr. Michael Moskowitz has developed an invention pertaining to a method for treating vascular headaches; WHEREAS, GENERAL has filed a U.S. Patent Application covering said invention and all [ * ] rights, title and interest in said application have been assigned to GENERAL; WHEREAS, GENERAL represents to the best of its knowledge and belief that it is the owner of all rights, title and interest in said patent application and has the right and ability to grant the license hereinafter described; WHEREAS, as a center for research and education, GENERAL is interested in licensing PATENT RIGHTS and thus benefiting the public and the GENERAL by facilitating the dissemination of the results of its research in the form of useful products, but is without capacity to commercially develop, manufacture, and distribute any such product; and WHEREAS, COMPANY having such capacity, desires to commercially develop, manufacture, use and distribute such products throughout the world; NOW THEREFORE, in consideration of the premises and of the faithful performance of the covenants herein contained, the parties hereto agree as follows: 1. DEFINITIONS 1.1 The term "ACCOUNTING PERIOD" shall mean each six month period ending June 30 and December 31. 1.2 The term "AFFILIATE" shall mean any corporation or other legal entity other than COMPANY in whatever country organized, controlling, controlled by or under common control with COMPANY. The term "control" means possession, direct or indirect, of the powers to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting securities, by contract or otherwise. The term "AFFILIATE" with respect to GENERAL shall mean any company controlling, controlled by, or under common control, directly or indirectly, with GENERAL. * Confidential treatment requested. 1. 1.3 The term "FIRST COMMERCIAL SALE" shall mean in each country the first sale by COMPANY, its AFFILIATES or SUBLICENSEES of any PRODUCT used or intended for use in the LICENSE FIELD. 1.4 The term "LICENSE FIELD" shall mean treatment of human or animal diseases using NEUROSTEROID PRODUCTS. 1.4A The term "NEUROSTEROID PRODUCT" shall mean a product containing a neuroactive steroid acting as a positive modulator of GABA(A) receptors. 1.5 The term "NET SALES PRICE" shall mean the GROSS SALES PRICE as defined in (c) below received by COMPANY or any of its AFFILIATES or SUBLICENSEES ("SELLERS") for the sale or distribution of any PRODUCT, less (to the extent appropriately documented) the amounts set forth in clause (a) below actually paid out by COMPANY, its AFFILIATE or SUBLICENSEE or credited against the amounts received by them from the sale or distribution of PRODUCT: (a) (i) credits and allowances for price adjustment, rejection, or return of PRODUCTS previously sold; (ii) rebates and cash discounts to purchasers allowed and taken; (iii) amounts for transportation, insurance, handling or shipping charges to purchasers; (iv) taxes, duties and other governmental charges levied on or measured by the sale of PRODUCTS, whether absorbed by COMPANY, its AFFILIATES or SUBLICENSEES or paid by the purchaser so long as COMPANY's, its AFFILIATES' or SUBLICENSEES' price is reduced thereby, but not franchise or income taxes of any kind whatsoever; (b) For any sale by COMPANY, its AFFILIATES or SUBLICENSEES to the United States or its designee, in which the United States government, on the basis of its royalty-free license pursuant to 35 USC Sec. 202(c) to any of the PATENT RIGHTS, requires that the GROSS SALES PRICE be reduced by the amount of royalty owed GENERAL pursuant to paragraph 5.1, COMPANY, its AFFILIATES or SUBLICENSEES shall have the right, in determining NET SALES for purposes of payment of the royalty to GENERAL on such sales to the United States or its designee, to deduct from the invoiced price the amount of such royalty otherwise owed GENERAL as calculated using the deductions set forth in (a) above. (c) For any bona fide sale to a bona fide customer by COMPANY or any of its AFFILIATES or SUBLICENSEES, the GROSS SALES PRICE shall be the invoiced price of the PRODUCT. (d) If COMPANY or any of its AFFILIATES or SUBLICENSEES sell any PRODUCT in a bona fide sale as a component of a combination of active functional elements, the GROSS SALES PRICE of the PRODUCT shall be determined by multiplying the GROSS 2. SALES PRICE of the combination by the fraction A over A + B, in which "A" is the GROSS SALES PRICE of the PRODUCT portion of the combination when sold separately during the ACCOUNTING PERIOD in the country in which the sale was made, and "B" is the gross sales price of the other active elements of the combination sold separately during said ACCOUNTING PERIOD in said country. In the event that no separate sale of either such PRODUCT or active elements of the combination is made during said ACCOUNTING PERIOD in said country, the GROSS SALES PRICE of the PRODUCT shall be determined by multiplying the gross sales price of such combination by the fraction C over C + D, in which "C" is the standard fully-absorbed cost of the PRODUCT portion of such combination, and "D" is the sum of the standard fully-absorbed costs of the other active elements component(s), such costs being arrived at using the standard accounting procedures of COMPANY which will be in accord with generally accepted accounting practices. (e) If a SELLER commercially uses or disposes of any PRODUCT by itself (as opposed to a use or disposition of the PRODUCT as a component of a combination of active functional elements) other than in a bona fide sale to a bona fide customer, the GROSS SALES PRICE hereunder shall be the price which would be then payable in an arm's length transaction. If a SELLER commercially uses or disposes of any PRODUCT as a component of a combination of active functional elements other than in a bona fide sale to a bona fide customer, the GROSS SALES PRICE of the PRODUCT shall be determined in accordance with paragraph (c) above, using as the GROSS SALES PRICE of the combination that price which would be then payable in an arm's length transaction. (f) Transfer of a PRODUCT within COMPANY or between COMPANY and an AFFILIATE or a PARTNERING SUBLICENSEE for sale by the transferee shall not be considered a sale, commercial use or disposition for the purpose of the foregoing paragraphs, in the case of such transfer the GROSS SALES PRICE shall be based on sale of the PRODUCT by the transferee. 1.5A The term "ANNUAL NET SALES" shall mean the sum of the NET SALES PRICE of all PRODUCTS sold in any calendar year ending December 31. 1.6 The term "PATENT RIGHT" shall mean the U.S. Patent Application Serial Number [ * ] by Dr. Moskowitz entitled "Method for Treating Vascular Headaches", or the equivalent of such application, including any division, continuation or any equivalent foreign patent application or Letters Patent or the equivalent thereof issuing thereon or reissue, reexamination or extension thereof. PATENT RIGHTS shall also include those claims in any continuation-in-part of the aforementioned patent application which claim an invention described or claimed in said patent application. 1.7 The term "PRODUCT" shall mean any article, device, composition, method or service, the manufacture, use, or sale of which, absent the licenses granted herein, would infringe a VALID CLAIM of any PATENT RIGHT. * Confidential treatment requested. 3. 1.8 The term "SUBLICENSEE" shall mean any non-AFFILIATE third party licensed by COMPANY or by an AFFILIATE to make, have made, use, sell, offer for sale or import any PRODUCT. 1.8A The term "PARTNERING SUBLICENSEE" shall mean any SUBLICENSEE with whom COMPANY has entered into a strategic partnership or other arrangement in which COMPANY and said SUBLICENSEE agree that PRODUCTS will be developed and/or sold by Co-development, wherein the term "Co-development" shall mean the sharing of research, development, marketing and/or manufacturing costs by COMPANY and a SUBLICENSEE in accordance with a predefined formula. 1.9 The term "VALID CLAIM" shall mean any claim of any PATENT RIGHT that has not been (i) finally rejected or (ii) declared invalid by a patent office or court of competent jurisdiction in any unappealed and unappealable decision. 2. LICENSE 2.1 GENERAL hereby grants COMPANY, to the extent not prohibited by existing contractual obligations to any other sponsor of research at GENERAL: (a) an exclusive, worldwide, royalty-bearing license in the LICENSE FIELD under GENERAL's rights in PATENT RIGHTS to make, have made, use, sell, offer for sale, and import PRODUCTS; (b) to the extent an exclusive license is not available to COMPANY in a country, a non-exclusive, royalty-bearing license in the LICENSE FIELD under PATENT RIGHTS to make, have made, use, sell, offer for sale, and import PRODUCTS; (c) the right to sublicense PATENT RIGHTS exclusively licensed to COMPANY, provided that, if COMPANY's exclusive license in a country is converted to a nonexclusive license in accordance with paragraph 2.1(b), and COMPANY has a single PARTNERING SUBLICENSEE in said country, COMPANY shall retain the right to sublicense PATENT RIGHTS solely to said PARTNERING SUBLICENSEE in said country. All licenses pursuant to this paragraph 2.1 are subject to the rights, conditions and limitations imposed by U.S. law with respect to inventions made in the performance of federally funded research. The above licenses to sell PRODUCTS include the right to grant to the purchaser of products from COMPANY, its AFFILIATES, and SUBLICENSEES the right to use such purchased PRODUCTS in a method coming within the scope of the PATENT RIGHTS. 2.2 The granting of any license hereunder is subject to GENERAL's and GENERAL's AFFILIATES' right to make and to use the subject matter described and claimed in PATENT RIGHT for research and clinical purposes but not for Commercial Purposes, as hereinafter 4. defined. For this paragraph, "Commercial Purposes" shall mean use of the subject matter described and claimed in PATENT RIGHT in any product, or for the purpose of producing a product, which is sold or otherwise commercially distributed. 2.3 GENERAL shall have the right to license any PATENT RIGHT to any other party for the purpose of manufacturing, using or selling of any PRODUCT outside of the LICENSE FIELD. If GENERAL proposes to grant any third party an exclusive license to PATENT RIGHTS in a field outside the LICENSE FIELD ("the Other Field"), GENERAL shall so notify COMPANY, and COMPANY shall have thirty (30) days to notify GENERAL of its interest in obtaining an exclusive license in the Other Field, to provide GENERAL with proposed terms for such a license and a statement of its capabilities for developing a PRODUCT in said Other Field. GENERAL will consider COMPANY's offer in good faith, and will notify COMPANY of its decision within thirty (30) days of GENERAL's receipt of COMPANY's offer, it being understood that GENERAL shall be under no obligation to grant COMPANY a license in any Other Field, and that GENERAL's decision on whether to grant COMPANY a license in any Other Field shall take into account COMPANY's access or rights to drugs within said Other Field. 2.4 It is understood that nothing herein shall be construed to grant COMPANY a license express or implied under any patent owned solely or jointly by GENERAL other than the PATENT RIGHTS expressly licensed hereunder. 3. DUE DILIGENCE OBLIGATIONS 3.1 COMPANY shall itself, or through its AFFILIATES or SUBLICENSEES, use its commercially reasonable efforts to develop and make commercially available PRODUCTS for commercial sales and distribution throughout the world in the LICENSE FIELD. Such efforts shall consist of achieving the following objectives within the time period designated below following the EFFECTIVE DATE: (a) GENERAL acknowledges that COMPANY represents that it is developing the drug ganaxolone for indications other than migraine headaches, and COMPANY therefore agrees that it will commence a Phase II clinical trial of a PRODUCT comprising ganaxolone ("GANAXOLONE PRODUCT") for an indication within the LICENSE FIELD within twelve (12) months, and that it will thereafter diligently pursue clinical evaluations of a GANAXOLONE PRODUCT for an indication in the LICENSE FIELD as long as a GANAXOLONE PRODUCT continues to show clinical efficacy against an indication in the LICENSE FIELD; (b) within [ * ], complete all animal toxicity tests required in connection with securing U.S. Food and Drug Administration approval of clinical evaluations of a PRODUCT not comprising ganaxolone ("SECOND GENERATION PRODUCT"). * Confidential treatment requested. 5. (c) within [ * ], initiate and thereafter diligently pursue clinical evaluations of a SECOND GENERATION PRODUCT and in connection therewith take all actions necessary under the Food, Drug and Cosmetic Act (21 USC 301-391); (d) within [ * ], determine whether to manufacture either a GANAXOLONE PRODUCT or a SECOND GENERATION PRODUCT for commercial sale and to inform GENERAL of such determination; (e) as a result of the determination in (d) above, either introduce a GANAXOLONE PRODUCT in the United States, Europe and Japan within [ * ] of the EFFECTIVE DATE or introduce a SECOND GENERATION PRODUCT in the United States, Europe and Japan within [ * ] of the EFFECTIVE DATE; and (f) within [ * ], announce and market for general commercial sale either a GANAXOLONE PRODUCT or a SECOND GENERATION PRODUCT on a worldwide basis; provided, however, that GENERAL shall not unreasonably withhold its consent to any revision in such time periods whenever requested in writing by COMPANY and supported by evidence of technical difficulties or delays in clinical studies or regulatory processes that the parties could not have reasonably avoided. Failure to achieve one or more of the above objectives within the above stated time periods or within any extension granted by GENERAL shall result in GENERAL having the right to cancel upon sixty (60) days notice any exclusive license granted hereunder or convert any exclusive license to a non-exclusive license. 3.2 At intervals no longer than every twelve (12) months, COMPANY shall report in writing to GENERAL on progress made toward the foregoing objectives. 4. FILING, PROSECUTION AND MAINTENANCE OF PATENT RIGHT 4.1 GENERAL shall be responsible for the preparation, filing, prosecution and maintenance of all patent applications and patents included in PATENT RIGHTS. As long as GENERAL has not granted any licenses under PATENT RIGHTS to any third party, COMPANY shall reimburse GENERAL for all reasonable costs ("Costs") incurred by GENERAL for the preparation, filing, prosecution and maintenance of all PATENT RIGHTS as follows: (a) Subject to paragraph 4.2, for all Costs incurred by GENERAL from and after the EFFECTIVE DATE, COMPANY shall reimburse GENERAL within thirty (30) days of receipt of invoices from GENERAL; (b) For all Costs incurred by GENERAL prior to the EFFECTIVE DATE, COMPANY shall reimburse GENERAL upon execution of this Agreement. * Confidential treatment requested. 6. In the event GENERAL grants a license under PATENT RIGHTS to one or more third parties (each a "Third Party Licensee"), COMPANY shall only be required to reimburse GENERAL for the CoCensys Pro Rata Percentage of those Costs incurred by GENERAL after the effective date of such license to a Third Party Licensee. The "CoCensys Pro Rata Percentage" at any given point in time shall equal 1 divided by the number of licensees (i.e., CoCensys plus each Third Party Licensee) under the PATENT RIGHTS at such point in time. 4.2 With respect to any PATENT RIGHT, each document or a draft thereof pertaining to the filing, prosecution, or maintenance of such PATENT RIGHT, including but not limited to each patent application, office action, response to office action, request for terminal disclaimer, and request for reissue or reexamination of any patent issuing from such application shall be provided to COMPANY as follows. Documents received from any patent office or counsel's analysis thereof shall be provided promptly after receipt. For a document to be filed in any patent office, a draft of such document shall be provided sufficiently prior to its filing, to allow for review and comment by the other party. If as a result of the review of any such document, COMPANY shall elect not to pay or continue to pay the Costs for such PATENT RIGHT, COMPANY shall so notify GENERAL within thirty (30) days of COMPANY's receipt of such document and COMPANY shall thereafter be relieved of the obligation to pay any additional Costs regarding such PATENT RIGHT incurred after the receipt of such notice by GENERAL. Such U.S. or foreign patent application or patent shall thereupon cease to be a PATENT RIGHT hereunder and GENERAL shall be free to license its rights to that particular U.S. patent application or patent to any other party on any terms. 5. ROYALTIES 5.1 Beginning with the FIRST COMMERCIAL SALE in any country, on all sales of PRODUCTS anywhere in the world by COMPANY, its AFFILIATES or SUBLICENSEES, COMPANY shall pay GENERAL royalties in accordance with the following schedule, such undertaking and schedule having been agreed to for the purpose of reflecting and advancing the mutual convenience of the parties. For each PRODUCT sold by COMPANY or its AFFILIATES and SUBLICENSEES; (a) [ * ] of the NET SALES PRICE for ANNUAL NET SALES of [ * ] or less, and [ * ] of the NET SALES PRICE for the portion of ANNUAL NET SALES that is greater than [ * ] so long as the PRODUCT, its manufacture, use or sale is covered by a VALID CLAIM of any PATENT RIGHT licensed exclusively to COMPANY; and (b) [ * ] of the NET SALES PRICE for ANNUAL NET SALES of [ * ] or less, and [ * ] of the NET SALES PRICE for the portion of ANNUAL NET SALES that is greater than [ * ] whenever the PRODUCT, its manufacture, use or sale is covered by a VALID CLAIM of any PATENT RIGHT licensed non-exclusively to COMPANY in the country in question pursuant to either paragraph 2.7(b) or 3.1 hereunder. * Confidential treatment requested. 7. 5.2 (a) In the event that more than one royalty rate under paragraph 5.1 is applicable to a PRODUCT, the highest of the applicable royalties shall apply. (b) Only one royalty under paragraph 5.1 shall be due and payable to GENERAL by COMPANY for any PRODUCT regardless of the number of PATENT RIGHTS covering such PRODUCT. 5.3 If any license granted pursuant to Article 2 shall be or become non- exclusive pursuant to either paragraph 2.1(b) or 3.1 hereunder and GENERAL shall license any PATENT RIGHT to another licensee for the purpose of making, using or selling PRODUCTS in the LICENSE FIELD and accept a royalty or royalties more favorable to such licensee than herein provided for COMPANY, GENERAL shall give written notice thereof to COMPANY and as of the effective date of such more favorable royalty or royalties, COMPANY's obligation hereunder to pay royalty or royalties to GENERAL shall be revised to the more favorable rate. 5.4 In addition to the royalties provided for above, COMPANY shall pay GENERAL [ * ] of any and all non-royalty income received from its AFFILIATES and SUBLICENSEES in consideration for the sublicensing of any right or license granted to COMPANY hereunder, including without limitation license fees and milestone payments, but not including amounts received by COMPANY (a) for capital stock of COMPANY, (b) in the form of a loan or advance, (c) as payment for research and development services performed or to be performed by COMPANY, (d) as milestone payments in consideration for past or future research and development expense in any sublicensing arrangement with a PARTNERING SUBLICENSEE wherein COMPANY is sharing research and development costs with the PARTNERING SUBLICENSEE and said milestone payments are solely reimbursements for COMPANY's research and development costs actually incurred, (e) as payment for manufacturing services in any sublicensing arrangement wherein COMPANY retains the right to manufacture PRODUCT which is then sold to a SUBLICENSEE provided that GENERAL receives the full royalty due for sales of PRODUCT by said SUBLICENSEE under paragraph 5.1 hereunder or (f) from a PARTNERING SUBLICENSEE as payment for marketing, sales or promotional activities which COMPANY or its AFFILIATE has agreed to undertake as part of Co-development. It is understood that this paragraph shall not apply to running royalties for PRODUCT sales received by COMPANY from its AFFILIATES AND SUBLICENSEES, provided GENERAL receives the royalties specified in paragraph 5.1 for such PRODUCT sales. 5.5 In addition to the payments provided for in paragraphs 5.1 and 5.4, COMPANY shall pay GENERAL the following amounts upon the occurrence of the following events: [ * ] within five (5) business days of the execution of this Agreement, which shall include the amount payable to GENERAL for past patent Costs pursuant to paragraph 4.1(b); [ * ] within thirty (30) days of the filing with the FDA of the first NDA, PMA or PMA Supplement, or comparable application with respect to a PRODUCT; and, * Confidential treatment requested. 8. [ * ] within thirty (30) days of the actual approval by the FDA of the first NDA, PMA or PMA Supplement, or comparable application with respect to a PRODUCT. 5.6 (a) In the event that the royalty paid to GENERAL is a significant factor in the return realized by COMPANY so as to diminish COMPANY's capability to respond to competitive pressures in the market, GENERAL agrees to consider a reasonable reduction in the royalty paid to GENERAL as to each such PRODUCT for the period during which such market condition exists. Factors determining the size of the reduction will include profit margin on PRODUCT and on analogous products, prices of competitive products, total prior sales by COMPANY, and COMPANY's expenditures in PRODUCT development. (b) With respect to the definition of "NET SALES PRICE" (as contained in Section 1.5) and the applicable rate of exchange for foreign currency conversion (as set forth in Section 6.2) under this Agreement, it is understood that COMPANY may enter into one or more agreements with SUBLICENSEES (each a "SUBLICENSE AGREEMENT") pursuant to which COMPANY will be compensated by a SUBLICENSEE based on net sales of PRODUCT and that, for sales outside the United States, a foreign exchange rate will be applied. When negotiating a SUBLICENSE AGREEMENT, COMPANY will use its best efforts to have such SUBLICENSE AGREEMENT contain (i) a definition of net sales of PRODUCT and (ii) foreign exchange provisions which are substantially equivalent to those contained in Sections 1.5 and 6.2, respectively, of this Agreement. In the event, however, that COMPANY is unable to have its prospective SUBLICENSEE agree to provisions that are identical to the provisions of this Agreement, it shall so notify GENERAL and submit for GENERAL's review the proposed versions of such provisions in the proposed SUBLICENSE AGREEMENT. Within thirty (30) days of its receipt of such notice and proposed revisions, GENERAL shall either notify COMPANY of its acceptance of such proposed provisions or indicate its reasons for withholding approval. If the SUBLICENSE AGREEMENT includes such provisions that are acceptable to GENERAL, which acceptance shall not unreasonably be withheld, then for sales of PRODUCT made under such SUBLICENSE AGREEMENT, (i) the "NET SALES PRICE" in this Agreement shall be deemed amended to conform to the definition of net sales of PRODUCT contained in such SUBLICENSE AGREEMENT and (ii) the applicable foreign exchange rates provided for under this Agreement shall be the same as those provided for under the SUBLICENSE AGREEMENT. In the event that the SUBLICENSE AGREEMENT includes provisions that are not acceptable to GENERAL and COMPANY is unable to compensate GENERAL based on the NET SALES PRICE and foreign exchange provisions set forth herein, any conflict between the provisions of the SUBLICENSE AGREEMENT and the provisions of this Agreement shall be settled by the procedures of paragraph 10.9. 5.7 The payments due under this Agreement shall, if overdue, bear interest until payment at a per annum rate equal to one percent (1%) above the prime rate in effect at the Bank of Boston on the due date, not to exceed the maximum permitted by law. The payment of such interest shall not preclude GENERAL from exercising any other rights it may have as a consequence of the lateness of any payment. * Confidential treatment requested. 9. 6. REPORTS AND PAYMENTS 6.1 COMPANY shall keep, and shall cause each of its AFFILIATES and SUBLICENSEES, if any, to keep full and accurate books of accounts containing all particulars that may be necessary for the purpose of calculating all royalties payable to GENERAL. Such books of account shall be kept at their principal place of business and, with all necessary supporting data shall, during all reasonable times for the three (3) years next following the end of the calendar year to which each shall pertain, be open for inspection at reasonable times by GENERAL or its designee at GENERAL's expense for the purpose of verifying royalty statements or compliance with this Agreement. 6.2 In each year the amount of royalty due shall be calculated semiannually as of the end of each ACCOUNTING PERIOD and shall be paid semiannually within the sixty (60) days next following such date, every such payment to be supported by the accounting prescribed in paragraph 6.3 and to be made in United States currency. Whenever conversion from any foreign currency shall be required, such conversion shall be at the rate of exchange thereafter published in the Wall Street Journal for the business day closest to the end of the applicable ACCOUNTING PERIOD. 6.3 With each semiannual payment, COMPANY shall deliver to GENERAL a full and accurate accounting to include at least the following information: (a) Quantity of each PRODUCT sold or leased (by country) by COMPANY, and its AFFILIATES or SUBLICENSEES; (b) Total billings for each PRODUCT (by country, unless such information is not provided to COMPANY by a SUBLICENSEE, in which case COMPANY shall list total billings in as much detail as is available to COMPANY); (c) Quantities of each PRODUCT used by COMPANY and its AFFILIATES or SUBLICENSEES; (d) Names and addresses of all SUBLICENSEES of COMPANY; and (e) Total royalties payable to GENERAL. 7. INFRINGEMENT 7.1 GENERAL will protect its PATENT RIGHTS from infringement and prosecute infringers when, in its sole judgement, such action may be reasonably necessary, proper and justified. 7.2 If COMPANY shall have supplied GENERAL with written evidence demonstrating to GENERAL's reasonable satisfaction prima facie infringement of a claim of a PATENT RIGHT by a third party, COMPANY may by notice request GENERAL to take steps 10. to protect the PATENT RIGHT. GENERAL shall notify COMPANY within three (3) months of the receipt of such notice whether GENERAL intends to prosecute the alleged infringement. If GENERAL notifies COMPANY that it intends to so prosecute, GENERAL shall, within three (three) months of its notice to COMPANY either (i) cause infringement to terminate or (ii) initiate legal proceedings against the infringer. In the event GENERAL notifies COMPANY that GENERAL does not intend to prosecute said infringement COMPANY may, upon notice to GENERAL, initiate legal proceedings against the infringer at COMPANY's expense and in GENERAL's name if so required by law. No settlement, consent judgment or other voluntary final disposition of the suit which invalidates or restricts the claims of such PATENT RIGHTS may be entered into without the consent of GENERAL, which consent shall not be unreasonably withheld. COMPANY shall indemnify GENERAL against any order for payment that may be made against GENERAL in such proceedings. 7.3 In the event one party shall initiate or carry on legal proceedings to enforce any PATENT RIGHT against any alleged infringer, the other party shall fully cooperate with and supply all assistance reasonably requested by the party initiating or carrying on such proceedings. The party which institutes any suit to protect or enforce a PATENT RIGHT shall have sole control of that suit and shall bear the reasonable expenses (excluding legal fees) incurred by said other party in providing such assistance and cooperation as is requested pursuant to this paragraph. The party initiating or carrying on such legal proceedings shall keep the other party informed of the progress of such proceedings and said other party shall be entitled to counsel in such proceedings but at its own expense. Any award paid by third parties as the result of such proceedings (whether by way of settlement or otherwise) shall first be applied to reimbursement of the unreimbursed legal fees and expenses incurred by either party and then the remainder shall be divided between the parties as follows: (a) (i) If the amount is based on lost profits, COMPANY shall receive an amount equal to the damages the court determines COMPANY has suffered as a result of the infringement less the amount of any royalties that would have been due GENERAL on sales of PRODUCT lost by COMPANY as a result of the infringement had COMPANY made such sales; and (ii) GENERAL shall receive an amount equal to the royalties it would have received if such sales had been made by COMPANY; or (b) As to awards other than those based on lost profits, [ * ] to the party initiating such proceedings and [ * ] to the other party. 7.4 For the purpose of the proceedings referred to in this Article 7, the GENERAL and COMPANY shall permit the use of their names and shall execute such documents and carry out such other acts as may be necessary. The party initiating or carrying on such legal proceedings shall keep the other party informed of the progress of such proceedings and said other party shall be entitled to counsel in such proceedings but at its own expense, said expenses * Confidential treatment requested. 11. to be off-set against any damages received by the party bringing suit in accordance with the foregoing paragraph 7.3. 8. INDEMNIFICATION 8.1 (a) COMPANY shall indemnify, defend and hold harmless GENERAL and its trustees, officers, medical and professional staff, employees, and agents and their respective successors, heirs and assigns (the "Indemnitees"), against any liability, damage, loss or expense (including reasonable attorney's fees and expenses of litigation) incurred by or imposed upon the Indemnitees or any one of them in connection with any claims, suits, actions, demands or judgments arising out of any theory of product liability (including, but not limited to, actions in the form of tort, warranty, or strict liability) concerning any product, process or service made, used or sold pursuant to any right or license granted under this Agreement. (b) COMPANY's indemnification under (a) above shall not apply to any liability, damage, loss or expense to the extent that it is directly attributable to the negligent activities, reckless misconduct or intentional misconduct of the Indemnitees. (c) COMPANY agrees, at its own expense to provide attorneys reasonably acceptable to the GENERAL to defend against any actions brought or filed against any party indemnified hereunder with respect to the subject of indemnity contained herein, whether or not such actions are rightfully brought. (d) This paragraph 8.1 shall survive expiration or termination of this Agreement. 8.2 (a) Beginning at such time as any such product, process or service is being commercially distributed or sold (other than for the purpose of obtaining regulatory approvals) by COMPANY or by a SUBLICENSEE, AFFILIATE or agent of COMPANY, COMPANY shall, at its sole cost and expense, procure and maintain commercial general liability insurance in amounts not less than $2,000,000 per incident and $2,000,000 annual aggregate and naming the Indemnitees as additional insureds. Such commercial general liability insurance shall provide (i) product liability coverage and (ii) broad form contractual liability coverage for COMPANY's indemnification under paragraph 8.1 of this Agreement. If COMPANY elects to self-insure all or part of the limits described above (including deductibles or retentions which are in excess of $250,000 annual aggregate) such self-insurance program must be acceptable to the GENERAL and the Risk Management Foundation (GENERAL's current liability insurance carrier). The minimum amounts of insurance coverage required under this paragraph 8.2 shall not be construed to create a limit of COMPANY's liability with respect to its indemnification under paragraph 8.1 of this Agreement. (b) COMPANY shall provide GENERAL with written evidence of such insurance upon request of GENERAL. COMPANY shall provide GENERAL with written notice at least thirty (30) days prior to the cancellation, non-renewal or material change in such insurance; if COMPANY does not obtain replacement insurance providing comparable coverage prior to the expiration of such thirty (30) day period, GENERAL shall have the right to terminate this 12. Agreement effective at the end of such thirty (30) day period without notice or any additional waiting periods. (c) COMPANY shall maintain such commercial general liability insurance beyond the expiration or termination of this Agreement during (i) the period that any such product, process, or service is being commercially distributed or sold (other than for the purpose of obtaining regulatory approvals) by COMPANY or by a licensee, affiliate or agent of COMPANY and (ii) a reasonable period after the period referred to in (c) (i) above which in no event shall be less than ten (10) years. (d) This paragraph 8.2 shall survive expiration or termination of this Agreement. 8.3 OTHER THAN WARRANTIES SET FORTH HEREIN, GENERAL MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY PATENT, TRADEMARK, SOFTWARE, TRADE SECRET, TANGIBLE RESEARCH PROPERTY, INFORMATION OR DATA LICENSED OR OTHERWISE PROVIDED TO COMPANY HEREUNDER AND HEREBY DISCLAIMS THE SAME. 9. TERMINATION 9.1 Unless otherwise terminated as provided for in this Agreement, the license to PATENT RIGHT granted hereunder will continue on a country by country basis: (i) for two (2) years after the date COMPANY, its AFFILIATES, or SUBLICENSEES shall last sell any PRODUCT in such country, it being understood that GENERAL shall have the right to terminate such license upon written notice in any country in the event that after the FIRST COMMERCIAL SALE of PRODUCT in such country there is a continuous two (2) year period in which no PRODUCT is sold in such country, provided such sale is not prevented by force majeure, government regulation or intervention, or institution of a law suit by any third party, or (ii) until the last to expire of any PATENT RIGHT, the claims of which but for this Agreement would be infringed by the manufacture, use or sale of any PRODUCT in the applicable country, whichever shall first occur. 9.2 If either party shall fail to faithfully perform any of its material obligations under this Agreement except the due diligence milestones specified in Article 3 herein, the nondefaulting party may give written notice of the default to the defaulting party. Unless such default is corrected within sixty (60) days after such notice, the notifying party may terminate this Agreement and the license hereunder upon sixty (60) days prior written notice, provided that only one such sixty (60) day grace period shall be available in any twelve (12) month period 13. with respect to a default of any particular provision hereunder. Thereafter notice of default of said provision shall constitute termination. 9.3 In the event that any license granted to COMPANY under this Agreement is terminated, any sublicense under such license granted prior to termination of said license shall remain in full force and effect, provided that: (i) the SUBLICENSEE is not then in breach of its sublicense agreement; (ii) the SUBLICENSEE agrees to be bound to GENERAL as the licensor under the terms and conditions of this sublicense agreement, as modified by the provisions of this paragraph 9.3; (iii) the SUBLICENSEE, at GENERAL's written request, assumes in a signed writing the same obligations to GENERAL as those assumed by COMPANY under Articles 8 and 10 hereof; (iv) GENERAL shall have the right to receive any payments payable to COMPANY under such sublicense agreement to the extent they are reasonably and equitably attributable to such SUBLICENSEE's right under such sublicense to use and exploit PATENT RIGHTS; (v) the SUBLICENSEE agrees to be bound by the due diligence obligations of COMPANY pursuant to paragraph 3.1 hereof (whether set by the parties or by arbitration) in the field and territory of the sublicense; (vi) GENERAL has the right to terminate such sublicense upon thirty (30) days prior written notice to COMPANY and such SUBLICENSEE in the event of any material breach of the obligation to make the payments described in clause (iv) of this paragraph 9.3, unless such breach is cured prior to the expiration of such thirty (30) day period, and shall further have the right to terminate such sublicense in the event of SUBLICENSEE's failure to meet its due diligence obligations pursuant to clause (v) hereof; (vii) GENERAL shall not assume, and shall not be responsible to such SUBLICENSEE for, any representations, warranties or obligations of COMPANY to such SUBLICENSEE, other than to permit such SUBLICENSEE to exercise any rights to PATENT RIGHTS that are granted under such sublicense agreement consistent with the terms of this AGREEMENT. 9.4 Upon termination of any license granted hereunder COMPANY shall pay GENERAL all royalties due or accrued on (i) the sale of PRODUCT up to and including the date of termination and (ii) for twelve (12) months following the date of termination, the sale of PRODUCT manufactured prior to the termination date. 14. 10. MISCELLANEOUS 10.1 This Agreement constitutes the entire understanding between the parties with respect to the subject matter hereof. 10.2 In order to facilitate implementation of this Agreement, GENERAL and COMPANY are designating the following individuals to act on their behalf with respect to this Agreement for the matter indicated below: (a) with respect to all royalty payments, any correspondence pertaining to any PATENT RIGHT, or any notice of the use of GENERAL's name, for GENERAL, the Director, Office of Technology Affairs, and for COMPANY the Senior Vice President, R&D; provided that correspondence relating to the billing of patent costs shall be copied to, for GENERAL, the Business Manager, Office of Technology Affairs; and for COMPANY, the Chief Financial Officer. (b) any amendment of or waiver under this Agreement, any written notice including progress reports or other communication pertaining to the Agreement: for GENERAL, the Director, Office of Technology Affairs; and for COMPANY, the Senior Vice President, R&D. (c) the above designations may be superseded from time to time by alternative designations made by: for GENERAL, the President or the Senior Vice President for Research and Technology Affairs; and for COMPANY, the President and CEO. 10.3 This Agreement may be amended and any of its terms or conditions may be waived only by a written instrument executed by the parties or, in the case of a waiver, by the party waiving compliance. The failure of either party at any time or times to require performance of any provision hereof shall in no manner affect its rights at a later time to enforce the same. No waiver by either party of any condition shall be deemed as a further or continuing waiver of such condition or term or of any other condition or term. 10.4 This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns. 10.5 Any delays in or failures of performance by either party under this Agreement shall not be considered a breach of this Agreement if and to the extent caused by occurrences beyond the reasonable control of the party affected, including but not limited to: Acts of God; acts, regulations or laws of any government; strikes or their concerted acts of worker; fires; floods; explosions; riots; wars; rebellion; and sabotage. Any time for performance hereunder shall be extended by the actual time of delay caused by such occurrence. 10.6 Neither party shall use the name of the other party or of any staff member, officer, employee or student of the other party or any adaptation thereof in any advertising, promotional or sales literature, publicity or in any document employed to obtain funds or financing without the prior written approval of the party or individual whose name is to be used. 15. For GENERAL, such approval shall be obtained from the Director of Public Affairs. Notwithstanding the foregoing, GENERAL hereby consents to COMPANY's use of the following statement regarding the existence of this license agreement in connection with any disclosure or filing by COMPANY pursuant to the rules and regulations of the Securities and Exchange Commission or in any press release required by the same: "CoCensys, Inc. has entered into an exclusive license agreement with The General Hospital Corporation, doing business as Massachusetts General Hospital, for certain patents and patent applications pertaining to the use of neurosteroid drugs in the treatment of vascular headaches" In addition, COMPANY shall be permitted to disclose the name of GENERAL to the extent required by federal, state or local law or regulation, including without limitation federal and state securities laws. 10.7 This Agreement shall be governed by and construed and interpreted in accordance with the laws of the Commonwealth of Massachusetts. 10.8 This Agreement shall not be assignable by GENERAL without COMPANY's written consent except for the right to receive royalties or other payments payable herein. COMPANY may at its own discretion and without approval by GENERAL transfer its interest or any part thereof under this Agreement to a wholly-owned subsidiary or any assignee or purchaser of the portion of its business associated with the manufacture and sale of PRODUCT. In the event of any such transfer, the transferee shall assume and be bound by the provisions of this Agreement. Otherwise this Agreement shall be assignable by COMPANY only with the consent in writing of GENERAL. 10.9 For any and all claims, disputes, or controversies arising under, out of, or in connection with this Agreement, except issues relating to the validity, construction or effect of any PATENT RIGHT, which the parties shall be unable to resolve within sixty (60) days, the party raising such dispute shall promptly advise the other party of such claim, dispute, or controversy in a writing which describes in reasonable detail the nature of such dispute. By not later than five (5) business days after the recipient has received such notice of dispute, each party shall have selected for itself a representative who shall have the authority to bind such party and shall additionally have advised the other party in writing of the name and title of such representative. By not later than ten (10) business days after the date of such notice of dispute, such representatives shall agree upon a third party which is in the business of providing Alternative Dispute Resolution (ADR) services (hereinafter, "ADR Provider") and shall schedule a date with such ADR Provider to engage in ADR. Thereafter, the representatives of the parties shall engage in good faith in an ADR process under the auspices of the selected ADR Provider. If within the aforesaid thirty (30) business days after the date of the notice of dispute the representatives of the parties have not been able to agree upon an ADR Provider and schedule a date to engage in ADR, or if they have not been able to resolve the dispute within thirty (30) business days after the termination of ADR, the parties shall have the right to pursue any other remedies legally available to resolve such dispute. Notwithstanding the foregoing, nothing in this 16. Paragraph 10.9 shall be construed to waive any rights or timely performance of any obligations existing under this Agreement. 10.10 If any provision(s) of this Agreement are or become invalid, are ruled illegal by any court of competent jurisdiction or are deemed unenforceable under then current applicable law from time to time in effect during the term hereof, it is the intention of the parties that the remainder of this agreement shall not be effected thereby. It is further the intention of the parties that in lieu of each such provision which is invalid, illegal or unenforceable, there be substituted or added as part of this Agreement a provision which shall be as similar as possible in economic and business objectives as intended by the parties to such invalid, illegal or enforceable provision, but shall be valid, legal and enforceable. 10.11 GENERAL represents that, to the best of its knowledge, it is the owner of all rights, title and interest in PATENT RIGHTS, and it has no obligations to other sponsors of research at GENERAL that would prevent GENERAL from granting COMPANY the licenses granted hereunder. THE PARTIES have duly executed this Agreement as of the date first shown above written. COMPANY THE GENERAL HOSPITAL CORPORATION BY: /s/ Eckard Weber BY: /s/ Nikki J. Zapol --------------------------------- ---------------------------------- TITLE: Senior Vice President, TITLE: Managing Director, ------------------------------- -------------------------------- Research and Drug Discovery Office of Technology Affairs ------------------------------- -------------------------------- DATE: December 23, 1996 DATE: December 20, 1996 -------------------------------- --------------------------------- 17. Exhibit A Targeted Doctors [ * ] -----END PRIVACY-ENHANCED MESSAGE-----