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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from ______________________ to ____________________
COMMISSION FILE NUMBER 0-28150
NEUROCRINE BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0525145
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
10555 SCIENCE CENTER DRIVE
SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices)
(858) 658-7600
(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
The number of outstanding shares of the registrant's Common Stock, par
value of $0.001, was 26,212,635 as of October 31, 2001.
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NEUROCRINE BIOSCIENCES, INC.
FORM 10-Q INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1: Financial Statements.............................................3
Condensed Balance Sheets as of September 30, 2001
and December 31, 2000.........................................3
Condensed Statements of Operations for the three and nine months
ended September 30, 2001 and 2000.............................4
Condensed Statements of Cash Flows for nine months
ended September 30, 2001 and 2000.............................5
Notes to the Condensed Financial Statements......................6
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations.....................................7
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk......11
PART II. OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K................................11
SIGNATURES......................................................11
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
NEUROCRINE BIOSCIENCES, INC.
CONDENSED BALANCE SHEETS
(in thousands)
September 30, December 31,
2001 2000
(unaudited)
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents .............................$ 11,946 $ 21,078
Short-term investments, available-for-sale ............ 129,309 143,592
Receivables under collaborative agreements ............ 19,710 5,974
Other current assets .................................. 1,704 1,761
---------- ----------
Total current assets ............................. 162,669 172,405
Property and equipment, net ............................. 12,653 11,300
Licensed technology and patent applications costs, net .. 245 362
Other assets ............................................ 2,387 1,895
---------- ----------
Total assets .....................................$ 177,954 $ 185,962
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................$ 1,354 $ 1,065
Accrued liabilities ................................... 11,119 11,135
Deferred revenues ..................................... 8,243 1,172
Current portion of long-term debt ..................... 149 149
Current portion of capital lease obligations .......... 1,545 1,438
---------- ----------
Total current liabilities .......................... 22,410 14,959
Long-term debt, net of current portion .................. 37 162
Capital lease obligations, net of current portion ....... 2,005 2,121
Deferred rent ........................................... 4,996 1,646
Deferred revenues ....................................... 2,075 2,890
Other liabilities ....................................... 898 976
---------- ----------
Total liabilities ............................... 32,421 22,754
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares
authorized; no shares issued and outstanding ....... - -
Common stock, $0.001 par value; 50,000,000 shares
authorized; issued and outstanding shares were
26,187,852 in 2001 and 25,314,470 in 2000 .......... 26 25
Additional paid in capital ............................ 238,880 233,565
Deferred compensation ................................. (444) (59)
Stockholder notes .................................... (104) (104)
Accumulated other comprehensive income (loss) ......... (45) 261
Accumulated deficit .................................. (92,780) (70,480)
---------- ----------
Total stockholders' equity ...................... 145,533 163,208
---------- ----------
Total liabilities and stockholders' equity .......$ 177,954 $ 185,962
========== ==========
See accompanying notes to the condensed financial statements.
NEUROCRINE BIOSCIENCES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited; in thousands except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2001 2000 2001 2000
(restated) (restated)
-------------------- --------------------
Revenues:
Sponsored research and development .$ 5,104 $ 1,887 $ 10,948 $ 4,943
License and option fees ............ 501 152 959 2,152
Milestones ......................... 15,500 - 15,500 -
Grant income and other revenues .... 488 386 1,002 1,050
-------------------- --------------------
Total revenues ................. 21,593 2,425 28,409 8,145
Operating expenses:
Research and development ........... 18,327 12,499 49,583 28,404
General and administrative ......... 2,073 2,509 7,304 6,930
-------------------- --------------------
Total operating expenses ........ 20,400 15,008 56,887 35,334
------------------- --------------------
Income (loss) from operations ........ 1,193 (12,583) (28,478) (27,189)
Other income and (expenses):
Interest income .................... 1,254 1,431 5,965 4,466
Interest expense ................... (79) (61) (223) (173)
Other income and expenses, net ..... 139 282 436 926
------------------- --------------------
Income (loss) before income taxes .... 2,507 (10,931) (22,300) (21,970)
Income taxes ......................... - 102 - 302
------------------- --------------------
Net income (loss) ....................$ 2,507 $(11,033) $(22,300) $(22,272)
==================== ====================
Income (loss) per common share:
Basic $ 0.10 $ (0.50) $ (0.87) $ (1.02)
Diluted $ 0.09 $ (0.50) $ (0.87) $ (1.02)
Shares used in the calculation of loss per common share:
Basic 25,816 22,032 25,575 21,900
Diluted 27,972 22,032 25,575 21,900
See accompanying notes to the condensed financial statements.
NEUROCRINE BIOSCIENCES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)
Nine Months Ended
September 30,
-----------------------
2001 2000
(restated)
---------- ----------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss ................................................$ (22,300) $ (22,272)
Adjustments to reconcile net loss to net cash
provided by/(used in) operating activities:
Loss on asset disposal ............................ 51 -
Depreciation and amortization ..................... 1,918 1,618
Deferred revenues ................................. 9,177 2,791
Deferred expenses ................................. 352 785
Compensation expenses for stock options ........... 1,585 1,986
Change in operating assets and liabilities:
Accounts receivable and other current assets . (13,680) 545
Other non-current assets ..................... (238) 837
Accounts payable and accrued liabilities ..... 1,188 886
---------- ----------
Net cash flows used in operating activities ............. (21,947) (12,824)
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of short-term investments ..................... (73,953) (25,140)
Sales/maturities of short-term investments .............. 87,930 26,775
Purchases of property and equipment ..................... (3,459) (1,688)
---------- ----------
Net cash flows provided by/(used in) investing activities 10,518 (53)
CASH FLOW FROM FINANCING ACTIVITIES
Issuance of common stock ................................ 2,431 2,816
Proceeds from capital lease financing ................... 1,011 650
Principal payments on long-term obligations ............. (1,145) (706)
Payments received on notes receivable from stockholders . - 15
---------- ----------
Net cash flows provided by financing activities ......... 2,297 2,775
---------- ----------
Net decrease in cash and cash equivalents ............... (9,132) (10,102)
Cash and cash equivalents at beginning of the period .... 21,078 21,265
---------- ----------
Cash and cash equivalents at end of the period ..........$ 11,946 $ 11,163
========== ==========
See accompanying notes to the condensed financial statements.
NEUROCRINE BIOSCIENCES, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The condensed financial statements included herein are unaudited. Certain
reclassifications have been made to prior year amounts to conform to the
presentation for the three and nine months ended September 30, 2001. These
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions of the
Securities and Exchange Commission (SEC) on Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, these financial statements
include all adjustments (consisting of normal recurring adjustments) necessary
for a fair presentation of the financial position, results of operations, and
cash flows for the periods presented.
The results of operations for the interim periods shown in this report are
not necessarily indicative of results expected for the full year. The financial
statements should be read in conjunction with the audited financial statements
and notes for the year ended December 31, 2000, included in our Annual Report on
Form 10-K filed with the SEC.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.
3. NET EARNINGS OR LOSS PER COMMON SHARE
Basic net earnings or loss per common share is calculated using the
weighted average number of common shares outstanding during the period. Diluted
net earnings or loss per common share is calculated by adding the total
incremental number of common share equivalents and the weighted average number
of common shares outstanding during the period using the treasury stock method.
Except for the quarter ending September 30, 2001, the incremental shares of the
common share equivalents for all other periods were excluded from the
calculation of diluted net loss per share as their effects were antidilutive.
4. COMPREHENSIVE INCOME
Our comprehensive losses consist of net losses and unrealized gains and
losses on investments. The accumulated balances of these components are
disclosed as a separate component of stockholders' equity.
5. REVENUE RECOGNITION
During the fourth quarter of 2000, the Company adopted SAB 101, "Revenue
Recognition in Financial Statements". SAB 101 provides, among other revenue
items, guidance in the recognition of nonrefundable, up-front fees received in
conjunction with a research and development agreement. The result of the
adoption of SAB 101 was to reduce recognition of license fee revenues reported
during the third quarter of 2000 by $2.9 million, increasing net loss per share
by $0.13 for the three and nine months ended September 30, 2000. These revenues
were deferred and will be recognized as income, ratably over the estimated lives
of the respective agreements.
Milestones are recognized as revenue when earned. The earnings process is
considered complete when the milestone coincides with the occurrence of a
contract specified event and represents the completion of a substantive element
of an arrangement. In July 2001, the Company and Glaxo Group Limited, a
subsidiary of GlaxoSmithKline (GSK), signed a worldwide collaboration and
license agreement to engage in the research, development and commercialization
of Corticotropin Releasing Factor Receptor Antagonist Compounds. Under the GSK
agreement, we completed and recognized a $15.5 million milestone in September
2001.
6. NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued FASB
Statements Nos. 141 and 142 (FAS 141 and FAS 142), "Business Combinations" and
"Goodwill and Other Intangible Assets." FAS 141 replaces APB 16 and eliminates
pooling-of-interests accounting prospectively. It also provides guidance on
purchase accounting related to the recognition of intangible assets and
accounting for negative goodwill. FAS 142 changes the accounting for goodwill
from an amortization method to an impairment only approach. Under FAS 142,
goodwill will be reviewed annually and also whenever events or circumstances
occur indicating that goodwill might be impaired. FAS 141 and FAS 142 are
effective for all business combinations completed after June 30, 2001. Upon
adoption of FAS 142, amortization of goodwill recorded for business combinations
consummated prior to July 1, 2001 will cease, and intangible assets acquired
prior to July 1, 2001 that do not meet the criteria for recognition under FAS
141 will be reclassified to goodwill. Companies are required to adopt FAS 142
for fiscal years beginning after December 15, 2001, but early adoption is
permitted under certain circumstances. The adoption of these standards is not
expected to have a material impact on the Company's results of operations and
financial position.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations section contains forward-looking statements which
involve risks and uncertainties, pertaining generally to the expected
continuation of our collaborative agreements, the receipt of research payments
there under, the future achievement of various milestones in product development
and the receipt of payments related thereto, the potential receipt of royalty
payments, pre-clinical testing and clinical trials of potential products, the
period of time that our existing capital resources will meet our funding
requirements, and our financial results and operations. Our actual results could
differ materially from those anticipated in these forward-looking statements as
a result of various factors, including those set forth below and those outlined
in our 2000 Annual Report on Form 10-K and the most recent Form S-3 filed with
the SEC.
OVERVIEW
We incorporated in California in 1992 and reincorporated in Delaware in
1996. Since we were founded, we have been engaged in the discovery and
development of novel pharmaceutical products for neurologic and endocrine
diseases and disorders. Our product candidates address some of the largest
pharmaceutical markets in the world including insomnia, anxiety, depression,
cancer and diabetes. To date, we have not generated any revenues from the sale
of products, and we do not expect to generate any product revenues in the
foreseeable future. We have funded our operations primarily through private and
public offerings of our common stock and payments received under research and
development agreements. We are developing a number of products with corporate
collaborators and will rely on existing and future collaborators to meet funding
requirements. We expect to generate future net losses in anticipation of
significant increases in operating expenses as product candidates are advanced
through the various stages of clinical development. As of September 30, 2001, we
have incurred a cumulative deficit of $92.8 million and expect to incur
operating losses in the future, which may be greater than losses in prior years.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
Revenues for the third quarter of 2001 were $21.6 million compared with
$2.4 million for the same period last year. The increase in revenues from last
year to this year resulted primarily from revenues received under the
GlaxoSmithKline (GSK) and Taisho Pharmaceuticals Co., Ltd. (Taisho) agreements.
On July 20, 2001, the Company and Glaxo Group Limited, a subsidiary of GSK,
signed a worldwide collaboration and license agreement to engage in the
research, development and commercialization of Corticotropin Releasing Factor
Receptor Antagonist Compounds. Under the GSK agreement, we recognized $1.6
million in license and sponsored research and development funding and a $15.5
million milestone. We also recognized $2.5 million in license and sponsored
development fees, and $713,000 in sponsored research related to the Taisho
agreement this quarter compared to $538,000 in license and sponsored development
fees in the same quarter last year. The increase in revenues from these
agreements was partially offset by the completion of the sponsored research
portion of the 1999 Janssen Pharmaceutica, N.V. (Janssen) agreement. These
activities concluded, as scheduled, in February 2001. Under the Janssen
agreement, we received $743,000 in sponsored research and development during the
third quarter of 2000.
Research and development expenses increased to $18.3 million for the third
quarter of 2001 compared with $12.5 million for the respective period in 2000.
Increased expenses primarily reflect higher costs associated with expanding
development activities and the addition of scientific and clinical development
personnel. Currently, we have 15 programs in our research and development
pipeline. Five of these programs are in clinical development, three programs are
in advanced pre-clinical development and seven are in various stages of
research. We expect to incur significant increases in future periods as later
phases of development typically involve an increase in the scope of studies, the
number of patients treated and the number of scientific personnel required to
manage the clinical trials.
General and administration expenses decreased to $2.1 million for the third
quarter of 2001 compared with $2.5 million during the same period last year. The
decrease resulted primarily from lower management consulting fees associated
with the Taisho agreement.
Interest income decreased to $1.3 million during the third quarter of 2001
compared to $1.4 million for the same period last year. Even though the cash
balance was higher in the third quarter of 2001 compared to 2000, interest
income was lower as a result of declining interest rates in 2001.
Net income for the third quarter of 2001 was $2.5 million, or $0.10 per
share, compared to a net loss $11.0 million, or $0.50 per share, for the same
period in 2000. The increase to a net income was primarily the result of the
GlaxoSmithKline revenue recognized in the third quarter of 2001. The increased
revenue was partially offset from the cost of expanded testing of our five
clinical programs and the addition of scientific and clinical development
personnel. We expect net losses in the fourth quarter and year-end 2001 as our
programs continue to advance through the various stages of the research and
clinical development processes.
To date, the Company's revenues have come from funded research and
achievements of milestones under corporate collaborations. The nature and amount
of these revenues from period to period may lead to substantial fluctuations in
the results of quarterly revenues and earnings. Accordingly, results and
earnings of one period are not predictive of future periods.
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
Revenues for the nine months ended September 30, 2001 were $28.4 million
compared with $8.1 million in 2000. The increase from last year to this year
resulted primarily from revenues received under the GSK and Taisho agreements.
Under the new GSK agreement, we recognized $1.6 million in license and sponsored
research and development funding and a $15.5 million milestone in 2001. We also
recognized $7.0 million in sponsored research and development, and $579,000 in
license fees related to the Taisho agreement in the nine months ended September
30, 2001 compared to $2.2 million in option and license fees and $388,000 in
sponsored development fees for the respective period last year. The increase in
revenues from these agreements was partially offset by the completion of the
sponsored research portion of the Janssen agreement. These activities concluded,
as scheduled, in February 2001. Under the Janssen agreement, we received
$342,000 and $2.2 million for the nine months ended September 30, 2001 and 2000,
respectively.
Research and development expenses increased to $49.6 million for the first
nine months of 2001 compared with $28.4 million for the respective period in
2000. Increased expenses primarily reflect higher costs associated with
expanding development activities and the addition of scientific and clinical
development personnel. Currently, we have 15 programs in our research and
development pipeline. Five of these programs are in clinical development, three
programs are in advanced pre-clinical development and seven are in various
stages of research. We expect to incur significant increases in future periods
as later phases of development typically involve an increase in the scope of
studies, the number of patients treated and the number of scientific personnel
required to manage the clinical trials.
General and administration expenses increased to $7.3 million for the nine
months ended September 30, 2001 compared with $6.9 million during the same
period last year. The increase resulted from additional administrative personnel
expenses, primarily recruiting and relocation, and professional service
expenses, predominantly legal costs to support the expanded research and
clinical development efforts. The increase was partially offset by lower
management consulting fees associated with the Taisho agreement.
Interest income increased to $6.0 million for the first nine months of
2001, compared to $4.5 million for the same period last year. Despite lower
interest rates in 2001 compared to 2000, interest income increased because of
higher investment balances achieved through offerings of our common stock. In
December 2000, we sold 3.2 million shares in a public offering, which resulted
in net proceeds of $90.4 million. Due to the increase in cash reserves generated
from this transaction, we anticipate interest income for this year will be
higher than that of last year.
Net loss for the first nine months of 2001 was $22.3 million, or $0.87 per
share compared to $22.3 million, or $1.02 per share, for the same period in
2000. Higher costs in 2001 from expanded testing of our five clinical programs
and the addition of scientific and clinical development personnel were offset by
the increase in third quarter revenues. Net losses are expected to increase this
year as our programs continue to advance through the various stages of the
research and clinical development processes.
To date, the Company's revenues have come from funded research and
achievements of milestones under corporate collaborations. The nature and amount
of these revenues from period to period may lead to substantial fluctuations in
the results of quarterly revenues and earnings. Accordingly, results and
earnings of one period are not predictive of future periods.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2001, our cash, cash equivalents, and short-term
investments totaled $141.3 million compared with $164.7 million at December 31,
2000. The decrease in cash balances at September 30, 2001 resulted primarily
from funding of operations.
Net cash used by operating activities during the nine months ended
September 30, 2001 was $21.9 million compared with $12.8 million during the same
period last year. The increase in cash used in operations resulted primarily
from the increase in clinical development activities and the addition of
scientific and clinical development personnel.
Net cash provided by investing activities during the nine months ended
September 30, 2001 was $10.5 million compared to net cash used of $53,000 for
the first nine months of 2000. This fluctuation resulted primarily from the
timing differences in the investment purchases, sales, maturities and the
fluctuations in our portfolio mix between cash equivalents and short-term
investment holdings. We expect similar fluctuations to continue in future
periods. Capital equipment purchases for 2001 will be financed primarily through
leasing agreements and are expected to be approximately $4.0 million this year,
of which $3.5 million has been incurred in the nine months ending September 30,
2001.
Net cash provided by financing activities during the first nine months of
2001 was $2.3 million compared with $2.8 million for the respective period last
year. Cash proceeds from the issuance of common stock under option and employee
purchase programs was $2.4 million and $2.8 million in the nine months ended
September 30, 2001 and 2000, respectively. In addition, capital lease financing
provided $1.0 million in cash during the first nine months of 2001 and $650,000
for the same period in 2000. We expect similar fluctuations to occur throughout
the year, as the amount and frequency of stock-related transactions are
dependent upon the market performance of our common stock.
We believe that our existing capital resources, together with interest
income and future payments due under our strategic alliances, will be sufficient
to satisfy our current and projected funding requirements for at least the next
12 months. However, we cannot guarantee that these capital resources and
payments will be sufficient to conduct our research and development programs as
planned. The amount and timing of expenditures will vary depending upon a number
of factors, including progress of our research and product development programs.
We will require additional funding to continue our research and product
development programs, to conduct pre-clinical studies and clinical trials, for
operating expenses, to pursue regulatory approvals for our product candidates,
for the costs involved in filing and prosecuting patent applications and
enforcing or defending patent claims, if any, the cost of product in-licensing
and any possible acquisitions, and we may require additional funding to
establish manufacturing and marketing capabilities in the future. We may seek to
access the public or private equity markets whenever conditions are favorable.
We may also seek additional funding through strategic alliances and other
financing mechanisms. We cannot assure you that adequate funding will be
available on terms acceptable to us, if at all. If adequate funds are not
available, we may be required to curtail significantly one or more of our
research or development programs or obtain funds through arrangements with
collaborators or others. This may require us to relinquish rights to certain of
our technologies or product candidates.
We expect to incur operating losses over the next several years as our
research, development, pre-clinical studies and clinical trial activities
increase. To the extent that we are unable to obtain third party funding for
such expenses, we expect that increased expenses will result in increased losses
from operations. We cannot assure you that we will be successful in the
development of our product candidates, or that, if successful, any products
marketed will generate sufficient revenues to enable us to earn a profit.
INTEREST RATE RISK
We are exposed to interest rate risk on our short-term investments and on
our long-term debt. The primary objective of our investment activities is to
preserve principal while at the same time maximizing yields without
significantly increasing risk. To achieve this objective, we invest in highly
liquid and high quality government and other debt securities. To minimize our
exposure due to adverse shifts in interest rates, we invest in short-term
securities and ensure that the maximum average maturity of our investments does
not exceed 40 months. If a 10% change in interest rates were to have occurred on
September 30, 2001, this change would not have had a material effect on the fair
value of our investment portfolio as of that date. Due to the short holding
period of our investments, we have concluded that we do not have a material
financial market risk exposure.
Interest risk exposure on long-term debt relates to our note payable, which
bears a floating interest rate of prime plus one quarter percent (6.25% at
September 30, 2001 and 9.75% at December 31, 2000). At September 30, 2001 and
December 31, 2000, the note balance was $186,000 and $311,000, respectively.
This note is payable in equal monthly installments through January 2003. Based
on the balance of our long-term debt, we have concluded that we do not have
material financial market risk exposure.
CAUTION ON FORWARD-LOOKING STATEMENTS
Our business is subject to significant risks, including but not limited to,
the risks inherent in our research and development activities, including the
successful continuation of our strategic collaborations, the successful
completion of clinical trials, the lengthy, expensive and uncertain process of
seeking regulatory approvals, uncertainties associated both with the potential
infringement of patents and other intellectual property rights of third parties,
and with obtaining and enforcing our own patents and patent rights,
uncertainties regarding government reforms and of product pricing and
reimbursement levels, technological change and competition, manufacturing
uncertainties and dependence on third parties. Even if our product candidates
appear promising at an early stage of development, they may not reach the market
for numerous reasons. Such reasons include the possibilities that the product
will be ineffective or unsafe during clinical trials, will fail to receive
necessary regulatory approvals, will be difficult to manufacture on a large
scale, will be uneconomical to market or will be precluded from
commercialization by proprietary rights of third parties. For more information
about the risks we face, see "Risk Factors" included in Part I of our Form 10-K
filed with the SEC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A discussion of the Company's exposure to, and management of, market risk
appears in Part 1, Item 2 of this Quarterly Report on Form 10-Q under the
heading "Interest Rate Risk".
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits. The following exhibit is filed as part of this report:
10.1 Employment Agreement dated October 17, 2001, between the Registrant
and Henry Pan, MD, PhD.
(B) Reports on Form 8-K. There were no current reports on Forms 8-K filed this
quarter.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: 11/12/01 /s/ Paul W. Hawran
------------ ----------------------------
Paul W. Hawran
Executive Vice President and
Chief Financial Officer
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of October 17, 2001 (the "Effective Date") by and
between NEUROCRINE BIOSCIENCES, INC., 10555 Science Center Drive, San Diego,
California 92121 (hereinafter the "Company"), and Henry Pan, MD, PhD., 14 East
Shore Drive Princeton, NJ 08540 (hereinafter "Executive").
R E C I T A L S
WHEREAS, the Company and Executive wish to set forth in this Agreement the
terms and conditions under which Executive is to be employed by the Company on
and after the date hereof; and
NOW, THEREFORE, the Company and Executive, in consideration of the mutual
promises set forth herein, agree as follows:
ARTICLE 1
TERM OF AGREEMENT
1.1 Commencement Date. Executive's fulltime employment with the Company
under this Agreement shall commence as of October 15, 2001 ("Commencement Date")
and this Agreement shall expire after a period of three (3) years from the
Commencement Date, unless terminated earlier pursuant to Article 6.
1.2 Renewal. The term of this Agreement shall be automatically renewed for
successive, additional three (3) year terms unless either party delivers written
notice to the other at least ninety (90) days prior to the end of any term of an
intention to terminate this Agreement or to renew it for a term of less than
three (3) years but not less than (1) year. If the term of this Agreement is
renewed for a term of less than three (3) years, then thereafter the term of
this Agreement shall be automatically renewed for successive, additional
identical terms unless either party delivers a written notice to the other of an
intention to terminate this Agreement or to renew it for a different term of not
less than one (1) year, such notice to be delivered at least ninety (90) days
prior to the end of any term. The Company's failure to renew this Agreement at
the end of any term shall be considered a termination without Cause as set forth
in Section 6.4 below.
ARTICLE 2
EMPLOYMENT DUTIES
2.1 Title/Responsibilities. Executive hereby accepts employment with the
Company pursuant to the terms and conditions hereof. Executive agrees to serve
the Company in the position of Executive Vice President, Clinical Research and
Chief Medical Officer. Executive shall have the powers and duties commensurate
with such position, including but not limited to hiring personnel necessary to
carry out the responsibilities for such position as set forth in the annual
business plan approved by the Board of Directors.
2.2 Full Time Attention. Executive shall devote his best efforts and his
full business time and attention to the performance of the services customarily
incident to such office and to such other services as the President or Board may
reasonably request.
2.3 Other Activities. Except upon the prior written consent of the
President & Chief Executive Officer, Executive shall not during the period of
employment engage, directly or indirectly, in any other business activity
(whether or not pursued for pecuniary advantage) that is or may be competitive
with, or that might place him in a competing position to that of the Company or
any other corporation or entity that directly or indirectly controls, is
controlled by, or is under common control with the Company (an "Affiliated
Company"), provided that Executive may own less than two percent (2%) of the
outstanding securities of any such publicly traded competing corporation.
ARTICLE 3
COMPENSATION
3.1 Base Salary. Executive shall receive a Base Salary at an annual rate of
three hundred and fifteen thousand dollars ($315,000), payable semi-monthly in
equal installments in accordance with the Company's normal payroll practices.
The Chief Executive Officer shall provide Executive with annual performance
reviews, and, thereafter, Executive shall be entitled to such increase in Base
Salary as the Chief Executive Officer and Board of Directors may from time to
time establish in their sole discretion.
3.2 Incentive Bonus. In addition to any other bonus Executive may be
awarded by the Company's Board of Directors, the Company shall pay Executive an
annual bonus as determined by the Company's Board of Directors and Chief
Executive Officer based upon achievement of Executive in meeting personal goals
approved by the Chief Executive Officer/ Board of Directors and achievement by
the Company of corporate goals approved by the Board of Directors annually.
Executive's personal goals and the Company's corporate goals will be set forth
in writing by the Chief Executive Officer and Board within ninety (90) days
after the start of the Company's fiscal year. The Board of Directors and Chief
Executive Officer shall, in their sole discretion, determine whether Executive's
personal goals have been obtained. The Board of Directors shall, in its sole
discretion, determine whether the corporate goals have been obtained.
3.3 Equity.
(a) Initial Grant. Pursuant to a Consulting Agreement dated September 25,
2001, the Executive was granted an option pursuant to the Company's
1992 Stock Incentive Plan, as amended, to purchase two hundred
thousand ($200,000) shares of the Company's common stock which option
vests over a four-year period with twenty-five percent (25%) of such
vesting occurring on September 25, 2002 and 1/48 per month thereafter.
The Executive's Consulting Agreement will be superceded by this
Employment Agreement and the stock options granted thereunder will
continue to vest in accordance with the 1992 Stock Incentive Plan
during the term of this Employment Agreement.
(b) Signing Bonus. As special consideration for entering into this
Agreement, on the Effective Date of this Agreement the Company will
sell to Executive 7500 shares of Company stock ("Signing Shares"). The
Signing Shares will be held by the Company as restricted shares not
available for resale until such time as the Signing Shares, or
installment thereof as provided below, have been paid for in full and
delivered to Executive. Executive will purchase the Signing Shares by
providing to Company a note for the market value of the Signing Shares
(the "Note"). The Note will bear interest payable by Executive
annually in arrears. The principal amount of the Note will be forgiven
in four (4) equal installments on each of the first four (4)
anniversaries of the Effective Date provided there has been no
termination of this Agreement. Upon forgiveness of each installment of
the principal of the Note, the Signing Shares relating thereto shall
be deemed paid for in full and will be delivered to Executive free of
restrictions. In the event this Agreement shall be terminated prior to
the fourth anniversary of the Effective Date, the Company may
repurchase the Signing Shares for the then outstanding principal of
the Note.
(c) Annual Grants. Each year for the term of this Agreement, the Executive
will be eligible to receive a Stock Option award under the Company's
1992 Incentive Stock Option Plan, as amended, with the number of
shares and exercise price as shall be determined by the Board of
Directors.
3.4 Withholdings. All compensation and benefits payable to Executive
hereunder and the Agreement shall be subject to all federal, state, local and
other withholdings and similar taxes and payments required by applicable law.
ARTICLE 4
EXPENSE ALLOWANCES AND FRINGE BENEFITS
4.1 Vacation. Executive shall be entitled to the greater of three (3) weeks
of annual paid vacation or the amount of annual paid vacation to which Executive
may become entitled under the terms of Company's vacation policy for employees
during the term of this Agreement.
4.2 Benefits. During the term of this Agreement, the Company shall also
provide Executive with the usual health insurance benefits it generally provides
to its other senior management employees. As Executive becomes eligible in
accordance with criteria to be adopted by the Company, the Company shall provide
Executive with the right to participate in and to receive benefit from life,
accident, disability, medical, pension, bonus, stock, profit-sharing and savings
plans and similar benefits made available generally to employees of the Company
as such plans and benefits may be adopted by the Company. The amount and extent
of benefits to which Executive is entitled shall be governed by the specific
benefit plan as it may be amended from time to time.
4.3 Business Expense Reimbursement. During the term of this Agreement,
Executive shall be entitled to receive proper reimbursement for all reasonable
out-of-pocket expenses incurred by him (in accordance with the policies and
procedures established by the Company for its senior executive officers) in
performing services hereunder. Executive agrees to furnish to the Company
adequate records and other documentary evidence of such expense for which
Executive seeks reimbursement. Such expenses shall be reimbursed and accounted
for under the policies and procedure established by the Company.
4.4 Relocation Expense. The Company will reimburse the Executive for
reasonable and customary out of pocket expenses relating to:
(a) Travel. Travel from Princeton, NJ to San Diego for Executive and
spouse for the final move. If by auto, the Company will reimburse
mileage ($0.10/mile), lodging and meals.
(b) Temporary Housing. Temporary housing in San Diego for up to twelve
(12) months to be arranged by the Company.
(c) Moving Household Goods. Movement and storage (up to six (6) months) of
household goods by authorized Company carrier, to be coordinated by
the Company.
(d) Relocation Expenses. Reimbursement of up to twenty-five thousand
dollars ($25,000.00) for miscellaneous documented relocation expenses
payable upon the purchase or rental of a home in San Diego.
(e) Real Estate Commissions. Reimbursement of reasonable and customary
real estate commission and closing costs on the sale of Executive's
home in Princeton;
(f) Taxes. The Company will reimburse the Executive for federal and state
income taxes associated with items (a) through (e), except for those
expenses which are deductible for federal and state income tax
purposes. In addition the company will retain, at company expense, a
tax specialist who will provide tax guidance associated with your
relocation for up to three years.
4.5 Home Loan. In connection with Executive's purchase of a home in the San
Diego area, the Company will provide to Executive a loan of up to four hundred
thousand dollars ($400,000) repayable in full upon the first to occur of (a) the
four (4) year anniversary of the loan, (b) termination of this Agreement, (c)
sale of by Executive of any NBI security, or (d) refinancing or sale of the San
Diego home. The loan will bear interest at a rate of five percent (5% p.a.)
payable annually in arrears and will be secured with a second mortgage deed on
the San Diego home. For so long as the loan remains outstanding, twelve and
one-half percent (12.5%) of the outstanding principal amount of the loan will be
forgiven on each of the first four anniversaries of the date of the loan for a
total forgiveness of fifty percent (50%). It shall be a condition of the loan
that Executive shall have provided a down payment on purchase of the home in San
Diego of at least ten percent (10%) excluding the proceeds of the Company loan.
4.6 Purchase of San Diego Home.
(a) Points. The Company will reimburse Executive up to three (3) points of
the principal balance of the Executive's new mortgage relating to the
purchase of a home in the San Diego area.
(b) Mortgage Equalization. In connection with the purchase of a home in
the San Diego area, for a period of three (3) years the Company will
provide to Executive annual mortgage equalization payments for the
amount by which the purchase price of the San Diego area home exceeds
the selling price of Executive's New Jersey home up to a maximum of
three hundred thousand dollars ($300,000). The equalization payments
will be a percentage of the incremental interest to be paid by
Executive by reason of the amount by which the purchase price of the
San Diego home exceeds the selling price of the Executive's New Jersey
home (up to three hundred thousand dollars $300,000). Such annual
equalization payments will be as follows from the date of purchase and
payable semi-monthly (i) Year One - one hundred percent (100%) of
incremental interest; (ii) Year Two - sixty six percent (66%) of
incremental interest; (iii) Year Three - thirty three (33%) of
incremental interest.
(c) Interest Reimbursement. If Executive purchases a home in San Diego
before he has sold his New Jersey home, the Company will reimburse
Executive for the lesser of the his mortgage interest payment on his
New Jersey home and his mortgage interest payment on his San Diego
home (after taking into consideration payments under Sections 4.5 and
4.6 hereof), provided, Company is not at that time also providing
Executive with temporary housing in San Diego and, provided further,
that such reimbursement will only be provided for the period beginning
on the Effective Date of this Agreement and ending on the one year
anniversary thereof. Thereafter, at such time as Executive's spouse
relocates from New Jersey to San Diego and in connection therewith
Executive's New Jersey home is listed for sale, the Company will
reimburse Executive for the lesser of the his mortgage interest
payment on his New Jersey home and his mortgage interest payment on
his San Diego home (after taking into consideration payments under
Sections 4.5 and 4.6 hereof) for a period not to exceed six (6)
months.
4.7 Personal Travel. For the first twelve (12) months of this Agreement the
Company will provide to Executive one round trip Coach Class airline ticket San
Diego- New Jersey per month for Executive's personal travel and, during such
twelve (12) month period, up to six (6) additional round trip Coach Class
airline tickets San Diego- New Jersey for Executive's spouse. These tickets will
be booked through the Company's corporate travel account and the Company will
provide Business Class upgrades for such tickets on an as available basis.
4.8 Taxes. Executive will be responsible for the payment of all federal and
state income taxes on all allowances, loans and loan forgiveness accruing to
Executive pursuant to this Article 4.
ARTICLE 5
CONFIDENTIALITY
5.1 Proprietary Information. Executive represents and warrants that he has
previously executed and delivered to the Company the Company's standard
Proprietary Information and Inventions Agreement in form acceptable to the
Company's counsel.
5.2 Return of Property. All documents, records, apparatus, equipment and
other physical property which is furnished to or obtained by Executive in the
course of his employment with the Company shall be and remain the sole property
of the Company. Executive agrees that, upon the termination of his employment,
he shall return all such property (whether or not it pertains to Proprietary
Information as defined in the Proprietary Information and Inventions Agreement),
and agrees not to make or retain copies, reproductions or summaries of any such
property.
5.3 No use of Prior Confidential Information. Executive will not
intentionally disclose to the Company or use on its behalf any confidential
information belonging to any of his former employers or any other third party.
ARTICLE 6
TERMINATION
6.1 By Death. The period of employment shall terminate automatically upon
the death of Executive. In such event, all stock options held by Executive at
the time of termination will continue to vest for a period of six (6) months
following termination. All stock options held by Executive that are vested at
the time of termination or within six (6) months thereafter will be exercisable
in accordance with their terms for a for a period of one year following
termination. In addition, the Company shall pay to Executive's beneficiaries or
his estate, as the case may be, any accrued Base Salary, any bonus compensation
to the extent earned, any vested deferred compensation (other than pension plan
or profit-sharing plan benefits which will be paid in accordance with the
applicable plan), any benefits under any plans of the Company in which Executive
is a participant to the full extent of Executive's rights under such plans, any
accrued vacation pay and any appropriate business expenses incurred by Executive
in connection with his duties hereunder, all to the date of termination
(collectively Accrued Compensation), but no other compensation or reimbursement
of any kind, including, without limitation, severance compensation, and
thereafter, the Company's obligations hereunder shall terminate.
6.2 By Disability. If Executive is prevented from properly performing his
duties hereunder by reason of any physical or mental incapacity for a period of
120 consecutive days, or for 180 days in the aggregate in any 365-day period,
then, to the extent permitted by law, the Company may terminate the employment
of Executive at such time. In such event, all stock options held by Executive at
the time of termination will continue to vest for a period of six (6) months
following termination. All stock options held by Executive that are vested at
the time of termination or within six (6) months thereafter will be exercisable
in accordance with their terms for a for a period of one year following
termination. In addition, the Company shall pay to Executive all Accrued
Compensation, and shall continue to pay to Executive the Base Salary until such
time), as Executive shall become entitled to receive disability insurance
payments under the disability insurance policy maintained by the Company, but no
other compensation or reimbursement of any kind, including without limitation,
severance compensation, and thereafter the Company's obligations hereunder shall
terminate. Nothing in this Section shall affect Executive's rights under any
disability plan in which he is a participant.
6.3 By Company for Cause. The Company may terminate the Executive's
employment for Cause (as defined below) without liability at any time with or
without advance notice to Executive. The Company shall pay Executive all Accrued
Compensation, but no other compensation or reimbursement of any kind, including
without limitation, severance compensation, and thereafter the Company's
obligations hereunder shall terminate. Termination shall be for "Cause" in the
event of the occurrence of any of the following: (a) any intentional action or
intentional failure to act by Executive which was performed in bad faith and to
the material detriment of the Company; (b) Executive intentionally refuses or
intentionally fails to act in accordance with any lawful and proper direction or
order of the Chief Executive Officer; (c) Executive and habitually neglects the
duties of employment; or (d) Executive is convicted of a felony crime involving
moral turpitude, provided that in the event that an of the foregoing events is
capable of being cured, the Company shall provide written notice to Executive
describing the nature of such event and Executive shall thereafter have ten (10)
business days to cure such event.
6.4 Termination Without Cause. At any time, the Company may terminate the
employment of Executive without liability other than as set forth below, for any
reason not specified in Section 6.3 above, by giving thirty (30) days advance
written notice to Executive. If the Company elects to terminate Executive
pursuant to this Section 6.4,
(a) the Company shall pay to Executive all Accrued Compensation,
(b) the Company shall continue to pay to Executive as provided herein
Executive's Base Salary over the period equal to nine (9) months from
the date of such termination as severance compensation,
(c) the Company shall make a lump sum payment to Executive in an amount
equal to a pro rata portion of the Executive's annual actual cash
incentive bonus for Company's fiscal year preceding the year of
termination based on the number of completed months of Executive's
employment in the fiscal year plus nine (9),
(d) the vesting of all outstanding stock options held by Executive shall
be accelerated so that the amount of shares vested under such option
shall equal that number of shares which would have been vested if the
Executive had continued to render services to the Company for nine (9)
continuous months after the date of his termination of employment, and
(e) the Company shall pay all costs which the Company would otherwise have
incurred to maintain all of Executive's health and welfare, and
retirement benefits (either on the same or substantially equivalent
terms and conditions) if the Executive had continued to render
services to the Company for nine (9) continuous months after the date
of his termination of employment. The Company shall have no further
obligations to Executive other than those set forth in the preceding
sentence. During the period when such severance compensation is being
paid to Executive, Executive shall not (i) engage, directly or
indirectly, in providing services to any other business program or
project that is competitive to a program or project being conducted by
the Company or any Affiliated Company at the time of such employment
termination (provided that Executive may own less than two percent
(2%) of the outstanding securities of any publicly traded
corporation), or (ii) hire, solicit, or attempt to solicit on behalf
of himself or any other party or any employee or exclusive consultant
of the Company. If the Company terminates this Agreement or the
employment of Executive with the Company other than pursuant to
Section 6.1, 6.2 or 6.3, then this section 6.4 shall apply.
6.5 Constructive Termination. A Constructive Termination shall be deemed to
be a termination of employment of Executive without cause pursuant to Section
6.4. For Purposes of this Agreement, a "Constructive Termination" means that the
Executive voluntarily terminates his employment except in connection with the
termination of his employment for death, disability, retirement, fraud,
misappropriation, embezzlement (or any other occurrence which constitutes
"Cause" under section 6.3) or any other voluntary termination of employment by
Executive other than a Constructive Termination after any of the following are
undertaken without Executive's express written consent:
(a) the assignment to Executive of any duties or responsibilities which
result in any diminution of position as judged against the duties and
responsibilities assigned to executives with Executive's position in
the Company's peer group of companies and shall not include (i) duties
and responsibilities assigned to Executive with the understanding that
as the Company grows and management staff increases in number, such
duties and responsibilities will eventually be reassigned in a manner
consistent with the Company's peer group of companies, (ii) change in
reporting relationship that does not change in any material way the
Executive's duties and responsibilities or (iii) any change in duties
or responsibilities or reporting relationships that Executive does not
identify as Constructive Termination to the Chief Executive Officer in
writing within 15 days following the Chief Executive Officer's
proposal of such change to Executive;
(b) a reduction by the Company in Executive's annual Base Salary by
greater than five percent (5%);
(c) a relocation of Executive or the Company's principal executive offices
if Executive's principal office is at such offices, to a location more
than forty (40) miles from the location at which Executive is then
performing his duties, except for an opportunity to relocate which is
accepted by Executive in writing;
(d) any material breach by the Company of any provision of this Agreement;
or
(e) any failure by the Company to obtain the assumption of this Agreement
by any successor or assign of the Company.
6.6 Termination Following Change in Control. Upon a Change in Control, the
Company shall pay to Executive a lump sum severance payment in an amount equal
to one (1.0) times (Executive's then Base Salary plus annual actual cash
incentive bonus for Company's fiscal year preceding the year of termination)
plus reimbursement for federal and state income taxes payable by Executive by
reason of the such severance payment. In addition, the vesting of all
outstanding stock options held by Executive shall be accelerated so that the
options are immediately exercisable in full.
6.7 Change in Control. For purposes of this Agreement, a "Change in
Control" shall have occurred if at any time during the term of Executive's
employment hereunder, any of the following events shall occur:
(a) The Company is merged, or consolidated. or reorganized into or with
another corporation or other legal person, and as a result of such
merger, consolidation or reorganization less than 50% of the combined
voting power of the then-outstanding securities of such corporation or
person immediately after such transaction are held in the aggregate by
the holders of voting securities of the Company immediately prior to
such transaction;
(b) The Company sells all or substantially all of its assets or any other
corporation or other legal person and thereafter, less than 50% of the
combined voting power of the then-outstanding voting securities of the
acquiring or consolidated entity are held in the aggregate by the
holders of voting securities of the Company immediately prior to such
sale;
(c) There is a report filed after the date of this Agreement on Schedule
13 D or schedule 14 D-1 (or any successor schedule, form or report),
each as promulgated pursuant to the Securities Exchange Act of l934
(the "Exchange Act") disclosing that any person (as the term "person"
is used in Section 13(d)(3) or Section 14(d)(2) of the exchange Act)
has become the beneficial owner (as the term beneficial owner is
defined under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) representing 50% or more of the
combined voting power of the then-outstanding voting securities of the
Company;
(d) The Company shall file a report or proxy statement with the Securities
and Exchange Commission pursuant to the Exchange Act disclosing in
response to item 1 of Form 8-X thereunder or Item 5(f) of Schedule 14
A thereunder (or any successor schedule, form or report or item
therein) that the change in control of the Company has or may have
occurred or will or may occur in the future pursuant to any
then-existing contract or transaction; or
(e) During any period of two (2) consecutive years, individuals who at the
beginning of any such period constitute the directors of the Company
cease for any reason to constitute at least a majority thereof unless
the election to the nomination for election by the Company's
shareholders of each director of the Company first elected during such
period was approved by a vote of at least two-thirds of the directors
of the Company then still in office who were directors of the Company
at the beginning of such period.
6.8 Termination by Executive. At any time, Executive may terminate his
employment by giving thirty (30) days advance written notice to the Company. The
Company shall pay Executive all Accrued Compensation, but no other compensation
or reimbursement of any kind, including without limitation, severance
compensation, and thereafter the Company's obligations hereunder shall
terminate.
6.9 Mitigation. Except as otherwise specifically provided herein, Executive
shall not be required to mitigate the amount of any payment provided under this
Agreement by seeking other employment or self-employment, nor shall the amount
of any payment provided for under this Agreement be reduced by any compensation
earned by Executive as a result of employment by another employer or through
self-employment or by retirement benefits after the date of Executive's
termination of employment from the Company.
6.10 Coordination. If upon termination of employment, Executive becomes
entitled to rights under other plans, contracts or arrangements entered into by
the Company, this Agreement shall be coordinated with such other arrangements so
that Executive's rights under this Agreement are not reduced, and that any
payments under this Agreement offset the same types of payments otherwise
provided under such other arrangements, but do not otherwise reduce any payments
or benefits under such other arrangements to which Executive becomes entitled.
ARTICLE 7
GENERAL PROVISIONS
7.1 Governing Law. The validity, interpretation, construction and
performance of this Agreement and the rights of the parties thereunder shall be
interpreted and enforced under California law without reference to principles of
conflicts of laws. The parties expressly agree that inasmuch as the Company's
headquarters and principal place of business are located in California, it is
appropriate that California law govern this Agreement.
7.2 Assignment; Successors Binding Agreement.
(a) Executive may not assign, pledge or encumber his interest in this
Agreement or any part thereof.
(b) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company, by operation of law
or by agreement in form and substance reasonably satisfactory to
Executive, to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to
perform it if no such succession had taken place.
(c) This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributee, devisees and legatees.
If Executive should die while any amount is at such time payable to
his hereunder, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to
Executive's devisee, legates or other designee or, if there be no such
designee, to his estate.
7.3 Certain Reduction of Payments. In the event that any payment or benefit
received or to be received by Executive under this Agreement would result in all
or a portion of such payment to be subject to the excise tax on "golden
parachute payments" under Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), then Executive's payment shall be either (a) the full
payment or (b) such lesser amount which would result in no portion of the
payment being subject to excise tax under Section 4999 of the Code, whichever of
the foregoing amounts, taking into account the applicable Federal, state and
local employment taxes, income taxes, and the excise tax imposed by Section 4999
of the Code, results in the receipt by Executive on an after-tax basis, of the
greatest amount of the payment notwithstanding that all or some portion of the
payment may be taxable under Section 4999 of the Code.
7.4 Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
To the Company:
Neurocrine Biosciences, Inc.
10555 Science Center Drive
San Diego, CA 92121
Attn.: President & Chief Executive Officer
To Executive:
Henry Pan, M.D.
14 East Shore Drive
Princeton, New Jersey 08540
7.5 Modification; Waiver; Entire Agreement. No provisions of this Agreement
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing signed by Executive and such officer as may be
specifically designated by the Board of the Company. No waiver by either party
hereto at any time of any breach by the other party of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or any prior or subsequent time. No agreements or representations, oral
or otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
7.6 Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
7.7 Controlling Document. Except to the extent described in Section 6.l0,
in case of conflict between any of the terms and condition of this Agreement and
the document herein referred to, the terms and conditions of this Agreement
shall control.
7.8 Executive Acknowledgment. Executive acknowledges (a) that he has
consulted with or has had the opportunity to consult with independent counsel of
his own choice concerning this Agreement, and has been advised to do so by the
Company, and (b) that he has read and understands the Agreement, is fully aware
of its legal effect, and has entered into it freely based on his own judgment.
7.9 Remedies.
(a) Injunctive Relief. The parties agree that the services to be rendered
by Executive hereunder are of a unique nature and that in the event of
any breach or threatened breach of any of the covenants contained
herein, the damage or imminent damage to the value and the goodwill of
the Company's business will be irreparable and extremely difficult to
estimate, making any remedy at law or in damages inadequate.
Accordingly, the parties agree that the Company shall be entitled to
injunctive relief against Executive in the event of any breach or
threatened breach of any such provisions by Executive, in addition to
any other relief (including damage) available to the Company under
this Agreement or under law.
(b) Exclusive. Both parties agree that the remedy specified in Section
7.9.1 above is not exclusive of any other remedy for the breach by
Executive of the terms hereof.
7.10 Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
Agreement.
7.11 Prevailing Party Expenses. In the event that any action or proceeding
is commenced to enforce the provisions of the Agreement, the court adjudicating
such action or proceeding shall award to the prevailing party all costs and
expenses thereof, including, but not limited to, all reasonable attorneys' fees,
court costs, and all other related expenses.
Executed by the parties as of the day and year first above written.
EXECUTIVE NEUROCRINE BIOSCIENCES, INC
By: \s\ Henry Pan By: \s\ Gary A. Lyons
----------------------- -----------------------
Henry Pan, M.D.,Ph.D. Gary A. Lyons