<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
* QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- ----- OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 1996
------------------
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ----- ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO ___________
COMMISSION FILE NUMBER 0-17951
CORTEX PHARMACEUTICALS, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
Delaware 33-0303583
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
15241 Barranca Parkway, Irvine, California, 92618
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(714) 727-3157
(ISSUERS'S TELEPHONE NUMBER)
NOT APPLICABLE
_________________________________
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST YEAR)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 * NO
---- ----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
7,763,350 shares of Common Stock as of November 1, 1996
Page 1 of 13
<PAGE>
<TABLE>
<CAPTION>
CORTEX PHARMACEUTICALS, INC.
INDEX
PAGE NUMBER
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets -- September 30, 1996 and June 30, 1996 . . . . . . . . . . . . . .3
Statements of Operations -- Three months ended
September 30, 1996 and 1995; and period from
inception (February 10, 1987) through September 30, 1996 . . . . . . . . . . . . .4
Statements of Cash Flows -- Three months ended
September 30, 1996 and 1995 and period from
inception (February 10, 1987) through September 30, 1996 . . . . . . . . . . . . .5
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . .7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . .12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
</TABLE>
Page 2 of 13
<PAGE>
PART I. . . . . . . . . . . . . . . FINANCIAL INFORMATION
ITEM 1. . . . . . . . . . . . . . . .FINANCIAL STATEMENTS
CORTEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<S> <C> <C>
(UNAUDITED) (NOTE)
September 30, 1996 June 30, 1996
- ---------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,936,064 $ 4,091,550
U.S. government securities -- available for sale -- --
Other current assets 117,935 88,427
----------- -----------
Total current assets 3,053,999 4,179,977
Furniture, equipment and leasehold improvements, net 758,337 807,601
Other 25,716 26,342
----------- ----------
$ 3,838,052 $ 5,013,920
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 199,812 $ 217,332
Accrued dividends 64,350 64,350
Accrued wages, salaries and related expenses 59,493 40,145
Current obligations under capital leases 7,951 8,501
---------- ----------
Total current liabilities 331,606 330,328
Obligations under capital leases -- 1,499
Note payable to Alkermes, Inc. 1,051,488 1,037,330
Stockholders' equity:
9% cumulative convertible preferred stock, $0.001
par value; $1.00 per share liquidation preference;
shares authorized: 1,250,000; shares issued and
outstanding: 110,000 110,000 110,000
Series B convertible preferred stock, $0.001 par value;
$0.6667 per share liquidation preference; shares
authorized: 3,200,000; shares issued and
outstanding: 150,000 86,810 86,810
Series C convertible preferred stock, $0.001 par value;
$25,000 per share liquidation preference; shares
authorized: 160; shares issued and outstanding:
25 (September 30, 1996) and 35 (June 30, 1996) 537,483 752,476
Common stock, $0.001 par value; shares authorized:
20,000,000; shares issued and outstanding:
7,589,271 (September 30, 1996) and 7,495,576
(June 30, 1996) 7,589 7,496
Additional paid-in capital 28,263,738 28,048,414
Unrealized gain (loss) on available for
sale U.S. government securities 164 (1,135)
Deficit accumulated during the development stage (26,550,826) (25,359,298)
----------- -----------
Total stockholders' equity 2,454,958 3,644,763
----------- -----------
$ 3,838,052 $ 5,013,920
----------- -----------
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
NOTE: THE BALANCE SHEET AS OF JUNE 30, 1996 HAS BEEN DERIVED FROM THE AUDITED
FINANCIAL STATEMENTS AT THAT DATE.
Page 3 of 13
<PAGE>
CORTEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
inception
Three months ended (February 10,
September 30, 1987) through
------------------------- September 30,
1996 1995 1996
______________________________________________________________________________________
<S> <C> <C> <C>
Revenues:
Research and license revenue under an agreement
with Alkermes, Inc. $ -- $ -- $ 3,600,000
Grant revenue -- -- 94,717
----------- ----------- ------------
Total revenues -- -- 3,694,717
Operating expenses:
Research and development expenses 793,547 665,478 19,762,659
General and administrative expenses 432,374 323,444 10,482,933
Settlement with Alkermes, Inc. -- -- 1,227,977
----------- ----------- ------------
Total operating expenses 1,225,921 988,922 31,473,569
----------- ----------- ------------
Loss from operations (1,225,921) (988,922) (27,778,852)
Interest income, net 34,393 34,312 1,367,700
----------- ----------- ------------
Net loss $(1,191,528) $ (954,610) $(26,411,152)
=========== =========== ============
Weighted average common shares outstanding 7,557,700 6,086,804
=========== ===========
Net loss per share $(0.16) $ (0.16)
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
Page 4 of 13
<PAGE>
CORTEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
inception
(February 10,
Three months ended 1987) through
September 30, September 30,
_______________________
1996 1995 1996
_____________________________________________________________________________________________________
<S> <C> <C> <C>
Cash flows from operating activities:
NET LOSS $(1,191,528) $(954,610) $ (26,411,152)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 53,350 58,173 1,162,372
Settlement with Alkermes, Inc. -- -- 1,227,977
Changes in operating assets/liabilities:
Accounts payable and accrued expenses 1,828 32,341 259,305
Accrued interest on U.S. government securities -- (21,080) (149,856)
Other current assets (29,508) 50,934 (117,935)
Interest receivable from former officer -- -- (19,274)
Realized loss on sale of U.S. government securities -- 551 54,317
Stock option compensation expense -- 14,139 555,809
Stock issued for services -- -- 28,750
Reduction in note receivable from former
officer--compensation expense -- -- 22,600
Other 15,457 -- 60,776
----------- --------- -------------
NET CASH USED IN OPERATING ACTIVITIES (1,150,401) (819,552) (23,326,311)
----------- --------- -------------
Cash flows from investing activities:
U.S. government securities--available-for-sale--
Purchases -- -- (36,146,416)
Proceeds from sales -- 749,418 36,240,820
Purchase of fixed assets (4,086) -- (1,891,433)
Sale of fixed assets -- 2,777 10,236
Decrease (increase) in--
Other assets 626 (529) (42,456)
Note receivable from former officer -- -- (100,000)
----------- --------- -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (3,460) 751,666 (1,929,249)
----------- --------- -------------
Cash flows from financing activities:
Proceeds from issuance of common stock 424 9,839 21,679,424
Proceeds from issuance of Series B
convertible preferred stock -- -- 1,841,108
Proceeds from issuance of 9% preferred stock -- -- 1,076,588
Proceeds from issuance of Series C
convertible preferred stock -- -- 3,576,543
Proceeds from subordinated convertible note -- -- 208,333
Payment of 9% preferred stock dividends -- -- (110,250)
Redemption of 9% preferred stock -- -- (63,750)
Redemption of common stock -- -- (350)
Principal payments on capitalized leases (2,049) (1,859) (16,022)
----------- --------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1,625) 7,980 28,191,624
----------- --------- -------------
Increase (decrease) in cash and cash equivalents (1,155,486) (59,906) 2,936,064
Cash and cash equivalents, beginning of period 4,091,550 149,880 --
----------- --------- -------------
Cash and cash equivalents, end of period $2,936,064 $ 89,974 $ 2,936,064
=========== ========= =============
SEE ACCOMPANYING NOTES.
(CONTINUED ...)
</TABLE>
Page 5 of 13
<PAGE>
CORTEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(UNAUDITED, CONTINUED)
<TABLE>
<CAPTION>
Period from
inception
(February 10,
Three months ended 1987) through
September 30, September 30,
1996 1995 1996
-------------------- -------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental schedule of non-cash
investing and financing activities:
Accretion of 9% preferred stock $ -- $ -- $ 139,674
Conversion of 9% preferred stock to
common stock -- 388,700 1,311,686
Conversion of Series B preferred stock
to common stock -- 217,027 1,754,273
Conversion of Series C preferred stock
to common stock 214,993 -- 2,902,407
Capital lease obligation incurred to
lease equipment -- -- 23,973
</TABLE>
SEE ACCOMPANYING NOTES.
Page 6 of 13
<PAGE>
CORTEX PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM INCEPTION (FEBRUARY 10, 1987) THROUGH SEPTEMBER 30, 1996
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-QSB and Item 310(b) of Regulation
S-B. 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, all adjustments (consisting only of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended September 30,
1996 are not necessarily indicative of the results that may be expected for the
year ending June 30, 1997. For further information, refer to the financial
statements and notes thereto included in the Company's 1996 Annual Report on
Form 10-KSB. Certain previously reported amounts have been reclassified to
conform with the June 30, 1996 and September 30, 1996 presentation.
NOTE 2 -- DEVELOPMENT STAGE ENTERPRISE
From inception (February 10, 1987) through September 30, 1996, the Company has
generated only modest operating revenues and has incurred losses aggregating
$26,411,152. As of September 30, 1996, the Company had working capital of
$2,722,393. This amount, along with the proceeds from the private placement of
Series D Preferred Stock in October 1996 (Note 4), will enable the Company to
maintain its planned operations through June 1997. Continued operation beyond
June 1997 will require additional capital. Over the longer term, successful
completion of the Company's development program and its transition, ultimately,
to attaining profitable operations is dependent upon obtaining additional
financing adequate to fulfill its research and development activities, and
achieving a level of revenues adequate to support the Company's cost structure.
NOTE 3 -- REVERSE STOCK SPLIT
On January 11, 1995, the Company effected a one-for-five reverse stock split of
its common stock and in connection therewith revised the authorized number of
shares of common stock to 20,000,000 shares, with no change in the par value of
$0.001 per share. The accompanying financial statements have been adjusted
retroactively to give effect to the reverse stock split.
NOTE 4 -- SUBSEQUENT EVENTS
On October 15, 1996, the Company completed the first tranche of a
three-tranche Regulation D private placement of Series D Preferred Stock
("Series D Preferred"). The Company sold 100 shares of Series D Preferred at
a price of $10,000 per share, for gross proceeds of $1,000,000. The Series D
Preferred issued in this tranche is convertible at an effective per share
conversion price that is the lower of (i) 110% of the average closing bid
price for the five trading days immediately preceding the closing date
($2.9425 for the first tranche) or (ii) that price that is 18% below the
average closing bid price for the five trading days immediately preceding the
conversion date, in each case subject
Page 7 of 13
<PAGE>
to adjustment at the rate of six percent per annum based on the length
of the period from issuance of the Series D Preferred until its conversion. The
Company is preparing a registration statement covering resales of common stock
issuable upon conversion of the Series D Preferred, and is to sell a second
tranche of 150 shares of Series D Preferred (for gross proceeds of $1,500,000)
15 days following the effectiveness of such registration statement and a third
tranche of 150 shares 60 days following the closing of the second tranche. The
closing of the second and third tranches is subject to certain conditions, which
conditions are outside the control of the investor, including but not limited to
minimums for price and trading volume of the Company's common stock.
Page 8 of 13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS REPORT AND
WITH "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS" PRESENTED ON THE COMPANY'S 1996 ANNUAL REPORT ON FORM 10-KSB
FILED OCTOBER 15, 1996.
INTRODUCTORY NOTE
This Quarterly Report on Form 10-QSB contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 and the Company intends that such forward
looking statements be subject to the safe harbors created thereby. These
forward-looking statements relate to (i) future research plans and expenditures,
(ii) potential collaborative arrangements, and (iii) the need for, and
availability of, additional financing.
The forward-looking statements included herein are based on current expectations
that involve a number of risks and uncertainties. These forward-looking
statements are based on assumptions regarding the Company's business and
technology, which involve judgments with respect to, among other things, future
scientific, economic and competitive conditions, and future business decisions,
all of which are difficult or impossible to predict accurately and many of which
are beyond the control of the Company. Although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could prove inaccurate and, therefore, there can be no assurance
that the results contemplated in forward-looking statements will be realized. In
light of the significant uncertainties inherent in the forward-looking
information included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved.
RESULTS OF OPERATIONS
From inception (February 10, 1987) through September 30, 1996, the Company's
revenue has consisted of (i) $3,600,000 of license fees and research and
development funding from January 1992 through June 1993 under the Company's
agreement with Alkermes, Inc. ("Alkermes"), (ii) net interest income aggregating
$1,368,000, and (iii) $95,000 of grant revenue.
From inception (February 10, 1987) through September 30, 1996, the Company has
sustained losses aggregating $26,411,152. Continuing losses are anticipated over
the next several years, as the Company's ongoing operating expenses for
preclinical research and early clinical development will only be offset, if at
all, by licensing revenues under planned strategic alliances with larger
pharmaceutical companies that the Company is seeking for the later stages of
clinical development, manufacturing and marketing of its products. The nature
and timing of payments to Cortex under these planned strategic alliances, if and
as entered into, is likely to significantly affect the Company's operations, and
to produce substantial period-to-period fluctuation in reported financial
results. Over the longer term, the Company will be dependent upon successful
commercial development of its products by its prospective partners to attain
profitable operations from product royalties or other revenues based on product
sales.
Page 9 of 13
<PAGE>
The Company believes that inflation and changing prices have not had a material
impact on its ongoing operations to date.
The net loss for the three-month period ended September 30, 1996 of $1,192,000
compares with a net loss of $955,000 for the corresponding prior year period.
The increased operating expenses were primarily attributable to scientific and
administrative personnel additions, along with increased levels of sponsored
external research.
Research and development expenses increased from $665,000 to $794,000, or by
$129,000 (19%), during the three-month period ended September 30, 1996 compared
to the corresponding prior year period. The increase was principally due to
higher outlays for sponsored research, additions to the complement of scientific
employees and a resultant increase in spending for laboratory supplies,
partially offset by lower clinical trials expenses.
General and administrative expenses increased from $323,000 to $432,000 or by
$109,000 (34%) during the three-month period ended September 30, 1996 compared
to the corresponding prior year period. The bulk of the increase was due to the
relocation of the new Chief Executive Officer, the hiring of a business
development executive and increased travel expenses in connection with corporate
partnering activities.
PLAN OF OPERATIONS; LIQUIDITY AND CAPITAL RESOURCES
CORTEX has funded its organizational and research and development activities
primarily from the issuance of equity securities, with net proceeds from
inception (February 10, 1987) through September 30, 1996 aggregating
$28 million. An additional $3.6 million in research and license payments was
received from Alkermes between January 1992 and June 1993 in connection with the
development and license agreement with that firm. Interest income from inception
through September 30, 1996, which approximates funds received, was $1.4 million.
As of September 30, 1996, the Company had cash, cash equivalents and short-term
investments totaling $2.9 million and working capital of $2.7 million. In
comparison, as of September 30, 1995, the Company had cash, cash equivalents and
short-term investments of $3.1 million and working capital of $2.6 million. The
decreases resulted from amounts required to fund operating losses and to
purchase capital equipment, partially offset by approximately $3.6 million
received from a private placement of Series C Preferred Stock in December 1995.
From inception (February 10, 1987) through September 30, 1996, net expenditures
for furniture, equipment and leasehold improvements aggregated $1.9 million.
As of September 30, 1996, Cortex had outstanding 110,000 shares of 9% cumulative
convertible preferred stock, which accrue cumulative semi-annual dividends at an
annual rate of $0.09 per share. To conserve capital for operations, the Company
has elected not to distribute the dividends that have accrued from June 15,
1990. Accrued and unpaid dividends as of September 30, 1996 were $64,350.
The Company leases approximately 30,000 square feet of research laboratory,
office and expansion space under an operating lease that expires May 31, 1999,
with an additional five-year option at 95%
Page 10 of 13
<PAGE>
of the then fair market rental rate. The commitments under the lease
agreement for the years ending June 30, 1997, 1998 and 1999 are $229,000,
$234,000 and $220,000, respectively.
In connection with the settlement in October 1995 of the license dispute with
Alkermes, the Company issued to Alkermes a $1,000,000 three-year promissory note
accruing interest semi-annually at the then federal funds rate. The Company also
agreed to pay Alkermes a graduated royalty on calpain inhibitor development
proceeds, as defined and subject to certain limitations.
Over the next twelve months, the Company plans to conduct additional preclinical
and Phase I/II clinical studies on its AMPAKINE compounds. This planned research
involves a twelve-month expenditure of approximately $4.2 million. This amount
includes approximately $966,000 of funding for sponsored research in academic
laboratories, to which the Company is or will be committed under various license
agreements and sponsored research agreements. Significant investments in plant
or equipment or substantial changes to staffing levels are not contemplated
under current spending plans for the next twelve months. As of September 30,
1996, Cortex had 19 full-time employees and one part-time employee.
On October 15, 1996, Cortex completed the first tranche of a Regulation D
private placement of Series D Preferred Stock and in connection therewith
received gross proceeds of $1,000,000. The Company is to receive an additional
$3,000,000 in two additional tranches, subject to certain conditions. See Note 4
("Subsequent Events") of the accompanying Financial Statements.
Cortex anticipates that its existing cash, cash equivalents and short-term
investments, combined the proceeds from the first tranche of the October 1996
financing and a modest amount of anticipated interest income, will be sufficient
to satisfy its capital requirements through June 1997 under current spending
plans. The successful closing of the second and third tranches of the October
1996 financing is expected to extend this though the first calendar quarter of
1998.
Over the longer term, the Company will require substantial additional funds to
maintain and expand its research and development activities and to ultimately
commercialize, with or without the assistance of corporate partners, any of its
proposed products. The Company is seeking collaborative or other arrangements
with larger pharmaceutical companies, under which such companies would provide
additional capital to the Company in exchange for exclusive or non-exclusive
license or other rights to certain of the technologies and products the Company
is developing. However, the competition for such arrangements with major
pharmaceutical companies is intense, with a large number of biopharmaceutical
companies attempting to satisfy their funding requirements through such
arrangements. Accordingly, although the Company is presently engaged in
discussions with a number of suitable candidate companies, there can be no
assurance that an agreement or agreements will arise from these discussions in a
timely manner, or at all, or that revenues that may be generated thereby will
offset operating expenses sufficiently to reduce the Company's short- or long-
term funding requirements. Additional equity or debt financings will be
required, and there can be no assurance that funds will be available from such
financings on favorable terms, or at all. If additional funds are raised by
issuing equity securities, and dependent upon the nature and timing of such
issuances, dilution to then existing stockholders is likely to result.
Page 11 of 13
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
----------------------------------------------------------------------
3.1 Restated Certificate of Incorporation dated April 11, 1989,
as amended by Certificate of Amendment on June 27, 1989, by
Certificate of Designation filed April 29, 1991, by
Certficate of Correction filed May 1, 1991, by
Certificate of Amendment of Certificate of Designation
filed June 13, 1991, by Certificate of Amendment of
Certificate of Incorporation filed November 12, 1992, by
Certificate of Amendment of Restated Certificate of
Incorporation filed January 11, 1995, by Certificate of
Designation filed December 8, 1995, and by Certificate of
Designation filed October 15, 1996.
10.59 Securities Subscription Agreement for Series D Preferred
Stock dated October 15, 1996, between the Company and
Ashline Ltd.
10.60 1996 Stock Incentive Plan adopted on October 25, 1996,
subject to approval by the Company's stockholders.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1996.
Page 12 of 13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
CORTEX PHARMACEUTICALS, INC.
November 12, 1996 By: /s/ D. Scott Hagen
---------------------------------------
D. Scott Hagen
Vice President and Chief Financial
Officer;
Corporate Secretary
(PrincipalFinancial and Accounting
Officer)
Page 13 of 13
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
CORTEX PHARMACEUTICALS, INC.,
a Delaware corporation
CORTEX PHARMACEUTICALS, INC., a corporation organized and existing
under the General Corporation Law of the State of Delaware, does hereby certify
that:
(1) The name of the corporation is Cortex Pharmaceuticals, Inc. (the
"Corporation"). The Corporation was originally incorporated under the name
X-Age, Inc., and the original Certificate of Incorporation of the Corporation
was filed with the Secretary of State of the State of Delaware on February 10,
1987.
(2) This Restated Certificate of Incorporation restates and
integrates and does not further amend the provisions of the Certificate of
Incorporation of the Corporation, as heretofore amended or supplemented, and
there is no discrepancy between those provisions and the provisions of this
Restated Certificate of Incorporation.
(3) The text of the Restated Certificate of Incorporation, as
heretofore amended or supplemented, is hereby restated to read in its entirety
as follows:
"FIRST: The name of this corporation is Cortex Pharmaceuticals, Inc.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of the Corporation's registered
agent at that address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: (A) (1) The aggregate number of shares which the Corporation
shall have authority to issue is 35,000,000, of which 5,000,000 shares of the
par value of $.001 per share shall be designated "Preferred Stock" and
30,000,000 shares of the par value of $.001 per share shall be designated
"Common Stock."
(2) Authority is hereby expressly granted to the Board of Directors
from time to time to issue the Preferred Stock as Preferred Stock of any series
and, in connection with the creation of each such series, to fix by the
resolution or resolutions providing for the issue of shares thereof, the number
of shares of such series and the designations, powers, preferences, rights,
qualifications, limitations, and restrictions of such series, to the full extent
now or hereafter permitted by the laws of the State of Delaware.
<PAGE>
(B) 9% CUMULATIVE CONVERTIBLE PREFERRED STOCK
A series of Preferred Stock, consisting of 1,250,000 shares of the
authorized but unissued Preferred Stock of the Corporation is hereby created.
The designation, powers, preferences, rights, qualifications, limitations, and
restrictions of this series, are as follows:
(1) DESIGNATION OF SERIES. The designation of the series of
preferred stock created hereby shall be 9% Cumulative Convertible Preferred
Stock, par value .001 per share (the "9% Preferred Stock"). The shares of the
9% Preferred Stock shall be fully-paid and nonassessable.
The number of shares of 9% Preferred Stock may be decreased (but not
below the number of shares then outstanding) or increased by a certificate
executed, acknowledged, filed, and recorded in accordance with the General
Corporation Law of the State of Delaware setting forth a statement that a
specified decrease or increase, as the case may be, thereof had been authorized
and directed by a resolution or resolutions adopted by the Board of Directors
pursuant to authority expressly vested in it by the provisions of the
certificate of incorporation of the Corporation.
(2) DIVIDENDS. The fixed dividend rate for the 9% Preferred Stock
shall be $.09 per share per annum, and no more, and dividends shall be
cumulative from June 15, 1989 payable in equal semiannual amounts on the
fifteenth day of June and December in each year for the semiannual dividend
periods ending respectively on the dates immediately preceding such dates,
commencing on June 15, 1989.
(3) CONVERSION. The holders of shares of 9% Preferred Stock shall
have the right, at their option, to convert such shares into shares of Common
Stock at any time on the following terms and conditions:
(a) Each share of 9% Preferred Stock shall be convertible at the
option of the holder thereof at the office of the Corporation or at the office
of the transfer agent, if any, for the 9% Preferred Stock into shares of duly
authorized, fully paid, and non-assessable shares of Common Stock at the
conversion price of $1.50 per share of Common Stock (the "Conversion Rate"),
subject to adjustment as provided in Section (B)(3)(c) of this Article FOURTH.
The number of shares of Common Stock to be delivered upon conversion of the 9%
Preferred Stock shall be determined by dividing the liquidation amount ($1.00
per share) of the shares surrendered by the Conversion Rate at the time of
surrender, calculated to the nearest 1/100th of a share (fractions of less than
1/100 being disregarded). The Corporation shall make no payment or adjustment
on the account of any unpaid cumulative dividends on the shares of 9% Preferred
Stock surrendered for conversion or on account of any dividends on the Common
Stock. In case of the call for redemption by the Corporation of any shares of
9% Preferred Stock, such right of conversion shall cease and terminate, as to
the shares designated for redemption, from and after the dates specified for
redemption pursuant to the provisions of Section (B)(5) of this Article FOURTH.
(b) Before any holder of shares of 9% Preferred Stock shall be
entitled to convert the same into Common Stock, he shall surrender the
certificate or certificates therefor,
2
<PAGE>
duly endorsed, at the office of the Corporation or the transfer agent therefor,
if any, and shall give written notice to the Corporation that he elects to
convert all or part of the shares represented by the certificate or certificates
and shall state in writing therein the name or names in which he wishes the
certificate or certificates for Common Stock to be issued. The Corporation
will, as soon as practicable thereafter, issue and deliver to such holder of
shares of 9% Preferred Stock, or to his nominee or nominees, certificates for
the number of full shares of Common Stock to which he shall be entitled as
aforesaid, together with cash in lieu of any fraction of a share as hereinafter
provided. If surrendered certificates for 9% Preferred Stock are converted only
in part, the Corporation will issue and deliver to the holder, or to his nominee
or nominees, a new certificate or certificates representing the aggregate of the
unconverted shares of 9% Preferred Stock. Shares of 9% Preferred Stock shall be
deemed to have been converted as of the date of the surrender of such shares for
conversion as provided above, and the person or persons entitled to receive the
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such Common Stock on such date.
(c) The Conversion Rate shall be subject to adjustment as
follows:
(i) In case the Corporation shall (w) pay a dividend or
make a distribution on its outstanding shares of Common Stock in shares of
its capital stock (whether shares of its Common Stock or of capital stock
of any other class), (x) subdivide its outstanding shares of Common Stock,
(y) combine its outstanding shares of Common Stock into a smaller number of
shares, or (z) issue by reclassification of its shares of Common Stock any
shares of capital stock of the Corporation, the Conversion Rate in effect
immediately prior to such action shall be adjusted so that the holder of
any shares of 9% Preferred Stock thereafter surrendered for conversion
shall be entitled to receive the number of shares of capital stock of the
Corporation which he would have owned immediately following such action had
such shares of 9% Preferred Stock been converted immediately prior thereto.
An adjustment made pursuant to this subsection (i) shall become effective
retroactively immediately after the record date in the case of a dividend
or distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination, or reclassification.
(ii) In case the Corporation shall issue to holders of
shares of its outstanding Common Stock generally any rights, options, or
warrants entitling them to subscribe for or purchase (w) shares of its
Common Stock, (x) any assets of the Corporation, (y) any securities of the
Corporation (except its Common Stock) or of any corporation other than the
Corporation, or (z) any rights, options, or warrants entitling them to
subscribe for or to purchase any of the foregoing securities, whether or
not such rights, options, or warrants are immediately exercisable
(hereinafter collectively called a "Distribution on Common Stock"), the
Corporation shall issue to the holders of outstanding shares of 9%
Preferred Stock the Distribution on Common Stock to which they would have
been entitled if they had converted the shares of 9% Preferred Stock held
by them into Common Stock immediately prior to the record date for the
purpose of determining stockholders entitled to receive such Distribution
on Common Stock.
(d) DE MINIMUS CHANGES. No adjustment in the Conversion Rate
shall be required unless such adjustment would require an increase or decrease
of at least 1% in the
3
<PAGE>
Conversion Rate; provided, however, that any adjustments which by reason of this
Section (B)(3)(d) of this Article FOURTH are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under Section (B)(3)(c) of this Article FOURTH shall be made to the
nearest cent or to the nearest one hundredth of a share, as the case may be.
(e) NOTICE OF ADJUSTMENT. Whenever the Conversion Rate is
adjusted, as herein provided, the Corporation shall promptly cause a notice
setting forth the adjusted Conversion Rate to be mailed to the holders of the 9%
Preferred Stock.
(f) NO FRACTIONAL SHARES TO BE ISSUED. No fractional shares or
scrip representing fractional shares of Common Stock shall be issued upon
conversion of 9% Preferred Stock. Instead of any fractional share of Common
Stock which would otherwise be issuable upon conversion of 9% Preferred Stock
(or specified portions thereof), the Corporation shall pay in cash to the
holders of such 9% Preferred Stock in respect of such fraction of a share an
amount equal to the same fraction of the fair market value per share of Common
Stock as determined by the Board of Directors in its sole discretion.
(g) EFFECT OF SALE, MERGER, OR CONSOLIDATION. In the event of
any capital reorganization of the Corporation, or of any reclassification (other
than a change in par value) of the Common Stock, or of any conversion of the
Common Stock into securities of another corporation, or the consolidation of the
Corporation with, or the merger of the Corporation into, any other corporation
where the Corporation is not the surviving corporation or in the event of the
sale of all or substantially all of the properties and assets of the Corporation
to any other corporation (each such event hereinafter being referred to as a
"Capital Change"), a share of 9% Preferred Stock shall be convertible after such
Capital Change, upon the terms and conditions herein specified, for the number
of shares of stock or other securities or property of the Corporation, or of the
corporation into which shares of Common Stock are converted or resulting from
such consolidation or surviving such merger or to which such sale shall be made,
as the case may be, to which the shares of Common Stock issuable (at the time of
such Capital Change) upon conversion of such share of 9% Preferred Stock would
have been entitled upon such Capital Change. In any such case, if necessary,
the provisions set forth in this Section (B)(3) of Article FOURTH with respect
to the rights and interests thereafter of the holders of the 9% Preferred Stock
shall be appropriately adjusted so as to be reasonably applicable to any shares
of stock or other securities or property thereafter deliverable on the
conversion of the 9% Preferred Stock. The subdivision or combination of shares
of Common Stock at any time outstanding into a greater or lesser number of
shares of Common Stock shall not be deemed to be a reclassification of the
Common Stock for the purpose of this Section (B)(3)(g) of this Article FOURTH.
The Corporation shall not effect any consolidation, merger, or sale resulting in
a Capital Change, unless prior to or simultaneously with the consummation
thereof, any successor corporation or corporation purchasing such assets shall
assume, by written instrument, the obligation to deliver to the holder of each
share of 9% Preferred Stock such shares of stock, securities, or assets as the
holders of 9% Preferred Stock may be entitled to receive upon exercise of the 9%
Preferred Stock in accordance with the foregoing provisions, and the other
obligations of the Corporation hereunder.
4
<PAGE>
(h) NOTICE OF RECLASSIFICATION OR RECAPITALIZATION, ETC.
In case:
(i) the Corporation shall authorize the issuance to all
holders of Common Stock of rights or warrants to subscribe for or purchase
shares of its capital stock or of any other right;
(ii) the Corporation shall authorize the distribution to
all holders of Common Stock of evidences of its indebtedness or assets or
the change or adoption of a dividend policy;
(iii) of any subdivision, combination, or reclassification
of Common Stock, or of any consolidation or merger to which the Corporation
is a party and for which approval of any stockholders of the Corporation is
required, or of the sale or transfer of all or substantially all of the
assets of the Corporation; or
(iv) of the voluntary or involuntary dissolution,
liquidation, or winding up of the Corporation;
then the Corporation shall mail to the holders of 9% Preferred Stock at least 10
days prior to the applicable record date hereinafter specified in clauses (x)
and (y) below, a notice stating (x) the date as of which the holders of Common
Stock of record to be entitled to receive any such rights, warrants, or
distribution are to be determined, or (y) the date on which any such
subdivision, combination, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation, winding up, or other action is expected to
become effective, and the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their Common Stock for securities
or other property, if any, deliverable upon such subdivision, combination,
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation, winding up, or other action. The failure to give the notice
required by this Section (B)(3)(h) of this Article FOURTH or any defect therein
shall not affect the legality or validity of any distribution, right, warrant,
subdivision, combination, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation, winding up, or other action, or the vote
upon any of the foregoing.
(i) RESERVATION OF SHARES FOR ISSUANCE UPON CONVERSION. The
Corporation covenants that it will at all times reserve and keep available out
of its authorized Common Stock, free from preemptive rights, solely for the
purpose of issuance upon conversion of the 9% Preferred Stock as herein
provided, such number of shares of Common Stock as shall then be issuable upon
the conversion of all outstanding shares of the 9% Preferred Stock. The
Corporation covenants that all shares of Common Stock which shall be so issuable
upon conversion of the 9% Preferred Stock as herein provided shall, when issued,
be duly authorized, validly issued, and fully paid and nonassessable, free of
all liens and charges and not subject to preemptive rights and that, upon
conversion of the 9% Preferred Stock, the appropriate capital stock accounts of
the Corporation shall be duly credited.
(j) PAYMENT OF TAXES ON SHARES ISSUED UPON CONVERSION. The
issuance of certificates for shares of Common Stock upon the conversion of
shares of the 9%
5
<PAGE>
Preferred Stock shall be made without charge to the converting holders for any
tax in respect of the issuance of such certificates and such certificates shall
be issued in the respective names of, or in such names as may be directed by,
the holders of the shares of the 9% Preferred Stock converted; provided,
however, that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificate in a name other than that of the shares of the 9% Preferred
Stock converted, and the Corporation shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Corporation the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
(4) REDEMPTION OF 9% PREFERRED STOCK BY HOLDERS
(a) RIGHT TO REDEEM 9% PREFERRED STOCK. Subject to and upon
compliance with the provisions of this Section (B)(4) of this Article FOURTH, at
any time during the six-month period following the date of the written notice
referred to in Section (B)(4)(c) of this Article FOURTH, the holder of shares of
9% Preferred Stock shall have the option, but not the obligation, to require the
Corporation to redeem his shares of 9% Preferred Stock at a price of $1.00 per
share of 9% Preferred Stock to be redeemed. A holder of shares of 9% Preferred
Stock wishing to require the Corporation to redeem such shares shall surrender
the shares which are to be so redeemed to the Corporation or to such agent as
may be appointed by the Corporation for such purpose at any time during such
six-month period during usual business hours accompanied by a written notice of
election to redeem and, if so required by the Corporation, by a written
instrument or instruments of transfer in form satisfactory to the Corporation
duly executed by the holder or his attorney duly authorized in writing.
(b) PAYMENT OF REDEMPTION PRICE. As promptly as practicable
after the surrender, as herein provided, of shares of 9% Preferred Stock for
redemption, the Corporation shall pay or cause to be paid to or upon the written
order of the holder of the shares of 9% Preferred Stock so surrendered an amount
equal to $1.00 multiplied by the number of shares so surrendered in accordance
with the provisions of Section (B)(4)(a) of this Article FOURTH. Such
redemption shall be deemed to have occurred at the time that such shares of 9%
Preferred Stock shall have been surrendered for redemption in accordance
herewith and the rights of the holder of such shares of 9% Preferred Stock as a
holder of 9% Preferred Stock shall cease at such time. In the case of any
shares of 9% Preferred Stock which are redeemed in part only, upon such
redemption the Corporation shall execute and deliver to the holder thereof, as
requested by such holder, a new certificate for shares of 9% Preferred Stock of
authorized denominations equal to the unredeemed portion of such shares of 9%
Preferred Stock.
(c) NOTICE OF RIGHT OF REDEMPTION. Within 30 days after the
Corporation determines that, as of the last day of any calendar quarter, the
total stockholders' equity of the Corporation exceeds $5,000,000 (as determined
in accordance with generally accepted accounting principles applied in a
consistent manner with prior periods), the Corporation shall give notice thereof
to the holders of the 9% Preferred Stock. Such notice shall specify the
redemption price and the period of time during which holders of 9% Preferred
Stock may cause such shares to be redeemed by the Corporation as described in
Section (B)(4) of this Article FOURTH.
6
<PAGE>
(5) REDEMPTION OF 9% PREFERRED STOCK BY THE CORPORATION
(a) RIGHT TO REDEEM 9% PREFERRED STOCK. The 9% Preferred Stock
may be redeemed, at the option of the Corporation, in whole or in part, at any
time at a price of $1.00 per share. If the Corporation desires to redeem the
shares of 9% Preferred Stock, the Corporation shall give the holders thereof
notice of such redemption, which notice shall set forth the number of shares to
be redeemed and the place and date fixed for redemption, which date shall be not
less than 30 nor more than 60 days after the date of such notice. On the date
fixed for redemption, the holders of shares of 9% Preferred Stock shall
surrender the certificates therefor against payment of the redemption amount.
If the shares of 9% Preferred Stock are to be redeemed in part, each such
redemption shall be applied pro rata to the shares of 9% Preferred Stock then
outstanding.
(b) PAYMENT OF REDEMPTION PRICE. As promptly as practicable
after the surrender, as herein provided, of shares of 9% Preferred Stock for
redemption, the Corporation shall pay or cause to be paid to or upon the written
order of the holder of the shares of 9% Preferred Stock so surrendered an amount
equal to $1.00 multiplied by the number of shares so surrendered in accordance
with the provisions of Section (B)(5)(a) of this Article FOURTH. Such
redemption shall be deemed to have occurred at the time that such shares of 9%
Preferred Stock shall have been surrendered for redemption in accordance
herewith and the rights of the holder of such shares of 9% Preferred Stock as a
holder of 9% Preferred Stock shall cease at such time. In the case of any
shares of 9% Preferred Stock which are redeemed in part only, upon such
redemption the Corporation shall execute and deliver to the holder thereof, as
requested by such holder, a new certificate for shares of 9% Preferred Stock of
authorized denominations equal to the unredeemed portion of such shares of 9%
Preferred Stock.
(6) VOTING. Other than any voting rights created by applicable law,
the holders of shares of 9% Preferred Stock shall not be entitled to vote at any
election of directors or any other matter upon which holders of the Common Stock
have the right to vote or to receive notice of any meeting of stockholders.
(7) PREFERENCE ON LIQUIDATION, ETC. In the event of any voluntary or
involuntary liquidation, distribution of all or substantially all of the assets,
dissolution, or winding-up of the Corporation (any such event being hereinafter
referred to as a "Liquidation Transaction"), any payment or distribution of the
assets of the Corporation (whether capital or surplus), or the proceeds thereof,
shall be made to or set apart in the following order of preference: (i) the
holders of shares of 9% Preferred Stock shall be entitled to receive payment of
$1.00 per share of 9% Preferred Stock held by them, plus any accrued and unpaid
dividends on the 9% Preferred Stock, if any (and no more), and, if the assets of
the Corporation shall be insufficient to pay in full the preferential amounts
set forth in this clause (i), then such assets shall be distributed among such
holders ratably in accordance with the respective amounts which would be payable
on such shares if all amounts payable thereon were paid in full; and (ii) after
payment in full of the preferential amounts set forth in clause (i) above, the
holders of shares of Common Stock shall be entitled to receive ratably payment
or distribution of the remaining assets per share of Common Stock.
FIFTH: Election of directors need not be by written ballot.
7
<PAGE>
SIXTH: The Board of Directors is authorized to adopt, amend, or repeal
By-Laws of the Corporation, except as and to the extent provided in the By-Laws.
SEVENTH: Any person who was or is a party or is threatened to be made a
party to any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative (whether or not by or
in the right of the Corporation) by reason of the fact that he is or was a
director, officer, incorporator, employee, or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer,
incorporator, employee, partner, trustee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise (including an employee
benefit plan), shall be entitled to be indemnified by the Corporation to the
full extent then permitted by law against expenses (including attorneys' fees),
judgments, fines (including excise taxes assessed on a person with respect to an
employee benefit plan), and amounts paid in settlement incurred by him in
connection with such action, suit, or proceeding. Such right of indemnification
shall inure whether or not the claim asserted is based on matters which antedate
the adoption of this Article SEVENTH. Such right of indemnification shall
continue as to a person who has ceased to be a director, officer, incorporator,
employee, partner, trustee, or agent and shall inure to the benefit of the heirs
and personal representatives of such a person. The indemnification provided by
this Article SEVENTH shall not be deemed exclusive of any other rights which may
be provided now or in the future under any provision currently in effect or
hereafter adopted by the By-Laws, by any agreement, by vote of stockholders, by
resolution of disinterested directors, by provision of law, or otherwise.
EIGHTH: No director of the Corporation shall be liable to the Corporation
or any of 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 an improper personal
benefit.
NINTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs.
If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made,
8
<PAGE>
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation."
(4) The foregoing Restated Certificate of Incorporation has been duly
adopted in accordance with the applicable provisions of Section 245 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has
been signed under the seal of the Corporation by Harold R. Hutchings, M.D., its
President and Chief Executive Officer, and attested to by D. Scott Hagen, its
Assistant Secretary, this 7th day of April, 1989.
CORTEX PHARMACEUTICALS, INC.
By: /S/ HAROLD R. HUTCHINGS
-----------------------------------
Harold R. Hutchings, M.D.,
[SEAL] President and Chief Executive
Officer
ATTEST:
By: /s/ D. SCOTT HAGEN
------------------------
D. Scott Hagen,
Assistant Secretary
9
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CORTEX PHARMACEUTICALS, INC.
(Pursuant to Sections 228 and 242 of the
General Corporation Law of the State of Delaware)
CORTEX PHARMACEUTICALS, INC., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify:
FIRST: That the Certificate of Incorporation of the Corporation was filed
with the Secretary of State of the State of Delaware on February 10, 1987 and
was amended on March 17, 1988, May 11, 1988, August 30, 1988 and April 5, 1989,
respectively, and was restated on April 11, 1989.
SECOND: That at a meeting of the Board of Directors of the Corporation
resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of the Corporation, declaring said amendment to be
advisable and directing said amendment to be submitted to the stockholders of
the Corporation entitled to vote thereon for adoption by written consent. The
resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of the corporation be
amended by changing paragraph (B)(4) of Article FOURTH so that, as amended,
paragraph (B)(4) of Article FOURTH shall read as follows:
(4) REDEMPTION OF 9% PREFERRED STOCK BY HOLDERS
(a) RIGHT TO REDEEM 9% PREFERRED STOCK. Subject to and upon
compliance with the provisions of this Section (B)(4) of this Article FOURTH,
during the six-month period (the "Election Period") following the date of the
Notice (as defined in Section (B)(4)(c) of this Article FOURTH) each holder of
shares of 9% Preferred Stock shall have the option, but not the obligation, to
require the Corporation to redeem his shares of 9% Preferred Stock at a price of
$1.00 per share (the "Redemption Price"). A holder of shares of 9% Preferred
Stock wishing to require the Corporation to redeem such shares shall surrender
the shares which are to be so redeemed to the Corporation or to such agent as
may be appointed by the Corporation for such purpose at any time during the
Election Period during usual business hours accompanied by a written notice of
election to redeem and, if so required by the Corporation, by a written
instrument or instruments of transfer in form satisfactory to the Corporation
duly executed by the holder or his attorney duly authorized in writing.
(b) REDEMPTION PROCEDURE; PAYMENT OF REDEMPTION PRICE. Within
ten (10) business days after the expiration of the Election Period, the
Corporation shall pay or cause to be paid to or upon the written order of each
holder of shares of 9% Preferred Stock
<PAGE>
surrendered for redemption in accordance with the provisions of Section
(B)(4)(a) of this Article FOURTH an amount equal to the Redemption Price
multiplied by the number of shares so surrendered. If the funds of the
Corporation legally available for redemption of shares of 9% Preferred Stock as
of the last day of the Election Period are insufficient to redeem the total
number of shares of 9% Preferred Stock surrendered for redemption as provided
herein, those funds which are legally available shall be used to redeem the
maximum possible number of shares of 9% Preferred Stock which are so surrendered
for redemption. In the event a greater number of shares of 9% Preferred Stock
are surrendered for redemption according to Section (B)(4) of this Article
FOURTH than may lawfully be purchased by the Corporation on the last day of the
Election Period, the shares of 9% Preferred Stock so surrendered for redemption
shall be redeemed pro rata, according to the number of shares of 9% Preferred
Stock duly surrendered for redemption by each holder of shares of 9% Preferred
Stock. Such redemption shall be deemed to have occurred as of the last day of
the Election Period, and from and after such date the shares of 9% Preferred
Stock so redeemed shall be deemed to be no longer outstanding, each surrendered
certificate shall be cancelled and retired, and the holders thereof shall cease
to be stockholders with respect to such shares and shall have no rights with
respect thereto, except the rights to receive from the Corporation payment of
the Redemption Price of such shares, without interest. In the case of any
shares of 9% Preferred Stock which are redeemed in part only, upon such
redemption the Corporation shall execute and deliver to the holder thereof, as
requested by such holder, a new certificate for shares of 9% Preferred Stock of
authorized denominations equal to the unredeemed portion of such shares of 9%
Preferred Stock.
(c) NOTICE OF RIGHT OF REDEMPTION. Within thirty (30) days
after the last day of the first calendar quarter with respect to which the
Corporation determines that, as of the last day of such calendar quarter, the
total stockholders' equity of the Corporation exceeds $5,000,000 (as determined
in accordance with generally accepted accounting principles applied in a
consistent manner with prior periods), the Corporation shall give a notice (the
"Notice") thereof to the holders of the 9% Preferred Stock. Such Notice shall
state the Redemption Price and the period of time during which holders of shares
of 9% Preferred Stock may elect to have such shares redeemed by the Corporation
as described in Section (B)(4) of this Article FOURTH.
(d) WITHDRAWAL RIGHTS. Any holder of 9% Preferred Stock who,
during the Election Period, duly elects to require the Corporation to redeem
some or all of his shares of 9% Preferred Stock and surrenders the certificate
or certificates representing such shares for redemption may withdraw such
election at any time during the Election Period by giving written notice by
mail, postage-prepaid, to the Corporation at its principal executive office.
The Corporation shall, as soon as practicable thereafter, return the certificate
or certificates representing the shares of 9% Preferred Stock which such holder
shall have surrendered for redemption to the holder at his address as it appears
on the records of the Corporation, and such shares shall remain outstanding and
entitled to all the rights and preferences provided herein.
THIRD: The foregoing amendment to the Certificate of Incorporation was
duly adopted by the stockholders of the Corporation by written consent given in
accordance with the applicable provisions of Sections 228 and 242 of the General
Corporation Law of the State of Delaware and written notice of such action has
been given as provided in Section 228 of the General Corporation Law of the
State of Delaware.
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<PAGE>
FOURTH: This amendment to the Certificate of Incorporation shall be
effective on and as of the date of filing of this Certificate of Amendment with
the Office of the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be executed by Harold R. Hutchings, M.D., its President, and
attested to by D. Scott Hagen, its Assistant Secretary, this 26th day of June,
1989.
CORTEX PHARMACEUTICALS, INC.
[SEAL]
By: /s/ HAROLD R. HUTCHINGS
------------------------------------
Harold R. Hutchings, President
ATTEST:
By: /s/ D. SCOTT HAGEN
--------------------------
D. Scott Hagen,
Assistant Secretary
3
<PAGE>
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
CORTEX PHARMACEUTICALS, INC.
(Pursuant to Section 151 of the General Corporation
Law of the State of Delaware)
CORTEX PHARMACEUTICALS, INC., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies that, pursuant to the authority contained in Article Fourth, Section
(A)(2) of its Restated Certificate of Incorporation, and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, its Board of Directors has adopted the following resolution creating a
series of its Preferred Stock designated as Series B Convertible Preferred
Stock:
RESOLVED, that a series of the class of authorized Preferred Stock of the
Corporation be, and hereby is, created, and that the designation and amount
thereof and the voting powers, preferences and relative, participating, optional
and other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof, are as follows:
(1) DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series B Convertible Preferred Stock" (the "Series B Preferred
Stock") and the number of shares constituting such series shall be 3,750,000.
The number of shares of Series B Preferred Stock may be decreased (but not below
the number of shares then outstanding) or increased by a certificate executed,
acknowledged, filed, and recorded in accordance with the General Corporation Law
of the State of Delaware setting forth a statement that a specified decrease or
increase, as the case may be, thereof had been authorized and directed by a
resolution or resolutions adopted by the Board of Directors pursuant to
authority expressly vested in it by the provisions of the Certificate of
Incorporation of the Corporation.
(2) CONVERSION. The holders of shares of Series B Preferred Stock
shall have the right, at their option, to convert such shares into shares of
Common Stock at any time on the following terms and conditions:
(a) Each share of Series B Preferred Stock shall be convertible
at the option of the holder thereof at the office of the Corporation or at the
office of the transfer agent, if any, for the Series B Preferred Stock into
shares of duly authorized, fully paid, and non-assessable shares of Common Stock
at the conversion price of $1.345 per share of Common Stock (the "Conversion
Rate"), subject to adjustment as provided in subsection (2)(c) below. The
number of shares of Common Stock to be delivered upon conversion of the Series B
Preferred Stock shall be determined by dividing the liquidation amount ($0.6667
per share) of the shares surrendered by the Conversion Rate at the time of
surrender, calculated to the nearest 1/100th of a share (fractions of less than
1/100 being disregarded). The Corporation shall make no payment
<PAGE>
or adjustment on the account of any declared but unpaid dividends on the shares
of Series B Preferred Stock surrendered for conversion or on account of any
dividends on the Common Stock.
(b) Before any holder of shares of Series B Preferred Stock
shall be entitled to convert the same into Common Stock, he shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or the transfer agent therefor, if any, and shall give written
notice to the Corporation that he elects to convert all or part of the shares
represented by the certificate or certificates and shall state in writing
therein the name or names in which he wishes the certificate or certificates for
Common Stock to be issued. The Corporation will, as soon as practicable
thereafter, issue and deliver to such holder of shares of Series B Preferred
Stock, or to his nominee or nominees, certificates for the number of full shares
of Common Stock to which he shall be entitled as aforesaid, together with cash
in lieu of any fraction of a share as hereinafter provided. If surrendered
certificates for Series B Preferred Stock are converted only in part, the
Corporation will issue and deliver to the holder, or to his nominee or nominees,
a new certificate or certificates representing the aggregate of the unconverted
shares of Series B Preferred Stock. Shares of Series B Preferred Stock shall be
deemed to have been converted as of the date of the surrender of such shares for
conversion as provided above, and the person or persons entitled to receive the
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such Common Stock on such date.
(c) The Conversion Rate shall be subject to adjustment as
follows:
(i) In case the Corporation shall (w) pay a dividend or
make a distribution on its outstanding shares of Common Stock in shares of
its capital stock (whether shares of its Common Stock or of capital stock
of any other class), (x) subdivide its outstanding shares of Common Stock,
(y) combine its outstanding shares of Common Stock into a smaller number of
shares, or (z) issue by reclassification of its shares of Common Stock any
shares of capital stock of the Corporation, the Conversion Rate in effect
immediately prior to such action shall be adjusted so that the holder of
any shares of Series B Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number of shares of capital
stock of the Corporation which he would have owned immediately following
such action had such shares of Series B Preferred Stock been converted
immediately prior thereto. An adjustment made pursuant to this subsection
(i) shall become effective retroactively immediately after the record date
in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision,
combination, or reclassification.
(ii) In case the Corporation shall issue to holders of
shares of its outstanding Common Stock generally any rights, options, or
warrants entitling them to subscribe for or purchase (w) shares of its
Common Stock, (x) any assets of the Corporation, (y) any securities of the
Corporation (except its Common Stock) or of any corporation other than the
Corporation, or (z) any rights, options, or warrants entitling them to
subscribe for or to purchase any of the foregoing securities, whether or
not such rights, options, or warrants are immediately exercisable
(hereinafter collectively called a "Distribution on Common Stock"), the
Corporation shall issue to the holders of
2
<PAGE>
outstanding shares of Series B Preferred Stock the Distribution on Common
Stock to which they would have been entitled if they had converted the
shares of Series B Preferred Stock held by them into Common Stock
immediately prior to the record date for the purpose of determining
stockholders entitled to receive such Distribution on Common Stock.
(d) DE MINIMUS CHANGES. No adjustment in the Conversion Rate
shall be required unless such adjustment would require an increase or decrease
of at least 1% in the Conversion Rate; provided, however, that any adjustments
which by reason of this subsection (2)(d) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under subsection (2)(c) above shall be made to the nearest cent or
to the nearest one hundredth of a share, as the case may be.
(e) NOTICE OF ADJUSTMENT. Whenever the Conversion Rate is
adjusted, as herein provided, the Corporation shall promptly cause a notice
setting forth the adjusted Conversion Rate to be mailed to the holders of the
Series B Preferred Stock.
(f) NO FRACTIONAL SHARES TO BE ISSUED. No fractional shares or
scrip representing fractional shares of Common Stock shall be issued upon
conversion of Series B Preferred Stock. Instead of any fractional share of
Common Stock which would otherwise be issuable upon conversion of Series B
Preferred Stock (or specified portions thereof), the Corporation shall pay in
cash to the holders of such Series B Preferred Stock in respect of such fraction
of a share an amount equal to the same fraction of the fair market value per
share of Common Stock as determined by the Board of Directors in its sole
discretion.
(g) EFFECT OF SALE, MERGER, OR CONSOLIDATION. In the event of
any capital reorganization of the Corporation, or of any reclassification (other
than a change in par value) of the Common Stock, or of any conversion of the
Common Stock into securities of another corporation, or the consolidation of the
Corporation with, or the merger of the Corporation into, any other corporation
where the Corporation is not the surviving corporation or in the event of the
sale of all or substantially all of the properties and assets of the Corporation
to any other corporation (each such event hereinafter being referred to as a
"Capital Change"), a share of Series B Preferred Stock shall be convertible
after such Capital Change, upon the terms and conditions herein specified, for
the number of shares of stock or other securities or property of the
Corporation, or of the corporation into which shares of Common Stock are
converted or resulting from such consolidation or surviving such merger or to
which such sale shall be made, as the case may be, to which the shares of Common
Stock issuable (at the time of such Capital Change) upon conversion of such
share of Series B Preferred Stock would have been entitled upon such Capital
Change. In any such case, if necessary, the provisions set forth in this
subsection (2) with respect to the rights and interests thereafter of the
holders of the Series B Preferred Stock shall be appropriately adjusted so as to
be reasonably applicable to any shares of stock or other securities or property
thereafter deliverable on the conversion of the Series B Preferred Stock. The
subdivision or combination of shares of Common Stock at any time outstanding
into a greater or lesser number of shares of Common Stock shall not be deemed to
be a reclassification of the Common Stock for the purpose of this subsection
(2)(g). The Corporation shall not effect any consolidation, merger, or sale
resulting in a Capital Change, unless prior to or simultaneously with the
consummation thereof, any successor corporation or
3
<PAGE>
corporation purchasing such assets shall assume, by written instrument, the
obligation to deliver to the holder of each share of Series B Preferred Stock
such shares of stock, securities, or assets as the holders of Series B Preferred
Stock may be entitled to receive upon exercise of the Series B Preferred Stock
in accordance with the foregoing provisions, and the other obligations of the
Corporation hereunder.
(h) NOTICE OF RECLASSIFICATION OR RECAPITALIZATION, ETC.
In case:
(i) the Corporation shall authorize the issuance to all
holders of Common Stock of rights or warrants to subscribe for or purchase
shares of its capital stock or of any other right;
(ii) the Corporation shall authorize the distribution to
all holders of Common Stock of evidences of its indebtedness or assets or
the change or adoption of a dividend policy;
(iii) of any subdivision, combination, or reclassification
of Common Stock, or of any consolidation or merger to which the Corporation
is a party and for which approval of any stockholders of the Corporation is
required, or of the sale or transfer of all or substantially all of the
assets of the Corporation; or
(iv) of the voluntary or involuntary dissolution,
liquidation, or winding up of the Corporation;
then the Corporation shall mail to the holders of Series B Preferred Stock at
least 10 days prior to the applicable record date hereinafter specified in
clauses (x) and (y) below, a notice stating (x) the date as of which the holders
of Common Stock of record to be entitled to receive any such rights, warrants,
or distribution are to be determined, or (y) the date on which any such
subdivision, combination, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation, winding up, or other action is expected to
become effective, and the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their Common Stock for securities
or other property, if any, deliverable upon such subdivision, combination,
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation, winding up, or other action. The failure to give the notice
required by this subsection (2)(h) or any defect therein shall not affect the
legality or validity of any distribution, right, warrant, subdivision,
combination, reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation, winding up, or other action, or the vote upon any of
the foregoing.
(i) RESERVATION OF SHARES FOR ISSUANCE UPON CONVERSION. The
Corporation covenants that it will at all times reserve and keep available out
of its authorized Common Stock, free from preemptive rights, solely for the
purpose of issuance upon conversion of the Series B Preferred Stock as herein
provided, such number of shares of Common Stock as shall then be issuable upon
the conversion of all outstanding shares of the Series B Preferred Stock. The
Corporation covenants that all shares of Common Stock which shall be so issuable
upon conversion of the Series B Preferred Stock as herein provided shall, when
issued, be duly
4
<PAGE>
authorized, validly issued, and fully paid and nonassessable, free of all liens
and charges and not subject to preemptive rights and that, upon conversion of
the Series B Preferred Stock, the appropriate capital stock accounts of the
Corporation shall be duly credited.
(j) PAYMENT OF TAXES ON SHARES ISSUED UPON CONVERSION. The
issuance of certificates for shares of Common Stock upon the conversion of
shares of the Series B Preferred Stock shall be made without charge to the
converting holders for any tax in respect of the issuance of such certificates
and such certificates shall be issued in the respective names of, or in such
names as may be directed by, the holders of the shares of the Series B Preferred
Stock converted; provided, however, that the Corporation shall not be required
to pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate in a name other than that of the
shares of the Series B Preferred Stock converted, and the Corporation shall not
be required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Corporation the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
(3) VOTING. Other than any voting rights created by applicable law,
the holders of shares of Series B Preferred Stock shall not be entitled to vote
at any election of directors or any other matter upon which holders of the
Common Stock have the right to vote or to receive notice of any meeting of
stockholders.
(4) PREFERENCE ON LIQUIDATION, ETC. In the event of any voluntary or
involuntary liquidation, distribution of all or substantially all of the assets,
dissolution, or winding-up of the Corporation (any such event being hereinafter
referred to as a "Liquidation Transaction"), any payment or distribution of the
assets of the Corporation (whether capital or surplus), or the proceeds thereof,
shall be made to or set apart in the following order of preference: (i) the
holders of shares of 9% Cumulative Convertible Preferred Stock of the
Corporation shall be entitled to receive the preferential amounts set forth in
Article Fourth, Section (B)(7) of the Corporation's Restated Certificate of
Incorporation; (ii) after payment in full of the preferential amounts with
respect to the 9% Cumulative Convertible Preferred Stock and prior to and in
preference to any distribution of any assets of the Corporation to the holders
of the Common Stock, the holders of shares of Series B Preferred Stock shall be
entitled to be paid, by reason of their ownership thereof, the amount of $0.6667
per share of Series B Preferred Stock, plus any declared and unpaid dividends on
the Series B Preferred Stock, if any (and no more), and, if the assets of the
Corporation then available for distribution shall be insufficient to pay in full
the preferential amounts set forth in this clause (ii), then such assets shall
be distributed ratably among the holders of Series B Preferred Stock in
accordance with the respective amounts which would be payable on such shares if
all amounts payable thereon were paid in full; and (iii) after payment in full
of the preferential amounts set forth in clauses (i) and (ii) above, the holders
of shares of Common Stock shall be entitled to receive ratably payment or
distribution of the remaining assets of the Corporation available for
distribution.
(5) DIVIDENDS. Subject to the provisions of Article Fourth, Section
(B)(2), of the Corporation's Restated Certificate of Incorporation with respect
to the 9% Cumulative Convertible Preferred Stock, the holders of shares of
Series B Preferred Stock shall be entitled to
5
<PAGE>
receive cash dividends as, if and when declared by the Board of Directors of the
Corporation, out of any assets of the Corporation legally available therefor.
(6) REDEMPTION BY THE CORPORATION.
(a) RIGHT TO REDEEM. The Series B Preferred Stock may be
redeemed, at the option of the Corporation, in whole or in part, at any time
after the fifth anniversary date of the Original Issue Date (as such term is
defined below) of the Series B Preferred Stock at a price of $0.6667 per share.
If the Corporation desires to redeem the shares of Series B Preferred Stock, the
Corporation shall give the holders thereof notice of such redemption, which
notice shall set forth the number of shares to be redeemed and the place and
date fixed for redemption, which date shall be not less than 30 nor more than 60
days after the date of such notice. On the date fixed for redemption, the
holders of shares of Series B Preferred Stock shall surrender the certificates
therefor against payment of the redemption amount. If the shares of Series B
Preferred Stock are to be redeemed in part, each such redemption shall be
applied pro rata to the shares of Series B Preferred Stock then outstanding. As
used in this Section (6)(a), the term "Original Issue Date" shall refer to the
first date on which any shares of Series B Preferred Stock are issued by the
Corporation.
(b) PAYMENT OF REDEMPTION PRICE. As promptly as practicable
after the surrender, as herein provided, of shares of Series B Preferred Stock
for redemption, the Corporation shall pay or cause to be paid to or upon the
written order of the holder of the shares of Series B Preferred Stock so
surrendered an amount equal to $0.6667 multiplied by the number of shares so
surrendered in accordance with the provisions of Section (6)(a)above. Such
redemption shall be deemed to have occurred at the time that such shares of
Series B Preferred Stock shall have been surrendered for redemption in
accordance herewith and the rights of the holder of such shares of Series B
Preferred Stock as a holder of Series B Preferred Stock shall cease at such
time. In the case of any shares of Series B Preferred Stock which are redeemed
in part only, upon such redemption the Corporation shall execute and deliver to
the holder thereof, as requested by such holder, a new certificate for shares of
Series B Preferred Stock of authorized denominations equal to the unredeemed
portion of such shares of Series B Preferred Stock.
6
<PAGE>
IN WITNESS WHEREOF, CORTEX PHARMACEUTICALS, INC. has caused this
Certificate of Designation, Preferences and Rights of Series B Convertible
Preferred Stock to be duly executed by its President and Chief Executive Officer
and attested to by its Assistant Secretary and has caused its corporate seal to
be affixed hereto this 29th day of April, 1991.
CORTEX PHARMACEUTICALS, INC.
By: /S/ VAUGHAN H. J. SHALSON
------------------------------------------
Vaughan H. J. Shalson,
President and Chief
Executive Officer
(Corporate Seal)
ATTEST:
/S/ D. SCOTT HAGEN
- ------------------------------
D. Scott Hagen
Assistant Secretary
7
<PAGE>
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
CORTEX PHARMACEUTICALS, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation") is
CORTEX PHARMACEUTICALS, INC.
2. The Certificate of Designation, Preferences and Rights of Series B
Convertible Preferred Stock of the corporation, which was filed by the Secretary
of State of Delaware on April 29, 1991, is hereby corrected.
3. The defect to be corrected in said instrument is as follows:
The conversion price of $1.345 per share listed at line 6 of
subparagraph (a) of paragraph (2), CONVERSION, at page 2 of the Certificate
of Designation, Preferences and Rights of Series B Convertible Preferred
Stock shall be corrected to read as follows: $1.359.
4. Subparagraph (a) of paragraph (2) in corrected form is as follows:
" (a) Each share of Series B Preferred Stock shall be convertible at
the option of the holder thereof at the office of the Corporation or at the
office of the transfer agent, if any, for the Series B Preferred Stock into
shares of duly authorized, fully paid, and non-assessable shares of Common
Stock at the conversion price of $1.359 per share of Common Stock (the
"Conversion Rate"), subject to adjustment as provided in subsection (2)(c)
below. The number of shares of Common Stock to be delivered upon
conversion of the Series B Preferred Stock shall be determined by dividing
the liquidation amount ($0.6667 per share) of the shares surrendered by the
Conversion Rate at the time of surrender, calculated to the nearest 1/100th
of a share (fractions of less than 1/100 being disregarded). The
Corporation shall make no payment or adjustment on the account of any
declared but unpaid dividends on the shares of Series B Preferred Stock
surrendered for conversion or on account of any dividends on the Common
Stock."
<PAGE>
Signed and attested to on April 30, 1991.
/s/ VAUGHAN H. J. SHALSON
----------------------------------------
Vaughan H. J. Shalson, President and
Chief Executive Officer
/s/ D. SCOTT HAGEN
- ----------------------------------
D. Scott Hagen, Assistant
Secretary
2
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
CORTEX PHARMACEUTICALS, INC.
(Pursuant to Section 151(g) of the General Corporation
Law of the State of Delaware)
CORTEX PHARMACEUTICALS, INC., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
hereby certifies that, pursuant to the authority contained in Article Fourth,
Section (A)(2) of its Restated Certificate of Incorporation, Paragraph (1) of
its Certificate of Designation, Preferences and Rights of Series B Convertible
Preferred Stock and in accordance with the provisions of Section 151(g) of the
General Corporation Law of the State of Delaware, its Board of Directors has
duly adopted the following resolution decreasing the number of shares of the
Series B Convertible Preferred Stock from 3,750,000 to 3,200,000:
RESOLVED, that the number of shares constituting the Series
B Convertible Preferred Stock be decreased from 3,750,000 to
3,200,000.
IN WITNESS WHEREOF, CORTEX PHARMACEUTICALS, INC. has caused this
Certificate of Decrease of Number of Shares of Series B Convertible Preferred
Stock to be duly executed by its President and Chief Executive Officer and
attested to by its Assistant Secretary and has caused its corporate seal to be
affixed hereto this 22nd day of May, 1991.
CORTEX PHARMACEUTICALS, INC.
By: /s/ VAUGHAN H. J. SHALSON
----------------------------------------------
Vaughan H. J. Shalson,
President and Chief
Executive Officer
[Corporate Seal]
ATTEST:
/s/ D. SCOTT HAGEN
- -----------------------------
D. Scott Hagen,
Assistant Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CORTEX PHARMACEUTICALS, INC.
CORTEX PHARMACEUTICALS, INC., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify:
FIRST: That at a meeting of the Board of Directors of the Corporation
resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of the Corporation, declaring said amendment to be
advisable and directing said amendment to be submitted to the stockholders of
the Corporation at its Annual Meeting. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that Article Fourth, paragraph (A)(1) of the Certificate of
Incorporation of the Corporation be amended to read in its entirety:
The aggregate number of shares which the Corporation shall have the
authority to issue is 55,000,000, of which 5,000,000 shares of the par
value of $.001 per share shall be designated "Preferred Stock" and
50,000,000 of the par value $.001 per share shall be designated
"Common Stock."
SECOND: That thereafter, pursuant to resolution of the Board of Directors,
the Annual Meeting of the stockholders of the Corporation was duly called and
held, upon notice in accordance with Section 222 of the Delaware General
Corporation Law, at which meeting the necessary number of shares as required by
statute were voted in favor of the amendment.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be executed by Jay D. Glass, Ph.D., its President, and attested to
by D. Scott Hagen, its Secretary, this 30th day of October, 1992.
CORTEX PHARMACEUTICALS, INC.
[SEAL] By: /s/ JAY D. GLASS
--------------------------------------
Jay D. Glass, President
ATTEST:
By: /s/ D. SCOTT HAGEN
----------------------------------
D. Scott Hagen, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
CORTEX PHARMACEUTICALS, INC.,
A DELAWARE CORPORATION
(Pursuant to Section 242 of the Delaware General Corporation Law)
CORTEX PHARMACEUTICALS, INC., a corporation organized and existing under
and by virtue of the Delaware General Corporation Law (the "Corporation"), does
hereby certify that:
FIRST: At a duly held meeting of the Board of Directors of the
Corporation, the Board of Directors of the Corporation duly adopted resolutions
setting forth amendments to the Restated Certificate of Incorporation of the
Corporation, declaring said amendments to be advisable and directing that said
amendments be submitted to the stockholders of the Corporation for consideration
thereof. The resolutions setting forth the proposed amendments are as follows:
"RESOLVED, that the Restated Certificate of Incorporation of the
Corporation be amended to add ARTICLE TENTH, which shall read in its
entirety as follows:
`TENTH--REVERSE SPLIT. On the effective date of this
amendment to the Restated Certificate of Incorporation (the
"Effective Date"), the Common Stock of the Corporation will
be reverse split on a one-for-five basis so that each
authorized share of Common Stock immediately prior to the
Effective Date shall automatically be converted into and
reconstituted as one-fifth of a share of Common Stock (the
"Reverse Split"). No fractional shares will be issued by
the Corporation as a result of the Reverse Split. In lieu
thereof, each Stockholder whose shares of Common Stock are
not evenly divisible by five will receive a cash payment to
be calculated by multiplying the fraction of a share by the
equivalent of the average of the last sale prices for one
share of the Common Stock, as reported by Nasdaq, for the
ten (10) trading days immediately preceding the Effective
Date.'
RESOLVED, that ARTICLE FOURTH (A)(1) of the Restated Certificate
of Incorporation of the Corporation be amended and restated in its
entirety to read as follows:
<PAGE>
`FOURTH: (A)(1)-AUTHORIZED CAPITAL. (A) The total number
of shares of capital stock which the Company has the authority to
issue is 25,000,000 consisting of 20,000,000 shares of Common
Stock, $0.001 par value per share (the "Common Stock"), and
5,000,000 shares of Preferred Stock, $0.001 par value per share
(the "Preferred Stock").' "
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, the Annual Meeting of the Stockholders of the Corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary number
of shares as required by statute were voted in favor of the amendment.
THIRD: Said amendments were duly adopted in accordance with the
provisions of Section 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, CORTEX PHARMACEUTICALS, INC. has caused this
Certificate of Amendment to be signed by D. Scott Hagen, its duly authorized
Vice President and Chief Financial Officer, this 5th day of January, 1995.
CORTEX PHARMACEUTICALS, INC.,
a Delaware corporation
By: /s/ D. SCOTT HAGEN
----------------------------------------
D. Scott Hagen,
Vice President and Chief Financial Officer
2
<PAGE>
CERTIFICATE OF DESIGNATION, NUMBER, POWERS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL, AND OTHER SPECIAL
RIGHTS AND THE QUALIFICATIONS, LIMITATIONS, RESTRICTIONS, AND OTHER
DISTINGUISHING CHARACTERISTICS OF SERIES C PREFERRED STOCK
OF
CORTEX PHARMACEUTICALS, INC.
It is hereby certified that:
1. The name of the Corporation (hereinafter called the "Corporation") is
Cortex Pharmaceuticals, Inc., a Delaware corporation.
2. The articles of incorporation of the Corporation authorizes the
issuance of Five Million (5,000,000) shares of Preferred Stock of a par value of
one one-hundredths of one cent ($.001) each and expressly vests in the Board of
Directors of the Corporation the authority provided therein to issue any or all
of said shares in one or more Series and by resolution or resolutions to
establish the designation, number, full or limited voting powers, or the denial
of voting powers, preferences and relative, participating, optional, and other
special rights and the qualifications, limitations, restrictions, and other
distinguishing characteristics of each Series to be issued.
3. The Board of Directors of the Corporation, pursuant to the authority
expressly vested in it as aforesaid, has adopted the following resolutions
creating a Series C issue of Preferred Stock:
RESOLVED, that One Hundred Sixty (160) of the Five Million (5,000,000)
authorized shares of Preferred Stock of the Corporation shall be designated
Series C Preferred Stock, $.001 per share, and shall possess the rights and
privileges set forth below:
Section 1. DESIGNATION AND AMOUNT. The shares of such Series shall be
designated as "Series C Preferred Stock" (the "Series C Preferred Stock") and
the number of shares constituting the Series C Preferred Stock shall be 160.
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
Series C 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 to acquired shares of Series C Preferred
Stock or upon the conversion of any outstanding securities issued by the
Corporation convertible into Series C Preferred Stock.
Section 2. RANK. The Series C Preferred Stock shall rank: (i) on
parity with all of the Corporation's Series B Convertible Preferred Stock,
(ii) junior to all of the Corporation's 9% Cumulative Convertible Preferred
Stock, and any other class or series of capital stock of the Corporation
hereafter created specifically ranking by its terms senior to the Series C
Preferred Stock (collectively, the "Senior Securities"); (iii) prior to all of
the Corporation's Common Stock par value $.001 per share ("Common Stock");
(iv) prior to any class or series of capital stock of the Corporation hereafter
created specifically ranking by its terms junior to any Series C Preferred Stock
of whatever subdivision (collectively, with the Common Stock, "Junior
Securities"); (v) on parity with any class or series of capital stock of the
Corporation hereafter created specifically ranking by
<PAGE>
its terms on parity with the Series C Preferred Stock ("Parity Securities") in
each case as to distributions of assets upon liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary (all such distributions
being referred to collectively as "Distributions").
Section 3. DIVIDENDS. The Series C Preferred Stock will bear no
dividends, and the holders of the Series C Preferred Stock ("Holders") shall not
be entitled to receive dividends on the Series C Preferred Stock.
Section 4. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the Holders of shares of Series C
Preferred Stock shall be entitled to receive, immediately after any
distributions to Senior Securities required by the Corporation's Certificate of
Incorporation or any certificate of designation of preferences, and prior and in
preference to any distribution to Junior Securities but in parity with any
distribution of Parity Securities, an amount per share equal to the sum of
(i) $25,000 for each outstanding share of Series C Preferred Stock (the
"Original Series C Issue Price") and (ii) an amount equal to 10% of the Original
Series C Issue Price per annum for the period that has passed since the date of
issuance of any Series C Preferred Stock (such amount being referred to herein
as the "Premium"). If upon the occurrence of such event, and after payment in
full of the preferential amounts with respect to the Senior Securities, the
assets and funds thus distributed among the Holders of the Series C Preferred
Stock and Parity Securities shall be insufficient to permit the payment to such
Holders of the full preferential amounts due to the Holders of the Series C
Preferred Stock and the Parity Securities, respectively, 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 and the Parity
Securities, pro rata, based on the respective liquidation amounts to which each
such series of stock is entitled by the Corporation's Certificate of
Incorporation and any certificate of designation of preferences.
(b) Upon the completion of the distribution required by subsection 4(a),
if assets remain in this Corporation, they shall be distributed to holders of
Junior Securities in accordance with the Corporation's Certificate of
Incorporation including any duly adopted certificate(s) of designation of
preferences.
(c) A sale, conveyance or disposition of all or substantially all of the
assets of the Corporation or the effectuation by the Corporation of a
transaction or series of related transactions in which more than 50% of the
voting power of the Corporation is disposed of shall be deemed to be a
liquidation, dissolution or winding up within the meaning of this Section 4;
provided that, a consolidation or merger of the Corporation with or into any
other corporation or corporations shall not be treated as a liquidation,
dissolution or winding up within the meaning of this Section 4, but instead
shall be treated pursuant to Section 5 hereof.
Section 5. CONVERSION. The record Holders of this Series C Preferred
Stock shall have conversion rights as follow (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each record Holder of Series C Preferred Stock
shall be entitled, commencing on the date of the last closing of a purchase and
sale of Series C Preferred Stock that occurs pursuant to the offering of the
Series C Preferred Stock by the Corporation (the
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"Last Closing Date"), which is expected to be December 6, 1995, but in no event
later than December 15, 1995 and at any time thereafter, subject to the
Corporation's right of redemption set forth in Section 6(a) and Section 6(b), at
the option of the Holder, at the office of the Corporation or any transfer agent
for the Series C Preferred Stock, to convert shares of Series C Preferred Stock
held by such Holder (but only in multiples of $25,000), into that number of
fully-paid and non-assessable shares of Common Stock at the Conversion Rate, as
defined below. Each record Holder of Series C Preferred Stock additionally
shall be entitled (at the times and in the amounts set forth below), and,
subject to the Corporation's right of redemption set forth in Section 6(a) and
Section 6(b), at the office of the transfer agent for the Series C Preferred
Stock (the "Transfer Agent"), to convert portions of the Series C Preferred
Stock held by such Holder (but only in multiples of $25,000) into that number of
fully-paid and non-assessable shares of Common Stock at the Conversion Rate, as
defined below. Each record Holder of Series C Preferred Stock shall be entitled
to convert up to one-third of the shares of Series C Preferred Stock held by
such Holder beginning 45 days following the Last Closing Date and an additional
one-third of the shares of Series C Preferred Stock held by such Holder
beginning 75 days following the Last Closing Date, and may convert any remaining
Series C Preferred Stock beginning 105 days following the Last Closing Date, at
the office of the Corporation or any Transfer Agent for the Series C Preferred
Stock, into that number of fully-paid and non-assessable shares of Common Stock
of the Corporation calculated in accordance with the following formula (the
"Conversion Rate"):
Number of shares issued upon conversion of one share of Series C Preferred Stock
=((.10) (N/365) (25,000) + (25,000) DIVIDED BY Conversion Price
where,
DEG. N = the number of days between (i) the Last Closing Date, as
defined herein, and (ii) the applicable date of conversion for the
shares of Series C Preferred Stock for which conversion is being
elected, and
DEG. CONVERSION PRICE = the lesser of (x) the average Closing Bid
Price, as that term is defined below, for the five trading days ending
on December 1, 1995, which amounts to $2.8250 (the "Fixed Conversion
Price"), or (y) X times the average Closing Bid Price, as that term is
defined below, of the Corporation's Common Stock for the five (5)
trading days immediately preceding the Date of Conversion, as defined
below, where X shall equal .85 + (1- (the average Closing Bid Price of
the Corporation's Common Stock for the five (5) trading days
immediately preceding the Date of Conversion, as that term is defined
below, divided by the average Closing Bid Price of the Corporation's
Common Stock for the ten (10) trading days immediately preceding the
Date of Conversion)); provided that, in no event shall X be less than
.85 or greater than 1.0.
For purposes thereof, the term "Closing Bid Price" shall mean the closing
bid price on the over-the-counter market as reported by NASDAQ, or if then
traded on a national securities exchange or the National Market System, the mean
of the high and low prices on the principal national securities exchange or the
National Market System on which it is so traded.
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(b) MECHANICS OF CONVERSION. In order to convert Series C Preferred Stock
into full shares of Common Stock, the Holder shall (i) fax a copy of the fully
executed notice of conversion the form attached hereto ("Notice of Conversion")
to the Corporation at such office that he elects to convert the same, which
notice shall specify the number of shares of Series C Preferred Stock to be
converted and shall contain a calculation of the Conversion Rate (together with
a copy of the first page of each certificate to be converted) to the Corporation
or its designated transfer agent prior to Midnight, New York City time (the
"Conversion Notice Deadline") on the date of conversion specified on the Notice
of Conversion and (ii) surrender the original certificate or certificates
therefor, duly endorsed, and the original Notice of Conversion by either
overnight courier or 2-day courier, to the office of the Corporation or of any
transfer agent for the Series C Preferred Stock; provided, however, that the
Corporation shall not be obligated to issue certificates evidencing the shares
of Common Stock issuable upon such conversion unless either the certificates
evidencing such Series C Preferred Stock are delivered to the Corporation or its
transfer agent as provided above, or the Holder notifies the Corporation or its
transfer agent that such certificates have been lost, stolen or destroyed. Upon
receipt by the Corporation of evidence of the loss, theft, destruction or
mutilation of this a certificate of certificates ("Stock Certificates")
representing shares of Series C Preferred Stock, and (in the case of loss, theft
or destruction) of indemnity or security reasonably satisfactory to the
Corporation, and upon surrender and cancellation of the Stock Certificate(s), if
mutilated, the Corporation shall execute and deliver new Stock Certificate(s) of
like tenor and date. No fractional shares of Common Stock shall be issued upon
conversion of this Series C Preferred Stock. If any conversion of the Series C
Preferred Stock would create a fractional share of Common Stock or a right to
acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon conversion
shall be the next higher number of shares. In the case of a dispute as to the
calculation of the Conversion Rate, the Corporation's calculation shall be
deemed conclusive absent manifest error.
The Corporation shall use all reasonable efforts to issue and deliver
within three (3) business days after delivery to the Corporation of such
certificates, or after such agreement and indemnification, to such Holder of
Series C Preferred Stock at the address of the Holder on the books of the
Corporation, a certificate or certificates for the number of shares of Common
Stock to which the Holder shall be entitled as aforesaid. The date on which
conversion occurs (the "Date of Conversion") shall be deemed to be the date set
forth in such Notice of Conversion, provided (i) that the advance copy of the
Notice of Conversion is faxed to the Corporation before midnight, New York City
time, on the Date of Conversion, and (ii) that the original Stock Certificates
representing the shares of Series C Preferred Stock to be converted are
surrendered by depositing such certificates by either overnight courier or 2-day
courier, as provided above, and received by the transfer agent or the
Corporation within five business days thereafter. 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 Sock on such date. If the original Stock Certificates representing
the Series C Preferred Stock to be converted are not received by the transfer
agent or the Corporation within five business days after the Date of Conversion
or if the facsimile of the Notice of Conversion is not received by the
Corporation or its designated transfer agent prior to the Conversion Notice
Deadline, the Notice of Conversion, at the Corporation's option, may be declared
null and void.
Following conversion of shares of Series C Preferred Stock, such shares of
Series C Preferred Stock will no longer be outstanding.
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(c) 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 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 then outstanding
Series C Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of Series C Preferred Stock, the Corporation will
use its best efforts to take such corporate action as may be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
(d) AUTOMATIC CONVERSION. Each share of Class C Preferred Stock
outstanding on December 6, 1997 automatically shall be converted into Common
Stock on such date at the Conversion Price then in effect (calculated in
accordance with the formula in Section 5(a) above) and December 6, 1997 shall be
deemed the Date of Conversion with respect to such conversion.
(e) ADJUSTMENT TO CONVERSION RATE.
(i) If, prior to the conversion of all the Series C Preferred Stock,
the number of outstanding shares of Common Stock is increased by a stock split,
stock dividend, or other similar event, the Conversion Rate shall be
proportionately adjusted, or if the number of outstanding shares of Common Stock
is decreased by a combination or reclassification of shares, or other similar
event, the Conversion Rate shall be proportionately adjusted.
(ii) If, prior to the conversion of all Series C Preferred Stock,
there shall be any merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event, as a result of which shares of Common
Stock of the Corporation shall be changed into the same or a different number of
shares of the same or another class or classes of stock or securities of the
Corporation or another entity, or other property then the Holders of Series C
Preferred Stock shall thereafter have the right to purchase and receive upon
conversion of Series C Preferred Stock, upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such shares of stock and/or
securities or other property as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock immediately theretofore
purchasable and receivable upon the conversion of Series C Preferred Stock held
by such Holders had such merger, consolidation, exchange of share,
recapitalization or reorganization not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the Holders of the Series C Preferred Stock to the end that the provisions
hereof (including, without limitation, provisions for adjustment of the
Conversion Rate and the number of shares issuable upon conversion of the
Series C Preferred Stock) shall thereafter be applicable, as nearly as may be
practicable in relation to any shares of stock or securities thereafter
deliverable upon the exercise hereof. The Corporation shall not effect any
transaction described in this subsection 5(e) unless the resulting successor or
acquiring entity (if not the Corporation) assumes by written instrument the
obligation to deliver to the Holders of the Series C Preferred Stock such shares
of stock and/or securities or other property as, in accordance with the
foregoing provisions, the Holders of the Series C Preferred Stock may be
entitled to receive upon conversion of the Series C Preferred Stock.
(iii) If any adjustment under this Section 5(a) would create a
fractional share of Common Stock or a right to acquire a fractional share of
Common Stock, such fractional share shall
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<PAGE>
be disregarded and the number of shares of Common Stock issuable upon conversion
shall be the next higher number of shares.
Section 6. CASH REDEMPTION BY CORPORATION.
(a) CORPORATION'S RIGHT TO REDEEM UPON RECEIPT OF NOTICE OF CONVERSION.
The Corporation shall have the right, in its sole discretion, upon receipt of a
Notice of Conversion pursuant to Section 5, to redeem in whole or in part any
Series C Preferred Stock submitted for conversion, immediately prior to
conversion. If the Corporation elects to redeem some, but not all, of the
Series C Preferred Stock submitted for conversion, the Corporation shall redeem
from among the Series C Preferred Stock submitted by the various Holders thereof
for conversion on the applicable date, a pro-rata amount from each Holder so
submitting Series C Preferred Stock for conversion. The Corporation shall
effect each such redemption by giving notice ("Notice of Redemption Upon Receipt
of Notice of Conversion") of its election to redeem, by facsimile within one
business day following receipt of a Notice of Conversion from a Holder, with a
copy by 2-day courier, to the Holders of Series C Preferred Stock selected for
redemption, at the address and facsimile number of such Holder appearing in the
Corporation's register for the Series C Preferred Stock and (B) the
Corporation's transfer agent. Such Notice of Redemption Upon Receipt of Notice
of Conversion shall indicate the number of shares of Holder's Series C Preferred
Stock that have been selected for redemption, the Date of Redemption Upon
Receipt of Notice of Conversion (as defined below) and the applicable Redemption
Price Upon Receipt of Notice of Conversion, as defined below. If the Notice of
Redemption Upon Receipt of Notice of Conversion is not received within the times
specified above or does not meet the conditions specified above, the Notice of
Redemption Upon Receipt of Notice of Conversion shall become null and void
(unless otherwise agreed in writing by the Holder). The Corporation shall not
be entitled to send any Notice of Redemption Upon Receipt of Notice of
Conversion and begin the redemption procedure unless it has (x) the full amount
of the Redemption Price Upon Receipt of Notice of Conversion, in cash, available
in a demand or other immediately available account in a bank or similar
financial institution or (y) immediately available credit facilities, in the
full amount of the Redemption Price Upon Receipt of Notice of Conversion, with a
bank or similar financial institution on the date the Notice of Redemption Upon
Receipt of Notice of Conversion is sent to the applicable Holder.
The Redemption Price Upon Receipt of Notice of Conversion per share of
Series C Preferred Stock shall equal the Closing Bid Price on the Date of
Conversion, multiplied by the number of shares of Common Stock that would
otherwise have been issuable had the shares of Series C Preferred Stock redeemed
been converted on the Date of Conversion as to such shares.
For the purposes of the above formula, "N," "Closing Bid Price" and
"Conversion Price" shall have the meanings set forth in Section 5(a) and "Date
of Redemption Upon Notice of Conversion" shall be deemed to be the Conversion
Date (as that term is defined in Section 5(b) above).
The Redemption Price Upon Receipt of Notice of Conversion shall be paid to
the Holder of Series C Preferred Stock redeemed within 10 business days of the
delivery of the Notice of Redemption Upon Receipt of Notice of Conversion to
such Holder; provided, however, that the Corporation shall not be obligated to
deliver any portion of the Redemption Price Upon Receipt of Notice of Conversion
unless either the certificates evidencing the Series C Preferred Stock redeemed
are delivered to the Transfer
6
<PAGE>
Agent as provided in Section 5(b), or the Holder notifies the Transfer Agent
that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such certificates. Notwithstanding the
foregoing, in the event that the certificates evidencing the Series C Preferred
Stock redeemed are not delivered to the Transfer Agent as provided in Section
5(b), the redemption of the Series C Preferred Stock pursuant to this Section
6(a) shall still be deemed effective as of the Date of Redemption Upon Receipt
of Notice of Conversion.
(b) CORPORATION'S RIGHT TO REDEEM AT ITS ELECTION. Commencing 45 days
after the Last Closing Date, the Corporation shall have the right in its sole
discretion, to redeem from time to time, any or all of the Series C Preferred
Stock; provided that, the Corporation shall only be entitled to redeem shares of
Series C Preferred Stock with an aggregate Stated Value (as defined below) of at
least One Million Dollars ($1,000,000) on the first such redemption. If the
Corporation elects to redeem some, but not all, of the Series C Preferred Stock,
the Corporation shall redeem a pro-rata amount from each Holder of Series C
Preferred Stock. The Corporation shall effect each such redemption by giving at
least 30 days prior written notice ("Notice of Redemption At Corporation's
Election") to (A) the Holders of Series C Preferred Stock selected for
redemption, at the address and facsimile number of such Holder appearing in the
Corporation's register for the Series C Preferred Stock and (B) the Transfer
Agent, which Notice of Redemption At Corporation's Election shall be deemed to
have been delivered three (3) business days after the Corporation's mailing (by
overnight courier, with a copy by facsimile) of such Notice of Redemption At
Corporation's Election. Such Notice of Redemption At Corporation's Election
shall indicate the number of shares of Holder's Series C Preferred Stock that
have been selected for redemption, the date which such redemption is to become
effective (the "Date of Redemption At Corporation's Election") and the
applicable Redemption Price At Corporation's Election, as defined below. The
Corporation shall not be entitled to send any Notice of Redemption At
Corporation's Election and begin the redemption procedure unless it has (x) the
full amount of the Redemption Price At Corporation's Election, in cash,
available in a demand or other immediately available account in a bank or
similar financial institution or (y) immediately available credit facilities, in
the full amount of Redemption At Corporation's Election, with a bank or similar
financial institution on the date the Notice of Redemption At Corporation's
Election is delivered to the applicable Holder. Notwithstanding the above, the
Holder may convert any or all of its Series C Preferred Stock that is eligible
for conversion, which would otherwise be subject to redemption under this
Section 6(b), by submitting a Notice of Conversion prior to the Date of
Redemption At Corporation's Election.
For purposes of this Section 6(b), "Stated Value" shall mean the Original
Series C Issue Price of the shares of Series C Preferred Stock redeemed pursuant
to this Section 6(b), as defined in Section 4(a), together with the accrued but
unpaid Premium (as defined in Section 4(a)), on such shares of Series C
Preferred Stock, as of the Date of Redemption At Corporation's Election.
The Redemption Price At Corporation's Election shall be calculated as a
percentage of Stated Value of the shares of Series C Preferred Stock redeemed
pursuant to this Section 6(b), which percentage shall vary depending on the date
of Delivery of the Notice of Redemption at Corporation's Election, and shall be
determined as follows:
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Date of Delivery of Notice of
Redemption at Corporation's Election % of Stated Value
------------------------------------ -----------------
45 days to 6 months following Last Closing Date 130%
6 months and 1 day to 12 months following Last Closing Date 125%
12 months and 1 day to 18 months following Last Closing Date 120%
18 months and 1 day to 24 months following Last Closing Date 115%
The Redemption Price At Corporation's Election shall be paid to the Holder of
Series C Preferred Stock redeemed within 10 business days of the Date of
Redemption At Corporation's Election; provided, however, that the Corporation
shall not be obligated to deliver any portion of the Redemption Price At
Corporation's Election unless either the certificates evidencing the Series C
Preferred Stock redeemed are delivered to the Transfer Agent prior to the 10th
business day following the Date of Redemption At Corporation's Election, or the
Holder notifies the Transfer Agent that such certificates have been lost, stolen
or destroyed and executed an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with such
certificates. Notwithstanding the foregoing, in the event that the certificates
evidencing the Series C Preferred Stock redeemed are not delivered to the
Transfer Agent prior to the 10th business day following the Date of Redemption
At Corporation's Election, the redemption of the Series C Preferred Stock
pursuant to this Section 6(b) shall still be deemed effective as of the Date of
Redemption At Corporation's Election and the Redemption Price At Corporation's
Election shall be paid to the Holder of Series C Preferred Stock redeemed within
5 business days of the date the certificates evidencing the Series C Preferred
Stock redeemed are actually delivered to the Transfer Agent.
Section 7. ADVANCE NOTICE OF REDEMPTION
(a) HOLDER'S RIGHT TO ELECT TO RECEIVE NOTICE OF CASH REDEMPTION BY
CORPORATION. Holder shall have the right to require Corporation to provide
advance notice stating whether Corporation will elect to redeem Holder's shares
in cash, pursuant to Corporation's redemption rights discussed in Section 6.
(b) MECHANICS OF HOLDER'S ELECTION NOTICE. Holder shall send notice
("Election Notice") to Corporation and such other person(s) as the Corporation
may designate, by facsimile, stating Holder's intention to require Corporation
to disclose that if Holder were to exercise his, her or its right of conversion
(pursuant to section 5) whether Corporation would elect to redeem Holder's
convertible Security for cash in lieu of issuing Common Stock. Corporation is
required to disclose to Holder what action Corporation would take over the
subsequent five ten day period, including the date Corporation receives such
Election Notice.
(c) CORPORATION'S RESPONSE. Corporation must respond within one business
day of receipt of Holder's Election Notice (1) via facsimile and (2) via
overnight courier. If Corporation does not respond to Holder within one
business day via facsimile and overnight courier, Corporation shall be required
to issue to Holder Common Stock upon Holder's conversion within the subsequent
five day period.
Section 8. VOTING RIGHTS. Except as otherwise provided by the Delaware
Business Corporation Act ("Delaware Law"), the holders of the Series C Preferred
Stock shall have no voting
8
<PAGE>
power whatsoever, and no holder of Series C Preferred Stock shall vote or
otherwise participate in any proceeding in which actions shall be taken by the
Corporation or the stockholders thereof or be entitled to notification as to any
meeting of the stockholders.
To the extent that under Delaware Law the vote of the holders of the
Series C Preferred Stock, voting separately as a class, is required to authorize
a given action of the Corporation, the affirmative vote or consent of the
holders of at least a majority of the shares of the Series C Preferred Stock
represented at a duly held meeting at which a quorum is present or by written
consent of a majority of the shares of Series C Preferred Stock (except as
otherwise may be required under Delaware Law) shall constitute the approval of
such action by the class. To the extent that under Delaware Law the holders of
the Series C Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of Series C Preferred
Stock shall be entitled to a number of votes equal to the number of shares of
Common Stock into which it is then convertible using the record date for the
taking of such vote of stockholders as the date as of which the Conversion Price
is calculated. Holders of the Series C Preferred Stock shall be entitled to
notice of all stockholder meetings or written consents with respect to which
they would be entitled to vote, which notice would be provided pursuant to the
Corporation's by-laws and applicable statutes.
Section 9. PROTECTIVE PROVISIONS. So long as shares of Series C
Preferred Stock are outstanding, the Corporation shall not without first
obtaining the approval (by vote or written consent, as provided by Delaware Law)
of the holders of at least a majority of the then outstanding shares of Series C
Preferred Stock:
(a) alter or change the rights, preferences or privileges of the shares of
Series C Preferred Stock or any Senior Securities so as to affect adversely the
Series C Preferred Stock;
(b) create any new class or series of stock having a preference over the
Series C Preferred Stock with respect to Distributions (as defined in Section 2
above); or
(c) do any act or thing not authorized or contemplated by this Designation
which would result in taxation of the holders of shares of the Series C
Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as
amended (or any comparable provision of the Internal Revenue Code as hereafter
from time to time amended).
Section 10. STATUS OF REDEEMED OR CONVERTED STOCK. In the event any
shares of Series C Preferred Stock shall be redeemed or converted pursuant to
Section 5 or Section 6 hereof, the shares so converted or redeemed shall be
canceled, shall return to the status of authorized but unissued Preferred Stock
of no designated series, and shall not be issuable by the Corporation as
Series C Preferred Stock.
Section 11. PREFERENCE RIGHTS. Nothing contained herein shall be
construed to prevent the Board of Directors of the Corporation from issuing one
or more series of Preferred Stock with dividend and/or liquidation preferences
equal to or junior to the dividend and liquidation preferences of the Series C
Preferred Stock.
FURTHER RESOLVED, that the statements contained in the foregoing
resolutions creating and designating the said Series C Preferred Stock and
fixing the number, powers, preferences and
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relative, optional, participating, and other special rights and the
qualifications, limitations, restrictions, and other distinguishing
characteristics thereof shall, upon the effective date of said Series, be deemed
to be included in and be a part of the certificate of incorporation of the
Corporation pursuant to the provisions of the Delaware Business Corporation Act.
Signed on December 7, 1995
/s/ D. Scott Hagen
--------------------------------------
D. Scott Hagen, Acting President
Attest:
/s/ D. Scott Hagen
- --------------------------------
D. Scott Hagen, Secretary
10
<PAGE>
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Preferred Stock)
The undersigned hereby irrevocably elects to convert _______shares of
Series C Preferred Stock, represented by stock certificate No(s). (the
"Preferred Stock Certificates") into shares of common stock ("Common Stock") of
Cortex Pharmaceuticals, Inc. (the "Corporation"), according to the conditions of
the Certificate of Designation of Series C Preferred Stock, as of the date
written below. If shares are to be issued in the name of a person other than
the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates. No fee will be
charged to the Holder for any conversion, except for transfer taxes, if any.
The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Common Stock issuable to the undersigned upon
conversion of the Series C Preferred Stock shall be made in compliance with
Regulation S, pursuant to registration of the Common Stock under the Securities
Act of 1933, as amended (the "Act") or pursuant to an exemption from
registration under the Act.
Date of Conversion:
----------------------
Applicable Conversion Price:
--------------
Signature:
--------------------------------
Name:
-------------------------------------
Address:
----------------------------------
* No shares of Common Stock will be issued until the original Series C Preferred
Stock Certificate(s) to be converted and the Notice of Conversion are received
by the Transfer Agent.
<PAGE>
CERTIFICATE OF DESIGNATION
OF
CORTEX PHARMACEUTICALS, INC.
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
--------------------
CORTEX PHARMACEUTICALS, INC., a Delaware corporation (the
"Corporation"), hereby certifies that the following resolution has been duly
adopted by a duly authorized committee of the Board of Directors of the
Corporation:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation (the "Board") by
the provisions of the Restated Certificate of Incorporation of the
Corporation (the "Certificate of Incorporation"), there hereby is
created, out of the 5,000,000 shares of Preferred Stock, par value
$.001 per share, of the Corporation authorized in Article FOURTH of
the Restated Certificate of Incorporation (the "Preferred Stock"), a
series of the Preferred Stock of the Corporation consisting of 500
shares, which series shall have the following powers, designations,
preferences and relative, participating, optional and other rights,
and the following qualifications, limitations and restrictions:
a. DESIGNATION. The designation of the series of Preferred Stock
fixed by this resolution shall be "Series D Convertible Preferred
Stock" (hereinafter referred to as the "Series D Preferred Stock").
b. CONVERSION RIGHTS.
i. RIGHT TO CONVERT. The total number of original shares of
Series D Preferred Stock acquired by any holder may be converted,
at the option of the holder thereof, at any time after the
earlier to occur of (i) date that the Registration Statement
(referred to in and defined in Section 4(c) of the Securities
Subscription Agreement, dated October 15, 1996, between the
Corporation and the initial holder of the Series D Preferred
Stock) is declared effective by the Securities and Exchange
Commission or (ii) 180
<PAGE>
days from the date of original issuance of the Series D Preferred
Stock, without the payment of any additional consideration
therefor, into that number of fully paid and nonassessable shares
of common stock, $.001 par value per share, of the Corporation
(the "Common Stock") determined as follows. The number of shares
issuable upon conversion of one share of Series D Preferred Stock
shall be:
X = ((0.06)(N/365)($10,000) + $10,000)/Conversion Price
where N is the number of calendar days between the applicable closing date and
the applicable conversion date. The "Conversion Price" shall be equal to the
lower of (i) 110% of the five day average closing bid price of the Common Stock
for the five trading days immediately preceding the date of original issuance of
Series D Preferred Stock or (ii) eighty-two percent (82%) of the average closing
bid price of a share of Common Stock as reported on the NASDAQ Small Cap Market
(or, in the event that such security is not traded on the NASDAQ Small Cap
Market, such other national or regional securities exchange or automated
quotations system upon which the Common Stock is listed and principally traded
or, in the event that the Common Stock is not listed on any exchange or quoted
on the NASDAQ Stock Market, any trading market in which quotes can be obtained)
over the five consecutive trading days immediately preceding the date of the
Conversion Notice (as defined in Section 2(b) hereof).
ii. MECHANICS OF CONVERSION. No fractional shares of Common
Stock shall be issued upon conversion of Series D Preferred
Stock. If upon conversion of shares of Series D Preferred Stock
held by a registered holder which are being converted, such
registered holder would, but for the provisions of this Section
2(b), receive a fraction of a share of Common Stock thereon, then
in lieu of any such fractional share to which such holder would
otherwise be entitled, the Corporation shall pay cash
<PAGE>
equal to such fraction multiplied by the then effective
Conversion Price. Before any holder of Series D Preferred Stock
shall be entitled to convert the same into full shares of Common
Stock, such holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Series D Preferred
Stock, and shall give written notice (the "Conversion Notice") to
the Corporation at such office that such holder elects to convert
the same and shall state therein such holder's name or the name
or names of its nominees in which such holder wishes the
certificate or certificates for shares of Common Stock to be
issued. The Corporation shall, as soon as practicable
thereafter, but in any event within three business days of the
date of its receipt of the original Conversion Notice and the
certificate or certificates representing the shares of Series D
Preferred Stock to be converted, issue and deliver or cause to be
issued and delivered to such holder of Series D Preferred Stock,
or to its nominee or nominees, a certificate or certificates for
the number of shares of Common Stock to which such holder shall
be entitled, together with cash in lieu of any fraction of a
share. Such conversion shall be deemed to have been made on the
date that the Corporation first receives the Conversion Notice,
by telecopier or otherwise, and the person or persons entitled to
receive the shares of Common Stock issuable upon conversion shall
be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date. Upon the conversion of
any shares of Series D Preferred Stock, such shares shall be
restored to the status of authorized but unissued shares
<PAGE>
of Series D Preferred Stock and may be reissued by the
Corporation at any time.
iii. NOTICES OF RECORD DATE. In the event of (i) any declaration
by the Corporation of a record date of the holders of any class
of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution or
(ii) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the
Corporation, any merger or consolidation of the Corporation, and
any transfer of all or substantially all of the assets of the
Corporation to any other Corporation, or any other entity or
person, or any voluntary or involuntary dissolution, liquidation
or winding up of the Corporation, the Corporation shall mail to
each holder of Series D Preferred Stock at least twenty (20) days
prior to the record date specified therein, a notice specifying
(A) the date on which any such record is to be declared for the
purpose of such dividend or distribution and a description of
such dividend or distribution, (B) the date on which any such
reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to
become effective and (C) the time, if any, that is to be fixed,
as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common
stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, transfer,
consolidation, merger, dissolution or winding up.
iv. STOCK DIVIDENDS; STOCK SPLITS; ETC. In the event that the
Corporation shall (i) take a record of holders of shares of the
Common
<PAGE>
Stock for the purpose of determining the holders entitled to
receive a dividend payable in shares of Common Stock,
(ii) subdivide the outstanding shares of Common Stock,
(iii) combine the outstanding shares of Common Stock into a
smaller number of shares or (iv) issue, by reclassification of
the Common Stock, any other securities of the Corporation, then,
in each such case, the Conversion Price then in effect shall be
adjusted so that upon the conversion of each share of Series D
Preferred Stock then outstanding the number of shares of Common
Stock into which such shares of Series D Preferred Stock are
convertible immediately after the happening of any of the events
described in clauses (i) through (iv) above shall be the number
of such shares of Common Stock that would have been held by the
holder had such shares of Series D Preferred Stock been converted
immediately prior to the happening of such event or any record
date with respect thereto.
v. MANDATORY CONVERSION. If not sooner converted, all
outstanding shares of Series D Preferred Stock shall be subject
to mandatory conversion on the second anniversary of the date of
original issuance thereof. For purposes of clause (b) above,
such second anniversary date shall be deemed to be the date on
which the Corporation receives a Conversion Notice with respect
to the then outstanding shares of Series D Preferred Stock.
vi. COMMON STOCK RESERVED. The Corporation shall reserve and
keep available out of its authorized but unissued Common Stock
such number of shares of Common Stock as shall from time to time
be sufficient to effect
<PAGE>
conversion of all of the then outstanding shares of Series D
Preferred Stock.
c. VOTING RIGHTS OF SERIES D PREFERRED STOCK. Except as otherwise
required by law, the holders of outstanding shares of Series D
Preferred Stock shall not be entitled to vote on any matters submitted
to the stockholders of the Corporation.
d. PREFERENCE ON LIQUIDATION. Subject to the liquidation
preferences of any series of Preferred Stock other than the Series D
Preferred Stock, including, without limitation, any liquidation
preferences that provides for payments to any series of Preferred
Stock or the Common Stock prior to or on a parity with any payment to
holders of the Series D Preferred Stock provided for below (including
any preferences that provide for additional parity or non-parity
payments to the holders of the Series D Preferred Stock), in the event
of any liquidation, dissolution or winding up of the Corporation,
distributions to holders of Series D Preferred Stock, and holders of
Common Stock shall be made in the following manner:
i. The holders of Series D Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of
the assets of the Corporation to the holders of the Common Stock
by reason of their ownership of such stock, the amount of $10,000
plus (0.06)(N/365)($10,000), where N is the number of calendar
days since the issuance of such share of Series D Preferred
Stock, per share of each share of Series D Preferred Stock then
held by them, adjusted for any stock split, stock combination,
stock distribution or stock dividend with respect to such shares.
The Series D Preferred Stock shall rank junior to the 9%
Cumulative Preferred Stock, Series B Preferred Stock and Series C
<PAGE>
Preferred Stock of the Corporation, but senior to any other
series of preferred stock hereinafter designated by the
Corporation, as to the distribution of assets and funds upon
dissolution, liquidation or winding up of the Corporation.
ii. After payment in full to (i) the holders of Series D
Preferred Stock of all amounts exclusively payable on or with
respect to said shares pursuant to Section 5(a) above, the
holders of the Common Stock shall be entitled to receive the
remaining assets of the Corporation available for distribution to
the stockholders upon the dissolution, liquidation or winding up
of the Corporation. If the assets and funds available for
distribution among the holders of the Common Stock or of any
other series of Preferred Stock ranking on a parity with the
Common Stock with respect to this Section 5(b) as to the
distribution of assets upon such dissolution, liquidation or
winding up shall be insufficient to permit the payment to such
holders of their full liquidation payments, then the entire
remaining assets and funds of the Corporation legally available
for such distribution shall be distributed ratably among such
holders in proportion to their aggregate preferential amounts.
iii. A consolidation or merger of the Corporation with or into
another corporation or entity in a transaction involving the
disposition of more than fifty percent (50%) of other voting
power of the Corporation, or a sale of all or substantially all
of the assets of the Corporation (a "Sale of the Corporation")
shall be regarded as a dissolution, liquidation or winding up of
the Corporation within the meaning of this Section 5. The
Corporation shall not consummate a Sale of the Corporation before
the expiration of
<PAGE>
ten (10) days after mailing written notice of the proposed Sale
of the Corporation to the holders of record of the Series D
Preferred Stock.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by its Vice President and Chief Financial Officer, this
15th day of October, 1996.
CORTEX PHARMACEUTICALS, INC.
By: /s/ D. Scott Hagen
------------------------------------
Name: D. Scott Hagen
Title: Vice President and Chief
Financial Officer
<PAGE>
EXHIBIT 10.59
SECURITIES SUBSCRIPTION AGREEMENT
CORTEX PHARMACEUTICALS, INC.
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
BECAUSE THEY ARE EXEMPT FROM REGISTRATION UNDER VARIOUS REGULATIONS
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THIS
SUBSCRIPTION AGREEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.
This Securities Subscription Agreement (the "Agreement") is executed by
the undersigned (the "Subscriber") in connection with the irrevocable offer
and the subscription of the undersigned to purchase an aggregate of up to 400
shares of Series D Convertible Preferred Stock, par value $.001 per share
(the "Shares"), of Cortex Pharmaceuticals, Inc., a Delaware corporation (the
"Company"), at a price of US $10,000 per share, which Shares are convertible
into shares of common stock, par value $.001 per share (the "Common Stock"
and together with the Shares, the "Securities"), of the Company. The terms
and provisions of the Shares are set forth in a Certificate of Designation
attached hereto as Exhibit A. This Agreement and the offer and sale of the
Securities contemplated hereby are being made in reliance upon an exemption
from the registration provisions under Section 4(2) of the Securities Act of
1933, as amended (the "Act") and Regulation D promulgated thereunder. The
Subscriber, in order to induce the Company to enter into the transaction
contemplated hereby and acknowledging that the Company will rely thereon
represents, warrants and agrees as follows:
1. OFFER TO SUBSCRIBE; PURCHASE PRICE.
(a) The Subscriber hereby irrevocably offers to purchase and
subscribes for an aggregate of 100 Shares for an aggregate price of
$1,000,000 at the time of the Closing (as hereinafter defined). The closing
of the transactions contemplated by this Section 1(a) hereby (the "Closing")
shall be deemed to occur when this Agreement has been executed and delivered
by both Subscriber and Company. Payment shall be made at the Closing by
delivering immediately available funds in United States dollars by wire
transfer for simultaneous closing by delivery of securities versus payment.
The Company agrees to deliver certificates representing the Shares subscribed
for at the Closing. The date on which the Closing occurs is hereafter
referred to as the Closing Date.
(b) In the event that the Company effects the registration of the
Registration Shares (as hereinafter defined) as contemplated by Section 4(c)
of this Agreement, the Subscriber irrevocably offers to purchase and
subscribes for an aggregate of 150 additional Shares (the "Second Tranche
Shares") for an aggregate price of $1,500,000 on the fifteenth calendar day
following the Effective Date (as hereinafter defined) or, if such fifteenth
calendar day is not a business day, on the next succeeding business day (the
"Second Tranche Closing Date"). Payment for the Second Tranche Shares shall
be made on the Second Tranche Closing Date by delivering immediately
available funds in United States dollars by wire transfer for simultaneous
closing by delivery of securities versus payment. The Company agrees to
deliver certificates representing the Second Tranche Shares subscribed for on
the Second Tranche Closing Date.
<PAGE>
The date on which the registration of the Registration Shares is declared
effective by the Securities and Exchange Commission (the "Commission") is
herein referred to as the Effective Date.
(c) Additionally, the Subscriber irrevocably offers to purchase and
subscribes for an aggregate of 150 additional Shares (the "Third Tranche
Shares") for an aggregate price of $1,500,000 on the seventy-fifth calendar
day following the Effective Date or, if such seventy-fifth calendar day is
not a business day, on the next succeeding business day (the "Third Tranche
Closing Date"). Payment for the Third Tranche Shares shall be made on the
Third Tranche Closing Date by delivering immediately available funds in
United States dollars by wire transfer for simultaneous closing by delivery
of securities versus payment. The Company agrees to deliver certificates
representing the Third Tranche Shares subscribed for on the Third Tranche
Closing Date.
(d) Notwithstanding anything to the contrary in Sections l(b) and
l(c), in the event that (i) the average closing bid price of the Common Stock
of the Company over the five consecutive trading days immediately preceding
the Second Tranche Closing Date or the Third Tranche Closing Date, as the
case may be, falls below $2.00 per share; (ii) the average daily trading
volume over the thirty trading days immediately preceding the Second Tranche
Closing Date or the Third Tranche Closing Date, as the case may be, is less
than 25,000 shares per day, as reported by Bloomberg, L.P.; (iii) the Company
is in material default in the performance of any of its obligations under the
Agreement as of the Second Tranche Closing Date or the Third Tranche Closing
Date, as the case may be; (iv) any representation or warranty made by the
Company in this Agreement shall have been false in any material respect when
made; (v) the Company is involved in any material litigation on the Second
Tranche Closing Date or the Third Tranche Closing Date, as the case may be,
which has or is likely to have a material and adverse effect on the business
or financial condition of the Company; (vi) the Company has incurred
substantial liabilities as of the Second Tranche Closing Date or the Third
Tranche Closing Date, as the case may be, which has or is likely to have a
material and adverse effect on the business or financial condition of the
Company or (vii) the effectiveness of the registration statement referred to
herein has been suspended or terminated as of the Second Tranche Closing Date
or the Third Tranche Closing Date, as the case may be, then in any such case
the Subscriber shall be relieved of its obligation to purchase the Second
Tranche Shares or the Third Tranche Shares, as the case may be.
2. SUBSCRIBER REPRESENTATIONS; ACCESS TO INFORMATION; INDEPENDENT
INVESTIGATION
(a) ACCREDITED INVESTOR STATUS. Subscriber represents and warrants
to the Company that Subscriber is an "Accredited Investor" as that term is
defined in Rule 501(a) of Regulation D ("Regulation D") promulgated under the
Act.
(b) ACCESS TO INFORMATION. The Subscriber or his professional
advisor has been granted the opportunity to conduct a full and fair
examination of the records, documents and files of the Company, to ask
questions of and receive answers from representatives of the Company, its
officers, directors, employees and agents concerning the terms and conditions
of this offering, the Company and its business prospects, and to obtain any
additional information which the Subscriber or his advisor deems necessary to
verify the accuracy of the information received.
2
<PAGE>
(c) RELIANCE ON OWN ADVISORS. The Subscriber has relied completely
on the advice of, or has consulted with, its own tax, investment, legal and
other advisors and has not relied on the Company or any of its affiliates,
officers, directors, attorneys, accountants or any affiliates of any thereof
and each other person, if any, who controls any thereof, within the meaning
of Section 15 of the Securities Act for any tax or legal advice.
(d) CAPABILITY TO EVALUATE. The Subscriber has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks, which are substantial, of the prospective investment.
(e) INVESTMENT EXPERIENCE. Subscriber is an investor in securities
of companies in the development stage and has made investments in securities
other than those of the Company. Subscriber acknowledges that it is able to
fend for itself in the transaction contemplated by this Agreement, that it
has the ability to bear the economic risk of its investment pursuant to this
Agreement and that it is an "Accredited Investor" by virtue of the fact that
it meets the qualification standards set forth above. Subscriber has not
been organized for the purpose of investing in securities of the Company,
although such investment is consistent with its purposes.
(f) FEND FOR SELF. The Subscriber has either a pre-existing
personal or business relationship with the Company and its officers,
directors and controlling persons or by reason of its business or financial
expertise has the capacity to protect its own interest in connection with
this transaction.
(g) INVESTMENT; NO DISTRIBUTION. The Subscriber is acquiring the
Shares solely for the Subscriber's own account for investment purposes as a
principal and not with a view to immediate resale or distribution of all or
any part thereof. The Subscriber is aware that there are legal and practical
limits on the Subscriber's ability to sell or dispose of the Shares and the
shares of Common Stock issuable upon conversion thereof, and therefore, that
the Subscriber must bear the economic risk of the investment for an
indefinite period of time and has adequate means of providing for the
Subscriber's current needs and possible personal contingencies and has need
for only limited liquidity of this investment. The Subscriber's commitment
to illiquid investments is reasonable in relation to the Subscriber's net
worth.
(h) NO GENERAL SOLICITATION. The Shares were not offered to the
Subscriber through, and the Subscriber is not aware of, any form of general
solicitation or general advertising, including, without limitation, (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio,
and (ii) any seminar or meeting whose attendees have been invited by any
general solicitation or general advertising.
(i) BENEFICIAL OWNER. Subscriber is purchasing the Shares, and
upon conversion thereof will be purchasing the shares of Common Stock
issuable thereupon, for its own account.
3
<PAGE>
(j) INDEPENDENT INVESTIGATION. Subscriber in electing to subscribe
for the Shares hereunder, has relied solely upon the representations and
warranties of the Company set forth in this Agreement and on independent
investigation made by it and its representatives, if any, and Subscriber has
been given no oral or written representations or assurance from the Company
or any representation of the Company other than as set forth in this
Agreement or in a document executed by a duly authorized representative of
the Company making reference to this Agreement.
(k) NO GOVERNMENT RECOMMENDATION OR APPROVAL. Subscriber
understands that no United States federal or state agency, or similar agency
of any other country, has passed upon or made any recommendation or
endorsement of the Company, this transaction or the purchase of the
Securities.
3. THE COMPANY REPRESENTS, COVENANTS AND WARRANTS THE FOLLOWING:
(a) CONCERNING THE COMPANY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and is duly qualified as a foreign corporation in all
jurisdictions in which the failure to so qualify would have a material
adverse effect on the Company and its subsidiaries taken as a whole. The
Company has registered its Common Stock pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Common Stock is listed and trades on the NASDAQ Small Cap Market. The
Company has filed all material required to be filed pursuant to all
applicable reporting obligations under either Section 13(a) or 15(d) of the
Exchange Act for a period of at least twelve (12) months immediately
preceding the offer or sale of the Shares. The Company meets the eligibility
requirements of the Commission with respect to the use of Form SB-2 for the
filing of a registration statement with the Commission.
(b) CONCERNING THE SECURITIES. The issuance, sale and delivery of
the Shares and the shares of Common Stock issuable upon the conversion
thereof are within the Company's corporate powers and have been duly
authorized by all required corporate action on the part of the Company and
its stockholders and when such securities are issued, sold and delivered in
accordance with the terms hereof and the Shares for the consideration
expressed herein and in the Certificate of Designation, such securities will
be duly and validly issued, fully paid and nonassessable. There are no
preemptive rights of any shareholders of the Company.
(c) SUBSCRIPTION AGREEMENT. This Agreement has been duly
authorized, validly executed and delivered on behalf of the Company and is a
valid and binding agreement enforceable against the Company in accordance
with its terms, subject to general principles of equity and to bankruptcy or
other laws affecting the enforcement of creditors' rights generally.
(d) NON-CONTRAVENTION. The execution and delivery of this
Agreement and the consummation of the issuance of the Shares and the
transactions contemplated by this Agreement and the Certificate of
Designation do not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default under,
the Restated Certificate of Incorporation or Bylaws of the Company, or any
indenture, mortgage, deed of trust, or other material agreement or instrument
to which the Company is a party or by which it or any of its properties or
assets are bound. In addition, it is understood that the execution and
delivery of the Agreement does not violate the terms of any existing
applicable law, rule or
4
<PAGE>
regulation of the United States or any State thereof or any applicable
decree, judgment or order of any Federal or State court, Federal or State
regulatory body, administrative agency or other United States governmental
body having jurisdiction over the Company or any of its properties or assets.
(e) LITIGATION. There is no action, suit or proceeding before or
by any court or governmental agency or body, domestic or foreign, now pending
or, to the knowledge of the Company, threatened, against or affecting the
Company, or any of its properties, which might result in any material adverse
change in the condition (financial or otherwise) or in the earnings of the
Company, or which might materially and adversely affect the properties or
assets thereof.
(f) NO SUBSTANTIAL LIABILITIES. The Company has not incurred any
liabilities which, to the knowledge of the Company, might result in any
material adverse change in the condition (financial or otherwise) or in the
earnings of the Company, or which might materially and adversely affect the
properties or assets thereof.
(g) NO DEFAULT. The Company is not in default in the performance
or observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it or its property
may be bound; except that certain dividends on the 9% Cumulative Convertible
Preferred Stock of the Company have accrued and remain unpaid as of the
Closing Date.
(h) SEC FILINGS. None of the Company's filings with the Commission
since January 1, 1995 contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary
to make the statement therein in light of the circumstances under which they
were made, not misleading at the time such filings were made. With the
exception of the Company's Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1996, which was to be filed with the Commission on or before
September 30, 1996 and with respect to which the Company has filed a
Notification of Late Filing on Form 12b-25, the Company has since January 1,
1995 timely filed all requisite forms, reports and exhibits thereto with the
Commission.
4. COVENANTS OF THE COMPANY. For so long as any Shares held by the
Subscriber remain outstanding, the Company covenants and agrees with the
Subscriber that:
(a) It will maintain the listing of its Common Stock on the NASDAQ
Small Cap Market.
(b) Except as otherwise expressly provided in Section 6 below, it
will not issue stop transfer instructions to its transfer agent with respect
to and will not place a restrictive legend on the certificates representing
the Shares or the shares of Common Stock issuable upon the conversion thereof.
(c) It will effect the registration under the Act and the rules and
regulations of the Commission of the resale of all shares of Common Stock
issuable upon the conversion of the Shares (the "Registration Shares") and,
in connection therewith, it will:
5
<PAGE>
(i) prepare and file with the Commission within thirty days of
the date hereof a registration statement on Form SB-2 (the "Registration
Statement") with respect to Two Hundred percent (200%) of the number of
Registration Shares as would be issuable on the date of filing of the
registration statement if all of the Shares were converted on that date,
pursuant to the rules and regulations of the Commission and cause the
Registration Statement to become and remain effective for a period of not
less than six months;
(ii) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in
connection therewith as may be necessary to keep the Registration Statement
effective for a period of not less than six months and comply with the
applicable provisions of the rules and regulations of the Commission;
(iii) furnish to the Subscriber such number of copies of
each prospectus included in the Registration Statement for the Registration
Shares as reasonably requested by the Subscriber, including each preliminary
prospectus, each of which shall be in conformity with the requirements of the
rules and regulations of the Commission;
(iv) notify the Subscriber at any time when a prospectus
relating to such Registration Shares is required to be delivered under rules
and regulations of the Commission within the appropriate period mentioned in
clause (ii) preceding, of the happening of any event as a result of which the
prospectus included in the 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 circumstances then existing, and at
the Subscriber's request, prepare and furnish to it a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
Registration Shares, such prospectus shall not include an untrue statement of
a material fact or omit 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;
(v) cause all of the Registration Shares to be listed on the
NASDAQ Small Cap Market; and
(vi) in instances where an exemption from such qualification is
not available, register or qualify the Registration Shares under the
securities or Blue Sky laws of such jurisdictions as the Subscriber shall
reasonably request; provided, that the Company shall not be required to
register or qualify under the Blue Sky laws in states where the Company is
already cleared.
(d) It will permit the Subscriber to exercise its right to convert
the Shares by telecopying an executed and completed Notice of Conversion to
the Company and delivering, within three business days thereafter, the
original Notice of Conversion and the certificate representing the Shares to
the Company by express courier. Each date on which a Notice of Conversion is
telecopied to and received by the Company in accordance with the provisions
hereof shall be deemed a conversion date. The Company will transmit the
certificates representing shares of Common Stock issuable upon conversion of
any Shares (together with the certificates representing the Shares not so
converted) to the Subscriber via express courier, by electronic transfer or
otherwise, within three business days after receipt by the Company of the
6
<PAGE>
original Notice of Conversion and the certificate representing the Shares to
be converted (the "Delivery Date"). If, after three business days after the
Delivery Date, the Company has not delivered such shares of Common Stock in
accordance with the provisions of this Section 4(d), the Subscriber shall be
entitled to receive a penalty in an amount in cash equal to $30.00 per day
for each $50,000 face amount of Shares being so converted until the earlier
of the date of delivery of such shares of Common Stock or the revocation of
the Notice of Conversion as set forth below. In addition to any other
remedies which may be available to the Subscriber, in the event that the
Company fails for any reason to effect delivery of such shares of Common
Stock within five business days after the Delivery Date, the Subscriber will
be entitled to revoke the relevant Notice of Conversion by delivering a
notice to such effect to the Company whereupon the Company and the Subscriber
shall each be restored to their respective positions immediately prior to
delivery of such Notice of Conversion.
(e) It will, on the Second Tranche Closing Date and the Third
Tranche Closing Date, deliver to the Subscriber a certificate duly executed
by the President or Chief Financial Officer of the Company certifying to the
Subscriber that (i) the representations and warranties set forth herein made
by the Company on the Closing Date remain true and correct as of the Second
Tranche Closing Date or Third Tranche Closing Date, as the case may be, and
(ii) the Company has fully performed all of the covenants set forth herein as
of the Second Tranche Closing Date or Third Tranche Closing Date, as the case
may be.
5. RESTRICTIONS ON CONVERSION OF SHARES. The Subscriber or any
subsequent holder of the Shares (the "Holder") shall be prohibited from
converting any portion of the Shares which would result in the Subscriber or
the Holder being deemed the beneficial owner, in accordance with the
provisions of Rule 13d-3 of the Securities Exchange Act of 1934, as amended,
of five percent (5%) or more of the then issued and outstanding Common Stock
of the Company.
6. RESTRICTIVE LEGENDS.
(a) All Shares and shares of Common Stock issuable upon the
conversion thereof will bear a restrictive legend in customary form for
securities issued pursuant to Regulation D. Such legend shall be removed (i)
in the absence of an effective registration statement covering such shares,
upon the receipt by the Company of a legal opinion from counsel to the
Subscriber reasonably acceptable to the Company to the effect that such
removal is permitted under the Act, and (ii) if there is an effective
registration statement covering such shares, upon a sale pursuant to such
effective registration statement.
(b) The shares of Common Stock issuable upon conversion of the
Shares will be subject to stop transfer instructions issued to the Company's
transfer agent which will prohibit the transfer of such shares in the absence
of an effective registration statement covering such shares or a legal
opinion from counsel to the Subscriber reasonably acceptable to the Company
to the effect that such transfers may be effected without violation of the
Act.
7. RELIANCE ON REPRESENTATIONS. The Subscriber understands that the
offer and sale of the Shares and the shares issuable upon conversion thereof
are not being registered under the Act. The Company and the Subscriber are
relying on the rules governing offers and sales made pursuant to Regulation D.
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<PAGE>
8. RESALES. Subscriber acknowledges and agrees that the Securities may
only be resold (a) pursuant to an effective registration statement under the
Act; or (b) pursuant to an exemption from registration under the Act.
9. CONFIDENTIALITY. Each of the Company and the Subscriber agrees to
keep confidential and not to disclose to or use for the benefit of any third
party the terms of this Agreement or any other information which at any time
is communicated by the other party as being confidential without the prior
written approval of the other party; provided, however, that this provision
shall not apply to information which, at the time of disclosure, is already
part of the public domain (except by breach of this Agreement) and
information which is required or appropriate to be disclosed by the Company
under applicable securities law.
10. INDEMNIFICATION.
(a)(i) In anticipation of the registration of the Registration
Shares under the Act and the rules and regulations promulgated thereunder
pursuant to this Agreement, the Company will: (i) indemnify and hold
harmless the Subscriber and each other person, if any, who controls the
Subscriber within the meaning of the Act (each such party, an "Indemnified
Party"), to the fullest extent permitted by law, against any losses, claims,
damages or liabilities, joint or several, to which any such Indemnified Party
may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement under which the
Registration Shares were registered under the Act and the rules and
regulations promulgated thereunder, any preliminary prospectus or final
prospectus contained therein or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; and (ii) reimburse each Indemnified Party for any legal or
any other expenses reasonably incurred thereby in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case to
the extent that any such loss, claim, damage, liability or action arises out
of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in said registration statement, said
preliminary prospectus, said prospectus or said amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by any Indemnified Party specifically for use in the preparation
thereof.
(ii) The Subscriber will (a) indemnify and hold harmless the
Company and each other person, if any, who controls the Company within the
meaning of the Act, to the fullest extent permitted by law, against any
losses, claims, damages or liabilities, joint or several, to which the
Company or such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the registration
statement under which the Registration Shares were registered under the Act
and the rules and regulations promulgated thereunder, any preliminary
prospectus or final prospectus contained therein or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading or any action or inaction of the
Subscriber in connection
8
<PAGE>
with the resale of the Securities, and (b) reimburse the Company and each
other person, if any, who controls the Company within the meaning of the Act
for any legal or any other expenses reasonably incurred thereby in connection
with investigating or defending any such loss, claim, damage, liability or
action; in each case to the extent and only to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
said registration statement, said preliminary prospectus or said prospectus
or said amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by the Subscriber specifically
for use in the preparation thereof, provided, however, that the aggregate
liability of the Subscriber to the Company or such controlling person shall
be limited to the net proceeds received by the Subscriber from the sale of
Registration Shares covered by such registration statement.
(b) In addition to the indemnification provided in clause (a) of
this Section 10 and the remedies provided for in Section 11 below, each of
the Company and the Subscriber agrees to indemnify the other and hold the
other harmless from and against any and all losses, damages, liabilities,
costs and expenses (including reasonable attorneys' fees) which the other
party may sustain or incur in connection with the breach by the indemnifying
party of any representation, warranty or covenant made by it in this
Agreement.
11. FAILURE TO EFFECT REQUIRED REGISTRATION.
(a) In the event that the Company has not effected the registration
of the Registration Shares under the Act and relevant blue sky laws within 90
days of the Closing Date, the Company shall pay to the Subscriber by wire
transfer, as liquidated damages (the "Liquidated Damages Amount") for such
failure and not as a penalty, 2% of the liquidation face amount of the Shares
purchased by the Subscriber on the Closing Date for the initial period of 30
days or portion thereof following the expiration of such 90-day period during
which such registration of the Registration Shares has not been effected and
3% of such liquidation face amount of Shares for any period of 30 days or
portion thereof following the first period of 30 days during which such
registration of the Registration of the Registration Shares has not been
effected. Such amount shall be due and payable in cash in advance on the
first business day of each such 30-day period, commencing on the 91st day
after the Closing Date.
(b) In the event that the Company has not effected the registration
of the Registration Shares under the Act and the relevant blue sky laws
within 180 days of the date hereof, then, in addition to the Liquidated
Damages Amounts payable pursuant to clause (a) above, the Company covenants
and agrees that (i) the Subscriber may immediately convert all of the Shares
purchased by the Subscriber on the Closing Date into shares of Common Stock
of the Company in accordance with the terms of the Certificate of
Designation, (ii) if the Subscriber sells the shares of Common Stock issuable
upon conversion of the Shares without registration under the Act pursuant to
the provisions of Section 4(1) of the Act, the Company will provide the
Subscriber with all reasonable assistance in consummating any such sales as
the Subscriber shall reasonably request, including, but not limited to,
removing the restrictive legend set forth on such shares, and (iii) the
Subscriber shall be relieved of any obligation to purchase additional Shares
of the Company. Until such time as the Subscriber converted the Shares and
received unlegended and freely traceable shares of Common Stock, nothing
contained herein shall be deemed to alter,
9
<PAGE>
suspend or terminate the obligation of the Company to pay the Liquidated
Damage Amount to the Subscriber as provided in Section 11(a) above.
12. NOTICES. Any notice to be given or to be served upon any party to
this Agreement in connection with this Agreement must be in writing and will
be deemed to have been given and received upon confirmed receipt, if sent by
facsimile, or two (2) days after it has been submitted for delivery by
Federal Express or an equivalent carrier, charges prepaid and addressed to
the following addresses with a confirmation of delivery:
If to the Company, to:
Cortex Pharmaceuticals, Inc.
15241 Barranca Parkway
Irvine, California 92618
Attention: Mr. Scott Hagen
Chief Financial Officer
Phone No.: (714) 727-3157
Fax No.: (714) 727-3657
If to the Subscriber, to:
Ashline Ltd.
14 Troyer Court
Thornhill, Ontario
Canada L4J 2M7
Any party may, at any time by giving notice to the other party, designate any
other address in substitution of an address established pursuant to the
foregoing to which such notice will be given.
13. MULTIPLE COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which will be deemed to be an original but all of which
will constitute one in the same instrument. However, in enforcing any
party's rights under this Agreement it will be necessary to produce only one
copy of this Agreement signed by the party to be charged.
14. CERTAIN AGREEMENTS. The Company covenants and agrees that it will
not enter into any subsequent Regulation D or Regulation S transaction with
any third party for a period of 60 days from the Closing Date; provided,
however, that the Company may issue equity securities in connection with any
corporate partnering transaction. Thereafter, the Company covenants and
agrees that it will not enter into any subsequent Regulation D or Regulation
S transaction with any third party for a period of 30 days commencing on the
61st day following the Closing Date without first offering the Subscriber the
opportunity (which shall remain open for a period of five business days from
the date the Subscriber receives notice thereof) to purchase up to all of
such additional Regulation D or Regulation S securities (in the discretion of
the Subscriber) on the terms and provisions on which the Company proposes to
offer such additional Regulation D or Regulation S securities to such third
parties. In the event that the Subscriber declines to participate in any
such investment, the Company shall provide the Subscriber with prompt written
notice of the consummation of any such transaction with a third party,
specifying the material
10
<PAGE>
terms thereof. In addition, the Company covenants and agrees that
the securities to be offered in any such subsequent Regulation D or
Regulation S transaction with any third party will not be added to the
Registration Statement referred to herein. In the event that the Subscriber
does not purchase the Second Tranche Shares, the Company shall be relieved of
its obligations under the provisions of this Section 14.
15. GOVERNING LAW. This Agreement will be construed and enforced in
accordance with and governed by the laws of the State of New York except for
matters arising under the Act, without reference to principles of conflicts
of law. Each of the parties consents to the jurisdiction of the federal
courts whose districts encompass any part of the State of New York or the
state courts of the State of New York in connection with any dispute arising
under this Agreement and hereby waives, to the maximum extent permitted by
law, any objection, including any objection based on FORUM NON CONVENIENS, to
the bringing of any such proceeding in such jurisdictions. Each party hereby
agrees that if another party to this Agreement obtains a judgment against it
in such a proceeding, the party which obtained such judgment may enforce same
by summary judgment in the courts of any country having jurisdiction over the
party against whom such judgment was obtained, and each party hereby waives
any defenses available to it under local law and agrees to the enforcement of
such a judgment. Each party to this Agreement irrevocably consents to the
service of process in any such proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to such party at its address
set forth herein. Nothing herein shall affect the right of any party to serve
process in any other manner permitted by law.
16. MANDATORY CONVERSION. The parties hereto acknowledge that the
Shares are subject to mandatory conversion as set forth in the Certificate of
Designation.
17. LIQUIDATED DAMAGES. In the event that the Company fails for any
reason to effect delivery of the shares of Common Stock issuable upon
conversion within 10 calendar days of the required time period set forth in
Section 4 hereof, the parties agree that the amount of damages sustained by
Subscriber would be substantial but would be difficult to determine
precisely. Accordingly, the Subscriber will be entitled to receive, as
liquidated damages for such failure and not as a penalty, an amount in cash
equal to the number of shares of Common Stock to which the Subscriber would
have been entitled on the date of the Conversion Notice multiplied by the
closing bid price for the Common Stock of the Company on the third day
following such date.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
11
<PAGE>
The Subscriber acknowledges that this Agreement shall not be effective
unless and until accepted by the Company as indicated below.
Dated this 15th day of October, 1996.
ASHLINE LTD.
By: /s/ CHAIM FARRO
----------------------------
Name: Chaim Farro
Title: Secretary
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE 15th DAY OF OCTOBER,
1996.
CORTEX PHARMACEUTICALS, INC.
By: /s/ D. SCOTT HAGEN
----------------------------
Name: D. Scott Hagen
Title: Vice President and
Chief Financial Officer
12
<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATION
OF
CORTEX PHARMACEUTICALS, INC.
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
___________________________
CORTEX PHARMACEUTICALS, INC., a Delaware corporation (the "Corporation"),
hereby certifies that the following resolution has been duly adopted by a duly
authorized committee of the Board of Directors of the Corporation:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation (the "Board") by
the provisions of the Restated Certificate of Incorporation of the
Corporation (the "Certificate of Incorporation"), there hereby is
created, out of the 5,000,000 shares of Preferred Stock, par value
$.001 per share, of the Corporation authorized in Article FOURTH of
the Restated Certificate of Incorporation (the "Preferred Stock"), a
series of the Preferred Stock of the Corporation consisting of 500
shares, which series shall have the following powers, designations,
preferences and relative, participating, optional and other rights,
and the following qualifications, limitations and restrictions:
a. DESIGNATION. The designation of the series of Preferred Stock fixed
by this resolution shall be "Series D Convertible Preferred Stock" (hereinafter
referred to as the "Series D Preferred Stock").
b. CONVERSION RIGHTS.
i. RIGHT TO CONVERT. The total number of original shares of Series
D Preferred Stock acquired by any holder may be converted, at the option of
the holder thereof, at any time after the earlier to occur of (i) date that
the Registration Statement (referred to in and defined in Section 4(c) of
the Securities Subscription Agreement, dated October 15, 1996, between
the Corporation and the initial holder of the Series D Preferred Stock) is
declared effective by the Securities and Exchange Commission or (ii)
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180 days from the date of original issuance of the Series D Preferred Stock,
without the payment of any additional consideration therefor, into that
number of fully paid and nonassessable shares of common stock, $.001 par
value per share, of the Corporation (the "Common Stock") determined as
follows. The number of shares issuable upon conversion of one share of
Series D Preferred Stock shall be:
X = ((0.06)(N/365)($10,000) + $10,000)/Conversion Price
where N is the number of calendar days between the applicable closing date and
the applicable conversion date. The "Conversion Price" shall be equal to the
lower of (i) 110% of the five day average closing bid price of the Common Stock
for the five trading days immediately preceding the date of original issuance of
Series D Preferred Stock or (ii) eighty-two percent (82%) of the average closing
bid price of a share of Common Stock as reported on the NASDAQ Small Cap Market
(or, in the event that such security is not traded on the NASDAQ Small Cap
Market, such other national or regional securities exchange or automated
quotations system upon which the Common Stock is listed and principally traded
or, in the event that the Common Stock is not listed on any exchange or quoted
on the NASDAQ Stock Market, any trading market in which quotes can be obtained)
over the five consecutive trading days immediately preceding the date of the
Conversion Notice (as defined in Section 2(b) hereof).
ii. MECHANICS OF CONVERSION. No fractional shares of Common Stock
shall be issued upon conversion of Series D Preferred Stock. If upon
conversion of shares of Series D Preferred Stock held by a registered
holder which are being converted, such registered holder would, but for the
provisions of this Section 2(b), receive a fraction of a share of Common
Stock thereon, then in lieu of any such fractional share to which such
holder would otherwise be entitled, the Corporation shall pay cash equal to
such fraction multiplied by the then effective Conversion Price. Before
any holder of Series D
A-2
<PAGE>
Preferred Stock shall be entitled to convert the same into full shares
of Common Stock, such holder shall surrender the certificate or
certificates therefor,duly endorsed, at the office of the Corporation
or of any transfer agent for the Series D Preferred Stock, and shall
give written notice (the "Conversion Notice") to the Corporation at
such office that such holder elects to convert the same and shall state
therein such holder's name or the name or names of its nominees in which
such holder wishes the certificate or certificates for shares of Common
Stock to be issued. The Corporation shall, as soon as practicable
thereafter, but in any event within three business days of the date of its
receipt of the original Conversion Notice and the certificate or
certificates representing the shares of Series D Preferred Stock to be
converted, issue and deliver or cause to be issued and delivered to such
holder of Series D Preferred Stock or to its nominee or nominees, a
certificate or certificates for the number of shares of Common Stock to
which such holder shall be entitled, together with cash in lieu of any
fraction of a share. Such conversion shall be deemed to have been made on
the date that the Corporation first receives the Conversion Notice, by
telecopier or otherwise, and the person or persons entitled to receive the
shares of Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on
such date. Upon the conversion of any shares of Series D Preferred Stock,
such shares shall be restored to the status of authorized but unissued
shares of Series D Preferred Stock and may be reissued by the Corporation
at any time.
iii. NOTICES OF RECORD DATE. In the event of (i) any declaration by
the Corporation of a record date of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to
receive any dividend or other distribution or (ii) any capital
reorganization of the Corporation, any reclassification or
A-3
<PAGE>
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation, and any transfer of all or
substantially all of the assets of the Corporation to any other
Corporation, or any other entity or person, or any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation,
the Corporation shall mail to each holder of Series D Preferred Stock at
least twenty (20) days prior to the record date specified therein, a
notice specifying (A) the date on which any such record is to be declared
for the purpose of such dividend or distribution and a description of
such dividend or distribution, (B) the date on which any such
reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become effective
and (C) the time, if any, that is to be fixed, as to when the holders of
record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution or winding
up.
iv. STOCK DIVIDENDS: STOCK SPLITS; ETC. In the event that the
Corporation shall (i) take a record of holders of shares of the Common
Stock for the purpose of determining the holders entitled to receive a
dividend payable in shares of Common Stock, (ii) subdivide the outstanding
shares of Common Stock, (iii) combine the outstanding shares of Common
Stock into a smaller number of shares or (iv) issue, by reclassification of
the Common Stock any other securities of the Corporation, then, in each
such case, the Conversion Price then in effect shall be adjusted so that
upon the conversion of each share of Series D Preferred Stock then
outstanding the number of shares of Common Stock into which such shares of
Series D Preferred Stock are convertible immediately after the happening of
any of the events described in clauses (i)
A-4
<PAGE>
through (iv) above shall be the number of such shares of Common Stock that
would have been held by the holder had such shares of Series D Preferred
Stock been converted immediately prior to the happening of such event or
any record date with respect thereto.
v. MANDATORY CONVERSION. If not sooner converted, all outstanding
shares of Series D Preferred Stock shall be subject to mandatory conversion
on the second anniversary of the date of original issuance thereof. For
purposes of clause (b) above, such second anniversary date shall be deemed
to be the date on which the Corporation receives a Conversion Notice with
respect to the then outstanding shares of Series D Preferred Stock.
vi. COMMON STOCK RESERVED. The Corporation shall reserve and keep
available out of its authorized but unissued Common Stock such number of
shares of Common Stock as shall from time to time be sufficient to effect
conversion of all of the then outstanding shares of Series D Preferred
Stock.
c. VOTING RIGHTS OF SERIES D PREFERRED STOCK. Except as otherwise
required by law, the holders of outstanding shares of Series D Preferred Stock
shall not be entitled to vote on any matters submitted to the stockholders of
the Corporation.
d. PREFERENCE ON LIQUIDATION. Subject to the liquidation preferences of
any series of Preferred Stock other than the Series D Preferred Stock,
including, without limitation, any liquidation preferences that provides for
payments to any series of Preferred Stock or the Common Stock prior to or on a
parity with any payment to holders of the Series D Preferred Stock provided for
below (including any preferences that provide for additional parity or
non-parity payments to the holders of the Series D Preferred Stock), in the
event of any liquidation, dissolution or winding up of the Corporation,
distributions to holders of Series D Preferred Stock, and holders of Common
Stock shall be made in the following manner:
A-5
<PAGE>
i. The holders of Series D Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets
of the Corporation to the holders of the Common Stock by reason of their
ownership of such stock, the amount of $10,000 plus (0.06)(N/365)($10,000),
where N is the number of calendar days since the issuance of such share of
Series D Preferred Stock, per share of each share of Series D Preferred
Stock then held by them, adjusted for any stock split, stock combination,
stock distribution or stock dividend with respect to such shares. The
Series D Preferred Stock shall rank junior to the 9% Cumulative Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock of the
Corporation, but senior to any other series of preferred stock hereinafter
designated by the Corporation, as to the distribution of assets and funds
upon dissolution, liquidation or winding up of the Corporation.
ii. After payment in full to (i) the holders of Series D Preferred
Stock of all amounts exclusively payable on or with respect to said shares
pursuant to Section 5(a) above, the holders of the Common Stock shall be
entitled to receive the remaining assets of the Corporation available for
distribution to the stockholders upon the dissolution, liquidation or
winding up of the Corporation. If the assets and funds available for
distribution among the holders of the Common Stock or of any other series
of Preferred Stock ranking on a parity with the Common Stock with respect
to this Section 5(b) as to the distribution of assets upon such
dissolution, liquidation or winding up shall be insufficient to permit the
payment to such holders of their full liquidation payments, then the entire
remaining assets and funds of the Corporation legally available for such
distribution shall be distributed ratably among such holders in proportion
to their aggregate preferential amounts.
A-6
<PAGE>
iii. A consolidation or merger of the Corporation with or into another
corporation or entity in a transaction involving the disposition of more
than fifty percent (50%) of other voting power of the Corporation, or a
sale of all or substantially all of the assets of the Corporation (a "Sale
of the Corporation") shall be regarded as a dissolution, liquidation or
winding up of the Corporation within the meaning of this Section 5. The
Corporation shall not consummate a Sale of the Corporation before the
expiration of ten (10) days after mailing written notice of the proposed
Sale of the CorporatiOn to the holders of record of the Series D Preferred
Stock.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by its Vice President and Chief Financial Officer, this
15th day of October, 1996.
CORTEX PHARMACEUTICALS, INC.
By: /s/ D. SCOTT HAGEN
--------------------------------
Name: D. Scott Hagen
Title: Vice President and
Chief Financial Officer
A-7
<PAGE>
EXHIBIT 10.60
CORTEX PHARMACEUTICALS, INC.
1996 STOCK INCENTIVE PLAN
This 1996 STOCK INCENTIVE PLAN (the "Plan") is hereby established by CORTEX
PHARMACEUTICALS, INC., a Delaware corporation (the "Company") and adopted by its
Board of Directors as of the 25th day of October, 1996 (the "Effective Date").
ARTICLE 1.
PURPOSES OF THE PLAN
1.1 PURPOSES. The purposes of the Plan are (a) to enhance the Company's
ability to attract and retain the services of qualified employees, officers and
directors (including non-employee officers and directors), and consultants and
other service providers upon whose judgment, initiative and efforts the
successful conduct and development of the Company's business largely depends,
and (b) to provide additional incentives to such persons or entities to devote
their utmost effort and skill to the advancement and betterment of the Company,
by providing them an opportunity to participate in the ownership of the Company
and thereby have an interest in the success and increased value of the Company.
ARTICLE 2.
DEFINITIONS
For purposes of this Plan, the following terms shall have the meanings
indicated:
2.1 ADMINISTRATOR. "Administrator" means the Board or, if the Board
delegates responsibility for any matter to the Committee, the term Administrator
shall mean the Committee.
2.2 AFFILIATED COMPANY. "Affiliated Company" means any "parent
corporation" or "subsidiary corporation" of the Company, whether now existing or
hereafter created or acquired, as those terms are defined in Sections 424(e) and
424(f) of the Code, respectively.
2.3 BOARD. "Board" means the Board of Directors of the Company.
2.4 CHANGE IN CONTROL. "Change in Control" shall mean (i) the
acquisition, directly or indirectly, by any person or group (within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of the
beneficial ownership of more than fifty percent (50%) of the outstanding
securities of the Company; (ii) a merger or consolidation in which the Company
is not the surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Company is incorporated; (iii) the
sale, transfer or other disposition of all or substantially all of the assets of
the Company; (iv) a complete liquidation or dissolution of the
<PAGE>
Company; or (v) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent (50%) of
the total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from the persons holding those
securities immediately prior to such merger.
2.5 CODE. "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
2.6 COMMITTEE. "Committee" means a committee of two or more members of
the Board appointed to administer the Plan, as set forth in Section 7.1 hereof.
2.7 COMMON STOCK. "Common Stock" means the Common Stock of the Company,
subject to adjustment pursuant to Section 4.2 hereof.
2.8 DISABILITY. "Disability" means permanent and total disability as
defined in Section 22(e)(3) of the Code. The Administrator's determination of a
Disability or the absence thereof shall be conclusive and binding on all
interested parties.
2.9 EFFECTIVE DATE. "Effective Date" means the date on which the Plan is
adopted by the Board, as set forth on the first page hereof.
2.10 EXERCISE PRICE. "Exercise Price" means the purchase price per share
of Common Stock payable upon exercise of an Option.
2.11 FAIR MARKET VALUE. "Fair Market Value" on any given date means the
value of one share of Common Stock, determined as follows:
(a) If the Common Stock is then listed or admitted to trading on a
Nasdaq market system or a stock exchange which reports closing sale prices, the
Fair Market Value shall be the closing sale price on the date of valuation on
such Nasdaq market system or principal stock exchange on which the Common Stock
is then listed or admitted to trading, or, if no closing sale price is quoted on
such day, then the Fair Market Value shall be the closing sale price of the
Common Stock on such Nasdaq market system or such exchange on the next preceding
day on which a closing sale price is quoted.
(b) If the Common Stock is not then listed or admitted to trading on
a Nasdaq market system or a stock exchange which reports closing sale prices,
the Fair Market Value shall be the average of the closing bid and asked prices
of the Common Stock in the over-the-counter market on the date of valuation.
(c) If neither (a) nor (b) is applicable as of the date of valuation,
then the Fair Market Value shall be determined by the Administrator in good
faith using any reasonable method of evaluation, which determination shall be
conclusive and binding on all interested parties.
2.12 INCENTIVE OPTION. "Incentive Option" means any Option designated and
qualified as an "incentive stock option" as defined in Section 422 of the Code.
2
<PAGE>
2.13 INCENTIVE OPTION AGREEMENT. "Incentive Option Agreement" means an
Option Agreement with respect to an Incentive Option.
2.14 NASD DEALER. "NASD Dealer" means a broker-dealer that is a member of
the National Association of Securities Dealers, Inc.
2.15 NONQUALIFIED OPTION. "Nonqualified Option" means any Option that is
not an Incentive Option. To the extent that any Option designated as an
Incentive Option fails in whole or in part to qualify as an Incentive Option,
including, without limitation, for failure to meet the limitations applicable to
a 10% Stockholder or because it exceeds the annual limit provided for in
Section 5.6 below, it shall to that extent constitute a Nonqualified Option.
2.16 NONQUALIFIED OPTION AGREEMENT. "Nonqualified Option Agreement" means
an Option Agreement with respect to a Nonqualified Option.
2.17 OFFEREE. "Offeree" means a Participant to whom a Right to Purchase
has been offered or who has acquired Restricted Stock under the Plan.
2.18 OPTION. "Option" means any option to purchase Common Stock granted
pursuant to the Plan.
2.19 OPTION AGREEMENT. "Option Agreement" means the written agreement
entered into between the Company and the Optionee with respect to an Option
granted under the Plan.
2.20 OPTIONEE. "Optionee" means a Participant who holds an Option.
2.21 PARTICIPANT. "Participant" means an individual or entity who holds an
Option, a Right to Purchase or Restricted Stock under the Plan.
2.22 PURCHASE PRICE. "Purchase Price" means the purchase price per share
of Restricted Stock payable upon acceptance of a Right to Purchase.
2.23 RESTRICTED STOCK. "Restricted Stock" means shares of Common Stock
issued pursuant to Article 6 hereof, subject to any restrictions and conditions
as are established pursuant to such Article 6.
2.24 RIGHT TO PURCHASE. "Right to Purchase" means a right to purchase
Restricted Stock granted to an Offeree pursuant to Article 6 hereof.
2.25 SERVICE PROVIDER. "Service Provider" means a consultant or other
person or entity who provides services to the Company or an Affiliated Company
and who the Administrator authorizes to become a Participant in the Plan.
2.26 STOCK PURCHASE AGREEMENT. "Stock Purchase Agreement" means the
written agreement entered into between the Company and the Offeree with respect
to a Right to Purchase offered under the Plan.
3
<PAGE>
2.27 10% STOCKHOLDER. "10% Stockholder" means a person who, as of a
relevant date, owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or of an
Affiliated Company.
ARTICLE 3.
ELIGIBILITY
3.1 INCENTIVE OPTIONS. Officers and other employees of the Company or of
an Affiliated Company (including members of the Board if they are employees of
the Company or of an Affiliated Company) are eligible to receive Incentive
Options under the Plan.
3.2 NONQUALIFIED OPTIONS AND RIGHTS TO PURCHASE. Officers and other
employees of the Company or of an Affiliated Company, members of the Board
(whether or not employed by the Company or an Affiliated Company), and Service
Providers are eligible to receive Nonqualified Options or Rights to Purchase
under the Plan.
3.3 LIMITATION ON SHARES. In no event shall any Participant be granted
Rights to Purchase or Options in any one calendar year pursuant to which the
aggregate number of shares of Common Stock that may be acquired thereunder
exceeds 500,000 shares.
ARTICLE 4.
PLAN SHARES
4.1 SHARES SUBJECT TO THE PLAN. The total number of shares of Common
Stock which may be issued under the Plan shall be initially equal to 613,132
shares. There shall be added to the number of shares which may be issued under
the Plan (i) any shares underlying lapsed or expired options granted under the
Company's 1989 Incentive Stock Option, Nonqualified Stock Option and Stock
Purchase Plan, 1989 Special Nonqualified Stock Option and Stock Purchase Plan
and Executive Stock Plan, (the "Prior Plans"), plus, on the last day of each
fiscal year of the Company, a number of shares equal to twenty percent (20%) of
the increase in the number of shares of Common Stock outstanding since the last
day of the previous fiscal year (except in the case of fiscal year ending June
30, 1997, in which case the added shares of Common Stock shall equal twenty
percent (20%) of the increase in the number of shares of Common Stock
outstanding since October 25, 1996), subject to adjustment as to the number and
kind of shares pursuant to Section 4.2 hereof. For purposes of this limitation,
in the event that (a) all or any portion of any Option or Right to Purchase
granted or offered under the Plan can no longer under any circumstances be
exercised, or (b) any shares of Common Stock are reacquired by the Company
pursuant to an Incentive Option Agreement, Nonqualified Option Agreement or
Stock Purchase Agreement, the shares of Common Stock allocable to the
unexercised portion of such Option or such Right to Purchase, or the shares so
reacquired, shall again be available for grant or issuance under the Plan.
4.2 CHANGES IN CAPITAL STRUCTURE. In the event that the outstanding
shares of Common Stock are hereafter increased or decreased or changed into or
exchanged for a different number or
4
<PAGE>
kind of shares or other securities of the Company by reason of a
recapitalization, stock split, combination of shares, reclassification, stock
dividend, or other change in the capital structure of the Company, then
appropriate adjustments shall be made by the Administrator to the aggregate
number and kind of shares subject to this Plan, and the number and kind of
shares and the price per share subject to outstanding Option Agreements,
Rights to Purchase and Stock Purchase Agreements in order to preserve, as
nearly as practical, but not to increase, the benefits to Participants.
ARTICLE 5.
OPTIONS
5.1 OPTION AGREEMENT. Each Option granted pursuant to this Plan shall be
evidenced by an Option Agreement, which shall specify the number of shares
subject thereto, the Exercise Price per share, and whether the Option is an
Incentive Option or Nonqualified Option. As soon as is practical following the
grant of an Option, an Option Agreement shall be duly executed and delivered by
or on behalf of the Company to the Optionee to whom such Option was granted.
Each Option Agreement shall be in such form and contain such additional terms
and conditions, not inconsistent with the provisions of this Plan, as the
Administrator shall, from time to time, deem desirable, including, without
limitation, the imposition of any rights of first refusal and resale obligations
upon any shares of Common Stock acquired pursuant to an Option Agreement. Each
Option Agreement may be different from each other Option Agreement.
5.2 EXERCISE PRICE. The Exercise Price per share of Common Stock covered
by each Option shall be determined by the Administrator, subject to the
following: (a) the Exercise Price of an Incentive Option shall not be less than
100% of Fair Market Value on the date the Incentive Option is granted, (b) the
Exercise Price of a Nonqualified Option shall not be less than 85% of Fair
Market Value on the date the Nonqualified Option is granted, and (c) if the
person to whom an Incentive Option is granted is a 10% Stockholder on the date
of grant, the Exercise Price shall not be less than 110% of Fair Market Value on
the date the Option is granted.
5.3 PAYMENT OF EXERCISE PRICE. Payment of the Exercise Price shall be
made upon exercise of an Option and may be made, in the discretion of the
Administrator, subject to any legal restrictions, by: (a) cash; (b) check;
(c) the surrender of shares of Common Stock owned by the Optionee that have
been held by the Optionee for at least six (6) months, which surrendered
shares shall be valued at Fair Market Value as of the date of such exercise;
(d) the Optionee's promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Optionee; (f) the waiver of compensation due or accrued to the Optionee for
services rendered; (g) provided that a public market for the Common Stock
exists, a "same day sale" commitment from the Optionee and an NASD Dealer
whereby the Optionee irrevocably elects to exercise the Option and to sell a
portion of the shares so purchased to pay for the Exercise Price and whereby
the NASD Dealer irrevocably commits upon receipt of such shares to forward
the Exercise Price directly to the Company; (h) provided that a public market
for the Common Stock exists, a "margin" commitment from the Optionee and an
NASD Dealer whereby the Optionee irrevocably elects to exercise the Option
and to pledge the shares so purchased to the NASD Dealer in a margin account
as security for a loan from the NASD Dealer in the amount of the Exercise
Price, and whereby the NASD Dealer irrevocably commits upon receipt of such
shares to forward the Exercise
5
<PAGE>
Price directly to the Company; or (i) any combination of the foregoing
methods of payment or any other consideration or method of payment as shall
be permitted by applicable corporate law.
5.4 TERM AND TERMINATION OF OPTIONS. The term and termination of each
Option shall be as fixed by the Administrator, but no Option may be exercisable
more than ten (10) years after the date it is granted. An Incentive Option
granted to a person who is a 10% Stockholder on the date of grant shall not be
exercisable more than five (5) years after the date it is granted.
5.5 VESTING AND EXERCISE OF OPTIONS. Each Option shall vest and be
exercisable in one or more installments at such time or times and subject to
such conditions, including without limitation the achievement of specified
performance goals or objectives, as shall be determined by the Administrator.
5.6 ANNUAL LIMIT ON INCENTIVE OPTIONS. To the extent required for
"incentive stock option" treatment under Section 422 of the Code, the aggregate
Fair Market Value (determined as of the time of grant) of the Common Stock shall
not, with respect to which Incentive Options granted under this Plan and any
other plan of the Company or any Affiliated Company become exercisable for the
first time by an Optionee during any calendar year, exceed $100,000.
5.7 NONTRANSFERABILITY OF OPTIONS. Unless otherwise permitted by the
Administrator, no Option shall be assignable or transferable except by will or
the laws of descent and distribution, and during the life of the Optionee shall
be exercisable only by such Optionee.
5.8 RIGHTS AS STOCKHOLDER. An Optionee or permitted transferee of an
Option shall have no rights or privileges as a stockholder with respect to any
shares covered by an Option until such Option has been duly exercised and
certificates representing shares purchased upon such exercise have been issued
to such person.
5.9 NON-EMPLOYEE DIRECTORS. Each director of the Company who is not an
employee or executive officer of the Company and who does not serve on the Board
of Directors to oversee an investment in the Company, shall automatically be
granted (i) Nonqualified Options to purchase fifteen thousand (15,000) shares of
the Common Stock upon commencement of service as a director of the Company, and
(ii) Nonqualified Options to purchase six thousand (6,000) shares of Common
Stock at each annual meeting of the Company's stockholders (including any
meeting coincident with the commencement of service as a director). Each
director of the Company who is not an employee or executive officer of the
Company and who serves on the Board of Directors to oversee an investment in the
Company, shall automatically be granted Nonqualified Options to purchase (i)
seven thousand five hundred (7,500) shares of Common Stock upon commencement of
service as a director of the Company, and (ii) three thousand (3,000) shares at
each annual meeting of the Company's stockholders (including any meeting
coincident with the commencement of service as a director). Nonqualified
Options to be granted to non-employee directors of the Company shall (i) have an
exercise price equal to one hundred percent (100%) of the fair market value on
the date of grant of the options, as determined in accordance with the terms of
the Plan, (ii) have a ten (10) year term, (iii) subsequently vest in increments
of thirty-three and one-third percent (33 1/3%) on each anniversary of the date
of grant, and (iv) otherwise be subject to the terms and provisions of the Plan.
6
<PAGE>
ARTICLE 6.
RIGHTS TO PURCHASE
6.1 NATURE OF RIGHT TO PURCHASE. A Right to Purchase granted to an
Offeree entitles the Offeree to purchase, for a Purchase Price determined by the
Administrator, shares of Common Stock subject to such terms, restrictions and
conditions as the Administrator may determine at the time of grant ("Restricted
Stock"). Such conditions may include, but are not limited to, continued
employment or the achievement of specified performance goals or objectives.
6.2 ACCEPTANCE OF RIGHT TO PURCHASE. An Offeree shall have no rights with
respect to the Restricted Stock subject to a Right to Purchase unless the
Offeree shall have accepted the Right to Purchase within ten (10) days (or such
longer or shorter period as the Administrator may specify) following the grant
of the Right to Purchase by making payment of the full Purchase Price to the
Company in the manner set forth in Section 6.3 hereof and by executing and
delivering to the Company a Stock Purchase Agreement. Each Stock Purchase
Agreement shall be in such form, and shall set forth the Purchase Price and such
other terms, conditions and restrictions of the Restricted Stock, not
inconsistent with the provisions of this Plan, as the Administrator shall, from
time to time, deem desirable. Each Stock Purchase Agreement may be different
from each other Stock Purchase Agreement.
6.3 PAYMENT OF PURCHASE PRICE. Subject to any legal restrictions,
payment of the Purchase Price upon acceptance of a Right to Purchase Restricted
Stock may be made, in the discretion of the Administrator, by: (a) cash;
(b) check; (c) the surrender of shares of Common Stock owned by the Offeree that
have been held by the Offeree for at least six (6) months, which surrendered
shares shall be valued at Fair Market Value as of the date of such exercise;
(d) the Offeree's promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Offeree; (f) the waiver of compensation due or accrued to the Offeree for
services rendered; or (g) any combination of the foregoing methods of payment or
any other consideration or method of payment as shall be permitted by applicable
corporate law.
6.4 RIGHTS AS A STOCKHOLDER. Upon complying with the provisions of
Section 6.2 hereof, an Offeree shall have the rights of a stockholder with
respect to the Restricted Stock purchased pursuant to the Right to Purchase,
including voting and dividend rights, subject to the terms, restrictions and
conditions as are set forth in the Stock Purchase Agreement. Unless the
Administrator shall determine otherwise, certificates evidencing shares of
Restricted Stock shall remain in the possession of the Company in accordance
with the terms of the Stock Purchase Agreement.
6.5 RESTRICTIONS. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided in the Stock Purchase Agreement or by the Administrator.
In the event of termination of a Participant's employment, service as a director
of the Company or Service Provider status for any reason whatsoever (including
death or disability), the Stock Purchase Agreement may provide, in the
discretion of the Administrator, that the Company shall have the right,
exercisable at the discretion of the Administrator, to repurchase (i) at the
original Purchase Price, any shares of Restricted Stock which have not vested as
of the date of termination, and (ii) at Fair Market Value, any shares of
7
<PAGE>
Restricted Stock which have vested as of such date, on such terms as may be
provided in the Stock Purchase Agreement.
6.6 VESTING OF RESTRICTED STOCK. The Stock Purchase Agreement shall
specify the date or dates, the performance goals or objectives which must be
achieved, and any other conditions on which the Restricted Stock may vest.
6.7 DIVIDENDS. If payment for shares of Restricted Stock is made by
promissory note, any cash dividends paid with respect to the Restricted Stock
may be applied, in the discretion of the Administrator, to repayment of such
note.
6.8 NONASSIGNABILITY OF RIGHTS. No Right to Purchase shall be
assignable or transferable except by will or the laws of descent and
distribution or as otherwise provided by the Administrator.
ARTICLE 7.
ADMINISTRATION OF THE PLAN
7.1 ADMINISTRATOR. Authority to control and manage the operation and
administration of the Plan shall be vested in the Board, which may delegate
such responsibilities in whole or in part to a committee consisting of two
(2) or more members of the Board (the "Committee"). Members of the Committee
may be appointed from time to time by, and shall serve at the pleasure of,
the Board. As used herein, the term "Administrator" means the Board or, with
respect to any matter as to which responsibility has been delegated to the
Committee, the term Administrator shall mean the Committee.
7.2 POWERS OF THE ADMINISTRATOR. In addition to any other powers or
authority conferred upon the Administrator elsewhere in the Plan or by law,
the Administrator shall have full power and authority: (a) to determine the
persons to whom, and the time or times at which, Incentive Options or
Nonqualified Options shall be granted and Rights to Purchase shall be
offered, the number of shares to be represented by each Option and Right to
Purchase and the consideration to be received by the Company upon the
exercise thereof; (b) to interpret the Plan; (c) to create, amend or rescind
rules and regulations relating to the Plan; (d) to determine the terms,
conditions and restrictions contained in, and the form of, Option Agreements
and Stock Purchase Agreements; (e) to determine the identity or capacity of
any persons who may be entitled to exercise a Participant's rights under any
Option or Right to Purchase under the Plan; (f) to correct any defect or
supply any omission or reconcile any inconsistency in the Plan or in any
Option Agreement or Stock Purchase Agreement; (g) to accelerate the vesting
of any Option or release or waive any repurchase rights of the Company with
respect to Restricted Stock; (h) to extend the exercise date of any Option or
acceptance date of any Right to Purchase; (i) to provide for rights of first
refusal and/or repurchase rights; (j) to amend outstanding Option Agreements
and Stock Purchase Agreements to provide for, among other things, any change
or modification which the Administrator could have provided for upon the
grant of an Option or Right to Purchase or in furtherance of the powers
provided for herein; and (k) to make all other determinations necessary or
advisable for the administration of the Plan, but only to the extent not
contrary to the express provisions of the Plan. Any action, decision,
interpretation or determination made in good faith by the Administrator in
the exercise of its authority conferred upon it under the Plan shall be final
and binding on the Company and all Participants.
8
<PAGE>
7.3 LIMITATION ON LIABILITY. No employee of the Company or member of
the Board or Committee shall be subject to any liability with respect to
duties under the Plan unless the person acts fraudulently or in bad faith.
To the extent permitted by law, the Company shall indemnify each member of
the Board or Committee, and any employee of the Company with duties under the
Plan, who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed proceeding, whether civil, criminal,
administrative or investigative, by reason of such person's conduct in the
performance of duties under the Plan.
ARTICLE 8.
CHANGE IN CONTROL
8.1 CHANGE IN CONTROL. In the event of a Change in Control of the
Company, the Administrator in its discretion may, at any time an Option or Right
to Purchase is granted, or at any time thereafter, take one or more of the
following actions: (A) provide for the purchase of each Option or Right to
Purchase for an amount of cash or other property that could have been received
upon the exercise of the Option or Right to Purchase had the Option been
currently exercisable, (B) adjust the terms of the Options and Rights to
Purchase in a manner determined by the Administrator to reflect the Change in
Control, (C) cause the Options and Rights to Purchase to be continued or
assumed, or new rights substituted therefor, by the surviving or another entity,
through the continuance of the Plan and the continuation or assumption of
outstanding Options and Rights to Purchase, or the substitution for such Options
and Rights to Purchase of new options and new rights to purchase of comparable
value covering shares of a successor corporation, with appropriate adjustments
as to the number and kind of shares and Exercise Prices, in which event the Plan
and such Options and Rights to Purchase, or the new options and rights to
purchase substituted therefor, shall continue in the manner and under the terms
so provided or (D) make such other provision as the Administrator may consider
equitable. If the Administrator does not take any of the forgoing actions, all
Options and Rights to Purchase shall terminate upon the consummation of the
Change in Control and the Administrator shall cause written notice of the
proposed transaction to be given to all Participants not less than fifteen (15)
days prior to the anticipated effective date of the proposed transaction.
Whether or not provision is made for continuance of the Plan and the
continuance, assumption or substitution of outstanding Options or Rights to
Purchase, concurrent with the effective date of the Change of Control all
Options, Rights of Purchase and Restricted Stock shall be accelerated and
concurrent with such date the holders of such Options and Rights to Purchase
shall have the right to exercise such Options and Rights of Purchase in respect
to any or all shares subject thereto.
ARTICLE 9.
AMENDMENT AND TERMINATION OF THE PLAN
9.1 AMENDMENTS. The Board may from time to time alter, amend, suspend
or terminate the Plan in such respects as the Board may deem advisable. No
such alteration, amendment, suspension or termination shall be made which
shall substantially affect or impair the rights of any Participant under an
outstanding Option Agreement or Stock Purchase Agreement without such
Participant's consent. The Board may alter or amend the Plan to comply with
requirements under
9
<PAGE>
the Code relating to Incentive Options or other types of options which give
Optionee more favorable tax treatment than that applicable to Options granted
under this Plan as of the date of its adoption. Upon any such alteration or
amendment, any outstanding Option granted hereunder may, if the Administrator
so determines and if permitted by applicable law, be subject to the more
favorable tax treatment afforded to an Optionee pursuant to such terms and
conditions.
9.2 PLAN TERMINATION. Unless the Plan shall theretofore have been
terminated, the Plan shall terminate on the tenth (10th) anniversary of the
Effective Date and no Options or Rights to Purchase may be granted under the
Plan thereafter, but Option Agreements, Stock Purchase Agreements and Rights
to Purchase then outstanding shall continue in effect in accordance with
their respective terms.
ARTICLE 10.
TAX WITHHOLDING
10.1 WITHHOLDING. The Company shall have the power to withhold, or
require a Participant to remit to the Company, an amount sufficient to
satisfy any applicable Federal, state, and local tax withholding requirements
with respect to any Options exercised or Restricted Stock issued under the
Plan.
ARTICLE 11.
MISCELLANEOUS
11.1 BENEFITS NOT ALIENABLE. Other than as provided above, benefits
under the Plan may not be assigned or alienated, whether voluntarily or
involuntarily. Any unauthorized attempt at assignment, transfer, pledge or
other disposition shall be without effect.
11.2 NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is strictly a voluntary
undertaking on the part of the Company and shall not be deemed to constitute a
contract between the Company and any Participant to be consideration for, or an
inducement to, or a condition of, the employment of any Participant. Nothing
contained in the Plan shall be deemed to give the right to any Participant to be
retained as an employee of the Company or any Affiliated Company or to interfere
with the right of the Company or any Affiliated Company to discharge any
Participant at any time.
11.3 APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of Common Stock pursuant to Option Agreements and Stock Purchase
Agreements, except as otherwise provided herein, will be used for general
corporate purposes.
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF SEPTEMBER 30, 1996, AND THE RELATED STATEMENTS OF OPERATIONS AND
CASH FLOWS FOR THE THREE MONTHS THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,936,064
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,053,999
<PP&E> 1,897,126
<DEPRECIATION> 1,138,789
<TOTAL-ASSETS> 3,838,052
<CURRENT-LIABILITIES> 331,606
<BONDS> 1,051,488<F1>
0
734,293
<COMMON> 7,589
<OTHER-SE> 1,713,076
<TOTAL-LIABILITY-AND-EQUITY> 3,838,052
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,225,921
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,385
<INCOME-PRETAX> (1,191,528)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,191,528)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,191,528)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
<FN>
<F1> PROMISSORY NOTE PAYABLE TO ALKERMES, INC.
</FN>
</TABLE>
