-----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, IWhF5GLuhMy0FP67/jEuVTcicBv1bOn2HVFiNEh1LzjLCzIth5xuWqCLmpVECfYz lR5OzatGA2DlqexpPCY0Hg== 0000912057-97-026252.txt : 19970807 0000912057-97-026252.hdr.sgml : 19970807 ACCESSION NUMBER: 0000912057-97-026252 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970806 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20954 FILM NUMBER: 97652542 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 10-Q 1 10-Q - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File Number 0-20954 COCENSYS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 33-0538836 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 213 TECHNOLOGY DRIVE, IRVINE, CA 92718 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) (714) 753-6100 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- -------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. $.001 PAR VALUE 22,661,489 (CLASS OF COMMON STOCK) (OUTSTANDING AT JULY 31, 1997) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ COCENSYS, INC. (A development stage company) TABLE OF CONTENTS PAGE NUMBER ----------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. Condensed Balance Sheets as of June 30, 1997 and December 31, 1996 3 Condensed Statements of Operations for the three-month and six-month periods ended June 30, 1997 and 1996 and the period from inception (February 15, 1989) through June 30, 1997 4 Condensed Statements of Cash Flows for the three-month and six-month periods ended June 30, 1997 and 1996 and the period from inception (February 15, 1989) through June 30, 1997 5 Notes to Condensed Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 10 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES. 14 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 14 SIGNATURES 16 2 COCENSYS, INC. (A development stage company) CONDENSED BALANCE SHEETS (In thousands, except share and par value amounts)
JUNE 30, DECEMBER 31, 1997 1996 ----------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 2,192 $ 1,050 Short-term investments 15,180 16,949 Receivables from corporate partners 657 659 Other current assets 810 556 -------- -------- TOTAL CURRENT ASSETS 18,839 19,214 Property and equipment, net 2,494 2,685 Notes receivable from officers 279 126 Other assets, net 26 26 -------- -------- $ 21,638 $ 22,051 -------- -------- -------- -------- LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 764 $ 1,437 Other accrued liabilities 2,828 2,556 Advances from corporate partners 151 446 Capital lease obligation - current portion 559 341 -------- -------- TOTAL CURRENT LIABILITIES 4,302 4,780 Capital lease obligation, less current portion 227 284 Other liabilities 38 40 Commitments and contingencies Stockholders' equity: Preferred stock - $.001 par value, 5,000,000 shares authorized; 100,000 shares of Series B convertible issued and outstanding at June 30, 1997 and December 31, 1996; 100,000 shares of Series C convertible issued and outstanding at June 30, 1997 12,000 7,000 Common stock - $.001 par value, 75,000,000 shares authorized; 22,661,489 shares issued and outstanding at June 30, 1997 and 22,083,346 at December 31, 1996 96,076 93,986 Deficit accumulated during the development stage (90,468) (83,162) Deferred compensation (562) (905) Unrealized gain (loss) on investments 25 28 -------- -------- TOTAL STOCKHOLDERS' EQUITY 17,071 16,947 -------- -------- $ 21,638 $ 22,051 -------- -------- -------- --------
See accompanying notes. 3 COCENSYS, INC. (A development stage company) CONDENSED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)
PERIOD FROM INCEPTION THREE MONTHS ENDED SIX MONTHS ENDED (FEBRUARY 15, JUNE 30, JUNE 30, 1989) TO ----------------------- ----------------------- JUNE 30, 1997 1996 1997 1996 1997 REVENUES -------- -------- -------- -------- ------------ Co-promotion revenues from corporate partners $ 1,185 $ 3,213 $ 2,308 $ 4,011 $ 29,209 Co-development revenues from corporate partners 6,247 3,716 6,949 4,549 14,992 -------- -------- -------- -------- --------- Total revenues 7,432 6,929 9,257 8,560 44,201 OPERATING EXPENSES Research and development 5,984 4,961 11,416 9,784 79,588 Marketing, general and administrative 2,825 2,926 5,504 5,589 43,134 Acquired research and development - - - - 14,879 -------- -------- -------- -------- --------- Total operating expenses 8,809 7,887 16,920 15,373 137,601 -------- -------- -------- -------- --------- OPERATING LOSS (1,377) (958) (7,663) (6,813) (93,400) Interest income 189 357 408 629 3,503 Interest expense (37) (28) (51) (58) (571) -------- -------- -------- -------- --------- NET LOSS $ (1,225) $ (629) $ (7,306) $ (6,242) $ (90,468) -------- -------- -------- -------- --------- -------- -------- -------- -------- --------- Net loss per share $ (0.05) $ (0.03) $ (0.33) $ (0.29) -------- -------- -------- -------- -------- -------- -------- -------- Shares used in computing net loss per share 22,519 21,917 22,391 21,555 -------- -------- -------- -------- -------- -------- -------- --------
See accompanying notes. 4 COCENSYS, INC. (A development stage company) CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
PERIOD FROM INCEPTION SIX MONTHS ENDED (FEBRUARY 15, JUNE 30, 1989) TO ------------------------- JUNE 30, 1997 1996 1997 ---------- ---------- ------------ OPERATING ACTIVITIES Net loss $ (7,306) $ (6,242) $ (90,468) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 530 1,025 6,419 Amortization of deferred compensation 142 374 3,480 Issuance of stock and warrants for services - - 1,917 Loss on sale of fixed assets 12 - 38 Acquired research and development - - 12,279 Increase in other current assets (254) (196) (882) Decrease (increase) in receivable from corporate partner 2 - (657) Increase (decrease) in advances from corporate partners (295) 997 151 Increase (decrease) in accounts payable and other accrued liabilities (403) (89) 3,354 --------- --------- ---------- NET CASH USED IN OPERATING ACTIVITIES (7,572) (4,131) (64,369) --------- --------- ---------- INVESTING ACTIVITIES Decrease (increase) in short-term investments 1,766 (8,560) (15,156) Purchase of property and equipment (351) (475) (5,976) Increase in other assets and notes receivable from officers (153) (89) (461) Cash received on sale of fixed assets - - 19 Increase in deferred sales organization costs - - (1,571) Increase in deferred patent costs - - (904) Acquisition of Acea Pharmaceuticals, net of cash acquired - - (62) --------- --------- ---------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,262 (9,124) (24,111) --------- --------- ---------- FINANCING ACTIVITIES Net cash proceeds from issuance of common stock 2,291 14,840 61,076 Net cash proceeds from issuance of preferred stock 5,000 7,000 28,381 Proceeds from sale/leaseback of fixed assets and notes payable 529 535 4,762 Payments on capital lease obligations and notes payable (368) (553) (3,547) --------- --------- ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES 7,452 21,822 90,672 --------- --------- ---------- NET INCREASE IN CASH AND CASH EQUIVALENTS 1,142 8,657 2,192 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,050 6,895 - --------- --------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,192 $ 15,462 $ 2,192 --------- --------- ---------- --------- --------- ---------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest $ 39 $ 58 $ 793 --------- --------- ---------- --------- --------- ----------
See accompanying notes. 5 COCENSYS, INC. (A development stage company) NOTES TO CONDENSED FINANCIAL STATEMENTS JUNE 30, 1997 (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The interim financial information for the three and six-month periods ended June 30, 1997 and 1996 is unaudited but includes all adjustments (consisting only of normal recurring entries) which the Company's management believes to be necessary for the fair presentation of the financial position, results of operations and cash flows for the periods presented. The accompanying interim financial statements should be read in conjunction with the financial statements and related notes included in the Company's 1996 Annual Report on Form 10-K for the year ended December 31, 1996. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to Securities and Exchange Commission rules and regulations. Interim results of operations for the three-month and six-month periods ended June 30, 1997, are not necessarily indicative of operating results to be expected for the full year. REVENUE AND EXPENSE RECOGNITION See Notes 2 through 6 for revenue recognition policies related to co-promotion and co-development revenues from corporate partners. The initial costs incurred in establishing the sales and marketing organization were deferred until initiation of the Company's sales efforts on August 1, 1994. Such costs were amortized over the contract term (through December 31, 1996) of the Company's Promotion Agreement with Novartis (formerly Ciba-Geigy Corporation). NET LOSS PER SHARE Net loss per share is computed using the weighted average number of shares of common stock outstanding during the periods. Common stock equivalents from stock options and warrants are excluded from the calculation as their effect would be antidilutive. RECLASSIFICATIONS Certain reclassifications have been made to the 1996 financial statements to conform to the 1997 presentation. 6 COCENSYS, INC. (A development stage company) NOTES TO CONDENSED FINANCIAL STATEMENTS 2. MARKETING AND DEVELOPMENT COLLABORATION WITH WARNER-LAMBERT COMPANY In October 1995, the Company entered into a collaboration with Warner-Lambert Company and its Parke-Davis division to develop and market therapeutic drugs for the treatment of certain CNS disorders. This arrangement consists of the Research, Development and Marketing Collaboration Agreement (the "Warner Collaboration Agreement"), for the worldwide development and commercialization of a new class of neurological and psychiatric drugs, termed subtype selective NMDA receptor antagonists ("SSNRAs"), and the Parke-Davis Promotion Agreement, pursuant to which the Company co-promoted Parke-Davis' CNS drug, Cognex-Registered Trademark-, to United States neurologists for the treatment of Alzheimer's disease. Under the Warner Collaboration Agreement, both companies are sharing technology and resources to develop SSNRA candidates. The parties are obligated to make specified contributions to development costs with respect to any development candidates. Promotion costs of, and profits from any products developed under the agreement will be shared equally in the United States and Japan. Warner-Lambert will have the exclusive right to develop and market any product, at its own cost, for markets outside the United States and Japan, subject to a specified royalty payment to the Company. Warner-Lambert is obligated to pay its specified portion of the development costs and to make certain milestone payments, upon achievement of certain clinical development and regulatory milestones, for each development compound. Payments received under the Warner Collaboration Agreement will be recognized as co-development revenues by the Company. Pursuant to the Warner Collaboration Agreement, Warner-Lambert purchased $2.0 million of CoCensys common stock in October 1995 and an additional $2.0 million of CoCensys common stock in March 1997. The original Parke-Davis Promotion Agreement, entered into in October 1995, was terminated on December 31, 1996, when a revised promotion agreement relating to Cognex took effect. Under the original Parke-Davis Promotion Agreement for Cognex, the Company realized co-promotion revenues from its share of sales of Cognex above certain baseline levels specified in the contract. Under the revised Parke-Davis Promotion Agreement for Cognex, the Company realized co-promotion revenues based upon the number of prescriptions for Cognex written by certain targeted neurologists and other doctors during each quarter, with a specified minimum payment. The revised Cognex agreement was terminated in June 1997. In July 1997, the Company entered into a new Parke-Davis Promotion Agreement, pursuant to which the Company will co-promote Zarontin-Registered Trademark-, Parke-Davis' drug for pediatric epilepsy. Under the terms of the Zarontin agreement, the Company will realize co-promotion revenue on the basis of the number of prescriptions for Zarontin written each quarter over a specified baseline. 7 COCENSYS, INC. (A development stage company) NOTES TO CONDENSED FINANCIAL STATEMENTS 3. PROMOTION AGREEMENT WITH SOMERSET PHARMACEUTICALS, INC. In January 1996, the Company and Somerset Pharmaceuticals, Inc. ("Somerset") entered into the Somerset Promotion Agreement, pursuant to which the Company promotes Somerset's drug Eldepryl-Registered Trademark- to neurologists in the United States for the treatment of Parkinson's disease. Effective January 1, 1997, the initial agreement was superceded by the 1997 Somerset Promotion Agreement which is subject to certain provisions for early termination and renewal. Under the 1997 Somerset Promotion Agreement, CoCensys has the exclusive right to detail Eldepryl to certain neurologists and other physicians in the United States. Under the 1997 Somerset Promotion Agreement, CoCensys is compensated based upon the number of details undertaken and gross sales of Eldepryl. Compensation paid to CoCensys is subject to adjustment in the event of governmental or other third-party actions that may materially affect it. To finance a portion of its sales force to promote Eldepryl, CoCensys receives quarterly advances from Somerset, which are subject to repayment on a pro rata basis if specified numbers of details are not undertaken by the Company on behalf of Somerset. 4. DEVELOPMENT AND COMMERCIALIZATION AGREEMENT WITH G.D. SEARLE & CO. In May 1996, the Company entered into an agreement with G.D. Searle & Co. ("Searle") to co-develop and co-promote the Company's lead compound for the treatment of insomnia along with its back-up compounds. Pursuant to the agreement, Searle paid a $3.0 million license fee and purchased 100,000 shares of the Company's Series B Convertible Preferred Stock for $7.0 million. The license fee was recognized as co-development revenue in 1996. The preferred stock is convertible to common stock on May 17, 1998, or earlier at the Company's discretion. The number of shares issuable upon conversion shall be equal to $7.0 million divided by the then current common stock price (subject to certain minimum and maximum limits). Under the agreement, both companies are obligated to pay a portion of the development costs of the compound and its back-up compounds. In addition, the Company will receive nonrefundable milestone payments upon the occurrence of certain events in the development of the compound. The parties will co-promote any products derived from the collaboration in the United States, while Searle will have the right to develop, register and market the products in the rest of the world, subject to specified royalty payments. 5. MARKETING AND DEVELOPMENT COLLABORATION WITH NOVARTIS PHARMA, A.G. In May 1994, the Company entered into a marketing and development collaboration with Novartis Novartis Pharma, A.G. (formerly Ciba-Geigy Limited) for the co-promotion by the Company of certain Novartis products and the development and commercialization of ACEA 1021, a compound being developed by the Company. This collaboration consisted of the Novartis Promotion Agreement and the Novartis Research and Development Agreement. Pursuant to the Novartis Promotion Agreement, CoCensys established a sales force to co-promote and market certain Novartis products in the United States initially to psychiatrists. The agreement 8 COCENSYS, INC. (A development stage company) NOTES TO CONDENSED FINANCIAL STATEMENTS provided for the advance of funds to the Company to cover a portion of the expenses incurred by the CoCensys sales force in promoting the Novartis products. CoCensys realized co-promotion revenues from its share of sales of Novartis products above certain baseline levels specified in the contract. The Novartis Promotion Agreement terminated at the end of 1996. In connection with the Novartis Research and Development Agreement, Novartis purchased $7.0 million of CoCensys common stock and agreed to make certain nonrefundable milestone payments in connection with specified events in the course of the development of ACEA 1021. Novartis has advised the Company that it will not continue the development of ACEA 1021. The agreement will terminate in October 1997. While the Company is actively looking for a new partner to develop ACEA 1021, there can be no assurance that the Company will be able to secure another partner to continue the development of this compound. 6. DEVELOPMENT AND COMMERCIALIZATION AGREEMENT WITH WYETH-AYERST LABORATORIES In May 1997, the Company entered into a development and commercialization agreement for Co 2-6749, its lead anxiolytic compound, with Wyeth-Ayerst Laboratories, the pharmaceutical division of American Home Products Corporation ("AHP"). Under the terms of the agreement, Wyeth-Ayerst made upfront payments to CoCensys of $5.0 million in licensing fees and AHP paid $5.0 million to purchase convertible preferred stock. Additionally, CoCensys will receive specified milestone payments dependent upon the achievement of key development events and $3.0 million per year for up to three years to identify back-up compounds. Payments due to CoCensys for work performed identifying back-up compounds are due quarterly, beginning in May 1997. Wyeth-Ayerst will be responsible for the development of Co 2-6749. The Company and Wyeth-Ayerst will co-promote any resulting product in certain market segments in the United States, while Wyeth-Ayerst will have rights to develop, register and market any drugs derived from the collaboration in the rest of the world, subject to royalty payments. The preferred stock is convertible into common stock after May 12, 1999, into a number of shares of common stock equal to $5.0 million divided by the conversion price, which will be determined pursuant to a formula based on the market price of the common stock at the time of conversion (subject to certain minimum and maximum limits). 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW AND IN THE COMPANY'S 1996 ANNUAL REPORT ON FORM 10-K. OVERVIEW CoCensys, Inc. is a biopharmaceutical company dedicated to the discovery, development, marketing and sales of small molecule drugs to treat neurological and psychiatric disorders. The Company's product discovery and development programs are focused on the exploration of novel receptors and enzymes and their ligands and inhibitors through three technology platforms: GABA receptor enhancers or Epalons; glutamate antagonists; and ICE-like protease inhibitors. The Company's lead Epalon compound, CCD 1042 (ganaxolone), an anticonvulsant and anti-migraine compound, is in separate Phase II clinical trials for pediatric epilepsy, adult epilepsy and migraine. The Company anticipates that CCD 3693, its lead compound for the treatment of insomnia, will enter Phase I trials in the third quarter of 1997. Since its inception in February 1989, the Company has devoted substantially all of its resources to the discovery and development of neuropharmaceutical products for the treatment of disorders affecting the central nervous system. The Company has incurred losses since inception and expects losses to continue for the foreseeable future, primarily due to the expansion of programs for research and development. Operating results are expected to fluctuate as a result of uncertainty in the timing and amount of revenues to be earned from product co-promotion and co-development activities and from achievement of research and development milestones, and uncertainty in the timing and amount of expenses for product development, including clinical trials. As of June 30, 1997, the Company's accumulated deficit was approximately $90.5 million. RESULTS OF OPERATIONS The Company recognized $1.2 and $2.3 million in co-promotion revenues for the three and six-month periods ended June 30, 1997, respectively, compared to $3.2 and $4.0 million during the same periods in 1996. The decreases in both the three and six-month periods compared to the same periods a year earlier is due primarily to a nonrecurring adjustment of $2.3 million, relating to settlement of co-promotion activities with Novartis Pharma A.G. ("Novartis"), that was recorded in the second quarter of fiscal 1996. The Company recognized $6.2 and $6.9 million in co-development revenues for the three and six-month periods ended June 30, 1997, respectively, compared to $3.7 and $4.5 million for the comparable periods of 1996. The increases in both the three and six-month periods of the current year are primarily due to recognition of $5.7 of co-development revenue under the Wyeth-Ayerst 10 development and commercialization agreement that was signed in May of 1997. In the second quarter of fiscal 1996, the Company recognized $3.0 million of co-development revenue related to the G.D. Searle agreement. Research and development ("R&D") expenses increased to $6.0 and $11.4 million for the three and six-month periods ended June 30, 1997, respectively, from $4.9 and $9.8 million in the comparable periods of the prior year. These increases resulted primarily from higher product development costs incurred to support Phase II clinical trials of CCD 1042 in both migraine and epilepsy and pre-clinical development of CCD 3693, partially offset by lower product development costs associated with the ACEA 1021 program. Clinical development of ACEA 1021 was suspended in April 1997 following the decision of Novartis, the Company's development partner, not to continue participation in the development of ACEA 1021. The Company does not intend to resume clinical development of ACEA 1021 until it secures another partner. There can be no assurance that the Company will be able to secure another partner to continue the clinical development of ACEA 1021. Marketing, general and administrative expense decreased to $2.8 and $5.5 million for the three and six-month periods ended June 30, 1997, respectively, from $2.9 and $5.6 million in the same periods of the prior year. The decreases in the three and six-month periods of the current year in comparison to the same periods in the prior year are primarily attributable to reductions in certain promotional marketing expenses, partially offset by increases in salaries and other general corporate expenses. Interest income decreased to $.2 and $.4 million for the three and six-month periods ended June 30, 1997, respectively, from $.4 and $.6 million in the same periods of the prior year. The decrease was due to lower average levels of cash and short-term investment balances in the current year. LIQUIDITY AND CAPITAL RESOURCES From its inception in February 1989 through June 30, 1997, the Company has financed its operations primarily through private and public offerings of its equity securities, raising net proceeds of approximately $89.5 million through sales of these securities. As of June 30, 1997, the Company's balance of cash, cash equivalents and short-term investments totaled $17.4 million, compared to $18.0 million at December 31, 1996. As of June 30, 1997, the Company had invested $6.0 million in leasehold improvements, laboratory and computer equipment and office furnishings and equipment since inception. The Company has financed $3.3 million of these capital additions through capital lease lines. In addition, the Company leases its laboratory and office facilities under operating leases. Additional equipment will be needed as the Company increases its research and development activities. The Company has no material commitments for the acquisition of property and equipment. Pursuant to the Parke-Davis Promotion Agreement, the Company promoted Parke- Davis' CNS drug, Cognex-Registered Trademark-, to neurologists in the United States. Funds were prepaid to the Company quarterly to cover the training and operating expenses incurred by the Company's sales force in promoting Cognex. This agreement was terminated in June 1997. In July 1997, the Company entered into a 11 new agreement with Parke-Davis to co-promote Zarontin-Registered Trademark-, Parke-Davis' drug for pediatric epilepsy. Under the terms of this agreement, the Company will be compensated based on the number of prescriptions written over a specified baseline. Pursuant to the Warner Collaboration Agreement, Warner-Lambert is obligated to make certain milestone payments for each compound selected for development, as well as pay for its share of development costs. Also pursuant to this contract, Warner-Lambert purchased $2.0 million of CoCensys common stock in October 1995 and an additional $2.0 million of CoCensys common stock in March 1997. Pursuant to the 1997 Somerset Promotion Agreement, the Company promotes Somerset's drug Eldepryl-Registered Trademark- to certain neurologists and other physicians in the United States. Funds are advanced to the Company quarterly to cover a portion of the training and operating expenses incurred by the Company's sales force in promoting Eldepryl. Pursuant to the 1997 Wyeth-Ayerst Development and Commercialization Agreement, Wyeth-Ayerst is obligated pay all development costs related to Co 2-6749, as well as make milestone payments upon the occurrence of certain agreed upon events. Furthermore, Wyeth-Ayerst is required to pay the Company $3.0 million per year for up to three years to identify back-up compounds. CoCensys' operations to date have consumed substantial amounts of cash. The negative cash flow from operations is expected to continue and will likely increase over the foreseeable future, subject to the Company's ability to mitigate such negative cash flows with revenues, if any, derived from the sale of products from current and potential future marketing collaborations. The Company anticipates that its existing capital resources, including funding expected to be available through current partner collaborations (including milestone payments and co-promotion revenues), will be adequate to satisfy its capital needs for at least the next 12 months. There can be no assurance that milestone-based payments or co-promotion revenues will be sufficient to meet the Company's capital requirements. The Company will need to obtain substantial additional funds to conduct the costly and time-consuming research, preclinical development and clinical trials necessary to bring its products to market. The Company intends to seek additional funding through additional research and development collaborations with suitable corporate partners, through additional marketing collaborations to increase revenues generated from sales of products and/or through public or private financing. There can be no assurance that additional financings or suitable collaborations will be available on favorable terms, if at all. Insufficient funds may require the Company to delay, scale back or eliminate some or all of its research and product development programs or to license third parties to commercialize products or technologies that the Company would otherwise seek to develop itself. The Company's future capital requirements will depend on many factors, including the progress of the Company's research and development programs, the level of co-promotion revenues, the scope and results of preclinical testing and clinical trials, the time and costs involved in obtaining regulatory approvals, the rate of technological advances, determinations as to the commercial potential of the Company's products under development, the status of competitive products, the expansion of sales and marketing capabilities, the establishment of third-party manufacturing arrangements and the establishment of additional collaborative relationships. 12 ADDITIONAL RISKS In addition to those discussed above, the Company is subject to the following risks: The Company's products are in an early stage of development and face a high degree of technological, regulatory and competitive risks. Drug discovery and development are capital intensive activities, and there can be no assurance the Company will be able to raise the additional capital necessary to develop and commercialize products. The Company's strategy for the development, clinical testing and commercialization of its products includes entering into various collaborations with corporate partners, licensors, licensees and others. There can be no assurance that the Company will be able to negotiate further collaborative arrangements on acceptable terms, if at all, or that the current collaborative efforts will be successful. Human clinical trials require considerable time and funding, and results from any stage of testing may not predict results of later stages. In addition, if results of any clinical trial fail to meet the Company's requirements, the study plan for such compound may be adjusted or another compound may be substituted, either of which may result in delays in future clinical studies. Unfavorable clinical trials could result in cancellation of future clinical studies. Inherent in the fact that CoCensys is an early stage biopharmaceutical company are a range of additional risks, including those associated with obtaining and enforcing patents and protecting proprietary technology and the risk of regulatory change, among others. The securities markets have from time to time experienced significant price and volume fluctuations that may be unrelated to the operating performance of particular companies. The market prices of the common stock of many publicly traded biopharmaceutical companies have in the past been, and can in the future be expected to be, especially volatile due to various external factors, including but not limited to, announcements of technological innovations or new products by the Company or its competitors, developments or disputes concerning patents or proprietary rights, publicity regarding actual or potential results relating to products under development, regulatory developments in both the United States and foreign countries and public concern as to the safety of biotechnology products. 13 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES On May 12, 1997, the Company sold 100,000 unregistered shares of Series C Convertible Preferred Stock (the "Preferred Stock") to American Home Products Corporation for an aggregate purchase price of $5,000,000. The Preferred Stock is convertible at the option of the holder at any time after May 11, 1999 at a Conversion Price determined pursuant to a formula based on the market price of the Common Stock at the time of conversion, subject to a minimum price of $4.37 and a maximum price of $7.76. The transaction was exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof, as a transaction not involving any public offering. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held an Annual Meeting of Stockholders on June 25, 1997. The stockholders elected the Board's nominees as Class II directors by the votes indicated: Nominee Votes in Favor Votes Withheld ------- -------------- -------------- F. Richard Nichol, Ph.D. 17,079,020 796,242 Timothy J. Rink, M.D. 17,092,626 782,636 The amendment to the Company's 1992 Non-Employee Directors' Stock Option Plan was ratified with 16,961,900 votes in favor, 836,422 against and 76,940 abstentions. The Company's 1996 Equity Incentive Plan was approved by a vote of 10,530,958 in favor, 2,474,023 against, 86,195 abstentions and 4,784,086 broker non- votes. The selection of Ernst & Young, LLP as the Company's independent auditors was ratified with 17,810,357 votes in favor, 28,550 against and 36,355 abstentions. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3(i).1 Amended and Restated Certificate of Incorporation of the Company. 3(i).2 Certificate of Designation of Series A Junior Participating Preferred Stock of the Company. 3(i).3 Certificate of Powers, Designation, Preferences, Rights and Limitations of Series B Convertible Preferred Stock of the Company. 3(i).4 Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company. 3(i).5 Certificate of Powers, Designation, Preferences, Rights and Limitations of 14 Series C Convertible Preferred Stock of the Company. 10.1* 1997 Promotion Agreement, effective April 7, 1997, between Somerset Pharmaceuticals, Inc. and the Company. 10.2* Development and Commercialization Agreement (No.1), dated May 12, 1997, between Wyeth-Ayerst Laboratories and the Company ("Wyeth-Ayerst Agreement No.1"). 10.3* Development and Commercialization Agreement (No.2), dated May 12, 1997, between Wyeth-Ayerst Laboratories and the Company. 10.4 Preferred Stock Purchase Agreement, dated May 12, 1997, between American Home Products, Inc. and the Company (included as Exhibit F to Wyeth-Ayerst Agreement No. 1) 27.1 Financial Data Schedule * Confidential treatment requested. (b) Reports on Form 8-K (i) The Company filed a Form 8-K on June 17, 1997, reporting under Item 5 that the Company and the Parke-Davis Division of Warner-Lambert Company have agreed to terminate the Cognex Promotion Agreement. (ii) The Company filed a Form 8-K on May 2, 1997, reporting under Item 5 that Novartis Pharma A.G. has decided not to participate further in the development of ACEA 1021, CoCensys' compound for the treatment of stroke and traumatic brain injury. 15 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed in its behalf by the undersigned thereunto duly authorized. CoCensys, Inc. Date: August 5, 1997 By: /s/ Peter E. Jansen ------------------------------------- Peter E. Jansen Chief Financial Officer (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) 16 EX-3.I1 2 EXHIBIT 3(I).1 AMENDED AND RESTATED CERT. Exhibit 3(i).1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF COCENSYS, INC. I. The name of this corporation is CoCensys, Inc. II. The address of the registered office of the corporation in the State of Delaware is 32 Loockerman Square, Suite L-100, City of Dover, County of Kent, and the name of the registered agent of the corporation in the State of Delaware at such address is the Prentice Hall Corporation System. III. The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware. IV. A. This corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the corporation is authorized to issue is thirty-five million (35,000,000) shares. Thirty million (30,000,000) shares shall be Common Stock, each having a par value of one-tenth of One Cent ($.001). Five million (5,000,000) shares shall be Preferred Stock, each having a par value of one-tenth of One Cent ($.001). B. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized, by filing a certificate pursuant to the Delaware General Corporation Law, to fix or alter from time to time the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof, including without limitation the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), redemption price or prices, and the liquidation preferences of any wholly unissued series of Preferred Stock, and to establish from time to time the number of shares constituting any such series and the designation thereof, or any of them (a "Preferred Stock Designation"); and to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be decreased in accordance with the foregoing sentence, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. 1. C. No share or shares of any series of Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued as part of such series, and the Board of Directors is authorized, pursuant to Section 243 of the Delaware General Corporation law, to retire any such share or shares. The retirement of any such share or shares shall not reduce the total authorized number of shares of Preferred Stock. V. For the management of the business and for the conduct of the affairs of the corporation, and in further definition, limitation and regulation of the powers of the corporation, of its directors and of its stockholders or any class thereof, as the case may be, it is further provided that: A. The management of the business and the conduct of the affairs of the corporation shall be vested in its Board of Directors. The number of directors which shall constitute the whole Board of Directors shall be fixed exclusively by one or more resolutions adopted by the Board of Directors. Following the closing of the initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock to the public (the "Initial Public Offering"), the directors shall be divided into three (3) classes designated as Class I, Class II and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. At the first annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class I directors shall expire and Class I directors shall be elected for a full term of three (3) years. At the second annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three (3) years. At the third annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three (3) years to succeed the directors of the class whose terms expire at such annual meeting. Notwithstanding the foregoing provisions of this Article, each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes shall be filled by either (i) the affirmative vote of the holders of a majority of the voting power of the then-outstanding shares of voting stock of the corporation entitled to vote generally in the election of directors (the "Voting Stock") voting together as a single class; or (ii) by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Newly created directorships resulting from any increase in the number of directors shall, unless the Board of 2. Directors determines by resolution that any such newly created directorship shall be filled by the stockholders, be filled only by the affirmative vote of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. B. The Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the Voting Stock. In furtherance and not in limitation of the power conferred by statute, the Board of Directors is expressly authorized to adopt, amend, supplement or repeal the Bylaws. C. The directors of the corporation need not be elected by written ballot unless the Bylaws so provide. D. Following the closing of the Initial Public Offering, no action shall be taken by the stockholders of the corporation except at an annual or special meeting of stockholders called in accordance with the Bylaws and no action shall be taken by the stockholders by written consent. E. Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the corporation shall be given in the manner provided in the Bylaws of the corporation. F. Any director, or the entire Board of Directors, may be removed from office at any time (i) with cause by the affirmative vote of the holders of at least a majority of the voting power of all of the then-outstanding shares of the Voting Stock, voting together as a single class; or (ii) without cause by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the Voting Stock. VI. (1) A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. If the Delaware General Corporation Law is amended after approval by the stockholders of this article to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. (2) The corporation is authorized to provide indemnification of agents (as defined in Section 145 of the Delaware General Corporation Law) for breach of duty to the corporation and its stockholders through bylaw provisions, through agreements with the agents, and/or through 3. stockholder resolutions, or otherwise, in excess of the indemnification otherwise permitted by Section 145 of the Delaware General Corporation Law, subject to the limitations on such excess indemnification set forth in Section 102 of the Delaware General Corporation Law. (3) Any repeal or modification of this Article VI by the stockholders of the corporation shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification. VII. Notwithstanding any other provisions of this Amended and Restated Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the Voting Stock required by law, this Amended and Restated Certificate of Incorporation or any Preferred Stock Designation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the Voting Stock, voting together as a single class, shall be required to alter, amend or repeal Article V or Article IX. VIII. The corporation is to have perpetual existence. IX. The corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, except as provided in Article VII of this Certificate, and all rights conferred upon the stockholders herein are granted subject to this right. 4. EX-3.I2 3 EXHIBIT 3(I).2 CERTIFICATE OF DESIGNATION Exhibit 3(i).2 CERTIFICATE OF DESIGNATION OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK OF COCENSYS, INC. (Pursuant to Section 151 of the Delaware General Corporation Law) COCENSYS, INC., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the "Corporation"), hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation as required by Section 151 of the General Corporation Law at a meeting duly called and held on April 25, 1995: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of the Corporation in accordance with the provisions of its Amended and Restated Certificate of Incorporation, the Board of Directors hereby creates a series of Preferred Stock, par value $.001 per share, of the Corporation and hereby states the designation and number of shares, and fixes the relative rights, preferences and limitations thereof (in addition to the provisions set forth in the Restated Certificate of Incorporation of the Corporation, which are applicable to the Preferred Stock of all classes and series), as follows: Series A Junior Participating Preferred Stock: SECTION 1. DESIGNATION AND AMOUNT. Three Hundred Fifty Thousand (350,000) shares of Preferred Stock, $.001 par value, are designated "Series A Junior Participating Preferred Stock" with the rights, preferences, privileges and restrictions 1. specified herein (the "Junior Preferred Stock"). Such number of shares may be increased or decreased by resolution of the Board of Directors; PROVIDED, that no decrease shall reduce the number of shares of Junior Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Junior Preferred Stock. SECTION 2. DIVIDENDS AND DISTRIBUTIONS. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Junior Preferred Stock with respect to dividends, the holders of shares of Junior Preferred Stock, in preference to the holders of Common Stock, par value $.001 per share (the "Common Stock"), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Junior Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $l.00 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise) declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Junior Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Junior Preferred 2. Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Junior Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Junior Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Junior Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Junior Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Junior Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Junior Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. 3. SECTION 3. VOTING RIGHTS. The holders of shares of Junior Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Junior Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Junior Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, in any other Certificate of Determination of Preferences creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Junior Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) Except as set forth herein, or as otherwise provided by law, holders of Junior Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. SECTION 4. CERTAIN RESTRICTIONS. (A) Whenever quarterly dividends or other dividends or distributions payable on the Junior Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Junior Preferred Stock outstanding shall have been paid in full, the Corporation shall not: 4. (I) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Junior Preferred Stock; (II) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Junior Preferred Stock, except dividends paid ratably on the Junior Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (III) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Junior Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Junior Preferred Stock; or (IV) redeem or purchase or otherwise acquire for consideration any shares of Junior Preferred Stock, or any shares of stock ranking on a parity with the Junior Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. SECTION 5. REACQUIRED SHARES. Any shares of Junior Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their 5. cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Restated Certificate of Incorporation, or in any other Certificate of Determination of Preferences creating a series of Preferred Stock or any similar stock or as otherwise required by law. SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Junior Preferred Stock unless, prior thereto, the holders of shares of Junior Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Junior Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Junior Preferred Stock, except distributions made ratably on the Junior Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Junior Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. SECTION 7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Junior Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount of stock, securities, cash and/or 6. any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Junior Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. SECTION 8. NO REDEMPTION. The shares of Junior Preferred Stock shall not be redeemable. SECTION 9. RANK. The Junior Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all series of any other class of the Corporation's Preferred Stock. SECTION 10. AMENDMENT. The Restated Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Junior Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Junior Preferred Stock, voting together as a single class. 7. IN WITNESS WHEREOF the undersigned have executed this certificate as of May 16, 1996. /s/ Daniel L. Korpolinski ______________________________________ Daniel L. Korpolinski President and Chief Executive Officer /s/ Alan C. Mendelson _______________________________________ Alan C. Mendelson Secretary 8. EX-3.I3 4 EXHIBIT 3(I).3 CERTIFICATE OF POWERS (SERIES B) Exhibit 3(i).3 CERTIFICATE OF POWERS, DESIGNATION, PREFERENCES, RIGHTS AND LIMITATIONS OF SERIES B CONVERTIBLE PREFERRED STOCK OF COCENSYS, INC. (Pursuant to Section 151 of the Delaware General Corporation Law) COCENSYS, INC., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the "Corporation"), hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation as required by Section 151 of the General Corporation Law at meetings duly called and held on February 27 and May 16, 1996: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of the Corporation in accordance with the provisions of its Amended and Restated Certificate of Incorporation, the Board of Directors hereby creates a series of Preferred Stock, par value $.001 per share, of the Corporation and hereby states the designation and number of shares, and fixes the relative rights, preferences and limitations thereof (in addition to the provisions set forth in the Restated Certificate of Incorporation of the Corporation, which are applicable to the Preferred Stock of all classes and series), as follows: Series B Convertible Preferred Stock: SECTION 3. DESIGNATION AND AMOUNT. One Hundred Thousand (100,000) shares of Preferred Stock, $.001 par value, are designated "Series B Convertible Preferred Stock" with the rights, preferences, privileges and restrictions specified herein 1. (the "Series B Preferred Stock"). Subject to Section 7 hereof, such number of shares may be increased or decreased by resolution of the Board of Directors. SECTION 2. DIVIDENDS AND DISTRIBUTIONS. The holders of the Series B Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available therefor, dividends at the rate per share equal to any dividend declared or paid per share to the Common Stock of the Corporation ("Common Stock"). The right to such dividends on the Series B Preferred Stock shall be non-cumulative. SECTION 3. VOTING RIGHTS. Except as set forth herein, or as otherwise provided by law, holders of Series B Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. SECTION 4. LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary (a "Liquidation Event"), the holders of the Series B Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Common Stock or Junior Preferred Stock of the Corporation, an amount per share (as adjusted for any combinations, consolidations, stock distributions or stock dividends with respect to such shares) equal to the quotient of (a) $7,000,000 divided by (b) the number of Series B Preferred Stock issued and outstanding as of the date of such Liquidation Event. If upon the occurrence of such Liquidation Event, the assets and funds thus distributed among the holders of the Series B Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of the Series B Preferred Stock in proportion to the shares of Series B Preferred Stock then held by them. SECTION 5. CONVERSION. Subject to the limitations set forth in Subsection (C) below, the Series B Preferred Stock shall convert only as follows: (A) AUTOMATIC CONVERSION. The Series B Preferred Stock outstanding on May 17, 1998 (the "Automatic Conversion 2. Date") shall automatically convert on such date, in whole and not in part, into such number of fully paid and nonassessable shares of Common Stock equal to the quotient of $7,000,000 divided by the average closing price of the Corporation's Common Stock (as reported in THE WALL STREET JOURNAL, WESTERN ADDITION) for a period of thirty (30) trading days prior to the Automatic Conversion Date. (B) CONVERSION AT CORPORATION'S OPTION. At any time prior to the Automatic Conversion Date, the Corporation shall have the option, in its sole discretion, to convert the Series B Preferred Stock, in whole and not in part, into such number of fully paid and nonassessable shares of Common Stock equal to the quotient of $7,000,000 divided by the average closing price of the Corporation's Common Stock (as reported in THE WALL STREET JOURNAL, WESTERN ADDITION) for a period of thirty (30) trading days prior to date upon which the Corporation issues notice to the holders of Series B Preferred Stock of such optional conversion. (C) LIMITATION ON CONVERTED SHARES. The number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock shall not be fewer than the quotient of $7,000,000 divided by two times the closing price of the Common Stock on May 17, 1996 (as reported in the WALL STREET JOURNAL, WESTERN EDITION) (the "Market Price"), nor greater than the quotient of $7,000,000 divided by one-half of the Market Price. (D) ADJUSTMENTS FOR COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. In the event the Corporation at any time or from time to time shall declare or pay any dividend on the Common Stock payable in Common Stock or in any right to acquire Common Stock, or shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by stock split, reclassification or otherwise), or in the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, then the maximum and minimum number of shares of Common Stock into which the Series B Preferred Stock may be converted, shall be proportionately decreased or increased, as appropriate. (E) MECHANICS OF CONVERSION. Before any holder of Series B Preferred Stock shall be entitled to receive shares of Common Stock, he shall surrender the certificate or certificates thereof, duly endorsed, at the office of the Corporation or of any transfer agent for such stock, and shall state therein the name or 3. names in which he wishes the certificate or certificates for shares of Common Stock to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series B Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which he shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the Automatic Conversion Date or the Optional Conversion Date, as appropriate, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (F) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series B Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series B Preferred Stock. (G) FRACTIONAL SHARES. No fractional share shall be issued upon the conversion of any share or shares of Series B Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of Series B Preferred Stock shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock, the Corporation shall, in lieu of issuing any fractional share, pay the holder otherwise entitled to such fraction a sum in cash equal to the closing price of the Common Stock on the date of conversion, multiplied by such fraction. (H) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If any (i) reorganization of the capital stock of the Corporation, (ii) consolidation or merger of the Corporation in which the Corporation is not the surviving corporation, or (iii) sale of all or substantially all of the Corporation's assets to another corporation (each, an "Event") shall be effected in such a way that holders of Common Stock shall be entitled to receive securities, cash or other assets or property, the Automatic Conversion Date shall be accelerated to the date immediately preceding such Event, or such other date necessary to assure that any holder of Series B Preferred Stock receives such shares of stock, securities or other 4. assets or property as may be issued or payable with respect to or in exchange for shares of Common Stock. SECTION 6. NO REDEMPTION. The shares of Series B Preferred Stock shall not be redeemable. SECTION 7. AMENDMENT. The Restated Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series B Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series B Preferred Stock, voting together as a single class. 5. IN WITNESS WHEREOF the undersigned have executed this certificate as of May 16, 1996. /s/ Daniel L. Korpolinski ---------------------------------- Daniel L. Korpolinski President and Chief Executive Officer /s/ Alan C. Mendelson ---------------------------------- Alan C. Mendelson Secretary 6. EX-3.I4 5 EXHIBIT 3(I).4 CERTIFICATE OF AMENDMENT Exhibit 3(i).4 CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF COCENSYS, INC. Daniel L. Korpolinski and Alan C. Mendelson hereby certify that: FIRST: They are the duly elected and acting President and Secretary, respectively, of CoCensys, Inc., a Delaware corporation. SECOND: The name of this Corporation is COCENSYS, INC. (the "Corporation"). THIRD: The date on which the Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware is February 5, 1993. A Certificate of Retirement of Series A, Series B and Series C Preferred Stock was filed with the Secretary of State of the State of Delaware on February 5, 1993. A Certificate of Designation of Series A Junior Participating Preferred Stock was filed with the Secretary of State of the State of Delaware on May 15, 1995. A Certificate of Powers, Designation, Preferences, Rights and Limitations of Series B Convertible Preferred Stock was filed with the Secretary of State of the State of Delaware on May 17, 1996. FOURTH: The amendment to the Corporation's Amended and Restated Certificate of Incorporation set forth below was duly adopted by the Board of Directors of the Corporation, and approved by the Stockholders in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. FIFTH: Article IV, Paragraph A of the Corporation's Certificate of Incorporation is amended to read in its entirety as follows: "IV. A. This corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the corporation is authorized to issue is eighty million (80,000,000) shares. Seventy-five million (75,000,000) shares shall be Common Stock, each having a par value of one-tenth of one cent ($.001). Five million (5,000,000) shares shall be Preferred Stock, each having a par value of one-tenth of one cent ($.001)." 1. IN WITNESS WHEREOF, the undersigned have signed this Certificate of Amendment of Amended and Restated Certificate of Incorporation this 12th day of June, 1996 and hereby affirm and acknowledge under penalty of perjury that the filing of this Certificate of Amendment of Amended and Restated Certificate of Incorporation of CoCensys, Inc. is the act and deed of COCENSYS, INC. COCENSYS, INC. By: /s/ Daniel L. Korpolinski ______________________________________ Daniel L. Korpolinski, President and Chief Executive Officer ATTEST: By: /s/ Alan C. Mendelson ____________________________________ Alan C. Mendelson, Secretary 2. EX-3.I5 6 EXHIBIT 3(I).5 CERTIFICATE OF POWERS (SERIES C) CERTIFICATE OF POWERS, DESIGNATION, PREFERENCES, RIGHTS AND LIMITATIONS OF SERIES C CONVERTIBLE PREFERRED STOCK OF COCENSYS, INC. (Pursuant to Section 151 of the Delaware General Corporation Law) COCENSYS, INC., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the "Corporation"), hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation as required by Section 151 of the General Corporation Law at a meeting duly called and held on April 29, 1997: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of the Corporation in accordance with the provisions of its Amended and Restated Certificate of Incorporation, the Board of Directors hereby creates a series of Preferred Stock, par value $.001 per share, of the Corporation and hereby states the designation and number of shares, and fixes the relative rights, preferences and limitations thereof (in addition to the provisions set forth in the Restated Certificate of Incorporation of the Corporation, which are applicable to the Preferred Stock of all classes and series), as follows: Series C Convertible Preferred Stock: SECTION 1. DESIGNATION AND AMOUNT. One Hundred Thousand (100,000) shares of Preferred Stock, $.001 par value, are designated "Series C Convertible Preferred Stock" with the rights, preferences, privileges and restrictions specified herein (the 1. "Series C Preferred Stock"). Such number of shares may be not increased or decreased without the consent of the holder. SECTION 2. DIVIDENDS AND DISTRIBUTIONS. The holders of the Series C Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available therefor, dividends at the rate per share equal to any dividend declared or paid per share to the Common Stock of the Corporation ("Common Stock"). The right to such dividends on the Series C Preferred Stock shall be non-cumulative. SECTION 3. VOTING RIGHTS. Except as set forth herein, or as otherwise provided by law, holders of Series C Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. SECTION 4. LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary (a "Liquidation Event"), the holders of the Series C Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Common Stock or Junior Preferred Stock of the Corporation, an amount per share (as adjusted for any combinations, consolidations, stock distributions or stock dividends with respect to such shares) equal to the quotient of (a) $5,000,000 divided by (b) the number of shares of Series C Preferred Stock issued and outstanding as of the date of such Liquidation Event. If upon the occurrence of such Liquidation Event, the assets and funds thus distributed among the holders of the Series C Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of the Series C Preferred Stock in proportion to the shares of Series C Preferred Stock then held by them. SECTION 5. CONVERSION. Subject to the limitations set forth in Subsection (B) below, the Series C Preferred Stock shall convert only as follows: (A) CONVERSION AT HOLDER'S OPTION. At any time after May 11, 1999, the Series C Preferred Stock shall be convertible, in whole or in part, on a maximum of three occasions, at the 2. option of the holder, into such number of fully paid and nonassessable shares of Common Stock equal to the quotient of (a) the product of $50 and the number of shares of Series C Preferred Stock being converted, divided by (b) the Conversion Price. The "Conversion Price" shall be equal to the greater of: (i) $5.43 or (ii) the lesser of: (x) the Future Market Price x 0.80 or (y) $7.76; PROVIDED, HOWEVER, that if the Future Market Price is less than $3.88, the Conversion Price shall be $4.37. The "Future Market Price" set forth above shall be the average closing price of the Common Stock for the period commencing on the 23rd trading day prior to the date upon which the holder delivers notice to the Corporation of such conversion (each, a "Conversion Date") and ending on the third trading day prior to the Conversion Date, as reported in the WALL STREET JOURNAL, WESTERN EDITION. (B) ADJUSTMENTS FOR COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. In the event the Corporation at any time or from time to time shall declare or pay any dividend on the Common Stock payable in Common Stock or in any right to acquire Common Stock, or shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by stock split, reclassification or otherwise), or in the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, then the maximum and minimum number of shares of Common Stock into which the Series C Preferred Stock may be converted, shall be proportionately decreased or increased, as appropriate. (C) MECHANICS OF CONVERSION. Before any holder of Series C Preferred Stock shall be entitled to receive shares of Common Stock, he shall surrender the certificate or certificates thereof, duly endorsed, at the office of the Corporation or of any transfer agent for such stock, and shall state therein the name or 3. names in which he wishes the certificate or certificates for shares of Common Stock to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series C Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which he shall be entitled as aforesaid. Such conversion shall be deemed to have been made on the Conversion Date, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (D) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series C Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series C Preferred Stock. (E) FRACTIONAL SHARES. No fractional share shall be issued upon the conversion of any share or shares of Series C Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of Series C Preferred Stock shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock, the Corporation shall, in lieu of issuing any fractional share, pay the holder otherwise entitled to such fraction a sum in cash equal to the closing price of the Common Stock on the date of conversion, multiplied by such fraction. (F) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If any (i) reorganization of the capital stock of the Corporation, (ii) consolidation or merger of the Corporation in which the Corporation is not the surviving corporation, or (iii) sale of all or substantially all of the Corporation's assets to another corporation (each, an "Event") shall be effected in such a way that holders of Common Stock shall be entitled to receive securities, cash or other assets or property, the first Conversion Date shall be accelerated to the date immediately preceding such Event, or such other date necessary to assure that any holder of Series C Preferred Stock receives such shares of stock, securities or other assets or property as may be issued or payable with respect to or in exchange for shares of Common Stock. 4. SECTION 6. NO REDEMPTION. The shares of Series C Preferred Stock shall not be redeemable. SECTION 7. AMENDMENT. The Restated Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series C Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series C Preferred Stock, voting together as a single class. 5. IN WITNESS WHEREOF the undersigned have executed this certificate as of May 12, 1997. /s/ F. Richard Nichol, Ph.D. -------------------------------------------- President and Chief Executive Officer /s/ Alan C. Mendelson -------------------------------------------- Secretary 6. EX-10.1 7 EXHIBIT 10.1 1997 PROMOTION AGREEMENT BETWEEN SOMERSET PHARMACEUTICALS, INC. AND COCENSYS, INC. TABLE OF CONTENTS PAGE ARTICLE 1. DEFINITIONS................................................... 2 1.1 "Actual Gross Sales".......................................... 2 1.2 "Actual Monthly Details"...................................... 2 1.3 "Actual Quarterly Details".................................... 2 1.4 "Adjusted Annualized Detail Payment Reduction"................ 2 1.5 "Adjusted Detail-Based Compensation Reconciliation Payment"... 3 1.6 "Adjusted Target Details"..................................... 3 1.7 "Affiliate"................................................... 3 1.8 "Annualized Detail Payment Reduction"......................... 3 1.9 "CoCensys ELDEPRYL Sales Force"............................... 3 1.10 "Detail-Based Compensation"................................... 3 1.11 "Detail-Based Compensation Reconciliation Payment"............ 3 1.12 "Effective Date".............................................. 4 1.13 "ELDEPRYL Brand".............................................. 4 1.14 "ELDEPRYL Brand Unit"......................................... 4 1.15 "ELDEPRYL Detail"............................................. 4 1.16 "FDA"......................................................... 4 1.17 "First Position Presentation"................................. 5 1.18 "Gross Sales-Based Compensation".............................. 5 1.19 "Key Prescribers"............................................. 5 1.20 "Key Prescriber Marketing Plan"............................... 5 1.21 "Managing Committee".......................................... 5 1.22 "Minimum Aggregate Monthly Details"........................... 6 1.23 "Minimum Aggregate Quarterly Details"......................... 6 1.24 "Monthly Detail Payment"...................................... 7 1.25 "Monthly Detail Payment Reduction"............................ 7 1.26 "NDA"......................................................... 7 1.27 "Promotional Materials"....................................... 7 1.28 "Proprietary Information"..................................... 7 1.29 "Quarterly Detail Payment".................................... 7 1.30 "Quarterly Detail Payment Reduction".......................... 7 1.31 "Sample"...................................................... 7 1.32 "Target Aggregate Monthly Details"............................ 8 1.33 "Target Aggregate Quarterly Details".......................... 8 1.34 "Term"........................................................ 8 1.35 "Territory"................................................... 9 1.36 "Total Actual Details"........................................ 9 1.37 "Total Detail Payment Reduction".............................. 9 1.38 "Total Government Discounts and Rebates"...................... 9 i. TABLE OF CONTENTS (CONTINUED) PAGE ARTICLE 2. PROMOTION RIGHTS.............................................. 10 2.1 Appointment of CoCensys....................................... 10 2.2 Rights Retained by Somerset................................... 10 ARTICLE 3. MANAGING COMMITTEE; KEY PRESCRIBER MARKETING PLAN............. 11 3.1 Managing Committee............................................ 11 (a) Formation; Meetings...................................... 11 (b) Functions of the Managing Committee...................... 12 3.2 Dispute Resolution............................................ 13 ARTICLE 4. PROMOTION OF ELDEPRYL BRAND................................... 14 4.1 CoCensys ELDEPRYL Sales Force................................. 14 4.2 Training of CoCensys ELDEPRYL Sales Force..................... 14 (a) Continued Training....................................... 14 (b) Training Costs........................................... 15 4.3 CoCensys ELDEPRYL Sales Force Support......................... 15 4.4 Conduct of the CoCensys ELDEPRYL Sales Force.................. 15 4.5 Bonus Program for CoCensys ELDEPRYL Sales Force............... 16 4.6 Other Marketing Activities to Physicians...................... 17 (a) Physicians Who Are Not Key Prescribers................... 17 (b) Non-Sales Call Activity.................................. 17 4.7 Other Uses of CoCensys Sales Force............................ 18 4.8 Number of ELDEPRYL Details.................................... 19 4.9 Records and Reports Regarding Promotion Activities............ 19 4.10 Forwarding of ELDEPRYL Brand Orders........................... 20 ARTICLE 5. SOMERSET RIGHTS AND OBLIGATIONS............................... 20 5.1 [ * ] Marketing Responsibility........................ 20 5.2 Supply and Distribution of ELDEPRYL Brand..................... 21 5.3 Regulatory Compliance......................................... 21 5.4 Product Recall................................................ 21 5.5 Promotional Materials......................................... 22 (a) Somerset Materials....................................... 22 (b) Rights To Promotional Materials.......................... 22 5.6 [ * ] Developments Relating to ELDEPRYL Brand......... 23 5.7 Sales and Inventory Data...................................... 23 5.8 Somerset Costs................................................ 24 ii. * Confidential treatment requested TABLE OF CONTENTS (CONTINUED) PAGE ARTICLE 6. JOINT OBLIGATIONS............................................. 24 6.1 Assistance and Notifications to Other Party................... 24 6.2 Samples of ELDEPRYL Brand..................................... 25 (a) Costs.................................................... 25 (b) Shrink-Wrap.............................................. 25 (c) Disposition Upon Termination............................. 25 6.3 Requests for Information from Key Prescribers................. 26 6.4 Market Surveys................................................ 26 6.5 Withdrawal of ELDEPRYL Brand.................................. 26 6.6 Non-Solicitation of Employees................................. 27 ARTICLE 7. COMPENSATION.................................................. 27 7.1 Detail-Based Compensation..................................... 27 (a) Detail Payments.......................................... 27 (b) Reduction in Detail Payments............................. 29 (c) Detail-Based Compensation Reconciliation................. 31 (d) ......................................................... 34 7.2 Gross Sales-Based Compensation................................ 34 (a) ......................................................... 34 (b) ......................................................... 34 (c) ......................................................... 35 (d) ......................................................... 35 7.3 Adjustments in the Event of Changes in Government Mandated Discounts and Rebates......................................... 36 7.4 Audit Rights.................................................. 37 ARTICLE 8. TERM; TERMINATION............................................. 38 8.1 Renewal Terms................................................. 38 8.2 Termination Rights............................................ 38 8.3 Termination Upon Cessation of Sale of ELDEPRYL Brand.......... 38 8.4 Termination for Breach........................................ 38 8.5 Effect of Termination......................................... 39 8.6 Termination of the 1996 Agreement............................. 39 ARTICLE 9. WARRANTIES, REPRESENTATIONS AND COVENANTS..................... 40 9.1 Warranties and Representations of Each Party.................. 40 9.2 Warranties and Representations of Somerset.................... 40 9.3 Warranties and Representations of CoCensys.................... 41 iii. TABLE OF CONTENTS (CONTINUED) PAGE ARTICLE 10. INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS.................. 41 10.1 Notice........................................................ 41 10.2 Conduct of Infringement Actions............................... 41 ARTICLE 11. INDEMNIFICATION............................................... 42 11.1 Indemnification by Somerset................................... 42 11.2 Indemnification by CoCensys................................... 42 11.3 Indemnification Procedure..................................... 43 ARTICLE 12. CONFIDENTIALITY............................................... 44 12.1 Nondisclosure and Nonuse Obligations.......................... 44 12.2 Exceptions.................................................... 45 12.3 Authorized Disclosure......................................... 45 12.4 Obligations at End of Term.................................... 46 12.5 Retention of Proprietary Information.......................... 46 ARTICLE 13. PUBLICITY..................................................... 47 13.1 ...............................................................47 13.2 ...............................................................47 ARTICLE 14. MISCELLANEOUS................................................. 48 14.1 Notices....................................................... 48 14.2 Captions and Section References............................... 48 14.3 Severability.................................................. 49 14.4 Entire Agreement.............................................. 49 14.5 Amendment..................................................... 49 14.6 Counterparts.................................................. 50 14.7 Waiver........................................................ 50 14.8 Force Majeure................................................. 50 14.9 Assignment; Benefits and Binding Nature of Agreement.......... 50 14.10 Survival...................................................... 51 14.11 Not Strictly Construed Against Either Party................... 51 14.12 Governing Law................................................. 51 iv. TABLE OF CONTENTS (CONTINUED) PAGE Exhibit 5.7 - Somerset Standard Sales Report Format.......................... 53 Exhibit 7.1(d) - Examples of Calculation of Detail-Based Compensation Under Different Hypothetical Scenarios......................................... 54 Exhibit 7.2.................................................................. 57 v. 1997 PROMOTION AGREEMENT THIS 1997 PROMOTION AGREEMENT ("Agreement"), is made this 7 day of April, 1997, by and between SOMERSET PHARMACEUTICALS, INC., with offices at 5215 W. Laurel Street, Tampa, Florida 33607 ("Somerset"), and COCENSYS, INC., with offices at 213 Technology Drive, Irvine, California 92718 ("CoCensys"), with respect to the following: WHEREAS, Somerset has the right, under its approved New Drug Application, to market ELDEPRYL Brand (as further defined in Section 1.13) in the United States; and WHEREAS, CoCensys has established a marketing and a sales organization which currently is promoting certain drugs belonging to third parties to neurologists and psychiatrists pursuant to certain agreements on file with the United States Securities and Exchange Commission as of the date of this Agreement; and WHEREAS, the parties executed a Promotion Agreement dated January 4, 1996 whereby Somerset utilized CoCensys' sales force to promote ELDEPRYL Brand to neurologists in the United States on terms and conditions contained therein. WHEREAS, the parties wish to terminate the January 4, 1996 Promotion Agreement and continue their relationship on the revised terms provided for in this Agreement. 1. 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: 1.1 "ACTUAL GROSS SALES" shall mean, during the Term, [ * ]. The amount of Actual Gross Sales may be adjusted upon mutual agreement of the parties pursuant to Section 7.3. 1.2 "ACTUAL MONTHLY DETAILS" shall have the meaning set forth in Section 7.1(b)(ii) 1.3 "ACTUAL QUARTERLY DETAILS" shall have the meaning set forth in Section 7.1(b)(i). 1.4 "ADJUSTED ANNUALIZED DETAIL PAYMENT REDUCTION" shall have the meaning set forth in Section 7.1(c)(ii). 1.5 "ADJUSTED DETAIL-BASED COMPENSATION RECONCILIATION PAYMENT" shall have the meaning set forth in Section 7.1(c)(ii). 2. * Confidential treatment requested 1.6 "ADJUSTED TARGET DETAILS" shall have the meaning set forth in Section 7.1(c)(ii). 1.7 "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 equal to or in excess of 50% of the voting or income interest in such corporation or other business entity. 1.8 "ANNUALIZED DETAIL PAYMENT REDUCTION" shall have the meaning set forth in Section 7.1(c)(i). 1.9 "COCENSYS ELDEPRYL SALES FORCE" shall mean those members of CoCensys's sales force, as more fully described in Section 4.7, who make ELDEPRYL Details to Key Prescribers. 1.10 "DETAIL-BASED COMPENSATION" shall have the meaning set forth in Section 7.1(a)(i). 1.11 "DETAIL-BASED COMPENSATION RECONCILIATION PAYMENT" shall have the meaning set forth in Section 7.1(c)(i). 1.12 "EFFECTIVE DATE" shall mean January 1, 1997. 3. 1.13 "ELDEPRYL BRAND" shall mean (i) that prescription pharmaceutical product, in 5 mg capsule form, indicated in the Territory for the adjunctive treatment of late stage Parkinson's disease, owned by Somerset and promoted as of the Effective Date under the trademark ELDEPRYL, the active ingredient of which is selegiline hydrochloride (the "Current Formulation") and [ * ]. 1.14 "ELDEPRYL BRAND UNIT" shall mean 60 capsules, 5 mg each, of ELDEPRYL Brand. 1.15 "ELDEPRYL DETAIL" shall mean a [ * ] detail for ELDEPRYL Brand between a CoCensys salesperson and a Key Prescriber. As used herein, [ * ] means that ELDEPRYL Brand is [ * ] such sales call. 1.16 "FDA" shall mean the United States Food and Drug Administration. 1.17 "FIRST POSITION PRESENTATION" shall mean a single discussion relating to a pharmaceutical product which is held at the commencement of a meeting between a CoCensys salesperson and a physician. 1.18 "GROSS SALES-BASED COMPENSATION" shall have the meaning set forth in Section 7.2. 4. * Confidential treatment requested 1.19 "KEY PRESCRIBERS" shall mean those neurologists and "High Prescribing Non-Neurologists" in the Territory, set forth on a target list approved by the Managing Committee pursuant to Section 3.1(b)(v), as such target list may be amended from time to time during the Term, to whom CoCensys will make ELDEPRYL Details. "High Prescribing Non-Neurologists" shall mean those non-neurologists in the Territory who rank [ * ] in CoCensys' decile system for identifying high prescribers of ELDEPRYL Brand, and any other non-neurologists agreed to by Somerset. 1.20 "KEY PRESCRIBER MARKETING PLAN" shall mean that marketing plan which has been agreed to by the parties and which sets forth the marketing strategy and tactics to be used in promoting ELDEPRYL Brand to Key Prescribers during the Term. The Key Prescriber Marketing Plan may be adjusted from time-to-time pursuant to Section 3.1(b)(ii). 1.21 "MANAGING COMMITTEE" shall mean the committee established pursuant to Section 3.1 which is responsible for oversight of the co-promotion relationship between CoCensys and Somerset in the Territory, including, but not limited to, the marketing, advertising and promotion of ELDEPRYL Brand pursuant to this Agreement. 1.22 "MINIMUM AGGREGATE MONTHLY DETAILS" shall be equal to: [ * ], at the conclusion of the first month of the Term; or [ * ], at the conclusion of the second month of the Term; or 5. * Confidential treatment requested [ * ], at the conclusion of the third month of the Term; or [ * ], at the conclusion of the fourth month of the Term; or [ * ], at the conclusion of the fifth month of the Term; or [ * ], at the conclusion of the sixth month of the Term; or [ * ], at the conclusion of the seventh month of the Term; or [ * ], at the conclusion of the eighth month of the Term; or [ * ], at the conclusion of the ninth month of the Term; or [ * ], at the conclusion of the tenth month of the Term; or [ * ], at the conclusion of the eleventh month of the Term; or [ * ], at the conclusion of the twelfth month of the Term. 1.23 "MINIMUM AGGREGATE QUARTERLY DETAILS" shall be equal to: [ * ], at the conclusion of the first quarter of the Term; or [ * ], at the conclusion of the second quarter of the Term; or [ * ], at the conclusion of the third quarter of the Term; or [ * ], at the conclusion of the fourth quarter of the Term. 6. * Confidential treatment requested 1.24 "MONTHLY DETAIL PAYMENT" shall have the meaning set forth in Section 7.1(a)(ii). 1.25 "MONTHLY DETAIL PAYMENT REDUCTION" shall have the meaning set forth in Section 7.1(b)(ii). 1.26 "NDA" shall mean an FDA-approved new drug application. 1.27 "PROMOTIONAL MATERIALS" shall have the meaning set forth in Section 5.5. 1.28 "PROPRIETARY INFORMATION" shall mean any proprietary or confidential information communicated by one party hereto to the other, whether in written, electronic, graphic or oral form, 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. 1.29 "QUARTERLY DETAIL PAYMENT" shall have the meaning set forth in Section 7.1(a)(i). 1.30 "QUARTERLY DETAIL PAYMENT REDUCTION" shall have the meaning set forth in Section 7.1(b)(i). 1.31 "SAMPLE" shall mean complimentary supply of ELDEPRYL Brand capsules or other dosage forms which are distributed by the CoCensys ELDEPRYL Sales Force to Key Prescribers, pursuant to the provisions of the Prescription Drug Marketing Act. 7. 1.32 "TARGET AGGREGATE MONTHLY DETAILS" shall be equal to: [ * ], at the conclusion of the first month of the Term; or [ * ], at the conclusion of the second month of the Term; or [ * ], at the conclusion of the third month of the Term; or [ * ], at the conclusion of the fourth month of the Term; or [ * ], at the conclusion of the fifth month of the Term; or [ * ], at the conclusion of the sixth month of the Term; or [ * ], at the conclusion of the seventh month of the Term; or [ * ], at the conclusion of the eighth month of the Term; or [ * ], at the conclusion of the ninth month of the Term; or [ * ], at the conclusion of the tenth month of the Term; or [ * ], at the conclusion of the eleventh month of the Term; or [ * ], at the conclusion of the twelfth month of the Term. 1.33 "TARGET AGGREGATE QUARTERLY DETAILS" shall be equal to: [ * ], at the conclusion of the first quarter of the Term; or [ * ], at the conclusion of the second quarter of the Term; or 8. [ * ], at the conclusion of the third quarter of the Term; or [ * ], at the conclusion of the fourth quarter of the Term. 1.34 "TERM" shall mean the period commencing on the Effective Date and terminating December 31, 1997, unless terminated earlier pursuant to the provisions of Article 8. 1.35 "TERRITORY" shall mean the United States of America, the District of Columbia and Puerto Rico, but not any other United States territories or possessions. 1.36 "TOTAL ACTUAL DETAILS" shall equal the total number of ELDEPRYL Details conducted by the CoCensys ELDEPRYL Sales Force from the Effective Date to the date of calculation. "Total Actual Details" shall be calculated (i) as of the last day of each calendar quarter during the Term; or, (ii) in the event this Agreement terminates prior to December 31, 1997, as of the last day of each month during the quarter in which such termination occurs and as of the effective date of termination. 1.37 "TOTAL DETAIL PAYMENT REDUCTION" shall equal the sum of [ * ] if any, made to date and shall be calculated (i) at the conclusion of the Term, or (ii) in the event of termination prior to December 31, 1997, as of the effective date of termination. 9. * Confidential treatment requested 1.38 "TOTAL GOVERNMENT DISCOUNTS AND REBATES" shall mean all government mandated discounts and rebates on sales of ELDEPRYL Brand in the Territory during the Term. ARTICLE 2 PROMOTION RIGHTS 2.1 APPOINTMENT OF COCENSYS. Subject to Section 4.6, Somerset hereby appoints CoCensys, effective on the Effective Date and throughout the Term, as its exclusive agent to detail ELDEPRYL Brand to Key Prescribers in the Territory, in accordance with this Agreement. In addition, Somerset hereby appoints CoCensys, as of the Effective Date and throughout the Term, as a non-exclusive agent to promote ELDEPRYL Brand in the Territory to those third parties whom CoCensys's regional business directors meet with in the normal course of their business, in accordance with this Agreement. 2.2 RIGHTS RETAINED BY SOMERSET. Except as otherwise expressly provided in this Agreement, Somerset shall be responsible for maintaining (or, to the extent permissible under existing contracts with third parties, causing such third parties to maintain) all rights in and to ELDEPRYL Brand including, but not limited to, the NDA(s) for ELDEPRYL Brand, the drug master file(s) for ELDEPRYL Brand, and all manufacturing, distribution, patent, copyright and trademark rights relating to ELDEPRYL Brand. 10. ARTICLE 3 MANAGING COMMITTEE; KEY PRESCRIBER MARKETING PLAN 3.1 MANAGING COMMITTEE. (a) FORMATION; MEETINGS. The Managing Committee will be responsible for all decisions regarding the marketing, advertising and promotion of ELDEPRYL Brand to Key Prescribers in the Territory. Somerset and CoCensys shall each appoint one (1) person as voting members of the Managing Committee, who will have expertise in marketing or sales. Each person will have experience which is relevant to the promotion of ELDEPRYL Brand contemplated by this Agreement. Somerset and CoCensys may from time to time each replace their respective voting representatives on the Managing Committee upon one (1) month prior written notice to the other party. In addition, each party may bring any non-voting representatives to meetings of the Managing Committee. Each party will ensure that at least one of its employees who has experience sufficient to monitor and coordinate the payments to be made between the parties hereunder will be available in person or by telephone for each meeting of the Managing Committee. The Managing Committee will meet quarterly, or more or less often as the Managing Committee determines to be appropriate. Such meetings shall be scheduled at mutually convenient times in places alternately selected by Somerset and CoCensys. Each party will bear its own costs for attendance at Managing Committee meetings. Any member may designate an alternate to act on his or her behalf at any meetings by notice (which may be oral) to the other members, said right not to be exercised more than two (2) times per year by each such member. Any member of the Managing Committee may request a meeting 11. of the Managing Committee by giving written notice of such meeting at least fourteen (14) days before the desired date of such meeting. Any disputes within the Managing Committee will be resolved pursuant to Section 3.2 hereof. (b) FUNCTIONS OF THE MANAGING COMMITTEE. The Managing Committee will perform the following functions: (i) establish guidelines to govern the promotion of ELDEPRYL brand by CoCensys. (ii) review, comment upon and approve adjustments to the Key Prescriber Marketing Plan. (iii) monitor whether third party or governmental actions (e.g. third party publication, FDA mandated labeling change, new discovery, new product on the market, infringement of trademark rights) are having, or are likely to have, a material effect on Actual Gross Sales and suggest adjustments to the Key Prescriber Marketing Plan and/or recommend to the parties amendments to this Agreement to respond to such third party or governmental actions. (iv) in accordance with section 7.3, make recommendations to the parties in the event of material increases in Total Government Discounts and Rebates. (v) approve the target list of Key Prescribers, the initial version of which has already been approved by the parties. In addition, upon 12. approval of the Managing Committee, physicians may, from time to time, be added to or deleted from the list of Key Prescribers. (vi) determine whether and when the CoCensys ELDEPRYL Sales Force should provide Samples to Key Prescribers. (vii) otherwise monitor and oversee the promotion and marketing of ELDEPRYL Brand to physicians in the Territory and the relationship of the parties hereunder. 3.2 DISPUTE RESOLUTION. In the event of a disagreement between the parties as to any matters within the scope of the responsibilities of the Managing Committee, the Managing Committee will, diligently and in good faith, seek to resolve the matter in dispute. If the Managing Committee is unable to resolve the dispute, despite its good faith efforts, within thirty (30) days of first addressing the matter, it shall, within ten (10) days thereafter, refer such dispute to the President of CoCensys and the President of Somerset who will discuss and attempt to resolve the dispute. If the Presidents of the parties are unable to resolve the dispute, the President of Somerset shall have ultimate authority to resolve all matters within the scope of the responsibilities of the Managing Committee, except for those matters set forth in Sections 1.19 and 3.1(b)(v). 13. ARTICLE 4. PROMOTION OF ELDEPRYL BRAND 4.1 COCENSYS ELDEPRYL SALES FORCE. During the Term, subject to review and approval by the Managing Committee and consistent with the Key Prescriber Marketing Plan, CoCensys shall deploy the CoCensys ELDEPRYL Sales Force for the delivery of ELDEPRYL Details to the Key Prescribers. [ * ]. 4.2 TRAINING OF COCENSYS ELDEPRYL SALES FORCE. (a) CONTINUED TRAINING. Subsequent to the Effective Date, Somerset may invite the CoCensys ELDEPRYL Sales Force to attend any training sessions which are provided by Somerset for the purpose of upgrading information relating to sales of ELDEPRYL Brand, including, but not limited to, information relating to new developments as set forth in Section 5.6. It is understood that such training sessions (i) will be provided on an as-needed basis by Somerset after discussions between CoCensys and Somerset regarding the content and format of such sessions and (ii) are subject to the approval of the Managing Committee. Somerset may require some or all of the CoCensys ELDEPRYL Sales Force to attend certain training sessions ("Mandatory Training Sessions"). (b) TRAINING COSTS. All costs incurred under Section 4.2(a) shall be subject to prior approval by the Managing Committee. All costs incurred under Section 4.2(a) 14. * Confidential treatment requested (including but not limited to, training costs, transportation, and room and board) for Mandatory Training Sessions will be borne [ * ]. All costs incurred under Sections 4.2(a) (including, but not limited to, training costs, transportation and room and board) for any other training will be borne [ * ]. 4.3 COCENSYS ELDEPRYL SALES FORCE SUPPORT. CoCensys will, [ * ] employ a product segment manager and appropriate secretarial support to implement its obligations under this Agreement. 4.4 CONDUCT OF THE COCENSYS ELDEPRYL SALES FORCE. In accordance with the Key Prescriber Marketing Plan and 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 ELDEPRYL Sales Force to detail ELDEPRYL Brand to the Key Prescribers to so persuade such Key Prescribers to prescribe and use ELDEPRYL Brand. The CoCensys ELDEPRYL Sales Force shall conduct ELDEPRYL Details, shall execute the programs set forth in the Key Prescriber Marketing Plan and, where deemed appropriate by the Managing Committee, shall provide Samples to Key Prescribers. Somerset may, from time to time and upon reasonable prior notice, request that a Somerset employee be allowed to join the CoCensys ELDEPRYL Sales Force for certain ELDEPRYL Details. Upon the authorization of CoCensys sales management, such authorization not to be unreasonably withheld, CoCensys will 15. * Confidential treatment requested accommodate such request, provided that [ * ] associated with its employee engaging in such activity. In addition CoCensys will cause its regional business directors to make presentations regarding ELDEPRYL Brand to those third parties with whom such regional business directors meet in the normal course of their business. All presentations and materials to be utilized by CoCensys to so market, advertise or promote ELDEPRYL Brand shall be subject to the prior review of Somerset and, if applicable, the FDA. CoCensys shall cause the CoCensys ELDEPRYL 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 ELDEPRYL Brand, including the Prescription Drug Marketing Act and the Federal Anti-Kickback Statute. 4.5 BONUS PROGRAM FOR COCENSYS ELDEPRYL SALES FORCE. [ * ] an incentive cash bonus program for the CoCensys ELDEPRYL Sales Force. The amount of [ * ] to be made available for distribution through such bonus program (the "Bonus Pool") will be determined by [ * ]. The size of the Bonus Pool for the second six months of the Term shall be determined by [ * ] during such period. Notwithstanding the foregoing, [ * ]. [ * ] establish the criteria to be used in dividing the Bonus Pool among the CoCensys ELDEPRYL Sales Force. [ * ] adjust the specific bonus amounts to be paid to individual members of the 16. * Confidential treatment requested CoCensys ELDEPRYL Sales Force in order to reflect the ELDEPRYL Brand sales efforts of such individuals; provided, however, that [ * ] documentation which lists the names of the recipients and the amount of the bonus he/she received. [ * ]. 4.6 OTHER MARKETING ACTIVITIES TO PHYSICIANS. (a) PHYSICIANS WHO ARE NOT KEY PRESCRIBERS. During the Term hereof, CoCensys may, at its sole discretion, make sales calls or presentations regarding ELDEPRYL Brand to physicians in the Territory who are not Key Prescribers. (b) NON-SALES CALL ACTIVITY. During the Term hereof, Somerset will not make sales calls regarding ELDEPRYL Brand to Key Prescribers in the Territory. Somerset may, however, engage in other (i.e. non-sales call) marketing, advertising or promotion activities for ELDEPRYL Brand directed at neurologists or other physicians in the Territory, provided that all of the foregoing activities will be funded in full by Somerset. Somerset agrees to notify CoCensys of any such other activities. 4.7 OTHER USES OF COCENSYS SALES FORCE. Somerset acknowledges and understands that CoCensys has certain obligations relating to the deployment of the CoCensys ELDEPRYL Sales Force pursuant to a promotion agreement which is on file with the United States Securities and Exchange Commission as of the date of execution of this Agreement. CoCensys represents and warrants that, as of the Effective Date, there are at least [ * ] members of the 17. * Confidential treatment requested CoCensys ELDEPRYL Sales Force and that, during the Term, the CoCensys ELDEPRYL Sales Force will only be utilized to deliver to Key Prescribers (i) a [ * ] Presentation for a [ * ] pharmaceutical product and (ii) an ELDEPRYL Detail. CoCensys further represents and warrants that the size of the CoCensys ELDEPRYL Sales Force will not fall below [ * ] in number except as a result of attrition, in which event CoCensys will, within sixty (60) days of the date upon which the size of the CoCensys ELDEPRYL Sales Force fell below [ * ] hire additional salespeople to replace those lost through attrition and to cause the size of the CoCensys ELDEPRYL Sales Force to number at least [ * ] Provided that the CoCensys ELDEPRYL Sales Force is comprised of at least [ * ] CoCensys sales representatives and provided that CoCensys continues to meet all of its obligations hereunder, in the event that CoCensys increases the size of its overall sales force to more than [ * ] sales representatives, CoCensys shall have the right, in its sole discretion and upon prior written notice to Somerset and after consultation with Somerset, to utilize those members of its sales force who are not members of the CoCensys ELDEPRYL Sales Force to market, advertise, promote or otherwise sell other pharmaceutical products to neurologists. Notwithstanding the foregoing, during the Term, CoCensys will not promote any pharmaceutical product, other than ELDEPRYL Brand, with an approved indication for Parkinson's disease without the prior written consent of Somerset. 18. * Confidential treatment requested 4.8 NUMBER OF ELDEPRYL DETAILS. CoCensys represents that the CoCensys ELDEPRYL Sales Force will present at least [ * ] ELDEPRYL Details per calendar quarter. Failure to deliver the full [ * ] ELDEPRYL Details per calendar quarter shall not be deemed a material breach of, or failure to perform under, this Agreement, PROVIDED, HOWEVER, if, in any calendar quarter, CoCensys fails to deliver the Minimum Aggregate Quarterly Details, and such failure was not caused by an event of force majeure, then Detail-Based Compensation for such calendar quarter shall be adjusted pursuant to Section 7.1(b)(i). 4.9 RECORDS AND REPORTS REGARDING PROMOTION ACTIVITIES. CoCensys will keep complete and accurate records of the ELDEPRYL Details made by the CoCensys ELDEPRYL Sales Force (including numbers of ELDEPRYL Details, names of Key Prescribers, date of presentation and general response to such presentations) and the other activities carried out pursuant to the Key Prescriber Marketing Plan. CoCensys will provide Somerset a quarterly report summarizing such matters. CoCensys will maintain such records for three (3) years following the period to which they relate. CoCensys shall permit Somerset to have such records examined by independent certified public accountants retained by Somerset and acceptable to CoCensys, during regular business hours and upon reasonable advance notice, but not later than three (3) years following the date of any such records and no more often than one (1) time per year. Such independent accountants shall, pursuant to separate written contract, keep confidential any information obtained during such examination and shall report to Somerset only the number of ELDEPRYL Details per quarter. Any such information so reviewed and any such information reported shall be considered the Proprietary Information of CoCensys. In the 19. * Confidential treatment requested absence of material discrepancies (in excess of [ * ] of the total number of ELDEPRYL Details required of CoCensys for such quarter) in any request for a refund resulting from such audit, the accounting expense shall be paid by Somerset. If material discrepancies do result, CoCensys shall bear the accounting expense. Any amounts due to Somerset arising from such discrepancies shall be paid by CoCensys within ten (10) business days of receipt by CoCensys of a written notice from Somerset that such discrepancies exists. Somerset will keep complete and accurate records of the activities carried out by Somerset pursuant to the Key Prescriber Marketing Plan. Somerset will make such records available to CoCensys during Somerset's regular business hours and will provide CoCensys a quarterly report summarizing such matters. Somerset will maintain such records for three (3) years following the period to which they relate. 4.10 FORWARDING OF ELDEPRYL BRAND ORDERS. Any orders for ELDEPRYL Brand received by CoCensys, including members of the CoCensys ELDEPRYL Sales Force, will be promptly forwarded to Somerset. ARTICLE 5. SOMERSET RIGHTS AND OBLIGATIONS 5.1 [ * ] MARKETING RESPONSIBILITY. Except as explicitly set forth in this Agreement, Somerset shall be responsible for [ * ]. 20. * Confidential treatment requested 5.2 SUPPLY AND DISTRIBUTION OF ELDEPRYL BRAND. In accordance with Somerset's general business practices, Somerset shall use commercially diligent efforts to perform, or cause to be performed, all manufacturing, labeling, packaging, warehousing, maintenance of inventory, distribution, order entry, customer services and all other activities to supply and distribute ELDEPRYL Brand in order to fill the orders generated by the activities of CoCensys hereunder and to supply and distribute Samples in accordance with Section 6.2. Somerset shall accept orders for ELDEPRYL Brand in accordance with Somerset's general business practices. 5.3 REGULATORY COMPLIANCE. Unless otherwise required by law, Somerset will retain exclusive authority and responsibility for complying with all regulatory requirements and maintaining all government agency contacts relating to ELDEPRYL Brand, including, but not limited to, maintaining and updating the NDA(s) for ELDEPRYL Brand; [ * ] 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 Somerset's sole judgment are due and owing. Nothing herein shall obligate Somerset [ * ]. 5.4 PRODUCT RECALL. In the event that (i) Somerset determines that an event, incident or circumstances has occurred which may result in the need for a recall or other removal of ELDEPRYL Brand or any lot or lots thereof from the market in the Territory, (ii) the FDA requires a recall of ELDEPRYL Brand or (iii) the FDA requires distribution of a "Dear Doctor" letter, Somerset shall promptly advise CoCensys with respect thereto. With respect to clause (i) above, Somerset shall, in its sole discretion, have the right to order a recall or other removal 21. * Confidential treatment requested after such notification. With respect to clauses (ii) and (iii) above, Somerset shall order such recall or distribute such "Dear Doctor" letter after such notification. [ * ]. 5.5 PROMOTIONAL MATERIALS. (a) SOMERSET MATERIALS. In accordance with the Key Prescriber Marketing Plan, Somerset shall, [ * ] produce, provide and ship to CoCensys reasonable quantities of promotional, sales, marketing and educational materials for ELDEPRYL Brand (the "Promotional Materials") to allow CoCensys to fulfill its obligations hereunder. Such Promotional Materials shall include, by way of example, promotional brochures, videos, visual aids, approved reprints, medically relevant reminder items, continuing medical education programs, patient education and compliance programs, medical literature, medical group presentations, market research and direct mail programs. All Promotional Materials will be approved by the medical and regulatory departments of Somerset. In addition to the foregoing, Somerset shall provide CoCensys with two (2) copies of each item of Promotional Material for CoCensys's archives. (b) RIGHTS TO PROMOTIONAL MATERIALS. As between Somerset and CoCensys, Somerset shall own all right, title and interest in and to any Promotional Materials provided to CoCensys pursuant to this Section 5.5 including applicable copyrights and trademarks. Somerset hereby grants to CoCensys the right, during the Term, to use all Promotional Materials and all sales, marketing, educational and training materials produced by Somerset and supplied to 22. * Confidential treatment requested CoCensys with respect to ELDEPRYL Brand in conjunction with CoCensys's promotion of ELDEPRYL Brand. 5.6 [ * ] DEVELOPMENTS RELATING TO ELDEPRYL BRAND. Somerset will promptly inform CoCensys of the following information relating to ELDEPRYL Brand: (i) [ * ] (ii) [ * ] (iii) [ * ] and (iv) any changes in regulations affecting ELDEPRYL Brand or Somerset's obligations with respect to this Agreement. CoCensys will promptly inform Somerset 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, Somerset shall use commercially diligent efforts to maintain the training materials supplied to CoCensys pursuant to this Agreement current with such [ * ] information. 5.7 SALES AND INVENTORY DATA. Somerset will provide CoCensys with a report of overall sales of ELDEPRYL Brand in the Territory, in Somerset's standard sales report format, a copy of which is attached hereto as Exhibit 5.7, for each month of the Term as it becomes available to Somerset in the normal course of business. Somerset shall also provide CoCensys with a report of inventories and back orders of ELDEPRYL Brand. 23. * Confidential treatment requested 5.8 SOMERSET COSTS. Except as specifically set forth in this Agreement, [ * ] in accordance with the marketing budget which has been established for the Term. In the event [ * ] are materially affecting sales of ELDEPRYL Brand, Somerset may, after notification to CoCensys, [ * ] to respond to such [ * ]. ARTICLE 6. JOINT OBLIGATIONS 6.1 ASSISTANCE AND NOTIFICATIONS TO OTHER PARTY. Each party agrees to provide to the other reasonable assistance and take 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 ELDEPRYL Brand, including, but not limited to, Somerset'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 Somerset adverse drug reactions of which it becomes aware, so as to permit Somerset to meet its FDA reporting and other obligations in a timely fashion; (ii) Somerset carrying out any FDA-mandated notifications relating to ELDEPRYL Brand; (iii) Somerset immediately notifying CoCensys of any inquiry or other contact by the FDA or any other governmental agency or authority with Somerset or its Affiliates relating to ELDEPRYL Brand, except that Somerset will notify CoCensys only of such inquiries or contacts which may materially affect CoCensys's performance of its obligations relating to ELDEPRYL Brand under this Agreement or which may adversely affect Somerset's 24. * Confidential treatment requested ability to manufacture and supply ELDEPRYL Brand; and (iv) Somerset promptly notifying CoCensys of any adverse drug reactions to ELDEPRYL Brand or any regulatory action with respect to ELDEPRYL Brand. Somerset will make available to CoCensys all FDA-authorized procedures and forms necessary for CoCensys to meet its obligations hereunder. 6.2 SAMPLES OF ELDEPRYL BRAND. (a) COSTS. Pursuant to Section 3.1(b)(vi) hereof, the Managing Committee may determine that the CoCensys ELDEPRYL Sales Force should provide Samples of ELDEPRYL Brand to some or all Key Prescribers. Upon such determination, Somerset shall make Samples of ELDEPRYL Brand available to CoCensys in such amounts and at such times as may be determined by the Managing Committee. Samples will be shipped to the one or more locations designated by CoCensys by written notice to Somerset. Sample distribution and accountability will be administered by Somerset. (b) SHRINK-WRAP. All Samples shall be encased in shrink-wrap and packaged appropriately to comply with FDA packaging requirements. (c) DISPOSITION UPON TERMINATION. Within thirty (30) days after the end of the Term, or other earlier termination date, CoCensys shall return, or otherwise dispose of in accordance with written instructions from Somerset, all remaining Samples provided by Somerset and will provide Somerset with a certified statement that CoCensys has utilized commercially diligent efforts to ensure that, to the best of CoCensys's knowledge, all remaining Samples have 25. been returned or otherwise properly disposed of and that CoCensys is no longer in possession or control of any such Samples in any form or fashion. 6.3 REQUESTS FOR INFORMATION FROM KEY PRESCRIBERS. The parties acknowledge that each may receive requests for medical or technical information, or reports of adverse drug reactions, concerning ELDEPRYL Brand from Key Prescribers and others. The parties agree that it shall be the obligation of Somerset to so respond and/or report, as appropriate, and CoCensys shall ensure that its employees and agents comply with Somerset's adverse event reporting procedures and policies. 6.4 MARKET SURVEYS. Each party hereto may, at its discretion and expense, undertake such market surveys, research or analyses relating to ELDEPRYL Brand 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 ELDEPRYL Brand available to the other party at no cost to that other party. Somerset may request that CoCensys undertake market surveys, research or analyses relating to ELDEPRYL Brand and CoCensys may, in its sole discretion, elect to undertake such surveys, research or analyses. [ * ]. 6.5 WITHDRAWAL OF ELDEPRYL BRAND. Each party agrees to notify the other immediately of any pending or threatened event which may lead to withdrawal of ELDEPRYL Brand from the market, including, without limitation; (i) actual or threatened regulatory action 26. * Confidential treatment requested by the FDA or other governmental entity, including, but not limited to, the loss by Somerset of any right necessary to market ELDEPRYL Brand; or (ii) safety concerns relating to ELDEPRYL Brand. The final decision as to whether to so withdraw ELDEPRYL Brand shall be within Somerset's sole discretion. In the event of such withdrawal of ELDEPRYL Brand, the rights of the parties shall be governed by Section 8.3 hereof. 6.6 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. ARTICLE 7. COMPENSATION 7.1 DETAIL-BASED COMPENSATION. (a) DETAIL PAYMENTS. (i) Subject to the terms and conditions of this agreement, as compensation for the ELDEPRYL Details to be made each calendar quarter by the CoCensys ELDEPRYL Sales Force during the calendar year 1997, Somerset shall pay [ * ] ("Detail-Based Compensation") to CoCensys. Detail-Based Compensation shall be due and payable in four (4) equal quarterly installments of [ * ] for each calendar quarter 27. * Confidential treatment requested during the Term ("Quarterly Detail Payment") (unless subject to adjustment under Sections 7.1 (a) (ii) or 7.1 (b)). CoCensys acknowledges that, prior to the date of execution of this Agreement it received [ * ] of the first Quarterly Detail Payment due hereunder. The [ * ] balance of the first Quarterly Detail Payment shall be made within 5 days after the execution of this Agreement by both parties, and each subsequent Quarterly Detail Payment shall be made on April 1, 1997, July 1, 1997 and October 1, 1997. (ii) In the event that a notice of termination is given by either party pursuant to Section 8 hereof, then commencing on the first day of the calendar quarter following the calendar quarter for which the last Quarterly Detail Payment has been made, (if the effective date of such termination has not yet occurred) Detail-Based Compensation shall be paid, until the effective date of termination, on a monthly basis on the first day of each month and shall be in the amount of [ * ] (unless subject to adjustment under Section 7.1 (b)(ii)) ("Monthly Detail Payment"). The final Monthly Detail Payment shall be paid on a pro-rata basis in the event that the effective date of termination does not occur on the final day of any calendar month. 28. * Confidential treatment requested (b) REDUCTION IN DETAIL PAYMENTS. (i) Commencing with the first quarter of the Term, not later than thirty (30) days after the end of each quarter during the Term, CoCensys will send to Somerset a statement indicating the number of ELDEPRYL Details made by the CoCensys ELDEPRYL Sales Force during each such completed quarter ("Actual Quarterly Details") and shall compute the Total Actual Details as of the last day of the completed quarter in the manner provided in Section 1.36. In the event that Total Actual Details as of the end of such quarter are less than the Minimum Aggregate Quarterly Details for such quarter as set forth in Section 1.23, Somerset shall be entitled to a "Quarterly Detail Payment Reduction". The Quarterly Detail Payment Reduction for such quarter shall be equal to [ * ] where A = [ * ] (applicable to the end of such quarter) minus [ * ] (through the end of such quarter); and B = the [ * ] paid to Somerset by CoCensys, if any, for any prior quarters of the Term. CoCensys shall pay to Somerset such Quarterly Detail Payment Reduction with delivery of the statement indicating the Actual 29. * Confidential treatment requested Quarterly Details. If payment is not received, Somerset may deduct any Quarterly Detail Payment Reduction from any future Quarterly Detail Payment or any other payment due to CoCensys by Somerset. (ii) In the event that any Monthly Detail Payment is due pursuant To Section 7.1 (a) (ii) hereof, CoCensys shall be required, within 30 days after the end of the month, to provide Somerset with a statement indicating the number of ELDEPRYL Details made by the CoCensys ELDEPRYL Sales Force during each such month or portion thereof ("Actual Monthly Details"). CoCensys shall include on the statement the number of Total Actual Details completed as of the end of such month as set forth in Section 1.36. In the event that Total Actual Details are not equal to or greater than the Minimum Aggregate Monthly Details for the period upon which Total Actual Details are based, as defined in Section 1.22, Somerset shall be entitled to a "Monthly Detail Payment Reduction." The Monthly Detail Payment Reduction for a given month shall be equal to [ * ], where C = [ * ] (applicable to the end of such month) minus [ * ] (through the end of such month); and 30. * Confidential treatment requested D = the [ * ] if any, for any prior months of the Term. CoCensys shall pay to Somerset such Monthly Detail Payment Reduction with delivery of the statement indicating the Actual Monthly Details. If payment is not received, Somerset may deduct any Monthly Detail Payment Reduction from any future Monthly Detail Payment or any other payment due to CoCensys by Somerset. (c) DETAIL-BASED COMPENSATION RECONCILIATION. (i) At the conclusion of the full Term, Somerset shall calculate the Total Actual Details for the entire Term and Total Detail Payment Reduction for the entire Term, if any, in the manner provided in Sections 1.36 AND 1.37 respectively. In the event that Total Actual Details are equal to or greater than [ * ], then Somerset shall reimburse to CoCensys the amount of the Total Detail Payment Reduction, if any, previously paid by CoCensys. In the event that the Total Actual Details are less than [ * ], Somerset shall calculate the "Annualized Detail Payment 31. * Confidential treatment requested Reduction" by multiplying [ * ]. If the Annualized Detail Payment Reduction is less than the Total Detail Payment Reduction for the entire Term, [ * ]. If the Annualized Detail Payment Reduction is equal to the Total Detail Payment Reduction, then Somerset shall [ * ]. If the Annualized Detail Payment Reduction is greater than the Total Detail Payment Reduction, then CoCensys shall pay to Somerset an amount equal to [ * ] The Detail-Based Compensation Reconciliation Payment, if any, shall be made no later than February 10, 1998. (ii) In the event that this Agreement is terminated prior to the conclusion of the Term, Somerset shall calculate Total Actual Details as of the termination date and Total Detail Payment Reduction as of the termination date in the manner provided in Sections 1.36 AND 1.37 respectively. In addition, "Adjusted Target Details" shall be calculated in the following manner: Adjusted Target Details = [ * ]. In the event that the Total Actual Details are equal to or greater than the Adjusted Target Details, [ * ]. In the event that the Total Actual Details are less than the Adjusted Target Details, [ * ]. If the 32. * Confidential treatment requested Adjusted Annualized Detail Reduction is less than the Total Detail Payment Reduction, [ * ]. If the Adjusted Annualized Detail Payment Reduction is equal to the Total Detail Payment Reductions, [ * ]. If the Adjusted Annualized Detail Payment Reduction is greater than the Total Detail Payment Reduction, then [ * ]. The Adjusted Detail-Based Compensation Reconciliation Payment shall be made no later than February 10, 1998. (d) Examples of Detail-Based Compensation, under different hypothetical sales scenarios, are set forth on Exhibit 7.1 (d). 7.2 GROSS SALES-BASED COMPENSATION. (a) No later than February 10, 1998, Somerset shall send CoCensys a statement setting forth Actual Gross Sales of ELDEPRYL Brand and shall pay to CoCensys, with delivery of the statement indicating the Actual Gross Sales, the amount of compensation listed on Exhibit 7.2 (the "Gross Sales-Based Compensation"), so long as CoCensys' ELDEPRYL Sales Force provided services to Somerset through December 31, 1997. 33. * Confidential treatment requested (b) In the event that this Agreement is terminated by either party prior to the end of the Term, then all amounts listed on Exhibit 7.2 shall be adjusted [ * ]. No later than February 10, 1998, Somerset shall send CoCensys a statement setting forth Actual Gross Sales through the effective date of termination of the Agreement and shall pay to CoCensys, with delivery of the statement indicating such Actual Gross Sales, the amount of Gross Sales-Based Compensation listed on Exhibit 7.2 as hereby adjusted. (c) In the event that Somerset terminates this Agreement under Section 8.4 below (Termination for Breach), Somerset may [ * ]. No later than February 10, 1998 following such early termination, Somerset shall send CoCensys a statement setting forth Actual Gross Sales, a revised Exhibit 7.2 (as adjusted under Section 7.2 (b)) and any offset permitted under this Section 7.2 (c) and shall pay to CoCensys, with delivery of the statement indicating such amounts, the amount of Gross Sales-Based Compensation listed on the revised Exhibit 7.2, as adjusted pursuant to this Section 7.2 (c). (d) The parties acknowledge and understand that the outcome of certain litigation, currently pending in the United States District Court, District of Delaware entitled SOMERSET PHARMACEUTICALS, INC. V. SHALALA, ET AL., 34. * Confidential treatment requested Docket No. 96-403-SLR, may materially affect the sales of ELDEPRYL Brand without regard to the efforts of CoCensys' ELDEPRYL Sales Force. In the event such litigation results in rescission or suspension of FDA approval for any of the generic ELDEPRYL Brand products or otherwise results in a significant reduction of the competitive forces in the marketplace for ELDEPRYL Brand, then the parties shall immediately commence good faith negotiations to amend Exhibit 7.2 in order [ * ] so that Gross Sales-Based Compensation continues to reflect the marketing efforts of CoCensys and not increased sales arising from the results of such litigation. The parties will use reasonable efforts to complete such good faith negotiations promptly; PROVIDED, HOWEVER, in the event the good faith negotiations described in the preceding sentence are not completed as of February 1, 1998, Somerset shall not be obligated to make the payment to CoCensys required by this Section 7.2 (as adjusted pursuant to this Section 7.2 (d)) until the parties are able to mutually agree upon revised dollar thresholds. 7.3 ADJUSTMENTS IN THE EVENT OF CHANGES IN GOVERNMENT MANDATED DISCOUNTS AND REBATES. Somerset represents that Total Government Discounts and Rebates during 1996 total approximately [ * ]. In the event that governmental actions result in a mandated increase in Total Government Discounts and Rebates so that the Total Government Discounts and Rebates are higher than [ * ] and Somerset makes a good faith determination 35. * Confidential treatment requested that such increased [ * ] is a material increase, Somerset may call an emergency meeting of the Managing Committee, upon five (5) days written notice, and the Managing Committee will meet to discuss the circumstances surrounding such government mandated increase and recommend to the parties amendments to this Agreement so that the parties will share the risks associated with such government mandated increase. The parties will then meet to consider the recommendations put forth by the Managing Committee and to negotiate in good faith an amendment to this Agreement so that the parties will share the risks associated with such government mandated increase. Such amendment may include amendments to the [ * ]. 7.4 AUDIT RIGHTS. In accordance with its standard accounting practices, Somerset shall keep full and accurate books, records and invoices with respect to Actual Gross Sales, and the amounts payable hereunder, for no less than three (3) years after the end of the Term. Somerset shall permit CoCensys to have such books and records examined by independent certified public accountants retained by CoCensys and acceptable to Somerset, during regular business hours and upon reasonable advance notice, but not later than three (3) years following the rendering of any such reports, accounting and payments and no more often than one (1) time per year. Such independent accountants shall, pursuant to separate written contract, keep confidential any information obtained during such examination and shall report to CoCensys only Actual Gross Sales and 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 Somerset. In the absence of material discrepancies (in excess of [ * ] of the total amount due to CoCensys in respect of the audited period) 36. * Confidential treatment requested in any request for payment resulting from such audit, the accounting expense shall be paid by CoCensys. If material discrepancies do result, Somerset shall bear the accounting expense. ARTICLE 8. TERM; TERMINATION 8.1 RENEWAL TERMS. On or before November 1, 1997, the parties shall meet to discuss whether the term of this Agreement shall be renewed following the Term hereof. 8.2 TERMINATION RIGHTS. Either party may terminate this Agreement for any reason, upon ninety (90) days advance written notice, subject to Sections 8.3 and 8.4. 8.3 TERMINATION UPON CESSATION OF SALE OF ELDEPRYL BRAND. This Agreement may be terminated at any time without advance notice by either party, if, pursuant to Section 6.5 hereof, ELDEPRYL Brand is withdrawn from the market in the Territory. 8.4 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 thirty (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 thirty (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 14.1, provide written notice to the other party 37. of termination of this Agreement ("Notice of Termination"). Such termination shall be effective fifteen (15) days from receipt of said Notice of Termination. 8.5 EFFECT OF TERMINATION. In the event this Agreement is terminated early, Gross Sales Based Compensation shall be calculated in the manner provided in Section 7.2(b) and Detail-Based Compensation shall be calculated in the manner provided in Section 7.1. In the event that the effective date of termination occurs prior to June 30, 1997, [ * ] payment due for the first six months of the Term, based on the portion of the first six months of 1997 during which the Agreement was in effect. In the event that the effective date of termination occurs during the second six months of the Term, [ * ]. Any sums which may be due to either party by reason of its performance through the effective date of termination will be paid by the other party within thirty (30) days of such termination. Neither party shall have any further rights to compensation from the other party in connection with ELDEPRYL Brand after the effective date of termination. 8.6 TERMINATION OF THE 1996 AGREEMENT. As of the Effective Date, the Promotion Agreement between Somerset and CoCensys effective January 4, 1996 is terminated. 38. * Confidential treatment requested ARTICLE 9. WARRANTIES, REPRESENTATIONS AND COVENANTS 9.1 WARRANTIES AND REPRESENTATIONS OF EACH PARTY. Each party warrants and represents that (i) such party possesses all right, title, interest and authority necessary to enter into this Agreement, perform its obligations hereunder and to make the appointments set forth herein, (ii) all necessary corporate action has been taken to enable such party to execute and deliver this Agreement and perform its obligations hereunder, (iii) no governmental or third party consent is required in connection with such party's execution, delivery or performance of this Agreement, except such regulatory approvals as may be required to manufacture, sell and distribute ELDEPRYL Brand, (iv) this Agreement is such party's valid and binding obligation, enforceable in accordance with its terms, (v) such party is not and will not become party to any agreement in conflict herewith and (vi) such party will comply with all applicable local, state and federal laws and regulations, including, but not limited to, the Federal Food, Drug and Cosmetic Act, the Prescription Drug Marketing Act and the Federal Anti-Kickback Statute in carrying out its obligations pursuant to this Agreement. 9.2 WARRANTIES AND REPRESENTATIONS OF SOMERSET. Somerset warrants and represents that it is a corporation duly organized and validly existing under the laws of Delaware, with full power to conduct its affairs as contemplated herein. 39. 9.3 WARRANTIES AND REPRESENTATIONS OF COCENSYS. CoCensys warrants and represents that it is a corporation duly organized and validly existing under the laws of Delaware, with full power to conduct its affairs as contemplated herein. ARTICLE 10. INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS 10.1 NOTICE. If either party shall learn of a claim or assertion that the manufacture, use or sale of ELDEPRYL Brand infringes or otherwise violates the intellectual property rights of any third party in the Territory, or that any third party violates the intellectual property rights of Somerset in ELDEPRYL Brand in the Territory, then the party becoming so informed shall promptly, but in all events within ten (10) business days thereof, notify the other party to this Agreement of the claim or assertion. 10.2 CONDUCT OF INFRINGEMENT ACTIONS. At its sole discretion, subject to this Article 10, Somerset shall conduct all infringement actions relating to ELDEPRYL Brand at its own expense. Should any third party violation of the intellectual property rights of ELDEPRYL Brand have a material effect on Actual Gross Sales, the Managing Committee may address such material effect, as provided for in Section 3.1(b)(iii). 40. ARTICLE 11. INDEMNIFICATION 11.1 INDEMNIFICATION BY SOMERSET. Somerset shall defend, indemnify and hold harmless CoCensys from all liability, loss, costs, judgments, amounts paid in settlement, fines or penalties, including, but not limited to, reasonable attorneys' fees incurred by CoCensys which (i) relate to the manufacture, promotion, use or sale of ELDEPRYL Brand and (ii) CoCensys may suffer or sustain as a direct result of any third party claim, charge, suit or other action (a "Claim"), including, but not limited to Claims related to product liability, intellectual property infringement and advertising and promotion of ELDEPRYL Brand, except to the extent CoCensys's negligence or intentional malfeasance in connection with its promotion, use or sale of ELDEPRYL Brand shall have given rise to such Claim. 11.2 INDEMNIFICATION BY COCENSYS. CoCensys shall defend, indemnify and hold Somerset harmless from all liability, loss, costs, judgments, amounts paid in settlement, fines or penalties, including, but not limited to, reasonable attorneys' fees incurred by Somerset which Somerset may suffer or sustain as a direct result of any third party claim, charge, suit or other action as a direct result of any CoCensys negligence or intentional malfeasance in connection with its promotion, use or sale of ELDEPRYL Brand. 41. 11.3 INDEMNIFICATION PROCEDURE. The obligations of Somerset and CoCensys under this Article 11 shall be subject to the following terms and conditions: (i) The party claiming a right to indemnification shall, within ten (10) business days after receipt of any claim, charge, suit or other action (or within ten (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 14.1, 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; (iv) If the indemnifying party does not promptly 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 42. 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 11 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. ARTICLE 12. CONFIDENTIALITY 12.1 NONDISCLOSURE AND NONUSE OBLIGATIONS. During the Term, and for a period of [ * ] 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 43. * Confidential treatment requested consultant who does not have a need for such information. To the extent that disclosure to any third party is authorized by this Agreement, such third party shall be bound by written obligations 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. 12.2 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 to the public; (ii) is known by the receiving party at the time of receiving such information, as evidenced by its written records; (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 12; or (v) is the subject of a written permission to disclose provided by the disclosing party. 12.3 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 prosecute or defend litigation or otherwise establish rights or enforce obligations under this Agreement, but only to the extent that any such disclosure is 44. necessary; provided that the disclosing party shall first have given notice to the other party hereto, so that the other party may raise any objections to such disclosure, shall cooperate with the other party to minimize the scope and content of such disclosure, and, with respect to clauses (i) and (iii) of this sentence, shall have made a reasonable effort to obtain a protective order requiring that the Proprietary Information so disclosed be used only for the purposes set forth in clause (i) or (iii) and, with respect to clause (ii) of this sentence, shall have made a reasonable effort to obtain confidential treatment for such Proprietary Information. Notwithstanding any other provision of this Agreement, each party may disclose the terms of this Agreement, on a confidential basis, to lenders, investment bankers and other financial institutions of its choice solely for due diligence purposes relating to financing the business operations of such party. 12.4 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. 12.5 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. 45. ARTICLE 13. PUBLICITY 13.1 Subject to Section 13.2, all publicity, press releases and other announcements relating to this Agreement or the transaction contemplated hereby shall be reviewed in advance by, and be subject to the approval of, both parties; PROVIDED, HOWEVER, that either party may, without the consent of the other, (i) disclose the existence and general subject matter of this Agreement without the other party's approval and (ii) subject to Section 12.3, disclose the terms of this Agreement as required to comply with applicable securities laws. Any party that determines applicable 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. 13.2 Subject to Section 12.3, any party that determines applicable securities laws require it to disclose publicly (i) non-financial information with respect to its relationship to the other party or (ii) any aspect of the other party's business, shall first provide the other party a copy of the disclosure it intends to disclose and shall provide the other party the opportunity to comment thereon. Notwithstanding the foregoing, the disclosing party will have final decision-making authority with respect to its disclosures. 46. ARTICLE 14. MISCELLANEOUS 14.1 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: Somerset Pharmaceuticals, Inc. 5215 West Laurel Street Tampa, Florida 33607 Attn: Dr. Melvin Sharoky, President Fax: (813) 282-3804 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. 14.2 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. 47. 14.3 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. 14.4 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. 14.5 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. 48. 14.6 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. 14.7 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. 14.8 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 God; 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 thirty (30) days of such inability to perform, the parties agree to meet and in good faith discuss to proceed. In the event that the affected party is prevented from performing its obligations pursuant to this Section 14.8 for a period of thirty (30) additional days, the other party shall have the right to terminate this Agreement on thirty (30) days prior written notice, i.e. ninety (90) days from the date of such force majeure event, subject to the provisions of Section 8.5. 14.9 ASSIGNMENT; BENEFITS AND BINDING NATURE OF AGREEMENT. This Agreement may not be assigned by either party without the consent of the other party, which consent shall not 49. be unreasonably withheld, except to any Affiliate or successor by merger or sale of substantially all of its business units to which this Agreement relates. Upon a permitted assignment, the assigning party shall promptly notify the other party of such assignment. If CoCensys assigns this Agreement, either party may, within thirty (30) days of the date on which notice is given pursuant to the preceding sentence, terminate this Agreement upon ninety (90) days written notice. 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. 14.10 SURVIVAL. The provisions of Sections 4.9, 6.2(c), 7.4 and 8.5 and Articles 11, 12, and 13 shall survive, and remain in effect, after termination or expiration of this Agreement. 14.11 NOT STRICTLY CONSTRUED AGAINST EITHER PARTY. This Agreement has been prepared jointly and shall not be strictly construed against either party. 14.12 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. In the event the parties are unable to resolve disputes which go beyond the scope of the responsibilities of the Managing Committee, or any disputes arising from matters set forth in Sections 3.1(b)(iii) and 3.1(b)(iv), each party shall be free to pursue any action at law or equity. 50. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on the day and year first above written. SOMERSET PHARMACEUTICALS, INC. COCENSYS, INC. By: /s/ By: /s/ Richard A. Henson ------------------------------- ---------------------------- Title: President Title: President Somerset Pharmaceuticals CoCensys Pharma Sales & Marketing ---------------------------- --------------------- 51. EXHIBIT 5.7 SOMERSET STANDARD SALES REPORT FORMAT [SOMERSET LETTERHEAD] ELDEPRYL SHIPMENTS DATE OF SHIPMENTS ------------ BOTTLES DOLLARS ------- ------- TODAYS SHIPMENT ------------- -------------- MONTH-TO-MONTH ------------- -------------- QUARTER-TO-DATE ------------- -------------- YEAR-TO-DATE ------------- -------------- EXHIBIT 7.1(d) EXAMPLES OF CALCULATION OF DETAIL-BASED COMPENSATION UNDER DIFFERENT HYPOTHETICAL SCENARIOS (1) HYPOTHETICAL #1: QUARTERLY DETAIL PAYMENT REDUCTION [ * ] 53. * Confidential treatment requested HYPOTHETICAL #2: MONTHLY DETAIL PAYMENT REDUCTION (E.G., AGREEMENT TERMINATES ON 9/1/97) [ * ] 54. * Confidential treatment requested EXHIBIT 7.2 [ * ] 55. * Confidential treatment requested EX-10.2 8 EXHIBIT 10.2 DEVELOPMENT AND COMMERCIALIZATION AGREEMENT (NO. 1) BETWEEN COCENSYS, INC., AND WYETH-AYERST LABORATORIES TABLE OF CONTENTS PAGE 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 "Affiliate(s)" . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 "Agreement (No. 2)" . . . . . . . . . . . . . . . . . . . . . . 1 1.3 "All Other Markets". . . . . . . . . . . . . . . . . . . . . . . 2 1.4 "Back-Up Compound Candidate" . . . . . . . . . . . . . . . . . . 2 1.5 "Back-Up Program". . . . . . . . . . . . . . . . . . . . . . . . 2 1.6 "Back-Up Program Term" . . . . . . . . . . . . . . . . . . . . . 2 1.7 "Beginning of [ * ]. . . . . . . . . . . . . . . . . . . 2 1.8 "Beginning of [ * ]. . . . . . . . . . . . . . . . . . . 2 1.9 "CO 2-6749". . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.10 "CoCensys Patent Rights" . . . . . . . . . . . . . . . . . . . . 2 1.11 "Commercially Reasonable Efforts". . . . . . . . . . . . . . . . 2 1.12 "Control". . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.13 "Co-Promotion" . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.14 "Development". . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.15 "Epalon" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.16 "FDA". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.17 "Field". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.18 "First Commercial Sale". . . . . . . . . . . . . . . . . . . . . 3 1.19 "Fully Burdened Cost". . . . . . . . . . . . . . . . . . . . . . 3 1.20 "Good Clinical Practice" . . . . . . . . . . . . . . . . . . . . 3 1.21 "Good Laboratory Practice" . . . . . . . . . . . . . . . . . . . 3 1.22 "Good Manufacturing Practice". . . . . . . . . . . . . . . . . . 4 1.23 "Gross Margin" . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.24 [ * ]. . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.25 "IND". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.26 "Intellectual Property Rights" . . . . . . . . . . . . . . . . . 4 1.27 "Invention". . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.28 "Joint Marketing Committee" or "JMC" . . . . . . . . . . . . . . 4 1.29 "Know-How" . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.30 "Licensed Compound". . . . . . . . . . . . . . . . . . . . . . . 5 1.31 "Marketing Plan" . . . . . . . . . . . . . . . . . . . . . . . . 5 1.32 "NDA". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.33 "Net Sales". . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.34 "Neurologist Market" . . . . . . . . . . . . . . . . . . . . . . 6 1.35 [ * ]. . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.36 "Non-Scheduled Product". . . . . . . . . . . . . . . . . . . . . 6 1.37 "Patent Rights". . . . . . . . . . . . . . . . . . . . . . . . . 6 1.38 "Phase I," . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 i. * Confidential treatment requested TABLE OF CONTENTS (CONTINUED) PAGE 1.39 "Prescription Audit" . . . . . . . . . . . . . . . . . . . . . . 6 1.40 "Product". . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.41 "Promotion". . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.42 "Psychiatrist Market". . . . . . . . . . . . . . . . . . . . . . 7 1.43 "Regulatory Approval". . . . . . . . . . . . . . . . . . . . . . 7 1.44 "Scheduled Product". . . . . . . . . . . . . . . . . . . . . . . 7 1.45 "Term of Co-Promotion" . . . . . . . . . . . . . . . . . . . . . 7 1.46 "Third Party(ies)" . . . . . . . . . . . . . . . . . . . . . . . 7 1.47 "Trademark". . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.48 "USA". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.49 "Wyeth-Ayerst Patent Rights" . . . . . . . . . . . . . . . . . . 7 2. DEVELOPMENT OF LICENSED COMPOUND . . . . . . . . . . . . . . . . . . . 7 2.1 General Obligations. . . . . . . . . . . . . . . . . . . . . . . 7 2.2 Records, Reports and Information Exchange. . . . . . . . . . . . 8 2.3 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.4 Funding of the Development . . . . . . . . . . . . . . . . . . . 8 2.5 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . 8 3. BACK-UP PROGRAM. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.1 Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.2 Back-Up Program Term . . . . . . . . . . . . . . . . . . . . . . 9 3.3 Reporting and Submission of Back-Up Compound Candidates. . . . . 9 3.4 Back-Up Compound Development.. . . . . . . . . . . . . . . . . . 9 3.5 Back-Up Program Funding. . . . . . . . . . . . . . . . . . . . . 9 3.6 Partial Reimbursement of Back-Up Program Fees. . . . . . . . . . 9 3.7 Applicability of this Agreement. . . . . . . . . . . . . . . . . 10 4. INDICATIONS; EXCLUSIVITY . . . . . . . . . . . . . . . . . . . . . . . 10 4.1 Indications. . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.2 No [ * ] by CoCensys [ * ] . . . . . . . . . . . 11 4.3 No [ * ] . . . . . . . . . . . . . . . . . . . . . . . . 11 5. LICENSE GRANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 5.1 Licenses to Wyeth-Ayerst . . . . . . . . . . . . . . . . . . . . 11 5.2 Licenses to CoCensys . . . . . . . . . . . . . . . . . . . . . . 11 5.3 Licenses upon Expiration . . . . . . . . . . . . . . . . . . . . 12 ii. * Confidential treatment requested TABLE OF CONTENTS (CONTINUED) PAGE 6. CONSIDERATION TO COCENSYS. . . . . . . . . . . . . . . . . . . . . . . 12 6.1 Upfront Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . 12 6.2 Equity Investment. . . . . . . . . . . . . . . . . . . . . . . . 12 6.3 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 6.4 Method of Payment of Payments. . . . . . . . . . . . . . . . . . 13 6.5 Payments for Back-Up Compound Candidates . . . . . . . . . . . . 13 6.6 Royalties and Profit Sharing . . . . . . . . . . . . . . . . . . 13 7. CO-PROMOTION OF THE PRODUCT IN THE USA . . . . . . . . . . . . . . . . 13 7.1 Promotion and Co-Promotion Rights. . . . . . . . . . . . . . . . 13 7.2 Joint Marketing Committee. . . . . . . . . . . . . . . . . . . . 16 7.3 Marketing Plan . . . . . . . . . . . . . . . . . . . . . . . . . 18 7.4 Sales Force Expenses . . . . . . . . . . . . . . . . . . . . . . 18 7.5 Determination and Allocation of Gross Margin and Royalties . . . 18 7.6 Adjustment to Royalties. . . . . . . . . . . . . . . . . . . . . 19 7.7 Prescription Audit.. . . . . . . . . . . . . . . . . . . . . . . 20 7.8 Payment and Reporting. . . . . . . . . . . . . . . . . . . . . . 20 7.9 Promotional and Advertising Materials. . . . . . . . . . . . . . 21 7.10 Pricing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 7.11 No Delegation. . . . . . . . . . . . . . . . . . . . . . . . . . 21 7.12 Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 7.13 Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 7.14 Samples. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 7.15 Completion of Sales. . . . . . . . . . . . . . . . . . . . . . . 22 7.16 Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 7.17 Exchange of Marketing Information. . . . . . . . . . . . . . . . 22 8. ACCOUNTS AND RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . 22 8.1 Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 8.2 Audits.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 8.3 Sales by Sublicensees. . . . . . . . . . . . . . . . . . . . . . 23 8.4 Withholding. . . . . . . . . . . . . . . . . . . . . . . . . . . 23 9. TRADEMARKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 10. MANUFACTURING AND DISTRIBUTION . . . . . . . . . . . . . . . . . . . . 23 10.1 Primary Manufacture. . . . . . . . . . . . . . . . . . . . . . . 23 10.2 Second Source. . . . . . . . . . . . . . . . . . . . . . . . . . 23 10.3 Exchange of Information. . . . . . . . . . . . . . . . . . . . . 24 iii. TABLE OF CONTENTS (CONTINUED) PAGE 10.4 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 11. PROSECUTION, MAINTENANCE AND INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 11.1 Patentable Inventions. . . . . . . . . . . . . . . . . . . . . . 24 11.2 Prosecution and Maintenance of Patent Rights . . . . . . . . . . 25 11.3 Patent Extensions. . . . . . . . . . . . . . . . . . . . . . . . 25 11.4 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . 25 11.5 Infringement of Intellectual Property Rights . . . . . . . . . . 25 11.6 Infringement of Third Party Patent Rights. . . . . . . . . . . . 27 12. FORCE MAJEURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 13. TERM AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . 28 13.1 General Conditions of Expiration and Termination . . . . . . . . 28 13.2 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 13.3 Termination for Breach . . . . . . . . . . . . . . . . . . . . . 29 13.4 Breach by CoCensys . . . . . . . . . . . . . . . . . . . . . . . 29 13.5 No Limit on Remedies . . . . . . . . . . . . . . . . . . . . . . 29 13.6 Unilateral Termination by Wyeth-Ayerst . . . . . . . . . . . . . 29 13.7 Determination of Co-Promotion Rights upon Change in Control. . . 30 14. ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 14.1 Assignment to Affiliates . . . . . . . . . . . . . . . . . . . . 30 14.2 Other Permitted Assignment . . . . . . . . . . . . . . . . . . . 30 14.3 Binding Nature of Assignment . . . . . . . . . . . . . . . . . . 31 15. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 15.1 Cross Indemnification. . . . . . . . . . . . . . . . . . . . . . 31 15.2 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 16. WARRANTIES AND REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . 32 16.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 16.2 USC/Rockefeller License. . . . . . . . . . . . . . . . . . . . . 32 17. CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 32 17.1 Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 32 17.2 Exceptions.. . . . . . . . . . . . . . . . . . . . . . . . . . . 32 17.3 Permitted Disclosures. . . . . . . . . . . . . . . . . . . . . . 33 iv. TABLE OF CONTENTS (CONTINUED) PAGE 17.4 Disclosure of Agreement. . . . . . . . . . . . . . . . . . . . . 33 17.5 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 17.6 Publication. . . . . . . . . . . . . . . . . . . . . . . . . . . 34 18. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 18.1 No Waiver of Contractual Rights. . . . . . . . . . . . . . . . . 34 18.2 Execution and Amendments . . . . . . . . . . . . . . . . . . . . 34 18.3 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 34 18.4 Relationship between the Parties . . . . . . . . . . . . . . . . 34 18.5 Correspondence and Notices . . . . . . . . . . . . . . . . . . . 35 18.6 Choice of Law. . . . . . . . . . . . . . . . . . . . . . . . . . 35 18.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 36 v. DEVELOPMENT AND COMMERCIALIZATION AGREEMENT (NO. 1) THIS DEVELOPMENT AND COMMERCIALIZATION AGREEMENT (NO. 1) (the "Agreement") is entered into as of the 12th day of May, 1997 (the "Effective Date"), by and between COCENSYS, INC., a company incorporated under the laws of the State of Delaware, with its principal place of business at 213 Technology Drive, Irvine, California 92618, USA ("CoCensys"), and AMERICAN HOME PRODUCTS CORPORATION, acting through its WYETH-AYERST LABORATORIES DIVISION, a company incorporated under the laws of the State of Delaware, with its principal place of business at 555 Lancaster Avenue, St. Davids, Pennsylvania 19087, USA ("Wyeth-Ayerst"). Both CoCensys and Wyeth-Ayerst are referred to individually as a "Party" and collectively as the "Parties." WHEREAS, CoCensys has discovered, has rights to and is developing that certain compound CO 2-6749 (as defined in Article 1.9 below); and WHEREAS, Wyeth-Ayerst would like to obtain the United States rights to develop and commercialize CO 2-6749 or a back-up compound therefor; and WHEREAS, CoCensys and Wyeth-Ayerst wish to co-promote CO 2-6749 or a back-up compound in the United States; NOW, THEREFORE, in consideration of the foregoing premises and the mutual premises, covenants and conditions contained in this Agreement, the Parties agree as follows: 1. DEFINITIONS. For the purposes of this Agreement, the terms hereunder shall have the meanings as defined below: 1.1 "AFFILIATE(S)" shall mean, in the case of either CoCensys or Wyeth-Ayerst, any corporation, joint venture, or other business entity which directly or indirectly controls, is controlled by, or is under common control with that Party. "Control," as used in this Article 1.1, shall mean having the power to direct, or cause the direction of, the management and policies of an entity, whether through ownership of voting securities, by contract or otherwise. 1.2 "AGREEMENT (NO. 2)" shall mean that certain Development and Commercialization Agreement (No.2) between the Parties relating to development and commercialization of CO 2-6749 or a back-up compound therefore in all countries and territories in the world except the USA, entered into on even date with the Effective Date. 1. 1.3 "ALL OTHER MARKETS" shall mean all physicians, other than neurologists and psychiatrists, prescribing pharmaceutical products in the USA during the Term of Co-Promotion, including without limitation, all general practitioners. 1.4 "BACK-UP COMPOUND CANDIDATE" shall mean any Epalon meeting the criteria set forth in Exhibit A as determined by CoCensys and submitted by CoCensys to Wyeth-Ayerst as a potential substitute for CO 2-6749. "Back-Up Compound Candidate" shall include any prodrugs, salt forms and other biologically active isomers or enantiomers of such CoCensys Epalon. 1.5 "BACK-UP PROGRAM" shall mean the program for identification of Back-Up Compound Candidates as conducted by CoCensys pursuant to Article 3. 1.6 "BACK-UP PROGRAM TERM" shall mean the period commencing on the Effective Date and terminating on the [ * ] anniversary thereof, unless extended pursuant to Article 3.2. 1.7 "BEGINNING OF [ * ] shall mean the date upon which the [ * ] for a Product. 1.8 "BEGINNING OF [ * ] shall mean the date upon which the [ * ] for a Product. 1.9 "CO 2-6749" shall mean the Epalon [ * ] and any prodrugs, including specifically CO 6-0549, salt forms and other biologically active isomers or enantiomers palon. A diagram of the chemical structure of each of CO 2-6749 and CO 6-0549 is set forth on Exhibit B. 1.10 "COCENSYS PATENT RIGHTS" shall mean all Patent Rights owned or Controlled by CoCensys. A list of the CoCensys Patent Rights existing as of the Effective Date is set out in Exhibit C hereto. 1.11 "COMMERCIALLY REASONABLE EFFORTS" shall mean efforts and resources normally used by a party for a compound owned by it or to which it has rights, which is of similar market potential at a similar stage in its product life, taking into account the competitiveness of the marketplace, the proprietary position of the compound, the regulatory structure involved, the profitability of the applicable products, and other relevant factors. 1.12 "CONTROL" shall mean licensed with the right to grant sublicenses without violating the terms of any Third Party agreement. 2. * Confidential treatment requested 1.13 "CO-PROMOTION" shall mean the promotion, marketing and selling of the Product, including, in particular, the detailing of the Product to physicians, jointly through the sales forces of CoCensys and Wyeth-Ayerst in the USA under the Trademark and Regulatory Approval held by Wyeth-Ayerst and Wyeth-Ayerst's distribution system. 1.14 "DEVELOPMENT" shall mean the pre-clinical development of a Licensed Compound and clinical development for use in the Field of a Product through and including Regulatory Approval. 1.15 "EPALON" shall mean the class of neuroactive steroid compounds that interact with GABA(A) receptor complexes. 1.16 "FDA" shall mean the Food and Drug Administration of the USA. 1.17 "FIELD" shall mean the treatment in humans of [ * ] in the Diagnostic and Statistical Manual of Mental Disorders, Fourth Edition ("DSM-IV"). Also, specifically to be included under [ * ] defined by research criteria in DSM-IV. It is understood by the Parties that the above- named disorders may d differently in future editions of the Diagnostic and Statistical Manual of Mental Disorders, but that, for purposes of this Agreement, the definition of Field shall always be with reference to those diseases which fall within the definition of the above-named disorders in the edition of DSM-IV which is current as of the Effective Date. Expressly excluded from the Field are [ * ]. 1.18 "FIRST COMMERCIAL SALE" shall mean the first sale of a Product in the USA after the Product has been granted Regulatory Approval by the competent authorities in the USA. 1.19 "FULLY BURDENED COST" shall mean the sum of the costs set forth in Exhibit D, to the extent allocable to Product. 1.20 "GOOD CLINICAL PRACTICE" or "GCP" shall mean the then current standards for clinical trials for pharmaceuticals, as set forth in the United States Federal Food, Drug and Cosmetics Act and applicable regulations promulgated thereunder, as amended from time to time. 1.21 "GOOD LABORATORY PRACTICE" or "GLP" shall mean the then current standards for laboratory activities for pharmaceuticals, as set forth in the United States Federal Food, Drug and Cosmetics Act and applicable regulations promulgated thereunder, as amended from time to time. 3. * Confidential treatment requested 1.22 "GOOD MANUFACTURING PRACTICE" or "GMP" shall mean the current standards for the manufacture of pharmaceuticals, as set forth in the United States Federal Food, Drug and Cosmetics Act and applicable regulations promulgated hereunder, as amended from time to time. 1.23 "GROSS MARGIN" shall mean Net Sales in either the Neurologist Market, the Psychiatrist Market and/or All Other Markets, as the case may be, minus the Fully Burdened Cost for such Net Sales. 1.24 [ * ] shall mean the development milestone [ * ]. 1.25 "IND" shall mean an Investigational New Drug Application as defined in the United States Federal Food, Drug and Cosmetics Act and applicable regulations promulgated thereunder, as amended from time to time. 1.26 "INTELLECTUAL PROPERTY RIGHTS" shall mean all Patent Rights, trademarks, copyrights, know-how and/or trade secrets which are owned or Controlled by one Party hereto (with the right to license) or jointly by the Parties, with regard to the development, manufacture, importing, use, marketing and/or sale of the Product. 1.27 "INVENTION" shall mean an invention conceived in the course of the performance of and within the scope of this Agreement. 1.28 "JOINT MARKETING COMMITTEE" or "JMC" shall mean the committee appointed by the Parties as set forth in Article 7.2. 1.29 "KNOW-HOW" shall mean all know-how, processes, information and data including any copyright relating thereto owned or controlled by either Party (with the right to have or disclose) as of the Effective Date or acquired during the term of this Agreement relating to: (a) the Licensed Compound; (b) any Back-Up Compound; (c) any Product containing (a) or (b); (d) methods of making any of (a), (b) or (c); (e) any component of (c); (f) any intermediate in the making of any of (a), (b), (c), or (e); 4. * Confidential treatment requested (G) any method of using any of (a), (b), (c), (e), or (f); and/or (H) any use of (a), (b) or (c). The term "Know-How," however, shall not include any know-how, processes, information and data which is, as of the Effective Date or becomes later on, generally available to the public. 1.30 "LICENSED COMPOUND" shall mean CO 2-6749 and any Back-Up Compound Candidate. 1.31 "MARKETING PLAN" shall have the meaning set forth in Article 7.3. 1.32 "NDA" shall mean a New Drug Application, as defined in the United States Federal Food Drug and Cosmetic Act and applicable regulations promulgated thereunder as amended from time to time. 1.33 "NET SALES" shall mean proceeds from sales of the Product by either Party, its Affiliates or sublicensees, as appropriate, to Third Parties, less the sum of (a) and (b) where (a) is a provision, determined under generally accepted accounting principles in the United States, for [ * ] and (b) is [ * ] Sales of Product by and between a Party and its Affiliates are not sales to Third Parties and shall be excluded from Net Sales calculations for all purposes. 1.34 "NEUROLOGIST MARKET" shall mean all neurologists prescribing pharmaceutical products in the USA during the Term of Co-Promotion. 1.35 [ * ] shall have the meaning set forth in Article 4.1. 1.36 "NON-SCHEDULED PRODUCT" shall mean a Product that has achieved Regulatory Approval in the USA as either a "Schedule V" designation, as defined in 21 CFR Part 1308, or no scheduling designation under 21 CFR Part 1308. 1.37 "PATENT RIGHTS" shall mean all patents or patent applications, in the USA, and all divisionals, continuations, continuations-in-part, reissues, extensions, supplementary protection certificates thereof, existing as of the Effective Date or filed or issuing during the term of this Agreement, at least one claim of which covers: (A) the Licensed Compound; (B) any Back-Up Compound; 5. * Confidential treatment requested (C) any Product containing (a) or (b); (D) methods of making any of (a), (b) or (c); (E) any component of (c); (F) any intermediate in the making of any of (a), (b), (c) or (e); (G) any method of using any of (a), (b), (c), (e), or (f); and/or (H) any use of (a), (b) or (c). 1.38 "PHASE I," "PHASE II," AND "PHASE III" shall mean the phases of the clinical development of pharmaceuticals as defined in the United States Federal Food, Drug and Cosmetics Act and/or applicable regulations promulgated thereunder, as amended from time to time, or any comparable foreign regulations. 1.39 "PRESCRIPTION AUDIT" shall mean an audit conducted pursuant to Article 7.7. 1.40 "PRODUCT" shall mean any pharmaceutical product containing a Licensed Compound in any formulation or mode of administration. 1.41 "PROMOTION" shall mean, as applied to a Party, the promotion, marketing and selling of the Product, including in particular, the detailing of the Product to physicians, solely by that Party through its sales force in the USA under the Trademark and the Regulatory Approval held by Wyeth-Ayerst, and Wyeth-Ayerst's distribution system. 1.42 "PSYCHIATRIST MARKET" shall mean all psychiatrists prescribing pharmaceutical products in the USA during the Term of Co-Promotion. 1.43 "REGULATORY APPROVAL" shall mean all authorizations by the competent authorities which are required for the regular marketing, promotion, pricing and sale of the Product in a given country or regulatory jurisdiction. 1.44 "SCHEDULED PRODUCT" shall mean a Product that has received Regulatory Approval in the USA as a Schedule I, II, III or IV product, as defined in 21 CFR Part 1308. 1.45 "TERM OF CO-PROMOTION" shall mean the period extending from First Commercial Sale in the USA until the later of (i) expiration of the last to expire patent within the Patent Rights necessary to make, use, import, offer for sale or sell the Product in the USA, or (ii) fifteen (15) years from First Commercial Sale in the USA. 6. 1.46 "THIRD PARTY(IES)" shall mean any person(s) or entity(ies) other than CoCensys, Wyeth-Ayerst or their Affiliates. 1.47 "TRADEMARK" shall mean the trademark under which the Product shall be marketed as set out in Article 9. 1.48 "USA" shall mean the United States of America, its territories and possessions and the Commonwealth of Puerto Rico. 1.49 "WYETH-AYERST PATENT RIGHTS" shall mean all Patent Rights owned or Controlled by Wyeth-Ayerst. A list of the Wyeth-Ayerst Patent Rights existing as of the Effective Date is set out in Exhibit E hereto. 2. DEVELOPMENT OF LICENSED COMPOUND. 2.1 GENERAL OBLIGATIONS. Wyeth-Ayerst shall be responsible for the design, implementation and funding of all Development. Wyeth-Ayerst agrees to use Commercially Reasonable Efforts to conduct the Development with the intent of obtaining Regulatory Approval in the USA and bringing a Product in the Field to the market as soon as reasonably practicable. Wyeth-Ayerst shall ensure that the Development is carried out adhering to Wyeth-Ayerst's ethical and safety standards. Wyeth-Ayerst shall have the right to subcontract with third parties any of its Development obligations hereunder, without the consent or approval of CoCensys. In the event Wyeth-Ayerst intends to exercise its right to subcontract one or more of its Development obligations, it shall notify CoCensys of such intent and CoCensys shall have the right to submit one or more proposals to Wyeth-Ayerst to perform such one or more parts of such Development activities. Wyeth-Ayerst shall consider all such proposals submitted by CoCensys on an equal basis with proposals submitted by Third Party subcontractors for the same Development tasks. 2.2 RECORDS, REPORTS AND INFORMATION EXCHANGE. 2.2.1 TECHNOLOGY AND INFORMATION TRANSFER. CoCensys will provide to Wyeth-Ayerst all Know-How as Wyeth-Ayerst deems necessary to carry out the Development and [ * ] of the Product and to obtain Regulatory Approval. All information transferred, provided or exchanged under this Article 2.2.1 will be subject to the confidentiality requirements set forth in Article 17. 2.2.2 RECORD KEEPING. Wyeth-Ayerst will maintain records in sufficient detail and in good scientific manner appropriate for Regulatory Approval and patent purposes. 7. * Confidential treatment requested 2.2.3 COMMUNICATION REGARDING THE DEVELOPMENT PROGRESS. A project team shall be appointed by Wyeth-Ayerst and representatives thereof shall meet with representatives of CoCensys on a regular basis (but no less often than every six (6) months) to keep CoCensys apprised of the Development progress and to bring to its attention any problems or issues which may have an impact on the timing of the Development (e.g., regulatory submissions). 2.3 COMPLIANCE. Wyeth-Ayerst shall comply with all GLP, GCP and GMP in the conduct of the Development. 2.4 FUNDING OF THE DEVELOPMENT. Wyeth-Ayerst shall be responsible for one hundred percent (100%) of all costs, fees and expenses associated with the Development and the obtaining of all Regulatory Approvals. 2.5 REGULATORY APPROVALS. [ * ] shall file all regulatory dossiers under its name. [ * ] shall own all Regulatory Approvals. [ * ] shall have the right of reference to the extent necessary to exercise its rights or to meet its obligations hereunder. [ * ] shall be responsible for all communications with regulatory agencies, subject to its obligation to keep the Joint Marketing Committee informed. 8. * Confidential treatment requested 3. BACK-UP PROGRAM. 3.1 PURPOSE. During the Back-Up Program Term, CoCensys shall use Commercially Reasonable Efforts to conduct research, and identify, characterize and submit to Wyeth-Ayerst Back-Up Compound Candidates. 3.2 BACK-UP PROGRAM TERM. The term of the Back-Up Program shall commence on the Effective Date and terminate on the [ * ] anniversary thereof. Such term may be extended for [ * ] upon 120 days prior written notice to [ * ]. Any Epalons in the process of being evaluated for meeting the criteria set forth in Exhibit A under the Back-Up Program as of the termination of the Back-Up Program shall be submitted to Wyeth-Ayerst promptly thereafter to the extent they meet the criteria set forth on Exhibit A. At the end of the Back-Up Program Term, Wyeth-Ayerst shall have rights only to those Back-Up Compound Candidates [ * ] or thereafter pursuant to the third sentence of this Article 3.2. 3.3 REPORTING AND SUBMISSION OF BACK-UP COMPOUND CANDIDATES. Within thirty (30) days of the Effective Date, and at least every six (6) months during the Back-Up Program Term, CoCensys shall provide Wyeth-Ayerst with a report on the status of the Back-Up Program and shall submit on an on-going basis all Back-Up Compound Candidates. 3.4 BACK-UP COMPOUND DEVELOPMENT. Wyeth-Ayerst may, at any time and upon written notice to CoCensys, (i) elect to [ * ]. 3.5 BACK-UP PROGRAM FUNDING. Wyeth-Ayerst shall fund the Back-Up Program at the level of Three Million Dollars ($3,000,000) annually, in quarterly installments, until the end of the Back-Up Program Term, with the first payment of Seven Hundred Fifty Thousand Dollars ($750,000) due upon the execution of this Agreement, and the next quarter's payment due on the first quarter anniversary thereof. 3.6 PARTIAL REIMBURSEMENT OF BACK-UP PROGRAM FEES. If CO 2-6749 fails to meet Wyeth-Ayerst's criteria for [ * ], and if at such time, no Back-Up Compound Candidate has been submitted to Wyeth-Ayerst which Wyeth-Ayerst agrees meets the criteria set forth in Exhibit A, then Wyeth-Ayerst shall have the right to so notify CoCensys and CoCensys will reimburse Wyeth-Ayerst fifty percent (50%) of the funds paid for the Back-Up Program to CoCensys as of the date of such notification and the Back-Up Program shall immediately terminate. Such reimbursement shall be due within thirty (30) days of receipt of such notice, and, at CoCensys' option, shall be in the form either of cash or of CoCensys Common Stock. If reimbursement is to be in CoCensys Common Stock, 9. * Confidential treatment requested CoCensys will issue to Wyeth-Ayerst that number of shares of CoCensys Common Stock which, when multiplied by the Market Price equals the amount of such reimbursement. For purposes of this Article 3.6, "Market Price" shall mean the average closing price per share of CoCensys Common Stock for twenty (20) trading days prior to the date of notification of such reimbursement. 3.7 APPLICABILITY OF THIS AGREEMENT. Unless otherwise provided, all of the Parties' rights and obligations under this Agreement, including those regarding the development, manufacture, distribution, marketing, sale, promotion, profit-sharing and royalties of CO 2-6749 and the Product are applicable to any Back-Up Compound Candidate either replacing CO 2-6749 or otherwise developed in the Field. The provisions herein regarding CO 2-6749 and the Product shall apply to such Back-Up Compound Candidate MUTATIS MUTANDIS. 4. INDICATIONS; EXCLUSIVITY. 4.1 INDICATIONS. Wyeth-Ayerst shall have the right to conduct Development with respect to any Licensed Compound. Wyeth-Ayerst [ * ] covenants that it shall not conduct clinical trials of any Licensed Compound for [ * ] in the USA except as provided under this Article 4.1. If Wyeth-Ayerst discovers or determines that any Licensed Compound may have efficacy in the treatment of [ * ] and if Wyeth-Ayerst desires to pursue clinical trials of such Licensed Compound for [ * ] it will promptly notify CoCensys in writing and disclose to CoCensys its rationale therefor. Wyeth-Ayerst shall have the right to pursue such clinical trials for [ * ] and market and sell such Licensed Compound as though it were a Product developed and sold for [ * ] under this Agreement, subject to the Parties negotiation of terms and conditions, including royalty rates, whether and on what terms such Licensed Compound will be Co-Promoted by the Parties, and other appropriate payment and other terms. Following such negotiation of such terms and conditions the Parties shall either enter into a separate agreement or amend this Agreement to so provide for such terms and conditions. In the event the Parties are unable to come to agreement as to the appropriate terms and conditions for the development and commercialization of such Licensed Compound for [ * ] by Wyeth-Ayerst, the matter shall be referred to the Chief Executive Officer of CoCensys and the President of Wyeth-Ayerst Laboratories, an Affiliate of Wyeth-Ayerst, for good faith resolution, for a period of [ * ]. If such matter is not resolved by the end of such [ * ] period, the Parties shall be [ * ]. Notwithstanding the 10. * Confidential treatment requested foregoing, it is expressly understood and agreed that [ * ] as used in this Agreement shall not include [ * ]. 4.2 NO [ * ] BY COCENSYS [ * ]. During the term of this Agreement, CoCensys shall not [ * ]. 4.3 NO [ * ]. During the term of this Agreement, CoCensys will not [ * ] except under the terms of this Agreement, or as otherwise agreed to by Wyeth-Ayerst. 5. LICENSE GRANTS. 5.1 LICENSES TO WYETH-AYERST. Subject to the other provisions of this Agreement, CoCensys hereby grants to Wyeth-Ayerst: 5.1.1 A license in the USA, under its Intellectual Property Rights, to develop, manufacture and have manufactured, import, use, market, offer for sale and sell Products, in the Field, and, subject to Article 4.1, for any New Indication. Such license shall be exclusive except as to CoCensys, who shall have the right to Promote and Co-Promote the Product in the Field, or outside the Field (where agreed by the Parties pursuant to Article 4.1), in the USA as and to the extent set forth in this Agreement. 5.1.2 The licenses granted in Article 5.1.1 shall not be sublicensable by Wyeth-Ayerst in the USA without the consent of CoCensys, such consent not to be unreasonably withheld, except to Affiliates of Wyeth-Ayerst, and only for so long as such Affiliates remain Affiliates. 5.1.3 Unless otherwise provided in this Agreement, Wyeth-Ayerst covenants that it shall not, nor shall it cause any Affiliate to, use or practice directly or indirectly any CoCensys Know-How, and, until expiration thereof, any CoCensys Patent Rights for any purposes other than the development, manufacture, importation, use, marketing, offer for sale or sale of the Product. 5.2 LICENSES TO COCENSYS. Subject to the other provisions of this Agreement, Wyeth-Ayerst hereby grants to CoCensys: 5.2.1 A non-exclusive license to practice and use Wyeth-Ayerst's Intellectual Property Rights to the extent needed to Promote and Co-Promote the Product in the Field in the USA under this Agreement and otherwise comply with its obligations under this Agreement; 11. * Confidential treatment requested 5.2.2 The license granted in Article 5.2.1 shall not be sublicensable by CoCensys without the consent of Wyeth-Ayerst, such consent not to be unreasonably withheld, except to Affiliates of CoCensys, and only for so long as such Affiliates remain Affiliates. 5.2.3 Unless otherwise provided in this Agreement, CoCensys covenants that it shall not, nor shall it cause any Affiliate to, use or practice directly or indirectly any Wyeth-Ayerst Know-How, and until the expiration thereof, any Wyeth-Ayerst Patent Rights for any purposes other than the marketing, promotion and offering for sale of the Product as provided in this Agreement. 5.3 LICENSES UPON EXPIRATION. Upon expiration of the Term of Co-Promotion, and provided all sums owing to CoCensys have been paid, Wyeth-Ayerst shall have a [ * ] where agreed under Article 4.1, under any remaining CoCensys Intellectual Property Rights. 6. CONSIDERATION TO COCENSYS. 6.1 UPFRONT FEE. In consideration for the efforts expended by CoCensys prior to the Effective Date and its ongoing assistance with respect to the identification and development of CO 2-6749, Wyeth-Ayerst shall pay to CoCensys, simultaneous with the execution of this Agreement, Five Million Dollars US (US $5,000,000). 6.2 EQUITY INVESTMENT. Simultaneous with the execution of this Agreement, Wyeth-Ayerst shall enter into a Preferred Stock Purchase Agreement with CoCensys, in substantially the form attached hereto as Exhibit F, pursuant to which Wyeth-Ayerst shall invest a total amount of Five Million Dollars US (US $5,000,000) in convertible preferred capital stock of CoCensys. 6.3 PAYMENTS. In further consideration of CoCensys' continuing assistance in research and development of the Product, Wyeth-Ayerst shall pay to CoCensys the following amounts at the time of the following achievements with respect to the Product: 6.3.1 [ * ] Upon [ * ] under this Agreement or Agreement (No. 2), Wyeth-Ayerst shall make to CoCensys a non-refundable payment of [ * ]. 6.3.2 [ * ] Upon [ * ] Wyeth-Ayerst shall promptly notify CoCensys in writing of such determination and shall make to CoCensys a non-refundable payment of [ * ]. 12. * Confidential treatment requested 6.3.3 [ * ]. Upon the [ * ] Wyeth-Ayerst shall make to CoCensys a non-refundable payment of [ * ]. 6.3.4 [ * ]. Upon [ * ] for the Product, Wyeth-Ayerst shall make to CoCensys a non-refundable payment of [ * ]. 6.3.5 [ * ]. Upon [ * ] Wyeth-Ayerst shall make to CoCensys a non-refundable payment of [ * ] if the Product is a [ * ] Product or [ * ] if the Product is a [ * ] Product. 6.4 METHOD OF PAYMENT OF PAYMENTS. All payments shall be made by Wyeth-Ayerst to CoCensys by way of wire transfer to CoCensys within thirty (30) days from the date corresponding to the event triggering the milestone payment. 6.5 PAYMENTS FOR BACK-UP COMPOUND CANDIDATES. Each payment payable pursuant to this Article 6 shall [ * ] be payable [ * ] for the Product [ * ]. 6.6 ROYALTIES AND PROFIT SHARING. Wyeth-Ayerst shall, in addition to the payments set forth above, also pay to CoCensys royalties and such other amounts as set forth in Article 7. 7. CO-PROMOTION OF THE PRODUCT IN THE USA. 7.1 PROMOTION AND CO-PROMOTION RIGHTS. 7.1.1 COCENSYS' RIGHTS TO PROMOTE AND CO-PROMOTE. With respect to the commercialization of the Product in the USA, notwithstanding the exclusive rights granted to Wyeth-Ayerst, CoCensys shall have: (i) the right to Promote the Product in the Neurologist Market, and (ii) the right to Co-Promote the Product in the Psychiatrist Market during the Term of Co-Promotion. The Parties agree and understand that all other rights to Promote, market and otherwise commercialize the Product shall reside with Wyeth-Ayerst, including in particular, the right to Promote the Product in All Other Markets. 13. * Confidential treatment requested 7.1.2 CONDUCT OF PROMOTION AND CO-PROMOTION. CoCensys and Wyeth-Ayerst shall each use Commercially Reasonable Efforts to Promote and Co-Promote the Product pursuant to the terms and conditions hereof. The Joint Marketing Committee shall oversee and implement all such Promotion and Co-Promotion activities, based on the principle of maximizing profits from sales of the Product in the USA during the Term of Co-Promotion. Each Party shall cause its sales force, and all other employees and approved agents and representatives, to comply with all applicable laws, regulations and guidelines in connection with the Co-Promotion of the Product, including the Prescription Drug Marketing Act and the Federal Anti-Kickback Statute. 7.1.3 ELECTION OF CO-PROMOTION RIGHT. CoCensys shall provide Wyeth-Ayerst written notice prior to [ * ] for the Product as to whether CoCensys elects to exercise its right to Promote and Co-Promote the Product in the USA. If CoCensys elects not to so participate, Wyeth-Ayerst shall have the exclusive right to commercialize, market, Promote and sell the Product in the USA, subject to the payment to CoCensys of a running royalty on Net Sales in the USA at the rates set forth in Article 7.1.5. 7.1.4 TERMINATION OF RIGHTS BY COCENSYS. Notwithstanding an election by CoCensys to Promote and Co-Promote the Product, CoCensys may elect to forego its right to Promote and Co-Promote the Product if [ * ] upon [ * ] months prior written notice to Wyeth-Ayerst. 7.1.5 ROYALTIES IN THE EVENT COCENSYS DOES NOT PROMOTE AND CO-PROMOTE. In the event (i) CoCensys elects not to Promote and Co-Promote the Product pursuant to Article 7.1.3, (ii) CoCensys elects to cease to Promote and Co-Promote the Product pursuant to Article 7.1.4, or (iii) CoCensys's rights to Promote and Co-Promote the Product are terminated pursuant to Article 13.4 or Article 13.7.1, Wyeth-Ayerst shall have the exclusive right to market, sell and Promote the Product in the USA and CoCensys shall receive a running royalty on Net Sales in the USA until the end of the Term of Co-Promotion as follows: (a) [ * ] PRODUCT ROYALTY. If the Product is a [ * ] Product, Wyeth-Ayerst shall pay to CoCensys the following running marginal royalty: 14. * Confidential treatment requested (i) For annual Net Sales of all [ * ] Products which are less than or equal to [ * ] million, [ * ] of such Net Sales per year; and (ii) For annual Net Sales of all [ * ] Products which are more than [ * ] million but less than or equal to [ * ] million, [ * ] of such Net Sales per year; and (iii) For annual Net Sales of all [ * ] Products which are more than [ * ] million, [ * ] of such Net Sales per year. (b) [ * ] PRODUCT ROYALTY. If the Product is a [ * ] Product, Wyeth-Ayerst shall pay to CoCensys the following running marginal royalty: (i) For annual Net Sales of all [ * ] Products which are less than or equal to [ * ] million, [ * ] of such Net Sales per year; and (ii) For annual Net Sales of all [ * ] Products which are more than [ * ] million but less than or equal to [ * ] million, [ * ] of such Net Sales per year; and (iii) For annual Net Sales of all [ * ] Products which are more than [ * ] million, [ * ] of such Net Sales per year. 7.1.6 TERMINATION OF RIGHTS BY WYETH-AYERST. Wyeth-Ayerst may elect to forego its right to Promote and Co-Promote the Product at any time following [ * ] months prior written notice to CoCensys, in 15. * Confidential treatment requested which case CoCensys shall obtain the exclusive, subject to Wyeth-Ayerst's retained right to manufacture Product in the USA for sale outside the USA right (with the right to sublicense) to manufacture, have manufactured, use, market and sell the Product in the USA, and Wyeth-Ayerst shall receive a running royalty on Net Sales in the USA until the end of the Term of Co-Promotion as follows: (a) [ * ] PRODUCT ROYALTY. If the Product is a [ * ] Product, CoCensys shall pay to Wyeth- Ayerst the following running marginal royalty: (i) For annual Net Sales of all [ * ] Products which are less than or equal to [ * ] million, [ * ] of such Net Sales per year; and (ii) For annual Net Sales of all [ * ] Products which are more than [ * ] million but less than or equal to [ * ] million, [ * ] of such Net Sales per year; and (iii) For annual Net Sales of all [ * ] Products which are more than [ * ] million, [ * ] of such Net Sales per year. (b) [ * ] PRODUCT ROYALTY. If the Product is a [ * ] Product, CoCensys shall pay to Wyeth- Ayerst the following running marginal royalty: (i) For annual Net Sales of all [ * ] Products which are less than or equal to [ * ] million, [ * ] of such Net Sales per year; and 16. * Confidential treatment requested (ii) For annual Net Sales of all [ * ] Products which are more than [ * ] million but less than or equal to [ * ] million, [ * ] of such Net Sales per year; and (iii) For annual Net Sales of all [ * ] Products which are more than [ * ] million, [ * ] of such Net Sales per year. In the event Wyeth-Ayerst makes the election set forth in this Article 7.1.6, Wyeth-Ayerst shall [ * ]. 7.1.7 NO REINSTATEMENT. A Party's rights to Promote or Co-Promote the Product may not be reinstated after delivery of a notice of early termination thereof. 7.2 JOINT MARKETING COMMITTEE. The Parties agree that the Promotion and Co-Promotion will be managed by a Joint Marketing Committee (the "JMC"). 7.2.1 COMPOSITION. No later than the Beginning of Phase III for the Product, each of the Parties will appoint [ * ] representatives to the JMC. The chairperson of the JMC will be [ * ]. A Party may change any of its representatives at any time by giving written notice to the other Party. 7.2.2 RESPONSIBILITIES. The JMC will: (a) monitor compliance with the Marketing Plan and approve any immaterial change in the Marketing Plan; and (b) oversee the Promotion and Co-Promotion as discussed in this Article 7, including determining the appropriate level of effort of each Party in the markets in which they Co-Promote in a manner commensurate with each Party's economic interest in such market. 7.2.3 MEETINGS OF THE JMC. The chairperson of the JMC shall call meetings when deemed appropriate, currently anticipated to be no less frequently than once every three (3) months. If possible, the meetings shall be held in person, or where appropriate, by video or telephone conference. The chairperson shall determine the form of the meeting. Additional participants may be invited by any member to attend meetings where 17. * Confidential treatment requested appropriate (e.g., representatives of regulatory affairs or outside consultants). Such additional participants shall have no vote. Minutes of each meeting of the JMC shall be exchanged for review and comment by the members. Thereafter, they shall be signed by the chairperson. 7.2.4 VOTING OF THE JMC. The JMC shall make decisions by majority vote, with at least one consenting vote of each Party's JMC members. If the required majority for a decision cannot be found and all the members of each Party take the same opposing positions in a matter which either Party deems to be of major importance, the matter shall be handled pursuant to Article 7.2.6. Voting by proxy is permissible. Urgent matters (including regulatory and adverse event matters) may be decided by unanimous vote of the chairperson and a representative designated by CoCensys. 7.2.5 ROLE OF CHAIRPERSON. Except as explicitly set forth herein, in no event shall the chairperson of the JMC have any additional powers or responsibilities beyond those delegated to such person by virtue of such person's membership on the JMC. Without limiting the foregoing, it is understood that, except as a voting member of the JMC, the chairperson shall not have the power to control or dictate decisions or to veto any decisions reached by the committee under the decision-making processes set forth in Article 7.2.4. 7.2.6 DISPUTE RESOLUTION. If the JMC is unable to resolve, after thirty (30) days, a dispute regarding any issue presented to it or arising in it, such dispute will be referred to the Chief Executive Officer of CoCensys and the President of Wyeth-Ayerst Laboratories, an Affiliate of Wyeth-Ayerst for good faith resolution, for a period of ninety (90) days. If such dispute is not resolved by the end of such ninety (90) day period, the Parties shall be free to pursue any legal or equitable remedy available to them. 7.3 MARKETING PLAN. The Promotion and Co-Promotion of the Product will be governed by a marketing plan (the "Marketing Plan"). The Marketing Plan will describe fully, to the extent practicable, the proposed plan for commercialization of the Product in the USA, including overall marketing strategy, anticipated marketing, sales and promotion efforts by each Party in each of the Neurologist Market, the Psychiatrist Market and All Other Markets, market and sales forecasts, pricing analysis and estimated launch date, guidelines for discounting the Product, as well as advertising and other promotional materials to be used in the Promotion and Co-Promotion. The Marketing Plan will be prepared by Wyeth-Ayerst, after consultation with representatives of CoCensys, and will take into consideration factors such as market conditions, regulatory factors and competition. The initial Marketing Plan shall be prepared under the direction of and adopted by the JMC no later than six (6) months after the first filing of the NDA for the Product (unless otherwise agreed by the Parties). Such Marketing 18. Plan shall thereafter be reviewed and, where necessary, updated, at least every three (3) months (or more frequently if so determined by the JMC). 7.4 SALES FORCE EXPENSES. [ * ]. 7.5 DETERMINATION AND ALLOCATION OF GROSS MARGIN AND ROYALTIES. 7.5.1 PSYCHIATRY MARKET. In consideration for each Party's Co-Promotion efforts in the Psychiatry Market, Wyeth-Ayerst shall be entitled to [ * ] and CoCensys shall be entitled to [ * ] of the Gross Margin from sales of the Product in the Psychiatry Market, as determined by a Prescription Audit. 7.5.2 NEUROLOGIST MARKET. In consideration for CoCensys' Promotion efforts in the Neurologist Market, CoCensys shall be entitled to [ * ] and Wyeth-Ayerst shall be entitled to [ * ] of the Gross Margin from sales of the Product in the Neurologist Market, as determined by a Prescription Audit. 7.5.3 ALL OTHER MARKETS. In consideration for Wyeth-Ayerst's Promotion efforts in All Other Markets, Wyeth-Ayerst shall be entitled to [ * ] of the Gross Margin from sales of the Product in All Other Markets, as determined by a Prescription Audit, and shall pay to CoCensys a running royalty on Net Sales in the USA until the end of the Term of Co-Promotion as follows: (a) [ * ] PRODUCT ROYALTY. If the Product is a [ * ] Product, Wyeth-Ayerst shall pay to CoCensys the following running marginal royalty: (i) For annual Net Sales of all [ * ] Products which are less than or equal to [ * ] million, [ * ] of such Net Sales per year; and (ii) For annual Net Sales of all [ * ] Products which are more than [ * ] million but less than or equal to [ * ] million, [ * ] of such Net Sales per year; and 19. * Confidential treatment requested (iii) For annual Net Sales of all [ * ] Products which are more than [ * ] million, [ * ] of such Net Sales per year. (b) [ * ] PRODUCT ROYALTY. If the Product is a [ * ] Product, Wyeth-Ayerst shall pay to CoCensys the following running marginal royalty: (i) For annual Net Sales of all [ * ] Products which are less than or equal to [ * ] million, [ * ] of such Net Sales per year; and (ii) For annual Net Sales of all [ * ] Products which are more than [ * ] million but less than or equal to [ * ] million, [ * ] of such Net Sales per year; and (iii) For annual Net Sales of all [ * ] Products which are more than [ * ] million, [ * ] of such Net Sales per year. 7.6 ADJUSTMENT TO ROYALTIES. 7.6.1 GENERIC PRODUCTS. In the event that, during the Term of Co-Promotion, a generic version (i.e., same chemical entity) of the Product is introduced in the USA by a Third Party, and if unit sales for all such generic product(s) constitute more than [ * ] of the combined unit sales in the USA of both the Product and any such generic product(s), then the annual royalty amount owed by one Party under Article 7.1.5, 7.1.6 or 7.5.3 shall be reduced by [ * ] such reduction to be done in the fourth quarter payment as described in Article 7.8. 7.6.2 [ * ] In the event one Party (the "Royalty Paying Party") owes royalties to the other Party (the "USA Royalty Receiving Party") pursuant to Article 7.1.5, 7.1.6 or 7.5.3 hereunder with respect to Net Sales in the USA and, at the end of a given calendar year [ * ] (where [ 20. * Confidential treatment requested * ] = [ * ]= [ * ]; and [ * ]= [ * ] then the Royalty Paying Party will provide written notice to the USA Royalty Receiving Party of such fact and the Parties shall meet promptly thereafter to discuss and develop in good faith a commercially reasonable plan to [ * ]. In the event that, at any time after the eight (8) month anniversary of the date of the first meeting to discuss the [ * ] (where [ * ] = [ * ] then, for so long as [ * ], an amount equal to [ * ] may be deducted from the royalty due the USA Royalty Receiving Party for such year; PROVIDED, HOWEVER, in no event shall the royalty due the USA Royalty Receiving Party be less than that paid at the lowest applicable rate (i.e., [ * ] for [ * ] Products and [ * ] for [ * ] Products, or [ * ] respectively, where Article 7.6.1 applies) set forth in Article 7.1.5, 7.1.6 or 7.5.3. 7.7 PRESCRIPTION AUDIT. Wyeth-Ayerst shall retain, at its own cost, a Third Party such as IMS America, Ltd. to conduct an audit of the prescribing activity in all markets and to provide the prescription data necessary to calculate Net Sales in each of the Neurologist Market, the Psychiatry Market and All Other Markets (the "Prescription Audit"). Wyeth-Ayerst will provide to CoCensys such data consistent with its obligations to IMS and such data will be the property of Wyeth-Ayerst. 7.8 PAYMENT AND REPORTING. Within three (3) months after the close of each calendar quarter, or earlier if possible, during the Term of Co-Promotion (i.e., on or before the last day of each of the months of June, September, December and March), Wyeth-Ayerst shall furnish to CoCensys a statement (the "P&L Statement") setting forth Net Sales in the USA and all data on which the determination of Gross Margin was calculated. Wyeth-Ayerst will submit any amount due to CoCensys pursuant to Articles 7.1, 7.5 and 7.6 with the P&L Statement. For any given royalty period during the first three quarters of the year, Wyeth-Ayerst shall pay to CoCensys the royalty at the lowest rate specified in Articles 7.1.5 or 7.5.3 applicable to the then current year-to-date Net Sales level in the USA. Each statement provided at the end of the fourth quarter shall contain a reconciliation of actual royalty payments made during that year and the amount actually owed for such year, and any amounts owing to CoCensys shall be paid to CoCensys at the time of such fourth quarter statement, in accordance with the terms of this Article 7.8. If the Term of Co-Promotion ends during an accounting quarter, the amounts due hereunder shall be calculated for such shortened calendar quarter. Any adjustments to royalties owed in the USA 21. * Confidential treatment requested pursuant to Articles 7.6.1 and 7.6.2 shall be done at the end of the calendar year in which such event giving rise to such adjustment occurred; PROVIDED, HOWEVER, that following the entry of one or more generic products in any year, and where royalties were reduced for that year pursuant to Article 7.6.1, the following year's royalty rate for quarterly royalty payments shall be at [ * ] with a reconciliation upward at year end in the event sales of such generic product(s) do not rise to the level specified in Article 7.6.1. 7.9 PROMOTIONAL AND ADVERTISING MATERIALS. The Parties shall disseminate in the USA only those promotional and advertising materials which have been provided or approved for use by the Joint Marketing Committee, the cost of which shall be the responsibility of Wyeth-Ayerst. All such materials shall be consistent with the relevant Marketing Plan approved by the Joint Marketing Committee and neither Party shall make any claims or representations in respect of the Product that have not been approved by the Joint Marketing Committee. All such written and visual materials and all documentary information, promotional material, and oral presentations (where practical) regarding the promotion of the Product will state this arrangement and will display the Wyeth-Ayerst and CoCensys names and logos with equal prominence, as permitted by applicable law. 7.10 PRICING. The Parties will discuss, and the Marketing Plan will include, the general operating guidelines and strategies for the pricing and discounting of the Product in the USA; PROVIDED, HOWEVER, that [ * ] as to pricing and discounting in the USA. 7.11 NO DELEGATION. Each of the Parties may use only its own employees or the employees of one or more of its Affiliates in the course of exercising its Promotion and Co-Promotion rights under this Agreement, unless an alternative arrangement is approved in advance by the JMC. Notwithstanding the foregoing, in the event CoCensys is exclusively marketing, selling, or promoting the Product in the USA, it shall be free to delegate or sublicense such rights to any Third Party. 7.12 RETURNS. Wyeth-Ayerst shall be responsible for handling all returns relating to Product. Any Product returned to CoCensys shall be shipped by CoCensys to the address designated by Wyeth-Ayerst. 7.13 ORDERS. All customer orders for the Product shall be received and executed by Wyeth-Ayerst. 7.14 SAMPLES. Each of the Parties will keep accurate records as to the distribution of samples of Products and comply with all applicable laws, rules and regulations dealing with the distribution of samples. 22. * Confidential treatment requested 7.15 COMPLETION OF SALES. All sales of the Product will be completed, distributed, accounted for, billed and booked by Wyeth-Ayerst. 7.16 TRAINING. Consistent with the Marketing Plan, but not less than ninety (90) days prior to the commencement of the Term of Co-Promotion for the Product, Wyeth-Ayerst and CoCensys shall conduct joint initial training of each Party's sales force at a site to be determined by the JMC. [ * ] 7.17 EXCHANGE OF MARKETING INFORMATION. From time-to-time the Joint Marketing Committee will develop call lists, schedules, and other appropriate information for the purpose of determining the physicians and other persons involved in the drug purchase decision-making process to whom CoCensys and Wyeth-Ayerst, respectively, may detail and otherwise promote each Product. The Parties agree to cooperate in finding an inexpensive and expeditious way to provide a call list and other information indicating the identity of those physicians and other persons involved in the decision-making process regarding the purchase of pharmaceuticals. 8. ACCOUNTS AND RECORDS; WITHHOLDING TAX. 8.1 RECORDS. Wyeth-Ayerst shall keep accurate books and accounts of record in connection with the manufacture, use and/or sale by or for it of the Products in sufficient detail to permit accurate determination of all figures necessary for verification of royalties, profits, milestone payments and other compensation required to be paid hereunder. Wyeth-Ayerst shall maintain such records for a period of three (3) years after the end of the year in which they were generated. 8.2 AUDITS. CoCensys, through an independent certified public accountant reasonably acceptable to Wyeth-Ayerst, shall have the right, at its own expense, to access the books and records of Wyeth-Ayerst for the sole purpose of verifying statements furnished by Wyeth-Ayerst pursuant to Article 7.8. Such access shall be conducted after reasonable prior written notice to Wyeth-Ayerst and during ordinary business hours and shall not be more frequent than once during each calendar year. CoCensys agrees to keep in strict confidence all information learned in the course of such audit, except when it is necessary to reveal such information in order to enforce its rights under this Agreement. CoCensys' right to have such records examined shall survive termination or expiration of this Agreement. In the event such audit reveals an underpayment of [ * ] or more of the amount actually due, Wyeth-Ayerst shall reimburse CoCensys for the costs of such audit in addition to promptly remitting to CoCensys the amount of any underpayment. 8.3 SALES BY SUBLICENSEES. In the event Wyeth-Ayerst grants licenses or sublicenses to others to make or sell the Product, such licenses or sublicenses shall include 23. * Confidential treatment requested an obligation for the licensee or sublicensee to account for and report its Net Sales of such Products on the same basis as if such sales were Net Sales by Wyeth-Ayerst, and CoCensys shall receive royalties in the same amounts as if the Net Sales of the licensee or sublicensee were Net Sales of Wyeth-Ayerst. 8.4 WITHHOLDING. All taxes, assessments and fees of any nature levied or incurred on account of any payments accruing under this Agreement, by national, state or local governments, will be assumed and paid by Wyeth-Ayerst, except taxes levied thereon as income to CoCensys and if such taxes are required to be withheld by Wyeth-Ayerst they will be deducted from payments due to CoCensys and will be timely paid by Wyeth-Ayerst to the proper taxing authority for the account of CoCensys, a receipt or other proof of payment therefor secured and sent to CoCensys as soon as practicable. 9. TRADEMARKS. [ * ] shall select and own the Trademarks for marketing the Product in the USA. [ * ] for (i) registration of such Trademarks and (ii) bringing, maintaining and prosecuting any action to protect or defend such Trademarks shall be borne [ * ] At the termination of this Agreement, [ * ] shall continue to have unrestricted ownership of such Trademark(s) in the USA. [ * ] rights in this Article are subject to Article 7.1.6. 10. MANUFACTURING AND DISTRIBUTION. 10.1 PRIMARY MANUFACTURE. [ * ] shall manufacture or have manufactured its requirements for clinical and commercial supplies of the Product. In fulfilling its manufacturing obligations hereunder, [ * ] will use at least the same level of effort as it employs for its other products of similar scientific and commercial promise. If [ * ] elects to have the Product manufactured, [ * ] shall favorably consider using, but shall not be obligated to use, [ * ] as its manufacturing sublicensee. 10.2 SECOND SOURCE. In order to ensure an uninterrupted supply of the Product, the Parties intend to identify a Third Party manufacturer (the "Second Source") to manufacture the Product in the event that [ * ] is unable to supply all of the reasonably anticipated requirements of the Product. If the Second Source manufactures the Product pursuant to this Article 10.2, Wyeth-Ayerst and CoCensys shall cooperate and assist each other to obtain, transfer or use any licenses, registrations or information reasonably required to permit such Second Source to manufacture the Product. 24. * Confidential treatment requested 10.3 EXCHANGE OF INFORMATION. Subject to Article 17, the Parties undertake to exchange and to use diligent efforts to cause Third Party manufacturers to exchange, on a regular basis, all data and know-how relating to the manufacture of the Product. 10.4 COMPLIANCE. Any manufacture of the Product for sale in the USA shall be performed in full compliance with United States GMP and all applicable laws and regulations. The JMC shall be entitled to audit such compliance and in particular the quality assurance program for the manufacture of the Product. 11. PROSECUTION, MAINTENANCE AND INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS. 11.1 PATENTABLE INVENTIONS. 11.1.1 Wyeth-Ayerst shall own all Inventions made solely by itsemployees and agents, and all patent applications and patents claiming such Inventions. CoCensys shall own all Inventions made solely by its employees and agents, and all patent applications and patents claiming such Inventions. All Inventions made jointly by employees or agents of CoCensys and employees or agents of Wyeth-Ayerst and all patent applications and patents claiming such Inventions shall be owned jointly by CoCensys and Wyeth-Ayerst. All determinations of inventorship under this Article 11.1.1 shall be in accordance with U.S. law. 11.1.2 Wyeth-Ayerst and CoCensys shall each disclose to the other and discuss any Inventions and the desirability of filing a United States patent application covering the Invention, as well as any foreign counterparts. The Party owning the Invention shall make the final decision with respect to any such filings. With respect to jointly owned Inventions, the Parties shall determine which Party shall file and prosecute any patent applications thereon. [ * ] shall be responsible for expenses for preparing and prosecuting joint patent applications in the USA. 11.1.3 Each Party shall have the right to select patent counsel and to take such other actions as are reasonably appropriate to prepare, file, prosecute and maintain patent protection with respect to its Inventions arising under this Article 11.1. 11.2 PROSECUTION AND MAINTENANCE OF PATENT RIGHTS. In the USA, each Party shall be responsible for prosecuting and maintaining its own Patent Rights, subject to Article 11.1.2. To facilitate such decision-making, each Party will appoint a "patent coordinator", who will have the authority to make such decision on behalf 25. * Confidential treatment requested of such Party. All expenses for filing, prosecuting and maintaining the CoCensys Patent Rights in the USA shall be borne [ * ] 11.3 PATENT EXTENSIONS. The Party holding a Patent Right, if requested by and with the assistance of the other Party, shall apply in a timely manner for such patent term extensions or patent restoration certificates for such Patent Right as are available under the Federal Drug Price Competition and Patent Term Restoration Act of 1984 (Pub. L. No. 98-417), and any amendments thereof or any successor acts thereto in the USA. [ * ] expenses incurred in connection with such patent term extensions or patent restoration certificates shall be borne [ * ]. 11.4 COOPERATION. Each of the Parties shall execute or have executed by its appropriate employees, representatives, agents, and contractors such documents as may be necessary to obtain, perfect or maintain any Patent Rights filed or to be filed pursuant to this Agreement, and to cooperate with the other Party so far as reasonably necessary with respect to furnishing all information and data in its possession reasonably necessary to obtain or maintain such Patent Rights. 11.5 INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS. 11.5.1 (a) If either Party should become aware of any infringement or threatened infringement or misappropriation, as the case may be, in the USA of any Intellectual Property Rights of the other Party, it shall promptly notify such other Party in writing. As soon as practicable the Parties shall confer on the particulars of such infringement or misappropriation and the possible courses of action to be taken. The Party holding the affected Intellectual Property Rights shall have the right, but not the obligation, to institute, prosecute and control any legal proceedings in its own name and by its own counsel and at its own expense, subject to Article 11.5.1(d), to prevent or restrain such infringement, and the other Party shall have the right, [ * ] to be represented in such action by its own counsel. If one Party brings any such action or proceeding, the other Party hereby consents to being joined as a party plaintiff where necessary and, in case of joining, such other Party agrees to give the first Party reasonable assistance and authority to file and to prosecute such suit, at the exercise of the Party bringing such suit. 26. * Confidential treatment requested (b) Notwithstanding the foregoing, the Parties shall jointly determine which Party shall have the primary right and responsibility (but not the obligation) to institute, prosecute, and control any action or proceeding with respect to infringement or misappropriation of jointly owned Intellectual Property Rights in the USA and the other Party shall have the right, [ * ] to be represented by its counsel. Each Party hereby consents to the filing of any such action by the other Party with respect to any jointly owned Patent Rights in accordance with this Article 11.5.1(b). (c) If one Party alone prosecutes an infringement or misappropriation of Intellectual Property Rights, [ * ] any damages and costs recovered in any proceedings or by way of settlement under Articles 11.5.1(a) and 11.5.1(b) above or Article 11.5.2 shall [ * ] as applicable. (d) If both Parties participate in prosecuting an infringement or misappropriation of Intellectual Property Rights, the actual costs and expenses of all suits brought by either Party under this Article 11.5.1 shall be [ * ] Any remaining damages shall then be split [ * ] to CoCensys and [ * ] to Wyeth-Ayerst. 11.5.2 If the Party having the primary right to institute, prosecute, and control such infringement or misappropriation action under Article 11.5.1 fails to do so within a period of one hundred twenty (120) days after receiving notice of the infringement, or if that Party, after initiating an action, determines to discontinue such action, the other Party shall have the right to bring and control or take over any such action by counsel of its own choice, and at its own expense, subject to Article 11.5.1(c) unless prevented from doing so by the laws of the country where the infringement or misappropriation occurred or is threatened. 11.5.3 In connection with any proposed settlement in respect of any infringement or threatened infringement of any Intellectual Property Rights, the Party intending to settle shall notify and consult with the other Party as to the terms of settlement, whose written consent shall be required prior to any such settlement, such consent shall not be unreasonably withheld. 11.5.4 In connection with any action taken by either Party against a Third Party to protect or enforce any Intellectual Property Rights, the 27. * Confidential treatment requested other Party shall, if requested, consult with the Party taking such action, and make available as witnesses its employees or as evidence any materials, and/or data as are reasonably necessary for the furtherance of such action. The expenses in connection with the providing of witnesses and/or the making available of any materials and/or data shall be [ * ] 11.6 INFRINGEMENT OF THIRD PARTY PATENT RIGHTS. 11.6.1 If Wyeth-Ayerst should be of the opinion that it cannot make, import, use, market and/or sell the Product in the USA under its own Intellectual Property Rights or those licensed to it by CoCensys under this Agreement without infringing a Third Party's patent, it shall notify CoCensys. Both Parties then shall seek an opinion of patent counsel acceptable to both Parties. If such patent counsel concurs with Wyeth-Ayerst's opinion, they shall jointly or independently endeavor to secure a license from the Third Party on terms that are acceptable to both Parties. 11.6.2 If, in the opinion of patent counsel selected under Article 11.6.1, the Third Party patent, if litigated, would be found invalid or not be infringed by the manufacture or sale of the Product or if the Parties otherwise mutually agree to obtain a license to such Third Party patent, the Parties shall proceed in accordance with the terms of this Agreement, unless an action for infringement is brought against one or both Parties. 11.6.3 If either Party is sued for patent infringement of any Third Party patents arising out of the manufacture, use, sale or importation of the Product in the USA, the Parties shall promptly meet to discuss the course of action to be taken to resolve or defend any such infringement litigation. Each Party shall provide the other with such assistance as is reasonably necessary and shall cooperate in the defense of any such action. [ * ] of any cost/expense of defending such action incurred by Wyeth-Ayerst in the USA and any damages and/or other compensation imposed on Wyeth/Ayerst in such country may be deducted by Wyeth-Ayerst from any amounts otherwise due CoCensys under this Agreement in the form of royalties and/or profit-sharing for the USA, PROVIDED, HOWEVER, in no event shall royalty and/or profit sharing amounts due CoCensys for such country be reduced by more than [ * ] in any given calendar year as a result of this sentence. 28. * Confidential treatment requested 12. FORCE MAJEURE. Neither Party shall be liable to the other for delay or failure in the performance of the obligations on its part contained in this Agreement if and to the extent that such failure or delay is due to circumstances beyond its control which it could not have avoided by the exercise of reasonable diligence. It shall notify the other Party promptly should such circumstances arise, giving an indication of the likely extent and duration thereof, and shall use all commercially reasonable efforts to resume performance of its obligations as soon as practicable. 13. TERM AND TERMINATION. 13.1 GENERAL CONDITIONS OF EXPIRATION AND TERMINATION. 13.1.1 Any permitted sublicenses granted hereunder shall automatically terminate or expire at the same time as this Agreement expires (insofar as they haven't already terminated), except where, and to the extent, any license granted hereunder survives expiration of this Agreement, as expressly provided in this Agreement. Upon early termination of this Agreement for any reason, if any permitted sublicensee is not then in default under its sublicense agreement with Wyeth-Ayerst, then such sublicensee shall automatically have a license under this Agreement as a direct licensee of CoCensys, on economic terms as are set forth herein with respect to Wyeth-Ayerst and otherwise with the same rights and obligations as Wyeth-Ayerst under this Agreement. 13.1.2 The provisions of Articles 8, 9, 11, 14, 15, and 17 shall survive termination or expiration of this Agreement. 13.1.3 Termination or expiration of this Agreement shall not operate to deprive either Party of any rights or remedies either at law or in equity or to relieve either Party of any of its obligations incurred prior to the effective date of such termination or expiration. 13.2 TERM. Unless earlier terminated as set out in this Agreement, the term of this Agreement shall end when all the respective royalty and profit payment obligations of the Parties under this Agreement have expired. 13.3 TERMINATION FOR BREACH. 13.3.1 TERMINATION FOR BREACH. Except as otherwise provided in this Section 13.3.1, either Party may terminate this Agreement for material breach by the other Party, which breach remains uncured for [ * ] in the case of nonpayment of any amount due 29. * Confidential treatment requested and [ * ] for all other breaches, each measured from the date written notice of such breach is given to the breaching party, or, if such breach is not susceptible of cure within such [ * ] period and the breaching party uses diligent good faith efforts to cure such breach, for [ * ] after written notice to the breaching party. 13.3.2 BREACH BY WYETH-AYERST. If termination is due to a material breach by Wyeth-Ayerst, all rights granted to Wyeth-Ayerst under this Agreement shall revert to CoCensys, provided that [ * ] as of the date of such termination. 13.4 BREACH BY COCENSYS. In the event of an uncured material breach by CoCensys, [ * ] subject to the payment of royalties as provided in Article 7.1.5. 13.5 NO LIMIT ON REMEDIES. Nothing herein shall exclude or limit any remedies or entitlements whatsoever which the law confers to either Party in the event of a breach of contractual obligations by the other Party. 13.6 UNILATERAL TERMINATION BY WYETH-AYERST. Wyeth-Ayerst shall have the right to unilaterally terminate this Agreement upon [ * ] written notice. In the event of such termination by Wyeth-Ayerst, all Wyeth-Ayerst's worldwide rights to the Licensed Compound and the Product shall revert to CoCensys. Wyeth-Ayerst shall not be obligated to further fund the Development or the Back-Up Program or to make any other payments under this Agreement for events which occur after the effective date of such termination. After the termination date, Wyeth-Ayerst will make its relevant personnel, relevant data and other resources available as are reasonably necessary to effect an orderly transition of Development and commercialization of the Product for a period of [ * ] after termination. In the event of such termination, Wyeth-Ayerst shall (i) [ * ] (ii) transfer to CoCensys [ * ] and (iii) [ * ] 13.7 DETERMINATION OF CO-PROMOTION RIGHTS UPON CHANGE IN CONTROL. 13.7.1 In the event of a Change of Control (as defined below) of [ * ] promptly shall notify [ * ] of such Change in Control and [ * ] shall have the right, for a period of [ 30. * Confidential treatment requested * ] from receipt of such notice, and upon [ * ] written notice to [ * ] (the "Notice of Intent"), to [ * ] 13.7.2 For purposes of this Article 13.7, "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. 13.7.3 A Change of Control of [ * ] shall have no effect on this Agreement. 14. ASSIGNMENT. 14.1 ASSIGNMENT TO AFFILIATES. Either Party may assign any of its rights or obligations under this Agreement in any country to any Affiliates, for so long as they remain Affiliates; provided, however, that such assignment shall not relieve the assigning Party of its responsibilities for performance of its obligations under this Agreement. 14.2 OTHER PERMITTED ASSIGNMENT. Either Party may assign its rights or obligations under this Agreement in connection with a merger or similar reorganization or the sale of all or substantially all of its assets, subject to provisions of Article 13.7, [ * ] provided, that in the event of such merger, reorganization or sale, [ * ] All other assignments by any Party shall [ * ] 14.3 BINDING NATURE OF ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Parties. Any assignment not in accordance with this Article 14 shall be void. 31. * Confidential treatment requested 15. INDEMNIFICATION. 15.1 CROSS INDEMNIFICATION. 15.1. Each Party hereby agrees to save, defend and hold the other Party and its agents and employees harmless from and against any and all suits, claims, actions, demands, liabilities, expenses and/or losses, including reasonable legal expense and attorneys' fees, brought by a Third Party or that arise in connection with any claim brought by a Third Party ("Losses") resulting directly from the manufacture, use, handling, storage, sale or other disposition of Products in the USA to the extent such Losses result solely from (i) the negligence of the indemnifying party or breach by the indemnifying party of any provision of this Agreement, (ii) failure of the indemnifying party to manufacture or have manufactured Products (bulk or finished form) according to cGMP or Product specifications, or (iii) marketing activities of the indemnifying party contrary to applicable governmental regulations or outside the approved labeling of the Product. 15.1.2 In the event CoCensys is seeking indemnification under Article 15.1.1, it shall inform Wyeth-Ayerst of a claim as soon as is reasonably practicable after it receives notice of the claim, shall permit Wyeth-Ayerst to assume direction and control of the defense of the claim (including the right to settle the claim solely for monetary consideration), and shall cooperate as requested (at the expense of Wyeth-Ayerst) in the defense of the claim. 15.1.3 In the event Wyeth-Ayerst is seeking indemnification under Article 15.1.1, it shall inform CoCensys of a claim as soon as is reasonably practicable after it receives notice of the claim, shall permit CoCensys to assume direction and control of the defense of the claim (including the right to settle the claim solely for monetary consideration), and shall cooperate as requested (at the expense of CoCensys) in the defense of the claim. 15.2 INSURANCE. Each Party further agrees to use reasonable commercial efforts to obtain and maintain, during the term of this Agreement, Comprehensive General Liability Insurance, including Products Liability, with reputable and financially secure insurance carriers to cover its indemnification obligations under Articles 15.1 and 15.2 or self-insurance, with limits of not less than $5,000,000 per occurrence and in the aggregate. 32. 16. WARRANTIES AND REPRESENTATIONS. 16.1 GENERAL. Each Party hereby warrants to the other: 16.1.1 that it has full power and authority to execute and deliver this Agreement and to perform the obligations on its part hereunder; and 16.1.2 that the execution and delivery by it of this Agreement and the performance of its obligations hereunder have been duly approved by all necessary corporate action and do not require any shareholder action or approval. 16.1.3 that to the best of its knowledge, the manufacture, use, importation, offer for sale or sale of CO 2-6749 will not infringe any Third Party patent in the USA. 16.2 USC/ROCKEFELLER LICENSE. Wyeth-Ayerst acknowledges and understands that certain technologies sublicensed to Wyeth-Ayerst hereunder were licensed to CoCensys under terms of that certain Exclusive License Agreement among CoCensys, The University of Southern California and the Rockefeller University dated August 28, 1990 (the "USC/Rockefeller License"), a copy of which has been provided to Wyeth-Ayerst. CoCensys has received a letter from the University of Southern California, dated April 11, 1997, permitting CoCensys to grant to Wyeth-Ayerst a sublicense under such license. 17. CONFIDENTIAL INFORMATION. 17.1 INFORMATION. Each Party shall keep all information received from the other Party (the "Information") confidential and shall not disclose nor use the Information without the other Party's written consent except to the extent contemplated by this Agreement. This restriction shall not, however, prevent disclosure of the Information if and to the extent that disclosure is required by law, PROVIDED THAT the disclosing Party informs the other Party without delay of any such requirement, in order to allow such other Party to object to such disclosure and to seek an appropriate protective order or similar protection prior to disclosure. 17.2 EXCEPTIONS. The above obligations shall not apply or shall cease to apply to Information which: 17.2.1 is now, or hereafter becomes, through no act or failure to act on the part of the receiving Party, generally known or available; 17.2.2 is known by the receiving Party at the time of receiving such information, as evidenced by its written records; 33. 17.2.3 is hereafter furnished to the receiving Party by a Third Party, as a matter of right and without restriction on disclosure; 17.2.4 is independently developed by or for the receiving Party without any breach of this Article 17; or 17.2.5 is the subject of a written permission to disclose provided by the disclosing Party. 17.3 PERMITTED DISCLOSURES. Information may be disclosed to employees, agents, consultants, sublicensees or suppliers of the recipient Party or its Affiliates, but only to the extent required to accomplish the purposes of this Agreement and only if the recipient Party obtains prior agreement from its employees, agents, consultants, sublicensees or suppliers to whom disclosure is to be made to hold in confidence and not make use of such information for any purpose other than those permitted by this Agreement. Each Party will use at least the same standard of care as it uses to protect proprietary or confidential information of its own to ensure that such employees, agents, consultants, sublicensees or suppliers do not disclose or make any unauthorized use of the Information. 17.4 DISCLOSURE OF AGREEMENT. Neither CoCensys nor Wyeth-Ayerst shall release to any Third Party or publish in any way any non-public information with respect to the terms of this Agreement or concerning their cooperation without the prior written consent of the other, which consent will not be unreasonably withheld or delayed; provided; however that either Party may disclose the terms of this Agreement to the extent required to comply with applicable laws, including without limitation the rules and regulations promulgated by the Securities and Exchange Commission and the Party intending to disclose the terms of this Agreement shall provide the nondisclosing party an opportunity to review and comment on the intended disclosure which is reasonable under the circumstances. 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) if the disclosing Party uses reasonable efforts to obtain a signed confidentiality agreement with such financial institution with respect to such information, upon terms substantially similar to those contained in this Article 17. 17.5 PUBLICITY. Subject to Article 17.4, all publicity, press releases and other announcements relating to this Agreement or the transaction contemplated hereby shall be reviewed in advance by, and shall be subject to the approval of, both Parties. 17.6 PUBLICATION. The Parties shall cooperate in appropriate publication of the results of research and development work performed pursuant to this Agreement, but 34. subject to their predominating interest in obtaining patent protection for any patentable subject matter. The determination of authorship for any paper shall be in accordance with accepted scientific practice. Notwithstanding anything in this Article 17.6 to the contrary, all publication and presentations of the results of research and development work performed pursuant to this Agreement must be approved in advance by both Parties. 18. MISCELLANEOUS. 18.1 NO WAIVER OF CONTRACTUAL RIGHTS. The failure of either Party to require performance by the other Party of any of that other Party's obligations hereunder shall in no manner affect the right of such Party to enforce the same at a later time. No waiver by any Party hereto of any condition, or of the breach of any provision, term, representation or warranty contained in 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 condition or breach, or of any other condition or of the breach of any other provision, term representation or warranty hereof. 18.2 EXECUTION AND AMENDMENTS. 18.2.1 Each Party shall execute and deliver all such instruments and perform all such other acts as the other Party may reasonably request in order to carry out the transactions contemplated by this Agreement. 18.2.2 This Agreement may not be amended or modified except by written instrument signed by or on behalf of both Parties. 18.3 SEVERABILITY. If a court or other tribunal of competent jurisdiction should hold any term or provision of this agreement to be excessive, or invalid, void or unenforceable, the offending term or provision shall be deleted, and, if possible, replaced by a term or provision which, so far as practicable achieves the legitimate aims of the Parties. 18.4 RELATIONSHIP BETWEEN THE PARTIES. Both Parties are independent contractors under this Agreement. Nothing contained in this Agreement is intended nor shall be construed so as to constitute CoCensys or Wyeth-Ayerst as partners or joint venturers with respect to this Agreement. Neither Party shall have the express or the implied right nor authority to assume or create any obligations on behalf of or in the name of the other Party, nor to bind the other Party to any other contract, agreement or undertaking with any Third Party. 18.5 CORRESPONDENCE AND NOTICES. 35. 18.5.1 Correspondence, reports, documentation, and any other communication in writing between the Parties in the course of ordinary implementation of this Agreement shall be delivered by hand, sent by facsimile, or by airmail to any one member of the JMC appointed by the Party which is to receive such written communication, or any other way as the JMC deems appropriate. 18.5.2 Extraordinary notices and communications (including but not limited to notices of termination, force majeure, material breach, change of address) shall be in writing and sent by prepaid registered or certified air mail, or by facsimile confirmed by prepaid registered or certified air mail letter, and shall be deemed to have been properly served to the addressee upon receipt of such written communication. 18.5.3 In the case of CoCensys, the proper address for communications and for all payments shall be: CoCensys, Inc. 213 Technology Drive Irvine, California 92618, USA Attn: Chief Executive Officer and in the case of Wyeth-Ayerst, the proper address for communications and for all payments shall be: Wyeth-Ayerst Laboratories 555 Lancaster Avenue St. Davids, PA 19087 Attn: Senior Vice President, Global Business Development With a copy to: American Home Products Corporation 5 Giralda Farms Madison, NJ 07940 Attn: Senior Vice President and General Counsel 18.6 CHOICE OF LAW. This Agreement is subject to and governed by the laws of the State of Delaware, excluding its conflict of laws provisions. 18.7 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be an original and all of which shall constitute together the same document. 36. This Agreement together with its Exhibits and further agreements mentioned herein and Agreement (No. 2) constitutes the entire agreement of the Parties with respect to the subject matter hereof as of its date, and supersedes all prior agreements, understandings, representations and proposals, written or oral, relating thereto. AMERICAN HOME PRODUCTS CORPORATION COCENSYS, INC. - ------------------------------- ------------------------------- Name Name Title Title 37. EXHIBIT A BACK-UP COMPOUND CANDIDATE CRITERIA ----------------------------------------------------------- ----------------------------------------------------------- CRITERION FOR IND-TRACKING ACTIVITIES REQUIRED ----------------------------------------------------------- ----------------------------------------------------------- [ * ] * Confidential treatment requested EXHIBIT B [ * ] * Confidential treatment requested EXHIBIT C COCENSYS PATENT RIGHTS US ISSUE DATE EXPIRATION DATE CORRESPONDING FOREIGN APPLICATION - ------------------------------------------------------------------------- [ * ] * Confidential treatment requested EXHIBIT D DEFINITION OF FULLY BURDENED COST The following expenses are manufacturing expenses which are prepared in accordance with generally accepted accounting principles consistently applied. THE FOLLOWING EXPENSES ARE INCLUDED IN MANUFACTURING COSTS: [ * ] * Confidential treatment requested EXHIBIT E WYETH-AYERST PATENT RIGHTS [ * ] * Confidential treatment requested EXHIBIT F STOCK PURCHASE AGREEMENT COCENSYS, INC. ----------- PREFERRED STOCK PURCHASE AGREEMENT ----------- MAY , 1997 TABLE OF CONTENTS PAGE 1. PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Shares.. . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Closing Date . . . . . . . . . . . . . . . . . . . . . . . 1 1.3 Delivery . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . 1 2.1 Organization and Standing; Articles and Bylaws . . . . . . 1 2.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . 1 2.3 Validity of Shares and Conversion Shares . . . . . . . . . 2 2.4 Offering . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.5 Full Disclosure. . . . . . . . . . . . . . . . . . . . . . 2 2.6 SEC Filings. . . . . . . . . . . . . . . . . . . . . . . . 3 2.7 Authorized Capital; Outstanding Shares . . . . . . . . . . 3 2.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . 3 2.9 Voting Arrangements. . . . . . . . . . . . . . . . . . . . 3 2.10 No Conflict; No Violation. . . . . . . . . . . . . . . . . 3 2.11 Consents and Approvals.. . . . . . . . . . . . . . . . . . 3 2.12 Absence of Certain Developments. . . . . . . . . . . . . . 4 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER . . . . . . . . 4 3.1 Legal Power. . . . . . . . . . . . . . . . . . . . . . . . 4 3.2 Due Execution. . . . . . . . . . . . . . . . . . . . . . . 4 3.3 Investment Representations . . . . . . . . . . . . . . . . 4 4. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . 6 4.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . 6 4.2 Registration . . . . . . . . . . . . . . . . . . . . . . . 6 4.3 Expenses of Registration . . . . . . . . . . . . . . . . . 7 4.4 Obligations of the Company . . . . . . . . . . . . . . . . 8 4.5 Indemnification. . . . . . . . . . . . . . . . . . . . . . 9 4.6 Information by Holder. . . . . . . . . . . . . . . . . . . 11 4.7 Transfer of Registration Rights. . . . . . . . . . . . . . 11 4.8 Delay of Registration. . . . . . . . . . . . . . . . . . . 11 4.9 Rule 144 Reporting.. . . . . . . . . . . . . . . . . . . . 11 4.10 "Market Stand-Off" Agreement.. . . . . . . . . . . . . . . 12 5. CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . 12 5.1 Conditions to Obligations of Purchaser . . . . . . . . . . 12 5.2 Conditions to Obligations of the Company . . . . . . . . . 13 6. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 14 6.1 Governing Law. . . . . . . . . . . . . . . . . . . . . . . 14 6.2 Survival . . . . . . . . . . . . . . . . . . . . . . . . . 14 6.3 Successors and Assigns . . . . . . . . . . . . . . . . . . 14 i 6.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . 14 6.5 Separability . . . . . . . . . . . . . . . . . . . . . . . 14 6.6 Amendment and Waiver . . . . . . . . . . . . . . . . . . . 14 6.7 Delays or Omissions. . . . . . . . . . . . . . . . . . . . 15 6.8 Notices, etc . . . . . . . . . . . . . . . . . . . . . . . 15 6.9 Finder's Fees. . . . . . . . . . . . . . . . . . . . . . . 16 6.10 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . 16 6.11 Information Confidential . . . . . . . . . . . . . . . . . 16 6.12 Titles and Subtitles . . . . . . . . . . . . . . . . . . . 17 6.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . 17 ii COCENSYS, INC. PREFERRED STOCK PURCHASE AGREEMENT THIS AGREEMENT is made as of May 12, 1997, by and among COCENSYS, INC., a Delaware corporation (the "Company"), and AMERICAN HOME PRODUCTS CORPORATION, a Delaware corporation ("Purchaser"). 1. PURCHASE AND SALE 1.1 SHARES. Subject to the terms and conditions hereof, and in reliance upon the representations, warranties and agreements contained herein, the Company hereby agrees to issue and sell to Purchaser, and Purchaser hereby agrees to purchase from the Company, for $5,000,000 (the "Purchase Price"), 100,000 shares (the "Shares") of the Company's Series C Convertible Preferred Stock (the "Preferred Stock"). The terms of the Preferred Stock are set forth in the Certificate of Designation annexed hereto as Exhibit A (the "Certificate of Designation"). 1.2 CLOSING DATE. The closing of the sale and purchase of the Shares (the "Closing") shall take place on May 12, 1997 (the "Closing Date"). 1.3 DELIVERY. At the Closing, the Company will deliver to Purchaser a certificate or certificates, in such denominations and registered in such names as Purchaser may designate by notice to the Company, representing the Shares to be purchased by Purchaser from the Company, dated the Closing Date, against payment of the Purchase Price by wire transfer, a check made payable to the order of the Company, or any combination thereof. 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as otherwise specifically disclosed to Purchaser in writing on the date hereof, the Company hereby represents and warrants to Purchaser as follows: 2.1 ORGANIZATION AND STANDING; ARTICLES AND BYLAWS. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has full and requisite power and authority to own and operate its properties and assets and to carry on its business as presently conducted and as proposed to be conducted. The Company is duly qualified as a foreign corporation to do business in each jurisdiction in which the ownership of its property or the conduct of its business requires such qualification, except where the failure to so qualify would not materially or adversely affect the Company, its business, assets, prospects, condition (financial or otherwise) or operations. 2.2 AUTHORIZATION. The Company has all requisite corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder and to issue the Shares as contemplated herein. All corporate action on the part of the Company, its 1 officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement, the performance of all the Company's obligations hereunder, for the authorization, issuance, sale and delivery of the Shares and for the reservation for issuance of the shares of Common Stock issuable upon conversion of the Shares (the "Conversion Shares") has been taken or will be taken prior to the Closing. This Agreement, when executed and delivered, shall constitute a valid and legally binding obligation of the Company in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors. 2.3 VALIDITY OF SHARES AND CONVERSION SHARES. The sale of the Shares is not and will not be subject to any preemptive rights or rights of first refusal that have not been waived and, when issued, sold and delivered in compliance with the provisions of this Agreement and, as applicable, the Certificate of Designation, the Shares and the Conversion Shares will be validly issued, fully paid and nonassessable and will be free of any liens, claims or encumbrances; PROVIDED, HOWEVER, that the Shares and the Conversion Shares will be subject to restrictions on transfer under state and/or federal securities laws, and the Shares will be subject to additional restrictions on transfer, in each case as set forth herein, or as otherwise required by such laws at the time a transfer is proposed. 2.4 OFFERING. Assuming the accuracy of the representations and warranties of Purchaser contained in Section 3.3 hereof on the date hereof and on the Closing Date, the offer, issue, and sale of the Shares, and the issuance of the Conversion Shares (assuming no change in applicable law on each Conversion Date), are and will be exempt from the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (the "1933 Act") and have been or will be registered or qualified (or are or will be exempt from registration and qualification) under the registration, permit, or qualification requirements of all applicable state securities laws. 2.5 FULL DISCLOSURE. (a) The Company has furnished to Purchaser the Company's annual report on Form 10-K for the fiscal year ended December 31, 1996, as amended (the "1996 10-K") and the Company's Current Report on Form 8-K dated April 29, 1997 (the "8-K") (the "SEC Documents"). The Company warrants that, as of their respective dates (or if amended, as of the date of such amendment), the SEC documents complied as to form with the requirements of the Securities Exchange Act of 1934 (the "1934 Act"), and the information contained in such documents did not contain any untrue statement of a material fact, and did not omit to state any material fact necessary to make any statement, in light of the circumstances under which such statement was made, not misleading. The Company further warrants that the 1996 10-K, as modified by the 8-K, does not contain any untrue statement of a material fact and does not omit to state any material fact necessary to make the statements therein not misleading as of the date hereof. (b) The Company has not filed with the Securities and Exchange Commission (the "SEC") any reports under the 1934 Act since the date of the 8-K. 2 2.6 SEC FILINGS. The Company has timely filed with the SEC all reports and other documents required to be so filed. The Company agrees that, as long as the Development and Commercialization Agreement between the Company and Wyeth-Ayerst Laboratories, dated as of May 12, 1997, is in effect, it will, upon the Purchaser's written request, promptly furnish to Purchaser all SEC filings and any annual and quarterly reports furnished to the Company's stockholders. 2.7 AUTHORIZED CAPITAL; OUTSTANDING SHARES. The Company is authorized to issue 75,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock. As of March 31, 1997, there were 22,516,863 shares of Common Stock and 100,000 shares of Preferred Stock outstanding. No shares of capital stock, or securities convertible into or exercisable for capital stock or other rights affecting the capital stock, have been issued since such date except for issuances pursuant to the Company's equity compensation plans or pursuant to outstanding options, warrants or rights, in each case as described in the 1996 10-K. All outstanding shares of Common Stock have been duly authorized and validly issued and are fully paid and non-assessable; and none of the outstanding shares of Common Stock were issued in violation of the preemptive rights, if any, of any stockholders of the Company. 2.8 LITIGATION. There is no action, suit or proceeding pending, or, to the Company's knowledge, threatened, against the Company (a) which questions the validity of this Agreement or the ability of the Company to consummate the transactions contemplated hereby or (b) which, singly or in the aggregate, if the subject of unfavorable decision, ruling or finding, would materially adversely affect the business, properties, prospects, operations, or financial condition of the Company, in each case as described in the 1996 10-K. 2.9 VOTING ARRANGEMENTS. To the best of the Company's knowledge, there are no outstanding stockholder agreements, voting trusts, proxies or other arrangements or understandings among the stockholders of the Company relating to the voting of their respective shares. 2.10 NO CONFLICT; NO VIOLATION. The execution, delivery and performance of this Agreement and consummation of the transactions contemplated hereby will not (a) violate or conflict with any provisions of the Amended and Restated Certificate of Incorporation, as amended, or Bylaws of the Company; (b) result in any breach, conflict with, violation of or default or loss of a benefit under, or permit the acceleration of any obligation under (in each case, upon the giving of notice, the passage of time, or both) any mortgage, indenture, lease, loan agreement or other agreement or instrument, permit, franchise, license, judgment, order, decree, law, ordinance, rule or regulation applicable to the Company or its properties. 2.11 CONSENTS AND APPROVALS. All consents, approvals, orders, or authorizations of, or registrations, qualifications, designations, declarations, or filings with, any federal, state or local governmental authority, required on the part of the Company in connection with the valid execution, delivery and performance of this Agreement, the offer, sale or issuance of the Shares, or the consummation of any other transaction contemplated hereby have been obtained, or will be effective at the Closing, except for notices required or permitted to be filed 3 with certain state and federal securities commissions after the Closing, which notices will be filed on a timely basis. 2.12 ABSENCE OF CERTAIN DEVELOPMENTS. Except as disclosed in or contemplated by the SEC Documents, since December 31, 1996, the Company has not (a) incurred or become subject to any material liabilities (absolute or contingent) except current liabilities incurred, and liabilities under contracts entered into, in the ordinary course of business, consistent with past practices; (b) mortgaged, pledged or subjected to lien, charge or any other encumbrance any of its assets, tangible or intangible; (c) sold, assigned or transferred any of its assets or canceled any debts or obligations except in the ordinary course of business, consistent with past practices; (d) suffered any extraordinary losses, or waived any rights of substantial value; (e) sold, assigned or transferred to a third party that is not an affiliate (within the meaning set forth in Rule 405 under the Securities Act of 1933, as amended) any material patents, trademarks, copyrights, trade secrets or other intangible assets for compensation less than the fair value of such assets; (f) declared, paid or otherwise made any dividend or distribution of any kind on its capital stock; (g) entered into any material transaction other than in the ordinary course of business, consistent with past practices; or (h) otherwise had any material change in its condition, financial or otherwise, except for changes in the ordinary course of business, consistent with past practices, none of which individually or in the aggregate has been materially adverse. 2.13 NASDAQ NATIONAL MARKET DESIGNATION. The Common Stock of the Company is listed on the Nasdaq National Market and the Company knows of no reason or set of facts which is likely to result in the delisting of the Common Stock by the Nasdaq National Market or the inability of such stock to continue to be included in the Nasdaq National Market. 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. Purchaser hereby represents and warrants to the Company as follows: 3.1 LEGAL POWER. It has the requisite legal power to enter into this Agreement, to purchase the Shares hereunder, and to carry out and perform its obligations under the terms of this Agreement. 3.2 DUE EXECUTION. This Agreement has been duly authorized, executed and delivered by it, and, upon due execution and delivery by the Company, this Agreement will be a valid and binding agreement of it in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors. 3.3 INVESTMENT REPRESENTATIONS. (a) It is acquiring the Shares, and intends to acquire the Conversion Shares, for its own account, not as nominee or agent, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the 1933 Act. 4 (b) It understands and agrees that the Shares have not been and, when issued, the Conversion Shares will not be, registered under the 1933 Act by reason of a specific exemption therefrom, that they must be held by it indefinitely, and that it must, therefore, bear the economic risk of such investment indefinitely, unless a subsequent disposition thereof is registered under the 1933 Act or is exempt from such registration; each certificate representing the Shares and the Conversion Shares will be endorsed with the following legend: THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE 1933 ACT, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS (A) PURSUANT TO RULE 144 UNDER THE 1933 ACT OR (B) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT COVERING SUCH SECURITIES OR (C) THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT; (iii) each certificate representing the Shares also will be endorsed with the following legend: THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS (A) THE TRANSFEREE IS AN AFFILIATE OF THE HOLDER WITHIN THE MEANING OF RULE 144 UNDER THE 1933 ACT OR (B) ALL SUCH SECURITIES ARE TRANSFERRED TO A SINGLE INDIVIDUAL OR ENTITY; and the Company will instruct any transfer agent not to register the transfer of any of the Shares unless the conditions specified in the foregoing legends are satisfied, PROVIDED HOWEVER, that to the extent the legend set forth in clause (b)(ii) above is no longer required, the Company shall cause its transfer agent to issue a new certificate or certificates free of such legend. (c) It has been furnished with such materials and has been given access to such information relating to the Company as it or its qualified representative has requested and it has been afforded the opportunity to ask questions regarding the Company and the Shares, all as it has found necessary to make an informed investment decision. (d) It is an "accredited investor" within the meaning of Regulation D under the 1933 Act. (e) It was not formed for the specific purpose of acquiring the Shares or the Conversion Shares. 5 4. REGISTRATION RIGHTS. The Company hereby grants to Purchaser the registration rights set forth in this Section 4, with respect to the Registrable Securities (as hereinafter defined) owned by Purchaser. 4.1 DEFINITIONS. As used in this Section 4: (a) The term "Holder" or "Holders" shall mean (i) Purchaser and (ii) any other person holding or having the right to acquire Registrable Securities to whom these registration rights have been transferred pursuant to Subsection 4.7 hereof. (b) The terms "register," "registered," and "registration" refer to a registration effected by filing with the SEC a registration statement (the "Registration Statement") in compliance with the 1933 Act and the declaration or ordering by the SEC of the effectiveness of such Registration Statement. (c) The term "Registrable Securities" means (i) the shares of Common Stock of the Company issued upon conversion of the Shares (the "Conversion Shares") in accordance with the Certificate of Designation and such other shares of Common Stock of the Company held by Purchaser from time to time and (ii) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right, or other security that is issued as) a dividend or other distribution with respect to, or in exchange or in replacement of, the shares referred to in clause (i) of this subsection (c); PROVIDED, HOWEVER, that Registrable Securities shall cease to be Registrable Securities upon the expiration of the Market Stand-Off Agreement set forth in Section 4.10 hereof. In the event of any recapitalization by the Company, whether by stock split, reverse stock split, stock dividend or the like, the number of shares of Registrable Securities shall be proportionately increased or decreased. 4.2 REGISTRATION. (a) REGISTRATION. If at any time or from time to time the Company shall determine to register any of its securities for its own account (other than a registration relating solely to employee benefit plans or a registration on Form S-4 relating solely to an SEC Rule 145 transaction) or for the account of security holders pursuant to demand registration rights, the Company will: (i) promptly give to each Holder written notice thereof (which shall include a list of the jurisdictions in which the Company intends to attempt to qualify such securities under the applicable blue sky or other state securities laws); and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within 20 calendar days 6 after receipt of such written notice from the Company, by any Holder or Holders, except as set forth in Subsection 4.2(b) below. (b) UNDERWRITING. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Subsection 4.2(a)(i). In such event the right of any Holder to registration pursuant to this Section 4 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall, together with the Company and any other parties distributing their securities through such underwriting, enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. Notwithstanding any other provision of this Subsection 4.2, if the underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the underwriter may limit the number of Registrable Securities to be included in the registration and underwriting, or may exclude Registrable Securities entirely from such registration and underwriting subject to the terms of this paragraph. The Company shall so advise all holders of the Company's securities that would otherwise be registered and underwritten pursuant hereto, and the number of shares of such securities, including Registrable Securities, that may be included in the registration and underwriting shall be allocated in the following manner: shares, other than Registrable Securities and other securities carrying registration rights, requested to be included in such registration by stockholders shall be excluded and if a limitation on the number of shares is still required, the number of securities that may be included shall be allocated among the Holders and holders of securities having PARI PASSU registration rights, if any, in proportion, as nearly as possible, to the respective amounts of such securities held by each such holder, in each case at the time of filing the Registration Statement. In the event of any underwriter cutback, if any selling stockholder which is a Holder of Registrable Securities is a partnership or corporation, the partners, retired partners and stockholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling Holder", and any pro rata reduction with respect to such "selling Holder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "selling Holder", as defined in this sentence. No securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. If any Holder disapproves of the terms of the underwriting, it may elect to withdraw therefrom by written notice to the Company and the underwriter. The Registrable Securities so withdrawn shall also be withdrawn from registration. 4.3 EXPENSES OF REGISTRATION. All expenses incurred in connection with a registration effected pursuant to Subsection 4.2, including without limitation all registration, filing, and qualification fees (including blue sky fees and expenses), printing expenses, escrow fees, fees and disbursements of counsel for the Company and, if there are more than two (2) participating Holders, of one special counsel for the participating Holders, and expenses of any special audits incidental to or required by such registration (collectively, "Registration Expenses"), shall be borne by the Company; provided, however, that the term Registration 7 Expenses shall not include, and in no event will the Company be obligated to pay, stock transfer taxes or underwriters' discounts or commissions relating to Registrable Securities. 4.4 OBLIGATIONS OF THE COMPANY. Whenever required under Section 4.2 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective until the earlier of (i) one hundred eighty (180) days or (ii) until the Holder or Holders have completed the distribution relating thereto; PROVIDED HOWEVER, that the Company may delay the filing of such registration statement for up to 60 days following such request by giving notice to Purchaser if the Company shall have determined that the Company may be required to disclose any material corporate development which disclosure may have a material effect on the Company. Following the effectiveness of a registration statement filed pursuant to Rule 415 under the 1933 Act, the Company may, at any time, but not more than once in any six-month period, suspend the effectiveness of such registration statement for up to 60 days, as appropriate (a "Suspension Period"), by giving notice to Purchaser, if the Company shall have determined that the Company may be required to disclose any material corporate development which disclosure may have a material effect on the Company. The duration of any Suspension Period shall be added to the period of time the Company agrees to keep the registration statement effective. Purchaser agrees that, upon receipt of any notice from the Company of a Suspension Period, Purchaser shall forthwith discontinue disposition of shares covered by such registration statement or prospectus until Purchaser (i) is advised in writing by the Company that the use of the applicable prospectus may be resumed, (ii) has received copies of a supplemental or amended prospectus, if applicable, and (iii) has received copies of any additional or supplemental filings which are incorporated or deemed to be incorporated by reference in such prospectus. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the 1933 Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the 1933 Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. 8 (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering and, if requested by such underwriter, cause appropriate officers to participate in a "road show" to market such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify each Holder of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the 1933 Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 4, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 4, if such securities are being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter dated such date, from the independent accountants of the Company, in form and substance as is customarily given by independent accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. 4.5 INDEMNIFICATION. (a) The Company will, and does hereby undertake to, indemnify and hold harmless each Holder of Registrable Securities, each of such Holder's officers, directors, partners and agents, and each person controlling such Holder, with respect to any registration, qualification, or compliance effected pursuant to this Section 4, and each underwriter, if any, and each person who controls any underwriter, of the Registrable Securities held by or issuable to such Holder, against all claims, losses, damages, and liabilities (or actions in respect thereto) to which they may become subject under the 1933 Act, the 1934 Act, or other applicable law arising out of or based on (i) any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular, or other similar document (including any related Registration Statement, notification, or the like) incident to any such registration, qualification, or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) any violation or alleged violation by the Company of any law, rule or regulation applicable to the Company in connection with any such registration, qualification, or compliance, and will reimburse, as incurred, each such Holder, each such underwriter, and each such director, officer, partner, agent and controlling person, for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, 9 damage, liability, or action; provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense, arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by an instrument duly executed by such Holder or underwriter and stated to be specifically for use therein. (b) Each Holder will, if Registrable Securities held by or issuable to such Holder are included in such registration, qualification, or compliance, indemnify the Company, each of its directors, and each officer who signs a Registration Statement in connection therewith, and each person controlling the Company, each underwriter, if any, and each person who controls any underwriter, of the Company's securities covered by such a Registration Statement, and each other Holder, each of such other Holder's officers, partners, directors and agents and each person controlling such other Holder, against all claims, losses, damages, and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such Registration Statement, prospectus, offering circular, or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse, as incurred, the Company, each such underwriter, each such other Holder, and each such director, officer, partner, and controlling person, for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability, or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) was made in such Registration Statement, prospectus, offering circular, or other document, in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein. In no event will any Holder be required to enter into any agreement or undertaking in connection with any registration under this Section 4 providing for any indemnification or contribution obligations on the part of such Holder greater than such Holder's obligations under this Subsection 4.5. The liability of each Holder for indemnification under this Section 4.5 shall not exceed the proceeds to such Holder from the sale of Registrable Securities. (c) Each party entitled to indemnification under this Subsection 4.5 (the "Indemnified Party") shall give notice to the party required to provide such indemnification (the "Indemnifying Party") of any claim as to which indemnification may be sought promptly after such Indemnified Party has actual knowledge thereof, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be subject to approval by the Indemnified Party (whose approval shall not be reasonably withheld) and the Indemnified Party may participate in such defense at the Indemnifying Party's expense if representation of such Indemnified Party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding; and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 4, except to the extent that such failure to give notice shall materially adversely affect the Indemnifying Party in the defense of any such claim or any such litigation. No 10 Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff therein, to such Indemnified Party, of a release from all liability in respect to such claim or litigation. 4.6 INFORMATION BY HOLDER. The Holder or Holders of Registrable Securities included in any registration shall furnish to the Company such information regarding such Holder or Holders and the distribution proposed by such Holder or Holders as the Company may reasonably request in writing and as shall be required in connection with any registration, qualification, or compliance referred to in this Section 4. 4.7 TRANSFER OF REGISTRATION RIGHTS. The rights contained in this Section 4 to cause the Company to register the Registrable Securities, may be assigned or otherwise conveyed to any affiliate (as such term is defined in Rule 405 under the 1933 Act) of Purchaser who is a transferee or assignee of Shares or Registrable Securities, or to a third party acquiring all of the Registrable Securities, each of whom shall be considered a "Holder" for purposes of this Section 4, provided that the Company is given written notice by Purchaser, at the time of or within a reasonable time after said transfer, stating the name and address of said transferee or assignee and identifying the securities with respect to which such registration rights are being assigned, and provided that any such transferee agrees in writing to be bound by the provisions of this Section 4. 4.8 DELAY OF REGISTRATION. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 4. 4.9 RULE 144 REPORTING. With a view to making available to the Holders the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its best efforts to: (a) Make and keep public information available, in accordance with subsection (c) of Rule 144 under the 1933 Act ("Rule 144") or any similar or analogous rule promulgated under the 1933 Act, as long as Registrable Securities are outstanding; (b) File with the SEC, in a timely manner, all reports and other documents required of the Company under the 1933 Act and 1934 Act; (c) So long as a Holder owns any Registrable Securities, furnish to such Holder forthwith upon request: a written statement by the Company as to its compliance with the reporting requirements of Rule 144 and of the 1934 Act; a copy of the most recent annual or quarterly report of the Company; and such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration. 11 (d) Take all such action (including without limitation the furnishing of the information described in Rule 144(d)(4)) as may be necessary or helpful to facilitate a sale of Registrable Securities by a Holder to a "qualified institutional buyer," as such term is defined in Rule 144A of the 1933 Act. 4.10 "MARKET STAND-OFF" AGREEMENT. Purchaser hereby agrees that, except for Registrable Securities being sold pursuant to this Section 4, during the ninety (90)-day period following the effective date of a registration statement of the Company filed under the 1933 Act, it shall not, to the extent requested by the Company or any underwriter, sell or otherwise transfer or dispose of any Common Stock of the Company held by it at any time during such period; PROVIDED, HOWEVER, that: (a) Such agreement shall be applicable only to registration statements (other than on Form S-8) of the Company which cover Common Stock (or other securities) to be sold on its behalf to the public; (b) Such Agreement shall be applicable only if Purchaser holds at least one percent (1%) of the Common Stock of the Company then outstanding; and (c) All executive officers and directors of the Company, and all other corporate partners of the Company similarly situated, enter into similar agreements. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restriction until the end of such period. The agreement of the Purchaser set forth in this Section 4.10 shall lapse five (5) years after the Closing Date provided that Purchaser is not at such time an affiliate of the Company (as defined in Rule 405 under the 1933 Act), in which case such restrictions shall lapse at such time as Purchaser ceases to be an affiliate. 5. CONDITIONS TO CLOSING. 5.1 CONDITIONS TO OBLIGATIONS OF PURCHASER. Purchaser's obligation to purchase the Shares at the Closing is subject to the fulfillment, at or prior to the Closing, of all of the following conditions, any of which may be waived by Purchaser: (a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF OBLIGATIONS. The representations and warranties made by the Company in Section 2 hereof, to the extent qualified as to materiality, shall be true and correct in all respects and, to the extent not so qualified, shall be true and correct in all material respects on the date of the Closing with the same force and effect as if they had been made on and as of said date; the business and assets of the Company shall not have been adversely affected in any material way prior to the Closing; and the Company shall have performed and complied with all obligations, agreements and conditions herein required to be performed by it on or prior to the Closing. 12 (b) OPINION OF THE COMPANY'S COUNSEL. Purchaser shall have received from Cooley Godward LLP, counsel to the Company, an opinion letter substantially in the form attached hereto as Exhibit B, addressed to it, dated the date of the Closing. (c) PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection with the transactions contemplated at the Closing hereby and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to Purchaser, and Purchaser shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. (d) QUALIFICATIONS, LEGAL INVESTMENT. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful sale and issuance of the Shares pursuant to this Agreement shall have been duly obtained and shall be effective on and as of the Closing. No stop order or other order enjoining the sale of the Shares shall have been issued and no proceedings for such purpose shall be pending or, to the knowledge of the Company, threatened by the SEC or any commissioner of corporations or similar officer of any other state having jurisdiction over this transaction. At the time of the Closing, the sale and issuance of the Shares shall be legally permitted by all laws and regulations to which Purchaser and the Company are subject. (e) COMPLIANCE CERTIFICATE. The Company shall have delivered to Purchaser a Certificate, executed by the President of the Company, dated the Closing Date, certifying to (i) the fulfillment of the conditions specified in subparagraphs (a) and (d) of this Subsection 5.1. and (ii) the incumbency of the officers of the Company executing this Agreement and the other instruments delivered by the Purchaser upon the Closing. 5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's obligation to issue and sell the Shares at the Closing is subject to the fulfillment, on or prior to the Closing, of the following conditions, any of which may be waived by the Company: (a) REPRESENTATIONS AND WARRANTIES TRUE. The representations and warranties made by Purchaser in Section 3 hereof shall be true and correct at the date of the Closing, with the same force and effect as if they had been made on and as of said date. (b) PERFORMANCE OF OBLIGATIONS. Purchaser shall have performed and complied with all obligations, agreements and conditions herein required to be performed or complied with by it on or before the Closing. (c) QUALIFICATIONS, LEGAL INVESTMENT. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful sale and issuance of the Shares pursuant to this Agreement shall have been duly obtained and shall be effective on and as of the Closing. No stop order or other order enjoining the sale of the Shares shall have been issued and no proceedings for such purpose shall be pending or, to the knowledge of the Company, threatened 13 by the SEC or any commissioner of corporations or similar officer of any state having jurisdiction over this transaction. At the time of the Closing, the sale and issuance of the Shares shall be legally permitted by all laws and regulations to which Purchaser and the Company are subject. 6. MISCELLANEOUS. 6.1 GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of Delaware, without regard to the principles regarding conflicts of laws of such State. 6.2 SURVIVAL. The representations, warranties, covenants, and agreements made herein shall survive any investigation made by Purchaser and the closing of the transactions contemplated hereby. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto or in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder as of the date of such certificate or instrument. 6.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto (including any permitted transferee of the Shares). 6.4 ENTIRE AGREEMENT. This Agreement, the Exhibits hereto, and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement among the parties with regard to the subjects hereof and no party shall be liable or bound to any other party in any manner by any representations, warranties, covenants, or agreements except as specifically set forth herein or therein. Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties hereto and their respective successors and assigns, any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided herein. 6.5 SEPARABILITY. In case any provision of this Agreement shall be invalid, illegal, or unenforceable, it shall to the extent practicable, be modified so as to make it valid, legal and enforceable and to retain as nearly as practicable the intent of the parties, and the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 6.6 AMENDMENT AND WAIVER. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance, either retroactively or prospectively, and either for a specified period of time or indefinitely), with the written consent of the Company and the holders of not less than a majority-in-interest of the aggregate of outstanding Shares. Any amendment or waiver effected in accordance with this paragraph shall be binding upon Purchaser, each future holder of the Shares, and the Company. Upon the effectuation of each such amendment or waiver, the 14 Company shall promptly give written notice thereof to the record holders of the Shares who have not previously consented thereto in writing, if any. 6.7 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power, or remedy accruing to Purchaser or any subsequent holder of any Shares upon any breach, default or noncompliance of the Company under this Agreement, shall impair any such right, power, or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent, or approval of any kind or character on Purchaser's part of any breach, default or noncompliance under this Agreement or any waiver on Purchaser's part of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing, and that all remedies, either under this Agreement, by law, or otherwise afforded to Purchaser, shall be cumulative and not alternative. 6.8 NOTICES, ETC. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given (a) upon personal delivery, (b) on the first business day after receipted delivery to a courier service which guarantees next business-day delivery, under circumstances in which such guaranty is applicable, or (c) on the earlier of delivery or five (5) business days after mailing by United States certified by mail, postage and fees prepaid, to the appropriate party at the address set forth below or to such other address as the part so notifies the other in writing: (a) if to the Company, to: COCENSYS, INC. 213 Technology Drive Irvine, CA 92718 Attention: President and Chief Executive Officer Fax:(714) 753-6141 with a copy to: COOLEY GODWARD LLP 5 Palo Alto Square 3000 El Camino Real Palo Alto, CA 94306-2155 Attention: Alan C. Mendelson, Esq. Fax:(415) 857-0663 15 if to Purchaser, to: AMERICAN HOME PRODUCTS CORPORATION 5 Giralda Farms Madison, NJ 07940 Attention: Senior Vice President and General Counsel Notwithstanding the foregoing, all notices and other communications to an address outside of the United States shall be sent by telecopy and confirmed in writing to be sent by first class mail. 6.9 FINDER'S FEES. (a) The Company represents and warrants that it has retained no finder or broker in connection with the transactions contemplated by this Agreement and hereby agrees to indemnify and to hold harmless of and from any liability for any commission or compensation in the nature of a finder's fee to any broker or other person or firm (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its employees or representatives is responsible. (b) Purchaser represents and warrants that it has retained no finder or broker in connection with the transactions contemplated by this Agreement, and hereby agrees to indemnify and to hold the Company harmless of and from any liability for any commission or compensation in the nature of a finder's fee to any broker or other person or firm (and the costs and expenses of defending against such liability or asserted liability) for which Purchaser or any of its employees or representatives are responsible. 6.10 FEES AND EXPENSES. Each party agrees to pay all its own fees, costs and expenses, including legal and accounting fees, relating to the negotiation, execution, delivery and performance this Agreement and the transactions contemplated hereby. If legal action is brought by, or on behalf of, Purchaser to enforce or interpret this Agreement, the prevailing party shall be entitled to recover its attorneys' fees and legal costs in connection therewith. 6.11 INFORMATION CONFIDENTIAL. Purchaser acknowledges that certain information received by it pursuant hereto is confidential and for Purchaser's use only, and it will refrain from using such information or reproducing, disclosing, or disseminating such information to any other person (other than its employees, affiliates, agents, or partners having a need to know the contents of such information and its attorneys, in each case who agree to be bound by this Section 6.11), except in connection with the exercise of rights under this Agreement, unless such information (i) is or becomes, through no fault of Purchaser, available to the public generally; (ii) was already known by Purchaser, as demonstrated by competent evidence, at the time of its receipt from the Company; (iii) is obtained by Purchaser from a third party legally free to disclose such information; or (iv) Purchaser is required by a governmental body or court of competent jurisdiction to disclose such information. 16 6.12 TITLES AND SUBTITLES. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 6.13 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. 17 The foregoing Agreement is hereby executed as of the date first above written. COCENSYS, INC. AMERICAN HOME PRODUCTS CORPORATION 213 Technology Drive 5 Giralda Farms Irvine, CA 92718 Madison, NJ 07940 By: By: --------------------------- ---------------------------- F. Richard Nichol Name: President and Chief Executive Officer Title: 18 EXHIBITS Exhibit A - CERTIFICATE OF DESIGNATION Exhibit B - OPINION OF COMPANY'S COUNSEL EXHIBIT A CERTIFICATE OF DESIGNATION CERTIFICATE OF POWERS, DESIGNATION, PREFERENCES, RIGHTS AND LIMITATIONS OF SERIES C CONVERTIBLE PREFERRED STOCK OF COCENSYS, INC. (Pursuant to Section 151 of the Delaware General Corporation Law) COCENSYS, INC., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the "Corporation"), hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation as required by Section 151 of the General Corporation Law at a meeting duly called and held on April 29, 1997: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of the Corporation in accordance with the provisions of its Amended and Restated Certificate of Incorporation, the Board of Directors hereby creates a series of Preferred Stock, par value $.001 per share, of the Corporation and hereby states the designation and number of shares, and fixes the relative rights, preferences and limitations thereof (in addition to the provisions set forth in the Restated Certificate of Incorporation of the Corporation, which are applicable to the Preferred Stock of all classes and series), as follows: Series C Convertible Preferred Stock: SECTION 1. DESIGNATION AND AMOUNT. One Hundred Thousand (100,000) shares of Preferred Stock, $.001 par value, are designated "Series C Convertible Preferred Stock" with the rights, preferences, privileges and restrictions specified herein (the 1. "Series C Preferred Stock"). Such number of shares may be not increased or decreased without the consent of the holder. SECTION 2. DIVIDENDS AND DISTRIBUTIONS. The holders of the Series C Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available therefor, dividends at the rate per share equal to any dividend declared or paid per share to the Common Stock of the Corporation ("Common Stock"). The right to such dividends on the Series C Preferred Stock shall be non-cumulative. SECTION 3. VOTING RIGHTS. Except as set forth herein. or as otherwise provided by law, holders of Series C Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. SECTION 4. LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary (a "Liquidation Event"), the holders of the Series C Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Common Stock or Junior Preferred Stock of the Corporation, an amount per share (as adjusted for any combinations, consolidations, stock distributions or stock dividends with respect to such shares) equal to the quotient of (a) $5,000,000 divided by (b) the number of shares of Series C Preferred Stock issued and outstanding as of the date of such Liquidation Event. If upon the occurrence of such Liquidation Event, the assets and funds thus distributed among the holders of the Series C Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of the Series C Preferred Stock in proportion to the shares of Series C Preferred Stock then held by them. SECTION 5. CONVERSION. Subject to the limitations set forth in Subsection (B) below, the Series C Preferred Stock shall convert only as follows: (A) CONVERSION AT HOLDER'S OPTION. At any time after May _, 1999, the Series C Preferred Stock shall be convertible, in whole or in part, on a maximum of three occasions, at the 2. option of the holder, into such number of fully paid and nonassessable shares of Common Stock equal to the quotient of (a) the product of $50 and the number of shares of Series C Preferred Stock being converted, divided by (b) the Conversion Price. The "Conversion Prices" shall be equal to the greater of: (i) $[5.43] or (ii) the lesser of: (x) the Future Market Price x 0.80 or (y) $[7.76]; PROVIDED, HOWEVER, that if the Future Market Price is less than $[3.88], the Conversion Price shall be $[4.37]. The "Future Market Price" set forth above shall be the average closing price of the Common Stock for the period commencing on the 23rd trading day prior to the date upon which the holder delivers notice to the Corporation of such conversion (each, a "Conversion Date") and ending on the third trading day prior to the Conversion Date, as reported in the WALL STREET JOURNAL, WESTERN EDITION. (B) ADJUSTMENTS FOR COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. In the event the Corporation at any time or from time to time shall declare or pay any dividend on the Common Stock payable in Common Stock or in any right to acquire Common Stock, or shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by stock split, reclassification or otherwise), or in the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, then the maximum and minimum number of shares of Common Stock into which the Series C Preferred Stock may be converted, shall be proportionately decreased or increased, as appropriate. (C) MECHANICS OF CONVERSION. Before any holder of Series C Preferred Stock shall be entitled to receive shares of Common Stock, he shall surrender the certificate or certificates thereof, duly endorsed, at the office of the Corporation or of any transfer agent for such stock, and shall state therein the name or 3. names in which he wishes the certificate or certificates shares of Common Stock to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series C Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which he shall be entitled as aforesaid. Such conversion shall be deemed to have been made on the Conversion Date, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (D) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series C Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series C Preferred Stock. (E) FRACTIONAL SHARES. No fractional share shall be issued upon the conversion of any share or shares of Series C Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of Series C Preferred Stock shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock, the Corporation shall, in lieu of issuing any fractional share, pay the holder otherwise entitled to such fraction a sum in cash equal to the closing price of the Common Stock on the date of conversion, multiplied by such fraction. (F) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If any (i) reorganization of the capital stock of the Corporation, (ii) consolidation or merger of the Corporation in which the Corporation is not the surviving corporation, or (iii) sale of all or substantially all of the Corporation's assets to another corporation (each, an "Event") shall be effected in such a way that holders of Common Stock shall be entitled to receive securities, cash or other assets or property, the first Conversion Date shall be accelerated to the date immediately preceding such Event, or such other date necessary to assure that any holder of Series C Preferred Stock receives such shares of stock, securities or other assets or property as may be issued or payable with respect to or in exchange for shares of Common Stock. 4. SECTION 6. NO REDEMPTION. The shares of Series C Preferred Stock shall not be redeemable. SECTION 7. AMENDMENT. The Restated Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series C Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series C Preferred Stock, voting together as a single class. 5. IN WITNESS WHEREOF the undersigned have executed this certificate as of May ___, 1997. --------------------------------------- F. Richard Nichol, Ph.D. President and Chief Executive Officer --------------------------------------- Alan C. Mendelson Secretary 6. EXHIBIT B OPINION OF COMPANY'S COUNSEL EXHIBIT B FORM OF OPINION May ___, 1997 American Home Products Corporation 5 Giralda Farms Madison, NJ 07940 RE: SALE AND PURCHASE OF COCENSYS, INC. SERIES C PREFERRED STOCK Gentlemen: We have acted as counsel for CoCensys, Inc., a Delaware corporation (the "Company"), in connection with the issuance and sale of 100,000 shares of the Company's Series C Preferred Stock to American Home Products Corporation, a Delaware corporation ("Purchaser"), pursuant to the terms of that certain Stock Purchase Agreement, dated May ___, 1997, by and between the Company and Purchaser (the "Agreement"). The shares of Company Series C Preferred Stock issued to Purchaser at the closing (the "Closing") are referred to herein as the "Shares". We are rendering this opinion pursuant to Section 5.1(b) of the Agreement. Except as otherwise defined herein, capitalized terms used but not defined herein have the respective meanings given to them in the Agreement. In connection with this opinion, we have examined and relied upon the representations and warranties as to factual matters contained in and made pursuant to the Agreement by the parties thereto and originals or copies certified to our satisfaction, of such records, documents, certificates, opinions, memoranda and other instruments as in our judgment are necessary or appropriate to enable us to render the opinion expressed below. Where we render an opinion "to the best of our knowledge" or concerning an item "known to us" or our opinion otherwise refers to our knowledge, it is based solely upon (i) an inquiry of attorneys within this firm who perform legal services for the Company, (ii) receipt of a certificate executed by an officer of the Company covering such matters, and (iii) such other investigation, if any, that we specifically set forth herein. In rendering this opinion, we have assumed: the genuineness and authenticity of all signatures on original documents; the authenticity of all documents submitted to us as originals; the conformity to originals of all documents submitted to us as copies; the accuracy, completeness and authenticity of certificates of public officials; and the due authorization, execution and delivery of all documents where authorization, execution and delivery are prerequisites to the effectiveness of such documents (except the due authorization, execution and delivery of the Agreement by the Company). We have also assumed: that all individuals executing and delivering documents had the legal capacity to so execute and deliver; that you have received all documents you were to receive under the Agreement; that the Agreement is an obligation binding upon you; if you are a corporation or other entity, that you have filed any required California franchise or income tax returns and have paid any required American Home Products Corporation May ___, 1997 Page 2 California franchise or income taxes; and that there are no extrinsic agreements or understandings among the parties to the Agreement that would modify or interpret the terms of the Agreement or the respective rights or obligations of the parties thereunder. Our opinion is expressed only with respect to the federal laws of the United States of America and the laws of the State of California and the General Corporation Law of the State of Delaware. We express no opinion as to whether the laws of any particular jurisdiction apply, and no opinion to the extent that the laws of any jurisdiction other than those identified above are applicable to the subject matter hereof. We are not rendering any opinion as to compliance with any antifraud law, rule or regulation relating to securities, or to the sale or issuance thereof. Our opinions in paragraphs 5, 6 and 7 below as they relate to the Conversion Shares are based upon the hypotheses that the Shares are convertible, and are being converted, on the date hereof. On the basis of the foregoing, in reliance thereon and with the foregoing qualifications, we are of the opinion that: 1. The Company has been duly incorporated and is a validly existing corporation in good standing under the laws of the State of Delaware. 2. The Company has the requisite corporate power to own or lease its property and assets and to conduct its business as it is currently being conducted and, to the best of our knowledge, is qualified as a foreign corporation to do business in each jurisdiction in the United States in which the ownership of its property or the conduct of its business requires such qualification and where any statutory fines or penalties or any corporate disability imposed for the failure to qualify would materially or adversely affect the Company, its assets, financial condition or operations. 3. The Agreement has been duly and validly authorized, executed and delivered by the Company and constitutes a valid and binding agreement of the Company in accordance with its terms, except as rights to indemnity thereunder may be limited by applicable laws and except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar laws affecting creditors' rights, and subject to general equity principles and to limitations on availability of equitable relief, including specific performance. 4. The Shares have been duly authorized and, upon issuance and delivery in accordance with the terms of the Agreement, will be validly issued, fully paid and nonassessable. The American Home Products Corporation May ___, 1997 Page 3 Conversion Shares have been duly authorized and, upon issuance and delivery in accordance with the Certificate of Designation, will be validly issued, fully paid and nonassessable. 5. The issuance and sale of the Shares and the issuance of the Conversion Shares, in each case as contemplated by the Agreement, do not violate any provision of the Company's Amended and Restated Certificate of Incorporation or Bylaws and do not violate or contravene (a) any governmental statute, rule or regulation applicable to the Company or (b) any order, writ, judgment, injunction, decree, determination or award which has been entered against the Company and of which we are aware, the violation or contravention of which would materially and adversely affect the Company, its assets, financial condition or operations. 6. All consents, approvals, authorizations, or orders of, and filings, registrations, and qualifications with any regulatory authority or governmental body in the United States required for the issuance and sale of the Shares and the issuance of the Conversion Shares, in each case as contemplated by the Agreement, have been made or obtained. 7. The issuance and sale of the Shares and the issuance of the Conversion Shares, in each case as contemplated by the Agreement is exempt from the registration requirements of the Securities Act of 1933, as amended. This opinion is intended solely for your benefit and is not to be made available to or be relied upon by any other person, firm, or entity without our prior written consent. Very truly yours, COOLEY GODWARD LLP By ________________________ EX-10.3 9 EXHIBIT 10.3 DOC. 3 EXHIBIT 10.3 DEVELOPMENT AND COMMERCIALIZATION AGREEMENT (NO. 2) BETWEEN COCENSYS, INC., AND WYETH-AYERST LABORATORIES TABLE OF CONTENTS PAGE 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 "Affiliate(s)". . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 "Agreement (No. 1)" . . . . . . . . . . . . . . . . . . . . . . . . 1 1.3 "Back-Up Compound Candidate". . . . . . . . . . . . . . . . . . . . 1 1.4 "Back-Up Program" . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.5 "Beginning of [ * ] . . . . . . . . . . . . . . . . . . . . 2 1.6 "Beginning of [ * ] . . . . . . . . . . . . . . . . . . . . 2 1.7 "CO 2-6749" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.8 "CoCensys Patent Rights". . . . . . . . . . . . . . . . . . . . . . 2 1.9 "Commercially Reasonable Efforts" . . . . . . . . . . . . . . . . . 2 1.10 "Control" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.11 "Development" . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.12 "Epalon". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.13 "FDA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.14 "Field" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.15 "First Commercial Sale" . . . . . . . . . . . . . . . . . . . . . . 3 1.16 "Fully Burdened Cost" . . . . . . . . . . . . . . . . . . . . . . . 3 1.17 "Good Clinical Practice". . . . . . . . . . . . . . . . . . . . . . 3 1.18 "Good Laboratory Practice". . . . . . . . . . . . . . . . . . . . . 3 1.19 "Good Manufacturing Practice" . . . . . . . . . . . . . . . . . . . 3 1.20 [ * ] . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.21 "IND" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.22 "Intellectual Property Rights". . . . . . . . . . . . . . . . . . . 4 1.23 "Invention" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.24 "Know-How". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.25 "Licensed Compound" . . . . . . . . . . . . . . . . . . . . . . . . 5 1.26 "MAA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.27 "Major Market Countries". . . . . . . . . . . . . . . . . . . . . . 5 1.28 "NDA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.29 "Net Sales" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.30 [ * ] . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.31 "Non-Scheduled Product" . . . . . . . . . . . . . . . . . . . . . . 5 1.32 "Patent Rights" . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.33 "Phase I," "Phase II," and "Phase III". . . . . . . . . . . . . . . 6 1.34 "Product" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.35 "Regulatory Approval" . . . . . . . . . . . . . . . . . . . . . . . 6 1.36 "RoW" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.37 "Royalty Term". . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.38 "Scheduled Product" . . . . . . . . . . . . . . . . . . . . . . . . 6 i. * Confidential treatment requested TABLE OF CONTENTS (CONTINUED) PAGE 1.39 "Third Party(ies)". . . . . . . . . . . . . . . . . . . . . . . . . 7 1.40 "Trademark" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.41 "USA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.42 "Wyeth-Ayerst Patent Rights". . . . . . . . . . . . . . . . . . . . 7 2. DEVELOPMENT OF LICENSED COMPOUND . . . . . . . . . . . . . . . . . . . . 7 2.1 General Obligations . . . . . . . . . . . . . . . . . . . . . . . . 7 2.2 Records, Reports and Information Exchange . . . . . . . . . . . . . 7 2.3 Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.4 Funding of the Development. . . . . . . . . . . . . . . . . . . . . 8 2.5 Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . 8 3. BACK-UP COMPOUND CANDIDATES. . . . . . . . . . . . . . . . . . . . . . . 8 4. INDICATIONS; EXCLUSIVITY . . . . . . . . . . . . . . . . . . . . . . . . 8 4.1 Indications . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 4.2 No [ * ]by CoCensys [ * ] . . . . . . . . . . . . . 9 4.3 No [ * ]. . . . . . . . . . . . . . . . . . . . . . . . . . 9 5. LICENSE GRANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 5.1 Licenses to Wyeth-Ayerst. . . . . . . . . . . . . . . . . . . . . . 9 5.2 Licenses upon Expiration. . . . . . . . . . . . . . . . . . . . . . 10 6. CONSIDERATION TO COCENSYS. . . . . . . . . . . . . . . . . . . . . . . . 10 6.1 Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 6.2 Method of Payment of Payments . . . . . . . . . . . . . . . . . . . 11 6.3 Payments for Back-Up Compound Candidates. . . . . . . . . . . . . . 11 6.4 Royalties and Profit Sharing. . . . . . . . . . . . . . . . . . . . 11 7. MARKETING AND ROYALTIES IN THE ROW . . . . . . . . . . . . . . . . . . . 11 7.1 Marketing by Wyeth-Ayerst . . . . . . . . . . . . . . . . . . . . . 11 7.2 Commercial and Regulatory Diligence . . . . . . . . . . . . . . . . 11 7.3 Annual Net Sales Calculation. . . . . . . . . . . . . . . . . . . . 12 7.4 Non-Scheduled Product Royalty in the RoW. . . . . . . . . . . . . . 12 7.5 Scheduled Product Royalty.. . . . . . . . . . . . . . . . . . . . . 12 7.6 Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 7.7 Adjustment to Royalties in RoW. . . . . . . . . . . . . . . . . . . 13 ii. * Confidential treatment requested TABLE OF CONTENTS (CONTINUED) PAGE 8. ACCOUNTS AND RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . 14 8.1 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 8.2 Audits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 8.3 Foreign Exchange. . . . . . . . . . . . . . . . . . . . . . . . . . 15 8.4 Sales by Sublicensees . . . . . . . . . . . . . . . . . . . . . . . 15 8.5 Currency Blockage . . . . . . . . . . . . . . . . . . . . . . . . . 15 8.6 Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 9. TRADEMARKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 10. MANUFACTURING AND DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . 16 10.1 Primary Manufacture . . . . . . . . . . . . . . . . . . . . . . . . 16 10.2 Second Source . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 10.3 Exchange of Information . . . . . . . . . . . . . . . . . . . . . . 16 10.4 Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 11. PROSECUTION, MAINTENANCE AND INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 11.1 Patentable Inventions . . . . . . . . . . . . . . . . . . . . . . . 16 11.2 Prosecution and Maintenance of Patent Rights. . . . . . . . . . . . 17 11.3 Patent Extensions . . . . . . . . . . . . . . . . . . . . . . . . . 17 11.4 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 11.5 Infringement of Intellectual Property Rights. . . . . . . . . . . . 18 11.6 Infringement of Third Party Patent Rights . . . . . . . . . . . . . 19 12. FORCE MAJEURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 13. TERM AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . 20 13.1 General Conditions of Expiration and Termination. . . . . . . . . . 20 13.2 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 13.3 Termination for Breach. . . . . . . . . . . . . . . . . . . . . . . 21 13.4 No Limit on Remedies. . . . . . . . . . . . . . . . . . . . . . . . 22 13.5 Unilateral Termination by Wyeth-Ayerst. . . . . . . . . . . . . . . 22 13.6 Automatic Termination of Agreement (No. 1). . . . . . . . . . . . . 22 14. ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.1 Assignment to Affiliates. . . . . . . . . . . . . . . . . . . . . . 22 14.2 Other Permitted Assignment. . . . . . . . . . . . . . . . . . . . . 22 14.3 Binding Nature of Assignment. . . . . . . . . . . . . . . . . . . . 22 iii. TABLE OF CONTENTS (CONTINUED) PAGE 15. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 15.1 Cross Indemnification . . . . . . . . . . . . . . . . . . . . . . . 23 15.2 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 16. WARRANTIES AND REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . 24 16.1 General.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 17. CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 24 17.1 Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 17.2 Exceptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 17.3 Permitted Disclosures . . . . . . . . . . . . . . . . . . . . . . . 25 17.4 Disclosure of Agreement . . . . . . . . . . . . . . . . . . . . . . 25 17.5 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 17.6 Publication . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 18. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 18.1 No Waiver of Contractual Rights . . . . . . . . . . . . . . . . . . 26 18.2 Execution and Amendments. . . . . . . . . . . . . . . . . . . . . . 26 18.3 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 18.4 Relationship between the Parties. . . . . . . . . . . . . . . . . . 26 18.5 Correspondence and Notices. . . . . . . . . . . . . . . . . . . . . 26 18.6 Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 18.7 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 18.8 Appointment of Wyeth-Ayerst International, Inc. . . . . . . . . . . 27 iv. DEVELOPMENT AND COMMERCIALIZATION AGREEMENT (NO. 2) THIS DEVELOPMENT AND COMMERCIALIZATION AGREEMENT (NO. 2) (the "Agreement") is entered into as of the 12th day of May, 1997 (the "Effective Date"), by and between CoCensys, Inc., a company incorporated under the laws of the State of Delaware, with its principal place of business at 213 Technology Drive, Irvine, California 92618, USA ("CoCensys"), and American Home Products Corporation, acting through its Wyeth-Ayerst Laboratories Division, a company incorporated under the laws of the State of Delaware, with its principal place of business at 555 Lancaster Avenue, St. Davids, Pennsylvania 19087, USA ("Wyeth-Ayerst"). Both CoCensys and Wyeth-Ayerst are referred to individually as a "Party" and collectively as the "Parties." WHEREAS, CoCensys has discovered, has rights to and is developing that certain compound CO 2-6749 (as defined in Article 1.8 below); and WHEREAS, Wyeth-Ayerst would like to obtain the worldwide (except in the USA) rights to develop and commercialize CO 2-6749 or a back-up compound therefor; NOW, THEREFORE, in consideration of the foregoing premises and the mutual premises, covenants and conditions contained in this Agreement, the Parties agree as follows: 1. DEFINITIONS. For the purposes of this Agreement, the terms hereunder shall have the meanings as defined below: 1.1 "AFFILIATE(S)" shall mean, in the case of either CoCensys or Wyeth-Ayerst, any corporation, joint venture, or other business entity which directly or indirectly controls, is controlled by, or is under common control with that Party. "Control," as used in this Article 1.1, shall mean having the power to direct, or cause the direction of, the management and policies of an entity, whether through ownership of voting securities, by contract or otherwise. 1.2 "AGREEMENT (NO. 1)" shall mean that Development and Commercialization Agreement (No.1) between the Parties relating to development and commercialization of CO 2-6749 or a back-up compound therefore in the USA, entered into on even date with the Effective Date. 1.3 "BACK-UP COMPOUND CANDIDATE" shall mean any Epalon meeting the criteria set forth in Exhibit A as determined by CoCensys and submitted by CoCensys to Wyeth-Ayerst as a potential substitute for CO 2-6749. "Back-Up Compound Candidate" shall include any prodrugs, salt forms and other biologically active isomers or enantiomers of such CoCensys Epalon. 1. 1.4 "BACK-UP PROGRAM" shall mean the program for identification of Back-Up Compound Candidates as conducted by CoCensys pursuant to Agreement (No. 1) 1.5 "BEGINNING OF [ * ] shall mean the date upon which the [ * ] for a Product. 1.6 "BEGINNING OF [ * ] shall mean the date upon which the [ * ] for a Product. 1.7 "CO 2-6749" shall mean the Epalon [ * ] and any prodrugs, including specifically CO 6-0549, salt forms and other biologically active isomers or enantiomers of this Epalon. A diagram of the chemical structure of each of CO 2-6749 and CO 6-0549 is set forth on Exhibit B. 1.8 "COCENSYS PATENT RIGHTS" shall mean all Patent Rights owned or Controlled by CoCensys. A list of the CoCensys Patent Rights existing as of the Effective Date is set out in Exhibit C hereto. 1.9 "COMMERCIALLY REASONABLE EFFORTS" shall mean efforts and resources normally used by a party for a compound owned by it or to which it has rights, which is of similar market potential at a similar stage in its product life, taking into account the competitiveness of the marketplace, the proprietary position of the compound, the regulatory structure involved, the profitability of the applicable products, and other relevant factors. 1.10 "CONTROL" shall mean licensed with the right to grant sublicenses without violating the terms of any Third Party agreement. 1.11 "DEVELOPMENT" shall mean the pre-clinical development of a Licensed Compound and clinical development for use in the Field in the RoW of a Product through and including Regulatory Approval. 1.12 "EPALON" shall mean the class of neuroactive steroid compounds that interact with GABAA receptor complexes. 1.13 "FDA" shall mean the Food and Drug Administration of the USA. 1.14 "FIELD" shall mean the treatment in humans of [ * ] in the Diagnostic and Statistical Manual of Mental Disorders, Fourth Edition ("DSM-IV"). Also, specifically to be included under [ * ] defined by research criteria in DSM-IV. It is understood by the Parties that the above-named disorders may be defined differently in future editions of the Diagnostic and 2. * Confidential treatment requested Statistical Manual of Mental Disorders, but that, for purposes of this Agreement, the definition of Field shall always be with reference to those diseases which fall within the definition of the above-named disorders in the edition of DSM-IV which is current as of the Effective Date. Expressly excluded from the Field are [ * ]. 1.15 "FIRST COMMERCIAL SALE" shall mean the first sale of a Product in a given country after the Product has been granted Regulatory Approval by the competent authorities in that country. 1.16 "FULLY BURDENED COST" shall mean the sum of the costs set forth on Exhibit D, to the extent allocable to Product. 1.17 "GOOD CLINICAL PRACTICE" or "GCP" shall mean the then current standards for clinical trials for pharmaceuticals, as set forth in the United States Federal Food, Drug and Cosmetics Act and applicable regulations promulgated thereunder, as amended from time to time, and such standards of good clinical practice as are required by the European Union and other organizations and governmental agencies in countries in which the Product is intended to be sold, to the extent such standards are not in contravention with United States GCP. 1.18 "GOOD LABORATORY PRACTICE" or "GLP" shall mean the then current standards for laboratory activities for pharmaceuticals, as set forth in the United States Federal Food, Drug and Cosmetics Act and applicable regulations promulgated thereunder, as amended from time to time, and such standards of good laboratory practice as are required by the European Union and other organizations and governmental agencies in countries in which the Product is intended to be sold, to the extent such standards are not in contravention with United States GLP. 1.19 "GOOD MANUFACTURING PRACTICE" or "GMP" shall mean the current standards for the manufacture of pharmaceuticals, as set forth in the United States Federal Food, Drug and Cosmetics Act and applicable regulations promulgated hereunder, as amended from time to time, and such standards of good manufacturing practice as are required by the European Union and other organizations and governmental agencies in countries in which the Product is intended to be sold, to the extent such standards are not in contravention with United States GMP. 1.20 [ * ] shall mean the development milestone [ * ]. 1.21 "IND" shall mean an Investigational New Drug Application as defined in the United States Federal Food, Drug and Cosmetics Act and applicable regulations promulgated thereunder, as amended from time to time. 3. * Confidential treatment requested 1.22 "INTELLECTUAL PROPERTY RIGHTS" shall mean all Patent Rights, trademarks, copyrights, know-how and/or trade secrets which are owned or Controlled by one Party hereto (with the right to license) or jointly by the Parties, with regard to the development, manufacture, importing, use, marketing and/or sale of the Product. 1.23 "INVENTION" shall mean an invention conceived in the course of the performance of and within the scope of this Agreement. 1.24 "KNOW-HOW" shall mean all know-how, processes, information and data including any copyright relating thereto owned or controlled by either Party (with the right to have or disclose) as of the Effective Date or acquired during the term of this Agreement relating to: (a) the Licensed Compound; (b) any Back-Up Compound; (c) any Product containing (a) or (b); (d) methods of making any of (a), (b) or (c); (e) any component of (c); (f) any intermediate in the making of any of (a), (b), (c), or (e); (g) any method of using any of (a), (b), (c), (e), or (f); and/or (h) any use of (a), (b) or (c). The term "Know-How," however, shall not include any know-how, processes, information and data which is, as of the Effective Date or becomes later on, generally available to the public. 1.25 "LICENSED COMPOUND" shall mean CO 2-6749 and any Back-Up Compound Candidate. 1.26 "MAA" shall mean the Marketing Authorization Application filed in the European Community for approval to market and sell a pharmaceutical product, whether by centralized procedure with the Committee for Proprietary Medicinal Products or otherwise. 1.27 "MAJOR MARKET COUNTRIES" shall mean Germany, the United Kingdom, Italy and France. 4. 1.28 "NDA" shall mean a New Drug Application, as defined in the United States Federal Food, Drug and Cosmetic Act and applicable regulations promulgated thereunder as amended from time to time. 1.29 "NET SALES" shall mean proceeds from sales of the Product by either Party, its Affiliates or sublicensees, as appropriate, to Third Parties, less the sum of (a) and (b) where (a) is a provision, determined under generally accepted accounting principles in the United States, for [ * ] and (b) is [ * ]. Sales of Product by and between a Party and its Affiliates are not sales to Third Parties and shall be excluded from Net Sales calculations for all purposes. 1.30 [ * ] shall have the meaning set forth in Article 4.1. 1.31 "NON-SCHEDULED PRODUCT" shall mean a Product to be sold in the RoW that has received a designation similar to a "Schedule V" designation in the USA, as defined in 21 CFR Part 1308, or no scheduling designation in the course of Regulatory Approval from a foreign government. 1.32 "PATENT RIGHTS" shall mean all patents or patent applications, in whatever country in the RoW, and all divisionals, continuations, continuations-in-part, reissues, extensions, supplementary protection certificates and foreign counterparts thereof in the RoW, existing as of the Effective Date or filed or issuing during the term of this Agreement, at least one claim of which covers: (a) the Licensed Compound; (b) any Back-Up Compound; (c) any Product containing (a) or (b); (d) methods of making any of (a), (b) or (c); (e) any component of (c); (f) any intermediate in the making of any of (a), (b), (c) or (e); (g) any method of using any of (a), (b), (c), (e), or (f); and/or (h) any use of (a), (b) or (c). 5. * Confidential treatment requested 1.33 "PHASE I," "PHASE II," AND "PHASE III" shall mean the phases of the clinical development of pharmaceuticals as defined in the United States Federal Food, Drug and Cosmetics Act and/or applicable regulations promulgated thereunder, as amended from time to time, or any comparable foreign regulations. 1.34 "PRODUCT" shall mean any pharmaceutical product containing a Licensed Compound in any formulation or mode of administration. 1.35 "REGULATORY APPROVAL" shall mean all authorizations by the competent authorities which are required for the regular marketing, promotion, pricing and sale of the Product in a given country or regulatory jurisdiction. 1.36 "ROW" shall mean all countries and territories in the world except the USA. 1.37 "ROYALTY TERM" shall mean the period extending from First Commercial Sale in any country in the RoW until the later of (i) expiration of the last to expire patent within the Patent Rights necessary to make, use, import, offer for sale or sell the Product in one or more Major Market Countries, or (b) fifteen (15) years from First Commercial Sale in the first Major Market Country. 1.38 "SCHEDULED PRODUCT" shall mean a Product to be sold in the RoW that has received a designation similar to a Schedule I, II, III or IV designation in the USA, as defined in 21 CFR Part 1308, in the course of Regulatory Approval from a foreign government. 1.39 "THIRD PARTY(IES)" shall mean any person(s) or entity(ies) other than CoCensys, Wyeth-Ayerst or their Affiliates. 1.40 "TRADEMARK" shall mean the trademark under which the Product shall be marketed as set out in Article 9. 1.41 "USA" shall mean the United States of America, its territories and possessions and the Commonwealth of Puerto Rico. 1.42 "WYETH-AYERST PATENT RIGHTS" shall mean all Patent Rights owned or Controlled by Wyeth-Ayerst. A list of the Wyeth-Ayerst Patent Rights existing as of the Effective Date is set out in Exhibit E hereto. 2. DEVELOPMENT OF LICENSED COMPOUND. 2.1 GENERAL OBLIGATIONS. Wyeth-Ayerst shall be responsible for the design, implementation and funding of all Development. Wyeth-Ayerst agrees to use Commercially Reasonable Efforts to conduct the Development with the intent of obtaining Regulatory Approval in the RoW and bringing a Product in the Field 6. to the market as soon as reasonably practicable. Wyeth-Ayerst shall ensure that the Development is carried out adhering to Wyeth-Ayerst's ethical and safety standards. Wyeth-Ayerst shall have the right to subcontract with third parties any of its Development obligations hereunder, without the consent or approval of CoCensys. In the event Wyeth-Ayerst intends to exercise its right to subcontract one or more of its Development obligations, it shall notify CoCensys of such intent and CoCensys shall have the right to submit one or more proposals to Wyeth-Ayerst to perform such one or more parts of such Development activities. Wyeth-Ayerst shall consider all such proposals submitted by CoCensys on an equal basis with proposals submitted by Third Party subcontractors for the same Development tasks. 2.2 RECORDS, REPORTS AND INFORMATION EXCHANGE. 2.2.1 TECHNOLOGY AND INFORMATION TRANSFER. CoCensys will provide to Wyeth-Ayerst all Know-How as Wyeth-Ayerst deems necessary to carry out the Development and [ * ] of the Product and to obtain Regulatory Approval. All information transferred, provided or exchanged under this Article 2.2.1 will be subject to the confidentiality requirements set forth in Article 17. 2.2.2 RECORD KEEPING. Wyeth-Ayerst will maintain records in sufficient detail and in good scientific manner appropriate for Regulatory Approval and patent purposes. 2.2.3 COMMUNICATION REGARDING THE DEVELOPMENT PROGRESS. A project team shall be appointed by Wyeth-Ayerst and representatives thereof shall meet with representatives of CoCensys on a regular basis (but no less often than every six (6) months) to keep CoCensys apprised of the Development progress and to bring to its attention any problems or issues which may have an impact on the timing of the Development (e.g., regulatory submissions). 2.3 COMPLIANCE. Wyeth-Ayerst shall comply with all GLP, GCP and GMP in the conduct of the Development. 2.4 FUNDING OF THE DEVELOPMENT. Wyeth-Ayerst shall be responsible for one hundred percent (100%) of all costs, fees and expenses associated with the Development and the obtaining of all Regulatory Approvals. 2.5 REGULATORY APPROVALS. [ * ] shall file all regulatory dossiers under its name. [ * ] shall own all Regulatory Approvals. [ * ] shall have the right of reference to the extent necessary to exercise its rights or to meet its 7. * Confidential treatment requested obligations hereunder. [ * ] shall be responsible for all communications with regulatory agencies. 3. BACK-UP COMPOUND CANDIDATES Unless otherwise provided, all of the Parties' rights and obligations under this Agreement, including those regarding the development, manufacture, distribution, marketing, sale, promotion, profit-sharing and royalties of CO 2-6749 and the Product are applicable to any Back-Up Compound Candidate either replacing CO 2-6749 or otherwise developed in the Field pursuant to Agreement (No. 1). The provisions herein regarding CO 2-6749 and the Product shall apply to such Back-Up Compound Candidate MUTATIS MUTANDIS. 4. INDICATIONS; EXCLUSIVITY. 4.1 INDICATIONS. Wyeth-Ayerst shall have the right to conduct Development with respect to any Licensed Compound. Wyeth-Ayerst [ * ] covenants that it shall not conduct clinical trials of any Licensed Compound for [ * ] in the Row except as provided under this Article 4.1. If Wyeth-Ayerst discovers or determines that any Licensed Compound may have efficacy in the treatment of [ * ] and if Wyeth-Ayerst desires to pursue clinical trials of such Licensed Compound [ * ] it will promptly notify CoCensys in writing and disclose to CoCensys its rationale therefor. Wyeth-Ayerst shall have the right to pursue such clinical trials for [ * ] and market and sell such Licensed Compound as though it were a Product developed and sold for [ * ]under this Agreement, subject to the Parties negotiation of terms and conditions, including royalty rates, whether and on what terms such Licensed Compound will be Co-Promoted by the Parties, and other appropriate payment and other terms. Following such negotiation of such terms and conditions the Parties shall either enter into a separate agreement or amend this Agreement to so provide for such terms and conditions. In the event the Parties are unable to come to agreement as to the appropriate terms and conditions for the development and commercialization of such Licensed Compound for [ * ] by Wyeth-Ayerst, the matter shall be referred to the Chief Executive Officer of CoCensys and the President of Wyeth-Ayerst Laboratories, an Affiliate of Wyeth-Ayerst, for good faith resolution, for a period of [ * ] days. If such matter is not resolved by the end of such [ * ] day period, the Parties shall be [ * ]. Notwithstanding the foregoing, it is expressly understood and 8. * Confidential treatment requested agreed that [ * ] as used in this Agreement shall not include [ * ]. 4.2 NO [ * ] BY COCENSYS [ * ]. During the term of this Agreement, CoCensys shall not [ * ] 4.3 NO [ * ] During the term of this Agreement, CoCensys will not [ * ] except under the terms of this Agreement, or as otherwise agreed to by Wyeth-Ayerst. 5. LICENSE GRANTS. 5.1 LICENSES TO WYETH-AYERST. Subject to the other provisions of this Agreement, CoCensys hereby grants to Wyeth-Ayerst: 5.1.1 An exclusive license in the RoW, under its Intellectual Property Rights, to develop, manufacture and have manufactured, import, use, market, offer for sale and sell Products, in the Field, and, subject to Article 4.1, for any New Indication. 5.1.1 The licenses granted in Article 5.1.1 shall be sublicensable by Wyeth-Ayerst outside the USA without the consent of CoCensys to Affiliates and Third Parties. Wyeth-Ayerst agrees to keep CoCensys informed as to such sublicensing activities. 5.1.2 Unless otherwise provided in this Agreement, Wyeth-Ayerst covenants that it shall not, nor shall it cause any Affiliate to, use or practice directly or indirectly any CoCensys Know-How, and, until expiration thereof, any CoCensys Patent Rights for any purposes other than the development, manufacture, importation, use, marketing, offer for sale or sale of the Product. 5.1.3 Wyeth-Ayerst may at any time request and authorize CoCensys to grant licenses directly to Affiliates of Wyeth-Ayerst wheresoever located by giving written notice to CoCensys designating to whom a direct license is to be granted by CoCensys. CoCensys shall promptly enter into a separate direct license agreement with each Affiliate of Wyeth-Ayerst designated by Wyeth-Ayerst in such notice. All such direct license agreements shall be consistent with the terms of this Agreement, to the extent applicable, except for such modifications as may be required by the laws, regulations and customs in the country in which the direct license agreement is to be performed. 9. * Confidential treatment requested 5.2 LICENSES UPON EXPIRATION. Upon expiration of the Royalty Term, and provided all sums owing to CoCensys have been paid, Wyeth-Ayerst shall have a [ * ] where agreed under Article 4.1, under any remaining CoCensys Intellectual Property Rights. 6. CONSIDERATION TO COCENSYS. 6.1 PAYMENTS. In further consideration of CoCensys' continuing assistance in research and development of the Product, Wyeth-Ayerst shall pay to CoCensys the following amounts at the time of the following achievements with respect to the Product: 6.1.1 [ * ] Upon [ * ] Wyeth-Ayerst shall make to CoCensys a non-refundable payment of [ * ]. 6.1.2 [ * ] Upon [ * ] Wyeth-Ayerst shall make to CoCensys a non-refundable payment of [ * ]. 6.1.3 [ * ] Upon [ * ] Wyeth-Ayerst shall make to CoCensys a non-refundable payment of [ * ]if the Product is a [ * ] Product in such [ * ], or [ * ] if the Product is a [ * ] Product in such [ * ]. If the Product is a [ * ] Product in all [ * ] Wyeth-Ayerst shall make to CoCensys an additional non-refundable payment of [ * ]. 6.1.4 [ * ] Upon [ * ] Wyeth-Ayerst shall make to CoCensys a non-refundable payment of [ * ] if the Product is a [ * ] Product or [ * ] if the Product is a [ * ] Product. 6.2 METHOD OF PAYMENT OF PAYMENTS. All payments shall be made by Wyeth-Ayerst to CoCensys by way of wire transfer to CoCensys within thirty (30) days from the date corresponding to the event triggering the milestone payment. 10. * Confidential treatment requested 6.3 PAYMENTS FOR BACK-UP COMPOUND CANDIDATES. Each payment payable pursuant to this Article 6 shall [ * ] be payable [ * ] for the Product [ * ]. 6.4 ROYALTIES AND PROFIT SHARING. Wyeth-Ayerst shall, in addition to the payments set forth above, also pay to CoCensys royalties and such other amounts as set forth in Article 7. 7. MARKETING AND ROYALTIES IN THE ROW. 7.1 MARKETING BY WYETH-AYERST. Wyeth-Ayerst shall have exclusive rights to the Product in the countries of the RoW, and shall use Commercially Reasonable Efforts to market, sell and distribute the Product at its discretion in such countries through its own network and direct licensee Affiliates, and/or through the network of its licensees/distributors, subject to Article 5.1.2. 7.2 COMMERCIAL AND REGULATORY DILIGENCE. 7.2.1 Within [ * ] months of [ * ] for the Product in the USA or the European Union, Wyeth-Ayerst will commence [ * ] and notify CoCensys in writing of such event. 7.2.2 Within [ * ] months of [ * ] Wyeth-Ayerst shall notify CoCensys in writing as to [ * ]. 7.2.3 After [ * ] Wyeth-Ayerst agrees that it will undertake commercial launch of the Product in such country [ * ]. 7.3 ANNUAL NET SALES CALCULATIONS. Annual Net Sales in the RoW of [ * ] and [ * ] Products shall be first calculated on a country-by-country basis until the end of the Royalty Term. Then Net Sales of [ * ] Products in all countries in the RoW shall be added together to calculate annual Net Sales of [ * ] Products in the RoW; and Net Sales of [ * ] Products in all countries in the RoW shall be added together to calculate annual Net Sales of [ * ] Products in the RoW. Finally, Net Sales of [ * ] Products and Net Sales of [ * ] Products shall be added together to calculate annual RoW Net Sales. 11. * Confidential treatment requested 7.4 [ * ] PRODUCT ROYALTY IN THE ROW. In consideration of the licenses granted to Wyeth-Ayerst by CoCensys under Article 5, Wyeth-Ayerst shall pay to CoCensys a running royalty on annual Net Sales of all [ * ] Products in the RoW according to the following marginal rates: (a) For annual RoW Net Sales which are less than or equal to [ * ] million, [ * ] of such RoW Net Sales which are allocable to Net Sales of [ * ] Products; and (b) For annual RoW Net Sales which are more than [ * ] million but less than or equal to [ * ] million, [ * ] of such RoW Net Sales which are allocable to Net Sales of [ * ] Products; and (c) For annual RoW Net Sales which are more than [ * ] million, [ * ] of such RoW Net Sales which are allocable to Net Sales of [ * ] Products. 7.5 [ * ] PRODUCT ROYALTY. In consideration of the licenses granted to Wyeth-Ayerst by CoCensys under Article 5, Wyeth-Ayerst shall pay to CoCensys a running royalty on Net Sales of all [ * ] Products in the RoW according to the following marginal rates: (a) For annual RoW Net Sales which are less than or equal to [ * ] million, [ * ] of such RoW Net Sales which are allocable to Net Sales of [ * ] Products; and (b) For annual RoW Net Sales which are more than [ * ] million but less than or equal to [ * ] million, [ * ] of such RoW Net Sales which are allocable to Net Sales of [ * ] Products; and (c) For annual RoW Net Sales which are more than [ * ] million, [ * ] of such RoW Net Sales which are allocable to Net Sales of [ * ] Products. 12. * Confidential treatment requested 7.6 PAYMENTS. All royalties payable to CoCensys under this Article 7 shall be paid in U.S. Dollars within three (3) months after the close of each calendar quarter, or earlier if possible, during the Royalty Term. Each payment shall be accompanied by a statement, on a country by country basis, of the amount of Net Sales in the RoW during such quarter, the aggregate amount of Net Sales for the year-to-date in the RoW, and amount of royalties due on such Net Sales. For any given royalty period during the first three (3) quarters of the year, Wyeth-Ayerst shall pay to CoCensys the royalty at the lowest rate specified in Articles 7.4 and 7.5 applicable to the then current year-to-date worldwide RoW Net Sales level. Each statement provided at the end of the fourth quarter shall contain a reconciliation of actual royalty payments made during that year, any adjustments to be made to such royalty amounts owing for such year, and the amount actually owed for such year. Any amounts owing to CoCensys shall be paid to CoCensys at the time of such fourth quarter statement, in accordance with the terms of this Article 7.6. Any adjustments to royalties owed in the RoW pursuant to Articles 7.7.1 and 7.7.2 shall be done at the end of the calendar year in which such event giving rise to such adjustment occurred; PROVIDED, HOWEVER, that following the entry of one or more generic products in any year, and where royalties were reduced for that year pursuant to Article 7.7.1, the following year's royalty rate for quarterly royalty payments shall be at [ * ] with a reconciliation upward at year end in the event sales of such generic product(s) do not rise to the level specified in Article 7.7.1. 7.7 ADJUSTMENT TO ROYALTIES IN ROW. 7.7.1 GENERIC PRODUCTS. In the event that, during the Royalty Term, a generic version of the Product is introduced in any country in the RoW by a Third Party, and if unit sales of all such generic product(s) constitute more than [ * ] of the combined unit sales in the RoW of both the Product and any such generic product(s), then the annual royalty amount owed under Article 7.4 or 7.5 for such country shall be reduced by [ * ] such reduction to be done in the fourth quarter payment as described in Article 7.6. 7.7.2 [ * ] In the event that at the end of a given calendar year [ * ] (where [ * ] = [ * ] = the [ * ] and [ * ] = [ * ] then Wyeth-Ayerst will provide written notice to CoCensys of such fact and the Parties shall meet promptly thereafter to discuss and develop in good faith a commercially reasonable plan to [ * ] In the event that, at any time after the eight (8) month anniversary of the date of the first meeting to discuss the RoW 13. * Confidential treatment requested Cost Reduction Plan, [ * ] (where [ * ] = [ * ] then, for so long as [ * ] an amount equal to [ * ] may be deducted from the royalty amount due CoCensys for such year; PROVIDED, HOWEVER, in no event shall the royalty due CoCensys be less than that paid at the lowest applicable rate (i.e., [ * ] for [ * ] Products and [ * ] for [ * ] Products, or [ * ] respectively, where Article 7.7.1 applies) set forth in Article 7.4 or 7.5. 8. ACCOUNTS AND RECORDS; WITHHOLDING TAX. 8.1 RECORDS. Wyeth-Ayerst shall keep accurate books and accounts of record in connection with the manufacture, use and/or sale by or for it of the Products in sufficient detail to permit accurate determination of all figures necessary for verification of royalties, profits, milestone payments and other compensation required to be paid hereunder. Wyeth-Ayerst shall maintain such records for a period of three (3) years after the end of the year in which they were generated. 8.2 AUDITS. CoCensys, through an independent certified public accountant reasonably acceptable to Wyeth-Ayerst, shall have the right, at its own expense, to access the books and records of Wyeth-Ayerst for the sole purpose of verifying statements furnished by Wyeth-Ayerst pursuant to Article 7.6. Such access shall be conducted after reasonable prior written notice to Wyeth-Ayerst and during ordinary business hours and shall not be more frequent than once during each calendar year. CoCensys agrees to keep in strict confidence all information learned in the course of such audit, except when it is necessary to reveal such information in order to enforce its rights under this Agreement. CoCensys' right to have such records examined shall survive termination or expiration of this Agreement. In the event such audit reveals an underpayment of [ * ] or more of the amount actually due, Wyeth-Ayerst shall reimburse CoCensys for the costs of such audit in addition to promptly remitting to CoCensys the amount of any underpayment. 8.3 FOREIGN EXCHANGE. For the purpose of computing Net Sales for Products sold in a currency other than United States Dollars, such currency shall be converted into United States Dollars in accordance with Wyeth-Ayerst's customary and usual translation procedures, consistently applied. 8.4 SALES BY SUBLICENSEES. In the event Wyeth-Ayerst grants licenses or sublicenses to others to make or sell the Product, such licenses or sublicenses shall include an obligation for the licensee or sublicensee to account for and report its Net Sales of such Products on the same basis as if such sales were Net Sales by 14. * Confidential treatment requested Wyeth-Ayerst, and CoCensys shall receive royalties in the same amounts as if the Net Sales of the licensee or sublicensee were Net Sales of Wyeth-Ayerst. 8.5 CURRENCY BLOCKAGE. In the event Wyeth-Ayerst is prevented from making any payment under this Agreement by virtue of the Statutes, Laws, Codes or Governmental Regulations of the country from which the payment is to be made, then such payments may be paid by depositing them in the currency in which accrued to CoCensys' account in a bank acceptable to CoCensys in the country whose currency is involved. If the Statutes, Laws, Codes or Governmental Regulations prohibit both transmittal and deposit of such payments, the obligation to pay, deposit, accrue or otherwise account for such payments in such country shall be suspended for so long as said prohibition shall be in effect. 8.6 WITHHOLDING. All taxes, assessments and fees of any nature levied or incurred on account of any payments accruing under this Agreement, by national, state or local governments, will be assumed and paid by Wyeth-Ayerst, except taxes levied thereon as income to CoCensys and if such taxes are required to be withheld by Wyeth-Ayerst they will be deducted from payments due to CoCensys and will be timely paid by Wyeth-Ayerst to the proper taxing authority for the account of CoCensys, a receipt or other proof of payment therefor secured and sent to CoCensys as soon as practicable. 9. TRADEMARKS. [ * ] shall select and own the Trademarks for marketing the Product in the RoW. [ * ] for (i) registration of such Trademarks and (ii) bringing, maintaining and prosecuting any action to protect or defend such Trademarks shall be borne [ * ] At the termination of this Agreement, [ * ] shall [ * ] have unrestricted ownership of such Trademark(s) in the RoW. 10. MANUFACTURING AND DISTRIBUTION. 10.1 PRIMARY MANUFACTURE. [ * ] shall manufacture or have manufactured its requirements for clinical and commercial supplies of the Product. In fulfilling its manufacturing obligations hereunder, [ * ] will use at least the same level of effort as it employs for its other products of similar scientific and commercial promise. If [ * ] elects to have the Product manufactured, [ * ] shall favorably consider using, but shall not be obligated to use, [ * ] as its manufacturing sublicensee. 15. * Confidential treatment requested 10.2 SECOND SOURCE. In order to ensure an uninterrupted supply of the Product, the Parties intend to identify a Third Party manufacturer (the "Second Source") to manufacture the Product in the event that [ * ]is unable to supply all of the reasonably anticipated requirements of the Product. If the Second Source manufactures the Product pursuant to this Article 10.2, Wyeth-Ayerst and CoCensys shall cooperate and assist each other to obtain, transfer or use any licenses, registrations or information reasonably required to permit such Second Source to manufacture the Product. 10.3 EXCHANGE OF INFORMATION. Subject to Article 17, the Parties undertake to exchange and to use diligent efforts to cause Third Party manufacturers to exchange, on a regular basis, all data and know-how relating to the manufacture of the Product. 10.4 COMPLIANCE. Any manufacture of the Product for sale in the RoW shall be performed in full compliance with all applicable foreign GMP and applicable laws and regulations. CoCensys shall be entitled to audit such compliance and in particular the quality assurance program for the manufacture of the Product. 11. PROSECUTION, MAINTENANCE AND INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS. 11.1 PATENTABLE INVENTIONS. 11.1.1 Wyeth-Ayerst shall own all Inventions made solely by its employees and agents, and all patent applications and patents claiming such Inventions. CoCensys shall own all Inventions made solely by its employees and agents, and all patent applications and patents claiming such Inventions. All Inventions made jointly by employees or agents of CoCensys and employees or agents of Wyeth-Ayerst and all patent applications and patents claiming such Inventions shall be owned jointly by CoCensys and Wyeth-Ayerst. All determinations of inventorship under this Article 11.1.1 shall be in accordance with U.S. law. 11.1.2 Wyeth-Ayerst and CoCensys shall each disclose to the other and discuss any Inventions and the desirability of filing a United States patent application covering the Invention, as well as any foreign counterparts. The Party owning the Invention shall make the final decision with respect to any such filings. With respect to jointly owned Inventions, the Parties shall determine which Party shall file and prosecute any patent applications thereon. [ * ] shall be responsible for expenses for preparing and prosecuting joint patent applications in the RoW. 16. * Confidential treatment requested 11.1.3 Each Party shall have the right to select patent counsel and to take such other actions as are reasonably appropriate to prepare, file, prosecute and maintain patent protection with respect to its Inventions arising under this Article 11.1. 11.2 PROSECUTION AND MAINTENANCE OF PATENT RIGHTS. Each Party shall be responsible for prosecuting and maintaining its own Patent Rights, subject to Article 11.1.2. With respect to the RoW, the decision as to whether to prosecute and maintain Patent Rights, and in which countries to do so, shall be made jointly by Wyeth-Ayerst and CoCensys. To facilitate such decision-making, each Party will appoint a "patent coordinator", who will have the authority to make such decision on behalf of such Party. All expenses for filing, prosecuting and maintaining the CoCensys Patent Rights in the RoW shall be paid by [ * ]. 11.3 PATENT EXTENSIONS. The Party holding a Patent Right, if requested by and with the assistance of the other Party, shall apply in a timely manner for such patent term extensions or patent restoration certificates for such Patent Right as are available under similar legislation to the U.S. Federal Drug Price Competition and Patent Term Restoration Act of 1984 (Pub. L. No. 98-417), and any amendments thereof or any successor acts thereto. [ * ] expenses incurred in connection with such patent term extensions or patent restoration certificates shall be borne [ * ]. 11.4 COOPERATION. Each of the Parties shall execute or have executed by its appropriate employees, representatives, agents, and contractors such documents as may be necessary to obtain, perfect or maintain any Patent Rights filed or to be filed pursuant to this Agreement, and to cooperate with the other Party so far as reasonably necessary with respect to furnishing all information and data in its possession reasonably necessary to obtain or maintain such Patent Rights. 11.5 INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS. 11.5.1 (a) If either Party should become aware of any infringement or threatened infringement or misappropriation, as the case may be, in the RoW of any Intellectual Property Rights of the other Party, it shall promptly notify such other Party in writing. As soon as practicable the Parties shall confer on the particulars of such infringement or misappropriation and the possible courses of action to be taken. The Party holding the affected Intellectual Property Rights shall have the right, but not the obligation, to institute, prosecute and control any 17. * Confidential treatment requested legal proceedings in its own name and by its own counsel and at its own expense, subject to Article 11.5.1(d), to prevent or restrain such infringement, and the other Party shall have the right, [ * ] to be represented in such action by its own counsel. If one Party brings any such action or proceeding, the other Party hereby consents to being joined as a party plaintiff where necessary and, in case of joining, such other Party agrees to give the first Party reasonable assistance and authority to file and to prosecute such suit, at the exercise of the Party bringing such suit. (b) Notwithstanding the foregoing, the Parties shall jointly determine which Party shall have the primary right and responsibility (but not the obligation) to institute, prosecute, and control any action or proceeding with respect to infringement or misappropriation of jointly owned Intellectual Property Rights in the RoW and the other Party shall have the right [ * ] to be represented by its counsel. Each Party hereby consents to the filing of any such action by the other Party with respect to any jointly owned Patent Rights in accordance with this Article 11.5.1(b). (c) If one Party alone prosecutes an infringement or misappropriation of Intellectual Property Rights, [ * ] any damages and costs recovered in any proceedings or by way of settlement under Articles 11.5.1(a) and 11.5.1(b) above or Article 11.5.2 shall [ * ] as applicable. (d) If both Parties participate in prosecuting an infringement or misappropriation of Intellectual Property Rights, the actual costs and expenses of all suits brought by either Party under this Article 11.5.1 shall be [ * ]. Any remaining damages shall then be [ * ]. 11.5.2 If the Party having the primary right to institute, prosecute, and control such infringement or misappropriation action under Article 11.5.1 fails to do so within a period of one hundred twenty (120) days after receiving notice of the infringement, or if that Party, after initiating an action, determines to discontinue such action, the other Party shall have the right to bring and control or take over any such action by counsel of its own choice, and at its own expense, subject to Article 11.5.1(c) unless prevented from doing so by the laws of the country where the infringement or misappropriation occurred or is threatened. 18. * Confidential treatment requested 11.5.3 In connection with any proposed settlement in respect of any infringement or threatened infringement of any Intellectual Property Rights, the Party intending to settle shall notify and consult with the other Party as to the terms of settlement, whose written consent shall be required prior to any such settlement, such consent shall not be unreasonably withheld. 11.5.4 In connection with any action taken by either Party against a Third Party to protect or enforce any Intellectual Property Rights, the other Party shall, if requested, consult with the Party taking such action, and make available as witnesses its employees or as evidence any materials, and/or data as are reasonably necessary for the furtherance of such action. The expenses in connection with the providing of witnesses and/or the making available of any materials and/or data shall be [ * ]. 11.6 INFRINGEMENT OF THIRD PARTY PATENT RIGHTS. 11.6.1 If Wyeth-Ayerst should be of the opinion that it cannot make, import, use, market and/or sell the Product in the RoW under its own Intellectual Property Rights or those licensed to it by CoCensys under this Agreement without infringing a Third Party's patent, it shall notify CoCensys. Both Parties then shall seek an opinion of patent counsel acceptable to both Parties. If such patent counsel concurs with Wyeth-Ayerst's opinion, they shall jointly or independently endeavor to secure a license from the Third Party on terms that are acceptable to both Parties. 11.6.2 If, in the opinion of patent counsel selected under Article 11.6.1, the Third Party patent, if litigated, would be found invalid or not be infringed by the manufacture or sale of the Product or if the Parties otherwise mutually agree to obtain a license to such Third Party patent, the Parties shall proceed in accordance with the terms of this Agreement, unless an action for infringement is brought against one or both Parties. 11.6.3 If either Party is sued for patent infringement of any Third Party patents arising out of the manufacture, use, sale or importation of the Product in the RoW, the Parties shall promptly meet to discuss the course of action to be taken to resolve or defend any such infringement litigation. Each Party shall provide the other with such assistance as is reasonably necessary and shall cooperate in the defense of any such action. [ * ] of any cost/expense of defending such action incurred by Wyeth-Ayerst in a given country 19. * Confidential treatment requested and any damages and/or other compensation imposed on Wyeth/Ayerst in such country may be deducted by Wyeth-Ayerst from any amounts otherwise due CoCensys under this Agreement in the form of royalties for such country, PROVIDED, HOWEVER, in no event shall royalty amounts due CoCensys for such country be reduced by more than [ * ]in any given calendar year as a result of this sentence. 12. FORCE MAJEURE. Neither Party shall be liable to the other for delay or failure in the performance of the obligations on its part contained in this Agreement if and to the extent that such failure or delay is due to circumstances beyond its control which it could not have avoided by the exercise of reasonable diligence. It shall notify the other Party promptly should such circumstances arise, giving an indication of the likely extent and duration thereof, and shall use all commercially reasonable efforts to resume performance of its obligations as soon as practicable. 13. TERM AND TERMINATION. 13.1 GENERAL CONDITIONS OF EXPIRATION AND TERMINATION. 13.1.1 Any permitted sublicenses granted hereunder shall automatically terminate or expire at the same time as this Agreement expires (insofar as they haven't already terminated), except where, and to the extent, any license granted hereunder survives expiration of this Agreement, as expressly provided in this Agreement. Upon early termination of this Agreement for any reason, if any permitted sublicensee is not then in default under its sublicense agreement with Wyeth-Ayerst, then such sublicensee shall automatically have a license under this Agreement as a direct licensee of CoCensys, on economic terms as are set forth herein with respect to Wyeth-Ayerst and otherwise with the same rights and obligations as Wyeth-Ayerst under this Agreement. 13.1.2 The provisions of Articles 8, 9, 11, 14, 15, and 17 shall survive termination or expiration of this Agreement. 13.1.3 Termination or expiration of this Agreement shall not operate to deprive either Party of any rights or remedies either at law or in equity or to relieve either Party of any of its obligations incurred prior to the effective date of such termination or expiration. 20. * Confidential treatment requested 13.2 TERM. Unless earlier terminated as set out in this Agreement, the term of this Agreement shall end when all the respective royalty payment obligations of the Parties under this Agreement have expired. 13.3 TERMINATION FOR BREACH. 13.3.1 TERMINATION FOR BREACH. Except as otherwise provided in this Section 13.3.1, either Party may terminate this Agreement for material breach by the other Party, which breach remains uncured for [ * ] in the case of nonpayment of any amount due and [ * ] for all other breaches, each measured from the date written notice of such breach is given to the breaching party, or, if such breach is not susceptible of cure within such [ * ] period and the breaching party uses diligent good faith efforts to cure such breach, for [ * ] after written notice to the breaching party. 13.3.2 BREACH BY WYETH-AYERST. If termination is due to a material breach by Wyeth-Ayerst, all rights granted to Wyeth-Ayerst under this Agreement shall revert to CoCensys, provided that [ * ] as of the date of such termination. 13.4 NO LIMIT ON REMEDIES. Nothing herein shall exclude or limit any remedies or entitlements whatsoever which the law confers to either Party in the event of a breach of contractual obligations by the other Party. 13.5 UNILATERAL TERMINATION BY WYETH-AYERST. Wyeth-Ayerst shall have the right to unilaterally terminate this Agreement upon [ * ] written notice. In the event of such termination by Wyeth-Ayerst, all Wyeth-Ayerst's rights to the Licensed Compound and the Product in the RoW shall revert to CoCensys. Wyeth-Ayerst shall not be obligated to make any payments under this Agreement for events which occur after the effective date of such termination. After the termination date, Wyeth-Ayerst will make its relevant personnel, relevant data and other resources available as are reasonably necessary to effect an orderly transition of Development and commercialization of the Product for a period of [ * ] after termination. In the event of such termination, Wyeth-Ayerst shall (i) [ * ] (ii) [ * ] and (iii) [ * ]. 13.6 AUTOMATIC TERMINATION OF AGREEMENT (NO. 1). This Agreement shall terminate automatically if Agreement (No. 1) is terminated for any reason other than expiration or for material breach by CoCensys. 21. * Confidential treatment requested 14. ASSIGNMENT. 14.1 ASSIGNMENT TO AFFILIATES. Either Party may assign any of its rights or obligations under this Agreement in any country to any Affiliates, for so long as they remain Affiliates; provided, however, that such assignment shall not relieve the assigning Party of its responsibilities for performance of its obligations under this Agreement. 14.2 OTHER PERMITTED ASSIGNMENT. Either Party may assign its rights or obligations under this Agreement in connection with a merger or similar reorganization or the sale of all or substantially all of its assets, [ * ] provided, that in the event of such merger, reorganization or sale, [ * ] All other assignments by any Party shall [ * ]. 14.3 BINDING NATURE OF ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Parties. Any assignment not in accordance with this Article 14 shall be void. 15. INDEMNIFICATION. 15.1 CROSS INDEMNIFICATION. 15.1.1 Each Party hereby agrees to save, defend and hold the other Party and its agents and employees harmless from and against any and all suits, claims, actions, demands, liabilities, expenses and/or losses, including reasonable legal expense and attorneys' fees, brought by a Third Party or that arise in connection with any claim brought by a Third Party ("Losses") resulting directly from the manufacture, use, handling, storage, sale or other disposition of Products in the RoW to the extent such Losses result solely from (i) the negligence of the indemnifying party or breach by the indemnifying party of any provision of this Agreement, (ii) failure of the indemnifying party to manufacture or have manufactured Products (bulk or finished form) according to cGMP or Product specifications, or (iii) marketing activities of the indemnifying party contrary to applicable governmental regulations or outside the approved labeling of the Product. 15.1.2 In the event CoCensys is seeking indemnification under Article 15.1.1, it shall inform Wyeth-Ayerst of a claim as soon as is reasonably practicable after it receives notice of the claim, shall permit Wyeth-Ayerst to assume direction and control of the defense of the claim (including the right to settle the claim solely for monetary 22. * Confidential treatment requested consideration), and shall cooperate as requested (at the expense of Wyeth-Ayerst) in the defense of the claim. 15.1.3 In the event Wyeth-Ayerst is seeking indemnification under Article 15.1.1, it shall inform CoCensys of a claim as soon as is reasonably practicable after it receives notice of the claim, shall permit CoCensys to assume direction and control of the defense of the claim (including the right to settle the claim solely for monetary consideration), and shall cooperate as requested (at the expense of CoCensys) in the defense of the claim. 15.2 INSURANCE. Each Party further agrees to use reasonable commercial efforts to obtain and maintain, during the term of this Agreement, Comprehensive General Liability Insurance, including Products Liability, with reputable and financially secure insurance carriers or self-insurance, with limits of not less than $5,000,000 per occurrence and in the aggregate to cover its indemnification obligations under Articles 15.1 and 15.2. 16. WARRANTIES AND REPRESENTATIONS. 16.1 GENERAL. Each Party hereby warrants to the other: 16.1.1 that it has full power and authority to execute and deliver this Agreement and to perform the obligations on its part hereunder; and 16.1.2 that the execution and delivery by it of this Agreement and the performance of its obligations hereunder have been duly approved by all necessary corporate action and do not require any shareholder action or approval. 16.1.3 that, to the best of its knowledge, the manufacture, use, importation, offer for sale, or sale of CO 2-6749 will not infringe any Third Party patent in the RoW. 17. CONFIDENTIAL INFORMATION. 17.1 INFORMATION. Each Party shall keep all information received from the other Party (the "Information") confidential and shall not disclose nor use the Information without the other Party's written consent except to the extent contemplated by this Agreement. This restriction shall not, however, prevent disclosure of the Information if and to the extent that disclosure is required by law, PROVIDED THAT the disclosing Party informs the other Party without delay of any such 23. requirement, in order to allow such other Party to object to such disclosure and to seek an appropriate protective order or similar protection prior to disclosure. 17.2 EXCEPTIONS. The above obligations shall not apply or shall cease to apply to Information which: 17.2.1 is now, or hereafter becomes, through no act or failure to act on the part of the receiving Party, generally known or available; 17.2.2 is known by the receiving Party at the time of receiving such information, as evidenced by its written records; 17.2.3 is hereafter furnished to the receiving Party by a Third Party, as a matter of right and without restriction on disclosure; 17.2.4 is independently developed by or for the receiving Party without any breach of this Article 17; or 17.2.5 is the subject of a written permission to disclose provided by the disclosing Party. 17.3 PERMITTED DISCLOSURES. Information may be disclosed to employees, agents, consultants, sublicensees or suppliers of the recipient Party or its Affiliates, but only to the extent required to accomplish the purposes of this Agreement and only if the recipient Party obtains prior agreement from its employees, agents, consultants, sublicensees or suppliers to whom disclosure is to be made to hold in confidence and not make use of such information for any purpose other than those permitted by this Agreement. Each Party will use at least the same standard of care as it uses to protect proprietary or confidential information of its own to ensure that such employees, agents, consultants, sublicensees or suppliers do not disclose or make any unauthorized use of the Information. 17.4 DISCLOSURE OF AGREEMENT. Neither CoCensys nor Wyeth-Ayerst shall release to any Third Party or publish in any way any non-public information with respect to the terms of this Agreement or concerning their cooperation without the prior written consent of the other, which consent will not be unreasonably withheld or delayed; provided; however that either Party may disclose the terms of this Agreement to the extent required to comply with applicable laws, including without limitation the rules and regulations promulgated by the Securities and Exchange Commission and the Party intending to disclose the terms of this Agreement shall provide the nondisclosing party an opportunity to review and comment on the intended disclosure which is reasonable under the circumstances. Notwithstanding any other provision of this Agreement, each Party may disclose the terms of this Agreement to lenders, investment bankers and other financial 24. 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) if the disclosing Party uses reasonable efforts to obtain a signed confidentiality agreement with such financial institution with respect to such information, upon terms substantially similar to those contained in this Article 17. 17.5 PUBLICITY. Subject to Section 17.4, all publicity, press releases and other announcements relating to this Agreement or the transaction contemplated hereby shall be reviewed in advance by, and shall be subject to the approval of, both Parties. 17.6 PUBLICATION. The Parties shall cooperate in appropriate publication of the results of research and development work performed pursuant to this Agreement, but subject to their predominating interest in obtaining patent protection for any patentable subject matter. The determination of authorship for any paper shall be in accordance with accepted scientific practice. Notwithstanding anything in this Article 17.6 to the contrary, all publication and presentations of the results of research and development work performed pursuant to this Agreement must be approved in advance by both Parties. 18. MISCELLANEOUS. 18.1 NO WAIVER OF CONTRACTUAL RIGHTS. The failure of either Party to require performance by the other Party of any of that other Party's obligations hereunder shall in no manner affect the right of such Party to enforce the same at a later time. No waiver by any Party hereto of any condition, or of the breach of any provision, term, representation or warranty contained in 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 condition or breach, or of any other condition or of the breach of any other provision, term representation or warranty hereof. 18.2 EXECUTION AND AMENDMENTS. 18.2.1 Each Party shall execute and deliver all such instruments and perform all such other acts as the other Party may reasonably request in order to carry out the transactions contemplated by this Agreement. 18.2.2 This Agreement may not be amended or modified except by written instrument signed by or on behalf of both Parties. 18.3 SEVERABILITY. If a court or other tribunal of competent jurisdiction should hold any term or provision of this agreement to be excessive, or invalid, void or unenforceable, the offending term or provision shall be deleted, and, if possible, 25. replaced by a term or provision which, so far as practicable achieves the legitimate aims of the Parties. 18.4 RELATIONSHIP BETWEEN THE PARTIES. Both Parties are independent contractors under this Agreement. Nothing contained in this Agreement is intended nor shall be construed so as to constitute CoCensys or Wyeth-Ayerst as partners or joint venturers with respect to this Agreement. Neither Party shall have the express or the implied right nor authority to assume or create any obligations on behalf of or in the name of the other Party, nor to bind the other Party to any other contract, agreement or undertaking with any Third Party. 18.5 CORRESPONDENCE AND NOTICES. 18.5.1 Correspondence, reports, documentation, and any other communication in writing between the Parties in the course of ordinary implementation of this Agreement shall be delivered by hand, sent by facsimile, or by airmail to any one employee appointed by the Party which is to receive such written communication, or any other way as the Parties deem appropriate. 18.5.2 Extraordinary notices and communications (including but not limited to notices of termination, force majeure, material breach, change of address) shall be in writing and sent by prepaid registered or certified air mail, or by facsimile confirmed by prepaid registered or certified air mail letter, and shall be deemed to have been properly served to the addressee upon receipt of such written communication. 18.5.3 In the case of CoCensys, the proper address for communications and for all payments shall be: CoCensys, Inc. 213 Technology Drive Irvine, California 92618, USA Attn: Chief Executive Officer and in the case of Wyeth-Ayerst, the proper address for communications and for all payments shall be: Wyeth-Ayerst Laboratories 555 Lancaster Avenue St. Davids, PA 19087 Attn: Senior Vice President, Global Business Development With a copy to: 26. American Home Products Corporation 5 Giralda Farms Madison, NJ 07940 Attn: Senior Vice President and General Counsel 18.6 CHOICE OF LAW. This Agreement is subject to and governed by the laws of the State of Delaware, excluding its conflict of laws provisions. 18.7 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be an original and all of which shall constitute together the same document. 18.8 APPOINTMENT OF WYETH-AYERST INTERNATIONAL, INC. Wyeth-Ayerst hereby appoints Wyeth-Ayerst International Inc., a subsidiary company of Wyeth-Ayerst, organized and existing under the laws of the State of New York, U.S.A., having an office and place of business at 150 Radnor-Chester Road, St. Davids Center, St. Davids, Pennsylvania 19087, U.S.A., to administer as agent for Wyeth-Ayerst all the rights and obligations of Wyeth-Ayerst in respect of this Agreement, including, without limitation, the accounting of all royalties and other sums or payments due CoCensys hereunder, and the transmittal and receipt of all notices, reports, statements or other records relating to such royalties and the manufacture and sale of the Product. By its execution hereinbelow, Wyeth-Ayerst International Inc. accepts the designation and appointment set forth hereinabove. This Agreement together with its Exhibits and further agreements mentioned herein and Agreement No. 1 constitutes the entire agreement of the Parties with respect to the subject matter hereof as of its date, and supersedes all prior agreements, understandings, representations and proposals, written or oral, relating thereto. AMERICAN HOME PRODUCTS CORPORATION COCENSYS, INC. - ---------------------------------- --------------------------------- Name Name Title Title WYETH-AYERST INTERNATIONAL, INC. - ---------------------------------- Name Title 27. EXHIBIT A BACK-UP COMPOUND CANDIDATE CRITERIA Criterion for IND-Tracking Activities Required -------------------------- ------------------- [ * ] * Confidential treatment requested EXHIBIT B [ * ] [ * ] * Confidential treatment requested EXHIBIT C COCENSYS PATENT RIGHTS US ISSUE DATE EXPIRATION DATE CORRESPONDING FOREIGN APPLICATIONS - ------------------------------------------------------------------------------ [ * ] * Confidential treatment requested EXHIBIT D DEFINITION OF FULLY BURDENED COST The following expenses are manufacturing expenses which are prepared in accordance with generally accepted accounting principles consistently applied. THE FOLLOWING EXPENSES ARE INCLUDED IN MANUFACTURING COSTS: [ * ] * Confidential treatment requested EXHIBIT E WYETH-AYERST PATENT RIGHTS [ * ] * Confidential treatment requested EX-27 10 EXHIBIT 27
5 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 2,192 15,180 657 0 0 18,839 6,058 3,565 21,638 4,302 227 0 12,000 96,076 (91,005) 21,638 0 9,257 0 0 0 0 51 (7,306) 0 (7,306) 0 0 0 (7,306) (.33) (.33)
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